Posts Tagged ‘Economy’

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America, When Will You Stop Fighting Your Freedoms?

October 28, 2008

With great respect, credit, and acknowledgment given to Ginsberg, and apologies for my postmodern destruction – a modern update on Ginsberg’s form. Any lines in quotes were lifted without change from Ginsberg’s America – all other phrases have been modified.

 

 

America I’ve given you nothing and now I’m all that’s left.

America seven hundered billion dollars and we’ve lost our sense, October 2, 2008.

I can’t lay down with my own mind.

America when will we end our internal war?

Go flog yourself with your petty talking points.

I don’t feel good and it bothers me.

I won’t write my poem till we’re in our right mind.

America when will you be anthemic?

When will you donate your clothes?

When will you stop digging your financial grave?

When will you be worthy of a million of your excesses?

America why are your news sources full of fears?

America when will you take your eggs from your idols?

I’m sick of your inane discourse.

When can I go into the supermarket and buy what I need?

America after all you and I are not more perfect than the next world.

Your machinations are too much for me.

You’ve made me want for a saint.

“There must be some other way to settle this argument.”

Buckley is in arrears and I don’t think he’ll come back it’s sinful.

Are you being sophomoric or is this some form of practical joke?

I’m trying to come to the purpose.

I refuse to give up my intellect.

America stop pushing we’ll figure out what we’re doing.

America the sky is not falling.

I haven’t read the newspapers for months, only their online daily trials and murders.

America I feel sentimental about Chief Wiggums.

America I used to be collateralized when I was a kid and I’m sorry.

I smoke new media every chance I get.

I sit in my house for days on end and stare at the roses on my LCD screen.

When I go to the MSM I get indoctrined but never get learned. 

“My mind is made up there’s going to be trouble.” 

You should have seen me reading Maddow. 

I can’t afford a psychoanalyst, but I’m perfectly right. 

I won’t believe in Laissez-Faire. 

I have mystical visions and comic inflations. 

America I still haven’t told you what you did to Uncle Sam after he left with Reason.

 

I’m addressing you. 

Are you going to let our emotional life be run by TMZ? 

I’m obsessed by TMZ. 

I read it every hour. 

Its homepage stares at me every time I slink past my email account. 

I read it on my phone in the bathroom of the Pasadena Public Library. 

It’s always telling me about irresponsibility. Movie stars are mediaworthy. Heiresses are mediaworthy. Everybody’s mediaworthy but me. 

“It occurs to me that I am America.” 
I am talking to my blog again.

 

Asia is bailing me out. 

I have only a chinaman’s chance. 

“I’d better consider my national resources.” 

My national resources consist of two joints of mass media millions of buzzwords 
an unpublishable no longer private literature that goes 1400 kbps and 
twentyfivethousand mental institutions. 

“I say nothing about my prisons nor the millions of underpriviliged who live in 
my flowerpots under the light of five hundred suns.”

I have abolished the freedom of language, tangential thought is the next to go. 

My ambition is to be President despite the fact that I read Agnostics.

 

America how can I write a holy litany in your angry mood? 

I will continue like your hegemony my catch phrases are as individual as its
conclusions more so they’re all different sexes 

America I will sell you hegemonies $2500 apiece no money down on your old thoughts 

America free Tom Brokaw 

America save the Socialist thinkers 

America Socrates must not die 

America you risk becoming the Scottsboro Boys. 

America when I was seven momma took me to privatized education they 
sold us music a handful per half hour a half hour costs a dollar and the 
recitals were free everybody was atonal and embarrassed about their performance
it was all so sincere you have no idea what a good thing the inspiration 
was in 1987 Ms. Jeanie was a grand old lady a real musical Mother 

Ayn Rand made me cry I once saw Intelligent Conservatism plain. Everybody must have been a spy. 

America you don’t really want to stay to war. 

America it’s them bad Terrorists. 

Them Terrorists them Terrorists and them Muslims. And them Terrorists. 

The Terrorist wants to eat us alive. The Terrorist’s power mad. He wants to take 
our cars from out our garages. 

He wants to grab Ohio. He needs a Red Reader’s Digest. He wants our 
auto plants in Lebanon. Him big bureaucracy raping our fillingstations. 

That very good. Ugh. Her makes Immigrants learn read. Her need blasphemous spending bills. 
“Hah. Her make us all work sixteen hours a day. Help.” 

America this is no longer entertainment. 

America this is the impression I get from looking at the internet. 

“America is this correct?” 

I’d better get a second job. 

It’s true I don’t want to join the Army or flip patties in precision food 
factories, I’m farsighted and philanthropic anyway. 

America I’m putting my fear firmly at my heels.

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Death Threats, Hung Visages…Stop Acting Like Children!

October 28, 2008

So, for those who haven’t seen, there were two major political news stories today. The first were the two guys arrested who had hatched a plot to kill Obama. The other was a visage of Palin hung from a noose in West Hollywood. It’s time to stop playing with fire. If the candidates really hadn’t realized it already, it should now be exceedingly clear. We’re acting like children. And these children have become an angry mob. And they’re finding weapons, symbolic or otherwise. We stand on the verge of what may be the worst economic crisis since the Great Depression. The only thing that is going to avert this event is by coming together as a country and using that classic American “pull yourself up by the bootstraps” spirit to keep our country from spiraling into the s&*tter. It’s past time to stop riling up the public in any way – it’s time to start calming everyone down before it’s too late to placate someone. Stop playing divisive political games…the stakes are too high. On a lighter note though – Yahoo had a story on their front page about the price of 32″ LCD TVs possibly dropping as low as $399 by Christmas, so lets hope we can go back to placating ourselves with high-def and leave the violence on the screen.

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Weapons of Mass Distraction – Congress Brings CEOs to Town

October 7, 2008

The rescue package has been passed. May the blame game begin. Yesterday, the first round of CEOs was brought before Congress to be grilled about their role in the current financial crisis. Our Congress-people were full of fire and brimstone, grilling former Lehman Brothers CEO Richard Fuld about his personal gain while the markets failed. Henry Waxman lead the charge, slamming Fuld with statements like:

“It seems that the system worked for you, but it didn’t seem to work for the rest of the country and the taxpayers who now have to pay up to $700 billion to bail out our economy,” Waxman said. “We can’t continue to have a system where Wall Street executives privatize all the gains and then socialize all the losses.” 

and

“Your company is now bankrupt, our economy is now in a state of crisis, but you get to keep $480 million. I have a very basic question for you. Is this fair?”

Well, I’m certainly comforted. Comforted, at least, that business as usual is returning to Washington. Although Waxman’s figures may be about $200 million high, and there is no mention that the money was made over the span of 8 years, the answer to his question is obvious. Of course it’s not “fair”. But I am amazed at how easily we have allowed our attention to be misdirected by this attempt to bring a sense of “fairness” to the whole situation.

People around the country are now chanting for these CEOs to be “held accountable” for their actions. But what everyone seems to be forgetting is that there really isn’t much we can hold them accountable for, because the shady investments they made that caused the crash are not illegal. They aren’t illegal because the markets they were trading in (the same ones that have fallen into a state of disaster) were unregulated. As such, the hearings are little more than a perp walk for criminals who broke no laws.

But they are a great way for Congress to turn the anger of the American public on someone else. The more angry we are at CEO greed, the less likely we are to pull back the curtain and realize that Congress shares an equal, if not greater, amount of responsibility for what happened. By allowing unregulated trading in markets that were speculative by their very nature, the culture of corporate greed was nearly sanctioned. Are we really surprised that Wall Street moguls took advantage of a system with no rules in an attempt to make as much money as they possibly could? They were hired to make as much money for the company as possible. As investors, we demand it. These firms made this money by taking advantage of the system that was presented to them. Unfortunately, while they may have done so in ways that were irresponsible, it is likely that these methods were not illegal. So Congress is holding hearings in an attempt to put a face on the anger of the taxpayer …just as long as that face isn’t anyone in the government that allowed the market to exist with no rules or oversight in the first place. I’m certainly comforted.

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Fannie And Freddie Caused…What?

October 6, 2008

It has come to my attention lately that Fannie Mae, Freddie Mac, and programs designed to increase lending to lower and middle income homeowners are still one of the main scapegoats for the current financial crisis. It’s all over news sites and blogs, being used in political ads, and lots of people are buying it without taking the time to ask one simple question – how did Fannie and Freddie fail?

There is no doubt that the subprime loan industry grew out of control. Predatory lenders entered the market. Subprime loans that should never have been given were rampant. In 2006, the Wall Street Journal reported that 61% of subprime loans were given to people with high enough credit scores for prime loans. The reason for this is uncertain, and can be argued from many sides. One side insists that, thanks to policies instated under Carter and updated by Clinton, banks were encouraged to make these loans. Fannie and Freddie were encouraged by Housing and Urban Development to increase loans to lower income homeowners, even though they were riskier loans. Another side is that investors were increasingly entering the real estate market because profits were growing by leaps and bounds. And if you’re like me, you’ve been raised with the belief that the real estate market, since it deals in tangible assets that grow equity, is a safe market to invest in. But how do these arguments hold up?

First, let’s examine the “government regulations forced it” argument. The regulation (known as the CDA) people speak of was passed in 1977. It’s intent was to make banks enter into communities they currently would not lend to. Why they would not enter those communities is still debatable. The policy, however, is widely recognized, and was known as “redlining”. As both sides seem to be able to agree that redlining existed, and prevented residents of lower and middle income communities from being able to get the necessary financing to make home purchases, I’ll leave the “why” to open debate. I’ll leave the rest of the research on the CDA, and the ramifications of it, to the reader as well. It is evident, however, that the CDA did increase the number of loans given to people who might not be able to pay them back.

Next, let’s examine the “speculative investors inflated the market” argument. Since this one has fewer emotional issues surrounding it, it will be a little easier to examine here. It is well known that investment and second property purchases were increasing throughout 2005 and 2006. By 2007, the Wall Street Journal reported on the fall of these markets. Simple economic principles tell us that, when purchases (demand) are higher than available commodities (supply), prices go up. And it doesn’t take a social scientist to notice that “flipping” houses was the en vogue get rich quick market of the early part of this decade. There were entire television shows devoted to it, and any insomniac could not help but be inundated by infomercials selling us schemes on how to flip houses for profit. It stands to reason that increased demand would raise prices.

So, what does all this have to do with Fannie and Freddie? From what I can find…not much. Here’s the problem. Fannie Mae and Freddie Mac held a combined total of around $500 billion in loans. The problem here is…none of these were the subprime loans everyone is so busy screaming about. In fact, as has been pointed out in the NY Times, Fannie and Freddie were not allowed to give subprime loans. It’s part of their charter. Believe it or not, no one in our government was stupid enough to allow Fannie and Freddie to give this sort of high risk loan. Amazing, I know…but occasionally, our elected officials get something right. As it turns out, most of Fannie and Freddie’s loan holdings are what is known as Alt-A loans. Alt-A loans are given when an applicant doesn’t meet one of the criteria to get a Prime mortgage loan. For instance, small business owners are often times not able to provide the usual paystub as proof of income, even though they make enough to safely take out the loan they are applying for. Alt-A loans allow the loan officer to, after review of the application, grant these people a loan at a rate that is generally 1% above prime rate for the first two years, and then falls to prime rate if all payments have been made in good faith. Beyond even this, the rate of defaults on subprime loans is nowhere near high enough to bring about the downfall of Fannie and Freddie.

Conclusions? Fannie and Freddie didn’t fail because of subprime loans or risky lending to homeowners. They fell because of much larger market conditions surrounding the CDOs, Credit Swaps, and MBSs that I’ve already discussed in the “How We Got In This Basket” series of essays. As I didn’t want to make this post too link heavy, the sources for the numbers on Fannie and Freddie aren’t linked. If anyone would like to see them and is having trouble finding them, just let me know and I’ll post a list of sources here.

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How We Got In This Basket I

October 5, 2008

The following is a four part series on the history and reasons behind the current financial crisis. It was my goal to examine the issue from all sides without emotional or political bias. The 4 part essay that follows is the end result of weeks of research in an attempt to understand this very complex problem. It was my goal to understand the factors that brought this about without blaming any one person or party. There is plenty of blame to go around on all sides, and enough failed policy to provide years worth of kindling. I think that solutions for problems this large cannot be reached by pointing fingers in any one direction. Instead, they come from understanding how the current situation has developed, and all of the factors that contributed to it. It is almost impossible to fix something without first inspecting it.

Part I – Introduction

Like many Americans, when I first heard of the idea of giving a $700 billion bailout to Wall Street, I was livid. “What?”, I thought, “Why should we have to bail out these corporate fat cats and risk all this taxpayer money? Can’t we just let people reap what they’ve sewn? And even if we have to use our money to make these loans good, then why don’t we just bail out the individual homeowners, and let the corporate greed take the losses it’s created?”

But as things progressed, and I did a little more research, I began to understand that the problem we face now is not so much that these loans are defaulting at unacceptably high rates. Yes, that is part of the problem, and was definitely the first widely reported finite indicator (along with shrinking home values) of the fallout that was beginning. And if those bad loans were turned into good loans years ago, and the market slowed in an orderly fashion, it might have helped. But it has all gotten so much bigger. 

It is my personal belief that before attempting to understand the problems of today, we must understand the problems faced by those who came before us, and how people reacted to them. So, the next step was to learn about financial crises of the past, beginning with the Panic of 1909 up through the dot com bubble of the 90s. Don’t worry, no history lecture here. The info is readily available on the net. If you really care to understand the full history of it, just start Googling. Education is readily available, and cheaper than ever. You just have to be willing to look a little further to make sure the information you’re getting comes from reliable sources. Don’t just check the source, check the sources the source used.

After getting a basic enough understanding on the crises of past, and the reactions to them, I decided it was time to delve head first into the modern day. For those interested in getting some more analysis of past crises, try Googling “Keynsian Economics”, “Friedman Schwartz”, and/or “Great Depression” in various combinations. Also, add “Bernanke” to that equation. Our current Fed Chairman, who’s importance in this crisis is undeniable, has given a few speeches on these topics. Many of his views stem from these theories. But please, read a few rebuttals to them as well. 

What I’ve found says to me that we’ve been letting this basket get woven around us for a while. In essence, this is all related to unfettered deregulation. It’s been going on for years. This does not mean deregulation is always a bad thing. There are many convincing arguments for a market that is not overly regulated. Deregulation without oversight, however, has a track record of ending poorly.

The deregulations of the late 1970s and 1980s are the very ones that created the ability of lenders to issue the current subprime loans that are part of the problem. It was the writing of things like NINJA, 100% (and later 120% and more) interest loans, no downpayment loans, ARMs and the like that has lead to increasing numbers of defaults and foreclosures. If you haven’t taken the time to understand what all these are, I’d recommend it. Helps to understand where it’s all coming from. Alt-A loans also enter into the equation, but there is a distinction between true Alt-A loans and subprime loans.

There are many other factors in the mortgage fallout. Inflating housing prices, the ever increasing buying and eventual sales of investment property by speculators, and the loosening and computerization of underwriting standards for riskier loans have all contributed to the subprime crisis. The market was flooded. It could not maintain, and the bubble burst. Values began to fall.

It is impossible to refinance a loan on which the principle (based on purchase price of the property) is greater than the current market value of the house. Due to a market that was increasingly based on speculation, some loans were given betting that refinancing would be possible after the 2 year period of the initial terms expired. As refinancing became increasingly impossible, and the lighter initial terms of loans began to expire, these new homeowners faced greatly increased payments. Defaults and foreclosures ensued, feeding the cycle of dropping values. And around and around went the merry-go-round, feeding its own downfall.

But I began to wonder…if this is really the cause of the crisis we’re in, and this is the bad paper, why are we talking about bailing out Wall Street? Just doesn’t make sense, right? And what made the banks think they could safely make these loans in the first place? The reason, from what I can see, is because this isn’t remotely the worst of the bad paper. Nor were the ’80s the end of our flings with unchecked deregulation.

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How We Got In This Basket II

October 5, 2008

Part II – The Deregulation Of The 90s

A lot of us missed the next one. While the Congress of the 90’s was deregulating energy, telcom, and other markets, there were two other deregulations that got pushed through in 1999 and 2000. One was the Gramm-Leach-Bliley Act (GLBA). The other was the Commodity Futures Modernization Act. Both were passed to fix what were argued to be over-regulated markets.

There are two sides to the GLBA argument. One is that the passage of the GLBA has actually been a bit of a Godsend in our current crisis. Without it, the private buyout of banks that some argue have kept things afloat thus far could never have happened. Investment banks would not have been allowed to purchase commercial banks, and many of the private bailouts we’ve seen would not have been possible. However, there is an argument to this. Private buyouts such as these had already been allowed before GLBA, but upon special authorization only. One example was the 1998 creation of Citigroup from a merger of Citibank and Travelers Insurance by special waiver. In times of crisis, these waivers could have been granted.

The other side says the GLBA is a problem because it has the potential to increase conflicts of interest between banking entities, and allows the creation of financial entities that are so large, their failure has the potential to destroy the entire market. However, the argument against this states that to not allow deposit holding commercial banks to enter other markets and provide investment services stifles competition, and in the end hurts both the market and the consumer.

To understand either side, we need to look back to 1933. In 1933, with the public angered by the actions of an unregulated market with little to no transparency or oversight and overwhelming conflicts of interests in the financial sector, the Glass-Steagall Act was passed. Along with creating the FDIC, which has been updated many times over the years, it required the separation of deposit taking and investment banks. It also required the separation of any banking and commercial interests. The separation of banking and commercial interests was not repealed by the GLBA, and still stands.

By the late 1990s,  these far reaching regulations, which had not been updated, were argued to be losing relevancy to our changed times and markets. But instead of updating them, Congress decided, as part of the GLBA, to do away with Glass-Steagall’s regulation of banking interests. From what I have seen, this deregulation may have also allowed deposit holding banks to enter the securities market.

The second deregulation most of us missed is a little thing called the Commodity Futures Modernization Act (CFMA).  This one’s a little more sneaky. The 262 page bill was passed with no debate on the floor of the house or senate and signed into law on Dec. 14, 2000. It is identical to a bill that was considered dead. As such, it was tacked onto a funding bill for the Depts. of Labor, Health and Human Services, and Education (known as an “omnibus spending bill”) just as Congress was about to break for the winter holiday. Omnibus spending bills are a common haven for earmarks, both in the form of governmental spending and legislation.

The problem with this one is that it specifically banned regulation of “credit swaps”. Credit swaps are a strange, intangible, paper driven market that I have not really begun to grasp. As such, I’m not even going to try and explain it. How bad are these things? 5 years ago, Warren Buffet called them “financial weapons of mass destruction“, fearing the crisis we have now.

As of yet, I have not been able to find any argument to show that an unregulated credit swap market was a good idea. If anyone reading this can, please post it here and I will update this entry. I have, however, found a great explanation of why it was a bad idea in a 40 minute interview with Michael Greenberger. He was the head of the commission that regulated these markets until 1999, and lobbied to increase regulations because our current situation could arise. He does a much better job of explaining how the CFMA and credit swaps helped bring us to this point than I could. But now, I wondered, how does all this relate to the current crisis?

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How We Got In This Basket III

October 5, 2008

Part III – How This All Ties Together (Into the Now)

Now that we’re all up to date on our current system of regulations (at least in a very simplified form), we can begin to examine the current fallout. For most of us, Wall Street means the Stock Market. It is the place where shares of companies are bought and sold, and investors make a profit or take losses depending on the companies performance. The stock market is our most visible indicator of the day to day economy. Especially since the crash of 1929, it has never left the public mind as such.

But the problems we now experience do not stem from the direct trading of stock in companies. It comes from markets that trade in values that are far greater than individual companies. They are the markets that trade in the mortgages of all of our places of work, our homes, our cars, and our student loans.  This is how the securities market problem may have such far reaching effects.

The securities market is nothing new, and certainly not an inherently evil exchange. For a long time, the securities market was a very nice place to be. Buyers knew what they were purchasing, and lenders were fairly ethical and stringent on who they would give loans to. Part of the reason may have been that the commercial banks were the ones underwriting most home loans, but were not allowed to trade in the securities market. As such, lenders had no reason I can find to attempt to overly inflate the market. To do so, for the lender, would require taking on large amounts of undue risk, as it would require loosening underwriting standards and issuing loans to people who were much more likely default on them.

The deregulations of the 1990s allowed banks to enter the security markets. And they did. In fact, as an example of how much they did, in August of 2007 the Fed gave a temporary pass to Bank of America in Charlotte. They granted a one time exemption, allowing B of A Charlotte to drop an additional $25 billion into their subsidiaries in the securities market. However, before blaming the banks, remember that if they didn’t enter the securities markets, investors were going to take their money to other places that could. 

As the housing bubble began to build, large profits were being made in the securities market. These profits got even larger when the market began to trade in Collateralized Debt Obligations, or CDOs. Essentially, CDOs allow lots of mortgages, together with other debt and assets, to be grouped under one large umbrella. These groupings are then traded on the securities market.

It is interesting to note – the first CDO was issued by a bank in 1987. In 1990, that institution was deemed insolvent, and taken over by the Resolution Trust Corporation in the S&L Bailout. After the S&L crisis, things tightened up a bit. Lenders reigned in their underwriting standards and, while CDOs were still traded, they weren’t a huge part of the market.

But with the new deregulation allowing more players in the market, and after a new method of rapidly assessing CDOs was introduced in 2001, the market began to grow. How much? Quoted from WikiPedia:According to the Securities Industry and Financial Markets Association, aggregate global CDO issuance totaled US$ 157 billion in 2004, US$ 272 billion in 2005, US$ 552 billion in 2006 and US$ 503 billion in 2007.[6] Research firm Celent estimated the size of the CDO global market to close to $2 trillion by the end of 2006.[7]

Contributing to this growth, these CDOs and Mortgage Backed Securities were increasingly being “insured” through the unregulated credit swap market. Since the language of these credit swap contracts specifically avoided calling it “insurance”, the powers that state and other governmental agencies have to regulate insurers did not apply. And, thanks to the passing of the CFMA, the credit swaps being used to back CDOs and MBSs were themselves unregulated.

But wait, I thought, anything traded on the financial markets gets a rating. Surely the people who were buying CDOs that contained riskier loans would have seen a lower rating, and known their was more inherent risk. Even if they were being backed by credit swaps, the credit swap market is based upon speculation. All speculative markets contain inherently higher levels of risk. No one, I thought, would rate these things in the highest grade of investment.

But when we look a little further into that, it appears that even CDOs that were backed primarily by subprime loans were given AAA ratings right up until the second quarter of this year. How, I wondered, could this possibly be? Anyone with half a brain who was looking around their block noticed home values falling LONG before March 2008! Why would anyone rate these interests so highly?