Head Muscle Officially Endorses Herman Cain

Head Muscle Press Release (27 Sept 2011) – Head Muscle officially endorses Mr. Herman Cain as the next President of the United States.

Now given the size of our readership, I do not expect that this announcement will make Fox News – or even come to the attention of Mr. Cain for that matter, but we are pleased to make it nonetheless. Rest assured that Head Muscle does not take this endorsement lightly and has deliberated long and hard over it for several months…okay maybe we just decided to do it yesterday, but we are still firm in our conviction.  When it came down to it, the decision was pretty straight forward.

Just look at the facts:

1. Our official unemployment rate is hovering at 9.1 percent, but in reality it is much higher.  Some states and municipalities have unemployment numbers well above 10 percent. This does not even count the underemployed and those that have given up all together. Some have even speculated that we have lost an entire generation of workers due to the current shortage of jobs.

2. Business was already buckling under oppressive regulation and the current administration helped them out by passing Dodd-Frank.  No wonder our businesses are headed overseas by the truckload…

3. Obama Care is looming on the horizon.  It will cause businesses to dump their healthcare plans, force doctors to retire, close hospitals, and degrade healthcare services for over 80% of all Americans.  It will also cripple Medicare and kill research.  As Herman Cain pointed out, if he had been required to use Obama Care when he had cancer – he would be dead today.  Actually, given what Obama has done to our nation over the past three years, I would say that “Obama Care” is clearly an oxymoron.

4. Obama has presided over a five-fold increase in government spending.  Our national deficit is now running at about 1.4 trillion dollars and his answer is to give the crack head another dime bag….brilliant!  We actually elected a man who thinks that the solution for too much government spending is to spend more money.  Okay…we had a moment of collective stupidity in 2008; let’s not let it happen again.

5. Instead of harnessing the powerful free-market forces that made our nation great, Obama has decided to wage class warfare. Rather than lowering taxes (long term) and stepping out of the way to let business prosper, he is advocating about 1.5 trillion dollars in new permanent taxes!  I cannot even believe that he truly thinks that this will help. Just two years ago Obama himself noted that raising taxes during a recession would be a bad idea.  What gives?  This is simply a move to expand his voter base by fiscally enslaving our nation’s producers to its zero-liability takers.  The fact is, if he took every dollar from every wealthy person in the nation it would still not come close to covering the national deficit.  Why does everyone understand this but our President?

6. Our GDP is flat-lining. So after the first stimulus and a promise of thousands of “shovel ready” jobs, why are we not growing? The reason is simple…government does not grow the economy….BUSINESS DOES!  I would go into this in greater detail, but as my Harley buddies like to say, “if I have to explain it, you won’t get it.”

The bottom line here is that we need a leader. Someone who understands our free-market and can harness its awesome potential to pull our nation out of its fiscal tailspin. The reason that Head Muscle is supporting Herman Cain is that, out of all his opponents, he has stuck to his message, stayed out of petty politics, and shown us a better way.  We are proud of our decision to endorse Herman Cain for President, and hope all 12 of our readers understand our decision.

If you are interested in learning more about this man and his vision, please visit Herman Cain online.  Be sure to read about his 9-9-9 Vision for Economic Prosperity.  It is pretty simple. First toss out the current tax code that enslaves half of the American population. Once that is done, institute a 9% flat income tax, a 9% flat corporate tax, and a 9% national sales tax.  That is it!  As Mr. Cain loves to say:

If 10 percent is good enough for God, 9 percent should be good enough for the government…

Stand by for more on Herman Cain in the coming months.  Head Muscle will also be kicking of a unofficial Herman Cain blog alliance for all aspiring and active bloggers.  If you are interested please comment to this post with your site URL, and we will be in touch.

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A Subtle Hypocrisy

This past Thursday President Barack Obama announced his plans to levy a Financial Crisis Responsibility Fee on our nation’s largest banks.  In his announcement he sold his proposed “fee” as a mechanism to repay taxpayers for the cost of the TARP bailout.  In his address President Obama levied a clear ultimatum on Wall Street stating:

“We want our money back, and we’re going to get it.”

Obama also took the opportunity to bash banks for their “obscene bonuses,” in a clear attempt to capitalize on frustrations with the high salaries bank executive have received during the financial meltdown.  This proposed tax on banks, let’s call it what it is, would remain in place for 10 years and is expected to raise almost 90 billion dollars which would be used to “repay” taxpayers for an anticipated 117 billion dollar TARP loss.  According to the Wall Street Journal, the tax would have its greatest impact on 6-10  of our nation’s largest banks including  Citigroup, JP Morgan, Bank of America, Wells Fargo, and Goldman Sachs.  Coincidentally, it would exclude other recipients of bailout funding like GM, Chrysler, and AIG.  In this plan, Obama would levy a .15% tax against certain types of bank assets which are referred to as “covered liabilities.”

In a nutshell here is how the tax would work (taken from WSJ Fact Sheet):

Covered Liabilities =  Total Assets – Tier 1 capital – FDIC-assessed deposits (and/or an adjustment for insurance liabilities covered by state guarantee funds)

What this means is that the government would take a bank’s total reported assets subtract any Tier 1 capital assets (Common Stock and Cash Reserves) and Federally insured deposits and tax the remainder by .15%.

Here is a good example provided by the WSJ:

In this example, it is clear to see that the targets of this tax are the “risky” non-insured investments that banks claim as assets. It is also clear from this calculation, that the amount of tax paid by Bank X is a proportionately very small percentage of their total assets.  According to the New York Times this would roughly amount to about a 1.5 million dollar tax on every 1 billion dollars of assets that a bank holds. Additionally,  Betsy Graseck from Morgan Stanley, estimates that this tax would only shave about 5% off the bottom line of these banking giants.  So, given that this is such a small and inconsequential tax on some of the world’s richest and greediest banks, you may well wonder what all the squabbling is about.  By all outward appearances, the Obama Administration is simply trying dissuade banks from spending taxpayer provided TARP funds foolishly. What could be more genuine than that?  Maybe so, but Head Muscle believes that there is a subtle hypocrisy at work here.  A hypocrisy that, once again, inserts government into the free market, sends mixed signals to big business, reeks of politics, and ultimately hurts the American taxpayer.  Let’s take a closer look:

Meddling with the Free Market – Even though the government refers to this new tax as a fee, in reality it is an insurance premium.  Paul Volcker all but admitted this at an Economic Club of New York luncheon this past Thursday. In his remarks Volcker noted:

“[The Fed] needs both the ability to identify problems in the financial sector and the instruments to deal with them. In acting as lender of last resort, it must know its counterparties and know them well.”

Volcker went on:

“The old question of institutions being too big to fail looms larger than ever.  Unless regulators are given a robust “resolution authority” to take over failing banks, all other proposed reforms in areas such as accounting rules and banks’ capital requirements “won’t provide the safeguards that we need.”

He then provided a medical analogy which likened not providing financial support to failing banks to a “Do not resuscitate” order.

“So, where is the hypocrisy here?” you might ask.  Simply put, the government first pressed banks to make more and more high risk loans through the now infamous Community Reinvestment Act. In response to the mortgage crisis, the government then gave failing institutions TARP funds to stabilize the cash hemorrhage.   Now, the government is asking for banks to not only pay the bailout money back, which they are doing with interest, but also to pay what amounts to an insurance premium for this continued service.  In short, the government played a significant role in bank failures, bailed them out, and is now asking for a fee for the service. What a fantastic business model!  Help create the crisis, save the wounded, and then charge them for the service.  This is hypocrisy at its finest.

The unintended consequence of doing this however, is that our government is now creating the expectation that, because banks are being forced to pay the fee, they will be entitled to future bailouts as well. This amounts to nothing less than a new taxpayer sponsored insurance program for the big banks. Instead of a “penalty” banks will look at this tax as a cost of doing business just like their FDIC premiums, and pass it along to the consumer – us.  In the end, it will impact executive bonuses no more than the FDIC premiums do. Banks, like all businesses, will pass whatever costs they can along so that they can continue to realize the profits that their stockholders expect. As a result, bonuses will continue to be at whatever level the market will tolerate. Ironically, this type of implied insurance could also reduce the competitiveness of smaller banks that are not afforded “too big to fail” status. Unlike the big guys, they will have to continue to operate within a much smaller asset base and will not be afforded a federal safety net in the event that their investments fail.  Truly a hypocritical double standard that favors the big guys and ignores more exposed small banks.

Sending Mixed Signals – The other problem with this tax is that it does not separate a bank’s loan inventory from its other taxable covered liabilities.  This means that, in addition to risky security investments,  banks could also be taxed on  loan inventories which are reported as assets.  Again, you have the government sending a mixed message here.  First, they passed the Community Reinvestment Act which in effect forced banks to make more loans, and now they are penalizing banks for having these loans on their books. Truly, this is a level of hypocrisy that only the likes of Barney Franks could cook up.  Again however, this amounts to another garbled message to lenders. “We want you to loan more, but we also want to penalize you for it.”  Sadly, the result of this mixed message could well be banks making fewer loans. This is nothing short of absurd, especially given that neither Fannie Mae, Freddie Mac, nor Barney Franks have been held to anything near the level of accountability that our nation’s banks have.

Politics as Usual – It is not difficult to find the political hypocrisy here either.  All one really needs to do is look at who is not subject to this new tax.  First and foremost, two of the biggest “non-bank” recipients of bailout funds were GM and Chrysler.  These two companies alone have received approximately 60 billion dollars in taxpayer funds and, unlike the banks, are not likely to pay it back. Yet, incomprehensibly, they are not subject to Obama’s proposed tax.  Instead, the banks will be expected to pay back the automaker’s share. How could this be?  Revealingly, since the restructuring of these companies, the UAW now owns an 18% chunk of GM and a whopping 55% chunk of Chrysler.  It should be no shock to anyone that these two union strongholds are receiving “get out of tax free” cards under Obama’s plan.  For those who would disagree and suggest that this is pure coincidence, HM would like to refer you to a recent article on health care from the Washington Examiner. It appears that union members will also be exempt from paying fines on “Cadillac health care plans” that the rest of us will potentially have to pay. In this article, the Examiner’s Chief Congressional Correspondent, Susan Ferrechio, points out that:

“Union workers enjoy some of the most extensive and costliest health benefits, and union officials complained their members would be unfairly burdened by a health care tax because their contracts cannot be changed quickly enough to avoid it… Union members also represent one of the biggest and most powerful Democratic constituencies and their support of any health care reform proposal is viewed as essential to getting a bill passed in Congress.”

Is this a coincidence or just blatant hypocrisy?  HM will let you decide.

AIG’s exclusion from the tax is much more straight forward however.  The government owns them.  Why on earth would the government tax themselves?  In this case, once again, we see a subtle hypocrisy.  Why would the government want to be held accountable for the types of investment and business practices that they are holding banks accountable for? Since when has the government played by its own rules? You really must laugh…right?

We All Get It in the End – So, if Obama is successful at passing this new bank tax, who will ultimately end up paying?  Will it be the “fat-cat” bank executives with their seven digit bonuses? Will it be Barney Franks for his foolish and politically one-sided policies or perhaps Fanny Mae and Freddy Mac?  Most certainly not.  It will be you and I. Banks, being private profit-based businesses, will continue to adapt their business models to ensure maximum returns to their stockholders.  This is not a crime, but rather good business. This new tax, like any other cost of doing business, will ultimately get passed to consumers in the form of higher interest rates on loans, reduced banking services, and possibly even the further reductions in new lending.  We will in essence be paying for this new “failure insurance” twice; once through our taxes and a second time through our loans and credit lines.  Either way, it will come our of our pocketbooks.  Some however, will still suggest that this tax that will actually result in banks making more loans and improving their business models to better support consumers.  For these people, I can only quote Republican Representative Jeb Hensarling of Texas:

“To think that banks will loan more money if you tax them is beyond economic ignorance.”

In conclusion. this bank tax, though “small” by comparison, is another reminder that the current administration believes it can, and should, play a greater role in our free enterprise system.  It believes that populism is more important than capitalism, and will use any opportunity it can to wrest more control over the private sector.   From decrying obscene bonuses to mandating regulations that it would never follow itself, the Obama Administration is sending the clear message to all Americans they are tightening their grip on our economic throats – like it or not.  Though not fatal in its own right, this tax proposal is a case study in government hypocrisy and will ultimately be a burden born by hard working Americans. The good news is that, if you are Barney Franks, none of this really applies to you.

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