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Recall? It's a Coincidence
August 20, 2003
By Mike Hickerson

Here we are again, California. Attention whore of the country; we seem to crave the spotlight in ever-increasing doses. Our latest attention-getting behavior: coming on the heels of severe economic woes a three ring circus passing for an election populated with enough fruits and nuts to make a thousand gallons of Ben & Jerry's. It's the sort of thing the rest of the nation has come to expect of us - and the only reason it's topical is due to the fact that we have more resources, more money, more financial power than any of the third world dictatorships the Bush Administration is intent on saving us from. Funny how in modern politics the words "Economic woes" and "Bush" make frequent appearances in California conversations, always together, as if predestined by fate. Much like our predilection for the wacky. The absurd. The vacuous self absorbed hedonists of La La Land.

Or am I referencing a media myth spun from whole cloth?

One thing is certain, real or not the perception is there. I point this out because the recall is similar in construct to our much-famed media image. It's a Hollywood set, a scenery prop of a smarmy populist movement brightly painted on the exterior with nothing behind the front. Oh, sure it may seem substantial enough to many of you, but this California Native son is telling you it's all a load. Like so much in the two and a half years since the selection of George W Bush, the load has been dumped from above by the Deus ex machina known as the Bush administration.

To be sure, the genesis of this ugly tale starts like all truly scary Bush stories, with his Zen master Grover Norquist. Norquist has been doing a star turn of late as his machinations and scheming on behalf of the Republican Party have become more noticeable every time we find ourselves thinking "where the hell did that come from?" when we hear of a new Bush policy or mandate. The answer is usually: Norquist. He has made no secret of his outright contempt for bipartisan cooperation to accomplish goals for the people's business. He tells the Denver Post in an interview, "bipartisanship is another name for date rape." He mentions partisan warfare is the preferred Republican strategy for the near future. Bush and his minions nationwide have taken him at his word.

There is no secret that California is in a fiscal crisis today. What seems strange is the unwillingness of Bush and Co. to help - surely attempts by Washington DC to ease the economic woes of the most powerful economic engine in the country would augur some assistance to avoid prolonging the Bush recession. If Bush put the good of the nation above the goals of partisan politics, that is. Sadly, this is not to be. It turns out our suspicions about the evil hands in the California disaster du jour have actual substance.

This recall is part and parcel of a master plan by evil geniuses; if not geniuses, then sociopathic obsessives determined to get their hands on the resources we possess and spirit them into far-lung banks and financial firms who will reward their lackeys who make it all possible with absolute political power. How Romanesque. It all fits rather well as a reflection of the Pax Americana we struggle with internationally; the same geniuses who brought us the PNAC view of the world are brutalizing us domestically as well. The bottom line seems to be: everything desirable is up for grabs. By Them. It's as plain as day to anyone willing to look behind the curtain.

Start with the number one reason for this mess, the great power rip-off of 2001.

Direct cause: deregulation, led by lobbyists ensconced in the Sacramento power structure headed up by Gov. Pete Wilson. The same Pete Wilson who is now running Arnold's campaign. How errrrrr……convenient.

Main benefactor: Enron & Ken Lay, Bush's number one donor. (Still a free man by the way)

Enron's lead banker: JP Morgan-Chase-Manhattan. Remember this as it gets rather circular.

Coincidence: JP Morgan-Chase is the lead banker in the first California bond deal to finance their way out of the power debt. Chase has interlocking board members with Citigroup, another California Bond seller. Citigroup is the 7th largest contributor to the Bush Campaign. Citi shares board members with FOX–NewsCorp, Ltd., 12th largest financer of Bush's campaign. These same banks funded "The Manhattan Institute" founded by William Casey, who later became President Reagan's CIA director.

Besides subsidies from a number of large conservative foundations the Institute gained funding from such corporate sources as: Time Warner, Procter & Gamble and State Farm Insurance, as well as the Lilly Endowment and philanthropic arms of American Express, Bristol-Myers Squibb, CIGNA and Merrill Lynch. Boosted by major firms, the Manhattan Institute budget reached US$5 million per year by the early 1990s. Nice, the way they keep it so in the family. The same guy's firm whose strategy armed Bin Laden and arguably the entire terrorist network we now fight, contributes economic and energy policy to the White House.

So, back at the ranch, it's becoming rapidly apparent that Pete Wilson's deregulation scheme is coming apart at the seams. There is definite evidence of fraud by the energy sellers when dealing with the state. A review of graphs of power usage shows the rolling blackouts are occurring at arcane times, not "peak usage." Further, California's power demand is some 10% less than the two previous years where no difficulties were encountered. California's energy demands, portrayed as "skyrocketing" by Lay and the other Texas energy pirates and repeated by Fox News ad infinitum, are revealed to be increasing at a rate comparable to Rhode Island's.

It seems California is the second most power-efficient state in the country. Demand has grown at an average of 1.5% a year in the ten years ending in 2000. It is revealed that in late 2000 power plants in California are shut down at a rate of 32%; when the previous July, which had higher energy demands, that rate was under 5. (From ConsumerWatchdog.org, Jan. 2002. A must-read report for every Californian.)

Fox News reports that these shutdowns are based on maintenance due to overwork (forgetting that demand was higher the year before). Energy lobby officials appear and blame the "crisis" on lack of capacity, implying California's aggressive environmental laws have stymied power plant construction. Our president smirkingly refers to the same "rules" when asked for comment about the problem.

The reality is Gray Davis licensed the first new power plant within three months of taking office. Under the watch of deregulation champion Pete Wilson, none were built. Not for any reason except overcapacity: 170 generation plants were brought on line in the 1990s. A review of capacity indicates that approximately 47,000 KWH were available to California the year before the "crisis." This figure is approximately 20% more than the highest peak demand required during the blackouts. Okay, the whole "crisis" was generated for monetary gain. But hold on, campers there's more at work that plain ol' money!

Arnold Schwarzenegger met with Ken Lay on May 11, 2001.

Do you think that Arnold, who had commissioned a survey in 2000 to see if he could be a write-in candidate for Governor (too muddy, consultants told him) talked about anything else with Lay except running for governor? On June 21, 2001, the Associated Press reported that "Lay met secretly with California Republicans at the Beverly Hills Hotel and pushed a plan that called for ratepayers to pay the billions in debt racked up by the state's public utilities. The plan contended that federal investigations of price gouging are hindering the situation." According to William Bradley, the L.A. Weekly's sharp political columnist who wrote about Enron.

Why did Schwarzenegger go to a secret meeting with Ken Lay in the midst of the crisis? Did Schwarzenegger have any dealings with Enron? Did he hold Enron stock or debt or infamous LLC's in his portfolio - and if so, when did he sell? Schwarzenegger will probably attack Davis for the state's energy fiasco, which cost Californians over $70 billion over the past few years. But perhaps then someone will ask Schwarzenegger why he appointed Pete Wilson, the former governor who signed the misbegotten deregulation bill that caused the crisis, as his campaign chairman.

Finally then, we address the constant question inherent in politics: who benefits? The simple answer: banks. Remember the lead underwriters in the issuance of California Bonds? The myriad connections to the major contributors of the Bush campaign? If the recall passes, the financial community is poised to pounce upon the hapless prostrate people of California.

The code is there in dry financial tomes on the back pages away from Fox viewership. But it's plain and serious. Banks are funny creatures. When inside the beast, as I often am, you realize that their intricate computer models devise a rate of return they will accept in a transaction, and one way or the other, you pay that rate. You may split it up in the form of "points" up front; you may accept a higher interest rate over the course of the transaction. But you always pay what they decide.

I mention this because there are certain "excuses" that they look for to arrive at that rate of return. Paramount among them is the "Credit Rating." Ostensibly done by neutral ratings firms (why are there three if they are all neutral? And why do the ratings swing wildly between the ratings agencies? Another article, my friends...)

Here is the crux of the recall issue:

If we give them the excuse of "instability" we pay the worst rates available. There is no more unstable form of state government than one where a recall passes.

Sacramento Bee Aug 11: S&P downgrade would cost about $1 billion, said Mitchel Benson, spokesman for state Treasurer. This in reference to the latest offering of the State.

From "Rescue California," the lead recall groups website:

The agencies advised that if the state does not adopt the governor's revised budget — which includes $8 billion in new taxes and rolling over $10.7 billion of the shortfall through borrowing — or some variation that does as good a job bringing the state's finances in order, paying them back could be a problem.

"This represents the end of the runway," state Controller Steve Westley said in reaction. "What it means is should the state wish or need to do borrowing in the future and these things have not been accomplished, there will not be other avenues open." Three bankers and financial consultants to the state who would speak only on the condition of anonymity expressed concern about the failure of the Legislature to be jolted by similar past messages from Wall Street.

Bond rating agencies have just lowered California's rating to one notch above "junk" status. Speaking of junk bonds, did I mention Michael Milken was at the same meeting with Ken Lay and Arnold? What a coincidence! The S&P release on ratings cited "a laundry list of structural problems in how California does business, including its constitutional requirement that a budget garner the votes of at least two thirds of the members in each house of the Legislature. Other flaws that worry investors, according to S&P, include term limits, legislative boundaries that reinforce partisanship, interest group lobbying, looming legal challenge to motor vehicle license fees (also a Pete Wilson program) and the magnitude of the state's accumulated deficit: "$38.2 billion for a state that in its last fiscal year collected only $67.8 billion." according to Rick Jurgens, Contra Costa Times. Those "flaws" mentioned sound like a laundry list of the long-suffering Republican minority who wish to capture the statehouse.

Back in D.C.: the Bush administration has shelved a report commissioned by the Treasury that shows the US currently faces a future of chronic federal budget deficits totaling at least $44.2 trillion in current US dollars. The study was commissioned by then-Treasury Secretary Paul O'Neill. But the Bush administration chose to keep the findings out of the annual budget report for fiscal year 2004, published in February, as the White House campaigned for a tax-cut package that critics claim will expand future deficits. (Financial Times, May 29, 2003.)

Yet it is the huge budget deficit of California that recall leaders, Republicans all, most rail against. Inarguably caused by a group of Texas companies led by Bush's primary benefactor. Assisted by a willing Republican ex-Governor who was the leading proponent of the very deregulation that created the mess. A man who now heads up the candidacy organization of the leading Republican who met with the leading Republican presidential donor six months previously. Willingly financed by a group of banks who are among the largest corporate donors of the Bush campaign. Oh, and another coincidence: the S&P analyst who pulled the trigger on the downgrade is Alexander Fraser, based in Dallas. DALLAS, TEXAS! Isn't that…..interesting. Why weren't these downgraders California–based analysts ?

Is it too far-fetched to see a guiding hand in these events? With the State of California as the prize, anything is possible. Imagine the windfall to banks that specialize in sState finance of California's sixth-largest-in-the-world economy. Charging "junk" rates instead of traditional ones. Estimates say that an additional $1 billion in interest costs will be borne by the people of California per issuance. Many times the state has averaged three issuances per year.

Add this to the $72 billion taken out of the state and the lascivious drooling over Californian assets by Republican strategists such as Grover Norquist in that same Denver Post interview: "California, the state owns a whole bunch of land and other things that it could sell off it doesn't need, and it needs to figure out which of those government jobs need to be in government, and what can be privatized or contracted out. "

Can anyone in the face of the machinations that have taken place in Washington D.C. - support of the Energy company rip-off, the cutting of Federal funds to states, issuance of unfunded mandates, the meetings between gubernatorial candidates and Ken Lay, the same banks that financed Enron financing the bond issuances at inflated cost, an S&P analyst downgrading California's debt based in Texas - does this sound like a war on California by an administration whose chief strategist has articulated a strategy of partisan warfare, or an inept governor? "…We will have total gridlock and nothing will get done," worries Jack Kyser, chief economist for the Los Angeles Economic Development Corp. Doesn't this sound exactly like Grover Norquist's prescription for the Republican takeover?

The only way to put a stop to this sinister lunge at California's assets is to vote NO on the recall and send these future and past felons skulking back to the halls of power in Washington D.C. and Texas, from whence they came. We should not be the authors of our own demise, no matter how engaging the spotlight is, and how appealing a "guvinator" might be.


Mike Hickerson has been involved with the California financial industry since the 1970's.

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