The Economy & AIG (American International Group) – How Sour Mortgage Loans Hurt AIG

WASHINGTON  —  In a bid to save financial markets and economy from further turmoil, the U.S. government agreed Tuesday to provide an $85 billion emergency loan to rescue the huge insurer AIG.

Just how did AIG, the world’s largest insurance company, get into this position?

AIG, which is financially stable, is suffering from a “cash flow crisis”.

That cash flow crisis is related to AIG’s insurance of mortgage backed securities. AIG wrote insurance policies to cover a portion of the financial losses on thousands of “Liar” and ‘NINJA” Loans. 

To read more about these loans:

https://mcauleysworld.wordpress.com/2008/09/15/the-financial-services-housing-crisis-how-did-we-get-here/

https://mcauleysworld.wordpress.com/2008/09/10/senator-cornyn-seeks-criminal-inquiry-of-fannie-freddie-executives/

https://mcauleysworld.wordpress.com/2008/09/08/the-truth-about-fannie-mae-and-freddie-mac-900-billion-in-corrupt-lending-practices/

Politicians who claim that AIG’s difficulties are due to a “bad economy” are putting the “horse before the cart”. The reckless use of NINJA & Liar Loans have caused substantial damager to the economy. In short America is overleveraged – America has taken on more debt than it can afford – the security to support that debt (example: property values) was over evaluated.  

America must “tighten it’s buckle.”

The Government must reform oversight and eliminate ineffective bureaucracy, cut taxes and foster an environment of growth. Developing all available energy sources will not only reduce costs and spur economic growth, it will also strengthen American security by ending dependence on foreign energy sources.

The Picken’s Commercial On Iran – The Real Reason Iran is switching to CNG Cars

The following article is not presented as an argument against alternative energy development – it is being included in this Web site as an alternative explanation for why Iran is switching to CNG powered autos. Mr Milloy’s comments inregard to the “hidden costs” of CNG conversion might interest some of this sites visitors. 

This writer perfers that we pursue all energy sources – Oil and Gas (Drill Baby Drill), Wind, Solar, Ethanol, Nuclear – If it is out there – lets go get it. The more sources we can target and develop the lower the price will be for any individual energy source. Development of American Energy sources is crucial to improving the American Economy and strengthing American Security.

There is no “one source” that America should target. I, for one, don’t want to see all of “our eggs in one basket”.         

Pickens’ Natural-Gas Nonsense

Friday, September 12, 2008

By Steven Milloy

“Get this one,” says billionaire T. Boone Pickens in his latest TV ad, “Iran is changing its cars to natural gas and we’re not doing a thing here. They’re doing this to use less oil and sell it for $120 a barrel. We can switch our cars to natural gas and stop sending our dollars to foreign countries.”

Readers of this column know better than to take at face value the marketing of the so-called “Pickens Plan.”

So what’s the full story behind Iran’s move, and what would be the impact of switching our cars to natural gas?

Although Iran is a major oil and gas producer, it lacks oil-refining capacity and must import about 50 percent of its gasoline. To be less vulnerable to international pressure concerning its nuclear program, President Mahmoud Ahmadinejad decided to reduce Iran’s reliance on imported gasoline.

He started with rationing in May 2007. But that quickly led to violent social unrest.

Ahmadinejad then decided to convert Iran’s new car fleet to natural gas. So 60 percent of Iran’s car production this year — about 429,000 vehicles — will be dual-fuel-ready, capable of running on both gasoline and natural gas.

But contrary to Pickens assertion, Iran isn’t trying to use less oil:; It’s trying to use less imported gasoline — and only to thwart a possible international gasoline embargo.

Though hardly a role model for energy policy, should we nevertheless follow Iran’s lead with respect to natural-gas cars? Just what would that mean to you and to our economy?

While the natural gas sold for auto fuel is as much as 50 percent less expensive than gasoline — at least for now — the cover charge to get into a natural-gas vehicle can easily erase any savings.

A new natural-gas-powered car, such as the Honda Civic GX, for example, is almost 40 percent more expensive than a conventional Civic ($24,590 versus $17,700).

While tax credits can reduce the cost by thousands, somebody — either you and/or taxpayers — will be paying the difference.

If natural gas fuel saved you, say, $2 per gallon, then you’d have to drive 124,020 highway miles or 82,680 city miles to break even on fuel costs against the $6,890 purchase price premium.

You can convert an existing car from gasoline to natural gas, but the costs are daunting.

Converting a car to dual-use (as in Iran) costs between $6,000 to $10,000. Converting a car to run on natural gas only is about half as expensive.

Even so, the conversion has to be done correctly or, in the worst case, you risk leaks that could turn your car into an improvised explosive device. And if your car is altered without proof of EPA certification, you might not get any of the all-important conversion tax credits.

Then there’s the inconvenience. Though their fuel tanks are larger — which, incidentally, reduces trunk space — natural gas cars have less range.

While a new Honda Civic can go as far as 500 miles on a tank of gasoline, the GX’s range is less than half of that — and, currently, there are only about 1,600 natural-gas refueling stations across the country, compared with 200,000 gasoline stations.

If your home uses natural gas, you could buy a home filling station at a cost of about $2,000 plus installation. While home filling stations can further reduce fuel costs to substantially below $2 per gallon, the devices take about 4 hours to replenish the fuel consumed by only 50 miles of driving. So much for gas-and-go.

Moving past the personal expense and inconvenience, the broader implications of natural-gas cars are worrisome.

The U.S. currently uses about 23 trillion cubic feet of natural gas per year. Like all commodities, the price of natural gas is supply-and-demand dependent.

Switching just 10 percent of the U.S. car fleet to natural gas would dramatically increase our consumption of natural gas by about 8 percent (1.9 trillion cubic feet) — an amount that is slightly less than one-half of all current residential natural gas usage and one-quarter of all industrial usage.

The price ramifications of such a demand spike would likely be significant. The current cost advantage of natural gas over gasoline could easily be reversed. Our move toward energy independence could also be compromised.

Domestic production of natural gas has not kept pace with rapidly increasing demand. Consequently, about 15 percent of our natural gas must now be imported.

Without more domestic gas drilling, additional demand will need to be met with natural gas imported by pipeline and in liquefied form from the very same foreign sources that T. Boone Pickens rails about in the context of oil.

In its most recent annual outlook, the U.S. Department of Energy projects that the U.S. natural-gas market will become more integrated with natural-gas markets worldwide as the U.S. becomes more dependent on imported liquefied natural gas — causing greater uncertainty in future U.S. natural-gas prices.

The natural-gas supply problem will be additionally magnified if significant greenhouse-gas regulation is enacted.

Here’s how: Currently, when natural gas gets too expensive, electric utilities often substitute coal or cheaper fuels for power generation.

Under a greenhouse-gas regulation scheme, however, inexpensive coal might no longer be an alternative because of the significantly greater greenhouse-gas emissions involved with its combustion.

Utilities, and ultimately consumers, could easily find themselves at the mercy of natural-gas barons — like T. Boone Pickens himself, a large investor in natural gas.

Is that the real “Pickens Plan?”

http://www.foxnews.com/story/0,2933,420941,00.html

The Financial Services & Housing Crisis – How Did We Get Here?

Merril Lynch goes under!

Lehman Brothers will be sold!

Just how did we get here?

There are Politicians who will tell you the failure of these Financial Service Companies are a result of the “bad economy”. THAT CLAIM IS FALSE. 

Thats right.  The economy didn’t cause these companies to fail – implying that the economy did is simply putting the “horse before the cart”.  The same “bad business practices” these companies practiced are to blame for hurting the economy.  The Financial Service Companies that are in trouble today are in that trouble because they invested heavily in “sub-prime”,  “Liar or NINJA” Mortgage Loans. Thats right, the Housing & Financial Services Crisis, like the Housing Crisis is not the result of a faltering economy, instead they are causing the economy to falter.   

The recent “take over” of Fannie Mae and Freddie Mac and today’s sale of Merrril Lynch and the potential bankruptcy of Lehman Brothers is directly related to the number of failing “NINJA or LIAR LOANS” used to back mortgages in an over hyped Housing Market. This situation is similiar to the “Stock Market Bubble” of the 1990’s, when “stocks” were sold on “over evaluated” or “non-existent” companies.        

Ok, so the Feds have announced they will be taking over lending giants Freddie Mac and Fannie Mae. The two institutional lenders either hold or back half of the outstanding mortgages in the US.

Lets tell the truth about the sudden and dramatic worsening of the mortgage markets. The foreclosure rate has nearly doubled since the end of March. There are those facing foreclosure due to the slowing economy, but that number of individuals has remained consistent over the months and matches past historical numbers. The “recent financial results and trouble in the mortgage market has shifted to homeowners who took out exotic loans with little or no proof of their income and assets”. http://www.washtimes.com/news/2008/sep/05/fannie-mae/. Half of Freddie & Fannie’s  losses come from sour Liar Loans. http://www.freep.com/apps/pbcs.dll/article?AID=2008809070341

The Financial Services Companies in trouble today invested heavily in these same mortgages.

The Obama/Biden ticket are trying to make political hay – claiming the that the culprit for the current surge in foreclosures is the economy – when in fact the blame should be laid squarely on “egregious lending practices and rampant speculation by home builders and small investors alike”. http://seattlepi.nwsource.com/business/1310ap_home_foreclosures.html. For those of us who don’t use “egregious” in everyday speech, Webster’s says it means: conspicuously offensive <flagrant errors>; especially : so obviously inconsistent with what is right or proper as to appear to be a flouting of law or morality <flagrant violations of human rights>.

The Mortgage Industry nicknamed these “egregious” loans “NINJA or LIAR LOANS”.

The Detroit Free Press, known to be a liberal publication, defined  “NINJA LOANS” as loans where little or no effort was made to verify a borrowers income or assets. The FREEP pointed out that NINJA stood for  NO INCOME, NO JOB, NO ASSETS. http://www.freep.com/apps/pbcs.dll/article?AID=2008809070341

NPR, long noted for its liberal bias, referred to “Liar Loans” as, ” where the lender makes no effort to verify the income reported by the person receiving the loan”.   http://www.npr.org/templates/story/story.php?storyId=8972571

Details of the Feds intervention, which could cost taxpayers billions. Losses on liar & ninja loans could total $900 billion. Lehman Brother’s could lose $150 Billion alone.

Why did the Mortgage Industry recklessly pursue the use of “Liar or Ninja Loans”? The answer to that question is simple – PROFITS.

“The loans were immensely profitable for the mortgage industry because they carried higher fees and interest rates. A broker who signed up a borrower for a liar loan could reap as much as $15,000 in fees for a $300,000 loan. Traditional lending is far less lucrative, netting brokers around $2,000 to $4,000 in fees for a fixed-rate loan”.                                                  http://www.freep.com/apps/pbcs.dll/article?AID=2008809070341

Reckless lending practices have robbed the economy of the capital necessary to fuel economic growth and create jobs.

Liar and Ninja Loans should be prohibited by Congress. Congressional spending needs to be reduced and taxes lowered to foster econmic growth and put America back on track to properity. 

If the Democrats want to effect real change – they need to start telling the real truth. The Freddie/Fannie bailout is directly due to the fact that the institutions embraced reckless lending practices. If the true problem isn’t recognized, it can’t be fixed.

THE BLOOD LETTING CONTINUES

Washington Mutual replaces CEO Kerry Killinger

BY SARA LEPRO, AP Business Writer 2 hours, 58 minutes ago

NEW YORK – Washington Mutual Inc., ravaged by losses from sour mortgages, replaced Kerry Killinger as chief executive of the nation’s largest savings and loan on Monday, adding him to the growing list of banking bosses ousted by their boards. Its shares sank almost 22 percent.

Battered by rising mortgage delinquencies and defaults, and by the sinking value of its mortgage portfolio, WaMu has lost nearly 70 percent of its market value this year.

Killinger, who was stripped of his chairman title in June, became CEO of the Seattle-based thrift in 1990 and built WaMu into one of the country’s largest banks with a heavy focus on the types of mortgages at the heart of the housing bust.

The company expects losses in its residential mortgage portfolio to total $19 milion.               http://news.yahoo.com/s/ap/20080908/ap_on_bi_ge/washington_mutual_ceo

 

Senator Cornyn Seeks Criminal Inquiry of Fannie, Freddie Executives

September 10, 2008, 1:05 pm

Cornyn Seeks Criminal Inquiry of Fannie, Freddie Executives

Michael R. Crittenden reports on Fannie and Freddie.

A top U.S. Senate Republican called for a criminal investigation into the executives at Fannie Mae and Freddie Mac, marking the latest fallout since the government announced over the weekend it would take the reins of the firms.

Sen. John Cornyn of Texas and vice-chair of the Senate Republican Conference, asked the Department of Justice to investigate possible “accounting fraud and other corrupt practices perpetuated by top executives” at the two firms.

“The public deserves a full understanding of the events surrounding the failure of Fannie Mae and Freddie Mac and, furthermore, corporate executives must be held accountable to the American people,” Cornyn said in a letter to U.S. Attorney General Michael Mukasey released by the senator’s office.

Cornyn referenced the “culture of corruption that plagued these institutions” and raised questions about previous Justice Department investigations of Fannie and Freddie over the last five years in the wake of accounting scandals at both firms.

“Moverover, the efficacy of prior investigations by (the firms’ regulator) and Justice are further called into questions in light of evidence of disturbing allegations of active interference on the part of Fannie Mae lobbyists,” Cornyn said in the letter.

http://blogs.wsj.com/washwire/2008/09/10/cornyn-seeks-criminal-inquiry-of-fannie-freddie-executives/

Venezuela’s Chavez, “Go ahead and squeal, Yankees” – Isn’t it time to Boycott CITGO Oil & Gas

Monday, September 08, 2008

MOSCOW —  Russia said Monday it will send a naval squadron and anti-submarine patrol planes to Venezuela this year for a joint military exercise in the Caribbean, a deployment that comes amid increasingly tense relations with the United States.

Venezuelan President Hugo Chavez ridiculed any U.S. concerns over the joint exercise with the Russian forces, saying, “Go ahead and squeal, Yankees.”

http://www.foxnews.com/story/0,2933,418481,00.html

Posted 1/11/2006 11:16 PM     Updated 1/13/2006 12:18 PM                                                            Has Citgo become a political tool for Hugo Chávez?                                                     By David J. Lynch, USA TODAY

One of the USA’s largest refiners, Citgo is a subsidiary of Venezuela’s state-owned oil company, Petroleos de Venezuela S.A. (PDVSA). As such, it ultimately belongs to Venezuelan President Hugo Chávez, an avowedly anti-American leader who counts Fidel Castro among his closest friends. Some worry that Venezuela’s ownership of more than 6% of U.S. refinery capacity gives Chávez, a former paratrooper given to wearing red berets and military fatigues, the power to cripple. 

Citgo, which sells gasoline through more than 13,500 retail stations in the US is known for its iconic sign towering over Fenway Park’s left-field wall.

http://www.usatoday.com/money/industries/energy/2006-01-11-citgo-cover-usat_x.htm

Next time you need to fill up – drive on past that Citgo and stop at the Exxon down the street.

Michigan’s Dem Governor Granholm appoves of Obama Tax Policy – matches her policies of last 6 yrs

Barack Obama’s economic plan for the country doesn’t represent change. His plan isn’t new. It has been tried before, many times. President Jimmy Carter tried the same programs in the late 1970’s with disastrous results.  

Michigan’s Governor, Jennifer Granholm, has supplied us with a real life example of what happens when you put Obama’s proposed tax and spend programs in place.  Granholm’s destruction of the Michigan economy is a real life illustration of what is to be expected with an Obama victory in November.

Note that both Granholm and Obama learned their economic theory at Harvard Law School, even though Harvard Law doesn’t really teach economic theory. The theory adopted by Granholm and Obama is not the sole theory taught at that prestigious school. Why did these politicians adopt the particular theory they believe in? It might be due to the fact that neither spent their formative years in the US. (Obama in Indonesia, Granholm in Canada). They favor a more Socialist Europen Economic Model of the world. (Europe is presently in a recession and relative to the US, is in a more negative position) or it may just be that the Liberal wing of the Democratic Party has always favored this type of “progressive” tax and spend model. The conservative wing of the Democratic Party (Clinton White House) does not favor this “tax and spend philosophy”.

THE MICHIGAN MODEL

What has happened

Granholm, Michigan’s intensely unpopular Governor, took office in 2003. The Michigan economy had begun to slow in 2002, the year prior to her coming into office. The state unemployment rate was 6.2%, the national average was 5.7%. By the end of 2003 the jobless rate had grown to 7.2 percent, the national rate was 5.7%. There was a job loss of 35,000, however, the unemployment numbers only reflected an additional 4,000 out of work because 31,000 people left the state. 

At the end of 2004 Michigan’s jobless rate was 7.3 percent, the National jobless average 5.5%. The state lost an additional 35,000 residents and thousands of additional jobs.     

At the end of 2005 the jobless rate dipped to 6.1% while the National rate dipped to 4.2%. The State continued both its job loss and population flight.

At the end of 2006 Michigan’s jobless rate jumped to 7.2%, the National average was 5.0, one third lower than in Michigan. The State lost a net 90,000 jobs and over a hundred and fifty thousand residents.

At the end of 2007  Michigan’s jobless rate was 7.6%, the National rate was 4.9%. The state lost 120,000 jobs. 

Between 2003 and 2008 two people fled Michigan for every person coming into the state. The total  job loss (the unadjusted number of jobs eliminated from the State) totaled almost 2 million, the net job loss number is lower because auto or industrial jobs were replaced by service industry jobs.

Warning before the storm

When Granholm first took office in 2003 she announce a long list of liberal social experiments she described as “investment opportunities” to improve Michigan’s economy. Of course she wouldn’t increase the taxes of the “working classes”, just taxes on businesses and the “rich” to fund these “investments” in “infrastructure”.

The first warnings came in 2003. Numerous publications (Wall Street Journal, Detroit News, Free Press, NYT, etc) and scholars from around the country and world warned that increasing taxes in a slow or stalled economy was a risky proposition. The advise was not heeded.  

http://www.opinionjournal.com/editorial/feature.html?id=110006960

http://www.prnewswire.com/cgi-bin/stories.pl?ACCT=104&STORY=/www/story/02-07-2007/0004522529&EDATE

www.mackinac.org/archives/2007/bhi report.pdf

http://bryanritchie.blogspot.com/2007/02/open-letter-to-governor-granholm.html

http://www.youtube.com/watch?v=tXYlRhfsR_Q

The first of the tax increases took place in 2003.

http://www.andersoneconomicgroup.com/modules.php?name=Content&pa=display_aeg&doc_ID=2073

http://www.tednugent.com/hunting/shootback/tax.aspx

http://www.annarborchamber.org/business/chamberpositions/Taxes_and_Millages/sbt_2005.html

The Governor was warned that this would start a vicious cycle – increased taxes make the products or services produced in your state more expensive and less attractive – those products and services are less attractive to buyers – they buy fewer of the goods and services – delivering less tax money -meaning another tax increase is necessary and so on and so on ….. This is exactly the type of death spiral Michigan is in at this time.

http://online.wsj.com/article/SB121192942396124327.html?mod=opinion_main_review_and_outlooks

www.mackinac.org/archives/2007/bhi report.pdf

How many tax increases?

The first property tax increases were made in 2003. The have continued annually. Property taxes continue to escalate out of control.

http://www.macombdaily.com/stories/050807/loc_granholm001.shtml

http://www.mitaxpayers.org/blog/2007/10/recall-update.html

http://search.yahoo.com/search?p=governor+granholm+taxes&ei=UTF-8&fr=att-portal-s&xargs=0&pstart=1&b=31&xa=dL_W83AXwxibGe44IaO82Q–,1221054250

The Michigan foreclosure crisis is not fueled by adjustable rate mortgages, it is being fueled by job loss, population flight and citizens being taxed out of their homes.

Michigan currently has 1.2 million more dwellings than families to fill the dwellings. One of the darker jokes about Michigan is that the only thing slowing the population flight is the fact that home sales are so slow.

Home values and home ownership

The middle class working families of Michigan had a long history of multiple home ownership. Tens of thousands of Michigan residents had summer homes or cottages in Michigan’s “north country”. Higher property tax rates and the elimination of decades old property tax credits forced the sale of thousands of these “summer homes”, previously held by some families for generations.  

The average home price in Michigan is approximately $200,000. A home valued at $200,000 in 2003,  is now valued at $150,000. In 2003 the property tax on the $200,000 house was $3,000. The tax today on the $150,000 home is $7,000.      

The Michigan sales tax increased from 4% to 6%.

Business and personal income taxes have been increased repeatedly. Michigan’s Single Business Tax was replaced, to create a better business climate and “lower taxes”. The replacement, the Michigan Business Tax,  was not only, dollar for dollar, identical to the prior tax, but the rates have been substantially increased.

As the Michigan economy continued a downward spiral the warnings continued throughout 2004, 2005 & 2006. Pundits and professors warned – STOP THE TAX INCREASES. The warnings were not heeded.

http://online.wsj.com/article/SB121192942396124327.html?mod=opinion_main_review_and_outlooks

Taxes have continued to increase year after year.

In November 2007 a huge additional tax increase was passed. Business taxes went up 22% and  other taxes on the residents of Michigan by 13%. The tax increase was intended to raise over 1 Billion dollars – the money would be used for additional “investments”. The Governor promised the new tax would solve the problems of the State and “bring prosperity to all”. The Billion plus dollar tax increase was passed despite the continued warnings that it would further slow the economy and would never generate the promised revenue.

In May 2008 the State announced that additional tax increases will be necessary to prevent a suspension of services. Last years 1 Billion increase is generating $500 million less than expected, creating yet another budget shortfall and the need for additional taxes. The improved economy promised by all these increases is no where in sight.

Michigan’s 2008 budget is $44.8 Billion dollars.  In 2003 the budget was $38 Billion. The State has lost 2,000,000 jobs while increasing taxes by $6 Billion dollars. The people of Michigan are now the 5th most taxed in the nation. 

Michigan government employees have not felt the pinch or belt tightening of the average Michigan resident.   According to the Mackinaw Center for Public Policy the average salary and benefits package of a state employee is $75,000 a year, private sector workers have an average salary and benefit package of $58,000 – this number is still substantially above the national average of $48,200. Rarely will you see such a gap between state employees and those they serve.    

Michigan’s median income continues to drop. Poverty is on the increase. Detroit’s poverty level is 33%, the highest poverty level of any major city in the Country. Flint and Kalamazoo are tried for 5th in the nation (cities with a population between 65K & 250K) with a poverty rate of 35.5%.

There appears to be no end in sight.

THIS PROBLEM DID NOT ORIGINATE IN WASHINGTON, THIS PROBLEM IS HOME GROWN IN MICHIGAN.

Michigan led the Nation into the recession, how can following Michigan’s economic policies lead the nation out?

THE ROAD TO RECOVERY

Michigan has at least two, major, stumbling blocks to recovery.

The first is education. The state ranks 39th out of 50, The state needs better educated workers, better educated to complete for world class jobs. Educated well enough to stop electing officials who continue to tax the state to ruin.

The second stumbling block to reversing this cycle is tax reductions, Michigan must drastically reduce the tax burden it imposes if it wants to attract businesses and the jobs they bring.

Compare what Granholm has done to Michigan with what Democratic Governor Strickland is doing in Ohio.

FALSE CLAIM OF LOSING JOBS OVER SEAS

Michigan’s auto jobs are not moving over seas. The are moving from Michigan to other States where the economic environment made auto production more competitive. The BIG THREE – renamed the Detroit Three – by Nancy Pelosi, the Democratic Speaker of the House – are losing sales volume – even in Michigan. In Michigan Toyota car sales are up 36% while US auto sales are declining. The Toyota’s are being built in the US, just not being built in Michigan.

Barack Obama’s suggested economic change is not new … its a return to the past, to the policies of Jimmy Carter. To see his economic principles in practice just look to the economic success of Michigan. The Country cannot afford to be this successful.

Ohio’s Dem Governor says “No” to Obama tax plan, says Obama’s view of Ohio is wrong

The following article was published in the Wall Street Journal, September 6, 2008. The article was authored by Mr. Strickland , the current Democratic Governor of Ohio. Mr Fisher is the Democratic Lieutenant Governor of that same state. 

The authors are correct – we should not believe all the gloom and doom about Ohio – Ohio has adopted progressive policies that are working and provide a brighter future for the people of that state. The gloom and doom recently described by the Obama/Biden ticket on their way accross Ohio is false.

A dark cloud on the horizon – the proposed tax policy of the Obama/Biden ticket, which would double taxes on dividends and capital gains and increase marginal tax rates to 60%, could undo all of the ground work put in place in Ohio.

You’ll note a stark contrast between the competitive tax policies adopted in Ohio and the policy proposed by the Obama/Biden ticket. If, after you read this article, you are interested in another real life comparison – take a glance at my post “Why Obama is wrong on economics – Look to Michigan”.

The policies proposed by Obama/Biden will cause business contraction and job loss.

 

CROSS COUNTRY

 Don’t Believe the Doomsayers – Ohio’s Economy is doing Fine.

By TED STRICKLAND and LEE FISHER
September 6, 2008; Page A9

Ohio is going to be a hard fought-over state in this presidential election. And consequently, the economy of this bellwether state has become highly scrutinized.

But much of this scrutiny has focused only on the admittedly tragic loss of manufacturing jobs, while overlooking major investments in tax reform, technology and higher education. Things in Ohio are not as the news coverage has made them appear.

AP

Dana Corporation’s automotive parts manufacturing plant in Lima, Ohio.

There’s no question we face serious economic challenges, and that the national economy’s decline has hit citizens hard in the wallet.

But the state has too many strengths, too many successes, and too noble a history to be portrayed as a poster child for the country’s economic woes. Look under Ohio’s hood. Its engine is being redesigned and retooled in ways that offer important lesson on how to make an economy more competitive in a global marketplace.

The biggest shift is in taxes. Ohio business leaders told us that our tax structure was outdated and made the state uncompetitive. So, in a bipartisan manner, we restructured our tax laws to lower the burden for business.

By 2010, Ohio will be one of only two states without a general tax on corporation profits or a property tax on business machinery, equipment and inventories. This year is the last for Ohio’s business property tax; next year is the last for the corporation profits tax. And Ohio’s personal income tax rates are falling by 21% across the board.

Between 2005 and 2007, Ohio’s per capita state tax burden has already fallen to 38th in the nation, from 27th, according to the Federation for Tax Administrators. When the new tax cuts are phased in, Ohio’s business taxes will be the lowest in the Midwest.

Exports, meanwhile, are booming. In 2007, Buckeye State exports totaled more than $42 billion, up 11.1% from 2006, making Ohio the only state in which exports have increased each year since 1998.

The labor force has experienced a dramatic shift in recent decades. There has been a loss of 254,000 manufacturing jobs over the decade ending in 2007. But there has also been an increase of 262,700 professional, health and education jobs over the same period.

Consider just one example. The Ohio State University Medical Center created 3,742 new jobs between 2001 and 2007 by targeting research grants related to cancer studies. Industry models show that $100 in research expenditures creates $222 in wealth in the local economy.

Research-generated jobs, however, require different skills than many in our manufacturing workforce have to offer. So we are investing the money needed to help workers gain the skills they need.

We’ve combined higher education and economic development funds to create a $150 million Ohio Research Scholars program, which will bring 26 world-class scholars to state campuses, individuals whose research specialties align with our economic development priorities. This investment builds on many others. The state has created a $1.6 billion Ohio Third Frontier program that invests in high-tech, advanced materials, bioscience, advanced energy and aerospace industries. The state is spending $250 million in a higher education internship program, and freezing tuition for two years for undergraduates so that more students can afford to stay in college. We’re also spending $100 million in scholarships for students studying science, technology, engineering and math.

Ohio recently passed a bipartisan $1.57 billion jobs stimulus plan that will invest strategically in our infrastructure, future work force and growth industries such as biosciences and renewable energy. Our new Advanced Energy Portfolio Standard requires at least 25% of electricity sold in Ohio to be generated from new and advanced technologies by 2025. This will create vast new opportunities for green energy businesses in Ohio.

Already, Ohio has more alternative energy-related projects under way than any other state. The state’s extensive manufacturing supply chain provides thousands of products to the alternative energy industry. And Ohio is home to the largest fuel cell supply chain in the country. Our welders, machinists, electricians, iron and steel workers are retooling and transferring their skills to retrofitting buildings, building mass transit, installing wind and solar power, and manufacturing energy-efficient cars and trucks.

Ohio now leads the Midwest in the growth of venture capital investments in the biosciences; we rank first nationally in per capita clinical trials and operate the largest center for stem cell and regenerative medicine between the coasts. In the U.S. News & World Report rankings, Ohio leads the nation with four of the country’s top 15 children’s hospitals. The Cleveland Clinic meanwhile has spun off two dozen start-up companies in the past decade, and averages 200 inventions each year.

Companies are responding to our business-friendly environment. Ohio ranked number one in both 2006 and 2007 in major new and existing business facilities expansion, according to Site Selection magazine.

Despite the portrait some paint of Ohio, we believe our greatest opportunities for economic growth still lie before us. And in our future, from tires to polymers, from auto glass to solar panels, from steel bars to wind turbines, Ohio will show that it reinvented itself.

Mr. Strickland, a Democrat, is governor of Ohio. Mr. Fisher, a Democrat, is lieutenant governor of Ohio.

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