_For a while during its design, Asahiko Taira told me, the ship became known as “Godzilla-maru”, so unusual and top-heavy were its projected lines.

“We started planning the Chikyu about 15 years ago, and there were some people who thought we were too ambitious,” he recalled.

“But now we can see that the ship is doing what it is designed to do and is opening up new possibilities.”

As director-general of the Center for Deep Earth Exploration (CDex), an arm of Japan’s Agency for Marine-Earth Science and Technology (Jamstec), Dr Taira played a key role in steering the Chikyu from vague concept to steel reality.

The idea was simple. Scientists wanted to drill down into the Earth’s crust – and even through the crust – to get samples from the key zones 6 or 7km down where earthquakes and lots of other interesting geological processes begin; but that was impossible with existing ships.

Solution: find six hundred million dollars, and design and build a new one.

The first thing that strikes you when the Chikyu comes into view is the drill derrick, which stands 100m above the deck – the tallest ship-borne rig in the world.

Festooned from it are cables a handspan thick, and huge pieces of yellow machinery, all connected with the core business of sending a drill bit deeper into the Earth than has ever been done at sea.

“There is far more to drilling a hole in the ground than just drilling a hole in the ground,” Steve Krukowski tells me as we look down from the deck outside the ship’s onboard laboratory, home of the scientists waiting for the samples that the drillers will provide.

“In days gone by, rigs were manual, whereby you had a guy stuck up on the derrick running the drill pipe on a rope. All the rigs coming out nowadays are automatic, reducing the interface between man and machine.”
_
Steve is the Chikyu’s offshore installation manager, and runs the entire operation when the ship is stationary and drilling.

Although men are still needed on the drill floor, most of the heavy work is done by programmed machines that extract and replace lengths of the drill shaft – or “drillstring” as the professionals call it – or that screw lengths of pipe together, or bring lengths of casing that will line the drill hole.

A robot submarine is deployed near the sea floor, monitoring the shaft as it goes into the ground.

Jason Dow is in charge of the ROV on board the state of the art drilling ship Chikyu.

But you might find all this on any scientific drilling ship. What allows Chikyu to reach the subterranean depths of a subduction zone is a large pipe that goes around the drillstring – the riser.

The riser extends from the bottom of the ship to the bottom of the ocean, effectively connecting the two.

The drill is lowered inside the pipe. Viscous drilling mud can now be pumped down inside the drillstring, returning to the ship inside the riser.

Common as mud might be, it is the key to penetrating down more than one or two kilometres. Without it, there is no way of extracting all the chippings and loose material thrown out by the drill bit, or of keeping enough pressure in the hole to prevent collapse.

Chikyu is currently the only scientific research ship in the world equipped with a riser drilling system, so it is the only ship able to do the work that its onboard scientists are attempting – to drill right into one of the Earth’s major subduction zones, where one tectonic plate slides roughly under another one, with periodic catastrophic consequences.

Currently, Chikyu is drilling in water about 1.6km deep; but one of the further scheduled holes will see a drop of 4km from ship to bottom.

So here is the challenge. Your ship is connected to the ocean floor by a drillstring and a riser, so it has to remain still; yet the water is too deep for anchoring.

The solution lies in technologies on the water and in space that combine into a dynamic positioning (DP) system.

The ship is continuously receiving information from global positioning satellites and from acoustic beacons on the sea floor around the drill site. Special equipment monitors the strength of the wind.

The DP software monitors these streams of data and issues commands to the six azimuth thrusters (variable-direction propellers) and one side thruster in the bow, telling them where to point and how hard to push.

“Of course, it depends on the weather conditions, but usually we keep the ship’s position to within five metres,” says the Chikyu’s captain Yasushi Minoura.

“If the weather is good, our position is like a dot.”

The Chikyu’s third hi-tech element is the onboard laboratory. Rock cores are scanned and cut and probed and scanned again as soon as they come up from the ocean floor.

“First we cut the core section into 1.5m lengths, and then we scan with an X-ray CT scanner,” explains Toshikatsu Kuramoto, who is in charge of the core laboratory.

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“Then it goes through a gamma ray attenuation sensor, measuring the rock density. Then we have a p-wave velocity sensor, measuring the speed of sound through the rock, we sense electrical resistance, susceptibility to magnetism, and the flux of gamma rays coming from the rock itself.”

Only after these tests are the cores sawn down the middle – one half destined for further, possibly destructive testing, and the other for a core archive kept in the Japanese city of Kochi.

The current project, NanTroSEIZE, is concerned with the Earth’s crust and the mechanisms that cause earthquakes.

But Asahiko Taira sees other possibilities for a ship whose drill can reach depths of six, seven or even possibly 10 kilometres under the surface.

“One of the most exciting new ventures could be the first penetration into the mantle,” he says.

“You know the Earth has three layers – crust, mantle and core – and no-one has ever been down into the mantle before.”

The mantle is much closer to the surface under the sea than on land, so the idea does make sense.

But such an operation cannot be conceived overnight. Applications would have to be made – at least in triplicate, one presumes – through the Integrated Ocean Drilling Program (IODP), the international venture that brings together scientists from all over the world and raises money for projects such as NanTroSEIZE.

The company that Jamstec contracts to run the ship is already planning for the operation if its name – Mantle Quest Japan – is anything to go by.

The cost of these operations is formidable – NanTroSEIZE comes in at several hundred thousand dollars per day – but in terms of a project that truly breaks new ground, what could be more appropriate for a vessel that has already re-written the rulebook of the possible?

_

Richard.Black-INTERNET@bbc.co.uk

Is this real? If you have the stomach, click on the image to head to an image gallery and our very ordinary investigation.

So, are these photos real? And the answer, amazingly is… probably yes.

Here in Brazil we have our very own Minhocuçu (Rhinodrilus e Glossoscolex spp) which can easily grow beyond half a meter in length an almost an inch in diameter.

And it’s not by far the longest earthworm recorded.

The Microchaetidae family in South Africa is a group where all species can reach over a meter in length. This is no folk tale or cryptozoological rumor: specimens of this size have been duly recorded for over a century already.

And even those are not the champions. The title goes to the Megascolecidae family from Australia. The record: 2,1 meters by 24 millimeters thick.

The worms in the images all look they are up to a meter in length, compatible with the recorded dimensions for the many species of the families we discussed. They are probably real, though exactly from where and what species my ordinary investigation didn’t come up with. Specialists, do enlighten us with further confirmation and identification! The first image of a girl holding up one, for instance, may not be of an earthworm but of is a caecilian.

Giant earthworms are harmless, but perhaps because of their plain appearance and our instinctive disgust of them all kinds of legends are associated with them, even in places where we can’t find those “little” couple-meter-earthworms.

The most curious legend is not exactly about an earthworm, but of a worm. A death worm. The Mongolian Death Worm. It can allegedly kill its victims by either spraying a lethal and blinding venom, or sending electrical discharges.

In Brazil, where we do have our Minhocuçus, there’s also the legend of Minhocão, 25 meters in size. Like the Mongolian Death Worm, its not very plausible such a creature exists.

Earthworms over a couple of meters in length are real and they can more than make up for a mix of disgust and fascination. Not only they can harm nobody and are actually important part of the ecosystem, in Brazil they are in danger as they make really excellent fishing bait. This is no joke (link in Portuguese).

UPDATE: Identified! Well, at least the where and who for the second photo. It’s from Lisa B, available on her flickr account. As Lisa wrote in the comments below, “that image was taken in the Bellavista Cloud Forest Reserve in Ecuador, and it is indeed a real worm.” Thank you! Apologies for not including credit beforehand, I reproduced the original gallery from erueru, linked below, and I’m happy to include the sources.

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To the surprise of surely no one, Time Warner said it plans to spin off AOL later this year in a move that will unwind a merger that seemed doomed from the start and foretold the broader reversal of internet company fortunes in the soon-to-follow dot-com bust.

Time Warner said its board had approved the initiative, signaled for months, in a way which would ensure that it would be tax-free to shareholders, which had been a major sticking point. It plans to purchase the 5% of the company Google owns before the separation. The deal still requires regulatory approval.

The tie-up announced on Jan. 10, 2000 was something of a crescendo in the hot internet market of the 1990’s, unveiled with all the throbbing-music stagecraft of the release of a rock band’s tour dates. There was new media wunderkind Steve Case, uncharacteristically wearing a tie, and old media tycoon Jerry Levin, uncharacteristically sporting an open collar. If only everyone had seen what was wrong with that picture at the time.

Billed as a “merger

of equals” the tie-up was more a tale of the minnow swallowing the shark, with AOL shareholders actually owning 55% of the new company. The all-stock deal made Case, who had built up AOL from a few hundred thousand customers to more than 30 million in 6 years or so, seem even more the internet genius. Case became chairman of the behemoth, and Time Warner’s Levin remained CEO.

AOL Time Warner was instantly the largest media company in the world, with a market cap of $350 billion. Shares in the two companies surged in the immediate afterglow of the news, but when reality set in the value of the company began a steady decline. While it seemed brilliant on paper the marriage of a major content company — with interests in film, TV, telecommunications and publishing  — with the hot internet company of the day simply never worked out.

AOL’s supremacy was based on its dial-up business, which broadband had already begun to erode, and a walled-garden approach online content that was already becoming stale, so the supposed synergies were non-existent. Then Google came along and ate everyone’s advertising-business lunch on the open web. But even before the tectonic changes in the industry the handwriting was on the wall: AOL Time Warner reported a $99 billion loss in 2002 — at the time, the largest ever by a US company — and in 2003 dropped “AOL” from the corporate name.

In March former Google executive Tim Armstrong signed on to run the AOL division, now clearly with the understanding that he’d get the chance to breathe life into a new, stand-alone company. Armstrong was an early star Google employee and headed up US ad sales during its frenetic expansion. As Wired’s Fred Vogelstein put it at the time, Armstrong seems especially well suited to turn AOL around, noting that under a stifling Time Warner tent AOL  ceased to be the innovator Google had become.

“But unlike Google, which is an innovation machine, AOL has become a place where good ideas go to die. You don’t innovate as an AOL executive anymore, you make grandiose claims about a vision and wait for the next restructuring that frees you from any accountability.

“Fixing this poisonous culture will no doubt be Armstrong’s first order of business, and if AOL was a stand alone

company I’d think he had a good shot at making it happen.”

Wired

China has actually bought Treasury bonds at an accelerating pace over the last year, but the borrowing needs of the United States government have grown even faster. Prime Minister Wen Jiabao of China, right, and President Obama.

HONG KONG — Leaders in both Washington and Beijing have been fretting openly about the mutual dependence — some would say codependence — created by China’s vast holdings of United States bonds. But beyond the talk, the relationship is already changing with surprising speed.

China is growing more picky about which American debt it is willing to finance, and is changing laws to make it easier for Chinese companies to invest abroad the billions of dollars they take in each year by exporting to America. For its part, the United States is becoming relatively less dependent on Chinese financing.

China has actually bought Treasury bonds at an accelerating pace over the last year — notwithstanding Chinese officials’ complaints about American profligacy. But the borrowing needs of the United States government have grown even faster. So China represents a rapidly shrinking share of overall purchases of Treasury securities. “China’s demand for Treasuries has increased over the past year, but it hasn’t increased at anything like the pace of the Treasury’s sale of new Treasury bonds,” said Brad W. Setser, a specialist in Chinese financial flows at the Council on Foreign Relations.

Americans and investors elsewhere are buying Treasuries instead. They are saving more and have been shifting out of other investments — including equities until the past two months — and into Treasuries.

China bought less than a sixth of the Treasuries issued in the 12 months through March. Less than two years ago, by contrast, Chinese purchases of Treasuries, which included purchases in the secondary market as well as newly issued securities, briefly exceeded the entire borrowing needs of the United States.

Financial statistics released by both countries in recent days show that China paradoxically stepped up its lending to the American government over the winter even as it virtually stopped putting fresh money into dollars.

This combination is possible because China has been exchanging one dollar-denominated asset for another — selling the debt of government-sponsored enterprises like Fannie Mae and Freddie Mac in a hurry to buy Treasuries. While this has been clear for months, new data shows that China is also trading long-term Treasuries for short-term notes, highlighting Beijing’s concerns that inflation will erode the dollar’s value in the long run as America amasses record debt.

So China’s rising purchases of Treasuries do not represent the confident bet on America’s future that they might seem to be on the surface. For instance, China does not appear to be dumping euros or yen to buy Treasuries, economists said.

That said, recent Chinese and American data suggest that an astounding 82 percent of China’s $2 trillion in foreign reserves is in dollars, according to calculations by Standard Chartered.

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The development has caught the attention of the leaders of both countries.

“The long-term deficit and debt that we have accumulated is unsustainable — we can’t keep on just borrowing from China,” President Obama said last Thursday.

Wen Jiabao, prime minister of China, also has expressed concern.

“We have lent a huge amount of money to the U.S. Of course we are concerned about the safety of our assets. To be honest, I am definitely a little worried,” Mr. Wen said earlier this year.

China now earns more than $50 billion a year in interest from the United States, Mr. Setser at the Council on Foreign Relations calculated.

China’s leaders were able to buy more Treasuries in recent months without buying more dollars because they have abruptly turned their back on the market for securities issued by government-sponsored enterprises.

China was the world’s biggest buyer of these securities a year ago, splashing out more than $10 billion a month.

But in the 12 months through March, it actually had net sales of $7 billion, and ramped up purchases of Treasuries instead.

China has also changed which Treasuries it buys. It has done so in ways calculated to reduce its exposure to inflation or other problems in the United States. As recently as a year ago, China actively bought long-dated bonds, seeking the extra yield they could bring compared to Treasury securities with short maturities, of which China bought virtually none.

But in each month since November, China has been buying more Treasury bills, with a maturity of a year or less, than Treasuries with longer maturities. This gives China the option of cashing out its positions in a hurry, by not rolling over its investments into new Treasury bills as they come due should inflation in the United States start rising and make Treasury securities less attractive.

The big question now for policy makers and economists alike lies in whether the Chinese government’s purchases of American securities will rise or fall in the coming months.

Two big forces are at work — but they are pushing Chinese investments in opposite directions and might cancel each other out.

The first big shift is that Chinese foreign exchange reserves might start growing again, after shrinking early this year.

A senior Chinese economic policy maker, Xu Lin, expressed concern here on Monday that the reserves might grow faster if speculators started pushing more foreign exchange into China in the months ahead.

China is strongly opposed to any significant appreciation or depreciation of its currency, Mr. Xu said at a press conference. But if international investors conclude that the Chinese economy has stabilized ahead of economies elsewhere, they may start pumping more money into the Chinese economy, he said.

To keep its currency at the same level, the Chinese government buys foreign currency flowing into the country in excess of China’s needs. If overseas demand for Chinese exports recovers, then China’s trade surplus could start widening again as well. This would also tend to fatten Chinese reserves.But the countervailing trend is that the Chinese government is trying to foster channels for foreign currency to be pumped out of the country without the involvement of the central bank. The government has been buying a wider range of assets and encouraging the private sector to invest more money overseas.

“That’s part of a strategic move by the authorities to diversify,” said Wensheng Peng, the head of China research at Barclays Capital. “The reserves growth should accelerate because of inflows, but it will not be as large as what we observed in 2007 and the first half of 2008.”

The State Administration of Foreign Exchange, which is part of the central bank, issued draft regulations on Monday that would make it considerably easier for private companies to raise dollars in China to spend on overseas investments — a step that would lessen the need for the Chinese government to buy up those dollars.

This spring China has also been stepping up its purchases of commodities, which are usually bought in dollars. Iron ore has been piling up on Chinese docks, government stockpiles of crude oil and grain are being expanded and stockpiles are being started for products like gasoline, diesel and sugar.

After six years of silence, China unexpectedly disclosed last month that it had been gradually buying gold from domestic producers. The country’s reserves had climbed from 600 tons in 2003 to 1,054 tons, worth $31.8 billion at prices late Wednesday.

The disclosure, which produced a frisson of excitement in gold markets, may have been aimed at reassuring a domestic audience that the Chinese government was not putting all the nation’s savings into American dollars. But the actual investment was tiny compared with China’s foreign exchange reserves — and showed that China was accumulating gold at a much slower rate than foreign currency.

A person in periodic contact with China’s central bank, who insisted on anonymity to preserve his access, said that a Chinese central banker complained to him last year that “we have so much money and there’s so little gold, we can’t buy much without driving up the price.”

NY Times

“Well, we are out of money now…” President Obama, May 25, 2009

Depends on the definition of “we”.

We got into this crisis because Wall Street invented and pedaled fantasy financial instruments that turned out to be junk. While their party lasted, those complex derivatives were a gold mine for the largest financial institutions. According to the New York Times, the profits from the nine largest commercial banks “from early 2004 until the middle of 2007 were a combined $305 billion. But since 2007, those banks have marked down their valuations on loans and other assets by just over that amount.” In other words, the profits weren’t real.

When the fantasy finance bubble burst and all the fictional profits disappeared, the banks headed straight for mass bankruptcy. Had the government not intervened, many, if not all of them would have gone under, taking the world economy with them. To prevent a total meltdown, we’ve forked over several trillion dollars in bail outs, loan guarantees and stimulus funds.

But let’s back up a bit. What happened to the $305 billion of 2004 through 2007 bank profits that have since vanished from the banks’ balance sheets? About half were paid out in compensation to executives, managers and traders. Yes, amazing as it may seem, when you work for a large financial institution you can be paid massive sums even if your work ends up producing nothing — not even just nothing, but a negative result. All those autoworkers who are being blamed for the miseries of GM and Chrysler? They actually did make cars that are still transporting people. But the Wall Street players, who took home billions for supposedly making valuable financial instruments, were actually making economic weapons of mass destruction. And you can bet that much of their billions are safely parked in off-shore accounts and other low/no tax investments. In a sane and fair world, we would be thinking about how to get it back to help pay for the costs of cleaning up the toxic financial mess.

In a more general way, the bubble boom produced by those fantasy financial instruments helped create a slew of billionaires. As Obama likes to point out, “This is America. We don’t disparage wealth. We don’t begrudge anyone for achieving success.” But is there some limit beyond which success spills into obscene accumulation? At the very least we should be careful not to lose sight of how much money billionaires possess. In researching The Looting of America we tracked the wealth of the super-rich.

In 1982, the top 400 individuals held an average net worth of $604 million each (in 2008 dollars). By 1995, their average wealth jumped to $1.7 billion. And in 2008, the 400 top winners averaged $3.9 billion each…. The total for the 400 high rollers adds up to a cool $1.56 trillion. That’s equal to about 10 percent of the entire gross domestic product of the US…

We certainly could have a heated argument about how much of this wealth derived from the derivative-driven boom that just went bust. A case could be made that much of this money is ill-gotten since it came from artificial financial instruments that were rated improperly, or came from artificially leveraged transactions that now have crashed the system as a whole. An even more contentious fight would break out if we discussed whether there is any justification for allowing that such sums to accumulate in the hands of the few, no matter how worthy any of these individuals may be. And we could have us a row asking whether or not a democracy can really survive with so much wealth in the hands of so few people. But surely we can all agree that those top 400 are sitting on a huge pile of money, while our country is going deeply into debt to fix a financial system that has contributed mightily to their enrichment.

Here’s a dangerous thought. What if we had a very steeply progressive wealth/income tax that reduced the net worth of the super-rich to “only” about $100 million each? You wouldn’t be suffering if you had $100 million kicking around. Now do the math: The 400 richest x $100 million each would equal $40 billion. That would leave about $1.52 trillion to help pay back the country for the Wall Street meltdown that we, our children and their children will be subsidizing.

Maybe we’re not so out of money after all.

Les Leopold is the author of The Looting of America: How Wall Street’s Game of Fantasy Finance destroyed our Jobs, Pensions and Prosperity, and What we can do about it. (Chelsea Green Publishing, June 2009)

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General Motors said Thursday that a group representing many of its largest bondholders had accepted a proposal offering up to a 25 percent stake in exchange for not opposing G.M.’s bankruptcy reorganization plan.

In a regulatory filing, G.M. also filled out many of the details of the reorganization plan, crafted under the eye of the Treasury Department.

G.M. confirmed that the government would provide more than $50 billion in bankruptcy financing to see the company through its Chapter 11 filing. What will emerge, through an asset sale known as a 363 transaction, is a newer, slimmer G.M. with about $17 billion in debt.

Under the terms of the deal, G.M. would sell itself in Chapter 11 and bondholders would receive a 10 percent stake in the newly reorganized company in exchange for about $27 billion in bonds. They would also receive warrants to buy an additional 15 percent of a new G.M., exercisable if G.M.’s value rises to certain levels.

G.M. said in the regulatory filing that the proposal depends on the government getting enough bondholders to make statements of support backing the terms of the swap. Without those statements, which are due by Saturday, the amount of stock and warrants for bondholders would be “substantially reduced or eliminated.”

The bondholder committee, which represents holders of about 20 percent of the bonds’ value, had already said they support the proposal, G.M. said.

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“The ad hoc committee of G.M. bondholders supports the revised offer from G.M. and believes that when contrasted with the alternative — uncertain and costly bankruptcy court litigation — that it represents the best alternative for bondholders in the current difficult and dire situation,” the group said Thursday in a statement.

Earlier this week, bondholders overwhelmingly rejected a debt exchange offer that would have swapped their bonds for 10 percent of the company’s equity. It is believed that G.M.’s bonds are held by tens of thousands of investors, ranging from institutions to individuals.

Thursday’s announcement came after German and American negotiators in Britain failed to agree on a crucial bridge loan to sustain Opel and the rest of the European operations of General Motors in the event of a bankruptcy filing, following a marathon negotiating session that stretched till nearly 5 a.m. Thursday.

But officials did manage to narrow the field of potential suitors for Opel to two companies — Fiat, the Italian automaker, and Magna, a Canadian auto parts giant. A Belgian private equity firm as well as a Chinese automaker were knocked out of contention.

NY Times

With budget deficits soaring and President Obama pushing a trillion-dollar-plus expansion of health coverage, some Washington policymakers are taking a fresh look at a money-making idea long considered politically taboo: a national sales tax.

Common around the world, including in Europe, such a tax — called a value-added tax, or VAT — has not been seriously considered in the United States. But advocates say few other options can generate the kind of money the nation will need to avert fiscal calamity.

At a White House conference earlier this year on the government’s budget problems, a roomful of tax experts pleaded with Treasury Secretary Timothy F. Geithner to consider a VAT. A recent flurry of books and papers on the subject is attracting genuine, if furtive, interest in Congress. And last month, after wrestling with the White House over the massive deficits projected under Obama’s policies, the chairman of the Senate Budget Committee declared that a VAT should be part of the debate.

“There is a growing awareness of the need for fundamental tax reform,” Sen. Kent Conrad (D-N.D.) said in an interview. “I think a VAT and a high-end income tax have got to be on the table.”

A VAT is a tax on the transfer of goods and services that ultimately is borne by the consumer. Highly visible, it would increase the cost of just about everything, from a carton of eggs to a visit with a lawyer. It is also hugely regressive, falling heavily on the poor. But VAT advocates say those negatives could be offset by using the proceeds to pay for health care for every American — a tangible benefit that would be highly valuable to low-income families.

Liberals dispute that notion. “You could pay for it regressively and have people at the bottom come out better off — maybe. Or you could pay for it progressively and they’d come out a lot better off,” said Bob McIntyre, director of the nonprofit Citizens for Tax Justice, which has a health financing plan that targets corporations and the rich.

A White House official said a VAT is “unlikely to be in the mix” as a means to pay for health-care reform. “While we do not want to rule any credible idea in or out as we discuss the way forward with Congress, the VAT tax, in particular, is popular with academics but highly controversial with policymakers,” said Kenneth Baer, a spokesman for White House Budget Director Peter Orszag.

Still, Orszag has hired a prominent VAT advocate to advise him on health care: Ezekiel Emanuel, brother of White House chief of staff Rahm Emanuel and author of the 2008 book “Health Care, Guaranteed.” Meanwhile, former Federal Reserve chairman Paul A. Volcker, chairman of a task force Obama assigned to study the tax system, has expressed at least tentative support for a VAT.

“Everybody who understands our long-term budget problems understands we’re going to need a new source of revenue, and a VAT is an obvious candidate,” said Leonard Burman, co-director of the Tax Policy Center, a joint project of the Urban Institute and the Brookings Institution, who testified on Capitol Hill this month about his own VAT plan. “It’s common to the rest of the world, and we don’t have it.”

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Seeking New Revenue

The surge of interest in a VAT is testament to the extraordinary depth of the nation’s money troubles. While some conservatives have long argued that a consumption tax would provide a simpler and more efficient alternative to the byzantine U.S. income tax code, this time it’s all about the money.

The federal budget deficit is projected to approach $1.3 trillion next year, the highest ever except for this year, when the deficit is forecast to exceed $1.8 trillion. The Treasury is borrowing 46 cents of every dollar it spends, largely from China and other foreign creditors, who are growing increasingly uneasy about the security of their investments. Unless Congress comes up with some serious cash, expanding the nation’s health-care system will only add to the problem.

Obama wants to raise income taxes for high earners and impose new levies on business, but those moves would not generate enough cash to cover the cost of health care, much less balance the budget, and they have not been fully embraced by Congress. Obama’s plan to tax greenhouse-gas emissions could raise trillions of dollars, but again, Congress is balking.

Key lawmakers are considering other ways to pay for health reform, including new taxes on sugary soda, alcohol and employer-provided health insurance. The last proposal could raise a lot of money — nearly $1 trillion over the next five years, according to White House budget documents. But options on the table would raise a fraction of that sum. And while it might pay for health care, it would barely dent deficits projected to total nearly $4 trillion over the next five years and to grow rapidly in the future, as baby boomers draw on Social Security and Medicare.

Enter the VAT, one of the world’s most popular taxes, in use in more than 130 countries. Among industrialized nations, rates range from 5 percent in Japan to 25 percent in Hungary and in parts of Scandinavia. A 21 percent VAT has permitted Ireland to attract investment by lowering its corporate tax rate.

The VAT has advantages: Because producers, wholesalers and retailers are each required to record their transactions and pay a portion of the VAT, the tax is hard to dodge. It punishes spending rather than savings, which the administration hopes to encourage. And the threat of a VAT could pull the country out of recession, some economists argue, by hurrying consumers to the mall before the tax hits.

A VAT’s Bottom Line

What would it cost? Emanuel argues in his book that a 10 percent VAT would pay for every American not entitled to Medicare or Medicaid to enroll in a health plan with no deductibles and minimal copayments. In his 2008 book, “100 Million Unnecessary Returns,” Yale law professor Michael J. Graetz estimates that a VAT of 10 to 14 percent would raise enough money to exempt families earning less than $100,000 — about 90 percent of households — from the income tax and would lower rates for everyone else.

And in a paper published last month in the Virginia Tax Review, Burman suggests that a 25 percent VAT could do it all: Pay for health-care reform, balance the federal budget and exempt millions of families from the income tax while slashing the top rate to 25 percent. A gallon of milk would jump from $3.69 to $4.61, and a $5,000 bathroom renovation would suddenly cost $6,250, but the nation’s debt would stabilize and everybody could see a doctor.

Sales Tax Gains Momentum

Burman, who helped House Democrats craft an unsuccessful 2007 plan to repeal the alternative minimum tax, said he’s received a number of phone calls from lawmakers interested in his idea, though “they can’t quite imagine how to make it happen politically.” Burman said the 25 percent rate has caused some sticker shock, and he’s trying to figure out how to bring it down.

Graetz’s proposal drew an endorsement from Volcker, who last year called it “a sensible plan for reform.” (Volcker did not respond to a request for comment.) It also has piqued the interest of Conrad, the Senate Budget Committee chairman who argues that it could be modified to accommodate Obama’s pledge not to raise taxes on families who make less than $200,000 a year.

“I think interest is quietly picking up,” Graetz said. “People are beginning to recognize that the mathematics of the current system are just unsustainable. You have to do something. And a VAT has got to be on the table if you want to do something big and serious.”

Still, the Senate Finance Committee declined to include a VAT among the options it is considering to pay for health reform. And even VAT supporters doubt the tax will find a place among the tax-reform proposals the Volcker panel has been asked to produce by Dec. 4.

Though the nation’s fiscal outlook is grim, Burman said “the situation will have to get more desperate” before lawmakers are likely to consider a new levy aimed directly at the pocketbooks of every one of their constituents.

Most lawmakers are still looking for “a painless source of revenue” to overhaul the health-care system and dig the nation out of debt, Burman said. “Who knows?” he added. “Maybe the tooth fairy will bring that to them.”

The Greatest Swindle Ever Sold

On October 3, as the spreading economic meltdown threatened to topple financial behemoths like American International Group (AIG) and Bank of America and plunged global markets into freefall, the US government responded with the largest bailout in American history. The Emergency Economic Stabilization Act of 2008, better known as the Troubled Asset Relief Program (TARP), authorized the use of $700 billion to stabilize the nation’s failing financial systems and restore the flow of credit in the economy.

The legislation’s guidelines for crafting the rescue plan were clear: the TARP should protect home values and consumer savings, help citizens keep their homes and create jobs. Above all, with the government poised to invest hundreds of billions of taxpayer dollars in various financial institutions, the legislation urged the bailout’s architects to maximize returns to the American people.

That $700 billion bailout has since grown into a more than $12 trillion commitment by the US government and the Federal Reserve. About $1.1 trillion of that is taxpayer money–the TARP money and an additional $400 billion rescue of mortgage companies Fannie Mae and Freddie Mac. The TARP now includes twelve separate programs, and recipients range from megabanks like Citigroup and JPMorgan Chase to automakers Chrysler and General Motors.

Seven months in, the bailout’s impact is unclear. The Treasury Department has used the recent “stress test” results it applied to ninteen of the nation’s largest banks to suggest that the worst might be over; yet the International Monetary Fund, as well as economists like New York University professor and economist Nouriel Roubini and New York Times columnist Paul Krugman predict greater losses in US markets, rising unemployment and generally tougher economic times ahead.

What cannot be disputed, however, is the financial bailout’s biggest loser: the American taxpayer. The US government, led by the Treasury Department, has done little, if anything, to maximize returns on its trillion-dollar, taxpayer-funded investment. So far, the bailout has favored rescued financial institutions by subsidizing their losses to the tune of $356 billion, shying away from much-needed management changes and–with the exception of the automakers–letting companies take taxpayer money without a coherent plan for how they might return to viability.

The bailout’s perks have been no less favorable for private investors who are now picking over the economy’s still-smoking rubble at the taxpayers’ expense. The newer bailout programs rolled out by Treasury Secretary Timothy Geithner give private equity firms, hedge funds and other private investors significant leverage to buy “toxic” or distressed assets, while leaving taxpayers stuck with the lion’s share of the risk and potential losses.

Given the lack of transparency and accountability, don’t expect taxpayers to be able to object too much. After all, remarkably little is known about how TARP recipients have used the government aid received. Nonetheless, recent government reports, Congressional testimony and commentaries offer those patient enough to pore over hundreds of pages of material glimpses of just how Wall Street friendly the bailout actually is. Here, then, based on the most definitive data and analyses available, are six of the most blatant and alarming ways taxpayers have been scammed by the government’s $1.1-trillion, publicly funded bailout.

1. By overpaying for its TARP investments, the Treasury Department provided bailout recipients with generous subsidies at the taxpayer’s expense.

When the Treasury Department ditched its initial plan to buy up “toxic” assets and instead invest directly in financial institutions, then-Treasury Secretary Henry Paulson Jr. assured Americans that they’d get a fair deal. “This is an investment, not an expenditure, and there is no reason to expect this program will cost taxpayers anything,” he said in October 2008.

Yet the Congressional Oversight Panel (COP), a five-person group tasked with ensuring that the Treasury Department acts in the public’s best interest, concluded in its monthly report for February that the department had significantly overpaid by tens of billions of dollars for its investments. For the ten largest TARP investments made in 2008, totaling $184.2 billion, Treasury received on average only $66 worth of assets for every $100 invested. Based on that shortfall, the panel calculated that Treasury had received only $176 billion in assets for its $254 billion investment, leaving a $78 billion hole in taxpayer pockets.

Not all investors subsidized the struggling banks so heavily while investing in them. The COP report notes that private investors received much closer to fair market value in investments made at the time of the early TARP transactions. When, for instance, Berkshire Hathaway invested $5 billion in Goldman Sachs in September, the Omaha-based company received securities worth $110 for each $100 invested. And when Mitsubishi invested in Morgan Stanley that same month, it received securities worth $91 for every $100 invested.

As of May 15, according to the Ethisphere TARP Index, which tracks the government’s bailout investments, its various investments had depreciated in value by almost $147.7 billion. In other words, TARP’s losses come out to almost $1,300 per American taxpaying household.

2. As the government has no real oversight over bailout funds, taxpayers remain in the dark about how their money has been used and if it has made any difference.

While the Treasury Department can make TARP recipients report on just how they spend their government bailout funds, it has chosen not to do so. As a result, it’s unclear whether institutions receiving such funds are using that money to increase lending–which would, in turn, boost the economy–or merely to fill in holes in their balance sheets.

Neil M. Barofsky, the special inspector general for TARP, summed the situation up this way in his office’s April quarterly report to Congress: “The American people have a right to know how their tax dollars are being used, particularly as billions of dollars are going to institutions for which banking is certainly not part of the institution’s core business and may be little more than a way to gain access to the low-cost capital provided under TARP.”

This lack of transparency makes the bailout process highly susceptible to fraud and corruption. Barofsky’s report stated that twenty separate criminal investigations were already underway involving corporate fraud, insider trading and public corruption. He also told the Financial Times that his office was investigating whether banks manipulated their books to secure bailout funds. “I hope we don’t find a single bank that’s cooked its books to try to get money, but I don’t think that’s going to be the case.”

Economist Dean Baker, co-director of the Center for Economic and Policy Research in Washington, suggested to TomDispatch in an interview that the opaque and complicated nature of the bailout may not be entirely unintentional, given the difficulties it raises for anyone wanting to follow the trail of taxpayer dollars from the government to the banks. “[Government officials] see this all as a Three Card Monte, moving everything around really quickly so the public won’t understand that this really is an elaborate way to subsidize the banks,” Baker says, adding that the public “won’t realize we gave money away to some of the richest people.”

3. The bailout’s newer programs heavily favor the private sector, giving investors an opportunity to earn lucrative profits and leaving taxpayers with most of the risk.

Under Treasury Secretary Geithner, the Treasury Department has greatly expanded the financial bailout to troubling new programs like the Public-Private Investment Program (PPIP) and the Term Asset-Backed-Securities Loan Facility (TALF). The PPIP, for example, encourages private investors to buy “toxic” or risky assets on the books of struggling banks. Doing so, we’re told, will get banks lending again because the burdensome assets won’t weigh them down. Unfortunately, the incentives the Treasury Department is offering to get private investors to participate are so generous that the government–and, by extension, American taxpayers–are left with all the downside.

Joseph Stiglitz, the Nobel-prize winning economist, described the PPIP program in a New York Times op-ed this way:

Consider an asset that has a 50-50 chance of being worth either zero or $200 in a year’s time. The average “value” of the asset is $100. Ignoring interest, this is what the asset would sell for in a competitive market. It is what the asset is ‘worth.’ Under the plan by Treasury Secretary Timothy Geithner, the government would provide about 92 percent of the money to buy the asset but would stand to receive only 50 percent of any gains, and would absorb almost all of the losses. Some partnership!

Assume that one of the public-private partnerships the Treasury has promised to create is willing to pay $150 for the asset. That’s 50 percent more than its true value, and the bank is more than happy to sell. So the private partner puts up $12, and the government supplies the rest–$12 in “equity” plus $126 in the form of a guaranteed loan.

If, in a year’s time, it turns out that the true value of the asset is zero, the private partner loses the $12, and the government loses $138. If the true value is $200, the government and the private partner split the $74 that’s left over after paying back the $126 loan. In that rosy scenario, the private partner more than triples his $12 investment. But the taxpayer, having risked $138, gains a mere $37.”

Worse still, the PPIP can be easily manipulated for private gain. As economist Jeffrey Sachs has described it, a bank with worthless toxic assets on its books could actually set up its own public-private fund to bid on those assets. Since no true bidder would pay for a worthless asset, the bank’s public-private fund would win the bid, essentially using government money for the purchase. All the public-private fund would then have to do is quietly declare bankruptcy and disappear, leaving the bank to make off with the government money it received. With the PPIP deals set to begin in the coming months, time will tell whether private investors actually take advantage of the program’s flaws in this fashion.

The Treasury Department’s TALF program offers equally enticing possibilities for potential bailout profiteers, providing investors with a chance to double, triple or even quadruple their investments. And like the PPIP, if the deal goes bad, taxpayers absorb most of the losses. “It beats any financing that the private sector could ever come up with,” a Wall Street trader commented in a recent Fortune magazine story. “I almost want to say it is irresponsible.”

4. The government has no coherent plan for returning failing financial institutions to profitability and maximizing returns on taxpayers’ investments.

Compare the treatment of the auto industry and the financial sector, and a troubling double standard emerges. As a condition for taking bailout aid, the government required Chrysler and General Motors to present detailed plans on how the companies would return to profitability. Yet the Treasury Department attached minimal conditions to the billions injected into the largest bailed-out financial institutions. Moreover, neither Geithner nor Lawrence Summers, one of President Barack Obama’s top economic advisors, nor the president himself has articulated any substantive plan or vision for how the bailout will help these institutions recover and, hopefully, maximize taxpayers’ investment returns.

The Congressional Oversight Panel highlighted the absence of such a comprehensive plan in its January report. Three months into the bailout, the Treasury Department “has not yet explained its strategy,” the report stated. “Treasury has identified its goals and announced its programs, but it has not yet explained how the programs chosen constitute a coherent plan to achieve those goals.”

Today, the department’s endgame for the bailout still remains vague. Thomas Hoenig, president of the Federal Reserve Bank of Kansas City, wrote in the Financial Times in May that the government’s response to the financial meltdown has been “ad hoc, resulting in inequitable outcomes among firms, creditors, and investors.” Rather than perpetually prop up banks with endless taxpayer funds, Hoenig suggests, the government should allow banks to fail. Only then, he believes, can crippled financial institutions and systems be fixed. “Because we still have far to go in this crisis, there remains time to define a clear process for resolving large institutional failure. Without one, the consequences will involve a series of short-term events and far more uncertainty for the global economy in the long run.”

The healthier and more profitable bailout recipients are once financial markets rebound, the more taxpayers will earn on their investments. Without a plan, however, banks may limp back to viability while taxpayers lose their investments or even absorb further losses.

5. The bailout’s focus on Wall Street mega-banks ignores smaller banks serving millions of American taxpayers that face an equally uncertain future.

The government may not have a long-term strategy for its trillion-dollar bailout, but its guiding principle, however misguided, is clear: what’s good for Wall Street will be best for the rest of the country.

On the day the mega-bank stress tests were officially released, another set of stress-test results came out to much less fanfare. In its quarterly report on the health of individual banks and the banking industry as a whole, Institutional Risk Analytics (IRA), a respected financial services organization, found that the stress levels among more than 7,500 FDIC-reporting banks nationwide had risen dramatically. For 1,575 of the banks, net incomes had turned negative due to decreased lending and less risk-taking.

The conclusion IRA drew was telling: “Our overall observation is that US policy makers may very well have been distracted by focusing on 19 large stress test banks designed to save Wall Street and the world’s central bank bondholders, this while a trend is emerging of a going concern viability crash taking shape under the radar.” The report concluded with a question: “Has the time come to shift the policy focus away from the things that we love, namely big zombie banks, to tackle things that are truly hurting us?”

6. The bailout encourages the very behaviors that created the economic crisis in the first place instead of overhauling our broken financial system and helping the individuals most affected by the crisis.

As Joseph Stiglitz explained in the New York Times, one major cause of the economic crisis was bank overleveraging. “Using relatively little capital of their own,” he wrote, banks “borrowed heavily to buy extremely risky real estate assets. In the process, they used overly complex instruments like collateralized debt obligations.” Financial institutions engaged in overleveraging in pursuit of the lucrative profits such deals promised–even if those profits came with staggering levels of risk.

Sound familiar? It should, because in the PPIP and TALF bailout programs the Treasury Department has essentially replicated the very over-leveraged, risky, complex system that got us into this mess in the first place: in other words, the government hopes to repair our financial system by using the flawed practices that caused this crisis.

Then there are the institutions deemed “too big to fail.” These financial giants–among them AIG, Citigroup and Bank of America– have been kept afloat by billions of dollars in bottomless bailout aid. Yet reinforcing the notion that any institution is “too big to fail” is dangerous to the economy. When a company like AIG grows so large that it becomes “too big to fail,” the risk it carries is systemic, meaning failure could drag down the entire economy. The government should force “too big to fail” institutions to slim down to a safer, more modest size; instead, the Treasury Department continues to subsidize these financial giants, reinforcing their place in our economy.

Of even greater concern is the message the bailout sends to banks and lenders–namely, that the risky investments that crippled the economy are fair game in the future. After all, if banks fail and teeter at the edge of collapse, the government promises to be there with a taxpayer-funded, potentially profitable safety net.

The handling of the bailout makes at least one thing clear, however. It’s not your health that the government is focused on, it’s theirs– the very banks and lenders whose convoluted financial systems provided the underpinnings for staggering salaries and bonuses, while bringing our economy to the brink of another Great Depression.

By JOAN WHITELY

Robert Kahre, who owns numerous construction businesses in Las Vegas, is standing trial on 57 counts of income tax evasion, tax fraud and criminal conspiracy. If convicted on most counts, he could live out his life in prison.

But attorney William Cohan paints Kahre as an American “hero” who believes his payroll system helped keep the U.S. monetary system sound, and was also a form of legal tax avoidance.

A self-made entrepreneur, Kahre, 48, paid his workers in gold and silver coin, and said they could go by the coins’ face value — rather than the much higher market value of their precious metal content — for federal tax purposes. He did not withhold taxes from their wages, and he provided the same payroll system to 35 outside clients, which were other local businesses.

Judge David Ezra is presiding over the criminal trial, which began May 19 in U.S. District Court. Joining Kahre as defendants are his longtime girlfriend, a sister who works in his businesses, and a former business assistant.

Three of the four present defendants were among the nine people tried on similar charges two years ago, but no convictions resulted. In the 2007 trial, four others of the nine defendants, including Kahre’s mother, were entirely acquitted. Two individuals were only partially acquitted, but dropped from the indictment that forms the basis for the trial before Ezra.

This time around, the only new defendant is Danille Cline, Kahre’s girlfriend of 19 years, and the stay-at-home mother of his four children. The government claims she obstructed the Internal Revenue Service by allowing Kahre to place several homes in her name, thus attempting to conceal his assets.

Cline’s former brother-in-law, Thomas Browne, also was indicted this time, for his role as broker in some of the real estate transactions, but has since reached a plea bargain. He is expected to testify against the defendants.

“This is a case about money, greed and fraud.” The line appeared on screen in court during the government’s opening statement by Christopher Maietta, a trial lawyer from the Washington, D.C., office of the Department of Justice.

According to the government, Kahre and others concocted a fraudulent cash payroll “scheme” and then peddled it to other Las Vegas contractors. Defendants did not report to the IRS any payments made to workers, “either at the true amount or at the bogus amount, … being the face value of the coin or coins,” according to the indictment.

The now-suspended payroll service handled about $114 million over six years, according to court records. Between 17 and 25 percent of that went to Kahre or his workers; the rest went to the 35 client businesses to pay their workers, court records show.

The government did not indict most of the outside businesses or their personnel as co-conspirators with Kahre; although on May 6, Daniel McCartan of Action Concrete, which was one of Kahre’s payroll clients, was finally sentenced in connection with a plea agreement reached in December 2006. McCartan received five months in prison and five months of home detention for one count of tax evasion.

Kahre contends his workers had agreed to be independent contractors, so he did not have to withhold taxes for them. His six businesses are in the trades of painting, drywall, tiling, plumbing, heating-cooling and electrical work.

Further, the $50 gold coins and the silver dollars Kahre used for payroll are designated by Congress as legal tender, so people are entitled to value them at their stamped denominations, he also contends. Taken at face value, each defendant’s annual coin income placed him below the threshold for filing a federal tax return.

Earlier cases on the question of how to value gold or silver coins have focused on collectible coins that had been pulled from circulation but still have value as property, according to the defense. Kahre used coins minted after 1985, which are allowed to circulate.

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“It’s not whether what Mr. Kahre did was legal under the law,” defense attorney Michael Kennedy told the jury in his opening statement. “It’s whether he believed what he did was legal,” in the absence of explicit instructions by the IRS — on its Web site, in its publications or in response to written correspondence from Kahre — on how to value post-1985 gold or silver coins.

“We’re not here to determine if moneys are owed,” said Kennedy on behalf of his client, Lori Kahre, who had relied on her brother’s tax theory. A tax mistake is different from a tax crime, so the IRS can still use administrative channels to force the defendants to pay back taxes, Kennedy has noted in the past.

A sincere, but mistaken understanding of the tax-filing process is different from adopting a “pretextual” belief system in order to dodge taxes, Ezra acknowledged in court Wednesday.

Cohan described Kahre’s payroll system as a “boycott of the Federal Reserve.” But when the lawyer attempted to elaborate on Kahre’s view that the nation has debased its paper currency by abandoning its former gold standard, Ezra added, “We’re not here to convince the jury that the … (U.S.) monetary system belongs to an international cabal.”

Contact reporter Joan Whitely at jwhitely@reviewjournal.com or 702-383-0268.

Mises Daily by Karen De Coster | Posted on 5/22/2009

The last remnants of the American free-market system are experiencing a quick death by strangulation. Perhaps the most disturbing casualties of government intervention are General Motors and Chrysler, two disgraced automakers that have gone from private ownership to the public trough virtually overnight. The US government has effectively grabbed a financial stake in each company while attempting to control the reorganization process without any constitutional authority to commence such actions.

The takeovers, which have occurred at breakneck speed, are alarming. A defining characteristic of economic fascism is the control of private property and business through a government-business “partnership.” This public-private alliance, while permitting private business ownership, is an arrangement that allows government to control and plan private industry. What we are experiencing from the schemers in Washington, DC is a planned capitalism, or soft fascism, that is being rolled out at an unprecedented pace.

One of the more disturbing actions on the part of the Washington establishment has been the blatant disregard for property and contract rights. First, consider the case of Chrysler. The government, while coming to the aid of a dying Chrysler, lobbed offers to its lenders, the bondholders. A group of dissident bondholders spurned the government’s offer that would have given them a minuscule stake in the company while the UAW received a majority ownership position.

In response, the president denounced the bondholders, publicly proclaiming their obligation to sacrifice and referring to them as “vultures” because they insisted on maintaining their rights as senior creditors. Chrysler’s bondholders, by law, are secured creditors, and they hold a senior ranking above unsecured creditors or shareholders in a bankruptcy or reorganization. Yet they were vilified and bullied for refusing to agree to a shoddy deal. Some of the holdout bondholders finally did buckle under; they dropped their legal challenge and agreed to the government’s lowball offer, but only because they were strong-armed by Washington’s bully tactics. Thomas Lauria, the attorney representing the group, stated that his clients weren’t able to “withstand the enormous pressure and machinery of the US government.” Thus the senior creditors were plundered while ownership was redistributed to the UAW, whose members are junior creditors. This makes a mockery of US securities law.

The bailout and ensuing appropriation of General Motors is no less tragic. The current restructuring plan calls for the US Treasury Department to have controlling interest in General Motors, which amounts to absolute nationalization. In GM’s headquarters in Detroit there is a cluster of bureaucrats from the government’s task force telling GM how to run its business. The task force, assembled by the White House, has the power to exercise significant control over product decisions. According to a GM news release, the Treasury Department will have the power to elect all of GM’s directors and control the vote on matters brought before the stockholders. Additionally, the bondholders who have funded the company are being offered a paltry piece of the equity of the reorganized company — another major blow against the sanctity of contract.

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Furthermore, the White House fired General Motors Chairman and CEO Rick Wagoner. When the executive branch intervenes in a private business and ousts management, bailout or not, it is a staggering violation of the American ideal of free enterprise. This sets a precedent for unlimited government trampling over the private sector. On March 30th, Obama said, “Let me be clear. The United States government has no interest in running GM. We have no intention of running GM.” If that’s the case — and we know it’s not — then why scoop up majority ownership?

The revolving door between Wall Street and the bowels of Washington are getting a workout. It’s the guys from Wall Street who run the government and the guys from government who run Wall Street. Only the guys from Wall Street – especially Goldman Sachs – who have taken over the Treasury Department are now taking over control of the domestic auto industry. You know what happened when they tried to run their own company, Goldman Sachs. How in the heck did I miss the part in the Constitution where powers were granted to the Treasury Department and its hired hacks?

Another notable abomination is the use of taxpayer dollars, on the part of the political establishment, to grant preferential treatment to one group of constituents — the unions — at the expense of each company’s creditors, the bondholders. Not only is this an illicit use of the executive office for political pandering, it’s a deliberate redistribution of wealth. It’s also a handsome payoff to the loyal unions, who have long been big supporters of the Democratic Party.

The GM and Chrysler takeovers are orchestrated political restructurings aimed at serving the larger interests of the US government. The apparatchiks on the Potomac have the authority to coordinate production in a manner that compliments their political and social agenda. The White House has not been shy about its ambitions for green policy and the future of American-made automobiles. This coup paves the way for big government to get its tentacles into an industry that will allow the feds to ram their socialist-totalitarian, green agenda down all of our throats.

Moreover, the Obama regime already announced that it is buying 17,600 green vehicles (hybrid sedans) from Detroit’s Big Three by June 1, using $285 million from the $787 billion stimulus bill. Representative Sander Levin, a Democrat from Michigan, stated, “The federal government’s purchase of thousands of hybrids and other fuel-efficient vehicles from the Big Three shows that our domestic auto industry will weather this current crisis and build the cars of the future.” But certainly, it shows nothing. If the car companies were capable of building the cars of the future that consumers want to buy, no bailout would have been needed, and the government would not have to place an enormous, personal order for automobiles in order to keep the assembly lines moving and inventory lots turning over. The only thing the mega-purchase “shows” is Detroit’s inability to sell its automobiles at bloated prices in the free market, thereby leaving the government to spend taxpayers’ money on goods they refused to buy on their own.

In fact, giving the kiss of life to two dead horses, GM and Chrysler, illustrates the futility at work here, considering that both companies have just announced there will be a considerable number of dealership closings all over the country. Chrysler plans to close about 800 dealerships while GM will trim back 2,600 dealers by 2010. The fact that GM is cutting back its dealerships to the tune of 42 percent speaks volumes about its bloated, bubble-fueled predicament. The government has been pouring billions into each company’s bailout bin in order to keep these inefficient, surplus dealerships around so that they could continue on their path of chasing invisible customers and not selling cars. The misallocation of resources has been staggering. Half-baked investment decisions, like these, are what we can expect from a politically anointed task force that will centrally plan the manufacture of automobiles.

$19 $15

As the Chrysler resuscitation continues and GM morphs into Government Motors, we can expect that the government will prepare to churn out its environmentally correct greenmobiles that the market has rejected over and over again. Freedom, choice, and capitalism will pay a dear price because a group of government bureaucrats, on the receiving end of political favors, will run a major sector of the US economy and foist a prescribed lifestyle upon American consumers.

The funeral bell is ringing a reminder of capitalism’s mortality. And I won’t dare touch on what happens when government-run automobile manufacturers perform like the post office or the DMV.