Thermostats and Leadership

“We can’t drive our SUVs and eat as much as we want and keep our homes on 72 degrees at all times … and then just expect that other countries are going to say OK. That’s not leadership. That’s not going to happen.”

—Barack Obama, May, 2008

From yesterday’s New York Times:

WASHINGTON — The capital flew into a bit of a tizzy when, on his first full day in the White House, President Obama was photographed in the Oval Office without his suit jacket. There was, however, a logical explanation: Mr. Obama, who hates the cold, had cranked up the thermostat.

“He’s from Hawaii, O.K.?” said Mr. Obama’s senior adviser, David Axelrod, who occupies the small but strategically located office next door to his boss. “He likes it warm. You could grow orchids in there.”

I think Jimmy Carter may have a sweater he could borrow…

Small Town Banking

From the NY Times comes a remarkable look at the “other side” of the banking industry: a small town bank in Nebraska, which is only in the news because it was recently robbed for the first time in half a century.

Yes, institutions like this one still exist in America. They may not have economies of scale going for them, but they are well-managed and in the closest possible contact with their customers. And they are most certainly not lining up for federal bailout dollars.

Its one-story brick building, built as a bank more than 100 years ago, has remained a local fixture while most buildings in downtown Carleton, such as it is, are bricked up or closed up: the old Weddel’s grocery store; the old post office that partially caved in a few years ago; the old Little Café, where Thelma and Shirley sold fresh pies of apple and cherry.

Just outside the bank, a Cargill grain operation grinds away. Truckloads of soybeans and corn are weighed and dumped with a sound like a sigh into the mammoth grain elevators looming over the empty storefronts. Every few minutes, another long Union Pacific freight train loudly announces itself.

Inside the bank, Mr. Van Cleef, 46, is usually helping local farmers figure out how to finance the fertilizer, chemicals, machinery, fuel and irrigation needed to grow their crops, all while guessing what beans and corn will go for.

There is no online banking here. It’s all face-to-face, how are you, Mike, see you later down at TJ’s for a burger.

The Van Cleef business has not exactly followed the Wharton School model. Mr. Van Cleef’s father, Lloyd, 72, was a Navy veteran working as a meter reader for a gas company in Fairbury, about 40 miles away, when a local banker offered him a career change. He worked his way up the banking ranks and then, in 1975, decided to buy the Citizens State Bank in Carleton.

His teenage son, Michael, did not appreciate moving from a town with a Pizza Hut and a movie theater to a town where the passing trains served as entertainment. But he started working in the bank after high school, attended banking seminars instead of attending college, set aside aspirations of law school and eventually became a bank president without pinstripes.

“You do loans, you do deposits,” he says. “You scrape the snow outside. You change the light bulbs.”

Go read the whole thing. And admit it: you want to live in this town and do business with this bank.

Soup: A Correction

Mrs. Yeoman Farmer graciously informed me that my recent post about soup contained an error. (This is what I get for not reviewing the instructions in Nourishing Traditions from time to time.)

It is important, she reminded me, to begin with fully-thawed meat and soup bones. Then, the soup pot is filled with COLD (not warm) water, and the apple cider vinegar is added to that. The onion, carrot, and chicken/turkey feet are also added at this time. It should be covered and sit that way for at least a half hour to an hour, so the vinegar can draw the minerals out of the bones. Then, and only then, should the water be brought to a boil.

TurboTax Tim

As of a week or two ago, I wasn’t going to publish a post about Tim Geithner, the new President’s nominee for Secretary of the Treasury. It annoyed me that Geithner had neglected to pay some taxes in past years, but the initial consensus seemed to be that Geithner had made an “honest” mistake or “common” mistake. (Rush Limbaugh put together a very funny montage of at least a dozen mainstream media commentators all using these same words.)

The more I have read and heard this week, however, the more I’ve wondered just how “honest” or “common” this mistake really was. And the longer his hearings continued, the more troubled I’ve grown about seeing this man entrusted with the massive new authority and discretion that has been granted to the Treasury secretary in recent months. Given the appalling lack of transparency that has accompanied the TARP program thus far, the Treasury secretary must be more than a person with a brilliant intellect or financial understanding. Now, more than ever, that position must be filled with an individual of unquestioned honesty and integrity, who has never tried to evade the law for personal gain. The more I learn about the circumstances surrounding Geithner’s tax returns, the harder it is to imagine entrusting him with that authority.

What was the nature of Geithner’s “honest” mistake? Because his employer, the International Monetary Fund (IMF) was a foreign entity, the employer did not withhold payroll taxes (the “FICA” you see on your paycheck) for the IRS. Unlike employees of American firms, Geithner and his American colleagues got to keep their entire paychecks. But those FICA taxes still needed to be paid. Geithner’s explanation is that when he entered his W-2 form into Turbo Tax, the software didn’t compute the FICA taxes due — only the income taxes. He paid what Turbo Tax said he owed, and the discrepancy wasn’t caught until he was audited a few years later. The auditor realized the FICA taxes had never been paid, and Geithner was charged (and paid) the appropriate amount. A good early overview of the story can be found here.

Of course, it turns out that there is more to the story. The IMF clearly explained the FICA withholding issue to its employees— in writing. And instructed them that they needed to pay the FICA taxes when they filed their 1040. And had each American employee sign a statement affirming that he had satisfied his tax obligations. Does this sound “honest” to you? Read this report and decide for yourself:

The IMF did not withhold state and federal income taxes or self-employment taxes — Social Security and Medicare — from its employees’ paychecks. But the IMF took great care to explain to those employees, in detail and frequently, what their tax responsibilities were. First, each employee was given the IMF Employee Tax Manual. Then, employees were given quarterly wage statements for the specific purpose of calculating taxes. Then, they were given year-end wage statements. And then, each IMF employee was required to file what was known as an Annual Tax Allowance Request. Geithner received all those documents.

The tax allowance has turned out to be a key part of the Geithner situation. This is how it worked. IMF employees were expected to pay their taxes out of their own money. But the IMF then gave them an extra allowance, known as a “gross-up,” to cover those tax payments. This was done in the Annual Tax Allowance Request, in which the employee filled out some basic information — marital status, dependent children, etc. — and the IMF then estimated the amount of taxes the employee would owe and gave the employee a corresponding allowance.

At the end of the tax allowance form were the words, “I hereby certify that all the information contained herein is true to the best of my knowledge and belief and that I will pay the taxes for which I have received tax allowance payments from the Fund.” Geithner signed the form. He accepted the allowance payment. He didn’t pay the tax. For several years in a row.

Question 18 that the Senate Finance Committee submitted to Geithner puts all this together: You provided the Finance Committee with statements from the IMF breaking your tax allowance down into amounts for “Federal Tax Allowance,”” State Tax Allowance,” and “SE Tax Allowance.” These statements show that your tax allowance was deposited into a checking account. You also provided the Committee with copies of checks made out to State and Federal revenue authorities for the exact same amounts as noted on the statement from the IMF for make state and federal estimated tax payments. Did you ever question what your “SE Tax Allowance” was for? When you were writing checks to cover the “Federal Tax Allowance” and “State Tax Allowance,” did you ever think “SE Tax Allowance” was given to you to pay a tax you owed?

Read Geithner’s answer and decide for yourself whether you believe him…and, if you do believe him, whether he is the “financial genius” who is the only man qualified to run the Treasury Department today: Looking back now, it is clear to me that the IMF statements to which you refer should have prompted me to realize that it was necessary for me to file a form SE and pay selfemployment taxes. I did not realize this and regret the error.

This story has a particular resonance for me because I am self-employed and have considerable experience preparing my own tax returns. Coincidentally, I have also been using Turbo Tax, and think it is outstanding. Over the years, I have become familiar with the various reportings that my clients are supposed to make to the IRS, using Form 1099, and the taxes I must pay — even when the client, for whatever reason, fails to report the income to the IRS. I still have a moral obligation to pay those taxes, and have always paid those taxes, even when the IRS doesn’t know about the income.

And that’s what is so frustrating about the Geithner situation, and why it has struck such a chord with all of us who are self-employed and have diligently reported and paid taxes on all of our income. Given all the warnings and notices that Geithner’s employer gave him, it seems he simply couldn’t have not known he owed the FICA taxes. It’s hard to escape the conclusion that he saw an opportunity to keep for himself tens of thousands of dollars, banking on the odds that he wouldn’t be audited. Does this sound like the sort of man who ought to be entrusted with overseeing the IRS — not to mention being entrusted with disbursing hundreds of billions of dollars’ worth of TARP funds?

I don’t expect perfection or sanctity from our government officials, but there ought to be some threshold of behavior which, once crossed, disqualifies a person from receiving the public trust. Would we tolerate an Agriculture Secretary nominee who had illegally obtained food stamps for his family four separate times, even if he reimbursed the program once he was caught? Or a state insurance commissioner who padded four different casualty insurance claims, even if he later reimbursed the insurance companies once he decided to run for insurance commissioner?

Four Days in a Row

Earlier this week, I noted an odd historical occurrence on January 20th: for the first time since the 1991 Gulf War, the S&P 500 Index — a weighted average of 500 of the largest publicly-traded companies — closed below the price of a single ounce of gold.

I’m still not quite sure what this means, but I’ve continued to keep an eye on these markets. Tuesday, Wednesday, and Thursday all saw the trend continue. And then, today, metals markets really shot up. Gold broke $900 during the day, and closed at $899. Meanwhile, the S&P closed at $832 — a difference of more than 8%. I’ll do a little digging this weekend, but I believe it’s been decades since we’ve seen a spread of that magnitude.

S&P / Gold
January 20: $805 / $856.
January 21: $840 / $854.
January 22: $827 / $857.
January 23: $832 / $899.

Mrs. Yeoman Farmer and I have been sensing for some time that the current situation is different from previous economic downturns. I really hope we’re wrong, but I can’t help sensing that something really odd is afoot out there. As promised in the past, I am preparing a longer post about gold and precious metals; I’ve been thinking about and researching it for some time now. In the meantime…well, let’s just say that I’d encourage all my readers to keep a prudent portion of their savings in truly “hard” assets.

There is a reason that for 5,000+ years gold has maintained its position as the ultimate currency and store of value.

The Oaf of Office

I had the television on all morning yesterday as I worked. As melancholy as I was feeling about the day’s events, I remain a lifelong politics junkie. It was like watching a star player from a rival team being inducted into the Hall of Fame; as much as I may despise the rival player, I love the game and all of its trappings too much not to watch.

Since childhood, I’ve known the presidential oath of office by heart. I guess that’s why I was so taken aback when the Chief Justice botched it so badly during the inauguration. And why I thought it was so fitting that Dianne Feinstein had said that the Chief Justice would be administering the Presidential “oaf” of office. Did that ever turn out to be a self-fulfilling turn of phrase. Listen for yourself:

Some of my conservative friends immediately began sending around emails ridiculing Obama for not reciting the oath properly. But I jumped to his defense. After all, I asked, what would you do if the C.J. clearly botched the words? Repeat the incorrect words? Point out, in front of hundreds of millions of people, that he’d said it wrong? Or pause and hope the C.J. realized what he’d done wrong, and then correct his own mistake? That final choice seemed to be what Obama was trying to do, and I give him credit for trying to let everybody on stage save some face.

But the problem is, they never did get it right. And part of me wondered if we’d soon see kook fringers begin to claim that the new President had not been lawfully sworn into office, and was therefore illegal. Given the intensity with which some claimed (and continue to claim) that Obama lacks U.S. citizenship, and seeing the degree to which these kinds of charges de-legitimized the more mainstream conservative critics of the man, I was concerned that the “invalid oath” story might develop a life of its own.

So, I was pleased to learn tonight that the Oath had been quietly and privately re-administered this evening, which will hopefully quash all that kind of talk. And we history/political junkies know that there are numerous precedents for administering the Oath more than once. Most recently, a snow storm made any kind of outdoor activity on January 20th, 1984 very dangerous. Ronald Reagan took the Oath privately on January 20th at the White House, and then had a public ceremony at the Capitol later when the weather cleared.

But my favorite example, and the one that most closely parallels the current case, was that of Calvin Coolidge. In a story near and dear to the heart of every notary public (and yeoman farmer), then-VP Coolidge got the news about President Harding’s death in the middle of the night while visiting his family’s farm in Vermont. His father, John Coolidge, a notary public, swore his son into office then and there. When Calvin Coolidge returned to Washington, some people expressed doubts that his father had had the legal authority to administer the presidential oath. To quash these doubts, Coolidge took the oath again — this time from a Supreme Court justice.

Heck, I suppose the President could take the oath every day if he wanted to — much the way public school children recite the Pledge of Allegiance each morning. And maybe that wouldn’t be a bad idea. Regardless, I’m just glad they got it right — and hope that four years from now we only have to do it once.

Where?

The new President, on his first full day in office, has announced a halt to the military commissions at Guantánamo Bay. And according to the same New York Times story:

Later this week, the new administration is expected to issue an executive order that is to start what could be a long process of closing the detention camp, where about 245 detainees remain.

What is yet unsaid, and what will likely be a key point of discussion over the next year, is just where those 245 detainees will be moved. Discussions on NPR focused on that issue, with commentators explaining that due to the highly dangerous nature of the detainees, no community in the mainland USA will want to house the Gitmo detainees in their local prisons.

Which got me thinking: remember Yucca Mountain? That’s the super-secure repository in the Nevada mountains, which according to most objective scientific reports is the safest location in which nuclear waste can be stored for the long term. And yet despite the extreme cost and safety measures taken to build the Yucca Mountain facility, Nevada’s elected officials have managed for years to block its opening.

Does anyone think that the NIMBY sentiments will be any less intense when the time comes to relocate Gitmo detainees to mainland prisons? Or that public officials in targeted areas will fight with any less intensity than Nevada’s have done.

Like it or not, Guantanamo has one big plus going for it: it’s not in anybody’s back yard except Fidel Castro’s.

My prediction is that we see some modifications made to the existing Guantanamo facilities, or the detainees relocated to some other overseas facility, before we see them set foot in any American’s back yard.