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March 28, 2010

Obama's Ocean of Red Ink

"I am absolutely certain that generations from now, we will be able to look back and tell our children that this was the moment when we began to provide care for the sick and good jobs to the jobless.

"This was the moment when the rise of the oceans began to slow and our planet began to heal; this was the moment when we ended a war and secured our nation and restored our image as the last, best hope on Earth."

- Barack Obama

Yessir! This is the moment all right:


It's been a banner week for Democrats: ObamaCare passed Congress in its final form on Thursday night, and the returns are already rolling in. Yesterday AT&T announced that it will be forced to make a $1 billion writedown due solely to the health bill, in what has become a wave of such corporate losses.

This wholesale destruction of wealth and capital came with more than ample warning. Turning over every couch cushion to make their new entitlement look affordable under Beltway accounting rules, Democrats decided to raise taxes on companies that do the public service of offering prescription drug benefits to their retirees instead of dumping them into Medicare. We and others warned this would lead to AT&T-like results, but like so many other ObamaCare objections Democrats waved them off as self-serving or "political."

... On top of AT&T's $1 billion, the writedown wave so far includes Deere & Co., $150 million; Caterpillar, $100 million; AK Steel, $31 million; 3M, $90 million; and Valero Energy, up to $20 million. Verizon has also warned its employees about its new higher health-care costs, and there will be many more in the coming days and weeks.

As Joe Biden might put it, this is a big, er, deal for shareholders and the economy. The consulting firm Towers Watson estimates that the total hit this year will reach nearly $14 billion, unless corporations cut retiree drug benefits when their labor contracts let them.

Meanwhile, John DiStaso of the New Hampshire Union Leader reported this week that ObamaCare could cost the Granite State's major ski resorts as much as $1 million in fines, because they hire large numbers of seasonal workers without offering health benefits. "The choices are pretty clear, either increase prices or cut costs, which could mean hiring fewer workers next winter," he wrote.

Is anyone really surprised... other than the smart people who are finally in charge lackwits who rushed passage of a bill they hadn't bothered to read and then when the public dared to question them, haughtily informed the peasants they'd see what was in the bill after it became law?

And is anyone really surprised that the "let them eat cake" party's response to their own incompetence is to blame the victims?

Commerce Secretary Gary Locke took to the White House blog to write that while ObamaCare is great for business, "In the last few days, though, we have seen a couple of companies imply that reform will raise costs for them." In a Thursday interview on CNBC, Mr. Locke said "for them to come out, I think is premature and irresponsible."

Meanwhile, Henry Waxman and House Democrats announced yesterday that they will haul these companies in for an April 21 hearing because their judgment "appears to conflict with independent analyses, which show that the new law will expand coverage and bring down costs."

In other words, shoot the messenger. Black-letter financial accounting rules require that corporations immediately restate their earnings to reflect the present value of their long-term health liabilities, including a higher tax burden. Should these companies have played chicken with the Securities and Exchange Commission to avoid this politically inconvenient reality? Democrats don't like what their bill is doing in the real world, so they now want to intimidate CEOs into keeping quiet.

We've seen this pattern of behavior over and over again from this administration: boast about openness, transparency and ethics while making deals with special interests behind closed doors. And should anyone take an interest in what their elected representatives are up to, attack the messenger.

Is anyone really surprised? After all, it's the Chicago Way.

Mobster wisdom tells us never to bring a knife to a gun fight. But what does political wisdom say about bringing a gun to a knife fight?

That’s exactly what Barack Obama said he would do to counter Republican attacks “If they bring a knife to the fight, we bring a gun,” Obama said at a Philadelphia fundraiser Friday night. “Because from what I understand folks in Philly like a good brawl. I’ve seen Eagles fans.”

Gosh, that sounds kind of... angry. If a Tea Partier had said something like that, we'd be awash in hysterical articles about racism and incitements to violence.

But hey, rules are for the little people.

Link via Glenn Reynolds.

Posted by Cassandra at March 28, 2010 06:50 AM

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Comments

Just a little back-of-the-envelope economics on one aspect of this post, in re the red ink: let's look at the $14,000,000,000 in writedowns projected for this year alone.

If we take a fairly typical estimate of the labor cost of a product as 35% (understand that the number actually varies quite widely, depending on the product), then we get a labor value of these writedowns as $4.9B (I'll write lots of zeros to make a point; I'm too lazy to keep repeating the exercise). That's a payroll of $4.9B; that's $4.9B in jobs that these companies now cannot produce and for which they cannot now hire because they've had to commit that money elsewhere--to Obamataxes. I'll let others figure out how many jobs that works out to. What's interesting to me is the value of those $4.9B in payroll to the communities that now won't see those jobs. The velocity of money, historically (who knows what it'll be in the Age of Obama) is about 7. This means that a dollar spent in a local (vis., community) economy turns over--is spent again--about 7 times as it works its way through that local economy--buying a good at a local store, then going toward that local store's payroll, paying property taxes--and so going toward education--and so on.

Thus, this loss of (approximately) $4.9B in payroll represents a loss of (approximately) $34.3B in value to those local communities that, courtesy of this health care deform law, now will not see those jobs.

And in response to these writedowns, "Henry Waxman and House Democrats announced yesterday that they will haul these companies in for an April 21 hearing because their judgment 'appears to conflict with independent analyses, which show that the new law will expand coverage and bring down costs.'" (http://online.wsj.com/article/SB10001424052748704100604575146002445136066.html ). More Democratic Party denial of facts that dispute their Holy Writ.

Eric Hines

Posted by: E Hines at March 28, 2010 09:40 AM

One postscript that I really should have included in my overlong post just above: those $4.9B in lost jobs also represent $4.9B on which social security and medicare taxes won't be paid. But this is quite trivial, as medicare is so phat that it can afford to have $500B taken right out.

Eric Hines

Posted by: E Hines at March 28, 2010 09:44 AM

Meanwhile, Henry Waxman and House Democrats announced yesterday that they will haul these companies in for an April 21 hearing because their judgment "appears to conflict with independent analyses, which show that the new law will expand coverage and bring down costs."

IOW, you will be reeducated.

As a bean-counter in training, one of the first things we had to do in cost accounting was factor in things like increases for the short and long term.

You do this as part of planning for the master budget, and expenses. Increases like, say, oh, uh, interest on debt, tax increases, price increases for materials or sales.

You know. What they get PAID to do. Look out for the company.

I didn't think much of Mr. Lock when he was governor of WA and I think less of him now.


Posted by: Cricket at March 28, 2010 10:46 AM

Normally, I'd love to see these guys get a chance to tell Congress exactly why "their judgment conflicts" with Congressional forecasts. That would be really eye-opening. "Why, yes, I can explain why our numbers differ from yours. Let's start with the factors that you expressly forbid the CBO from considering..."

Unfortunately, Congress will most likely put limits on them that prevent them from speaking the whole truth about it.

Posted by: Grim at March 28, 2010 10:49 AM

"These aren't the numbers you're looking for."

Posted by: Obie Wan Barakenobi at March 28, 2010 10:50 AM

Congress used a projection to cook the books, a la S-O, but corporations can't show the truth by the rules the Senate imposed.

Posted by: Cricket at March 28, 2010 11:11 AM

...their judgment "appears to conflict with independent analyses, which show that the new law will expand coverage and bring down costs."

True -- if you analyze the income and ignore the outgo. Which will only lead to a bad outcome.

Why is it that every time I see Henry Waxman, I keep flashing on the space roach that popped out of Kimmy's head at the end of Team America...?

Posted by: BillT at March 28, 2010 12:51 PM

He really is the Messiah! Oceans of red, like blood, and without Moses' staff!

Posted by: theblogprof at March 28, 2010 07:41 PM

Bill - I see Lon Cheney as the Phantom of the Opera. (Silent movie). Perhaps if Waxman would tilt his chin down a little, so that we can see more than just his gaping proboscis, there would be less resemblance.

Posted by: LittleRed1 at March 28, 2010 09:17 PM

He really is the Messiah! Oceans of red, like blood, and without Moses' staff!

*snort* :)

Posted by: Cassandra at March 28, 2010 10:17 PM

Bill - I see Lon Cheney as the Phantom of the Opera. (Silent movie).

Oh, right, like I'm not old enough to have made that connection on my own?

I think I love you...

Posted by: BillT at March 29, 2010 03:07 AM

Annnnnnnd....we're back to love, sex, and relationships thanks to Bill. Way to go ;-)

Posted by: HomefrontSix at March 29, 2010 04:28 AM

Hey, *somebody* had to get this thing back on the tracks. And believe-you-me, given the main topic she started with, it wasn't as easy as I made it look...

Posted by: BillT at March 29, 2010 07:16 AM

...and whatever she has planned for me after *that* remark is gonna leave a bruise.

Posted by: BillT at March 29, 2010 07:19 AM

Annnnnnnd....we're back to love, sex, and relationships thanks to Bill.

Personally I think you all tolerate the "love and relationships" bit so you can talk about sex :p

Posted by: Cassandra at March 29, 2010 07:27 AM

Ow.

Posted by: BillT at March 29, 2010 08:42 AM

Thanks for the light hearted comments guys. I WAS in a pretty pissy mood after reading the OP. I mean SERIOUSLY, who do these clowns think they're fooling?!?? But the Company brings my blood pressure and insanity back to manageable levels. You folks are the best!

Posted by: MikeD at March 29, 2010 09:45 AM

You ain't seen nothing yet. Just wait for the Obamanation's next phase.

Didn't they tell us back in January of 09 that we needed to wait and give Obama a chance?

Obviously because his screw ups at that point had just been minor. Total destruction of America takes time, people. Be patient.

Posted by: Ymarsakar at March 29, 2010 11:17 AM

Personally I think you all tolerate the "love and relationships" bit so you can talk about sex :p

You've met me. This surprises you?

Posted by: HomefrontSix at March 29, 2010 03:25 PM

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