The Wonk Room

Rove Whines That McCain And Obama Are ‘Economically Illiterate And Irresponsibly Populist.’»

It’s not often that Karl Rove, former adviser to President Bush, has something negative to say. JUST KIDDING! But even Karl Rove outdid himself in an op-ed in today’s Wall Street Journal, in which he criticizes aspects of both Senator Obama and Senator McCain’s economic plans by calling the candidates “economically illiterate and irresponsibly populist.”

McCain is economically illiterate… and has conceded as much. But Rove’s critique of Obama, however, focuses on one central element: The senator’s support of a windfall tax profit on American oil companies. In Rove’s view:

Why should we stop with oil companies? They make about 8.3 cents in gross profit per dollar of sales. Why doesn’t Mr. Obama slap a windfall profits tax on sectors of the economy that have fatter margins? Electronics make 14.5 cents per dollar and computer equipment makers take in 13.7 cents per dollar, according to the Census Bureau. Microsoft’s margin is 27.5 cents per dollar of sales. Call out Mr. Obama’s Windfall Profits Police!

There are a couple things wrong with Rove’s logic here. First is his misunderstanding of the phrase ‘windfall profit.’ According to the dictionary definition, a windfall profit is a “profit that occurs unexpectedly as a consequence of some event not controlled by those who profit from it.” So something like, let’s say, a huge and unexpected increase in the cost of oil over the course of six years, might fall into those parameters. And these price increases occurred due to factors that big oil had no control over — the plunging value of the dollar, speculators gone wild, and growing demand from the developing world. They do have control over one factor linked to skyrocketing oil prices: stagnant demand. Despite record profits, oil companies are only investing $10 billion annually into new exploration – or about 10 cents for every dollar of profit.

Something like profits made on increased computer sales or cell phones, does not.

To back this up with numbers, the five largest American oil companies have seen their average profits increase from $37 billion in 2001, to $81 billion in 2004, to $123 billion in 2007–a total annual increase of $86 billion in six years. Since Bush became president, the big five companies made mroe than $600 billion. As a point of reference, between 1977 and 1983, oil company profits increased by $3.6 billion. Between 1990 and 1996, profits increased $.3 billion. A $86 billion increase in six years, coupled with a quadrupling in price for a barrel of oil is the epitome of a windfall profit — and is not the same as a Best Buy making money on flat screen televisions.

Secondly, if Rove really wants to compare profits between industries, then let’s actually compare profits between industries. According to US News and World Report

Exxon Mobil’s profits are 80 percent higher than those of General Electric, which used to be the largest U.S. company by market capitalization before Exxon left it in the dust in 2005. The new economy? Microsoft earns about a third as much money. And next to Exxon, the world’s largest retailer, Wal-Mart, looks like a quaint boutique, with annual profits of about $11 billion.

So if Rove wants to know “why isn’t [Obama] targeting other industries?” the answer is simple: none of these other industries are suddenly reaping the largest profits claimed in corporate history, and benefiting from record prices while American families suffer.

Analyzing The Candidates’ Tax Plans Using Two Real Families: The McCains And The Obamas»

The Center for American Progress Action Fund released a new report by Michael Ettlinger, Vice President for Economic Policy, showing the stark difference between the tax plans offered by Senators John McCain and Barack Obama using two real families as examples: the McCains and the Obamas. Based on information from their 2006 tax returns, Ettlinger shows, line by line, the tremendous savings offered under the Bush tax cuts. He contrasts this with the even greater savings under McCain’s plan and the substantial, albeit smaller, savings under Obama’s plan.

How Rich Are They?
Neither the McCains nor Obamas are doing badly. In 2006, the Obamas had an almost entirely earned income–the bulk coming from Senator Obama’s success as an author. The McCain’s financial situation is more cloudy. Senator and Mrs. McCain filed their returns separately — Mrs. McCain, the primary source of wealth for the family, did not disclose her entire tax record, making it more difficult to determine exactly the amount of their income. In the end, both couples are in the top 1% of all tax payers, the McCains in the top one tenth of a percent.

The Bush Tax Cut
Taking a quick glance at how the McCains and Obamas fared under the Bush tax cut, we see that both families recouped a relatively large savings under Bush’s plan in 2006 — the McCains saving 4.87% and the Obamas saving 3.85% of their annual incomes, the McCains benefiting greatly from new tax breaks on dividends and capital gains. All in all, the McCains saved over $313,000 thanks to Bush, and the Obamas saved nearly $40,000. Had Bush’s tax cuts been fully phased in, the savings would have been even greater for both families.

McCain And Obama’s Tax Plans
Senators McCain and Obama have starkly different tax proposals. McCain favors making the Bush tax laws permanent, and also plans to repeal the Alternative Minimum Tax, double the dependent exemption and offer tax breaks on business income. Senator Obama looks to reverse provisions benefiting the best-off tax payers (such as himself and Senator McCain), and retain the parts that reduced taxes for middle and lower income tax payers–offering an additional tax credit for these wage earners amounting to $500 per worker.

Had McCain’s tax proposal been in place in 2006, both families would have done incredibly well–saving even more than they did under the existing Bush plan. John and Cindy McCain would have walked away with $373,429 in their pocket, while the Barack and Michelle Obama would have saved $49,392.

Under Obama’s plan, both families would have saved, but substantially less. The McCains would have enjoyed an estimated savings of $5,641, due to the lower tax rates; the Obamas registering a $6,124 savings.

A Forecast For The Future
This examination of the tax returns of these two prominent wealthy couples, the McCains and the Obamas, shows that both received substantial tax breaks under president Bush — and those tax breaks will be continued in a McCain Administration. The McCains’ returns particularly show how tax breaks on capital gains and dividends, hallmarks of McCain’s plan, benefit the wealthy far more than they possibly can for middle-income families. Such tax breaks, of course, have a cost in lost public investments for the present and the future — investments which could benefit everyone, rich, poor, or in the middle.

Read the full report here.

The Bush Administration Goes The Distance By Making It Harder For Kids To Get To School»

A string of recent articles on an issue in the Northern California public schools caught our attention today. The Federal Transit Administration (FTA) is threatening to cut off public bus routes that service local school districts, claiming that federal dollars designated for city transit should not be “subsidizing” school buses, harming the ability of private bus companies to compete. The students effected are from predominantly poor neighborhoods, using the buses to transport themselves to better schools than what is available around them.

As one post explains:

In the East Bay [Oakland-area], about 30,000 schoolchildren use [public] AC Transit buses to get to and from school, paying $15 a month for discounted youth passes. While many of those trips are on regular routes used for nonschool commuters, some of them with route numbers between 600 and 699 are specially scheduled and routed to serve specific schools. Local officials fear that the change sought by the Federal Transit Administration (FTA) would ban those special routes.

The FTA, however, has proposed no method of replacing these public buses — and certainly nothing speedy enough to be enacted before the next school year. There is no guarantee that private contractors would be willing to service all areas currently covered by public routes, and there is no guarantee that the school districts would have the resources to pay the additional cost.

Congresswoman Barbara Lee (D-CA), whose district will be most affected, has voiced concern with the FTA’s mis-shapen priorities: “Instead of looking for ways to make it more difficult for kids to get to school, the FTA should be expanding transportation options for our students.”

Congresswoman Lee is right. The FTA, and the Bush Administration, need to put their money where their mouth is. At time when gas prices are through the roof, cutting access to public buses is counterproductive to ensuring students can get to school, particularly youth from less affluent neighborhoods who set to be the most hurt. (As a San Leandro High student explained, “Take this bus away, and I’ll end up in the streets and probably get into some kind of trouble.) It’s also completely contradictory to the Administration’s drive to encourage mass transit and reduction in energy use. If we’re supposed to be walking to work, carpooling in hybrids and riding the subway, then it would be interesting to hear how the removal of public buses for students furthers that goal.

Obama’s Tax Plan, Not McCain’s, Helps Americans Who Actually Need It»

The Wonk Room is always looking for new and interesting studies, and luckily a paper by the non-partisan Tax Policy Center fell into our laps. The report compares the tax plans of both 2008 presidential candidates and shows precisely who will benefit under the proposals put forth by Senators Obama and McCain. Here is a chart from the report:

And here is what it means:

Essentially, the Tax Policy Center shows what we already know–Obama’s tax plan provides the heaviest benefits to the poorest Americans — the ones who need the most help — while McCain’s heavily favors the richest. And while McCain’s plan provides only a nominal benefit to the middle class, Obama’s gives solid middle class relief.

McCain On Track To Repeat Bush’s Dismal Record On Job Creation»

Paul Krugman’s most recent blog post has a great chart highlighting Bush’s dismal record of job creation, comparing it to job creation during the Clinton administration:

According to a study by the non-partisan Congressional Budget Office on policy responses to short-term economic weakness, the focal point of McCain’s plan, a cut in the corporate tax rate, is fundamentally flawed:

The most common form of a general cut in business taxes is a reduction in the corporate tax rate. This approach, however, is not a particularly cost-effective method of stimulating business spending: Increasing the after-tax income of businesses typically does not create an incentive for them to spend more on labor or to produce more, because production depends on the ability to sell output.

So let’s connect the dots. McCain wants to follow Bush’s lead on tax cuts — not only extend them past their 2010 expiration, but deepen them further by cutting the corporate rate from 35 percent down to 25 percent. A cut in the corporate tax rate is not only an inefficient means of creating jobs, but as Krugman and Madland point out, the Bush tax cuts for the wealthy have resulted in embarrassingly low levels of job creation.

So unless John McCain is running against Herbert Hoover in the fall, any competitor will find themselves with greater “emphasis on job creation” than the Maverick from Arizona.

Pain At The Pump Retrospective: How Gas Prices Soared During The Bush Administration»

On Sunday, the national average price for a gallon of gas reached a new, previously unthinkable milestone of $4.00/gallon. Americans are struggling — and drivers in some parts of the US are spending up to 16% of their income on fuel.

But we didn’t just wake up one morning to find gas prices this high. Although the cost of a gasoline can be attributed to a variety of factors, we sometimes forget that in 2000 when George Bush took office, gas was only $1.51/gallon. It is also remarkable just how thoroughly out of touch Bush has been on this issue, and how little substance he has put forth to deal with it over the years.

In 2000, Bush assured Americans that he would “bring down gas prices through ‘sheer force of personality.’” Lo and behold, the initial jump in fuel costs occurred during Bush’s first term.

Fast forward four years to 2004 when gas prices passed the $2.00 mark — sending shock waves through the economy. Former Treasury Secretary John Snow acknowledged the problem but had little to offer in the solutions department. “Higher gas prices are creating a financial hardship for millions and millions of Americans,” he says. “We know that. Those higher gas prices, in a way, are becoming a proxy for how they feel about the economy.”

Push ahead now to 2006 — two years ago and two years into Bush’s second term. According to the AAA Fuel Gauge Report, gas prices rose 97% between 2006 and Bush’s first inauguration. At that point, American consumers were paying on average $2.91/gallon, Bush’s approval rating dropped to 32 percent, and the vast majority of Americans agreed that the rising gasoline prices were causing severe or moderate hardships. In April of 2006, the president’s stance was still one of inaction. “I know gas prices are high. There’s no magic wand to wave. We’ll make sure the energy companies are pricing their products fairly.”

And here we are today — $4.00 gas with $5.00 on the horizon. George Bush was shockingly unaware of how high gas prices had climbed as recently as last February. In a White House press conference, Bush had an interesting conversation with CBS news Radio Correspondent Bill Maer:

MAER: What’s your advice to the average American who is hurting now, facing the prospect of $4-a-gallon gasoline, a lot of people facing …

BUSH: Wait, what did you just say? […] You’re predicting $4-a-gallon gasoline?

MAER: A number of analysts are predicting $4-a-gallon gasoline.

BUSH: Oh, yeah? That’s interesting. I hadn’t heard that. […] You just said the price of gasoline may be up to $4 a gallon — or some expert told you that. That creates a lot of uncertainty.

It’s too bad, for his own sake, that President Bush that he didn’t pay more attention — he might have noticed that as the price of gas increased, his approval rating plummeted.

George W. Bush Vs. Herbert Hoover On The Economy»

Yesterday, the Center for American Progress released a report by American Worker Project director David Madland comparing the US economy during the presidencies of George W. Bush (2001-2007) and Herbert Hoover (1929-1932). Although today’s economy cannot technically be labeled a recession (whereas Hoover presided over a stock market crash followed by four straight years of economic deterioration), a close inspection of the economic track records and ideology of these two presidents reveals that they are quite similar. Here are some highlights from the study:

Comparison #1: Housing

Under both presidents, housing foreclosures rose rapidly—even more rapidly under Bush than Hoover. Housing starts also fell significantly, though to a much greater degree under Hoover than Bush.

Comparison #2: Employment

Bush has presided over the worst annual job creation record since Hoover, the only president to ever preside over an economy that has lost jobs. Although Bush has created jobs at an annual rate of .07 percent, most presidents in the 20th century have boasted a 2 to 4 percent increase.

Comparison #3: Income

While the drop in average income during Bush has been less severe than that of the Hoover era, it is one of only three instances since the end of the Great Depression in which average income for most Americans has decreased during a president’s tenure. In contrast, income inequality in the Bush years has grown to levels above even those during the Depression era.

Read the full report.

McCain Finally Proves He’s Different From Bush»

As the 2008 election has heated up, and George Bush’s approval rating has continued to drop, John McCain has been on the lookout for ways to differentiate himself from the president. Seems like he’s finally found the issue: international labor and environmental standards. Bush likes them and McCain doesn’t.

On May 10, 2007, President Bush reached an agreement with Congressional trade committee leaders on specific stipulations for any future international trade deal signed by the United States. With particular emphasis on strengthening labor and environmental standards, this announcement showed the first step in bipartisan agreement in US trade policy. Under the new regulations:

– Free trade agreement countries would be committed to adopting and enforcing laws that abide by basic international labor standards, such as child labor, the right to collective bargaining and the elimination of employment discrimination

– Countries that reach trade agreements with the United States would have to adopt and enforce laws that are in line with seven major multilateral environmental agreements.

– The US would have full, non-challengeable authority to prevent foreign companies from operating U.S. ports, based on national security concerns.

John McCain, however, has a very different stance on these types of standards. He doesn’t believe in them at all:

McCain would reject the use of labor and environmental issues to block trade, said Douglas Holtz-Eakin, McCain’s chief economic policy adviser. His preference would be to monitor trading partners in order to determine if they are improving their standards, he believes this approach would be far more effective than requiring labor and environmental standards in trade agreements.

McCain’s rhetoric on labor and environmental standards extends into his long Senate voting record, as well. In the deeply contested 2000-2001 debate on China’s accession into the World Trade Organization, McCain repeatedly voted down measures forcing China to change their policies towards civil and humanitarian rights before gaining acceptance into the WTO. During the 2002 debate on presidential fast track authority, McCain’s votes were no different — he repeatedly voted against establishing labor standards in trade deals negotiated by the president:

I don’t believe in walls. I believe in freedom. If I were president, I would negotiate a free trade agreement with almost any country willing to negotiate fairly with us. Only risks to the security of our vital interests or egregious offenses to our most cherished political values should disqualify a nation from entering into a free trade agreement with us.

Kudos to McCain for finally finding an issue that separates him from the president. Unfortunately for his campaign, however, he picked one of the thing that he should be following Bush’s lead.

UPDATE: McCain seems to have divorced himself from his own position. In his May 12, 2008 speech on global warming, McCain said:

We will apply the same environmental standards to industries in China, India, and elsewhere that we apply to our own industries.

Or does McCain intend to lower the environmental standards of the United States to those of China and India?

Seven Years Later: McCain Loses His Maverick Opinion On Tax Cuts»

Sen. John McCain has a strong record on taxes. In 2001 and 2003, he voted staunchly against tax cuts proposed by President Bush, calling them both a giveaway for the wealthy and unfair to low and middle-income wage earners. In 2001, McCain broke ranks and became one of two members of his party to vote against Bush’s most extensive tax cut plan. McCain explained on the Senate floor:

I cannot in good conscience support a tax cut in which so many of the benefits go to the most fortunate among us at the expense of middle-class Americans who need tax relief.

Over the years, McCain has consistently advocated for middle class tax relief. He offered, and voted for, measures that gave savings to lower income tax earners by shrinking the cut in the top tax rate for the wealthiest individuals, allowed service members on active duty to qualify for tax relief as they sold their primary residence, and blocked a repeal of the estate tax.

But now, almost seven years to the day since the first Bush tax cut (which is set to expire in 2010), John McCain is singing a different tune in order to appease his GOP base. Over and over again, McCain has endorsed making Bush’s tax cuts permanent, directly contradicting his years of Congressional votes:

Well, I think the worst thing we can do right now is — we’ve got some shaky economic times — is to increase people’s taxes. And I think that what we need is more tax cuts. We need to make Bush tax cuts permanent. [3/08]

John McCain is a rare breed of politician — the kind that can wipe out an admirable legislative record that spans more than a quarter century with two years of opportunistic, self-serving rhetoric. Nobody said running for president was easy, but trading in long-standing beliefs for a presidential nomination is the worst kind of flip-flopping.

Bush Debates Against False Straw Man In Push For Continued Tax Cuts For The Wealthy»

In a meeting on the economy in Washington this Monday, President Bush made a pointed speech arguing for the extension of his first-term tax cuts that are set to expire in 2010. Sounding more like a campaign event than a policy message, Bush was operating under the false premise that the 2008 candidates are calling for a full reform of his tax cuts, claiming that “overall 43 million families with children will face a tax increase of $2,323 on average.”

Watch it:

If Bush is going to talk about repealing the tax cuts bestowed upon a middle class American family of four making $50,000, in terms of the 2008 election, he’s the only one having that discussion. None of the three remaining presidential candidates — Senators Obama, Clinton and McCain — propose eliminating the tax breaks for those in the lower tax brackets.

CNN’s Ali Velshi hits the nail on the head by explaining that, “So while it was quite grand for President Bush to talk about the 43 million people getting hit by elimination of tax cuts, there’s nobody out there who’s thinking of eliminating those tax cuts for 43 million people.”

But that’s not all. In a roundtable discussion following the speech, Bush went on to state that:

The best way to deal with uncertainty is to let people keep more of their money […] Tax cuts have been an engine for economic vitality. Given the fact that tax cuts have worked, what will be the Congress’ response?

Does Bush really consider the American economy to be full of “economic vitality?” The Bush presidency has been plagued with stagnant wage growth, increased household debt, a bleak job market and a sharp rise in personal bankruptcy filings. Maybe Bush has a different definition for a tax plan that “works,” because he seems to be ignoring the fact that American income disparity is comparable to what we saw in the years leading up to the Great Depression.

McCain Vs. Holtz-Eakin On The Line Item Veto»

A story in this week’s edition of The New Republic points out an interesting policy contradiction between John McCain and his top adviser, Douglas Holtz-Eakin, on the line item veto. McCain, who is well known for his rhetorical crusade against earmarks and ‘pork barrel spending,’ had this to say about the controversial practice of allowing the top executive to scratch a single item off a spending or budget bill:

I will seek a constitutionally valid line-item veto to end the practice [of earmarking] once and for all.

It’s great that McCain is able to give such a straight talk statement on the line item veto, but maybe McCain should have checked in with Holtz-Eakin before he spoke so fervently on the record. As McCain’s chief policy strategist and former director of the Congressional Budget Office, Holtz-Eakin has a long history of opposing the line item veto as an ineffective way to reduce spending and balance budgets:

With few exceptions, simply granting the governor a line-item veto has little or no effect on spending over the long term […] over time, in the hands of Republicans and Democrats alike, the line-item veto fails to cut spending. [New York Times, 2/88]

Analysis of a rich set of state budget data indicates that long run budgets are not altered by an item veto […] These results suggest that adoption of the line item veto, in general, is unlikely to reduce the size of the federal government. [NBER, 3/88]

I don’t think there’s any evidence that this, in itself, is a powerful enough weapon to alter the path of spending. [CBPP, 3/06]

So what’s the problem here? Do McCain and Holtz-Eakin just disagree on this issue? Or did McCain, who admittedly knows little about the economy, forget to have a conversation with is top economic adviser about this contentious topic before taking another one of his bold, maverick stances?

Back In Style: The Four Day Work Week»

Retro is back in style again — but this time it’s the four day work week, not bell bottoms, making a comeback. All over the country, employers and employees are seeing the benefit that the four day (ten hour/day) week has to both “employees and businesses bottom lines” by providing commuters with a little relief from high gas prices. City employees in Birmingham, AL, for example, are moving to the four day week because, as the mayor’s chief of staff explains: “We are doing it in an effort to help employees save some money on gasoline.” Counties in Texas, Pennsylvania and New York are following suit, estimating that cutting out two commutes per week could save employees 20% on fuel costs and 65 million gallons of gas per day.

First made popular during the late 1970’s when gas prices first rose to, at that time, astronomical levels, the four day work week is designed to help the 44% of people who report that gas prices have affected their commute. Unfortunately, the late 1970’s was one of the most badly faring economic periods in recent history recent US economic history in terms of inflation, unemployment and general economic unrest.

Although use of mass transit has skyrocketed to its highest ridership in 50 years, still only 5% of workers commute by public transit, and fewer than 20% of households have easy access to buses or trains. Paul Krugman rightly notes that many of our American cities are not equipped with public transportation systems, leaving millions of Americans with no choice but to drive long distances and depend on their employers, or schools, to administer these alternative commuting arrangements.

Although the four day work week might be a short term fix for high gas prices, America needs to make some long term changes both in infrastructure development and in energy consumption — because as much as workers may love the idea of the four day work week, nobody loves the idea of four day pay.

McCain Claims His Iraq Plan Will Help The Economy»

Yesterday, at a predominately supporter-attended town hall meeting in Milwaukee, Wisconsin, Sen. John McCain was asked some tough questions about the “central tenets” of his campaign. One question, centered around the Iraq war and the American economy, was particularly poignant:

Q: No surrender and not being willing to negotiate, how is that going to help our economy going further?

McCain: Let me put it this way, there would be catastrophic consequences. I would like to assure you, ma’am, no one hates war more than a veteran. I know war. I hate war. I believe that our economic difficulties can be addressed. I also believe that by winning in Iraq, that will reduce those costs.

Only by leaving Iraq would we be much better equipped to “address” the difficulties of the American economy — mostly because we won’t be spending $200 million per day to fight an unnecessary war.

But does McCain have any intention of getting us out of that mess? McCain has professed his express intention to stay in Iraq for another 100 years if we have to. His Bush-esque rhetoric also remains consistent: “stay the course” in Iraq and “expand defense spending.”

Starting back in 2002, before the American invasion, economists predicted that waging a war in the Middle East would make the US budget deficit soar. In January, the Congressional Budget Office estimated that the US deficit is estimated to amount to $219 billion — $56 billion more than last year — by the end of 2008. This does not include the $165 billion check that Congress just wrote for additional war funding.

At the end of the day, John McCain believes that sustaining a war that could conceivably cost American taxpayers $200 million/day x 365 days/year x 100 years would help the economy. He must really not know much about the economy.

Fox News Blames ‘Mainstream Media’ For Recession»

Yesterday on Fox and Friends, Dan Gainor, Vice President of the Business and Media Institute, along with conservative hosts Steve Doocy and Brian Kilmeade, concluded that America’s economic downturn was the result of the “mainstream media.” Doocy, Kilmeade and Gainor explained that news outlets like the New York Times and the three major television networks are talking themselves, and the American public, into recession.

Watch it:

Sure, the media has been talking about the economy, but so have LOTS of other people. It’s amazing how easily Fox News is able to ignore the opinion of prominent economists, business leaders and government officials in this dialogue.

–Warren Buffet: “I believe that we are already in a recession […] Perhaps not in the sense as defined by economists. … But people are already feeling the effects of a recession […] It will be deeper and longer than what many think.” [USA Today, 5/26/2008]

–Alan Greenspan: “I still believe there is a greater than 50 per cent probability of recession.” [Financial Times, 5/27/2008]

–Sen. Chuck Schumer (D-NY): “Americans are being squeezed at every possible pressure point - at the gas pump, at the grocery store, by their mortgage company, and by their employers. Just because President Bush won’t say the word doesn’t mean Americans aren’t feeling like we’re in a recession.” [Joint Economic Committee, 4/30/2008]

Fox has apparently forgotten to read the news themselves — unless Doocy, Kilmeade and Gainer think that the ‘media’ went out at night and set the price of gas at $4.00/gallon , increased the number of food stamp recipients by 7% nationally and placed 649,917 homes in foreclosure during the first three months of this year.

Countrywide CEO’s ‘Disgusting’ Reply To Struggling Homeowners»

Angelo Mozilo

The Los Angeles Times dug up a story that we at the Wonk Room think is worth highlighting for our readers about Countrywide Financial CEO, Angelo Mozilo. Making the classic email blunder, Mozilo accidentally hit reply instead of forward in response to a message sent by a Countrywide customer seeking adjustment in the terms of his mortgage. Mozilo replied to the customer by saying:

This is unbelievable […] Most of these letters now have the same wording. Obviously they are being counseled by some other person or by the Internet. Disgusting.

Dan Bailey, the homeowner who sent the email to Mozilo, didn’t take this response sitting down. Bailey posted Mozilo’s reply, which was reportedly intended as a forwarded to a Countrywide colleague rather than an email to Bailey, on the site that provided Bailey with the email template. He then had this to say:

To have received the e-mail that I did, stating by one of your employees, that what I did was ‘disgusting’ and ‘unbelievable’ has been just about the final straw. I am trying to do the right thing, I am trying with every ounce of what I have left in me not to blow my brains out over losing the home I have been in for 16 years. The only hope I had left was that perhaps the countrywide company did want to help the people it is servicing […] then I receive that response to my letter. Just great. Now I know, that it is all a nice fat laughing matter to those who are supposed to help.

Mozilo, who collected $132 million in earnings last year amidst a tumbling mortgage market, thousands of monthly foreclosures and record low home prices, apparently sees websites like loansafe.org, whose mission is to offer “free foreclosure help that is based on a support community” as a personal annoyance, rather than a tool to help struggling homeowners. It’s not like Mozilo is offering any alternative, however — the Wonk Room’s examination of Countrywide’s site reveals a glaring lack of advice, or even a system, for borrowers looking to adjust the terms of their loans. It’s too bad that President Bush’s belief is that lenders should work voluntarily with homeowners, because with attitudes like Mozilo’s, it’ll be a while before we see relief to this crisis.

If Mozilo has such a visceral reaction to emails like Bailey’s, then we’d love to see how he’d react to something that is actually “unbelievable” or “disgusting” — like hearing his home was being seized by the bank.

Bush’s Weak Dollar Responsible For Half Of Oil’s Price Increase»

Today, the Center for American Progress released a report by Senior Fellow Scott Lilly explaining how the weak US dollar effects the things on the minds of middle class Americans — rising gasoline, food, heating and electricity prices. The US dollar, whose value has dropped by 37 percent against the euro, 31 percent against the Canadian dollar and 17 percent against the British pound since 2000, has plummeted most dramatically in the last 18 months.

CAP’s report shows that, although a variety of factors influence the price of oil, including growing global demand and the so-called “security premium,” over half of the increased price American consumers are paying for oil is attributable to the weak dollar.

– As the dollar falls against the euro and other major currencies, oil-exporting states have been demanding more dollars per barrels of oil to protect their ability to meet expenses paid in euros and other currencies.

– Global institutional investors have tried to protect themselves against further declines in the dollar by moving money into commodity future that are denominated in dollars so that their investments remain stable when the dollar falls. The increased demand for these commodities artificially pushes up prices.

But why is the dollar so devalued? CAP’s report traces the bulk of the dollar’s decline to seven recent cuts in the Federal Funds Rate over the past nine months by the Federal Reserve. The lower the interest paid on a currency, the less likely foreign investors will will be to invest in instruments denominated in that currency, and the more likely U.S. investors will want to search for better returns overseas.

What’s most interesting is that under a devalued currency, oil companies stand to gain significantly in comparison to other businesses. Denominated in dollars, energy companies increase in value proportionately to the dollar’s decline. Exxon Mobil, for example, one of the nation’s largest oil companies, has seen its share price increase in precise parallel to the appreciation in the price of a barrel of crude oil. The government’s monetary policy, along with the weak dollar, not only create winners and losers in terms of consumers and businesses, but also benefit certain businesses far more than others.

Read the full report.

‘Hot Fuel’ Makes Summer Even Hotter»

Today’s LA Times reports that summer weather is making gasoline more expensive. The “hot fuel” phenomenon, which is nothing new to long-haul truck drivers, means that gas stored at higher temperatures actually provides less energy per gallon. The LA Times explains that:

At 60 degrees, a gallon is 231 cubic inches. But when fuel is warmer than 60 degrees, the liquid expands, yielding less energy per gallon. When it’s colder, the fuel contracts. Gas stations and truck stops don’t have temperature-compensating devices, so the pumps dispense each gallon as if it is flowing at 60 degrees — and the stations charge customers as if they are getting government-standard gallons.

For warm weather states, “hot fuel” only adds insult to injury when it’s time to fill up at the pump. A new study in California found that, when averaged over a 12-month period, gasoline temperatures were 71.1 degrees–well above the 60-degree standard.

And that’s just the average. During the summer, when temperatures are higher, this phenomenon is aggravated. Experts estimate that Californians will pay the equivalent of $.08 more per gallon because of warmer fuel. $.08 doesn’t sound like much, but when gas is already over $4.00/gallon in many parts of the West Coast, that’s no small change.

But doesn’t this phenomenon make prices higher every summer? Well, technically yes, but temperatures in California didn’t used to be so warm. Climate data shows that temperatures risen in nearly all parts of California between 1950 to 2000–averaging an increase of nearly 2 degrees Fahrenheit. Again, this may not seem like a lot, but when motorists, and airlines, are burning through millions of gallons of fuel per day, this “hot fuel” summer cocktail equates to an additional $3 billion a year for consumers.

Slate’s Backwards Logic: Gas Prices Today Are Cheaper Compared To Period When No One Drove Cars»

Slate Magazine published a new piece outlining some of the reasons Americans should feel lucky paying “only” $4.00 for a gallon of gas. Robert Bryce argues the relative “cheapness” of today’s gas in terms of historic prices:

The simple truth is that Americans are going to have to get used to more expensive gasoline. And while they may continue grumbling at the pump, they need to accept the fact that even at $3.50 or $4 per gallon, the fuel they are buying is still a bargain.

This is wrong on a number of levels. Let’s start with the obvious that it’s completely disingenuous to compare fuel costs in 1922 to fuel costs today.

First of all, who was actually driving back in 1922? According to a historical study of vehicle ownership, only 22.7% of Americans owned cars in 1939 (17 years later), compared to 77.6% in 2005. Econ 101 will tell you that when nobody is driving and demand for gas is low, prices will be high for a non-readily available commodity. Until people are driving themselves around, there is no incentive to innovate, mass produce, and therefore cheapen the cost of gas.

Secondly, Slate forgets that driving in Europe is not the same as driving in the United States. Paul Krugman makes this point clearly in his most recent op-ed in which he reminds readers that sure, it may cost more to put petrol in your car on the other side of the pond, but in Europe, drivers have other options — namely city-wide public transportation systems and the option of walking to work, the grocery store, or the pharmacy:

[I]n the face of rising oil prices, which have left many Americans stranded in suburbia — utterly dependent on their cars, yet having a hard time affording gas […] Changing the geography of American metropolitan areas will be hard […] Public transit, in particular, faces a chicken-and-egg problem: it’s hard to justify transit systems unless there’s sufficient population density, yet it’s hard to persuade people to live in denser neighborhoods unless they come with the advantage of transit access.

Slate makes one last point that goes beyond wrong and borders on offensive:

Gasoline is also cheap compared with other essential fuels. A Starbucks venti latte costs the equivalent of $23 per gallon, while Budweiser beer runs $11 per gallon.

Sorry, but Americans aren’t consuming gallons of coffee and beer every morning as they drive to work, school or the doctor. We spend a great deal more of our discretionary budget on gas than on any other commodity. Just another example of Slate’s backwards apples to oranges logic.

Chrysler’s ‘Let’s Refuel America’ Program Incentivizes Driving And Gasoline Consumption»

On Monday, Chrysler LLC announced an expansion of its most recent incentive program, Let’s Refuel America. This program provides anyone who purchases a new Chrysler vehicle with three years of gasoline at a guaranteed, subsidized $2.99/gallon rate — and was apparently so successful that Chrysler extended the purchase deadline for an additional month until July 7:

“[W]e are proud to introduce an unprecedented program to help put customers’ minds at ease and do something to help working people who are worried about the volatility of fuel prices and vehicle cost of ownership,” said Jim Press, Chrysler president and vice chairman. The program “puts money in your pocket today, and allows our customers to better manage their fuel expenses.”

In an era where every day is another day of record-breaking gas prices, Chrysler’s program does have an immediate appeal. Who wouldn’t want to pay $2.99 for gas, especially when experts predict that gas could reach $7 by 2012? But when you stop and think about the premise behind “Let’s Refuel America” — artificially subsidizing gas prices and incentivizing people to buy bigger cars, drive more miles and increase the American demand for oil — you start to question Chrysler’s goals.

And it’s not like Chrysler is promoting vehicles with good gas mileage. Two of Chrysler’s best selling models, the Dodge Ram truck and the Dodge Charger, get an abysmal 13 and 18 miles per gallon during city driving, respectively. Compare this to the Honda Insight or Toyota Prius, both hybrids, which average 64 and 48 miles per gallon, and it just gets embarrassing. Chrysler is not responsible for the buying choices made by American drivers, but when 67% of Chrysler customers purchase SUVs, minivans or trucks over cars, a subsidy for gas guzzlers seems an odd way to push consumers towards more fuel efficient vehicles.

Is it possible that Chrysler executives are so concerned with maximizing short-term profits that they’re willing to ignore the consensus calls for reductions in gasoline usage, investment in fuel efficiency research and learn to minimizing America’s dependence on oil? Maybe if Chrysler were willing to take the money they’re spending in driving subsidies, and instead invest in the production and development of environmentally and economically friendly vehicles, Americans wouldn’t be in the pickle they’re in today.

John McCain Flip-Flops Again On Social Security»

Today, John McCain flip-flopped for a second time on Social Security privatization. Maybe John McCain didn’t think anyone would notice the switch, since it came out during a hard hitting interview on Live with Regis and Kelly:

MCCAIN: What should be partisan about the fact that Social Security is going to go broke? I mean, should we be divided up among Republican and Democrat…

REGIS: Do you have a plan?

MCCAIN: Yes, sir. It’s gonna require, though, cooperation and participation by the other side. And I’ll reach my hand out…

REGIS: Is it privatization of the Social Security program?

MCCAIN: No, no it isn’t. But I would say that I support…I’d put everything on the table to start with…but second of all…young workers ought to be able to put part of their salary, part of their taxes into Social Security, into an account with their name on it. But that would not in any way effect older workers. But you’ve got to have a negotiation.

Watch it:

But just two months ago, McCain voiced a very different view on Social Security during an interview with the Wall Street Journal. When asked the specifics of his program, McCain adamantly claimed: “I’m totally in favor of personal savings accounts. … I campaigned in support of President Bush’s proposal and I campaigned with him, and I did town hall meetings with him.”

Noting the McCain’s website does not declare his support for private account, the Wall Street Journal reporter asked this follow-up question:

WSJ: Your Web site says something different [than your statement].

MCCAIN: I’ll correct any policy paper that I’ve put out that might intimate that personal savings accounts are not a very important factor.

So has John McCain rewritten his website to reflect his waffling viewpoint? No he hasn’t. Between now and two months ago Senator McCain has had two very different perspectives on Social Security, but nearly the identical, rhetorical fluff on his policy page. McCain seems to have decided it’s easier to change his Social Security policy than to change his website.

Stephanopoulos Stumps Fiorina On Corporate Tax Loopholes»

On This Week yesterday, McCain economic adviser Carly Fiorina restated her support of tax loopholes for big business. Fiorina, the former CEO of Hewlett Packard, has been a long-time defender of a gap in the U.S. tax code that enables American corporations to keep foreign profits overseas and abstain from paying domestic taxes.

The Wonk Room, which covered Fiorina’s preference for corporate tax breaks and offshoring back in April, wasn’t really surprised to hear her defending McCain’s stance on George Stephanopoulos’ show. But we were a little surprised to see how easily George was able to point out the flaw in her logic — and how transparently disingenuous Fiorina’s talking points really are.

Watch it:

Sen. McCain, according to Fiorina, understands that “you must focus on why jobs are going overseas.” That may be well and good, but what Fiorina seems to be missing, and what George points out, is that there are two separate issues. A cut in the corporate tax rate is not the same as closing a tax loophole — a tax loophole that allows business profits to remain completely untaxed if left overseas.

Even under Senator McCain’s plan, corporations would still pay 25 percent (down from 35 percent) on money they bring into the country — and that is a lot more than the zero that they pay now. As Stephanopoulos noted, this zero percent does nothing to incentivize businesses, or government defense contractors, from bringing profits back into the US.

Transcript: More »