Milwaukee Biz Blog

I am a small business owner for the past 26 years. I am outraged that the large bank where I do my business has used my money to destroy my city. I learned all of this through my involvement in Common Ground.

Common Ground is an organization of congregations, schools, small businesses, nonprofits, unions and neighborhood groups which works to promote the common good.  A year ago Common Ground leaders began to examine the reasons for the large number of vacant and abandoned homes in various parts of the city and suburbs.

We learned some pretty incredible things. The three largest owners/trustees of foreclosed homes in Milwaukee and throughout the state are Deutsche Bank (Frankfurt), U.S. Bank (Minneapolis) and Wells Fargo (San Francisco). No local or community banks are on the list.

Combined, these three large national/international banks control hundreds of properties. Why is that?
Using my deposits and perhaps yours, these banks speculated in sub-prime mortgages. They sold or bought or invested in predatory loans that in many cases should never have been made. When the market went bust and these three banks got in trouble, you and I bailed them out with $42 billion in TARP money - our tax dollars.

Now there are hundreds of vacant and abandoned homes these three banks control and we the local taxpayers are paying to care for them through extra building inspection, fire and police services. A further outrage in all of this is that these three banks just reported third quarter profits of $5.8 billion. John Stumpf, the CEO of Wells Fargo, just received a bonus worth $10 million.

Enough of this craziness. These three banks must take responsibility for the devastation they are causing. This is why I am supporting the Common Ground campaign to hold these banks accountable for their actions.

Common Ground is asking these banks for three things:

• Responsible sales – Stop selling foreclosed homes at auctions and mass sales and work with Common Ground to develop a plan to sell these properties to responsible owners.
• Demolition – Pay for the demolition of the properties beyond rehabilitation and donate the land to a community land trust for future residential construction.
• Rehabilitation fund – Each bank contribute $25 million towards a $75 million fund which will be used to rehabilitate and sell these properties.

These are reasonable proposals for the reasonable disposition of these properties.  Throughout my business career, when I have made a mistake, I have owned it and corrected it. These banks need to do the right thing. “You broke it, you fix it.”

Bob Connolly, a principal at The James Company, is a member of Common Ground, a Milwaukee-based grassroots organization of congregations, schools, small businesses, nonprofits, unions and neighborhood groups. For additional information, visit. www.commongroundwi.org.

Argue all you want about the true effectiveness of the $787 billion dollar American Reinvestment and Recovery Act; however there is one program that has helped small business get back on its feet.

Unfortunately, just as small business is starting to see the light at the end of this very dark economic tunnel the available funding of $375 million dollars for SBA Stimulus loans was exhausted as of Nov. 23, 2009. There are two critical items that have made the SBA Stimulus loan a very effective tool for borrowers: 1.) The upfront fees (which can total approximately 3 percent of the loan) were waived 2.) The government guarantee for lenders was upped from 75 to 90 percent of the loan.

This additional security for lenders led to the ability to get deals done in what has become an extremely conservative conventional lending market. As of Dec. 8, there were 679 requests for the SBA Stimulus loans totaling $313.4 million dollars that have been put on hold until congress decides whether or not to act on this issue. Senators Snowe ( R-ME) and Landrieu (D –LA) introduced a bipartisan bill that would call for the extension of the SBA package until Dec. 31, 2010, and also increase the maximum loan size of the SBA 7(a) from $2 million to $5 million and the SBA 504 loan from $1.5 million to $5.5 million.

With health care commanding the full attention of the Senate right now it is unlikely that this issue will receive much attention in the immediate future and this piece of legislation will most likely be included in some type of Jobs Bill (Stimulus Part II) being considered for 2010. Meanwhile many small businesses that finally have the confidence to move forward with expansion have one of the proven successful “stimulants” removed from the economic recovery.

According to the SBA, the average weekly loan volume prior to the expiration was up 60% from the weeks preceding the passage of the Stimulus package. I have seen first hand the effectiveness of this program via a startup business by the name of Innovation Station. Innovation Station was in the middle of purchasing a facility for their new day care business in Brookfield and then September 2008 hit the financial world, and Innovation Station was no longer qualified for a loan. Innovation Station went to five separate banks over the course of five months to try to salvage their dream and finally found a lender that got them approved via the SBA Stimulus Program.

After being open for only a few months, Innovation Station is exceeding their financial projections and they are up to three employees. While it does appear that we are emerging from the Great Recession the private sector, especially small business, needs to start growing again to sustain a healthy economic recovery. With the increased lending standards that entrepreneur’s face and the difficulty in obtaining capital, the extension and expansion of the SBA Stimulus funds are an appropriate measure for growth that congress should act upon immediately.

If our elected representatives truly want “JOBS! JOBS! JOBS!" this program should be brought back “NOW! NOW! NOW!" Please consider contacting Senators Herb Kohl and Russ Feingold to let them know to keep money flowing to small business.

Jeff Hoffman is president IBA-Wisconsin and vice president of Judson & Associates S.C., Pewaukee.

A week before Christmas, an important report appeared on a Wisconsin government website. There were no press releases from Madison politicians. No headline news stories.

Yet no public official, taxpayer or citizen can afford to ignore the report’s bottom line: According to its just-released financial statements, state government closed its 2008-09 books with a $2.71 billion deficit in its general fund.

To many readers, this might come as a surprise. By law, state government is supposed to balance its budget. On paper, it does. However, for more than a decade, governors and legislators of both parties have “balanced” budgets through use of accounting maneuvers, timing delays, borrowing, and billions in one-time money.

When the state controller, a CPA, prepares the state’s official financial statements, he must follow generally accepted accounting principles, or GAAP. That means he must reverse the budget gimmicks and accurately represent the state’s true financial condition. When he does this, the budget’s black ink turns red.

What does this mean in everyday terms?  Suppose you use your credit card to buy a new living room set. You take it home; the kids, their friends, and your pets make active use of it.

Credit card or no credit card, according to the state controller - who must follow accounting rules - you spent money. However, that is not the way the folks under Madison’s Capitol dome see it. The living room furniture might be well used, but they don’t budget the money until the credit card bill has to be paid.

Now, some state officials who have practiced politics full-time will try to reassure us by saying: “There’s no real problem; it’s just the recession.”

True, this year’s deficit is the largest ever reported. But it is the fifth consecutive year that the GAAP shortfall exceeded $2 billion and the ninth that it has topped $1 billion. We have not had a recession every year since the late 1990s. This recession didn’t really get underway until early 2008.

Even more troubling than the size of the deficit is its trend. Since 1999, the shortfall has grown in every year except one:  $830 million in fiscal 1999, $1.21 billion in 2000, $1.48 billion in 2001, $2.24 billion in 2002, $1.93 billion in 2004, $2.12 billion in 2005, $2.15 billion in 2006, $2.44 billion in 2007, $2.50 billion in 2008, and now, $2.71 billion in 2008-09.

“No need to worry. Other states are in worse shape,” career legislators will tell us.

Hmmm. We don’t yet know how other states’ 2008-09 deficits will compare with our $2.71 billion hole. But we do know what states reported in 2007-08. Wisconsin had a deficit of $2.50 billion. Three other states were in the red, according to their statements: California ($4.17 billion), Illinois ($3.93 billion), and Maine ($0.24 billion).

The problem with this comparison is that it ignores the relative size of states. California has 36.8 million people; Illinois, 12.9 million. Wisconsin has only 5.6 million residents. When 2007-08 deficits are compared on a per capita basis, the Badger State had the largest GAAP deficit in the nation ($445 per person), followed by Illinois ($305), Maine ($181), and California ($113).

Figures like these led the Pew Trusts recently to name Wisconsin one of 10 states most in “fiscal peril.” The news made headlines around the state. Of the states listed, however, only California, Illinois and Wisconsin reported GAAP deficits last year. Pew said California “was in a league of its own.” Yet it is worth noting that Wisconsin’s deficit per capita was four times larger than California’s.

Todd Berry, Ph.D., has been president of the Wisconsin Taxpayers Alliance (WISTAX) since 1994. Founded in 1932, WISTAX is a nonprofit, nonpartisan public policy research organization dedicated to teaching and informing Wisconsin citizens, public officials, and the press about our government.

Since 2002, Jim Haertel and his investors have been working to bring a Hofbrauhaus restaurant and beer hall franchise to the buildings that they own at the former Pabst brewery.

However, those plans were ultimately dashed by the credit crunch that was created by the Great Recession and last year’s financial industry meltdown, Haertel said today.

Cincinnati Restaurant Group Inc., which has the license rights for Hofbrauhaus in Wisconsin, announced today that it has ended negotiations with Haertel and his investors, known as Brew City Redevelopment Group LLC.

“We just couldn’t come to terms,” said Andi Udris, president of Cincinnati Restaurant Group.

Haertel and his group own the former gift shop, visitor’s center, Blue Ribbon Hall and Pabst corporate offices. The rest of the brewery complex is owned by Zilber Ltd. founder Joseph Zilber, who is redeveloping the complex into a mixed-use urban neighborhood called The Brewery.

Brew City Redevelopment Group and Cincinnati Restaurant Group planned to split the $6 million cost to renovate the buildings and install equipment for the Hofbrauhaus, Haertel said. However, Brew City could not obtain financing for its $3 million share, even though it owned the buildings and had an anchor tenant for 70 percent of the space.

“In the good old days, that would have been plenty,” Haertel said. “But the current conditions in the (capital) markets have made it difficult for us to obtain $3 million in financing to do our part to put a Hofbrauhaus in the building.”

Even with the property ownership and an anchor tenant, banks wanted a guarantee for the lease or the loan, Haertel said. Cincinnati Restaurant Group declined to guarantee the lease, and Brew City could not convince anyone to guarantee the loan.

The group talked to Zilber about providing a loan guarantee, Haertel said. But that never came together, and now Haertel expects Cincinnati Restaurant Group to lease space in two of Zilber’s buildings.

“Zilber began to get involved,” he said. “It seemed to help us try to get financing. But in the end, they have taken our tenant away to a couple of their buildings. What started out as help, ended up being a replacement.”

Cincinnati Restaurant Group executives say they still want to open a Hofbrauhaus location in Milwaukee and will consider locations in the downtown area, including other buildings at The Brewery.

“We remain extremely confident in the Milwaukee marketplace,” said Cincinnati Restaurant Group chairman Maximilian Erlmeier. “We will continue to explore historic buildings that may be available at The Brewery.”

For a Hofbrauhaus location, Cincinnati Restaurant Group needs 15,000 to 20,000 square feet of indoor space and 3,000 to 5,000 square feet of outdoor space for a beer garden, Urdis said.

Zilber is hoping the Hofbrauhaus will open somewhere in the former Pabst brewery complex.

“We will do everything we can to find them a location that would allow us to bring a quality operation like the Hofbrauhaus to The Brewery,” said Zilber’s assistant, Mike Mervis.

Mervis declined to say which buildings that Cincinnati Restaurant Group is considering at The Brewery. Haertel thinks the Hofbrauhaus will be located in buildings 20 and 21, the former Brew House and Mill House buildings, with an outdoor beer garden on the west side of the buildings.

The Brew House buildings is the building that contains six historic copper brew kettles.

Oregon, Wis.-based Gorman and Company Inc. has a contract to purchase the Brew House and Mill House buildings from Zilber, who has been selling some of the buildings in the complex to other developers.

“My best guess is Zilber and Gorman gave (Cincinnati Restaurant Group) a deal they could not refuse,” Haertel said. “We had agreed on a rent (with Cincinnati Restaurant Group) and it has never changed because of anything. It’s just business.”

Haertel said he and his investors will slowly build up the use of their buildings, which they call Best Place. A gift shop selling vintage items from the brewery will open tomorrow. The buildings are already open for tours and group event rentals. Haertel said he is finalizing conditions for a liquor license and will open a pub in the former visitor’s center area soon.

Eventually, a full-scale restaurant and bar may occupy Blue Ribbon Hall, he said.

“We’re going to take it in steps,” Haertel said. “We plan to just keep reinvesting our profits until this entire building is redeveloped, using our own organic growth.”

Fears of inflation are great. What is the reality behind those fears?

Some point to the funds that our government is spending and its expanding debt. Yet much of the money the government has spent is for infra-structure, which improves productivity and should be seen as an “investment.” Much of the money given to bankers will be paid back. Importantly, the government replaced only a part of the capital that was lost in the subprime crisis.

Given the 10-to-1 leverage that banks can use, this has led to a restricted money supply. To put this differently - capital has been hard to get!

It is estimated that the government infusions replaced only 45 to 55 percent of lost capital, if that much.

Lastly, few understand, and I include those in government leadership, that one purpose of  the bailout was to buy time for such companies as AIG and Citigroup so that they could unravel their “too big to fail” operations.

Wages are the primary cause of economic inflation. Worldwide competition and productivity gains will help to moderate wage inflation over the next eight years, at least in my opinion. While there will be job shortages in such fields nursing and engineering, many other positions will face outsourcing and gains from equipment that reduces manpower needs.

As an aside, many bemoan the loss of manufacturing in this country (and elsewhere). Thirty years ago, manufacturing made up about 27 percent of our workforce; today it is about 10 percent. This is similar to what occurred in farming. At the time of the American Revolution, 92 percent of Americans were farmers. Today, that figure is less than 2 percent. Yet our agricultural force is great enough to feed our population, as well as much of the world.

Manufacturing produces more today with less labor.

The recent economic crisis might mean an extension of baby boomer retirements. I believe that many baby boomers will extend retirement to 70, in part for economic reasons but also to fill a void for self-satisfaction with work. Importantly, the echo boomers, a larger part of our population than the baby boomers, is transitioning into new jobs, forming families and increasing consumption. The echoes’ are generally ignored as a force in our economy. They should not be.

With most industrialized countries at zero or below birth rates, many countries will face a workforce shortage. Japan has faced this problem by improving productivity (such as robotics) or exporting capital to China. The United States has an immigration policy that makes it one of the few countries that is increasing its birthrate.

Another sign that inflation will not be a problem is increases in productivity. Paul Winghart, a respected RBC Wealth Management consultant, has made a study of long-term inflation. He points out that “productivity currently is out stepping GDP since 2000 to the tune of +.50 percent per quarter compared to its historical low of about 1 percent for most of the post war period.”

Productivity gains help to moderate the rate of inflation and will continue to do so, in my opinion, for at least the next eight years.

Lastly, I believe that the government will eventually increase interest rates, but only when there is a clear sign that the economy and the banking system have improved.  When this happens, many corporate bonds will increase (and their yields will decline) because their credit will improve.

So will we have significant inflation over the next several years? I don’t believe so - repayment of government loans, increased productivity as well as the control of wages will contribute to a moderation in inflation.

Bob Chernow is a futurist who predicted the S&L/mutual savings bank crisis, the future of mortgage backed bonds and the recent sub-prime crisis. He works in the financial industry. His opinions are his own.

Editor’s note: Susan Urahn, managing director of the Pew Center on the States, wrote the following Milwaukee Biz Blog in response to Thursday’s Biz Blog entry by Wisconsin Department of Administration Secretary Michael Morgan about Pew’s study, "Beyond California: States in Fiscal Peril."

Pew's report is factually accurate and fair. Wisconsin was highlighted in our report because it exhibits many of the same fiscal warning signs seen in California, as documented by widely accepted, publicly available data.

The facts are clear. Wisconsin, like California and the eight other states Pew profiled, faces serious fiscal challenges. In reaching this conclusion, Pew relied on data from respected sources including the U.S. Department of Labor Statistics, the Nelson A. Rockefeller Institute of Government, the U.S. Census Bureau and experts in both academia and government.

Our report states that California's budget problems are in a league of their own. But Wisconsin has had persistent budget shortfalls - the state has had a negative general fund balance from fiscal years 2002 to 2008, according to its own Comprehensive Annual Financial Reports. Additionally, Wisconsin has used short-term fixes to meet budget challenges, such as relying on its transportation funds to cover day-to-day operating expenses.

Prior to the 2010 fiscal year, Wisconsin faced a more than $3.2 billion budget gap - nearly a quarter of its general funds, according to the Center on Budget and Policy Priorities. During the first quarter of 2009, the state’s revenues declined by $370 million from the same quarter of the previous year, according to the U.S. Census Bureau and the Rockefeller Institute. Wisconsin’s revenues declined even further in the next quarter from the previous year, down $1.25 billion or 24.3 percent.

Wisconsin’s third-quarter unemployment rate shows job losses are moderating. However, while Wisconsin manufacturing may be performing better in the current downturn than that of some of its neighbors, such as Michigan, the job losses in this sector have been heavy. The Center on Wisconsin Strategy, based at the University of Wisconsin-Madison, reported in September that, from December 2007 to July 2009, the Badger State lost one-eighth of its manufacturing workforce.

As our report reflects, Wisconsin, like other states, has made attempts to deal with its fiscal challenges. The legislature passed the current spending plan on time, before the biennium started, for the first time in 32 years. It used $2.2 billion in federal stimulus funds to plug some budget shortfalls this year. To cover the rest of the gap, lawmakers took difficult steps such as raising taxes on the wealthy, hospitals and smokers, and cutting spending by $3 billion. But for the next biennium, which starts July 1, 2011, additional budget shortfalls of about $2 billion are expected, according to the Wisconsin Legislative Fiscal Bureau

For the report Beyond California: States in Fiscal Peril, Pew identified factors that have contributed significantly to California’s difficulties, then determined the degree to which other states are experiencing the same challenges. These factors are: (1) loss of state revenues; (2) the relative size of budget gaps; (3) increasing joblessness; (4) high foreclosure rates; (5) legal obstacles to balanced budgets—specifically, a supermajority requirement for some or all tax increases or budget bills and (6) poor money-management practices.

Pew scored all 50 states using the best available data as of July 31, 2009. The snapshot captures an important juncture: the first and second quarters of 2009, the pressure point for governors and legislatures in the throes of crafting their budgets for fiscal year 2010 (which began on July 1 in all but four states). More information on the methodology and the report in its entirety is available at www.pewcenteronthestates.org/beyondcalifornia.

Susan Urahn is the managing director of the Pew Center on the States in Washington, D.C.

The entire Wisconsin banking community is pleased that the banking regulatory system worked as designed last Friday when the Department of Financial Institutions closed Bank of Elmwood, Racine.

Importantly, depositors were protected as there was a seamless transition to Tri City National Bank of Oak Creek. Wisconsin's banking community expresses its support to the affected employees, directors and shareholders of the Bank of Elmwood. 

Until last Friday, only 16 states, including Wisconsin, hadn’t experience a bank closure since Jan. 1, 2008, which tells us two things:  The conservative lending culture of Wisconsin banks has served our state and industry well; but also that economic conditions across Wisconsin are weak and because of that fact, banks will continue to face challenging times.

Banks didn’t cause this recession as so many believe. We also were not bailed out as so many claim. We didn’t make irresponsible subprime loans to people who didn't have the capacity to repay them. We didn’t speculate in investment instruments we didn’t understand, like credit default swaps and other derivatives. And we are doing our best to meet the demand for loans to qualified borrowers.

We understand our vital role as the foundation of economic development and job growth in every corner of Wisconsin and our nation. We want to make prudent loans to businesses in the communities we serve because if those businesses don’t succeed, neither will we.

We know that many people are angry and looking for someone to blame. But targeting that anger at banks is misplaced and counterproductive toward achieving an economic recovery.

Specifically, too many elected officials are leveraging the public's confusion over who caused this crisis to attack banks and push legislative agendas that will make a bad situation worse for our industry and, ultimately for the businesses and consumers we serve.

There is already a lengthy list of obstacles beyond our control impeding our ability to do what we do best; make loans to qualified businesses and consumers. Lawmakers need to consider the consequences of adding more burdens and costs on the very institutions they need to help rebuild our nation’s economy.

Whether we are local, regional or national banks, we rise and fall together. WBA and CBW pledge to redouble our collective efforts against legislation and other regulatory proposals that are only counterproductive to the banking industry’s ability to help with an economic recovery.

This joint statement was written by Wisconsin Bankers Association president and chief executive officer Kurt Bauer and Community Bankers of Wisconsin president and CEO Daryll Lund.

We need real reform in the financial markets. This reform should include how we regulate and how we audit and enforce these regulations.

Reform will not prevent another crisis that we have just witnessed or the S&L/Mutual Savings Bank crisis some three plus decades ago or frauds such as Madoff's. But reform can catch these problems before they get out of hand, which will reduce the impact on our economy.

• First, we must restore confidence to the secondary mortgage market. Liquidity in mortgages provided by the secondary market is essential to our economy. Banks and S&Ls should not be holding mortgages for long periods of time and should have a market to which they can sell.
  Require escrow for real estate taxes and homeowners insurance for all homes where the home buyer does not have a 20-percent down payment.
• Require that the buyer have a 20-percentcash down payment or that another entity, such as a mortgage insurer, the VA, FHA or Farmers Home Loan Agency, is covering the 20-percent difference between appraisal and mortgage.
• Forbid financial institutions from lending borrowers their 20-percent down payments.
• Ensure that income and assets listed are verified.
• Ensure that appraisals are realistic
• License all appraisers and mortgage brokers nationally, or at the very least, create a standardized system for appraisers and mortgage brokers, including the personnel of any firm issuing paper to be sold on the secondary market.
• Strictly regulate mortgage insurance companies. There have been too many incidents where these firms have had conflicts of interest (using subsidiaries as collateral) or have made risky business decisions that affect their contingent liability funds.
• Require that all use the standardized underwriting and forms issued by Fannie Mae and Freddie Mac.
  Make full disclosure and other paperwork simple to understand. Reduce this paperwork to one or two pages that are understandable.
• Where possible, require that homeowners with less than a 20-percent down payment receive counseling so that they have a budget and so the mortgages they receive are fair, that charges required of them are reasonable and that the property they are buying is worth what they are paying.
• Restrict such practices as "interest only mortgages," balloon mortgages or variable mortgages with teaser rates.

In regards to regulation of the financial industry, it is important to separate the audit and enforcement functions from the influence of politics and business as much as is possible. Politics influences enforcement.

A recent example was the firing of Gary Aguirre, an Securities & Exchange Commission (SEC) attorney lauded for his excellent work. He was fired because he wanted to interview John Mack for allegedly giving inside information to Pequot, a hedge fund. (I could have used examples from both Democratic and Republican administrations).

The New York Stock Exchange, the Nasdaq, the Federal Reserve Bank and the SEC did little to go after abuses on Wall Street. For years, Eliot Spitzer was a lonely crusader against Wall Street abuses.

"Self-regulation" by the industries themselves has been not been successful. The Federal Reserve failed to stop abuses in the banking industry through its audits. Their "objective" is to protect banking, but too often this means avoiding confrontation by the few banks that control most of the country's assets.

My suggestion is to create an independent agency that has many features of an inspector general or the General Accounting Office. Fund their budget for seven years at a time. Give a single 10 or 12-year year term to its leadership. Forbid its civil servants from becoming lobbyists or working in the industries they have regulated for five years.

This will not be perfect, but it will go a long way in isolating political influence on the agency.

Furthermore, I suggest that we separate regulation and oversight by an industry's function. Credit, life, health and property-casualty insurance companies manage risk; banks, S&Ls and mutual savings banks lend money. Mutual funds and annuities deal in collective investments. Money managers, hedge funds, financial advisors and stock brokers manage money or offer advice.

Multiple and contradictory regulations need to be reduced, but there should continue to be competition in enforcement. National tests, continuing education and licensing should be national. Licensing by states based on the national model should continue.

Bob Chernow is a futurist who predicted the S&L/mutual savings bank crisis, the future of mortgage backed bonds and the recent sub-prime crisis. He works in the financial industry. His opinions are his own.

Jean-Baptise Colbert, French King Louis XIV's Minister of Finance, once quipped, "The art of taxation consists in so plucking the goose as to obtain the largest amount of feathers with the least possible amount of hissing."  For much of the past century, Congressional leaders have demonstrated their commitment to Colbert's maxim by taxing us in successively more opaque ways.

The first wave followed World War II, when the federal government adopted the payroll tax. After the 16th Amendment was ratified in 1913, allowing for a national income tax, Americans who paid income taxes filed a 1040 and wrote a check at tax time. Keenly aware of their tax burden, voters kept income tax rates low. But during World War II, the federal government revived an idea first experimented with during the Civil War:  income tax withholding. 

For Congressional spendthrifts, the payroll tax was a gold mine: People less aware of taxation are less likely to object to tax increases or to penalize politicians who raise taxes.  As the U.S. Treasury notes, "(withholding) greatly eased the collection of the tax for both the taxpayer and the Bureau of Internal Revenue. However, it also greatly reduced the taxpayer's awareness of the amount of tax being collected, i.e. it reduced the transparency of the tax, which made it easier to raise taxes in the future."

War also led to another form of hidden taxation, the corporate tax. The first corporate taxes appeared in 1909, at just 1 percent of profits. By 1918 - the last year of World War I - they had jumped to 12 percent. World War II took them to 40 percent, which is about where they have remained since. Yet, as economist Walter Williams notes, corporations are "merely tax collectors" who shift taxes to consumers in the form of higher prices.

Politicians since have excelled at the art of taxing you without your knowing it. The Alternative Minimum Tax, yearly extending to lower tax brackets, is one form. So are sales taxes - again, collected by retailers rather than paid directly by consumers. So too are taxes on gasoline, cigarettes, your utility bills, your insurance premiums, special travel taxes and more. Why do politicians add taxes to your cable bill? Because it is another way of taxing you without your knowing it. 

By far, the most innovative and cowardly forms of hidden taxation are found in deficit spending, which was used to great effect by the previous administration and is being perfected by the current. The nonprofit Peter G. Petersen Foundation pegs the value of the "real national debt" at $56.4 trillion – that's $184,000 in future taxes for each and every American.

Today congressional leaders face a new dilemma: They are running out places to find money. Foreign governments are growing increasingly skittish about lending us money, which will soon drive interest rates higher. Under the House health care proposal promoted by President Barack Obama, top income tax rates in some states could top 57 percent.  

Looking for ways to make up the difference, the federal government has already begun shifting costs to the states. Democratic and Republican governors balked at the House health bill, arguing that plan saddles them with costly new Medicaid obligations without the funds to pay for them. Republicans relied on similar unfunded mandates under President Bush: REAL ID, for example, cost the states $14 billion while allocating just $40 million to pay for the program.

Medicare has perfected the art of indirect taxation, or cost-shifting. A recent study in New Hampshire estimated that Medicare underpayments to hospitals and doctors result in a 17-percent increase in the cost of commercial health insurance rates. In other words, rather than raise taxes to pay for Medicare obligations, Congress simply underpays providers and makes the rest of us pick up the difference through our health insurance premiums. The House health bill, which does the same thing, raises even more from you indirectly by penalizing all but the smallest businesses up to 8 percent for not offering health benefits.

States have responded by issuing mandates of their own on local governments and private industry. In recent years, several states have cut state education spending on treatment for autistic spectrum disorders, shifting costs to private insurance policyholders by mandating that insurance companies pay for treatment.  Similar mandates have been issued for hearing implants and other treatments.

Recent calls on state and federal levels to tax energy company "excess" profits are another form of indirect taxation. Wisconsin's plan to tax 2.5 percent on the price of gasoline - despite Gov. Jim Doyle's claims that companies will be prohibited from passing along the cost to consumers - is one such example of indirect taxation. So too is Wisconsin's 800-percent increase in car rental fees. 

Colbert's truism about politicians has held up over the centuries. But at some point - and the United States is nearing that point - they run out of easy places to borrow or raise money. In the months to come, expect the federal government to push more mandates on the states and for states, in turn, to push them downhill to local governments and businesses.

But don't forget, some 220 years ago after the fact: The state Jean-Baptiste Colbert helped build - the home of Versailles and the "Sun King," which helped finance America's own anti-tax revolution - ultimately ended in a revolution over taxes.

Jim Burkee is an associate professor of history at Concordia University Wisconsin.

The root cause of our economic mess is commoditization. If your business can't offer its target market(s) differentiated benefits that matter, recognize that your business is stuck in a quicksand called commoditization.
Endless cost-cutting to survive the recession-magnified price discounting will only push you deeper into the muck, making it even harder to escape competing on price.

You only have three smart options:

• Redefine your business model strategy to become the lowest-cost competitor. You'll earn profits despite market commoditization.
• Redefine your business model strategy to escape commoditization and compete beyond price.
• Exit the business.

Over the last 10 years, our economy's productivity increased dramatically through industry consolidation, value chain and process redesign, outsourcing and IT investments. These changes lowered inflation, but also created pervasive commoditization.
Big banks engaged in these activities and ended up as lumbering copycats of each other, earning their returns by taking enormous risks rather than having a better value promise for business and consumer customers.
Rating agencies, AIG, former Federal Reserve Chairman Alan Greenspan's low-interest rate policies, a lack of federal regulation, Congressman Barney Frank's push for affordable housing and Asian foreign currency surpluses enabled the banks to take these risks, much as spouses and friends might enable an alcoholic partner or friend.
The housing bubble and massive credit card consumer debt emerged from the drunken dance. Consumers must bear some of the blame for our mindless enjoyment of the short-term riches.
That's my theory of what went wrong. What's yours? Until bank boards begin to demand strong strategic thinking from bank CEOs and their teams, banks will be right back at taking whatever level of risk new regulations will let them get away with.
Watch what will happen in pharmaceutical markets too. Big pharma is following the bank model, with mergers and acquisitions engaged in solely to cut costs. Pharmaceutical companies also purportedly acquire competitors to improve their new drug product portfolio, which parallels acquiring another financial institution to get better retail locations or stronger investment advisors. But the pharmaceutical mergers, I predict, will do little to improve drug discovery success and may, in the case of Genetech's acquisition by Wyeth, reduce drug discovery success.
Commoditization marches on with generic drug companies (the Walmarts of the drug industry) and inventive biotech start-ups poised to earn attractive profits. Changes in health care policy will whittle away any profits big pharma might have made in the past by bringing other companies' discoveries to market.
Are your actions as a company creating more commoditization? What are you doing to compete beyond price discounts?

Kay Plantes, Ph.D., is an MIT-trained economist, business strategy consultant, columnist and author with expertise in business model innovation, strategic leadership and smart economic policies. She resides in Madison, Wis., and Oslo, Norway. For additional information, visit www.plantescompany.com.