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News Analysis: Oct. 9, 2008 - A.I.G. Controversy and Economy Slump

posted on October 10, 2008 at 12:25 PM

Paul Yeager: Hello and welcome to The Iowa Journal.  The economy continues to drive much of the conversation in the state.  The question is determining how much of the panic on Wall Street is affecting Main Street.  In fly over America the prevailing view is we have better things to worry about like harvesting or shipping or processing a bumper crop, for example. 

But the panic on Wall Street has gotten the attention of Iowans holding 401Ks as well as those who need to secure financing to maintain businesses or to plant next year's crops.  Amid that debate is another, below the fold, the election of '08. 

Kay Henderson of Radio Iowa has been following that as well as some other matters for us.  Kay, let's talk about the current sitting governor.  He released a statement today about revenue estimates.  Why did he have to do that?  Were they up or down from what he would like to see?

Kay Henderson: A three member panel of experts met today and decided that state tax revenues, the taxes Iowans are paying to the state would not be as much as they had estimated in April, down by about $30 million dollars.  They didn't estimate that taxes would start dipping below last year's collections but still that makes the current year's budget, which the budget year for the state of Iowa started on July 1st, a little bit tighter. 

At the same time the state is trying to respond to the flood emergency and the storms that struck Iowa in the spring.  It also is problematic for the coming year when legislators reconvene in January they will start drafting the next year's budget and this panel of experts said things look very flat. 

Republicans looked at this and they are crying, you know, like Chicken Little, the sky is falling.  Democrats look at this and they make points such as Standard and Poor's recently upgraded Iowa's bond rating to AAA.  That is the ability of the state to borrow money on the open market.  And so the state has a very good rating. 

And if you look at other states like California Governor Schwarzenegger has told the federal government he needs a loan just to make state government operate.  So, comparing Iowa to other states there are some bright spots in the state's economy and tax revenues haven't tanked but they aren't exactly soaring.

Paul Yeager: Which gets to a debate of what do we have in the reserve but that was touted heavily during the flood of well, we have $600 million in our reserves and we can take care of matters.  It looks like that day is here.

Kay Henderson: And the governor telegraphed this several weeks ago when he told state agencies hey, tighten your belt, don't spend so much money, we've got to redirect, we've got to reallocate because we have to deal with the flood.  And the economy is not looking so rosy.

Paul Yeager: And that's one thing that also comes on a national scale involving AIG, several other Wall Street firms, banks.  There was a congressional vote last week, a presidential signature on a bill.  You had a conversation with Congressman Bruce Braley, the first district, he's on the house oversight committee.  He talked to you about a number of things.  What was his take on some of this?

Kay Henderson: As many of your viewers may have heard after AIG -- that's the big, huge insurance company that got a bailout in mid-September from the government, essentially we all own about 80% of AIG, we have an 80% stake in it -- well, after that happened a bunch of AIG executives went on this big corporate hoo-ha and some of them got facials and rubdowns and they spent about $440,000 at a spa and a retreat. 

Now, the thing that Braley brought up was $440,000 is bad right after these folks got a bailout from you, me and everybody else.  The thing that Braley was pointing to was the person who was head of the division that made all these investments in these subprime mortgages at AIG was terminated but the folks at AIG decided that they're going to keep him on for a million dollars a month.  So, he's been working there for a million dollars a month since March and what the people in congress are saying is, I mean, this is just wretched excess and that was the point that Bruce Braley was making this week.

Paul Yeager: And is there anything -- the house oversight I'm sure they're going to have to look at some of this and we hear about a better set of rules, maybe not more rules, but is that something the oversight is going to have to get involved?

Kay Henderson: Well, presidential candidates are talking about better regulation of the financial services industry.  One point that Braley made this week was that because the changes that are happening specifically insurance companies may become publicly traded. 

That means that they are opening themselves up and they are selling shares and so they have shareholders.  And when that happens if they've been a mutual company then his argument is that the policyholders, the person that buys a policy is sort of left out to dry because the shareholders are the number one priority for the folks at the big insurance companies.

Paul Yeager: And you're left holding an empty bucket of sorts.  Let's talk about Senator McCain and farm policy.  He's had some views on that.  In about 45 seconds here, Kay, what have you found?

Kay Henderson: Well, last week in Missouri he made a statement about ending farm subsidies and tying the cost of food to farm subsidies and saying that people who are living in poverty in places like Africa are having trouble affording food because of farm subsidies.  And this just sent the blood pressure of farm commodity groups really high.

Paul Yeager: And it's something that they don't need to have it high right now because they're out in the middle of doing all that harvest hoping they've got some product that they can put into the economy.  Alright, Kay Henderson of Radio Iowa, thank you as always for stopping by, appreciate it. 

Tags: campaign 2008 Iowa news

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