Goldman! Interesting commentary.

So Goldman Sachs now wants to repay its $10 billion in taxpayer capital, with its CFO even saying the Wall Street giant has a "duty" to do so now that it is once again turning a nice profit. Congratulations to Goldman on its desire to escape federal bondage. The question taxpayers might still ask, however, is whether Goldie is also willing to forswear a bailout when it next gets into trouble. Is it still "too big to fail"?

It is certainly a good sign that one of the bigger banks is eager and able to leave the clutches of the political class. The Washington crowd wants to hide its own role in the financial crackup -- supereasy money, Fannie and Freddie -- so it has taken to blaming the bankers, and the Troubled Asset Relief Program is its velvet truncheon. The sooner every bank can safely escape Barney Frank and Chris Dodd, the faster we can restore a capitalist financial system.

On the other hand, Goldman isn't exactly swearing off all Beltway help. The firm has benefited enormously from the federal bailout, and many of our sources believe Goldman would have failed without it. Goldman denies this, claiming in particular that the firm had "no material economic exposure to AIG" at the time of the insurer's collapse.

There's no denying, however, that Goldman has been among the largest recipients of AIG cash since the bailout. Goldman is getting the same terms as AIG's other counterparties, but the partnership of AIG and the Federal Reserve has been a lot nicer to Goldman than AIG was as an independent firm. Without a functioning AIG able to post additional collateral, Goldman might have struggled to hedge its AIG exposure. Instead, government-owned AIG, in cooperation with the Fed, has removed almost all of Goldman's risk on its contracts with AIG.

Here's how it has worked: In 2007, Goldman began marking down the value of the collateralized debt obligations, or CDOs, underlying these contracts. Since AIG had essentially sold insurance against the possibility that these CDOs would default, Goldman began demanding larger amounts of collateral to cover this increased risk. AIG disputed Goldman's valuations and sometimes posted half or less of the amount requested.

By the time of AIG's September 2008 collapse, AIG had posted $7.5 billion of collateral on credit default swap (CDS) contracts guaranteeing $20 billion in securities. Given the plummeting value of these securities, Goldman estimated its exposure was $10 billion, not $7.5 billion. To cover this difference between the collateral Goldman believed it was owed by AIG and the amount of collateral actually posted, Goldman bought credit default swaps that would pay off if AIG went bust.

So it could be true that, on the day AIG failed, Goldman's books showed no material exposure. But the underlying assets of the CDS contracts continued to decline. Would a bankrupt AIG have made Goldman whole? All we know for sure is that taxpayer-funded AIG and the Fed kept on paying Goldman.

The Fed's Maiden Lane III vehicle essentially bought out $14 billion of the $20 billion in contracts at face value. This was a sweet deal for Goldman and the other counterparties, a deal only available from the government. By way of comparison, a similar resolution in 2008 involving Merrill Lynch and XL Capital Assurance resulted in Merrill receiving 13 cents on the dollar, not the 100 cents Goldman received. This is not to say that 13 cents was the correct price. The Merrill deal was largely dictated by the New York Insurance Department for the benefit of XL, just as the Fed drove a hard bargain with AIG and U.S. taxpayers for the benefit of AIG's counterparties. But for Goldman to imply that it would not have been hurt by an AIG failure isn't credible.

Meanwhile, Goldman also has access to the Fed's discount window, as it didn't before the 2008 Bear Stearns rescue. And Goldman has benefited from the FDIC's debt-guarantee program, which means it can borrow money at cheaper rates. Think Fannie Mae. This FDIC liquidity guarantee is supposed to expire at the end of 2009, but we doubt Goldman and the other banks will lobby to escape that taxpayer subsidy.

The larger issue going forward is whether Goldman is "too big to fail," which means that everyone knows the feds will ride to the rescue if it gets into trouble again. Before Bear Stearns, investment banks were allowed to fail, a la Drexel Burnham. But after last autumn, no one will believe it. And Goldman will hardly mind if that's what the marketplace believes, because such an implicit taxpayer guarantee will let it borrow more cheaply and thus make more money. Think Fannie Mae again. Even now on the taxpayer dime, Goldman is still trading on its own equity account -- risky banking behavior.

The point is that Goldman and other banks can't have it both ways. If they want taxpayers to save them, then they have to take fewer risks and become smaller. Either that, or we need a new financial resolution or bankruptcy process that lets these companies fail while protecting the larger banking system. We're glad Goldman wants to flee Barney Frank's embrace, but it's still only half way back to the promised land of capitalism -- which includes the freedom to fail.

Twitter away......."tweet, tweet".

Putting Twitter’s World to Use

TOPICS:Information Technology | Technology

SECTORS:Technology

COMPANIES:Amazon.com Inc | Starbucks Corp | Microsoft Corp

By: Claire Cain Miller, The New York Times | 14 Apr 2009 | 11:50 AM ET

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The first reaction many people have to Twitter is befuddlement. Why would they want to read short messages about what someone ate for breakfast?

It’s a reasonable question. Twitter unleashes the diarist in its 14 million users, who visited its site 99 million times last month to read posts tapped out with cellphones and computers.

Individually, many of those 140-character “tweets” seem inane.

But taken collectively, the stream of messages can turn Twitter into a surprisingly useful tool for solving problems and providing insights into the digital mood. By tapping into the world’s collective brain, researchers of all kinds have found that if they make the effort to dig through the mundane comments, the live conversations offer an early glimpse into public sentiment — and even help them shape it.

Companies like Starbucks, Whole Foods and Dell can see what their customers are thinking as they use a product, and the companies can adapt their marketing accordingly. Last week in Moldova, protesters used Twitter as a rallying tool while outsiders peered at their tweets to help them understand what was happening in that little-known country.

And over the weekend, Amazon.com learned how important it was to respond to the Twitter audience. After one author noticed that Amazon had reclassified books with gay and lesbian themes as “adult” and removed them from the main search and sales rankings, a protest broke out on blogs and Twitter. The company felt compelled to respond despite the Easter holiday, initially saying the problem was due to a “glitch in our system” but later blaming a “ham-fisted cataloging error” that affected more than 57,000 books dealing with health and sex.

Soon, machines could twitter as much as people. Corey Menscher, a graduate student at New York University, developed the Kickbee, an elastic band with vibration sensors that his pregnant wife wore to alert Twitter each time the baby kicked: “I kicked Mommy at 08:52 PM on Fri, Jan 2!” Mr. Menscher is now considering selling the product.

Pairing sensors with Twitter leads some to think Twitter could be used to send home security alerts or tell doctors when a patient’s blood sugar or heart rate climbs too high. In the aggregate, such real-time data streams could aid medical researchers.

Already doctors use Twitter to ask for help and share information about procedures. At Henry Ford Hospital in Detroit, surgeons and residents twittered throughout a recent operation to remove a brain tumor from a 47-year-old man who has seizures.

Differing budget proposals.....interesting.

By PAUL D. RYAN

Today, the House of Representatives will consider two budget plans that represent dramatically different visions for our nation's future.

We will first consider President Barack Obama's plan. To be clear, this is no ordinary budget. In a nutshell, the president and Democratic leaders in Congress are attempting to bring about the third and final great wave of progressivism, building on top of the New Deal and the Great Society. So America is placed in a special moment in our history -- brought about by the deep recession, Mr. Obama's ambitious agenda, and the pending fiscal tidal-wave of red ink brought forward by the looming insolvency of our entitlement programs. If this agenda comes to pass, it will mark this period in history as the moment America turned European.

House Republicans will offer an alternative plan. This too is no ordinary budget. As the opposition party, we believe this moment must be met by offering the American people a different way forward -- one based on our belief that America is an exceptional nation, and we want to keep it that way. Our budget applies our country's enduring first principles to the problems of our day. Rather than attempting to equalize the results of peoples' lives and micromanaging their affairs, we seek to preserve our system of protecting our natural rights and equalizing opportunity for all. The plan works to accomplish four main goals: 1) fulfill the mission of health and retirement security; 2) control our nation's debts; 3) put the economy on a path of growth and leadership in the global economy; and 4) preserve the American legacy of leaving the next generation better off.

Under the president's plan, spending will top $4 trillion this year alone, and consume 28.5% of our nation's economy. His plan would mean a $1 trillion increase to the already unsustainable spending growth of our nation's entitlement programs -- including a "down payment" toward government-controlled health care and education; a $1.5 trillion tax increase to further shackle the small businesses and investors we rely on to create jobs; a massive increase in energy costs for families via cap and trade. Moreover, the Obama plan would result in an exploding deficit, a doubling of the nation's debt in five years, and an increase of that debt to more than 82% of our nation's GDP by the last year of the budget. This approach will ultimately debase our currency and reduce the living standards of the American people.

Instead of doubling the debt in five years, and tripling it in 10, the Republican budget curbs the explosion in spending called for by the president and his party. Our plan halts the borrow-and-spend philosophy that brought about today's economic problems, and puts a stop to heaping ever-growing debt on future generations -- and it does so by controlling spending, not by raising taxes. The greatest difference lies in the size of government our budgets achieve over time (see nearby chart).

While our approach ensures a sturdy safety net for those facing chronic or temporary difficulties, it understands that the reliability of this protection and the other functions of government depend on a vibrant, free and growing private sector to generate the resources necessary for it.

Here's an outline of what we propose:

- Deficits/Debt. The Republican budget achieves lower deficits than the Democratic plan in every year, and by 2019 yields half the deficit proposed by the president. By doing so, we control government debt: Under our plan, debt held by the public is $3.6 trillion less during the budget period.

- Spending. Our budget gives priority to national defense and veterans' health care. We freeze all other discretionary spending for five years, allowing it to grow modestly after that. We also place all spending under a statutory spending cap backed up by tough budget enforcement.

- Energy. Our budget lays a firm foundation to position the U.S. to meet three important strategic energy goals: reducing U.S. dependence on foreign oil, deploying more clean and renewable energy sources free of greenhouse gas, and supporting economic growth. We do these things by rejecting the president's cap-and-trade scheme, by opening exploration on our nation's oil and gas fields, and by investing the proceeds in a new clean energy trust fund, infrastructure and further deficit reduction.

- Entitlements. Our budget also takes steps toward fulfilling the mission of health and retirement security, in part by making these programs fiscally sustainable. The budget moves toward making quality health care affordable and accessible to all Americans by strengthening the relationship between patients and their doctors, not the dictates of government bureaucrats. We preserve the existing Medicare program for all those 55 or older; and then, to make the program sustainable and dependable, those 54 and younger will enter a Medicare program reformed to work like the health plan members of Congress and federal employees now enjoy. Starting in 2021, seniors would receive a premium support payment equal to 100% of the Medicare benefit on average. This would be income related, so low-income seniors receive extra support, and high-income seniors receive support relative to their incomes -- along the same lines as the president's Medicare Part D proposal.

We strengthen the Medicaid safety net by converting the federal share of Medicaid payments into an allotment tailored for each state's low-income population. This will enhance state flexibility and sensitivity to spending growth.

In one of the most valued government programs -- Social Security -- our budget begins to develop a bipartisan solution to the program's pending bankruptcy by incorporating some of the reforms advocated by the president's budget director. Specifically, we provide for a trigger that would make small adjustments in the benefits for higher-income beneficiaries if the Social Security Administration determines the Social Security Trust Fund cannot meet its obligations. This is a modest but serious proposal which would not affect those in or near retirement, but is aimed at helping develop a consensus, across party lines, toward saving this important retirement program. We also assure that benefits for lower-income recipients are large enough to keep them out of poverty.

- Tax Reform. Our budget does not raise taxes, and makes permanent the 2001 and 2003 tax laws. In fact, we cut taxes and reform the tax system. Individuals can choose to pay their federal taxes under the existing code, or move to a highly simplified system that fits on a post card, with few deductions and two rates. Specifically, couples pay 10% on their first $100,000 in income (singles on $50,000) and 25% above that. Capital gains and dividends are taxed at 15%, and the death tax is repealed. The proposal includes generous standard and personal exemptions such that a family of four earning $39,000 would not pay tax on that amount. In an effort to revive peoples' lost savings, and to create an incentive for risk-taking and investment, the budget repeals the capital gains tax through 2010 for all taxpayers.

On the business side, the budget permanently cuts the uncompetitive corporate income tax rate -- currently the second highest in the industrialized world -- to 25%. This puts American companies in a better position to lead in the global economy, promotes jobs here at home, and strengthens worker paychecks.

We hope the administration and Democratic leaders in Congress do not distort and preach fear about our Republican plan. Some may be tempted to appeal to the darker emotions of envy and insecurity that surely run high in times like these. Yet we know Americans are stronger, smarter and prouder than this ploy assumes.

In the recent past, the Republican Party failed to offer the nation an inspiring vision and a concrete plan to tackle our problems with innovative and principled solutions. We do not intend to repeat that mistake. America is not the greatest nation on earth by chance. We earned this greatness by rewarding individual achievement, by advancing and protecting natural rights, and by embracing freedom. We intend to continue this uniquely American tradition.

Mr. Ryan, from Wisconsin, is the ranking Republican on the House Budget Committee.