Thursday, September 25, 2008

When it gets bleak that is when I want to laugh

For as long as I can remember, humor has been my tool of choice, when faced with bad news or tough challenges. It isn't that I am a misanthrope, laughing at all the wrong moments. Instead, I mean to say that humor is often a tool for me to counter the effects on my brain of bad news, or a brewing storm of worry. Admittedlly, this has led to some observing that I have an inappropriate sense of humor. Still, I can state from experience, that I have managed to joke my way out of more then one sticky wicket, and I have been able to clear my head with humor in order to be more effective in dealing with problems that are weighty. Often these devices are silent and internal, simply humerous toughts. This can be a problem if I am particularly amused by my own humorous thought, and utter a giggle in the midst of a group consternation (aka cluster f**k). That usually leads me to utter a muffled sorry, and take a deep sigh to clear the amusement from my brain, which inevitably leads to uncontrollable laughter...the kind where if you're drinking something it comes out your nose, and forces you to retreat from the group that is standing around playing the "ain't it awful" game and looking at me like I am a shopping cart driving homeless person in the midst of a cocktail party at a Sotheby's auction review yelling "Hey, take my picture" at the Tattler photographer.

I am taking too long to introduce you to one of the funniest op-ed columns I've read in a long while. Considering that I read it after reading about all the political posturing going on in Washington while our "leaders" are supposed to be finding solutions, I would have to say it is one of the more valuable comic relief moments I have had in a long time. It came via NY Times columnist, Maureen Dowd. I like her acerbic style and her "anyone-is-fair-game" polemics. However, this time she recruited Aaron Sorkin (creative brain behind The West Wing) to "conjure" up a consultation between Obama and a respected former president. Check it out, it is well worth the read.

P.S. If you are unable to access the feature drop me a note and I'll email it to you.

P.P.S. Write to me and tell me about the last time you laughed so hard whatever you were drinking came out through your nose.

P.P.P.S. The part of the dialogue attributed to the distinguished ex - prez reminded me distinctly of a well known cartoon character. Anyone want to take a guess.

Tuesday, September 23, 2008

At last the outrage? Goodie, lets get it on!


Don's recent message of outrage over the proposed $700 billion bailout of financial institutions hatched up by Paulson, Bernanke, and our administration was fairly typical of most that I have read from many diverse opinion makers. In fact, we are in the midst of a major bull market on "Outrage". No surprise here. If fed enough bullshit I assume you are going to start behaving like one...an angry one.
While it is currently being debated in congress, there has been much written in complaint about the plan and those seem to resonate amongst the letters to the editors as well.

Paulson's scheme is deceptively simple, buy up all of the crap derivatives that are constipating the system so that the credit pinch will be loosened up again. As always, the devil is in the details. The argument against the plan is that it bails out the very institutions that got us into this mess. (Along with many naive or willfully larcenous borrowers). These banks and investment houses are the creators, buyers, and sellers of what is known in financial parlance as derivatives. In addition, if this plan is set in montion, it isn't entirely clear how a repeat of the greed and avarice wouldn't simply repeat. There wil always be greed and avarice of course, but what have we learned that we might put in place to prevent these specific mistakes from being repeated?

Derivatives are financial instruments whose value changes in response to the changes in underlying variables. In the case of our mess, mortgages were pooled in large tranches which were used to issue Mortgage Backed Securities (MBS). The derivative nature of these securities is that their value is derived from the value of the underlying mortgages. There are various types of MBSs. The most common are Interest Only/Principal Only (IO/PO), Collateralized Mortgage Obligations (CMOs), and Commerical Mortgage Backed Securities (CMBSs). But there isn't a need to delve into these details here. An important point is that changes in interest rates can effect these derivatives in two distinct and contradictory ways. A reduction in interest rate will devalue the security (such as a CMO). An increase in rates will cause an extension of risk in the CMO. The value also drops because the cash flows must be discounted at a higher rate for a longer time to reflect that risk. These distinctions are even more pronounced between IOs and POs. In the case of POs, they are guaranteed the principal payments and offered a value at a discount (the spread). If the loan is paid in advance, the holders of POs receive their guaranteed payout just the same. Therefore they made their gains much quicker. IOs on the other hand, are clobbered by prepayments that occur when interest rates drop and refinance of the underlying mortgage, thus the prepayment, takes place. As a holder of the IO, you bear the risk of that happening, and are compensated for it in the discount structure. A side note to this is that IOs and POs are specifically intended to narrow the nature of an investor's bet. By breaking down a package of mortgages into two bets, the investor is able to choose which side of the interest rate forecast he believes in. This is the arguable value of constructing such derivatives. They allow the investment community a way to manage risk. Obviously it didn't work that way. That is mostly because all the way up the food chain, home buyers, mortgage brokers, consolidating banks, Wall Street Bankers, none of these are truly incentivized to care very much about the true valuation of the underlying mortgage, especially if the assumption is that property values are always rising.

The above is basically how sub-prime mortgages were packaged and sold to investors around the world. For eight years up to the Summer of 2007, we gorged on easy credit, (either as borrower, agent, loan packager, investor, or creditor) and excesses were rife. Mortgages written to non credit worthy individuals, with some written at 100% (and more) of the house value, were common. The rationale was the the lending institution was protected by the rapidly rising house values. The loan, it was thought, would never "turn over", meaning reach a value point where it no longer made sense to pay the mortgage. But as we all know now, it did. Now extend this to corporate borrowing. Over the past decade, the exponential growth of credit derivatives has created unprecedented amounts of financial leverage on corporate credit. Similar to the growth of subprime mortgages, the rapid rise of credit products required ideal economic conditions and disconnected the assessors of risk from those bearing the risk. (Imagine that..a cardinal rule in investing was broken by some of the top and most savvy investors in the world. The Lehman Bros. company and their ilk of Wall Street investment banks, The AIG insurance company, the Fannie Mae and Freddy Mac loan guarantee corps. all broke this cardinal rule.) Not only that, the deals were so complex, that no one can say for sure what the underlying values of these derivatives were, then, or now. (Which is why we should ve very dubious of the $ 700 billion figure.) So when liquidity dried up, and there was no market for these unknown derivatives, causing even more credit strictures all over the world, and extending into other areas of credit including student loans, and the meltdown is on. It is so severe that banks do not even want to loan to each other, unsure what the borrower's actual value should be. Enter the Fed and their money printing machine. Enter higher commodity prices (which are valued in dollars). Enter slowing of business, fewer jobs, etc etc.
So do these banks deserve to be bailed out, with the latest plan from the Bush government to buy up $700B of this crap with taxpayer money we don't have yet?
To me, this sounds like adding gasoline to the fire. But we are once again being led by fear. The fear vision coming from the Bush administration is basically the risk of an all out depression. Loss of jobs, dramatically reduced spending power, (all of these things are happening anyway). In other words, if we don't pay it forward, we will suffer the consequences of further precipitating a crisis beyond anyones control. I am getting sick and tired of this negative incentives (scred if you do, screwed if you don't). I am sick and tired of the Bin Laden images, and the excuses as to why we can't get him. I am sick and tired ...full stop.
So now the question becomes one of whether we believe this threat and believe in the solution. I have to be honest and say I do not know for sure, but obviously I smell old fish. It isn't within my capacity to perceive the threat anymore then I can perceive the solution. It sounds to me like being between the proverbial rock and hard place, which is exactly the kind of leverage Bush likes to have to get his way. I want to say "fuck you" to the whole deal and ask them to vacate the White House early. Good Riddance to bad rubbish. The thing that I know for sure is that it pisses me off that Bush will still get his pension, along with the rest of his gang. I think he owes us. I think he owes some jail time too.
It is also likely that the senior people at the banks, who perceived of this travesty, and ignored common sense at the very thing they are supposed to do best, will still walk away with pockets full of obscene pay and bonus packages, even as their workers are laid off in droves and Manhattan starts to look empty.

For a far better read on this topic I urge you to visit today's Paul Farrell column on Marketwatch. He has been on a steady diet of gall for some time now, and it hasn't affected his astute observational or writing skills. In the meantime, keep your powder dry. It is far to risky, in my opinion, to be in the market today, with perhaps the exception of tucking away some gold. And remember, the best way to express your outrage is to drive Bush, and anyone who even remotely sounds, looks, or smells like him, out of office in November.

Saturday, September 20, 2008

Did I say Sleaze?

The following linked story was released in "The Nation" on their web site. (I think they should change their name to "The Nation...Tarnation") The article may lead to a considerable chink bitten out of Mr. McCain's armor if shown to be true. It could even draw blood. Pulitzer prize winning author & reporter Sydney Schanberg's ("The Killing Fields") story is entitled "McCain and the POW Cover-up" It goes quite a bit beyond that part of the spectrum that would be occupied by "sleaze" and challenges McCain's integrity and honor in a way that I think cannot be ignored. I'll mention also that there is already a debate in blog land over the accuracy of the story. I'll let you be the judge, but I recommend reading follow-up to the story before whistling your tune on this one. I am not sure why, as I admire Schanberg, and I am not especially a fan of McCain's as you know, but this story doesn't quite resonate for me. Perhaps it raises some embedded defense in me that comes from a barely tolerable loss. The loss of innocence, and the declining shine of what was once our country. I wish for some spit & polish, and not another layer of the onion to peel, drawing ever more close to the stench of it's core. So I almost hope that it isn't true. Between this and a $700 billion bail-out proposal ($2,304.00 for each man, woman, and child in the USA per July, 08 estimates) by the Bush gang and the state of the union just seems to continue to slide.

As I said, I'll let you be the judge as the debate unveils and I would very much like some other opinions here.

Wednesday, September 17, 2008

Solutions amidst the chaos

This week's feverish activity within the global financial community and the continued vanishing of equity world wide, including the breaking of the dollar by one of the leading money market fund managers, has underscored how dire the credit crisis is. Amidst all the chaos, hand wringing, and worry, we need to remember that all this is coming to a head as the election approaches. We also need to remember that we are still a globe at war with combative and polarized interests on every populated continent. Our votes, if this is possible, are even more important then any in or lifetimes.
What are the candidates saying about the credit crisis? Sadly, not very much other then the usual blame game (greedy bankers, etc. etc.) As has often been the case I find more to chew on from the fourth estate then from the sound bites and carefully worded releases from campaign headquarters. No particular feat of thinking and planning has been demonstrated by either candidate in my opinion, but McCain wins the prize for the banal comments he has made: he wants to form a "commission" and oh, by the way, he has faith in the resilience of Americans.
Admittedly, from the press there is usually as much to toss out with the used coffee grounds then there is to digest, so any such food for thought must be selectively added to our plates. But then, none of us want to think of ourselves as the TV mesmerized Joe six-pack, or the bedazzled and fanatic religous zealot, or the simply undernourished third-worlder, that all together make up the vast majority of fellow passengers on this planet.
So forgetting for the moment that the headlines today include the fact that Yemen isn't up to the task of securing foregin assets on their land (surprise surprise), and that U.S. diplomatic missions are in Pakistan and Afghanistan in an attempt to reconcile recent unilateral initiatives taken on these same sovereign lands, I want to highlight a column that to me makes sense. With one exception from the list of the following financial columnist, I felt that there was a great deal of common sense amongst the ideas of how to go forward. I'll leave it to you to guess which idea I wasn't keen on.
Does McCain or Obama get it?

Thursday, September 11, 2008

Don't let McCain's Sleazeball Tactics Confuse You

We are in the midst, of course, of the final sprint in the white house race. Various claims are flying around like notes in an orchestral warm up. Discordant and confusing...to be sure. But the McCain campaign is far ahead in the title for the most egregiously misleading contentions. The bent towards dis-information and fear mongering have disturbing implications.

Mr. McCain has found himself under particularly heavy fire for a pair of headline-grabbing attacks. First the McCain campaign twisted Mr. Obama’s words to suggest that he had compared Gov. Sarah Palin, the Republican vice-presidential nominee, to a pig after Mr. Obama said, in questioning Mr. McCain’s claim to be the change agent in the race, “You can put lipstick on a pig; it’s still a pig.” (Mr. McCain once used the same expression to describe Senator Hillary Rodham Clinton’s health plan.)
Then he falsely claimed that Mr. Obama supported “comprehensive sex education” for kindergartners (he supported teaching them to be alert for inappropriate advances from adults).

Those attacks followed weeks in which Mr. McCain repeatedly, and incorrectly, asserted that Mr. Obama would raise taxes on the middle class, even though analysts say he would cut taxes on the middle class more than Mr. McCain would, and misrepresented Mr. Obama’s positions on energy and health care. He incessantly bleats the tired Republican argument that under a Democrat administration we will see taxes raised and un-checked spending on social entitlement programs, all of which will lead to losses in jobs. (Of course he omits the fact that we have just recorded the sixth consecutive uptick in the unemployment rate which stood at 6.1% in August). But back to the record on spending. We must remember, the so-called conservatives elected George W. Bush president because he promised to spend less than the liberals who opposed him. Bush promised a humble and restrained federal government. He said he would refrain from foreign adventures and "nation building." What a tragic joke. According to the latest figures, the Bush administration spent more money (as a percentage of GDP) than any U.S. government since World War II. (For an excellent explanation of the Republican supply side economics read this article. As for being restrained and humble, well, he wiretapped Americans without warrants, built secret CIA prisons around the world, suspended habeas corpus, and tortured prisoners – not to mention he repeatedly denied all of these activities.

In keeping with Bush's legacy of misleading the American people Senator McCain and the GOP has run a particularly viscious and distoring campaign. In other words, it is definitely more of the same.

What are the implications? Our society seems to be in the midst of a political free-for-all, where each interest group demands more and more from a pie that's getting smaller. Sadly, I suspect this leads us to become easy prey for the spin-mongers at the GOP. After all, they have been masters at waggin the dog for eight years. From the Nixon years they learned how not to do it. They have mastered the art of pursuasion by fear and negative pschology. By the time the fighting is over, there won't be much left for truly patriotic citizens who see through this woven veil of fabrications. Welcome to Amerika, comrades.

update: See Krugman's "Blizzard Of Lies" at the N.Y. Times

Sunday, September 7, 2008

spending - harder to kick then drugs/ A $75T Fright Fest

One of my favorite financial writers is a guy named Paul Farrell. He writes a column for Marketwatch, the popular web site owned by the Wall Street Journal. He is a no-holds-barred observer, and uses his experience from many years in the business. In his September 8th column he comments on I.O.U.S.A. which several of you saw recently. His comments are well worth the read. Check it out: "A $75 Trillion Fright Fest"

Many of you can recall how America transitioned over our lifetime into a mall culture. While as children us older folks may have spent some time at the local dime store or Woolsworth, our kids spent much more of their time in the nearest mall, splendiferously mantled as a sort of cathedral to our material lifestyle that grew and grew. A perfect place, in their eyes, to see and be seen. After all, the stores were stocked with all that matters.

A theme of the current economic landscape is that the spending we have done has led us to the point where we can no longer pay the piper. It's over. While I tend to be very critical of the financial community and the goverment for this predicament I am not so delusional that I cannot recognize that all of us bear some reponsibility. We are, as a whole, infatuated with "our stuff". We like "our stuff" so much, that we recycle it so we can turn over our stuff and become infatuated again and again (garage sales, flea markets, etc.) It isn't that we usually do stuff with our stuff. We just like it. We are happy when we see it sitting there taking up space. Our thoughts glow with "that's my stuff". Well, sure such thinking has resulted in our getting stuffed. Whther we've been led to this state of affairs or whther we, again as a whole, created this "altar of stuff" is a long discussion or debate. But it is what it is and it is going to have to come to as stop. Are we ready for a nice healthy cathartic dose of spiritualism and idealism? Materialism is a philosophical system which regards matter as the only reality in the world, and which undertakes to explain every event in the universe as resulting from the conditions and activity of matter. In this sense materialism denies the existence of God and the soul. It is diametrically opposed to Spiritualism and Idealism. In any case, not to get sidetracked, the extent to which the world is materialistic is somehwat charted by statistics which are quite revealing.

I found this feature at the New York Times as especially interesting. It is an interactive chart that illustrates per capita spending and gross spending on various discretionary categories and compares this spending among several countries.

Looking over the chart I couldn't help but wonder if Finland, Norway, Switzerland, and Ireland were among the most happy of the bunch.

Post Script: Brother Don has posted some comments from Gloria Steinham regarding Palin. It is well worth the read. His blog link is listed in the left hand column but here is link to the Steinham comments.

P.P.S. Thinking twice about Obama? Think again: You owe it to yourself to see what Palin's Christianity and her church are all about. Go Here

Saturday, September 6, 2008

A two rant weekend

Washington bureaucrats are fond, it seems, of wagging their finger at corruption, usually towards external countries. We Americans tend to take it for granted that our higher institutions are above the practice of tawdry, illegal behavior driven by greed. We tend to think that "corruption only happens in Banana republics and other third world countries. That is, until we are slapped in the face with an Enron, or a Worldcom, or Wall Street et. al. and the "credit crisis" that has evolved into a full blown global recession.

Speaking of Wall Street we all now know that crooked, deceptive practices there frequently gum up the works, but none of us were prepared for the scale of the heist involving the packaging of crap mortgage loans. However, to me the following emerging story takes the cake.

Citigroup, one of the biggest perpetrators/losers in the credit crisis, recently paid $18 million in refunds and settlement charges for stealing $14 million from customers' credit-card accounts. The bank had an "account sweeping program" that automatically removed positive balances from customers' credit-card accounts. If a customer double paid a bill by mistake or refunded a purchase, Citigroup took the positive balance without notification, in other words, outright stole it. In defense, Citi said it voluntarily stopped the program in 2003. In a statement, it added, "We take issue with the state's characterization of our conduct and the parties' voluntary settlement." More info


I have been trying really hard to learn to not get upset. I have been pelted with advise from my loving wife about "letting go" and "not sweating the small stuff". I can see a certain brilliance in this strategy. I really can. The result of my efforts at "anger management" have been pretty successful frankly. But the above story has my blood boiling. I am not just angry about yet another institution being caught with their hand in the till stealing from consumers too old or too debt sodden to figure out what is going on. I am also angry with California's AG (Jerry Brown) for letting them off the hook with a slap on the wrist fine plus restitution. I want the bastards at the top level of Citibank to do time. They are scumbags and deserve a jail sentence. If you or I were to reach into the till of a 7-11 store while a confused clerk wasn't looking, and were caught undeniably, we would do time, or at least end up with a conviction for a felony. (If you happened to be in Texas and were black, chances are that your time would be at least several months and you would do it.) As it is, about the only thing I can do is tear up my Citibank VISA and send it in. I will never, ever, do any amount of business with this bank again. That organization is definitely one of the evil ones. I urge you to consider the same if you have an account there.

When it comes to rants about congress...as Jimmy Durante used to say...I got a million of em, a million of em". But this one sticks in my craw more then most:

Recent projections by the Office of Management and Budget and the Congressional Budget Office reveal that the highway trust fund will run out of money during FY 2009. Unless the fund is replenished soon, federal spending on highways could decline significantly as the fund reverts to a spend-as-you-earn basis until a permanent remedy is enacted. Until then, one solution is to re-concentrate the fund's focus on highway investment and safety by abandoning the many low priority and non-transportation diversions that now encumber the federal program. The soon-to-be-empty trust fund is a direct consequence of recent congressional overspending in excess of the fuel tax revenues that replenish the fund as well as decades of congressional mandates allowing non-highway interests access to the highway trust fund. In FY 2008, these mandates are estimated to have diverted approximately 38 percent of trust fund spending to projects and programs of little value to the motorist's mobility needs.


Not surprisingly the leaders of the House Committee on Transportation and Infrastructure want total spending raised from the current $286 billion to nearly a half a trillion dollars. The siphoning off of funds for "pork" to pass around is just too good for them to miss the chance to increase the take. To achieve this rate of funding (which always equals spending) would likely require a doubling of the federal fuel tax from its current level of 18.3 cents per gallon. Ain't that a pretty sight? In the midst of the highest fuel costs Americans have ever paid, our "leaders" want to increase the funding to a level that will doubles the tax on fuel.
The Chairman of the house committee on Transportation & Infrastructure is James L. Oberstar. You can't write to him though because he uses a web site that only allows residents of his congressional district to send him email. WTF is that!!?? This guy oversees one of the most critical congressional committees in existence, affecting all Americans, and he only takes email from people living in his district? This guy sounds like a piece of work. He funds zero of his own campaign expenses, 56% of which comes from PACs. At $1.48M he raised approximately 40% more in campaign funds then the average congressman in the 2007-2008 campaign period.[source: Federal Election Commission]. By the way, it turns out that most members of congress restrict email reception to those from residents of their congressional districts. However, you can write snail mail. Here is a list of the committee members. A quick google on any name will yield an office address. Write to them and tell them to stick it. You'll feel better.. a little.

Special Note to my always supportive Veronica: I am going to have a big rum drink and get lost in a movie. I will relax. In fact, I've forgotten the above referenced rotten, dirtbag, sunzabeaches already...kinda.