12/30/07
A commercial that has been playing frequently on the radio of late is illustrative, as much advertising is, of where our country and national character is headed—straight into the toilet.
This particular annoying ad, for a drug company, features a man saying that he has “acid reflux.” His wife corrects him, telling he has “acid reflux (something or other) DISEASE.” Then the two of them yammer on about a particular drug’s copay’s being no higher than those of generics or other name brand drugs under their insurance plan.
I’m no doctor, and I make it a point to see one as rarely as possible. However, I am aware that what is now called “acid reflux” was for years called “heartburn.” It was not a DISEASE, as the shrewish wife featured on the commercial insists, but a minor inconvenience treated by, in increasing degrees of intensity, ignoring it until it went away, watching one’s diet, or taking Pepto-Bismol, Bromo-Seltzer, or, my favorite, Brisochi.
Why did we treat our heartburn with over the counter remedies, if we treated it at all, rather than calling our heartburn a “disease” and treating it with expensive drugs? I can think of several reasons. First, we had good sense. Second, we weren’t in the habit of being led around by the nose by advertising. Third, we didn’t have prepaid health plans that are laughingly called health “insurance.” But things have changed. Now, like the couple in the baleful radio commercial, we cower in fear at imagined “diseases” and whine like children at the mere prospect of having to interrupt our lascivious spending on trendy piffles in order to actually pay for some of our health care out of our own pocket.
This all serves the interests of the big government/big business cabal that has increasingly taken over our culture and our nation, turning the former into an open sewer and striving mightily, with much success, to turn national character into jelly. The drug companies obviously do very well selling us expensive drugs for which someone else pays. The insurance companies expand their business from traditional “insurance” into being a prepayer, at a big markup, for every necessity of life. The corporations in general think this is fine because they have a hook, health “insurance,” that keeps people in their jobs as corporate automatons rather than starting troublesome competing small businesses. And the citizenry becomes nice and pliable, begging “Please, don’t take my health ‘insurance’ away from me, or force me to make some of my own decisions. And whatever you do, don’t make me endure the unutterable sacrifice of not buying that latest bauble from China in order to actually meet some of my own responsibilities without passing them off to ‘someone else.’”
One can learn a lot from an inane commercial.
Sunday, December 30, 2007
ANOTHER ANNOYING AD
12/30/07
During the holidays, Visa or MasterCard (I can’t remember which; one might attribute my inability to recall to the ineffectiveness of the ad, but, given my failure to notice things, that probably is not the case.) incessantly ran an ad in which legions of young faux-prosperous people proceed, as if directed by some sort of guiding power, to various “cash” registers and present their form of payment, the ubiquitous piece of plastic that has, since it has found its way into many of the wrong hands, helped transform our society into the addle-brained consumption giant that it is. In the ad, some miscreant interrupts the process by actually paying in (Are you sitting down?) cash! Oh, the temerity! The whole process winds down; everyone frowns or otherwise expresses their disapproval of the rube who pays cash. What a fool!
When my brother-in-law, who has an attitude toward saving and spending that is much like mine, first pointed this ad, and how much he hated the message it delivers, out to me, I had a hard time sharing his outrage. Why? Because, initially, the ad was for a debit card, and stressed that it was for a debit card. I have no problem with debit cards (I also have no problems with credit cards as long as a balance is NEVER carried, but that is another issue.); using a debit card is far preferable to holding up a long line by writing a check in a busy store. Whenever this happens, I feel like telling the check writer “This is why they invented debit cards!”, but, like most people, I don’t. Perhaps there is a new year’s resolution here. But I digress.
The commercial then, some might say subtly, but not really, changed. The ad was no longer for a debit card, but for a MasterCARD or a Visa CARD. The “debit” was somehow dropped. So now I share my brother-in-law’s outrage, but not his surprise. The message of the newly debit-less ad is now clear: If you pay cash, you’re a chump. Put it on the card (Borrow from the Chinese, they may as well say, but I digress again, at least this time parenthetically.), get what you want, don’t even think of saving for it. Buy it now…pay, or, more likely, refinance your credit card balance, later. Delay gratification? Why do you hate America? Spend, spend, spend! Even, perhaps especially, when you can’t afford what you’re buying. Why, it’s the new America’s role in the world!
Great insight can be gained from a specious commercial.
During the holidays, Visa or MasterCard (I can’t remember which; one might attribute my inability to recall to the ineffectiveness of the ad, but, given my failure to notice things, that probably is not the case.) incessantly ran an ad in which legions of young faux-prosperous people proceed, as if directed by some sort of guiding power, to various “cash” registers and present their form of payment, the ubiquitous piece of plastic that has, since it has found its way into many of the wrong hands, helped transform our society into the addle-brained consumption giant that it is. In the ad, some miscreant interrupts the process by actually paying in (Are you sitting down?) cash! Oh, the temerity! The whole process winds down; everyone frowns or otherwise expresses their disapproval of the rube who pays cash. What a fool!
When my brother-in-law, who has an attitude toward saving and spending that is much like mine, first pointed this ad, and how much he hated the message it delivers, out to me, I had a hard time sharing his outrage. Why? Because, initially, the ad was for a debit card, and stressed that it was for a debit card. I have no problem with debit cards (I also have no problems with credit cards as long as a balance is NEVER carried, but that is another issue.); using a debit card is far preferable to holding up a long line by writing a check in a busy store. Whenever this happens, I feel like telling the check writer “This is why they invented debit cards!”, but, like most people, I don’t. Perhaps there is a new year’s resolution here. But I digress.
The commercial then, some might say subtly, but not really, changed. The ad was no longer for a debit card, but for a MasterCARD or a Visa CARD. The “debit” was somehow dropped. So now I share my brother-in-law’s outrage, but not his surprise. The message of the newly debit-less ad is now clear: If you pay cash, you’re a chump. Put it on the card (Borrow from the Chinese, they may as well say, but I digress again, at least this time parenthetically.), get what you want, don’t even think of saving for it. Buy it now…pay, or, more likely, refinance your credit card balance, later. Delay gratification? Why do you hate America? Spend, spend, spend! Even, perhaps especially, when you can’t afford what you’re buying. Why, it’s the new America’s role in the world!
Great insight can be gained from a specious commercial.
Saturday, December 29, 2007
TIDINGS OF COMFORT AND JOY
12/29/07
The Quinns spent the night of Christmas Eve in a Hyatt hotel. We normally wouldn’t stay at such a swanky place, but we got a great deal and the local Hampton Inn doesn’t have a pool. As is our Christmas morning tradition, we took a swim with the kids. In order to leave the pool, we had to walk through an adjoining workout facility.
I noticed a small sign in the workout facility telling fitness aficionados that Garmin Forerunner navigational devices were available at the front desk for guests who wished to take a run around the neighborhood. Hmm…
Here we were in a Hyatt, the type of place frequented by upscale, Wall Street types. That Hyatt was offering a navigational device to their guests who spent time in the fitness facility and who liked it run, a place and an activity also favored by young Wall Street wunderkinds. The first thought that came to my mind was that the Wall Street geniuses who revolutionized the mortgage market by carefully calibrating and controlling the risks of every tranche in the CDOs they created could not find their way back to their hotel (the most prominent building within long eyeshot, by the way) when jogging without the aid of a navigational device.
This “mortgage crisis” could turn out to be worse than even I thought!
The Quinns spent the night of Christmas Eve in a Hyatt hotel. We normally wouldn’t stay at such a swanky place, but we got a great deal and the local Hampton Inn doesn’t have a pool. As is our Christmas morning tradition, we took a swim with the kids. In order to leave the pool, we had to walk through an adjoining workout facility.
I noticed a small sign in the workout facility telling fitness aficionados that Garmin Forerunner navigational devices were available at the front desk for guests who wished to take a run around the neighborhood. Hmm…
Here we were in a Hyatt, the type of place frequented by upscale, Wall Street types. That Hyatt was offering a navigational device to their guests who spent time in the fitness facility and who liked it run, a place and an activity also favored by young Wall Street wunderkinds. The first thought that came to my mind was that the Wall Street geniuses who revolutionized the mortgage market by carefully calibrating and controlling the risks of every tranche in the CDOs they created could not find their way back to their hotel (the most prominent building within long eyeshot, by the way) when jogging without the aid of a navigational device.
This “mortgage crisis” could turn out to be worse than even I thought!
Friday, December 21, 2007
KEEP ON DANCIN’
12/21/07
The Commerce Department reported this morning that consumer spending was up 1.1% in November, much more than expected, while consumer income was up 0.4%, a little less than expected. The market loved this news; at this writing, the Dow is up over 200 points.
One can make nothing out of either one statistic (or a conjoined pair of statistics) or one day’s trading, but this news, and the markets’ seeming reaction to it, provides an opportunity to consider broader issues.
What is described as the sub-prime problem (or the sub-prime “crisis” by those who lack the senses of proportion, decorum, or perspective) is, as I have pointed out for a long time, just part of a larger debt problem that has at its root the self-destructive American pastime of spending more than one can afford, indeed, more than one makes or has. So why is news that we continue to spend more than we make (Note that spending exceeded income by a factor of almost three.) such good news?
The “experts” (i.e., the same people who told us this “mortgage blip” was well under control, really not a problem at all; they had talked to the guys at the big Street firms about this, you know) tell us that this spending news will enable us to avoid recession, at least for awhile. Oh, boy!
November’s spending binge reminds one of one last gasp before the party comes to an end. It’s as if a couple guys went out at 2:00 AM with the last few bucks everyone could scrape together and bought a couple cases of Meister Brau to keep things going long after everyone should have gone home. The consequences are at best predictable and at worst fatal.
So party away, everyone…people continue to spend beyond their means! Hey, and Bernanke will show up in the morning with plenty of Bromo-Seltzer, Pepto-Bismol, vitamins and other placeboes that we really think can make us feel better.
And the hole gets deeper and deeper.
The Commerce Department reported this morning that consumer spending was up 1.1% in November, much more than expected, while consumer income was up 0.4%, a little less than expected. The market loved this news; at this writing, the Dow is up over 200 points.
One can make nothing out of either one statistic (or a conjoined pair of statistics) or one day’s trading, but this news, and the markets’ seeming reaction to it, provides an opportunity to consider broader issues.
What is described as the sub-prime problem (or the sub-prime “crisis” by those who lack the senses of proportion, decorum, or perspective) is, as I have pointed out for a long time, just part of a larger debt problem that has at its root the self-destructive American pastime of spending more than one can afford, indeed, more than one makes or has. So why is news that we continue to spend more than we make (Note that spending exceeded income by a factor of almost three.) such good news?
The “experts” (i.e., the same people who told us this “mortgage blip” was well under control, really not a problem at all; they had talked to the guys at the big Street firms about this, you know) tell us that this spending news will enable us to avoid recession, at least for awhile. Oh, boy!
November’s spending binge reminds one of one last gasp before the party comes to an end. It’s as if a couple guys went out at 2:00 AM with the last few bucks everyone could scrape together and bought a couple cases of Meister Brau to keep things going long after everyone should have gone home. The consequences are at best predictable and at worst fatal.
So party away, everyone…people continue to spend beyond their means! Hey, and Bernanke will show up in the morning with plenty of Bromo-Seltzer, Pepto-Bismol, vitamins and other placeboes that we really think can make us feel better.
And the hole gets deeper and deeper.
Thursday, December 20, 2007
THE FRENCH ARE MAKING US LOOK LIKE SLACKERS!!!
12/20/07
Yesterday, ECB President Jean-Claude Trichet dismissed calls for rate cuts in Euroland, stating “We have to do our job, and our job is to deliver price stability.” At least one central bank president has a clear sense of what he was hired to do.
Meanwhile, back in this country, Obsequious Ben has rolled out stimulus plan after stimulus plan, testifying to his willingness, indeed his eagerness, to fan the fires of inflation and tank the dollar in order to get into the good graces of Wall Street. When none of those schemes worked, earlier in the week he trotted out some half-hindquartered regulatory regimen designed to make it more difficult to make sub-prime loans. This action is, of course, completely extraneous: how many people are out there right now hustling sub-prime loans? The market has at least begun to address this problem. But this latest regulatory abomination does serve Obsequious Ben’s purposes well: it shows that he is “doing something” for his pals on Wall Street while having little impact on whatever designs the financial finaglers might have on the sub-prime market.
Obsequious Ben’s latest actions also serve another purpose: Any of you who harbored the ingenuous notion that we have a free market Fed Chairman ought to be completely disabused of such an idea by now.
While the President must be born in the United States, the Constitution says nothing about the birthplace of the Fed chairman. The Constitution also says nothing about the Fed—how about that? But that is another conversation. We as a nation have also shown a tremendous acuity for importing great talent, whether in engineering, finance, entertainment, medicine, or athletics. Do you suppose we could somehow lure a diligent Frenchman over here to run our central bank?
Yesterday, ECB President Jean-Claude Trichet dismissed calls for rate cuts in Euroland, stating “We have to do our job, and our job is to deliver price stability.” At least one central bank president has a clear sense of what he was hired to do.
Meanwhile, back in this country, Obsequious Ben has rolled out stimulus plan after stimulus plan, testifying to his willingness, indeed his eagerness, to fan the fires of inflation and tank the dollar in order to get into the good graces of Wall Street. When none of those schemes worked, earlier in the week he trotted out some half-hindquartered regulatory regimen designed to make it more difficult to make sub-prime loans. This action is, of course, completely extraneous: how many people are out there right now hustling sub-prime loans? The market has at least begun to address this problem. But this latest regulatory abomination does serve Obsequious Ben’s purposes well: it shows that he is “doing something” for his pals on Wall Street while having little impact on whatever designs the financial finaglers might have on the sub-prime market.
Obsequious Ben’s latest actions also serve another purpose: Any of you who harbored the ingenuous notion that we have a free market Fed Chairman ought to be completely disabused of such an idea by now.
While the President must be born in the United States, the Constitution says nothing about the birthplace of the Fed chairman. The Constitution also says nothing about the Fed—how about that? But that is another conversation. We as a nation have also shown a tremendous acuity for importing great talent, whether in engineering, finance, entertainment, medicine, or athletics. Do you suppose we could somehow lure a diligent Frenchman over here to run our central bank?
Sunday, December 16, 2007
MAYBE IT WASN’T SUCH A BAD BET AFTER ALL
12/16/07
I sent the following letter to Steve Chapman of the Chicago Tribune in response to his 12/16/07 column on various Democratic schemes to bail lenders out of mortgage loans they can no longer afford. As I have said in the past, Steve is, in my opinion, one of the best, if not the best, political/economic columnist in the country today. Not only does he share my libertarian outlook, he also writes effectively, argues cogently, and defies predictability:
Steve Chapman
Chicago Tribune
435 N. Michigan Avenue
Chicago, IL 60611
schapman@tribune.com
12/16/07
Steve,
You argue in your 12/16/07 column that the Democrats are “having a rollicking good time…doing noble deeds with other people’s money” by cooking ups schemes to fleece the lenders in order to bail out irresponsible lenders. Your description of the situation is deficient only in that it fails to capture the entire scope and audacity of this latest effort by politicians to use other people’s money in order to aid a favored constituency or to be perceived as “doing something.”
The Center for American Progress, a liberal think tank, has proposed creating a new government agency, the Family Foreclosure Rescue Corp., that would buy mortgage backed securities and issue new fixed rate loans for those facing foreclosure. The American Enterprise Institute, a supposedly “free market” think tank, has proposed a rehash of the Home Owners’ Loan Corp. of the 30s, a government agency that bought mortgages and refinanced them on easier terms for borrowers. On Friday, the Senate passed by a vote of 93-1 legislation increasing the amount of loans the FHA can insure to $417,000 from $362,790 so that taxpayers will now be put on the hook for insuring that the comfortably middle class can stay in homes the vast majority of Americans could not dream of affording. The Democratic candidates are proposing that the FHA guarantee loans extended to refinance people who will be unable to make their payments once they adjust to reflect the (contractually stipulated) higher interest rate after the teaser period. Republicans are proposing expanding the conforming limit for loans purchased by Fannie Mae and Freddie Mac beyond $417,000 to at least $600,000. No sense, I guess, letting the free market principles for which the GOP says it stands get in the way of using other people’s money to help out its wealthy constituency.
All these plans have in common putting the taxpayers on the hook to save those who bought more house than they could afford, or who used their homes as piggybanks to finance the purchase of things they couldn’t afford, and to bail out the foolish investors who lent to them.
One can very plausibly argue that the borrowers are at fault here; they simply borrowed more than they could repay and/or bet the wrong way on the real estate market. One can also plausibly argue that the investors are at fault; they bought paper that was riskier than they supposed and were paid far too little for the risk they assumed, relying on now clearly faulty assumptions and risk mitigation schemes promulgated by Wall Street wunderkinds who thought a surfeit of numbers and formulae could compensate for a woeful lack of investment experience and common sense. One can somewhat less plausibly argue that those who originated the loans are at fault because they duped borrowers into loans they couldn’t afford. But as the old saying goes, you only fall for lies and stories when you really want to. In order for one to blame the originator, one has to adhere to the new American motto “It’s not my fault,” to the idea that no one should ever be held responsible for his decisions, unless they turn out wells for him.
No one can plausibly argue, however, that the taxpayers, or at least the financially responsible taxpayers, are somehow at fault for the current mortgage mess. Yet all of the above plans, embraced by politicians across the political spectrum seek to use to coercive power of government to force the financially responsible to bail out the financially irresponsible and fiscally reckless.
As you point out, “a lot of people took a calculated gamble on interest rates and home prices” and lost. That is bad news. But it would be truly tragic if a lot of people instead took a calculated gamble that government would be there to bail them out of their financial idiocy and won.
I sent the following letter to Steve Chapman of the Chicago Tribune in response to his 12/16/07 column on various Democratic schemes to bail lenders out of mortgage loans they can no longer afford. As I have said in the past, Steve is, in my opinion, one of the best, if not the best, political/economic columnist in the country today. Not only does he share my libertarian outlook, he also writes effectively, argues cogently, and defies predictability:
Steve Chapman
Chicago Tribune
435 N. Michigan Avenue
Chicago, IL 60611
schapman@tribune.com
12/16/07
Steve,
You argue in your 12/16/07 column that the Democrats are “having a rollicking good time…doing noble deeds with other people’s money” by cooking ups schemes to fleece the lenders in order to bail out irresponsible lenders. Your description of the situation is deficient only in that it fails to capture the entire scope and audacity of this latest effort by politicians to use other people’s money in order to aid a favored constituency or to be perceived as “doing something.”
The Center for American Progress, a liberal think tank, has proposed creating a new government agency, the Family Foreclosure Rescue Corp., that would buy mortgage backed securities and issue new fixed rate loans for those facing foreclosure. The American Enterprise Institute, a supposedly “free market” think tank, has proposed a rehash of the Home Owners’ Loan Corp. of the 30s, a government agency that bought mortgages and refinanced them on easier terms for borrowers. On Friday, the Senate passed by a vote of 93-1 legislation increasing the amount of loans the FHA can insure to $417,000 from $362,790 so that taxpayers will now be put on the hook for insuring that the comfortably middle class can stay in homes the vast majority of Americans could not dream of affording. The Democratic candidates are proposing that the FHA guarantee loans extended to refinance people who will be unable to make their payments once they adjust to reflect the (contractually stipulated) higher interest rate after the teaser period. Republicans are proposing expanding the conforming limit for loans purchased by Fannie Mae and Freddie Mac beyond $417,000 to at least $600,000. No sense, I guess, letting the free market principles for which the GOP says it stands get in the way of using other people’s money to help out its wealthy constituency.
All these plans have in common putting the taxpayers on the hook to save those who bought more house than they could afford, or who used their homes as piggybanks to finance the purchase of things they couldn’t afford, and to bail out the foolish investors who lent to them.
One can very plausibly argue that the borrowers are at fault here; they simply borrowed more than they could repay and/or bet the wrong way on the real estate market. One can also plausibly argue that the investors are at fault; they bought paper that was riskier than they supposed and were paid far too little for the risk they assumed, relying on now clearly faulty assumptions and risk mitigation schemes promulgated by Wall Street wunderkinds who thought a surfeit of numbers and formulae could compensate for a woeful lack of investment experience and common sense. One can somewhat less plausibly argue that those who originated the loans are at fault because they duped borrowers into loans they couldn’t afford. But as the old saying goes, you only fall for lies and stories when you really want to. In order for one to blame the originator, one has to adhere to the new American motto “It’s not my fault,” to the idea that no one should ever be held responsible for his decisions, unless they turn out wells for him.
No one can plausibly argue, however, that the taxpayers, or at least the financially responsible taxpayers, are somehow at fault for the current mortgage mess. Yet all of the above plans, embraced by politicians across the political spectrum seek to use to coercive power of government to force the financially responsible to bail out the financially irresponsible and fiscally reckless.
As you point out, “a lot of people took a calculated gamble on interest rates and home prices” and lost. That is bad news. But it would be truly tragic if a lot of people instead took a calculated gamble that government would be there to bail them out of their financial idiocy and won.
Saturday, December 15, 2007
“SHINE YOUR SHOES, MR. STREET?”
12/15/07
Now that Ben Bernanke’s Rube Goldberg funds auction, liquidity facility scheme failed to provide sufficient succor to the free marketeer tough guys on Wall Street, look for Obsequious Ben to come up with another hasty, ill-conceived, and ultimately ill-fated scheme to attempt to get back into the good graces of the Wall Street self-styled swashbucklers.
Inflation? Who cares? It’s only energy, and that only matters to average people, not the types of people with whom Ben seeks to ingratiate himself. The dollar? Hell, foreigners still take it, so what does Obsequious Ben care? The boys on Wall Street are unhappy with Ben, and he can’t live with that disapproval. Like the sycophantic servant boy who lives to please his master, Ben Bernanke simply cannot tolerate even the slightest hint of unhappiness from Wall Street.
Incidentally, there was an outstanding piece on the Opinion page (in this case, A21) of Friday’s (i.e., 12/14’s) Wall Street Journal concerning the relative flaccidity of the Fed, any Fed, in the face of the current worldwide financial problems. The article “The Global Money Machine,” by David Roche is well worth reading. Mr. Roche’s analysis of the situation is especially cogent, and his last paragraph, the point of which is obvious to those of us with a clear view of the world but that will come as a shock to the “See No Evil” crowd, comfortable in the assumption that “a strong overseas economy will see us through,” is especially chilling. (See the 10/30/07 entry in the Insightful Pontificator. “THE STREET VS. THE VOLCANO.”)
Now that Ben Bernanke’s Rube Goldberg funds auction, liquidity facility scheme failed to provide sufficient succor to the free marketeer tough guys on Wall Street, look for Obsequious Ben to come up with another hasty, ill-conceived, and ultimately ill-fated scheme to attempt to get back into the good graces of the Wall Street self-styled swashbucklers.
Inflation? Who cares? It’s only energy, and that only matters to average people, not the types of people with whom Ben seeks to ingratiate himself. The dollar? Hell, foreigners still take it, so what does Obsequious Ben care? The boys on Wall Street are unhappy with Ben, and he can’t live with that disapproval. Like the sycophantic servant boy who lives to please his master, Ben Bernanke simply cannot tolerate even the slightest hint of unhappiness from Wall Street.
Incidentally, there was an outstanding piece on the Opinion page (in this case, A21) of Friday’s (i.e., 12/14’s) Wall Street Journal concerning the relative flaccidity of the Fed, any Fed, in the face of the current worldwide financial problems. The article “The Global Money Machine,” by David Roche is well worth reading. Mr. Roche’s analysis of the situation is especially cogent, and his last paragraph, the point of which is obvious to those of us with a clear view of the world but that will come as a shock to the “See No Evil” crowd, comfortable in the assumption that “a strong overseas economy will see us through,” is especially chilling. (See the 10/30/07 entry in the Insightful Pontificator. “THE STREET VS. THE VOLCANO.”)
Wednesday, December 12, 2007
GOD IS NOT OMNIPOTENT
GOD IS NOT OMNIPOTENT
12/12/07
As regular readers of the Insightful Pontificator know, I am a big fan of Sun-Times columnist Neil Steinberg. While we disagree on many issues, we share a generally cynical (many would say dark, I would say realistic) view of life and, if I can say so myself, an entertaining and effective writing style.
One of the larger points on which Neil and I disagree is religion. While I am a practicing and rather serious Catholic (though, unfortunately, at times my faith has a hard time penetrating my often hard and cynical veneer), Neil leans toward agnosticism, though recently I have detected some search for his childhood faith, or at least the traditions of that faith, in his columns. That is a very hopeful sign.
In today’s column, however, Neil’s agnosticism was highlighted when he wrote of the Colorado church shootings and related them to his concepts of a Malevolent, Insecure, or Bumbling God.
Here is the reply I sent to Neil:
Neil Steinberg
Chicago Sun-Times
nsteinberg@suntimes.com
12/12/07
Neil,
God couldn’t have arrived in time to prevent those horrible shootings in Colorado. God, unfortunately, has to work through people, and people have the option of saying “No” to God, which they do on an all too regular basis. This is the concept of free will that permeates Roman Catholic, and much other Christian and non-Christian, theology.
Your concepts of the Malevolent God, the Insecure God, or the Bumbling God, while advanced tongue-in-cheek, are not necessary to explain at least some of the world’s suffering. The concept of the non-omnipotent God is far more effective. God is not, as many suppose, omnipotent because He is forced to work through people who have the power to refuse Him. Certainly, God did not will those shootings; it was the shooter who defied God’s will that we all love each other as brothers and sisters in Him. The shooter said no to God and massive suffering resulted.
Explaining the suffering wrought by others, such as the Colorado shootings, is made easier once one accepts the concept of free will, though this concept does little or nothing to lessen the pain. (One might question God’s granting us free will, but then one must ask himself if he would rather God had made him an automaton. The answer should be self-evident.) What is far harder to explain is suffering brought on by natural tragedies, disease, etc. Believers eventually learn that all things cannot be explained, but must be accepted until we are imbued with greater knowledge when we do meet with our Creator face to face. Such a concept is understandably harder for non-believers to accept.
Thanks, Neil.
12/12/07
As regular readers of the Insightful Pontificator know, I am a big fan of Sun-Times columnist Neil Steinberg. While we disagree on many issues, we share a generally cynical (many would say dark, I would say realistic) view of life and, if I can say so myself, an entertaining and effective writing style.
One of the larger points on which Neil and I disagree is religion. While I am a practicing and rather serious Catholic (though, unfortunately, at times my faith has a hard time penetrating my often hard and cynical veneer), Neil leans toward agnosticism, though recently I have detected some search for his childhood faith, or at least the traditions of that faith, in his columns. That is a very hopeful sign.
In today’s column, however, Neil’s agnosticism was highlighted when he wrote of the Colorado church shootings and related them to his concepts of a Malevolent, Insecure, or Bumbling God.
Here is the reply I sent to Neil:
Neil Steinberg
Chicago Sun-Times
nsteinberg@suntimes.com
12/12/07
Neil,
God couldn’t have arrived in time to prevent those horrible shootings in Colorado. God, unfortunately, has to work through people, and people have the option of saying “No” to God, which they do on an all too regular basis. This is the concept of free will that permeates Roman Catholic, and much other Christian and non-Christian, theology.
Your concepts of the Malevolent God, the Insecure God, or the Bumbling God, while advanced tongue-in-cheek, are not necessary to explain at least some of the world’s suffering. The concept of the non-omnipotent God is far more effective. God is not, as many suppose, omnipotent because He is forced to work through people who have the power to refuse Him. Certainly, God did not will those shootings; it was the shooter who defied God’s will that we all love each other as brothers and sisters in Him. The shooter said no to God and massive suffering resulted.
Explaining the suffering wrought by others, such as the Colorado shootings, is made easier once one accepts the concept of free will, though this concept does little or nothing to lessen the pain. (One might question God’s granting us free will, but then one must ask himself if he would rather God had made him an automaton. The answer should be self-evident.) What is far harder to explain is suffering brought on by natural tragedies, disease, etc. Believers eventually learn that all things cannot be explained, but must be accepted until we are imbued with greater knowledge when we do meet with our Creator face to face. Such a concept is understandably harder for non-believers to accept.
Thanks, Neil.
“NOW, NOW, KIDS…DADDY WILL MAKE EVERYTHING RIGHT. YOU JUST WAIT AND SEE.”
12/12/07
So the tough guy free marketeers didn’t get as much help as they wanted from the Fed yesterday, so they whined like children that didn’t get the precise toy they wanted for Christmas and took the Dow down 300 points.
Ben Bernanke, like an overindulgent, jelly spined father demanding that stores open on Christmas morning to make sure his little disappointed darlings get exactly what they want, comes through with his half-hindquartered fund injection scheme. And it works! The markets are opening up, and up huge, this morning.
As I have said in the past, we are in big trouble when the Chairman of the Federal Reserve Board judges his performance by the volume of the cheers from Wall Street. But I had no idea how much trouble we are in. Ben Bernanke will throw the dollar over the side, will throw inflation to the wind, will do absolutely anything to please Wall Street.
We are on the precipice of a financial disaster unlike anything we have seen in at least 78 years. When this band aid bursts, the wound will infect our entire system. And Ben Bernanke will be there to pour liquefied feces on the festering wound. He will make G. William Miller look like the very portrait of prudence.
So the tough guy free marketeers didn’t get as much help as they wanted from the Fed yesterday, so they whined like children that didn’t get the precise toy they wanted for Christmas and took the Dow down 300 points.
Ben Bernanke, like an overindulgent, jelly spined father demanding that stores open on Christmas morning to make sure his little disappointed darlings get exactly what they want, comes through with his half-hindquartered fund injection scheme. And it works! The markets are opening up, and up huge, this morning.
As I have said in the past, we are in big trouble when the Chairman of the Federal Reserve Board judges his performance by the volume of the cheers from Wall Street. But I had no idea how much trouble we are in. Ben Bernanke will throw the dollar over the side, will throw inflation to the wind, will do absolutely anything to please Wall Street.
We are on the precipice of a financial disaster unlike anything we have seen in at least 78 years. When this band aid bursts, the wound will infect our entire system. And Ben Bernanke will be there to pour liquefied feces on the festering wound. He will make G. William Miller look like the very portrait of prudence.
Saturday, December 8, 2007
“IT’S THOSE DAMN PROFITEERS AGAIN!”
12/8/07
Sheila Bair, Chairman of the FDIC, suggested yesterday that those who are criticizing the Paulson/Bush Irresponsible Lender and Borrower Bailout Plan may have hidden financial motives. Ms. Blair said yesterday “I do worry that some of the investors have taken short positions on the ABX” and thus are criticizing the plan. Ms. Bair didn’t identify specific nefarious investors who are talking their position and admits that she has no evidence for her suspicions. It seems that Ms. Bair, in setting banking policy, is using the same approach that her boss uses for foreign policy, but I digress.
It also seems to have escaped Ms. Bair’s notice that there are legitimate reasons, other than talking one’s position, for criticizing the plan. For example, as the Pontificator has outlined on numerous occasions:
--Financially prudent and responsible homeowners and investors who have exercised restraint and common sense in their financial dealings simply will not, and should not, support a plan that bails out the financially imprudent and irresponsible. Exercising the same sober-mindedness in their approach to politics that they exhibit in their financial dealings, and perhaps mindful of Shakespeare’s admonitions regarding those who protest too much, these opponents of the plan simply don’t believe the protestations of the Bush administration that no taxpayer money will be used in this “plan” and that the scheme was not devised to bail out the Bush administration’s cheerleaders and financiers on Wall Street. On the same note, for any member of the Bush administration to criticize people for profiteering is so disingenuous as to cause one to regurgitate, but I digress…again.
--Somewhat less financially prudent homeowners who realized that they were in over their heads and took the necessary, painful ameliorative actions to get their financial houses in order are now seeing those who refused to do anything to help themselves getting help from a “voluntary” government program and thus feel betrayed. These converts to good sense, who deserve our admiration, must be thinking “What am I, some kind of chump? Had I only not taken that second job and denied myself and my kids things we really wanted, and instead, like my neighbor, said ‘to hell with it’ and bought the high def with the surround sound system, the government would have helped me out.” Such converts to financial prudence, which we used to encourage in this country, will thus have been encouraged by the “conservative” Bush administration to return to the path of financial salaciousness.
Incidentally, part of the Bush “plan” is to give “homeowners” who could not afford their mortgage payments after the (clearly spelled out and thus eminently anticipatable) step up in their mortgage rates an extension of their teaser periods for five years. The Bushocrats tell us that this period will allow those “homeowners” to get back on their feet and put them in a position to refinance their mortgages. However, where is the incentive for people to refinance to a higher fixed rate of interest? Such bailoutees can reason, with a great deal of logic, that the government will probably step in after five years and force their lenders to extend the teaser periods for another five years. So why refinance now? Why play the chump, like the guy next door who busted his butt to get his house in order only to be forced to bail out those who laughed at his new found sense of financial responsibility? Even if the government doesn’t step in and extend the teaser period again, it is a well worth taking the minimal risk that it won’t. Why should the financial miscreant, once absolved of his fiscal sins with generous doses of other people’s money, refinance any sooner than he absolutely has to?
This, ladies and gentlemen, is a textbook example of moral hazard.
--There are those of us who, unlike the Bush administration, really believe in the free market and thus feel that the heavy hand of government is not needed to work out of this financial problem. In fact, Sheila Bair, doubtless unknowingly, outlined this argument when she said “It’s in everybody’s interest to modify these loans. If you’re in a down market, closing out (sic) a property almost never makes sense because you’re going to have to settle for a significant loss.” If that is the case, Ms. Bair, why does the government have to get involved?
Oh, I forgot. The free market Bush administration knows better than the free market.
Sheila Bair, Chairman of the FDIC, suggested yesterday that those who are criticizing the Paulson/Bush Irresponsible Lender and Borrower Bailout Plan may have hidden financial motives. Ms. Blair said yesterday “I do worry that some of the investors have taken short positions on the ABX” and thus are criticizing the plan. Ms. Bair didn’t identify specific nefarious investors who are talking their position and admits that she has no evidence for her suspicions. It seems that Ms. Bair, in setting banking policy, is using the same approach that her boss uses for foreign policy, but I digress.
It also seems to have escaped Ms. Bair’s notice that there are legitimate reasons, other than talking one’s position, for criticizing the plan. For example, as the Pontificator has outlined on numerous occasions:
--Financially prudent and responsible homeowners and investors who have exercised restraint and common sense in their financial dealings simply will not, and should not, support a plan that bails out the financially imprudent and irresponsible. Exercising the same sober-mindedness in their approach to politics that they exhibit in their financial dealings, and perhaps mindful of Shakespeare’s admonitions regarding those who protest too much, these opponents of the plan simply don’t believe the protestations of the Bush administration that no taxpayer money will be used in this “plan” and that the scheme was not devised to bail out the Bush administration’s cheerleaders and financiers on Wall Street. On the same note, for any member of the Bush administration to criticize people for profiteering is so disingenuous as to cause one to regurgitate, but I digress…again.
--Somewhat less financially prudent homeowners who realized that they were in over their heads and took the necessary, painful ameliorative actions to get their financial houses in order are now seeing those who refused to do anything to help themselves getting help from a “voluntary” government program and thus feel betrayed. These converts to good sense, who deserve our admiration, must be thinking “What am I, some kind of chump? Had I only not taken that second job and denied myself and my kids things we really wanted, and instead, like my neighbor, said ‘to hell with it’ and bought the high def with the surround sound system, the government would have helped me out.” Such converts to financial prudence, which we used to encourage in this country, will thus have been encouraged by the “conservative” Bush administration to return to the path of financial salaciousness.
Incidentally, part of the Bush “plan” is to give “homeowners” who could not afford their mortgage payments after the (clearly spelled out and thus eminently anticipatable) step up in their mortgage rates an extension of their teaser periods for five years. The Bushocrats tell us that this period will allow those “homeowners” to get back on their feet and put them in a position to refinance their mortgages. However, where is the incentive for people to refinance to a higher fixed rate of interest? Such bailoutees can reason, with a great deal of logic, that the government will probably step in after five years and force their lenders to extend the teaser periods for another five years. So why refinance now? Why play the chump, like the guy next door who busted his butt to get his house in order only to be forced to bail out those who laughed at his new found sense of financial responsibility? Even if the government doesn’t step in and extend the teaser period again, it is a well worth taking the minimal risk that it won’t. Why should the financial miscreant, once absolved of his fiscal sins with generous doses of other people’s money, refinance any sooner than he absolutely has to?
This, ladies and gentlemen, is a textbook example of moral hazard.
--There are those of us who, unlike the Bush administration, really believe in the free market and thus feel that the heavy hand of government is not needed to work out of this financial problem. In fact, Sheila Bair, doubtless unknowingly, outlined this argument when she said “It’s in everybody’s interest to modify these loans. If you’re in a down market, closing out (sic) a property almost never makes sense because you’re going to have to settle for a significant loss.” If that is the case, Ms. Bair, why does the government have to get involved?
Oh, I forgot. The free market Bush administration knows better than the free market.
IT’S NOT CUTE ANY MORE
12/8/07
As I have said ad nauseam in the Insightful Pontificator, the problem our economy and financial system is facing is not limited, as many seem to still suppose, to sub-prime mortgages. The problem is too much debt, at the personal, government, and, relatively recently, corporate levels. The sub-prime problem is only the most salient, the first, and, I fear, a small manifestation of this problem.
Many readers of the Pontificator, even readers who display a great degree of financial acumen, have asked me the question “What is wrong with a lot of debt?” This is not a silly question.
I can see at least three financial (leaving aside, at least for now, the moral) problems with a lot of debt, or at least with the amount of debt that permeates our financial system.
First, too much debt, and too much bad debt, can freeze the financial system. Remember the old adage that a cat who has sat on a hot stove is not likely to sit on a hot stove again. She is also not likely to sit on a cold stove. Once lenders and investors have been burned by a loose lending system disguised by what turned out to be faulty Rube Goldbergesque financial schemes, they are going to be hesitant to lend again, even to worthy borrowers. If our financial system thus seizes up, this could lead to depression.
Second, asset values have been inflated by loose credit. Even if the financial system does not seize up but merely reacts in a sane and sensible manner to a modified credit environment, credit will become less available and asset values will deflate. We are already seeing this in the housing market. A broad deflation in asset values, especially in the values of houses, which many homeowners have been using as piggy banks, could lead to a recession.
Third, even if the financial system does not freeze, and even if asset values do not deflate (We’re a little late for the second supposition, and maybe for the first.), the gargantuan debt that we have accumulated over at least the last decade or so will have to be serviced. The more of our earnings that must be used to service debt (much, if not most, of which is held overseas), the less of our output and earnings that can be used for other things, like investment and consumer spending. More money for debt service could lead to at least an economic slowdown and, given the sheer amount of debt involved, a recession.
So excessive debt levels have consequences ranging from slowdown to depression. If all three of the above scenarios take place simultaneously, a very good possibility, if not a present reality, we could be in for a rehash of the ‘30s. I’m serious.
There is, of course, the question, of what constitutes an “excessive” level of debt. Paraphrasing a Supreme Court Justice’s observations on an entirely different matter, I can’t define an excessive level of debt, but I know it when I see it. I’m seeing an excessive level of debt now.
As I have said ad nauseam in the Insightful Pontificator, the problem our economy and financial system is facing is not limited, as many seem to still suppose, to sub-prime mortgages. The problem is too much debt, at the personal, government, and, relatively recently, corporate levels. The sub-prime problem is only the most salient, the first, and, I fear, a small manifestation of this problem.
Many readers of the Pontificator, even readers who display a great degree of financial acumen, have asked me the question “What is wrong with a lot of debt?” This is not a silly question.
I can see at least three financial (leaving aside, at least for now, the moral) problems with a lot of debt, or at least with the amount of debt that permeates our financial system.
First, too much debt, and too much bad debt, can freeze the financial system. Remember the old adage that a cat who has sat on a hot stove is not likely to sit on a hot stove again. She is also not likely to sit on a cold stove. Once lenders and investors have been burned by a loose lending system disguised by what turned out to be faulty Rube Goldbergesque financial schemes, they are going to be hesitant to lend again, even to worthy borrowers. If our financial system thus seizes up, this could lead to depression.
Second, asset values have been inflated by loose credit. Even if the financial system does not seize up but merely reacts in a sane and sensible manner to a modified credit environment, credit will become less available and asset values will deflate. We are already seeing this in the housing market. A broad deflation in asset values, especially in the values of houses, which many homeowners have been using as piggy banks, could lead to a recession.
Third, even if the financial system does not freeze, and even if asset values do not deflate (We’re a little late for the second supposition, and maybe for the first.), the gargantuan debt that we have accumulated over at least the last decade or so will have to be serviced. The more of our earnings that must be used to service debt (much, if not most, of which is held overseas), the less of our output and earnings that can be used for other things, like investment and consumer spending. More money for debt service could lead to at least an economic slowdown and, given the sheer amount of debt involved, a recession.
So excessive debt levels have consequences ranging from slowdown to depression. If all three of the above scenarios take place simultaneously, a very good possibility, if not a present reality, we could be in for a rehash of the ‘30s. I’m serious.
There is, of course, the question, of what constitutes an “excessive” level of debt. Paraphrasing a Supreme Court Justice’s observations on an entirely different matter, I can’t define an excessive level of debt, but I know it when I see it. I’m seeing an excessive level of debt now.
Friday, December 7, 2007
THE LATEST FULMINATIONS FROM THE SELF-APPOINTED ARBITERS OF CONSERVATIVE IDEALS
12/7/07
Here is a letter I just sent to The Wall Street Journal. Of course, the Journal won’t print it; most of the letters that The Wall Street Journal deems worthy of publishing would serve equally as well as the answer to a high school civics question, viz:
“Compare and contrast the greatness of Presidents George Washington and George W. Bush. On second thought, forget the “contrast” portion of this question. After all, how can one draw contrasts between the two presidents whose transcendent greatness is their most distinguishing characteristic?”
but I digress.
My letter was sent in response to a 12/7/07 article by Kim Strassel. In that article, Ms. Strassel trots out the usual laundry list of complaints of self-described conservatives from various Wall Street precincts about Mr. Huckabee: He raised taxes several times while governor of Arkansas (as Ronald Reagan did in California), favors a tougher stance on illegal immigration, is not gung-ho for every “free trade” agreement that comes down the pike, and, in general, is not completely beholden to the whims and wishes of corporate America.
The point of the below letter is not to support Mike Huckabee. While I find many of Mr. Huckabee’s policy stands and personal traits attractive, I am not a Huckabee supporter. The overriding point of the letter is that The Wall Street Journal, or any of the self-appointed arbiters of all things conservative ought to be awfully careful before they question someone’s fealty to conservative principles:
Letters to the Editor
The Wall Street Journal
200 Liberty St.
New York, NY 10281
Wsj.ltrs@wsj.com
12/7/07
In her 12/7/07 Opinion piece questioning the conservative credentials of Mike Huckabee, Kim Strassel closes with “…Republican voters need to understand they are signing up for a whole new brand of “conservatism.”
It is curious that The Wall Street Journal editorial page, or Kim Strassel, if she was working there then, did not warn conservatives in 2000 that, by voting for George W. Bush and a Republican congress, they were signing up for “a whole new brand of ‘conservatism,’” a “conservatism” that has come to include:
--budget busting spending on pork barrel projects and other non-entitlements
--creation of a whole new entitlement that cements the Medicare program’s primacy in the coveted “most likely to bust the budget” category
--federalization of education standards
--complete surrender in the effort to control our borders
--the further decimation of manufacturing in this country as the GOP’s corporate masters search the globe for the cheapest possible labor, regardless of the consequences for the health and safety of American consumers
--a foreign policy that can best be described as the government’s placing its substantial proboscis into people’s lives on a global scale
--an alarmingly cavalier attitude regarding the government’s taking what is most sacred from some of our best and brightest young citizens: their lives, and
--generally, anything that serves to increase the wealth of the corporate plutocrats that the modern Republican Party exists to serve.
Mark Quinn
Naperville, IL
Here is a letter I just sent to The Wall Street Journal. Of course, the Journal won’t print it; most of the letters that The Wall Street Journal deems worthy of publishing would serve equally as well as the answer to a high school civics question, viz:
“Compare and contrast the greatness of Presidents George Washington and George W. Bush. On second thought, forget the “contrast” portion of this question. After all, how can one draw contrasts between the two presidents whose transcendent greatness is their most distinguishing characteristic?”
but I digress.
My letter was sent in response to a 12/7/07 article by Kim Strassel. In that article, Ms. Strassel trots out the usual laundry list of complaints of self-described conservatives from various Wall Street precincts about Mr. Huckabee: He raised taxes several times while governor of Arkansas (as Ronald Reagan did in California), favors a tougher stance on illegal immigration, is not gung-ho for every “free trade” agreement that comes down the pike, and, in general, is not completely beholden to the whims and wishes of corporate America.
The point of the below letter is not to support Mike Huckabee. While I find many of Mr. Huckabee’s policy stands and personal traits attractive, I am not a Huckabee supporter. The overriding point of the letter is that The Wall Street Journal, or any of the self-appointed arbiters of all things conservative ought to be awfully careful before they question someone’s fealty to conservative principles:
Letters to the Editor
The Wall Street Journal
200 Liberty St.
New York, NY 10281
Wsj.ltrs@wsj.com
12/7/07
In her 12/7/07 Opinion piece questioning the conservative credentials of Mike Huckabee, Kim Strassel closes with “…Republican voters need to understand they are signing up for a whole new brand of “conservatism.”
It is curious that The Wall Street Journal editorial page, or Kim Strassel, if she was working there then, did not warn conservatives in 2000 that, by voting for George W. Bush and a Republican congress, they were signing up for “a whole new brand of ‘conservatism,’” a “conservatism” that has come to include:
--budget busting spending on pork barrel projects and other non-entitlements
--creation of a whole new entitlement that cements the Medicare program’s primacy in the coveted “most likely to bust the budget” category
--federalization of education standards
--complete surrender in the effort to control our borders
--the further decimation of manufacturing in this country as the GOP’s corporate masters search the globe for the cheapest possible labor, regardless of the consequences for the health and safety of American consumers
--a foreign policy that can best be described as the government’s placing its substantial proboscis into people’s lives on a global scale
--an alarmingly cavalier attitude regarding the government’s taking what is most sacred from some of our best and brightest young citizens: their lives, and
--generally, anything that serves to increase the wealth of the corporate plutocrats that the modern Republican Party exists to serve.
Mark Quinn
Naperville, IL
Tuesday, December 4, 2007
REPUBLICAN FREE MARKETEERS AT WORK
12/4/07
So now Hank Paulson, Treasury Secretary for the free market Bush administration, is proposing that Congress authorize state and local governments to issue tax exempt bonds in order to refinance the shaky mortgages that permeate our financial system.
Mr. Paulson’s, and Mr. Bush’s, proposal amounts to ordering local governments to use their limited authority to issue municipal bonds, bonds that are normally, or at least properly, issued to finance local capital projects like streets, sewers, etc., and to put the taxpayer backed full faith and credit of local governments on the line in order to bail out foolish people who “bought” more house than they could afford and the even more foolish people who lent them money. Effectively, the free market Bush administration is once again using the jackboot of government to force the financially prudent to bail out the financially fatuous.
Hey, you can’t vote Democratic! Why, they’ll expand the scope and power of government in order to reward the indolent and irresponsible!
So now Hank Paulson, Treasury Secretary for the free market Bush administration, is proposing that Congress authorize state and local governments to issue tax exempt bonds in order to refinance the shaky mortgages that permeate our financial system.
Mr. Paulson’s, and Mr. Bush’s, proposal amounts to ordering local governments to use their limited authority to issue municipal bonds, bonds that are normally, or at least properly, issued to finance local capital projects like streets, sewers, etc., and to put the taxpayer backed full faith and credit of local governments on the line in order to bail out foolish people who “bought” more house than they could afford and the even more foolish people who lent them money. Effectively, the free market Bush administration is once again using the jackboot of government to force the financially prudent to bail out the financially fatuous.
Hey, you can’t vote Democratic! Why, they’ll expand the scope and power of government in order to reward the indolent and irresponsible!
Monday, December 3, 2007
FLIP THIS IDEA
12/3/07
Today’s Wall Street Journal outlined the results of a study of $2.5 trillion in subprime loans made since 2000. The study found that (Surprise!...to anyone but regular readers of the Insightful Pontificator) that many so-called subprime loans were made not to the underemployed, the marginally making it, and other denizens of the lower rungs of the economic ladder. No, many of these loans were made to people with good credit scores who were relatively well off and who perhaps live in your neighborhood. These borrowers were either too lazy to go through the backbreaking work of actually filling out a mortgage application (doubtless because they had other things to do, like watch the latest mind-numbing episode of their always excerebrose favorite situation comedy), didn’t want to, or couldn’t, document an income qualifying for a far cheaper prime loan, or, most likely, were able to borrow more with a subprime loan than they could with a conventional loan. They simply wanted to buy more house than they could afford or decided, after watching an episode of “Flip This House” or some other fatuous offering from the supposedly high-brow cable networks that offer an “intelligent alternative” to the completely idiotic network fare, that they were now fully qualified real estate investors to whom the price of a loan didn’t matter because they would be out of the property at an enormous profit long before the real costs of the loan began to bite.
So, again, this is not a problem only for those “other people” who barely merit the notice of their betters. The “sub-prime” problem affects places like Naperville, IL, Smithtown, NY, and Shaker Heights, OH. Many of your neighbors are stretched beyond their financial limits. The damage will by no means be limited to the WalMart shoppers of the world. Tiffany, Nordstrom’s, Mercedes, BMW, and other such supposedly safe havens of those “not affected at all by the crisis” will soon start to feel pain, lots of it.
But it’s even worse than that. The Journal study was limited to sub-prime loans. Wait until the rest of the world finds out what Insightful Pontificator readers already know: that the Alt-A and prime mortgages are not in such good shape, either. As mortgage lending standards deteriorated, loans that wouldn’t have been made ten or fifteen years ago are classified as prime today. As one of the great men in the financial world, my first boss in the money business, said years ago when his bright young junk bond analyst presented deals that looked promising from the perspective of that 26 year old kid, was often heard to say as he shook his head in disbelief “We’ve come a long way, haven’t we?” The problem is that, during the last ten years, as mortgage financing has become more, er, enlightened, the people in charge have been not much, if at all, older than that 26 year old kid and, if I may say so myself, not as bright. There is no longer the distinguished, older gentleman in the office down the hall with generous dollops of experience, wisdom, and gray hair to restrain the enthusiasm, and the avarice, of the financial wunderkinds who can still remember their first shave.
Today’s Wall Street Journal outlined the results of a study of $2.5 trillion in subprime loans made since 2000. The study found that (Surprise!...to anyone but regular readers of the Insightful Pontificator) that many so-called subprime loans were made not to the underemployed, the marginally making it, and other denizens of the lower rungs of the economic ladder. No, many of these loans were made to people with good credit scores who were relatively well off and who perhaps live in your neighborhood. These borrowers were either too lazy to go through the backbreaking work of actually filling out a mortgage application (doubtless because they had other things to do, like watch the latest mind-numbing episode of their always excerebrose favorite situation comedy), didn’t want to, or couldn’t, document an income qualifying for a far cheaper prime loan, or, most likely, were able to borrow more with a subprime loan than they could with a conventional loan. They simply wanted to buy more house than they could afford or decided, after watching an episode of “Flip This House” or some other fatuous offering from the supposedly high-brow cable networks that offer an “intelligent alternative” to the completely idiotic network fare, that they were now fully qualified real estate investors to whom the price of a loan didn’t matter because they would be out of the property at an enormous profit long before the real costs of the loan began to bite.
So, again, this is not a problem only for those “other people” who barely merit the notice of their betters. The “sub-prime” problem affects places like Naperville, IL, Smithtown, NY, and Shaker Heights, OH. Many of your neighbors are stretched beyond their financial limits. The damage will by no means be limited to the WalMart shoppers of the world. Tiffany, Nordstrom’s, Mercedes, BMW, and other such supposedly safe havens of those “not affected at all by the crisis” will soon start to feel pain, lots of it.
But it’s even worse than that. The Journal study was limited to sub-prime loans. Wait until the rest of the world finds out what Insightful Pontificator readers already know: that the Alt-A and prime mortgages are not in such good shape, either. As mortgage lending standards deteriorated, loans that wouldn’t have been made ten or fifteen years ago are classified as prime today. As one of the great men in the financial world, my first boss in the money business, said years ago when his bright young junk bond analyst presented deals that looked promising from the perspective of that 26 year old kid, was often heard to say as he shook his head in disbelief “We’ve come a long way, haven’t we?” The problem is that, during the last ten years, as mortgage financing has become more, er, enlightened, the people in charge have been not much, if at all, older than that 26 year old kid and, if I may say so myself, not as bright. There is no longer the distinguished, older gentleman in the office down the hall with generous dollops of experience, wisdom, and gray hair to restrain the enthusiasm, and the avarice, of the financial wunderkinds who can still remember their first shave.
“UH…IT’S IN THE BILL OF RIGHTS, RIGHT THERE BY THE ‘SEPARATION OF CHURCH AND STATE’ CLAUSE”
12/3/07
Today’s Wall Street Journal story outlining that paper’s study concluding that (surprise!) the impact of the “sub-prime” crisis is wider than the echo chamber that is Wall Street and the financial media had supposed included a common defense of the lascivious lending practices that have contributed to the mortgage problems we are currently experiencing. A spokesman for Fremont Investment & Loan, responding to a suit against Fremont by Massachusetts Attorney General Martha Coakley alleging unfair and deceptive lending practices, countered that, without access to Fremont’s loans “…many Massachusetts residents who are homeowners today would never have been able to purchase homes.”
This is a defense? This diaphanous codswallop presupposes that homeownership is both a right and is per se a great thing. Neither, despite what some financially fatuous would have you believe, is true. Back when the world of finance was dominated by clear thinkers with their own money, or at least their own careers, on the line, we somehow had developed the quaint notion that people who can’t afford homes shouldn’t be homeowners until they were financially prepared to do so.
If the Fremont spokesobfuscator had added a few words to his quote, viz:
“many Massachusetts residents who are homeowners today and who have no business whatsoever being homeowners would never have been able to purchase their homes”
his statement would have been true. Unfortunately, it would not have advanced his position, so, in the modern world of high finance, what merit would it have had?
Look for this pathetic excuse for an argument (i.e., “whatever nefarious scheme we cooked up helped people become homeowners”) become even more frequent as politicians conduct the ineluctable witch-hunts that accompany any discomfort that they can label a “crisis.” Why? Because this idiotic line of reasoning appeals to an American public that has been taught to eschew thinking in favor of feeling.
Today’s Wall Street Journal story outlining that paper’s study concluding that (surprise!) the impact of the “sub-prime” crisis is wider than the echo chamber that is Wall Street and the financial media had supposed included a common defense of the lascivious lending practices that have contributed to the mortgage problems we are currently experiencing. A spokesman for Fremont Investment & Loan, responding to a suit against Fremont by Massachusetts Attorney General Martha Coakley alleging unfair and deceptive lending practices, countered that, without access to Fremont’s loans “…many Massachusetts residents who are homeowners today would never have been able to purchase homes.”
This is a defense? This diaphanous codswallop presupposes that homeownership is both a right and is per se a great thing. Neither, despite what some financially fatuous would have you believe, is true. Back when the world of finance was dominated by clear thinkers with their own money, or at least their own careers, on the line, we somehow had developed the quaint notion that people who can’t afford homes shouldn’t be homeowners until they were financially prepared to do so.
If the Fremont spokesobfuscator had added a few words to his quote, viz:
“many Massachusetts residents who are homeowners today and who have no business whatsoever being homeowners would never have been able to purchase their homes”
his statement would have been true. Unfortunately, it would not have advanced his position, so, in the modern world of high finance, what merit would it have had?
Look for this pathetic excuse for an argument (i.e., “whatever nefarious scheme we cooked up helped people become homeowners”) become even more frequent as politicians conduct the ineluctable witch-hunts that accompany any discomfort that they can label a “crisis.” Why? Because this idiotic line of reasoning appeals to an American public that has been taught to eschew thinking in favor of feeling.
THE SCARIEST TAG TEAM SINCE THE ROAD WARRIORS (AKA “THE LEGION OF DOOM”)
12/3/07
There are, as always, plenty of politicians willing and able to solve our problems, real and imagined, with generous dollops of other people’s money. The current problems wrought by the financial wunderkinds on Wall Street, their salespeople who insist on being called “mortgage consultants,” and a financially obtuse public has thus provided a fecund field for political posturing. In my last post, I commented on Hank Paulson’s (he of the free market Bush administration) plan to extend teaser rate periods in an effort to head off defaults on home loans. Now Hillary Clinton has come along proposing to go Mr. Paulson one better: not only should we force lenders (whoever they might be…see my 12/1/07 post) to extend teaser periods, we should also mandate a 90 day moratorium on home foreclosures!
In my 10/14/07 post, I explained how the world, or at least how the political world, works:
“This is in the normal course of our government’s workings: The Democrats come up with some asinine plan to remedy some problem, real or imagined, with your money. The Republicans respond with a slightly less asinine plan to attack the problem, also with your money, making sure that the primary beneficiaries of the program are among the GOP’s favored constituencies. That is how the world works.”
These latest dance of Secretary Paulson and Senator Clinton is a slight variation on the above described process. In this latest case, the Republicans have come up with a completely asinine idea only to be trumped by the Democrats with an idea that is somehow even more asinine. Both “plans” are designed to make the financially frugal pay for the sins of the profligate. Your government at work.
Lest anyone think that the differences between the parties are more stark than this cynical commentator would indicate, note Senator Clinton’s comments regarding Secretary Paulson:
“I’m very pleased the administration is responding to this crisis.”
Your very likely next president then indicated that she has “high regard” for Mr. Paulson. So much for this election’s being the “most momentous in our lifetimes,” or some such drivel.
There are, as always, plenty of politicians willing and able to solve our problems, real and imagined, with generous dollops of other people’s money. The current problems wrought by the financial wunderkinds on Wall Street, their salespeople who insist on being called “mortgage consultants,” and a financially obtuse public has thus provided a fecund field for political posturing. In my last post, I commented on Hank Paulson’s (he of the free market Bush administration) plan to extend teaser rate periods in an effort to head off defaults on home loans. Now Hillary Clinton has come along proposing to go Mr. Paulson one better: not only should we force lenders (whoever they might be…see my 12/1/07 post) to extend teaser periods, we should also mandate a 90 day moratorium on home foreclosures!
In my 10/14/07 post, I explained how the world, or at least how the political world, works:
“This is in the normal course of our government’s workings: The Democrats come up with some asinine plan to remedy some problem, real or imagined, with your money. The Republicans respond with a slightly less asinine plan to attack the problem, also with your money, making sure that the primary beneficiaries of the program are among the GOP’s favored constituencies. That is how the world works.”
These latest dance of Secretary Paulson and Senator Clinton is a slight variation on the above described process. In this latest case, the Republicans have come up with a completely asinine idea only to be trumped by the Democrats with an idea that is somehow even more asinine. Both “plans” are designed to make the financially frugal pay for the sins of the profligate. Your government at work.
Lest anyone think that the differences between the parties are more stark than this cynical commentator would indicate, note Senator Clinton’s comments regarding Secretary Paulson:
“I’m very pleased the administration is responding to this crisis.”
Your very likely next president then indicated that she has “high regard” for Mr. Paulson. So much for this election’s being the “most momentous in our lifetimes,” or some such drivel.
Saturday, December 1, 2007
“YOU TWO WILL SIT DOWN, YOU’LL WORK THINGS OUT, YOU’LL GO BACK TO HER…IT’LL BE BEAUTEEFUL”
12/1/07
The Street was abuzz yesterday (Friday, 11/30) about a plan being hatched in the Treasury Department that would freeze interest rates (temporarily, so it is said) on sub-prime home loans, often at the teaser rates that were, in many cases, the only rate at which the borrower could afford the home he or she bought.
There is nothing wrong with a borrower and a lender sitting down to negotiate a way to work out a loan that has gone, or soon will go, sour. After all, most homebuyers don’t want to be evicted and most lenders don’t want to repossess property, especially in a real estate market like this one. One of the obvious ways to avoid foreclosure is to prolong, temporarily or otherwise, rates at which the borrower can remain current. However, the Paulson plan has a distinctive malodorous pall to it for a number of reasons.
First, there is a heavy element of government coercion here. The whole arrangement does not appear to have the trappings of a freely negotiated deal between borrower and lender. The force of government is heavily involved here; if Fannie and Freddie, which hold, through securities or collateral, 15% of the sub-prime market, can be brought into the deal, the pressure will be intense on other lenders and investors to go along. The federal government obviously has enormous leverage with Fannie and Freddie. If government coercion is a key element of the plan, can a taxpayer financed subsidy to “disadvantaged” lenders or homeowners be far behind? Even if one is naïve enough to believe Hank Paulson’s protestations that no government money will be involved in his latest palliative, the generous application of the government strong-arm would itself be baleful enough.
Second, the days when the borrower could identify his lender (usually the green eye-shaded Mr. Barsaszkas in the imposing greystone called an S&L down the street) and sit down to negotiate with him are long over. The typical borrower’s loan has been sliced and diced into dozens or hundreds of securities held by investors worldwide. The lender must negotiate with the loan servicer, whose powers to negotiate are murky and therefore conducive to litigation. Even if those cases in which the servicers’ power to negotiate is clearly spelled out, there is something wrong with a situation in which servicers are responding to ukases from Washington to negotiate solutions that might not be in the interests of the investors in the loans they service. As Mark Adelson, a money manager quoted in The Wall Street Journal, said
“There is a part of this that’s just morally repugnant. The problem is that policy makers are talking to servicers about giving away other people’s money.”
Third, no one is talking about disclosure yet. While this might come out in the details, it is imperative that, if these loans are renegotiated, they be written down to reflect the reduced cash flows they will generate. Much of the “sub-prime problem” has been exacerbated, indeed created, by an effort to paper over underlying financial difficulties. A “solution” that does not involve full disclosure could be counterproductive.
Fourth, this “solution” ignores the worst manifestations of the underlying problem. Many, if not most, of these loans are bad loans even at the existing interest rate. In fact, while details of the Paulson plan remain scarce, such loans would not even be covered by the plan, a rare concession to reality on the part of policymakers. So if the Paulson plan only covers those mortgage loans that could be saved by an extension of the teaser period, a substantial chunk of the sub-prime mortgage loans are going to fail despite the plan. Further, even those loans that are “salvaged” will fail when the postponed reset finally takes place. Thus, for many of these loans, this is merely a call for the governor on Christmas Eve to put off the execution until after the holidays. The miscreant will die; he will merely be given the “gift” of another week or so to think about it. The “homeowner,” knowing that he will lose his home anyway, will let the property fall into further neglect, decreasing its value. As Alan Fournier, another astute fund manager quoted by the Journal said
“This reduces the pressure short term to bring everything to a clearing price. We really just need to let it wash through.”
(Messrs. Adelson and Fournier are very astute fund managers, regular readers of the Insightful Pontificator, or both. But I digress.)
It’s even worse than Mr. Fournier and most people suppose. The Paulson plan has been hatched under the mistaken impression that the problem we are witnessing is a sub-prime mortgage problem. As I said months ago, and the rest of the world started to realize much later, this is a debt problem that extends far beyond sub-prime home mortgages. As a society, we have borrowed far too much without the means to repay what we have borrowed. Self-styled financial geniuses have convinced themselves, and the supposed moneyed cognoscenti, that the resultant high levels of risk could be eliminated by the application of Rube Goldbergesque financial engineering techniques even the creators of which, as it turned out, didn’t understand.
So it looks like this latest plan being forced down the throats of the markets and the economy by the central planners of the Bush administration will be merely a band-aid, a band-aid applied before antiseptic that serves only to let the underlying infection fester and spread.
The Street was abuzz yesterday (Friday, 11/30) about a plan being hatched in the Treasury Department that would freeze interest rates (temporarily, so it is said) on sub-prime home loans, often at the teaser rates that were, in many cases, the only rate at which the borrower could afford the home he or she bought.
There is nothing wrong with a borrower and a lender sitting down to negotiate a way to work out a loan that has gone, or soon will go, sour. After all, most homebuyers don’t want to be evicted and most lenders don’t want to repossess property, especially in a real estate market like this one. One of the obvious ways to avoid foreclosure is to prolong, temporarily or otherwise, rates at which the borrower can remain current. However, the Paulson plan has a distinctive malodorous pall to it for a number of reasons.
First, there is a heavy element of government coercion here. The whole arrangement does not appear to have the trappings of a freely negotiated deal between borrower and lender. The force of government is heavily involved here; if Fannie and Freddie, which hold, through securities or collateral, 15% of the sub-prime market, can be brought into the deal, the pressure will be intense on other lenders and investors to go along. The federal government obviously has enormous leverage with Fannie and Freddie. If government coercion is a key element of the plan, can a taxpayer financed subsidy to “disadvantaged” lenders or homeowners be far behind? Even if one is naïve enough to believe Hank Paulson’s protestations that no government money will be involved in his latest palliative, the generous application of the government strong-arm would itself be baleful enough.
Second, the days when the borrower could identify his lender (usually the green eye-shaded Mr. Barsaszkas in the imposing greystone called an S&L down the street) and sit down to negotiate with him are long over. The typical borrower’s loan has been sliced and diced into dozens or hundreds of securities held by investors worldwide. The lender must negotiate with the loan servicer, whose powers to negotiate are murky and therefore conducive to litigation. Even if those cases in which the servicers’ power to negotiate is clearly spelled out, there is something wrong with a situation in which servicers are responding to ukases from Washington to negotiate solutions that might not be in the interests of the investors in the loans they service. As Mark Adelson, a money manager quoted in The Wall Street Journal, said
“There is a part of this that’s just morally repugnant. The problem is that policy makers are talking to servicers about giving away other people’s money.”
Third, no one is talking about disclosure yet. While this might come out in the details, it is imperative that, if these loans are renegotiated, they be written down to reflect the reduced cash flows they will generate. Much of the “sub-prime problem” has been exacerbated, indeed created, by an effort to paper over underlying financial difficulties. A “solution” that does not involve full disclosure could be counterproductive.
Fourth, this “solution” ignores the worst manifestations of the underlying problem. Many, if not most, of these loans are bad loans even at the existing interest rate. In fact, while details of the Paulson plan remain scarce, such loans would not even be covered by the plan, a rare concession to reality on the part of policymakers. So if the Paulson plan only covers those mortgage loans that could be saved by an extension of the teaser period, a substantial chunk of the sub-prime mortgage loans are going to fail despite the plan. Further, even those loans that are “salvaged” will fail when the postponed reset finally takes place. Thus, for many of these loans, this is merely a call for the governor on Christmas Eve to put off the execution until after the holidays. The miscreant will die; he will merely be given the “gift” of another week or so to think about it. The “homeowner,” knowing that he will lose his home anyway, will let the property fall into further neglect, decreasing its value. As Alan Fournier, another astute fund manager quoted by the Journal said
“This reduces the pressure short term to bring everything to a clearing price. We really just need to let it wash through.”
(Messrs. Adelson and Fournier are very astute fund managers, regular readers of the Insightful Pontificator, or both. But I digress.)
It’s even worse than Mr. Fournier and most people suppose. The Paulson plan has been hatched under the mistaken impression that the problem we are witnessing is a sub-prime mortgage problem. As I said months ago, and the rest of the world started to realize much later, this is a debt problem that extends far beyond sub-prime home mortgages. As a society, we have borrowed far too much without the means to repay what we have borrowed. Self-styled financial geniuses have convinced themselves, and the supposed moneyed cognoscenti, that the resultant high levels of risk could be eliminated by the application of Rube Goldbergesque financial engineering techniques even the creators of which, as it turned out, didn’t understand.
So it looks like this latest plan being forced down the throats of the markets and the economy by the central planners of the Bush administration will be merely a band-aid, a band-aid applied before antiseptic that serves only to let the underlying infection fester and spread.
Saturday, November 24, 2007
THE DEMOCRATS COULD BLOW EVEN THIS ONE
11/24/07
Until very recently, I was convinced that there was no way the Democrats could lose this election; given the hash President Bush has made of the country, I might have gone so far that we were on the precipice of a new Democrat era, akin to the Roosevelt/Truman years.
However, for a number of reasons, I am starting to think that there is a possibility that the Democrats, famous for fumbling favorable situations, could wind up losing this one.
First, despite some recent minor stumbles, it still looks like Hillary Clinton will be the Democratic nominee. As I have said before, given the compression of the primary calendar, the premium placed on money and organization is even greater, perhaps far greater, in 2008 than it has been in past elections. Even an early stumble in Iowa, New Hampshire, South Carolina, or any combination thereof (still far from a certain, even likely, outcome) will probably not result in Clinton’s losing the nomination. The big primaries on February 5 come too quickly for the early states to give their winners much of a boost, especially in fundraising; the money for the big fights will be in the bank long before the outcomes of the early states are known.
The problem for the Democrats is that if Clinton wins the nomination, the Dems will have forfeited their biggest advantage in this election: a clear alternative to George Bush on foreign policy, and especially in Iraq. Clinton, apparently assuming that the nomination is sewn up, has been sprinting to the center, which normally would be good politics in a country with a largely centrist electorate. However, she has been running hardest to the center in the one policy in which she should be staying as far “left” as possible: Iraq. Despite what the Democrats are trying to convince themselves of, they did not win big in 2006, and are not ahead in the polls in 2008, because people are clamoring for a 21st century version of the New Deal. The Democrats won in 2006 and are ahead in 2008 because people are repulsed by the Iraq war and the ruinous Bush foreign policy. Simply put, they want someone to get us out of Iraq. That someone is not Hillary Clinton. She has consistently hemmed and hawed on this issue, as she has on any number of others, in an attempt to bravely go in the direction of least political resistance.
Anybody who wins the Republican nomination, and it is starting to look like Giuliani, will win by pledging to the GOP primary electorate undying fealty to the foreign policy, Iraq, Iran, the whole shebang, of the Bush administration. None of the potential GOP nominees has the political skill, or the chutzpah, to do anything like a 180 on this issue once he wins the nomination. The best the Republicans can do is to point out, and correctly so, that they may be in favor of continuing the carnage in Iraq, but so are the Democrats. This will be remarkably easy if (when) Clinton is the nominee. After all, if one excludes Lieberman from consideration, it would be hard to find a Democratic senator who was more enthusiastic about the Iraq invasion than was Clinton. Furthermore, Clinton cannot constantly tell us how experienced and wise in the ways of Washington she is while at the same time arguing that she didn’t realize that the Iran resolution, which she recently voted for, was little more than a green light for George Bush to have his way in the former Persia.
Without a clear differentiation on the issue that will really count in 2008, the election will come down to personalities. With Clinton as their nominee, the Democrats will have a big problem in this department. Those who call Hillary Clinton polarizing are being charitable. If a person is polarizing, by definition she has large numbers of people who love her and large numbers of people who hate her. In the case of Hillary Clinton, she surely has large numbers of people who hate her and, curiously, fear her (See my earlier entry “An Inordinate Fear of Hillaryism.”), but the number of people who love her is dwindling as she deserts her base on the left in an attempt to seize the center from the Republicans. She is going to unite the disparate Republican constituencies behind the GOP nominee like no other Democratic nominee. Meanwhile, many of the true believers in the Democratic Party will be resentful of her apparent desertion of them on any number of issues, but especially on Iraq, and the great political center, with no clear choice on Iraq, will be put off by her, well, “Hillariness.”
A Democratic loss is by no means a foregone conclusion; a careful gambler who is not given odds would surely bet that Hillary Clinton will win the Democratic nomination and the presidency. And if the economy goes into the tank between now and election day (Regular readers of the Insightful Pontificator are well aware that I think this is a very distinct possibility.), Mike Gravel could be elected president as long as he kept the “D” after his name. But the legendary, and much clichéd, Democratic tendency to snatch defeat from the jaws of victory might just be rearing its head once again.
Until very recently, I was convinced that there was no way the Democrats could lose this election; given the hash President Bush has made of the country, I might have gone so far that we were on the precipice of a new Democrat era, akin to the Roosevelt/Truman years.
However, for a number of reasons, I am starting to think that there is a possibility that the Democrats, famous for fumbling favorable situations, could wind up losing this one.
First, despite some recent minor stumbles, it still looks like Hillary Clinton will be the Democratic nominee. As I have said before, given the compression of the primary calendar, the premium placed on money and organization is even greater, perhaps far greater, in 2008 than it has been in past elections. Even an early stumble in Iowa, New Hampshire, South Carolina, or any combination thereof (still far from a certain, even likely, outcome) will probably not result in Clinton’s losing the nomination. The big primaries on February 5 come too quickly for the early states to give their winners much of a boost, especially in fundraising; the money for the big fights will be in the bank long before the outcomes of the early states are known.
The problem for the Democrats is that if Clinton wins the nomination, the Dems will have forfeited their biggest advantage in this election: a clear alternative to George Bush on foreign policy, and especially in Iraq. Clinton, apparently assuming that the nomination is sewn up, has been sprinting to the center, which normally would be good politics in a country with a largely centrist electorate. However, she has been running hardest to the center in the one policy in which she should be staying as far “left” as possible: Iraq. Despite what the Democrats are trying to convince themselves of, they did not win big in 2006, and are not ahead in the polls in 2008, because people are clamoring for a 21st century version of the New Deal. The Democrats won in 2006 and are ahead in 2008 because people are repulsed by the Iraq war and the ruinous Bush foreign policy. Simply put, they want someone to get us out of Iraq. That someone is not Hillary Clinton. She has consistently hemmed and hawed on this issue, as she has on any number of others, in an attempt to bravely go in the direction of least political resistance.
Anybody who wins the Republican nomination, and it is starting to look like Giuliani, will win by pledging to the GOP primary electorate undying fealty to the foreign policy, Iraq, Iran, the whole shebang, of the Bush administration. None of the potential GOP nominees has the political skill, or the chutzpah, to do anything like a 180 on this issue once he wins the nomination. The best the Republicans can do is to point out, and correctly so, that they may be in favor of continuing the carnage in Iraq, but so are the Democrats. This will be remarkably easy if (when) Clinton is the nominee. After all, if one excludes Lieberman from consideration, it would be hard to find a Democratic senator who was more enthusiastic about the Iraq invasion than was Clinton. Furthermore, Clinton cannot constantly tell us how experienced and wise in the ways of Washington she is while at the same time arguing that she didn’t realize that the Iran resolution, which she recently voted for, was little more than a green light for George Bush to have his way in the former Persia.
Without a clear differentiation on the issue that will really count in 2008, the election will come down to personalities. With Clinton as their nominee, the Democrats will have a big problem in this department. Those who call Hillary Clinton polarizing are being charitable. If a person is polarizing, by definition she has large numbers of people who love her and large numbers of people who hate her. In the case of Hillary Clinton, she surely has large numbers of people who hate her and, curiously, fear her (See my earlier entry “An Inordinate Fear of Hillaryism.”), but the number of people who love her is dwindling as she deserts her base on the left in an attempt to seize the center from the Republicans. She is going to unite the disparate Republican constituencies behind the GOP nominee like no other Democratic nominee. Meanwhile, many of the true believers in the Democratic Party will be resentful of her apparent desertion of them on any number of issues, but especially on Iraq, and the great political center, with no clear choice on Iraq, will be put off by her, well, “Hillariness.”
A Democratic loss is by no means a foregone conclusion; a careful gambler who is not given odds would surely bet that Hillary Clinton will win the Democratic nomination and the presidency. And if the economy goes into the tank between now and election day (Regular readers of the Insightful Pontificator are well aware that I think this is a very distinct possibility.), Mike Gravel could be elected president as long as he kept the “D” after his name. But the legendary, and much clichéd, Democratic tendency to snatch defeat from the jaws of victory might just be rearing its head once again.
Thursday, November 22, 2007
BLESSED AND GRATEFUL THANKSGIVING !!!
11/22/07
Here is a letter I sent to our local paper, The Naperville Sun, last Thanksgiving. Like most holiday messages, it is timeless:
11/19/06
The name of the national holiday we are about to celebrate is “Thanksgiving,” not “Turkey Day.”
Despite what modern American popular culture would have us believe, this holiday was not established in order to give us an excuse for gorging ourselves on turkey, watching football, and preparing for hyper-stressed Christmas shopping ordeals. It was established to give us a special opportunity to give thanks, to God if one is a believer, for the many blessings that have been rained down upon us, perhaps the most salient of which at Thanksgiving time is living in this great country, an island of prosperity, security, and freedom in a world in which poverty, danger, and oppression are often the norm.
Have a wonderful and blessed THANKSGIVNG day, year, and life.
Here is a letter I sent to our local paper, The Naperville Sun, last Thanksgiving. Like most holiday messages, it is timeless:
11/19/06
The name of the national holiday we are about to celebrate is “Thanksgiving,” not “Turkey Day.”
Despite what modern American popular culture would have us believe, this holiday was not established in order to give us an excuse for gorging ourselves on turkey, watching football, and preparing for hyper-stressed Christmas shopping ordeals. It was established to give us a special opportunity to give thanks, to God if one is a believer, for the many blessings that have been rained down upon us, perhaps the most salient of which at Thanksgiving time is living in this great country, an island of prosperity, security, and freedom in a world in which poverty, danger, and oppression are often the norm.
Have a wonderful and blessed THANKSGIVNG day, year, and life.
Wednesday, November 21, 2007
THE REAL CONSERVATIVE HAS STOOD UP
THE REAL CONSERVATIVE HAS STOOD UP
11/21/07
Today’s Wall Street Journal reports that Treasury Secretary Hank Paulson, a prominent member of the conservative, free market Bush administration, “is pressing the mortgage-service industry to help broad swaths of borrowers qualify for better loans instead of dealing with mortgage problems on a case by case basis.”
Mr. Paulson’s admonition is okay, I suppose, as far as it goes. But if it is good business to renegotiate terms of loans (We will leave discussion of the ability of mortgage servicers to renegotiate terms of loans that have been sliced and diced into pieces held by myriad unidentifiable ultimate lenders to another day.), why does the heavy hand of the federal government have to come into play? One wonders why, if the Bushmen really believe in the wisdom of the free markets, they suddenly feel the feds must tell the lenders how to conduct their business. If the best course of action is to adjust the terms of the loans, and write those loans down appropriately, surely the lenders will do so (if indeed the lenders can be found).
Mr. Paulson, the Journal reports,” faulted Congress for failing to pass several bills that could potentially provide relief for borrowers, and then took aim at a Republican senator who is holding up a piece of legislation that would allow the FHA to play a greater role in the cleanup.” It seems that Senator Tom Coburn, one of the few real conservatives remaining in the GOP, is concerned that such a scheme will result in the taxpayers’ being liable for risky loans that were, after all, freely negotiated by supposedly ready, willing, and able parties. He’s not all that enthusiastic, about putting the taxpayers on the hook for bad loans that they had nothing to do with in the first place. It appears that Senator Coburn has the crazy idea that frugal, financially conservative taxpayers who actually know something about managing money should not be forced to subsidize the often lavish lifestyles of people who insist on living over their heads and having other people pick up their bills when things don’t work out as well as they had supposed. What apostasy!
Mr. Paulson replied that he understood Senator Coburn’s concern. However, he said “This is not business as usual. This is an extraordinary situation.”
Maybe so. But one gets the nagging impression that, by “extraordinary,” Mr. Paulson does not mean “has the potential to devastate the economy and cause recession, or worse,” though that is true. No. One gets the impression that, given the GOP’s worldview, especially with the Bushites in charge, that what Mr. Paulson means by “extraordinary,” is that this is one of those really not all that extraordinary situations in which the wealthy are looking for a handout and that, therefore, the government must hop to it, right away, sir.
The modern GOP has no room for people like Mr. Coburn, who seem to really believe in small government (Well, at least in domestic affairs; Mr. Coburn’s enthusiastic support for the abominable Bush “foreign policy” indicates that even his enthusiasm for limited government ends at the seashore, but I digress.). As Mr. Paulson’s enthusiasm for a government bailout for those who got into ARMS with the mistaken supposition that “We can always refinance” and found out that, “Gee whiz, I guess real estate can go both ways,” shows, all that claptrap about “limited government” from the GOP rapidly goes over the side when their constituency, the well-off who ceaselessly extol the virtues of small government, need to reach into the taxpayers’ pockets for their share.
11/21/07
Today’s Wall Street Journal reports that Treasury Secretary Hank Paulson, a prominent member of the conservative, free market Bush administration, “is pressing the mortgage-service industry to help broad swaths of borrowers qualify for better loans instead of dealing with mortgage problems on a case by case basis.”
Mr. Paulson’s admonition is okay, I suppose, as far as it goes. But if it is good business to renegotiate terms of loans (We will leave discussion of the ability of mortgage servicers to renegotiate terms of loans that have been sliced and diced into pieces held by myriad unidentifiable ultimate lenders to another day.), why does the heavy hand of the federal government have to come into play? One wonders why, if the Bushmen really believe in the wisdom of the free markets, they suddenly feel the feds must tell the lenders how to conduct their business. If the best course of action is to adjust the terms of the loans, and write those loans down appropriately, surely the lenders will do so (if indeed the lenders can be found).
Mr. Paulson, the Journal reports,” faulted Congress for failing to pass several bills that could potentially provide relief for borrowers, and then took aim at a Republican senator who is holding up a piece of legislation that would allow the FHA to play a greater role in the cleanup.” It seems that Senator Tom Coburn, one of the few real conservatives remaining in the GOP, is concerned that such a scheme will result in the taxpayers’ being liable for risky loans that were, after all, freely negotiated by supposedly ready, willing, and able parties. He’s not all that enthusiastic, about putting the taxpayers on the hook for bad loans that they had nothing to do with in the first place. It appears that Senator Coburn has the crazy idea that frugal, financially conservative taxpayers who actually know something about managing money should not be forced to subsidize the often lavish lifestyles of people who insist on living over their heads and having other people pick up their bills when things don’t work out as well as they had supposed. What apostasy!
Mr. Paulson replied that he understood Senator Coburn’s concern. However, he said “This is not business as usual. This is an extraordinary situation.”
Maybe so. But one gets the nagging impression that, by “extraordinary,” Mr. Paulson does not mean “has the potential to devastate the economy and cause recession, or worse,” though that is true. No. One gets the impression that, given the GOP’s worldview, especially with the Bushites in charge, that what Mr. Paulson means by “extraordinary,” is that this is one of those really not all that extraordinary situations in which the wealthy are looking for a handout and that, therefore, the government must hop to it, right away, sir.
The modern GOP has no room for people like Mr. Coburn, who seem to really believe in small government (Well, at least in domestic affairs; Mr. Coburn’s enthusiastic support for the abominable Bush “foreign policy” indicates that even his enthusiasm for limited government ends at the seashore, but I digress.). As Mr. Paulson’s enthusiasm for a government bailout for those who got into ARMS with the mistaken supposition that “We can always refinance” and found out that, “Gee whiz, I guess real estate can go both ways,” shows, all that claptrap about “limited government” from the GOP rapidly goes over the side when their constituency, the well-off who ceaselessly extol the virtues of small government, need to reach into the taxpayers’ pockets for their share.
Saturday, November 17, 2007
HAPPY HOLIDAYS!!!
11/17/07
The Christmas season is starting, ever earlier each year…damn.
Jesus came and preached peace, selflessness, trust in Him and in His Father, a disavowal of materialism and the shallow attractions of this world, and regard for one’s fellow person. So how do we celebrate His birthday?
With tension, pressure, anxiety, and exhaustion. With utter selfishness embodied by the “gimme, gimme” mentality ever present in our society but especially keen at Christmas. With an “I’m gonna get it and no one is gonna stop me” mentality that leads to the “trampling at WalMart” stories each year. With a trust not in God but in our ability to use our efforts to get what we want in order to make ourselves and our kids happy (“You’re gonna have a perfect Christmas, kid, whether you like it or not.”) and to manipulate people with the gifts we give (“Make clear to your kids’ teachers that ‘We gift.’” Not only does this egregiously nescient ad completely distort Christmas, it butchers the English language, but I digress.). With a race to get or to give the most expensive, meaningless, vacuous geegaws we can in order to impress somebody with either our ability to spend, our utter lack of taste, or both. With digging ourselves deeper into debt (“Put in on the card…we can always refinance the house!” Uh oh.) in utterly futile attempts at enjoying, or providing, mostly for our own selfish gratification (“You’re right…all this crass materialism is silly, but it’s for the kids, you know.”), that perfect Christmas. In responding to idiotic ads the point of which seems to be that Christ’s birthday is the perfect time to show everyone how much we’ve utterly rejected His message by shamelessly displaying our wealth, which may or may not have been amassed honestly, morally, or even legally. With a grossly misplaced sense of priorities. (“Can you believe how long Mass was on Christmas Eve? I had to leave early to finish my Christmas shopping!” “Boy, that ‘Silent Night’ and all that other religious crap is depressing; why can’t they play some real Christmas music, like ‘Jingle Bell Rock.’?”).
In short, in modern America, and throughout much of the world, we celebrate Christ’s birthday by taking the opportunity to spit in His face. The only person who can be pleased by the way we celebrate Christmas (besides the millions who take the opportunity of Jesus’ birthday to rake in enormous profits by exploiting amorality, immorality, and imbecility) is Satan. You can almost hear the fallen angel: “Hey, look at that, Jesus…look what all those people are doing on YOUR birthday!!! Aren’t you happy you gave it all for those people! I told you they were no good! I told you they didn’t deserve it! You are such a fool!” Our ever patient Savior pays no heed but continues to do what He does best: He loves all of us unceasingly and unreservedly, perhaps even more so those who use His birthday to join Satan in mocking Him and His message.
If people want to engage in a veritable orgy of debauchery and self-indulgence at year end, that is their business. Our economy seems to depend on it, as it does on so many other rickety, jerry-rigged mechanisms of self-delusion. But I hope those who insist on displaying their vulgarity and ignorance at this time of year will leave Jesus out of it. I hope, vainly, that they don’t profane the name of our Savior by calling their annual bouts of self-destructive over-indulgence and anxiety “Christmas.” I hope people save that holy name for the activities that honor our Savior: the efforts people make to help the needy and forgotten, to comfort the afflicted, to let the true spirit of Christmas, the eternal message of salvation through faith in and love of our Savior manifested through service to others and worship of Him, to shine through at this time of year and always. Real Christmas takes place in church and the other places we attempt to conform our lives to the wishes of our loving God, not at the mall, the car dealer, or at the bar.
If people are intent on making a mockery of Christ, I pray they don’t call their doing so “Christmas.” Let them call it “the holidays” or some such other innocuous piece of puff and leave Jesus out of it. Reserve the name “Christmas” for true Christmas, which is not confined even to our ever expanding “Holiday Season.”
God bless you all at this Christmas season, and may this celebration of God’s love coming into our world never end for you.
The Christmas season is starting, ever earlier each year…damn.
Jesus came and preached peace, selflessness, trust in Him and in His Father, a disavowal of materialism and the shallow attractions of this world, and regard for one’s fellow person. So how do we celebrate His birthday?
With tension, pressure, anxiety, and exhaustion. With utter selfishness embodied by the “gimme, gimme” mentality ever present in our society but especially keen at Christmas. With an “I’m gonna get it and no one is gonna stop me” mentality that leads to the “trampling at WalMart” stories each year. With a trust not in God but in our ability to use our efforts to get what we want in order to make ourselves and our kids happy (“You’re gonna have a perfect Christmas, kid, whether you like it or not.”) and to manipulate people with the gifts we give (“Make clear to your kids’ teachers that ‘We gift.’” Not only does this egregiously nescient ad completely distort Christmas, it butchers the English language, but I digress.). With a race to get or to give the most expensive, meaningless, vacuous geegaws we can in order to impress somebody with either our ability to spend, our utter lack of taste, or both. With digging ourselves deeper into debt (“Put in on the card…we can always refinance the house!” Uh oh.) in utterly futile attempts at enjoying, or providing, mostly for our own selfish gratification (“You’re right…all this crass materialism is silly, but it’s for the kids, you know.”), that perfect Christmas. In responding to idiotic ads the point of which seems to be that Christ’s birthday is the perfect time to show everyone how much we’ve utterly rejected His message by shamelessly displaying our wealth, which may or may not have been amassed honestly, morally, or even legally. With a grossly misplaced sense of priorities. (“Can you believe how long Mass was on Christmas Eve? I had to leave early to finish my Christmas shopping!” “Boy, that ‘Silent Night’ and all that other religious crap is depressing; why can’t they play some real Christmas music, like ‘Jingle Bell Rock.’?”).
In short, in modern America, and throughout much of the world, we celebrate Christ’s birthday by taking the opportunity to spit in His face. The only person who can be pleased by the way we celebrate Christmas (besides the millions who take the opportunity of Jesus’ birthday to rake in enormous profits by exploiting amorality, immorality, and imbecility) is Satan. You can almost hear the fallen angel: “Hey, look at that, Jesus…look what all those people are doing on YOUR birthday!!! Aren’t you happy you gave it all for those people! I told you they were no good! I told you they didn’t deserve it! You are such a fool!” Our ever patient Savior pays no heed but continues to do what He does best: He loves all of us unceasingly and unreservedly, perhaps even more so those who use His birthday to join Satan in mocking Him and His message.
If people want to engage in a veritable orgy of debauchery and self-indulgence at year end, that is their business. Our economy seems to depend on it, as it does on so many other rickety, jerry-rigged mechanisms of self-delusion. But I hope those who insist on displaying their vulgarity and ignorance at this time of year will leave Jesus out of it. I hope, vainly, that they don’t profane the name of our Savior by calling their annual bouts of self-destructive over-indulgence and anxiety “Christmas.” I hope people save that holy name for the activities that honor our Savior: the efforts people make to help the needy and forgotten, to comfort the afflicted, to let the true spirit of Christmas, the eternal message of salvation through faith in and love of our Savior manifested through service to others and worship of Him, to shine through at this time of year and always. Real Christmas takes place in church and the other places we attempt to conform our lives to the wishes of our loving God, not at the mall, the car dealer, or at the bar.
If people are intent on making a mockery of Christ, I pray they don’t call their doing so “Christmas.” Let them call it “the holidays” or some such other innocuous piece of puff and leave Jesus out of it. Reserve the name “Christmas” for true Christmas, which is not confined even to our ever expanding “Holiday Season.”
God bless you all at this Christmas season, and may this celebration of God’s love coming into our world never end for you.
Friday, November 16, 2007
“ELIHU, WOULD YOU LOOFAH MY STRETCH MARKS?”
11/16/07
The 11/16/07 edition of The Wall Street Journal featured an article on page C1 arguing that the problems in the credit market have percolated down (one might think up, but that is another matter) into the municipal markets. According the to the article, the municipal bond market is experiencing problems because municipal bond insurers (Ambac, FGIC, etc.) have, in recent years, gotten into the business of insuring mortgage backed securities and CMOs. Bad move, obviously. The result has been the stocks’ of the insurers going into virtual free-fall and the credit ratings’ of the insurers coming into question. The ramifications for insured municipal bonds have been obvious.
This argument is good as far as it goes, but looks like another manifestation of the financial press and the financial “community” missing the bigger picture, as with their now faltering certainty that the problems in the mortgage markets are purely a “sub-prime” problem, the wrong-headedness of which has yet to become fully manifest. Yes, the insurers are having difficulty, and this is affecting the municipal market. But the consequences of the mortgage/real estate/credit market troubles for the municipal bond market are far broader.
Municipalities, of course, derive much of their revenue from property taxes, which have come under pressure as property values have fallen, and will continue to do so. The politicians, of course, will futz with the fuliginous formulae used to determine property taxes in order to keep revenue up as real estate values fall, but they will encounter strong, if not overwhelming, political resistance to doing so, especially in a weakening economy.
An even more direct, but less debilitating, impact of the mortgage/real estate problem on municipals is being, and will continue to be, felt through in real estate transfer taxes. In most municipalities, when one sells a house or other piece of property, one must pay a fee, usually several hundred or thousand dollars, to the municipality in which the property sold or property bought is located. The politicians have long found this an easy source of revenue; when people are in the heat of transactions involving several hundred thousand dollars, they barely notice a fee of perhaps a thousand or so. This fee has grown into a major source of municipal revenue. As the real estate market, er, slows down, revenue from this fee has been dramatically reduced. In Chicago, the drastic reduction in such fees has been cited as a major reason for Mayor Daley’s huge property, and other, tax increase. No matter what the Mayor says, the tax increase had little if anything to do with libraries, but I digress.
The big problem in the muni market is just beginning to be felt and, admittedly, is not part of the market’s immediate difficulties but will be far greater as it comes to fruition. This problem is public sector pensions. Our local government employees get perhaps the most generous pensions, on a percentage basis, of anyone in the country. Just about anyone, for instance, knows a cop, teacher, fireman, or just a local bureaucrat who has retired in his or her early 50s on an astronomical percentage (70%-80%) of his or her salary. One of the less shocking aspects of the Drew Peterson story is that the scrofulous Mr. Peterson is now receiving a pension of $72,000 per year after “retiring” at the age of 53 from the Bolingbrook Police Department. And, for those readers not familiar with the Chicago area, Bolingbrook, while not Mayberry, is not exactly tough duty for a cop. These huge and growing pension obligations are consuming an ever greater share of municipal budgets and thus of residents’ property tax bills. Back in the days when local government workers were somewhat underpaid relative to their private sector colleagues and a large percentage of the taxpayers had defined benefit pension plans, the taxpayers, while never happy about paying taxes, were less hesitant to pay real estate taxes to support rich defined benefit plans for municipal workers. But now that local government workers salaries’ are getting higher, pensions are getting ever richer, and the defined benefit pension plan is going the way of the pterodactyl in the private sector, property taxpayers are getting more and more resistant to paying their growing real estate bills when an ever growing portion of those bills is going to fund pension benefits of which they can only dream. This resistance has the potential to turn into outright rebellion as property tax bills continue to skyrocket, local services deteriorate, or both. While not being the immediate source of problems in the muni bond market, this is going to result in a crisis in municipal budgets in the very near future.
So, yes, the problems with muni bond insurers are having a negative impact on the muni market. But the impact of the credit market debacle on the muni market is far wider and deeper, and far larger problems are looming.
The 11/16/07 edition of The Wall Street Journal featured an article on page C1 arguing that the problems in the credit market have percolated down (one might think up, but that is another matter) into the municipal markets. According the to the article, the municipal bond market is experiencing problems because municipal bond insurers (Ambac, FGIC, etc.) have, in recent years, gotten into the business of insuring mortgage backed securities and CMOs. Bad move, obviously. The result has been the stocks’ of the insurers going into virtual free-fall and the credit ratings’ of the insurers coming into question. The ramifications for insured municipal bonds have been obvious.
This argument is good as far as it goes, but looks like another manifestation of the financial press and the financial “community” missing the bigger picture, as with their now faltering certainty that the problems in the mortgage markets are purely a “sub-prime” problem, the wrong-headedness of which has yet to become fully manifest. Yes, the insurers are having difficulty, and this is affecting the municipal market. But the consequences of the mortgage/real estate/credit market troubles for the municipal bond market are far broader.
Municipalities, of course, derive much of their revenue from property taxes, which have come under pressure as property values have fallen, and will continue to do so. The politicians, of course, will futz with the fuliginous formulae used to determine property taxes in order to keep revenue up as real estate values fall, but they will encounter strong, if not overwhelming, political resistance to doing so, especially in a weakening economy.
An even more direct, but less debilitating, impact of the mortgage/real estate problem on municipals is being, and will continue to be, felt through in real estate transfer taxes. In most municipalities, when one sells a house or other piece of property, one must pay a fee, usually several hundred or thousand dollars, to the municipality in which the property sold or property bought is located. The politicians have long found this an easy source of revenue; when people are in the heat of transactions involving several hundred thousand dollars, they barely notice a fee of perhaps a thousand or so. This fee has grown into a major source of municipal revenue. As the real estate market, er, slows down, revenue from this fee has been dramatically reduced. In Chicago, the drastic reduction in such fees has been cited as a major reason for Mayor Daley’s huge property, and other, tax increase. No matter what the Mayor says, the tax increase had little if anything to do with libraries, but I digress.
The big problem in the muni market is just beginning to be felt and, admittedly, is not part of the market’s immediate difficulties but will be far greater as it comes to fruition. This problem is public sector pensions. Our local government employees get perhaps the most generous pensions, on a percentage basis, of anyone in the country. Just about anyone, for instance, knows a cop, teacher, fireman, or just a local bureaucrat who has retired in his or her early 50s on an astronomical percentage (70%-80%) of his or her salary. One of the less shocking aspects of the Drew Peterson story is that the scrofulous Mr. Peterson is now receiving a pension of $72,000 per year after “retiring” at the age of 53 from the Bolingbrook Police Department. And, for those readers not familiar with the Chicago area, Bolingbrook, while not Mayberry, is not exactly tough duty for a cop. These huge and growing pension obligations are consuming an ever greater share of municipal budgets and thus of residents’ property tax bills. Back in the days when local government workers were somewhat underpaid relative to their private sector colleagues and a large percentage of the taxpayers had defined benefit pension plans, the taxpayers, while never happy about paying taxes, were less hesitant to pay real estate taxes to support rich defined benefit plans for municipal workers. But now that local government workers salaries’ are getting higher, pensions are getting ever richer, and the defined benefit pension plan is going the way of the pterodactyl in the private sector, property taxpayers are getting more and more resistant to paying their growing real estate bills when an ever growing portion of those bills is going to fund pension benefits of which they can only dream. This resistance has the potential to turn into outright rebellion as property tax bills continue to skyrocket, local services deteriorate, or both. While not being the immediate source of problems in the muni bond market, this is going to result in a crisis in municipal budgets in the very near future.
So, yes, the problems with muni bond insurers are having a negative impact on the muni market. But the impact of the credit market debacle on the muni market is far wider and deeper, and far larger problems are looming.
Tuesday, November 13, 2007
BACK TO THE CARS…FOR A MOMENT
BACK TO THE CARS…FOR A MOMENT
11/13/07
A few days ago, a friend asked me what I thought of GM. I wrote the following reply. I realized later that it has been months since I have discussed the car business, formerly a regular feature of my blog, in the IP.
So here are my current thoughts on GM, as related to my buddy a few days ago:
11/9/07
No, I don’t like GM here. In fact, I just closed a put position yesterday at an enormous profit. I closed it not because I am enthusiastic about GM now, but only because I found it prudent to take a profit. I've hurt myself too many times in the past being a pig.
Why not GM?
--If we reach 16mm light vehicle sales in the U.S. this year, that will be a lot. That will make it very tough to make money in the car business.
--GM didn't get enough on the Jobs Bank in the new contract. They are coming at the problem in a different way; i.e., by reducing head count, but labor remains a fixed cost and thus there is too much incentive to overproduction, the bane of the Big 3. If GM can really limit production of the Enclave/Acadia/Outlook, I'll be impressed. But I'm not betting they will be able to do so.
--More problems will arise at ResCap.
--More auto credit problems will arise at GMAC.
--I hate the stock market, and the economy here.
--The mortgage problems, as I have said on my blog months ago, are not limited to sub-prime loans. Home equity loans have been a huge source of car financing, and that spigot has been shut. This will especially hurt GM in its expensive and big profit SUVs and Caddies.
All that having been said, when things shake out in the economy (a couple years), and I am looking for a car company to buy, GM will be near the top of the list, right after F. (I love the article in the WSJ today saying "no one" anticipated F's being closer to profitability than GM. Apparently, I am nobody. See my old IWCs, and note that I held onto a piece of F when I dumped GM at about $31 way back when. But I digress.) Product is very good. The contract, other than the Jobs Bank problem, was a good one. Its best feature may have been aligning the interests of the UAW with those of GM by putting so much stock in the VEBA. F, by the way, was able to fund its VEBA with an even greater proportion of stock.
GM is making a lot of progress, but not enough to counter some industry/economy/financial headwinds.
11/13/07
A few days ago, a friend asked me what I thought of GM. I wrote the following reply. I realized later that it has been months since I have discussed the car business, formerly a regular feature of my blog, in the IP.
So here are my current thoughts on GM, as related to my buddy a few days ago:
11/9/07
No, I don’t like GM here. In fact, I just closed a put position yesterday at an enormous profit. I closed it not because I am enthusiastic about GM now, but only because I found it prudent to take a profit. I've hurt myself too many times in the past being a pig.
Why not GM?
--If we reach 16mm light vehicle sales in the U.S. this year, that will be a lot. That will make it very tough to make money in the car business.
--GM didn't get enough on the Jobs Bank in the new contract. They are coming at the problem in a different way; i.e., by reducing head count, but labor remains a fixed cost and thus there is too much incentive to overproduction, the bane of the Big 3. If GM can really limit production of the Enclave/Acadia/Outlook, I'll be impressed. But I'm not betting they will be able to do so.
--More problems will arise at ResCap.
--More auto credit problems will arise at GMAC.
--I hate the stock market, and the economy here.
--The mortgage problems, as I have said on my blog months ago, are not limited to sub-prime loans. Home equity loans have been a huge source of car financing, and that spigot has been shut. This will especially hurt GM in its expensive and big profit SUVs and Caddies.
All that having been said, when things shake out in the economy (a couple years), and I am looking for a car company to buy, GM will be near the top of the list, right after F. (I love the article in the WSJ today saying "no one" anticipated F's being closer to profitability than GM. Apparently, I am nobody. See my old IWCs, and note that I held onto a piece of F when I dumped GM at about $31 way back when. But I digress.) Product is very good. The contract, other than the Jobs Bank problem, was a good one. Its best feature may have been aligning the interests of the UAW with those of GM by putting so much stock in the VEBA. F, by the way, was able to fund its VEBA with an even greater proportion of stock.
GM is making a lot of progress, but not enough to counter some industry/economy/financial headwinds.
Sunday, November 11, 2007
SHORT AMERICA!
11/7/07
This is an excerpted (and slightly enhanced) note I sent to a good friend in response to his inquiries and FASB 157 and my outlook on the market and on things in general:
11/11/07
I know very little about FASB 157, other than that it's going to cause a lot of write-downs and mandate a lot of transparency in areas that he financial guys would rather leave opaque. I just wonder how these guys are going to come up with defensible values, especially for Level 3 assets. I would suppose the FASB would look askance at marking to model.
People have forgotten how bad bear markets, and recessions, can be. I saw an older guy at a party last night who swears by Bob Brinker, and Brinker says things are going to be just fine, that we still have plenty of upside. The guy told me he's sticking with Brinker and staying just about fully invested; he's in his late 60s. I told him that, despite Brinker's phenomenal record, there's a first time for everything. I just don't press things any more. People can ask for my advice, I give them my opinion, and leave it at that. There isn't any percentage in doing any more.
It seems like all the "experts" are telling us the same old story, that everything will be fine in the long run, that you just "have to be in stocks for the long run." I, on the other hand, simply don't believe in this country any more, its corporate leaders, its financial leaders, its political leaders, and, most sadly, its people. Further, even if we had all the best people in the right places, we have a lot of years of profligacy and decadent overspending to work our way out of, and it's going to be a long, hard slog. As a people, I don't think we have the heart for it any more. So after the coming crash, when I am going to look to put some money back in the equity markets, I am going to be heavily invested overseas. As an American who loves his country, or at least loves what his country once was, it's hard to say that. But we've become a nation of mind-addled, consumption driven, irresponsible nihilists. Those in charge are there not because they have transcended the rot that has permeated our society, but because they have abetted it. There's no future in that.
I know the old expression: don't sell America short. It's practically a sacrilege to say this, but I think it's well past time to get very short this once great country. The role we play on the world economic stage, that of consumer of first, last, and always resort, whose chief industries are financial services (i.e., figuring out a way to get other people to pay our bills) and entertainment (i.e., poisoning everyone else’s culture with the jejune excerebrosity we call movies and television) can easily be filled by just about anyone else with a surfeit of pomposity, a shortage of shame, and an ample bankroll, built up by the thrift, virtue, and wisdom of our ancestors, to squander on stultifying self-indulgence. It’s over for this once greatest of all nations, and we have no one but ourselves to blame.
This is an excerpted (and slightly enhanced) note I sent to a good friend in response to his inquiries and FASB 157 and my outlook on the market and on things in general:
11/11/07
I know very little about FASB 157, other than that it's going to cause a lot of write-downs and mandate a lot of transparency in areas that he financial guys would rather leave opaque. I just wonder how these guys are going to come up with defensible values, especially for Level 3 assets. I would suppose the FASB would look askance at marking to model.
People have forgotten how bad bear markets, and recessions, can be. I saw an older guy at a party last night who swears by Bob Brinker, and Brinker says things are going to be just fine, that we still have plenty of upside. The guy told me he's sticking with Brinker and staying just about fully invested; he's in his late 60s. I told him that, despite Brinker's phenomenal record, there's a first time for everything. I just don't press things any more. People can ask for my advice, I give them my opinion, and leave it at that. There isn't any percentage in doing any more.
It seems like all the "experts" are telling us the same old story, that everything will be fine in the long run, that you just "have to be in stocks for the long run." I, on the other hand, simply don't believe in this country any more, its corporate leaders, its financial leaders, its political leaders, and, most sadly, its people. Further, even if we had all the best people in the right places, we have a lot of years of profligacy and decadent overspending to work our way out of, and it's going to be a long, hard slog. As a people, I don't think we have the heart for it any more. So after the coming crash, when I am going to look to put some money back in the equity markets, I am going to be heavily invested overseas. As an American who loves his country, or at least loves what his country once was, it's hard to say that. But we've become a nation of mind-addled, consumption driven, irresponsible nihilists. Those in charge are there not because they have transcended the rot that has permeated our society, but because they have abetted it. There's no future in that.
I know the old expression: don't sell America short. It's practically a sacrilege to say this, but I think it's well past time to get very short this once great country. The role we play on the world economic stage, that of consumer of first, last, and always resort, whose chief industries are financial services (i.e., figuring out a way to get other people to pay our bills) and entertainment (i.e., poisoning everyone else’s culture with the jejune excerebrosity we call movies and television) can easily be filled by just about anyone else with a surfeit of pomposity, a shortage of shame, and an ample bankroll, built up by the thrift, virtue, and wisdom of our ancestors, to squander on stultifying self-indulgence. It’s over for this once greatest of all nations, and we have no one but ourselves to blame.
Saturday, November 10, 2007
NO ONE (?) SAW THIS ONE COMING
11/10/07
Today’s Wall Street Journal contained reports on third quarter losses at Fannie Mae (page A2) and at Wachovia (page A3). Both institutions, obviously, attribute most of their problems to “unforeseen” bogeymen.
Fannie, the Journal reports, had modest holdings of sub-prime loans. However, the Journal goes on to report
“While defaults on subprime loans, those to people with weak credit records, are soaring, delayed payments and foreclosures on prime loans also have started to rise from the unusually low levels of recent years.”
Wachovia, the Journal reports, attributed much of its latest write down to deterioration in the value of “super senior” CDOs. (Note here that the seniority of tranches in a CDO has little or nothing to do with the credit quality of the collateral in that CDO, lest anyone think I am trying to equate the “sudden, unexpected” super senior problem with the “sudden, unexpected” deterioration in prime loans. But the deterioration of both super senior CDOs and prime loans are obviously part of the same problem.) The Journal then goes on to quote Amy Brinkley, Bank of America’s chief risk officer, as saying
“There are some aspects of what are (sic) going on that we fully expected in terms of correction (sic). But I don’t know that anyone expected the degree to which liquidity would lock up.”
No one expected this? Well, we all know what Ms. Brinkley and her fellow highly paid Wall Streeters weren’t reading. Below are citations from the Insightful Pontificator from earlier, in one case much earlier, in the year:
3/14/07
(from a note I sent to a friend with whom I share ideas in response to a post in a newsletter he receives):
As you might guess, I don’t share the writer’s sanguinity. As I say in the body of this letter, wait until the market discovers (It will, of course, be shocked to learn this because “nobody” could have foreseen such a development.) that the problems in our nation’s mortgage portfolio are not limited to SUB-PRIME mortgages.
We have only begun to see the difficulties that permeate our “don’t worry, be happy” financial system.
Yeah, the model portfolios outperformed a lousy market, which is cold consolation. I understand relative performance; I made my living on it back when I almost was somebody and even now use it as an excuse when people with whom I work don't do as well as they expected, but it makes little sense to the average person. I had a great day yesterday, owing to my put positions, my short positions, and my TIPs positions. Making money, and not losing money, is what matters to most people.
I'll be interested to see how this guy contorts himself as the crap REALLY hits the fan with this market. Wait 'til the market finds out (I can predict what the "experts" will say: "No one could have seen this coming." Well, someone did, and now you know who.) that it is not only sub-prime mortgages that are a problem, but that the "high quality" paper isn't as high quality as the deep thinkers supposed. Meanwhile, it looks like we MIGHT get a day's reprieve today.
8/19/07
Like anyone else, I could be wrong here, but this problem appears to be far from over. As I said in my 3/14/07 post, wait until it becomes apparent to the financial wunderkinds who have seized control of our economy that this problem is by no means limited to sub-prime mortgages. The truly exotic mortgage products (the interest only loans, negative amortization loans, etc.) were almost exclusively prime, or at least Alt-A, loans. Look around your neighborhood and at your neighbors’ spending habits and tell me with assurance that all these loans are just fine. And if the Fed continues to do the wrong thing, attempting to continue the decades long practice of socializing the risk while privatizing the profits, things could get worse…a LOT worse.
No one indeed. Well, at least no one outside the myopic club of financial insiders.
Today’s Wall Street Journal contained reports on third quarter losses at Fannie Mae (page A2) and at Wachovia (page A3). Both institutions, obviously, attribute most of their problems to “unforeseen” bogeymen.
Fannie, the Journal reports, had modest holdings of sub-prime loans. However, the Journal goes on to report
“While defaults on subprime loans, those to people with weak credit records, are soaring, delayed payments and foreclosures on prime loans also have started to rise from the unusually low levels of recent years.”
Wachovia, the Journal reports, attributed much of its latest write down to deterioration in the value of “super senior” CDOs. (Note here that the seniority of tranches in a CDO has little or nothing to do with the credit quality of the collateral in that CDO, lest anyone think I am trying to equate the “sudden, unexpected” super senior problem with the “sudden, unexpected” deterioration in prime loans. But the deterioration of both super senior CDOs and prime loans are obviously part of the same problem.) The Journal then goes on to quote Amy Brinkley, Bank of America’s chief risk officer, as saying
“There are some aspects of what are (sic) going on that we fully expected in terms of correction (sic). But I don’t know that anyone expected the degree to which liquidity would lock up.”
No one expected this? Well, we all know what Ms. Brinkley and her fellow highly paid Wall Streeters weren’t reading. Below are citations from the Insightful Pontificator from earlier, in one case much earlier, in the year:
3/14/07
(from a note I sent to a friend with whom I share ideas in response to a post in a newsletter he receives):
As you might guess, I don’t share the writer’s sanguinity. As I say in the body of this letter, wait until the market discovers (It will, of course, be shocked to learn this because “nobody” could have foreseen such a development.) that the problems in our nation’s mortgage portfolio are not limited to SUB-PRIME mortgages.
We have only begun to see the difficulties that permeate our “don’t worry, be happy” financial system.
Yeah, the model portfolios outperformed a lousy market, which is cold consolation. I understand relative performance; I made my living on it back when I almost was somebody and even now use it as an excuse when people with whom I work don't do as well as they expected, but it makes little sense to the average person. I had a great day yesterday, owing to my put positions, my short positions, and my TIPs positions. Making money, and not losing money, is what matters to most people.
I'll be interested to see how this guy contorts himself as the crap REALLY hits the fan with this market. Wait 'til the market finds out (I can predict what the "experts" will say: "No one could have seen this coming." Well, someone did, and now you know who.) that it is not only sub-prime mortgages that are a problem, but that the "high quality" paper isn't as high quality as the deep thinkers supposed. Meanwhile, it looks like we MIGHT get a day's reprieve today.
8/19/07
Like anyone else, I could be wrong here, but this problem appears to be far from over. As I said in my 3/14/07 post, wait until it becomes apparent to the financial wunderkinds who have seized control of our economy that this problem is by no means limited to sub-prime mortgages. The truly exotic mortgage products (the interest only loans, negative amortization loans, etc.) were almost exclusively prime, or at least Alt-A, loans. Look around your neighborhood and at your neighbors’ spending habits and tell me with assurance that all these loans are just fine. And if the Fed continues to do the wrong thing, attempting to continue the decades long practice of socializing the risk while privatizing the profits, things could get worse…a LOT worse.
No one indeed. Well, at least no one outside the myopic club of financial insiders.
Friday, November 9, 2007
THESE POOR PEOPLE NEED OUR HELP!!!
11/9/07
So Ben the Nursemaid of Wall Street is not satisfied providing ample supplies of mother’s milk to his tough guy sucklings in the form of ample credit. Yesterday, he proposed, get this, having the federal government (for a fee—a market based fee, I’m sure) guarantee mortgages of up to $1mm (One million dollars!!!) so that those mortgages can be packaged into securities (by Fannie and Freddie) and sold to investors. Why? Because Fannie and Freddie are currently not allowed to buy and package mortgages over $417,000.
So…
We as taxpayers are supposed to guarantee mortgages of up to $1mm. It seems that those who are (or were) wealthy enough to qualify for $1mm mortgages somehow were misled, planned poorly, or otherwise miscalculated, turning these mortgages into toxic waste. (Those of you who continue to argue that we still live in a free market society in which people generate wealth and make money because they are smart and work hard, not because they are in “the club” or are able to hornswoggle an increasingly bewildered and idiotic consuming and voting public, please explain this to me. Oh, I get it…these masters of the universe were misled by slick mortgage “consultants”…yeah, that’s the ticket! It’s the salesman’s fault! Why, these “affluent homeowners” are mere innocents, putty in the hands of slick salesmen (who were selling shoes, or fast food, a week before becoming mortgage “consultants”)! But I digress.) The Wall Street types who bought the paper backing the mortgages (and who laughingly dismissed the warnings of us alarmist types “Ha! These aren’t sub-prime loans; these are loans to the good people, the wealthy people, the people who make America work! And, with the bustling economy, they can’t miss!!! Ha! Ha! Ha!” But I digress again.) are seeing (sniff!) losses from their bad positions. So Ben must ride to the rescue!!! After all, his job is to protect the Masters of the Universe, who make our economy work.
But of course we as taxpayers will be getting a fee. And if the borrowers default, we will be able to seize the collateral. So the taxpayers are fine, right? But if this were such a good deal, why is a government guarantee necessary? If the collateral is so good, why aren’t traders, distressed or otherwise, all over these troubled loans? Oh, I forgot. The distressed guys will only do a deal with a backstop. As Zay N. Smith (“QT” in the Chicago Sun-Times) might say, add “distressed investing” to the list of things that isn’t what it used to be. The Bernanke “plan” is a subsidy both to wealthy (and overextended) homeowners and to the “bold and swashbuckling” traders who got caught in increasingly malodorous positions and are now scrambling to hide behind Mother Ben’s apron.
Further, let us assume this scheme passes a financially and economically illiterate Congress. The federal government (i.e., you and I) end up guaranteeing $1mm mortgage loans. Borrowers default. The government honors its guarantee and assumes the mortgages (properly understood, i.e., the security interests in the homes). Does anyone think that the government will be able to foreclose? Can you imagine the pressure on the government to renegotiate with “troubled homeowners” (with $1mm mortgages)?
The Democrats, of course, think this is a fine idea. Chucky Schumer says he will introduce a bill incorporating Breanne’s suggestion very soon. “I think it’s a good idea,” Chucky said. Rep. Caroline Maloney, a Democrat from that bastion of poverty, Long Island, who chairs the relevant subcommittee in the House, is also hopping on this bandwagon. So the next time the Democrats tell you they are the party of the working person, throw this back in their face. They are at least as meretricious as the Republicans, looking for any excuse to expand government and mollify anyone who can write a check for a “campaign contribution.”
So Ben the Nursemaid of Wall Street is not satisfied providing ample supplies of mother’s milk to his tough guy sucklings in the form of ample credit. Yesterday, he proposed, get this, having the federal government (for a fee—a market based fee, I’m sure) guarantee mortgages of up to $1mm (One million dollars!!!) so that those mortgages can be packaged into securities (by Fannie and Freddie) and sold to investors. Why? Because Fannie and Freddie are currently not allowed to buy and package mortgages over $417,000.
So…
We as taxpayers are supposed to guarantee mortgages of up to $1mm. It seems that those who are (or were) wealthy enough to qualify for $1mm mortgages somehow were misled, planned poorly, or otherwise miscalculated, turning these mortgages into toxic waste. (Those of you who continue to argue that we still live in a free market society in which people generate wealth and make money because they are smart and work hard, not because they are in “the club” or are able to hornswoggle an increasingly bewildered and idiotic consuming and voting public, please explain this to me. Oh, I get it…these masters of the universe were misled by slick mortgage “consultants”…yeah, that’s the ticket! It’s the salesman’s fault! Why, these “affluent homeowners” are mere innocents, putty in the hands of slick salesmen (who were selling shoes, or fast food, a week before becoming mortgage “consultants”)! But I digress.) The Wall Street types who bought the paper backing the mortgages (and who laughingly dismissed the warnings of us alarmist types “Ha! These aren’t sub-prime loans; these are loans to the good people, the wealthy people, the people who make America work! And, with the bustling economy, they can’t miss!!! Ha! Ha! Ha!” But I digress again.) are seeing (sniff!) losses from their bad positions. So Ben must ride to the rescue!!! After all, his job is to protect the Masters of the Universe, who make our economy work.
But of course we as taxpayers will be getting a fee. And if the borrowers default, we will be able to seize the collateral. So the taxpayers are fine, right? But if this were such a good deal, why is a government guarantee necessary? If the collateral is so good, why aren’t traders, distressed or otherwise, all over these troubled loans? Oh, I forgot. The distressed guys will only do a deal with a backstop. As Zay N. Smith (“QT” in the Chicago Sun-Times) might say, add “distressed investing” to the list of things that isn’t what it used to be. The Bernanke “plan” is a subsidy both to wealthy (and overextended) homeowners and to the “bold and swashbuckling” traders who got caught in increasingly malodorous positions and are now scrambling to hide behind Mother Ben’s apron.
Further, let us assume this scheme passes a financially and economically illiterate Congress. The federal government (i.e., you and I) end up guaranteeing $1mm mortgage loans. Borrowers default. The government honors its guarantee and assumes the mortgages (properly understood, i.e., the security interests in the homes). Does anyone think that the government will be able to foreclose? Can you imagine the pressure on the government to renegotiate with “troubled homeowners” (with $1mm mortgages)?
The Democrats, of course, think this is a fine idea. Chucky Schumer says he will introduce a bill incorporating Breanne’s suggestion very soon. “I think it’s a good idea,” Chucky said. Rep. Caroline Maloney, a Democrat from that bastion of poverty, Long Island, who chairs the relevant subcommittee in the House, is also hopping on this bandwagon. So the next time the Democrats tell you they are the party of the working person, throw this back in their face. They are at least as meretricious as the Republicans, looking for any excuse to expand government and mollify anyone who can write a check for a “campaign contribution.”
Thursday, November 8, 2007
AN EVER VIGILANT CENTRAL BANK
11/8/07
While reading the otherwise decent page A1 article in today’s Wall Street Journal concerning the sources and origins of yesterday’s (i.e., 11/7’s) stock market debacle, I ran across a curious sentence:
“Central banks are acutely aware of the danger posed by inflation, and declare their readiness to move quickly to combat it.”
Huh? Perhaps this argument could be made of the ECB, or even the BOJ, but the Fed? Lately, every time the legion of stentorian mouthpieces for Wall Street that inhabit our financial media begin to wail that the tough guy traders are suffering so much as a hangnail (These are the same bold free marketeers that tell the blue collar guys (but never to their faces) who lose their jobs to globalization that they ought to suck it up; it’s the wondrous “free market” at work. Besides, these seven and eight figure wise men tell us, the working types deserve it because they are asking too much money for their 8-12 hours of back breaking labor per day. They ought to learn to do something more productive, like putting on ill-advised positions that cripple major financial institutions. But I digress.), the Bernanke Fed has stood ready to provide generous succor in the form of an endless supply of credit in order to “stabilize the markets.”
The Bernanke Fed says it is sensitive to the dangers posed by incipient inflation and a falling dollar. But, by what it does, it demonstrates that it is far more sensitive to the human suffering that will result from Wall Street bigwigs’ having to suffer the ignominy of losing their jobs with seven or eight figure exit packages due to their boneheaded trades, which suddenly have become the responsibility of all of us. Think of the fallout! What, by God, will happen to sales at Neiman Marcus, Tiffany’s, and Mikimoto? We have to act!
The Fed (and the “free market” Republican administration) sees its job as follows: Socialize the risk, privatize the profit, and prop up the wise men who “make our economy work.” Let the working stiff deal with the rising prices of food and gasoline (They don’t count anyway.) and the consequences for the economy of the games Wall Street plays.
And people wonder why the markets, our economy, and our society are in trouble.
While reading the otherwise decent page A1 article in today’s Wall Street Journal concerning the sources and origins of yesterday’s (i.e., 11/7’s) stock market debacle, I ran across a curious sentence:
“Central banks are acutely aware of the danger posed by inflation, and declare their readiness to move quickly to combat it.”
Huh? Perhaps this argument could be made of the ECB, or even the BOJ, but the Fed? Lately, every time the legion of stentorian mouthpieces for Wall Street that inhabit our financial media begin to wail that the tough guy traders are suffering so much as a hangnail (These are the same bold free marketeers that tell the blue collar guys (but never to their faces) who lose their jobs to globalization that they ought to suck it up; it’s the wondrous “free market” at work. Besides, these seven and eight figure wise men tell us, the working types deserve it because they are asking too much money for their 8-12 hours of back breaking labor per day. They ought to learn to do something more productive, like putting on ill-advised positions that cripple major financial institutions. But I digress.), the Bernanke Fed has stood ready to provide generous succor in the form of an endless supply of credit in order to “stabilize the markets.”
The Bernanke Fed says it is sensitive to the dangers posed by incipient inflation and a falling dollar. But, by what it does, it demonstrates that it is far more sensitive to the human suffering that will result from Wall Street bigwigs’ having to suffer the ignominy of losing their jobs with seven or eight figure exit packages due to their boneheaded trades, which suddenly have become the responsibility of all of us. Think of the fallout! What, by God, will happen to sales at Neiman Marcus, Tiffany’s, and Mikimoto? We have to act!
The Fed (and the “free market” Republican administration) sees its job as follows: Socialize the risk, privatize the profit, and prop up the wise men who “make our economy work.” Let the working stiff deal with the rising prices of food and gasoline (They don’t count anyway.) and the consequences for the economy of the games Wall Street plays.
And people wonder why the markets, our economy, and our society are in trouble.
Tuesday, November 6, 2007
DON’T VOTE!!!
11/6/07
Traditionally, the presidential election season would be starting about now, with the first few candidates putting out feelers and testing the waters, trying to decide whether to set up shop in Iowa and New Hampshire. With the “new and improved” professional politics of the last few elections, and especially of the upcoming race, we have been at it for at least a year now. Political junkies exult; normal people with lives to lead grow tired. I digress.
With the expedited Iowa caucuses and New Hampshire primary upon us, and the very high probability that the nominations will be decided by early February, we will soon be hit with the incessant pleas to “Get out and vote!” We should do our “patriotic duty,” our bit for self-government, we are told. But I am telling people not to vote.
Most of the American electorate, or potential electorate, is pathetically ill-equipped to vote intelligently. Most Americans of voting age should not vote. People who spend hours anesthisizing their brains with network prime time television, even network news, which is little more than a treacly amalgam of puff pieces, should stay home on election day. Those who never pick up a newspaper, or never read beyond the sport or “living” sections, should not vote. Those who consider being informed keeping abreast of Brittany Spears’ latest child custody battles should not vote. Those who can’t be bothered to know the names of their U.S. senators, let alone their Congressperson, should not vote. Those who select their candidates based on the likeability of their spouses should not vote.
I liken self-government (not “democracy;” those who think we live in a democracy should not vote) to a household job, say cutting one’s lawn. One can hire someone to do it for him and leave it at that. Or one can elect to do it one’s self, to tune up the mower each year and go out at least weekly and keep the lawn looking good. The former is easy, the latter is hard. The same can be said of self-government. The Founding Fathers decided, and the electorate at the time agreed, that government should be a do-it-yourself proposition. Like any do-it-yourself proposition, self-government involved some work. What was that work? Keeping informed. Following the issues. Knowing something about history and civics. Knowing something about the structure of our government and society and the struggles involved in bringing it about. Self-government involves a lot more than the seemingly backbreaking task of spending fifteen minutes at the voting booth on election day casting one’s ballots for candidates based on the mellifluousness of their names. We could have someone else do it for us; throughout most of history, that is how it has been done, with decidedly mixed results. Our founding fathers, however, thought self-government would be better. Modern Americans have decided that self-government, sans the effort involved, would be the best.
If you are a regular reader of the Insightful Pontificator, you are by definition better informed than at least 90% of the electorate. Even your desire to read such blogs indicates the kind of curiosity that self-government demands. You should vote. But please don’t get caught up in these banausic efforts to get those whose idea of news is Paris Hilton’s efforts to adopt blonde babies in Nigeria or some such vacuous nonsense to vote. Tell those hebetudinous types in your circle of acquaintances to do their bit for the country they take for granted and stay home on election day. Their doing otherwise merely dilutes the votes of those of us who care.
Traditionally, the presidential election season would be starting about now, with the first few candidates putting out feelers and testing the waters, trying to decide whether to set up shop in Iowa and New Hampshire. With the “new and improved” professional politics of the last few elections, and especially of the upcoming race, we have been at it for at least a year now. Political junkies exult; normal people with lives to lead grow tired. I digress.
With the expedited Iowa caucuses and New Hampshire primary upon us, and the very high probability that the nominations will be decided by early February, we will soon be hit with the incessant pleas to “Get out and vote!” We should do our “patriotic duty,” our bit for self-government, we are told. But I am telling people not to vote.
Most of the American electorate, or potential electorate, is pathetically ill-equipped to vote intelligently. Most Americans of voting age should not vote. People who spend hours anesthisizing their brains with network prime time television, even network news, which is little more than a treacly amalgam of puff pieces, should stay home on election day. Those who never pick up a newspaper, or never read beyond the sport or “living” sections, should not vote. Those who consider being informed keeping abreast of Brittany Spears’ latest child custody battles should not vote. Those who can’t be bothered to know the names of their U.S. senators, let alone their Congressperson, should not vote. Those who select their candidates based on the likeability of their spouses should not vote.
I liken self-government (not “democracy;” those who think we live in a democracy should not vote) to a household job, say cutting one’s lawn. One can hire someone to do it for him and leave it at that. Or one can elect to do it one’s self, to tune up the mower each year and go out at least weekly and keep the lawn looking good. The former is easy, the latter is hard. The same can be said of self-government. The Founding Fathers decided, and the electorate at the time agreed, that government should be a do-it-yourself proposition. Like any do-it-yourself proposition, self-government involved some work. What was that work? Keeping informed. Following the issues. Knowing something about history and civics. Knowing something about the structure of our government and society and the struggles involved in bringing it about. Self-government involves a lot more than the seemingly backbreaking task of spending fifteen minutes at the voting booth on election day casting one’s ballots for candidates based on the mellifluousness of their names. We could have someone else do it for us; throughout most of history, that is how it has been done, with decidedly mixed results. Our founding fathers, however, thought self-government would be better. Modern Americans have decided that self-government, sans the effort involved, would be the best.
If you are a regular reader of the Insightful Pontificator, you are by definition better informed than at least 90% of the electorate. Even your desire to read such blogs indicates the kind of curiosity that self-government demands. You should vote. But please don’t get caught up in these banausic efforts to get those whose idea of news is Paris Hilton’s efforts to adopt blonde babies in Nigeria or some such vacuous nonsense to vote. Tell those hebetudinous types in your circle of acquaintances to do their bit for the country they take for granted and stay home on election day. Their doing otherwise merely dilutes the votes of those of us who care.
Wednesday, October 31, 2007
AND ANOTHER THING…
10/31/07 (After the cuts)
This is just what we need at this crucial juncture for our economy…a Fed Chairman who judges his performance by the volume of the cheers emanating from Wall Street.
This is just what we need at this crucial juncture for our economy…a Fed Chairman who judges his performance by the volume of the cheers emanating from Wall Street.
MOTHER BEN
10/31/07—After the fed funds and discount rates were reduced 25 basis points.
Well, it’s official, folks….
We have a Bernanke put!
We have a WPA for Wall Street!
No hedge fund manager will be left behind!
No trading desk can miss!
No asinine financial decision will go unpardoned!
No one on Wall Street need sleep fitfully!
No more singing “Brother can you spare me a billion?”!
No more need to assess risks and exercise prudence!
No reason to avoid taking the most outrageous risks—the rewards are officially privatized and the risks are officially socialized!
Sleep well, Wall Street—your Mother Ben has gathered you under his wings. After all, he can’t bear to see his children experience any degree of discomfort. Why, you are the financial titans, the rugged American individualists on whom our economy depends! And Mommy is never far away!
So, no need to worry, Wall Street wise men…
…until the fox comes along. Then you have to start worrying. But, what the hell, Mother Ben can always…voila…CUT RATES!!!
But what will you do when that doesn’t work any more? Then there will be even more hell to pay, no?
Aw, stop being such a killjoy! Eat, drink, and be merry, for tomorrow we shall die.
Well, it’s official, folks….
We have a Bernanke put!
We have a WPA for Wall Street!
No hedge fund manager will be left behind!
No trading desk can miss!
No asinine financial decision will go unpardoned!
No one on Wall Street need sleep fitfully!
No more singing “Brother can you spare me a billion?”!
No more need to assess risks and exercise prudence!
No reason to avoid taking the most outrageous risks—the rewards are officially privatized and the risks are officially socialized!
Sleep well, Wall Street—your Mother Ben has gathered you under his wings. After all, he can’t bear to see his children experience any degree of discomfort. Why, you are the financial titans, the rugged American individualists on whom our economy depends! And Mommy is never far away!
So, no need to worry, Wall Street wise men…
…until the fox comes along. Then you have to start worrying. But, what the hell, Mother Ben can always…voila…CUT RATES!!!
But what will you do when that doesn’t work any more? Then there will be even more hell to pay, no?
Aw, stop being such a killjoy! Eat, drink, and be merry, for tomorrow we shall die.
Tuesday, October 30, 2007
“IT’S OVER…OVER..”
10/30/07
Maybe Stan O’Neal didn’t blow up Merrill Lynch. Maybe he merely didn’t do his job while the kids on the trading desk lost Merrill $7.9 billion, at last count. So what does Merrill’s ever vigilant Board do? Fires O’Neal. Good. Then what does it do? Negotiates an exit (not severance…no, no, no) package for the bumbling (at best) Mr. O’Neal that could total $160 million!!!
Okay, some of that consoling going away present is the result of restricted stock and stock options (the most lucrative of which, by the way, were conveniently dated 9/24/01). But, still, $160 million? For going ahead with major merger negotiations without the consent of the Board, as if the firm were called “Stan O’Neal” rather than “Merrill Lynch,” and crippling, or conniving while others crippled, a venerable U.S. business icon? It is not a question of whether, but rather when, the Merrill Board had taken leave of its senses.
This post is not designed so much to lambaste Merrill. I’m not a Merrill shareholder, and if the Merrill board wants to betray its shareholders and make a laughingstock out of itself, that is the problem of the Merrill shareholders. I bring up the case of Mr. O’Neal to point out that this is yet another example of how far we have strayed from the free enterprise system that made this country the economic juggernaut it once was.
Free enterprise, you see, includes the possibility of failure. This tempers wild risk taking and counsels prudence. Not excessive prudence, but measured risk taking. But now as capitalism is being replaced with corporatism, there is no accountability. There is no price to pay for failure. There is no reckoning for taking wild hindquartered risks with other people’s money. There is no way to lose once one finds himself in the corporate club.
This used to be a country of innovators and people who took risks fully mindful that there would be a price to be paid for failure and willing to pay that price in order to get rich. It also used to be composed of people with morals and principles, people who could think, read, and reason. Now we have an economy run by corporate titans who know nothing of personal risk, who are already rich and seek only to get richer by gambling with other people’s money, and have no sense of accountability. Capitalism, free markets, and accountability are being replaced with corporatism, tilted playing fields, and buck-passing. Meanwhile, the citizenry laughs and consoles itself with tacky trinkets, cotton candy for the mind, and endless self-congratulation. It injects its collective brain and soul with healthy doses of novocain while indulging in one of the classic definitions of decadence: spending money it doesn’t have on things it doesn’t need, that, indeed, contain the seeds of its destruction. The citizenry is thoroughly anesthetized while being sodomized by the forces that are steering our economy and society toward ruin.
It is indeed over. This is a hopelessly decadent society and economy living through its final death throes. The good news is that Marcus Tullius Cicero, one of the Pontificator’s idols, warned of the decadence of Roman society even before the Republic was thrown over the side for the Empire. It took almost another 500 years for Rome to rot from within. Further, the last 100 or so years of this decay were, by and large, thoroughly enjoyable. Squandering the stored up treasures of one’s forbearers can be quite pleasurable for those doing the squandering, provided they have no sense of history, no sense of responsibility, no principles, no consciences, and no genuine concern for the generations that will follow. So the present American society may be in for a hundred year party. Whoopee!!! Or not. Things move much more quickly than they did 2000 years ago.
Maybe Stan O’Neal didn’t blow up Merrill Lynch. Maybe he merely didn’t do his job while the kids on the trading desk lost Merrill $7.9 billion, at last count. So what does Merrill’s ever vigilant Board do? Fires O’Neal. Good. Then what does it do? Negotiates an exit (not severance…no, no, no) package for the bumbling (at best) Mr. O’Neal that could total $160 million!!!
Okay, some of that consoling going away present is the result of restricted stock and stock options (the most lucrative of which, by the way, were conveniently dated 9/24/01). But, still, $160 million? For going ahead with major merger negotiations without the consent of the Board, as if the firm were called “Stan O’Neal” rather than “Merrill Lynch,” and crippling, or conniving while others crippled, a venerable U.S. business icon? It is not a question of whether, but rather when, the Merrill Board had taken leave of its senses.
This post is not designed so much to lambaste Merrill. I’m not a Merrill shareholder, and if the Merrill board wants to betray its shareholders and make a laughingstock out of itself, that is the problem of the Merrill shareholders. I bring up the case of Mr. O’Neal to point out that this is yet another example of how far we have strayed from the free enterprise system that made this country the economic juggernaut it once was.
Free enterprise, you see, includes the possibility of failure. This tempers wild risk taking and counsels prudence. Not excessive prudence, but measured risk taking. But now as capitalism is being replaced with corporatism, there is no accountability. There is no price to pay for failure. There is no reckoning for taking wild hindquartered risks with other people’s money. There is no way to lose once one finds himself in the corporate club.
This used to be a country of innovators and people who took risks fully mindful that there would be a price to be paid for failure and willing to pay that price in order to get rich. It also used to be composed of people with morals and principles, people who could think, read, and reason. Now we have an economy run by corporate titans who know nothing of personal risk, who are already rich and seek only to get richer by gambling with other people’s money, and have no sense of accountability. Capitalism, free markets, and accountability are being replaced with corporatism, tilted playing fields, and buck-passing. Meanwhile, the citizenry laughs and consoles itself with tacky trinkets, cotton candy for the mind, and endless self-congratulation. It injects its collective brain and soul with healthy doses of novocain while indulging in one of the classic definitions of decadence: spending money it doesn’t have on things it doesn’t need, that, indeed, contain the seeds of its destruction. The citizenry is thoroughly anesthetized while being sodomized by the forces that are steering our economy and society toward ruin.
It is indeed over. This is a hopelessly decadent society and economy living through its final death throes. The good news is that Marcus Tullius Cicero, one of the Pontificator’s idols, warned of the decadence of Roman society even before the Republic was thrown over the side for the Empire. It took almost another 500 years for Rome to rot from within. Further, the last 100 or so years of this decay were, by and large, thoroughly enjoyable. Squandering the stored up treasures of one’s forbearers can be quite pleasurable for those doing the squandering, provided they have no sense of history, no sense of responsibility, no principles, no consciences, and no genuine concern for the generations that will follow. So the present American society may be in for a hundred year party. Whoopee!!! Or not. Things move much more quickly than they did 2000 years ago.
THE STREET VS. THE VOLCANO
10/30/07
At Mass this morning, the Gospel included the parable of the mustard seed. Jesus started the parable by asking “To what shall I liken the kingdom of heaven?” My mind was wandering, as it too often does, during the Gospel, and, at the risk of sounding profane or sacrilegious, I conjured up a similar parable for our economy.
To what shall I liken our economy and our stock market? It is like small children playing on the side of the volcano, pointing out the beauty of the surrounding plants and trees while dismissing as a mere inconvenience the massive lava cap that is about to explode and rain destruction upon them. We get a good earnings report here, a favorable economic statistic there, and, most delightful to the economic experts, a Fed “rate cut” now and then, and the pundits and cheerleaders declare everything is fine. They don’t ignore the debt problem; they see it. But they opine that the underlying economy is strong enough, as evidenced by a scattered healthy earnings or economic report, to withstand a temporary credit setback. Soon the lava will come cascading down the side of the mountain and engulf them, and these notables will never know what hit them.
One of the arguments that we often hear is that the job market and wage growth are fine, or at least decent, so the consumer should be in good shape even if he can’t “tap the equity” in his home due to a complete absence of equity in his home. What those who make this argument are missing is that this economy, the whole worldwide economic shell game, really, has only been sustained because the American consumer has been able to spend well beyond his pay check. If the consumer is forced to spend within his means, even if those means are as healthy as some claim, the whole system gets gummed up. If he is forced to actually service his debt with his paycheck, the whole system collapses. In fact, that the world economy has depended for years on Americans’ living well beyond their means shows how overextended the typical American is. The bills are starting to come due. Further, as I have said in the past, this isn’t a “sub-prime” problem. Angelo Mozilo, Chairman of Countrywide Credit, admitted last week what the Pontificator was telling you months ago: the problem has reached into the prime mortgage market. But this debt problem isn’t only a mortgage problem. Levels of all forms of consumer debt have reached astronomical heights. And it isn’t only a consumer debt problem. Corporate balance sheets, for years bastions of sanity in an otherwise debt-crazed world, are becoming increasingly saddled with debt for stock buybacks and leveraged buyouts. And it isn’t even a private sector problem. After seven years of George Bush and a (until 2006) Republican Congress with all the fiscal restraint of Juan Peron, federal debt is virtually incalculable.
Another argument we hear from the experts is that the debt level is manageable, and therefore the economy and stocks should do fine, because household balance sheets are in good shape. But household balance sheets are in good shape only because cheap debt has enabled investors to grossly inflate the prices of stocks and (until recently, and, in historical context, even now) houses. So this argument is tantamount to saying that the debt level is manageable because we have created so much debt, and that stock prices should be fine because they are so high. This is much like the argument that the same experts used to make (but now have somehow forgotten they ever made) that house prices should remain healthy because they were so high. After all, homeowners’ balance sheets were in fine shape!
A third argument with which the experts comfort themselves is that the economy might be “slow” over here, but that things are going gangbusters overseas. But these are the same guys who trumpet the interconnectedness of the world economy. Can’t they see that the health of the world economy depends on the inebriated mariner spending habits of the American consumer? Eventually, when the emerging nations develop a larger middle class that can sustain growing production levels in developing countries, the American consumer will no longer be as vital a cog in the world economy. But such developments will involve a long and traumatic adjustment period, and, when they are completed, what will America have to bring to the table? That is a long run horror, though. Sufficient for today is today’s horror.
Back in 1988, Lloyd Bentsen, Texas senator and Democratic candidate for Vice-President, uttered a famous line in his debate with his Republican rival, Indiana Senator Dan Quayle. I am not referring to the “…you’re no John Kennedy” line, but rather to Bentsen’s reply to Quayle’s trumpeting the success of the “Reagan” economy (as if any politician can claim credit for the success of the economy; note Bill Clinton’s frequently repeated canard “I (sometimes we) created (some outrageously high number) jobs.” The private sector, not the bloodsucking leaches in Washington, creates jobs, but that is another matter.) that he (Bentsen) could have created such a great economy, too, “if I could write hundreds of billions of dollars of hot checks.” That particular gem from Senator Bentsen, who was given to such gems, was quickly overshadowed by the Kennedy comment and soon forgotten. However, it resonates today. We have written trillions of dollars of hot checks, and the world is growing more hesitant about taking our post-dated rubber. The day of reckoning is upon us.
At Mass this morning, the Gospel included the parable of the mustard seed. Jesus started the parable by asking “To what shall I liken the kingdom of heaven?” My mind was wandering, as it too often does, during the Gospel, and, at the risk of sounding profane or sacrilegious, I conjured up a similar parable for our economy.
To what shall I liken our economy and our stock market? It is like small children playing on the side of the volcano, pointing out the beauty of the surrounding plants and trees while dismissing as a mere inconvenience the massive lava cap that is about to explode and rain destruction upon them. We get a good earnings report here, a favorable economic statistic there, and, most delightful to the economic experts, a Fed “rate cut” now and then, and the pundits and cheerleaders declare everything is fine. They don’t ignore the debt problem; they see it. But they opine that the underlying economy is strong enough, as evidenced by a scattered healthy earnings or economic report, to withstand a temporary credit setback. Soon the lava will come cascading down the side of the mountain and engulf them, and these notables will never know what hit them.
One of the arguments that we often hear is that the job market and wage growth are fine, or at least decent, so the consumer should be in good shape even if he can’t “tap the equity” in his home due to a complete absence of equity in his home. What those who make this argument are missing is that this economy, the whole worldwide economic shell game, really, has only been sustained because the American consumer has been able to spend well beyond his pay check. If the consumer is forced to spend within his means, even if those means are as healthy as some claim, the whole system gets gummed up. If he is forced to actually service his debt with his paycheck, the whole system collapses. In fact, that the world economy has depended for years on Americans’ living well beyond their means shows how overextended the typical American is. The bills are starting to come due. Further, as I have said in the past, this isn’t a “sub-prime” problem. Angelo Mozilo, Chairman of Countrywide Credit, admitted last week what the Pontificator was telling you months ago: the problem has reached into the prime mortgage market. But this debt problem isn’t only a mortgage problem. Levels of all forms of consumer debt have reached astronomical heights. And it isn’t only a consumer debt problem. Corporate balance sheets, for years bastions of sanity in an otherwise debt-crazed world, are becoming increasingly saddled with debt for stock buybacks and leveraged buyouts. And it isn’t even a private sector problem. After seven years of George Bush and a (until 2006) Republican Congress with all the fiscal restraint of Juan Peron, federal debt is virtually incalculable.
Another argument we hear from the experts is that the debt level is manageable, and therefore the economy and stocks should do fine, because household balance sheets are in good shape. But household balance sheets are in good shape only because cheap debt has enabled investors to grossly inflate the prices of stocks and (until recently, and, in historical context, even now) houses. So this argument is tantamount to saying that the debt level is manageable because we have created so much debt, and that stock prices should be fine because they are so high. This is much like the argument that the same experts used to make (but now have somehow forgotten they ever made) that house prices should remain healthy because they were so high. After all, homeowners’ balance sheets were in fine shape!
A third argument with which the experts comfort themselves is that the economy might be “slow” over here, but that things are going gangbusters overseas. But these are the same guys who trumpet the interconnectedness of the world economy. Can’t they see that the health of the world economy depends on the inebriated mariner spending habits of the American consumer? Eventually, when the emerging nations develop a larger middle class that can sustain growing production levels in developing countries, the American consumer will no longer be as vital a cog in the world economy. But such developments will involve a long and traumatic adjustment period, and, when they are completed, what will America have to bring to the table? That is a long run horror, though. Sufficient for today is today’s horror.
Back in 1988, Lloyd Bentsen, Texas senator and Democratic candidate for Vice-President, uttered a famous line in his debate with his Republican rival, Indiana Senator Dan Quayle. I am not referring to the “…you’re no John Kennedy” line, but rather to Bentsen’s reply to Quayle’s trumpeting the success of the “Reagan” economy (as if any politician can claim credit for the success of the economy; note Bill Clinton’s frequently repeated canard “I (sometimes we) created (some outrageously high number) jobs.” The private sector, not the bloodsucking leaches in Washington, creates jobs, but that is another matter.) that he (Bentsen) could have created such a great economy, too, “if I could write hundreds of billions of dollars of hot checks.” That particular gem from Senator Bentsen, who was given to such gems, was quickly overshadowed by the Kennedy comment and soon forgotten. However, it resonates today. We have written trillions of dollars of hot checks, and the world is growing more hesitant about taking our post-dated rubber. The day of reckoning is upon us.
Thursday, October 18, 2007
Will this man speak of nothing else?
This is a letter I sent to the Wall Street Journal today concerning the (Surprise!) superconduit.
10/18/07
In his 10/18/07 Opinion piece, Peter J. Wallison, expressing support for the “superconduit,” argues that “…without a liquid market for the assets they created, originators of mortgages, credit-card loans and other loan facilities would reduce the availability of credit, raise their rates, or both. The economy might enter a recession.”
Several points merit making:
First, Mr. Wallison presupposes that the superconduit will create a liquid market. It’s easy to agree that liquidity will be created, or at least provided. However, that the superconduit will create a market, in the sense of buyers and sellers freely coming together of their own volition with their own money is a harder argument to make.
Second, the reason that we are in the midst of these difficulties is that credit was too widely available at rates that were too low. Would a reduction in the availability of credit and/or higher rates be such a bad thing? Some might argue that a little more prudence on the credit side would have spared the economy its current travails. As they used to tell recovering alcoholics, it’s never too late to reform.
Third, when did avoiding recession become the chief goal of all monetary and fiscal policy? Some of us are old enough to remember when a recession was a normal part of the business cycle that could be expected every five to ten years. While painful, recessions served to wring excesses and imbalances out of the economy and were a natural mechanism for getting the economy back on its normal growth path. Where did we develop such hubris to think that we can, and should, avoid recession altogether? Such an attitude indeed helped put us in the midst of the difficulties we are now confronting.
Mark Quinn
Naperville, IL
10/18/07
In his 10/18/07 Opinion piece, Peter J. Wallison, expressing support for the “superconduit,” argues that “…without a liquid market for the assets they created, originators of mortgages, credit-card loans and other loan facilities would reduce the availability of credit, raise their rates, or both. The economy might enter a recession.”
Several points merit making:
First, Mr. Wallison presupposes that the superconduit will create a liquid market. It’s easy to agree that liquidity will be created, or at least provided. However, that the superconduit will create a market, in the sense of buyers and sellers freely coming together of their own volition with their own money is a harder argument to make.
Second, the reason that we are in the midst of these difficulties is that credit was too widely available at rates that were too low. Would a reduction in the availability of credit and/or higher rates be such a bad thing? Some might argue that a little more prudence on the credit side would have spared the economy its current travails. As they used to tell recovering alcoholics, it’s never too late to reform.
Third, when did avoiding recession become the chief goal of all monetary and fiscal policy? Some of us are old enough to remember when a recession was a normal part of the business cycle that could be expected every five to ten years. While painful, recessions served to wring excesses and imbalances out of the economy and were a natural mechanism for getting the economy back on its normal growth path. Where did we develop such hubris to think that we can, and should, avoid recession altogether? Such an attitude indeed helped put us in the midst of the difficulties we are now confronting.
Mark Quinn
Naperville, IL
Monday, October 15, 2007
“AND ALL AT NO COST* TO YOU!!!”
10/15/07
Over the weekend, a consortium of banks, at the prodding of Treasury Secretary Hank Paulson, finalized plans for the Master-Liquidity Enhancement Conduit, a “super conduit” set up to buy troubled assets, primarily assets backed by sub-prime mortgages and other less than stellar credits, from bank affiliates known as structured investment vehicles, or SIVs. (This is separate from the “Hope Fund” discussed in the previous post.) This Rube Goldberg contraption was put together out of fear that, with the commercial paper of the SIVs rolling and unlikely to find buyers for paper issued to refinance it, the SIVs will be forced to unload their risky assets at, to quote the Wall Street Journal “new, lower market prices.” This would lead to big losses at the SIVs and, indirectly, at their bank sponsors and the distinct possibility that their bank affiliates would have to put the SIVs on their own books, forcing the banks to set aside the sizable reserves that the SIVs were set up to avoid. In other words, banks (horrors!) would have to face the downside of making bad financial bets.
Several things are malodorous about this arrangement:
--Hank Paulson and the others who knocked heads to get this arrangement done insist that there will be no government money involved in the bailout. Let’s suspend disbelief here and take Mr. Paulson, and the government for which he works, at his word; after all, there is precedent here: no government money was involved in the LTCM bailout. But even if we assume that there will be no taxpayer money involved here, there had to be an element of government coercion in forming the superconduit. Citibank needed no persuasion to enter into the superconduit arrangement; it is by far the most heavily exposed to SIVs, accounting for 25% of the global SIV market. However, other participants in the Master-Liquidity Enhancement Conduit, such as JP Morgan and Bank of America, have no SIVs. They are saying that the lure for them is the fees they will generate for setting up the conduit and the business their broker-dealer arms will generate from it. So the managements of these institutions are putting the banks’ credit, and profitability, on the line to back risky securities at above market prices (See the next bullet point.) in order to save a competitor that they both would like to displace as the largest bank in the world. “Yeah, that’s the way it was. Honest.”
--The superconduit is supposed to pay market prices for the securities it will buy. But the whole arrangement is designed to allow the SIVs to avoid selling the securities at, as the Wall Street Journal put it, “new, lower market prices” that would result from a panic sale. So the conduit will pay market prices in order to save the SIVs from having to sell at market prices. Uh huh. In the absence of the supposedly market price bid from the conduit, put together for the very purpose of making that bid, the market price of the securities in question would be far lower. Sounds logical…to the Mad Hatter.
--Besides the SIVs who hold this dicey paper, and Citicorp, who benefits here? Of course: hedge funds and other holders of this funny paper, who eschew government interference in the market place until the market place begins to make them feel uncomfortable. And who invests in hedge funds? Could it possibly be Hank Paulson’s Wall Street friends, or George Bush’s Wall Street friends, or the mucky-mucks, pooh-bahs, and suzerains of the banks that will become contributors to the superconduit, along with their pals at the yacht and country clubs in Greenwich? Hmm…Perhaps healthy dollops of government coercion were not all that necessary to get these captains of finance to use their shareholders’ money to effectively bail out some of their investments. Is that too cynical?
--Shareholders ought to start asking questions, but from different perspectives. Citi shareholders ought to be delighted by the bailout, but ought to be asking Mr. Prince and his minions why in the world the bank got so heavily involved in SIVs in the first place. What, besides seeming gross incompetence, was the bank trying to hide? Shareholders of JP Morgan and Bank of America ought to ask why their banks’ credit, and profitability and hence the investments of the holders, should be put on the line to bail out a careless competitor and, perhaps, the investments of the people who run their banks. Can the fees involved be that good? Or is this a case of these banks’ not being able to say no the federal government, perhaps for fear that, because of some idiotic adventure on the part of their managements, they will be next in line, hat in hand, to see Mr. Paulson.
--Taxpayers ought to keep a close eye on these developments. The government is already deeply involved in this. Why? When will government money have to be employed? Why? Should taxpayers be forced to bail people, usually people with a lot more money than they, out of the consequences of their own financial folly?
Over the weekend, a consortium of banks, at the prodding of Treasury Secretary Hank Paulson, finalized plans for the Master-Liquidity Enhancement Conduit, a “super conduit” set up to buy troubled assets, primarily assets backed by sub-prime mortgages and other less than stellar credits, from bank affiliates known as structured investment vehicles, or SIVs. (This is separate from the “Hope Fund” discussed in the previous post.) This Rube Goldberg contraption was put together out of fear that, with the commercial paper of the SIVs rolling and unlikely to find buyers for paper issued to refinance it, the SIVs will be forced to unload their risky assets at, to quote the Wall Street Journal “new, lower market prices.” This would lead to big losses at the SIVs and, indirectly, at their bank sponsors and the distinct possibility that their bank affiliates would have to put the SIVs on their own books, forcing the banks to set aside the sizable reserves that the SIVs were set up to avoid. In other words, banks (horrors!) would have to face the downside of making bad financial bets.
Several things are malodorous about this arrangement:
--Hank Paulson and the others who knocked heads to get this arrangement done insist that there will be no government money involved in the bailout. Let’s suspend disbelief here and take Mr. Paulson, and the government for which he works, at his word; after all, there is precedent here: no government money was involved in the LTCM bailout. But even if we assume that there will be no taxpayer money involved here, there had to be an element of government coercion in forming the superconduit. Citibank needed no persuasion to enter into the superconduit arrangement; it is by far the most heavily exposed to SIVs, accounting for 25% of the global SIV market. However, other participants in the Master-Liquidity Enhancement Conduit, such as JP Morgan and Bank of America, have no SIVs. They are saying that the lure for them is the fees they will generate for setting up the conduit and the business their broker-dealer arms will generate from it. So the managements of these institutions are putting the banks’ credit, and profitability, on the line to back risky securities at above market prices (See the next bullet point.) in order to save a competitor that they both would like to displace as the largest bank in the world. “Yeah, that’s the way it was. Honest.”
--The superconduit is supposed to pay market prices for the securities it will buy. But the whole arrangement is designed to allow the SIVs to avoid selling the securities at, as the Wall Street Journal put it, “new, lower market prices” that would result from a panic sale. So the conduit will pay market prices in order to save the SIVs from having to sell at market prices. Uh huh. In the absence of the supposedly market price bid from the conduit, put together for the very purpose of making that bid, the market price of the securities in question would be far lower. Sounds logical…to the Mad Hatter.
--Besides the SIVs who hold this dicey paper, and Citicorp, who benefits here? Of course: hedge funds and other holders of this funny paper, who eschew government interference in the market place until the market place begins to make them feel uncomfortable. And who invests in hedge funds? Could it possibly be Hank Paulson’s Wall Street friends, or George Bush’s Wall Street friends, or the mucky-mucks, pooh-bahs, and suzerains of the banks that will become contributors to the superconduit, along with their pals at the yacht and country clubs in Greenwich? Hmm…Perhaps healthy dollops of government coercion were not all that necessary to get these captains of finance to use their shareholders’ money to effectively bail out some of their investments. Is that too cynical?
--Shareholders ought to start asking questions, but from different perspectives. Citi shareholders ought to be delighted by the bailout, but ought to be asking Mr. Prince and his minions why in the world the bank got so heavily involved in SIVs in the first place. What, besides seeming gross incompetence, was the bank trying to hide? Shareholders of JP Morgan and Bank of America ought to ask why their banks’ credit, and profitability and hence the investments of the holders, should be put on the line to bail out a careless competitor and, perhaps, the investments of the people who run their banks. Can the fees involved be that good? Or is this a case of these banks’ not being able to say no the federal government, perhaps for fear that, because of some idiotic adventure on the part of their managements, they will be next in line, hat in hand, to see Mr. Paulson.
--Taxpayers ought to keep a close eye on these developments. The government is already deeply involved in this. Why? When will government money have to be employed? Why? Should taxpayers be forced to bail people, usually people with a lot more money than they, out of the consequences of their own financial folly?
Subscribe to:
Posts (Atom)
