No, I'm not talking about the song by the All-American Rejects, though I must admit it's catchy and clever. I'm talking about Hank Paulson's latest about-face. Before, I've always thought his deft reversals of direction were born of mere confusion as to the appropriate policy actions.
This latest one, though, appears to have been very well-planned, and most sinister.
I've complained before about the lack of checks and balances in all this bailout mania, and this latest move is just one more example of the abuse of power by Paulson.
Early last week, Paulson told Bubblevision that he didn't plan to request the second half of the TARP money, saying, "We've got what we need right now." He said this even as his boss was working on plans to give the last $14 billion of the $350 billion first tranche to Chrysler and GM, in the form of bridge loans to get them through the first quarter of next year, when they will become the next administration's problem.
(As an aside, the $9 billion of those loans that GM will get is only sufficient to cover the company's $67 million daily cash burn for 134 days, assuming it doesn't get worse.)
So, knowing the administration's plan to spend the last of the first round of TARP money, Paulson told America, via CNBC, that Treasury didn't need the remaining $350 billion.
On Friday, however, he reversed course - surprising no one who's been paying attention to his antics since September - saying, "It is clear ... that Congress will need to release the remainder of the TARP to support financial market stability."
Most observers took this as yet another signal of Paulson's indecision and lack of clarity regarding just what is required to salvage the US financial system. Former FDIC Chairman William Isaac, who gave us the FICO scoring system that helped create the housing melt-down, said, "My conclusion is that they don't have a long-term strategy, and they're bouncing along from crisis to crisis."
On that, you'll get no argument from me. But it doesn't take a rocket scientist to figure out what Paulson was doing.
Congress was still in session as late as December 10, when they voted down the proposed bailout of the automakers. But by last week US senators and representatives were in recess for the holidays. Paulson waited until they were unlikely to return, then called for the money on Friday.
According to the terms of the TARP, Paulson had free rein (reign?) over the first $350 billion, but then had to ask Congress for the second half. But the request requires only negative consent; if Congress doesn't decline the request within 15 days after it's formally made, Paulson automatically gets the money.
Paulson could be reasonably certain, as of Friday, that Congress wouldn't re-convene - yet again - to consider the request, so he would have only to wait until the first week of the New Year to get the funds.
Fortunately, it now appears that the administration won't push for the money. An article today in American Banker reports that fears of political backlash have the Bush camp shortening Paulson's leash. So now it will be up to Tim Geithner, the Obama administration, and the new Congress to deal with.
One thing is certain: Paulson's request on Friday raises serious questions as to the true health of the US financial system. It also offers some insight into how the remainder of the TARP funds will be used, as everyone from states reeling from huge budget shortfalls to commercial real estate developers have their hands out for a piece of the second tranche. And with some of the first tranche being given to Detroit - after Paulson staunchly state that the money was reserved for the financial sector - who can blame them?
One last point, somewhat related to the TARP. The Obama administration's proposed stimulus package, which the President-elect hopes to have ready for his signature when he's sworn in on January 20, is now $775 billion. Why that number?
Well, it's been reported in the Washington Post that he'd like $850 billion. But fears of resistance from the few fiscal conservatives in Congress have pared back the number: "An Obama adviser said the team has settled for now on $775 billion as the highest figure likely to win congressional approval."
Remember when I reported that a Treasury official said the TARP figure was set at $700 billion, not because there was any calculated basis for that amount, but that Treasury just wanted to "throw out a really big number?" This smacks of the same.
Change we can believe in?
Monday, December 22, 2008
Thursday, December 18, 2008
Fiscal Bulimia, and Other Rants
Lots to talk about, so let's get to it. First, the Fed's unprecedented rate cut - unprecedented in that they cut the funds target to the lowest level in history, and unprecedented in that they targeted a range, from zero to a quarter of a point, rather than a specific rate.
An unintended consequence is that, in an environment where financials are struggling to price assets they own, now they're in a quandary over how to price loans based on Fed funds. Price it off zero? Off a quarter-point? Off something in between? Can we charge a range of interest?
Another unintended consequence is that the dollar is now tanking again, just when we were beginning to see some relief. The Fed is creating inflation once again. So much for that trip to Europe. But the dollar's now rebounding vs. the euro, since the ECB cut its rates today. So there's still hope.
The intended consequence - the stated one, anyway - was to spur borrowing. Indeed, mortgage rates fell, and people are looking to refi in droves, reportedly.
Here's the problem: what our government wants is to stimulate buying - houses, cars, Christmas presents, you name it. And that ain't happening.
Why? It's simple. We were a bulimic nation, binging on credit. And now we want to purge. At all levels: corporations, households ... well, okay, maybe not at the federal level (more on that later). We don't want to buy cars - sorry, Chrysler and GM. We don't want to buy houses - sorry, builders (by the way, did anyone notice that housing starts and building permits fell to the lowest levels in at least 50 years last month? The Dow apparently didn't). We don't want to go hog-wild this Christmas - sorry, Macy's and Best Buy (but maybe we'll be a little more mindful of the reason for the season).
And banks don't want to lend. They want to purge themselves of all the bad credit they've already got, not take on more. They don't want to feed the gluttonous pigs anymore.
As I've said before, that's all good. We need to purge, and get back to living within our means.
************
On to the federal debt. Ecuador recently defaulted on its government bonds, but that was political. Its extreme leftist president decided that, even though the government has the cash to make the next coupon payment, the interest on the bonds - which were issued under the previous regime - is illegal.
But, the consequence was the same as if Ecuador was out of cash: its borrowing rates skyrocketed. There's a lesson in that, but let's go a step further before we present it.
Italy could be facing the same peril. Its public debt - third-largest in the world - amounts to 104% of its output. Italy's finance minister is proposing heavy stimulus spending, but the nation's welfare minister dug in his heels, saying, "I am too constrained by public debt. And I too am worried by the risk of default. There is something worse than recession, and that's state bankruptcy: an improbable, but nevertheless possible, hypothesis."
US public debt is currently 91% of GDP. GDP is expected to contract 4-6% in the current quarter, and about 2.5% in the first quarter of 2009. Holding public debt constant, we'll be at 98% of GDP. But does anyone really believe we'll hold public debt constant? If so, I've got some Alt-A mortgage-backed bonds to sell you, at par.
President-elect Obama wants to spend $850 billion to stimulate the economy. Add that to the debt load, and we're at 106% of GDP. Granted, he wants to do it over two years, but even the first half of that will take us to 102% of GDP. Goodbye, low interest rates. Obama and incoming Treasury chief Geithner would do well to heed the cautions of the Italian welfare minister.
As for the current Treasury Secretary, Paulson has done yet another about-face (nimble little minx, isn't he?). Just days ago he said he wouldn't ask Congress for the second $350 billion of TARP money. Now, he's said to be ready to request it. Why?
I suspect it's to prop up the stock market. There seems to be a lot of that these days. About a month ago, Bernanke, wanting to keep some arrows in the quiver, subtly warned the markets that he preferred a smaller rate cut than was being priced in, saying there were other things the Fed could do besides a big rate cut. Then, on Tuesday, with a hopeful rally already underway, he capitulated. I had read an article suggesting that he might stand up to the markets, but I knew he didn't have the resolve. He never has.
I think Washington really wants to prevent a test of the recent market lows, and they're doing everything they can to effect that. Even Bush has been hinting that he'd bail out Detroit, but now it sounds like a managed bankruptcy is in the cards. He says he doesn't want to throw bad money after good. Should've thought about that before he pushed for the TARP's passage.
************
On to Bernie Madoff-with-your-money. I won't elaborate on how despicable is the man who bilked charitable trusts and retirees (and big banks like HSBC) out of billions. Others have covered that quite well.
I will, however, identify his accomplice in this scheme: the SEC. Chairman Chris Cox should share a cell with Bernie. How, in more than a decade of examining Bernie's firm, did the SEC miss this one? I'll bet I could have uncovered his little scheme.
But the SEC doesn't look into things like that, except after the fact. They primarily concern themselves with whether the I's are dotted and the T's crossed. They sent three examiners for a week-long visit to my little 13-employee firm this year, and what were their findings?
We don't keep a stock record book, a manual record of all transactions. But see, we don't sell stocks - just bonds. And every transaction is recorded electronically, and archived forever. Gee, it would seem that manual records could be doctored. Hmmm ...
And second, we claimed on our website to be "a leading provider of financial services to credit unions nationwide." We based that on a broad survey of credit unions that we commissioned in 2003. Yes, that was five years ago, but there have been no meaningful new entrants into this market space in that span. And yes, we paid for the survey, but we didn't pay people to say they use our firm. The results showed that more credit unions use our brokerage services than any other firm, and more credit unions use our advisory services than any other firm but one. Sounds like a "leading provider" to me. But the SEC would only let us make the claims if we disclosed that we paid for the survey, and that it was five years old. Not wanting a two-page disclaimer to accompany a one-line statement, we opted to scratch it altogether.
Don't get me wrong, I don't begrudge the findings. We now keep a securities record book manually, and we changed the website hype.
What galls me is that the SEC comes in and burdens us with this trivial crap while a Bernie Madoff makes off with his investors' money, to the tune of $50 billion, and three of the five largest securities firms on Wall Street go belly-up (with the other two not far behind).
Nero fiddles while Rome burns.
************
Want a peek at how the Fed is being a responsible steward of your money? From Bloomberg:
"Federal Reserve Chairman Ben S. Bernanke is basing hundreds of billions in emergency lending on credit ratings from companies that gave AAA grades to toxic securities."
That's right, boys and girls, the Fed is relying on Fitch, Moody's and S&P, the same clowns that brought us the subprime and Alt-A meltdown. Bloomberg goes on:
"The Fed has purchased $308.5 billion in commercial paper and lent $631.8 billion under eight credit programs, most of which require appraisals of short-term debt and loan collateral by 'major nationally recognized statistical ratings organizations.'" Bloomberg tried to get a list of whom the Fed has lent to, and the collateral for the borrowings, even going so far as to sue the Fed under the Freedom of Information Act. But the Fed is hiding behind the "trade secrets" barrier.
************
Here's my take on Obama's appointment of FINRA head Mary Schapiro to be the next SEC chair.
Here's her resume:
1988: appointed by Reagan as a commissioner of the SEC, re-appointed by Bush I, named acting chair by Clinton
1994: appointed to the Commodity Futures Trading Commission by Clinton.
1996: appointed to the National Association of Securities Dealers - Regulation by Clinton
2006: became chair and CEO of NASD, which merged with the NY Stock Exchange to become FINRA
During her tenure in these roles, we had the explosive growth of unregulated and impossible to value financial derivatives; the dot-com bubble and the housing bubble; the financial accounting scandals of the dot-com era (think Enron, WorldCom, et al), and the nightmare of the last year or so. And, like the SEC, FINRA waltzes into our firm looking for the most trivial arcane silliness, while Wall Street melts down.
Just another more-of-the-same selection. Old-school politics as usual inside the beltway. We are doomed.
PS. She's also a lifetime bureaucrat, like most of the other cabinet picks. She has a law degree, for pity's sake. For this role you need finance guy, not a lawyer.
************
Finally, I'll weigh in on Caroline Kennedy vying for Hillary Clinton's Senate seat.
I'm growing weary of the same names in seats of power in Washington: Clinton, Kennedy, Bush ... where has it all gotten us? We need change - meaningful change. We need some true representatives of the people, not old-school power-mongers. Let's have term limits and campaign finance reform, and bring in some new blood.
An unintended consequence is that, in an environment where financials are struggling to price assets they own, now they're in a quandary over how to price loans based on Fed funds. Price it off zero? Off a quarter-point? Off something in between? Can we charge a range of interest?
Another unintended consequence is that the dollar is now tanking again, just when we were beginning to see some relief. The Fed is creating inflation once again. So much for that trip to Europe. But the dollar's now rebounding vs. the euro, since the ECB cut its rates today. So there's still hope.
The intended consequence - the stated one, anyway - was to spur borrowing. Indeed, mortgage rates fell, and people are looking to refi in droves, reportedly.
Here's the problem: what our government wants is to stimulate buying - houses, cars, Christmas presents, you name it. And that ain't happening.
Why? It's simple. We were a bulimic nation, binging on credit. And now we want to purge. At all levels: corporations, households ... well, okay, maybe not at the federal level (more on that later). We don't want to buy cars - sorry, Chrysler and GM. We don't want to buy houses - sorry, builders (by the way, did anyone notice that housing starts and building permits fell to the lowest levels in at least 50 years last month? The Dow apparently didn't). We don't want to go hog-wild this Christmas - sorry, Macy's and Best Buy (but maybe we'll be a little more mindful of the reason for the season).
And banks don't want to lend. They want to purge themselves of all the bad credit they've already got, not take on more. They don't want to feed the gluttonous pigs anymore.
As I've said before, that's all good. We need to purge, and get back to living within our means.
************
On to the federal debt. Ecuador recently defaulted on its government bonds, but that was political. Its extreme leftist president decided that, even though the government has the cash to make the next coupon payment, the interest on the bonds - which were issued under the previous regime - is illegal.
But, the consequence was the same as if Ecuador was out of cash: its borrowing rates skyrocketed. There's a lesson in that, but let's go a step further before we present it.
Italy could be facing the same peril. Its public debt - third-largest in the world - amounts to 104% of its output. Italy's finance minister is proposing heavy stimulus spending, but the nation's welfare minister dug in his heels, saying, "I am too constrained by public debt. And I too am worried by the risk of default. There is something worse than recession, and that's state bankruptcy: an improbable, but nevertheless possible, hypothesis."
US public debt is currently 91% of GDP. GDP is expected to contract 4-6% in the current quarter, and about 2.5% in the first quarter of 2009. Holding public debt constant, we'll be at 98% of GDP. But does anyone really believe we'll hold public debt constant? If so, I've got some Alt-A mortgage-backed bonds to sell you, at par.
President-elect Obama wants to spend $850 billion to stimulate the economy. Add that to the debt load, and we're at 106% of GDP. Granted, he wants to do it over two years, but even the first half of that will take us to 102% of GDP. Goodbye, low interest rates. Obama and incoming Treasury chief Geithner would do well to heed the cautions of the Italian welfare minister.
As for the current Treasury Secretary, Paulson has done yet another about-face (nimble little minx, isn't he?). Just days ago he said he wouldn't ask Congress for the second $350 billion of TARP money. Now, he's said to be ready to request it. Why?
I suspect it's to prop up the stock market. There seems to be a lot of that these days. About a month ago, Bernanke, wanting to keep some arrows in the quiver, subtly warned the markets that he preferred a smaller rate cut than was being priced in, saying there were other things the Fed could do besides a big rate cut. Then, on Tuesday, with a hopeful rally already underway, he capitulated. I had read an article suggesting that he might stand up to the markets, but I knew he didn't have the resolve. He never has.
I think Washington really wants to prevent a test of the recent market lows, and they're doing everything they can to effect that. Even Bush has been hinting that he'd bail out Detroit, but now it sounds like a managed bankruptcy is in the cards. He says he doesn't want to throw bad money after good. Should've thought about that before he pushed for the TARP's passage.
************
On to Bernie Madoff-with-your-money. I won't elaborate on how despicable is the man who bilked charitable trusts and retirees (and big banks like HSBC) out of billions. Others have covered that quite well.
I will, however, identify his accomplice in this scheme: the SEC. Chairman Chris Cox should share a cell with Bernie. How, in more than a decade of examining Bernie's firm, did the SEC miss this one? I'll bet I could have uncovered his little scheme.
But the SEC doesn't look into things like that, except after the fact. They primarily concern themselves with whether the I's are dotted and the T's crossed. They sent three examiners for a week-long visit to my little 13-employee firm this year, and what were their findings?
We don't keep a stock record book, a manual record of all transactions. But see, we don't sell stocks - just bonds. And every transaction is recorded electronically, and archived forever. Gee, it would seem that manual records could be doctored. Hmmm ...
And second, we claimed on our website to be "a leading provider of financial services to credit unions nationwide." We based that on a broad survey of credit unions that we commissioned in 2003. Yes, that was five years ago, but there have been no meaningful new entrants into this market space in that span. And yes, we paid for the survey, but we didn't pay people to say they use our firm. The results showed that more credit unions use our brokerage services than any other firm, and more credit unions use our advisory services than any other firm but one. Sounds like a "leading provider" to me. But the SEC would only let us make the claims if we disclosed that we paid for the survey, and that it was five years old. Not wanting a two-page disclaimer to accompany a one-line statement, we opted to scratch it altogether.
Don't get me wrong, I don't begrudge the findings. We now keep a securities record book manually, and we changed the website hype.
What galls me is that the SEC comes in and burdens us with this trivial crap while a Bernie Madoff makes off with his investors' money, to the tune of $50 billion, and three of the five largest securities firms on Wall Street go belly-up (with the other two not far behind).
Nero fiddles while Rome burns.
************
Want a peek at how the Fed is being a responsible steward of your money? From Bloomberg:
"Federal Reserve Chairman Ben S. Bernanke is basing hundreds of billions in emergency lending on credit ratings from companies that gave AAA grades to toxic securities."
That's right, boys and girls, the Fed is relying on Fitch, Moody's and S&P, the same clowns that brought us the subprime and Alt-A meltdown. Bloomberg goes on:
"The Fed has purchased $308.5 billion in commercial paper and lent $631.8 billion under eight credit programs, most of which require appraisals of short-term debt and loan collateral by 'major nationally recognized statistical ratings organizations.'" Bloomberg tried to get a list of whom the Fed has lent to, and the collateral for the borrowings, even going so far as to sue the Fed under the Freedom of Information Act. But the Fed is hiding behind the "trade secrets" barrier.
************
Here's my take on Obama's appointment of FINRA head Mary Schapiro to be the next SEC chair.
Here's her resume:
1988: appointed by Reagan as a commissioner of the SEC, re-appointed by Bush I, named acting chair by Clinton
1994: appointed to the Commodity Futures Trading Commission by Clinton.
1996: appointed to the National Association of Securities Dealers - Regulation by Clinton
2006: became chair and CEO of NASD, which merged with the NY Stock Exchange to become FINRA
During her tenure in these roles, we had the explosive growth of unregulated and impossible to value financial derivatives; the dot-com bubble and the housing bubble; the financial accounting scandals of the dot-com era (think Enron, WorldCom, et al), and the nightmare of the last year or so. And, like the SEC, FINRA waltzes into our firm looking for the most trivial arcane silliness, while Wall Street melts down.
Just another more-of-the-same selection. Old-school politics as usual inside the beltway. We are doomed.
PS. She's also a lifetime bureaucrat, like most of the other cabinet picks. She has a law degree, for pity's sake. For this role you need finance guy, not a lawyer.
************
Finally, I'll weigh in on Caroline Kennedy vying for Hillary Clinton's Senate seat.
I'm growing weary of the same names in seats of power in Washington: Clinton, Kennedy, Bush ... where has it all gotten us? We need change - meaningful change. We need some true representatives of the people, not old-school power-mongers. Let's have term limits and campaign finance reform, and bring in some new blood.
Thursday, December 11, 2008
The Weather Report
There's a storm brewing.
Next week, Morgan Stanley and Goldman will be the first of the financials to post fourth-quarter earnings. And it will not be pretty.
Big banks' problem assets mushroomed to more than $600 billion in the third quarter, a 15.5% quarter-on-quarter increase. And the change in direction of the TARP (which was passed after the third quarter ended) means the value of those assets is sharply lower this quarter. For some financials that report monthly, we saw massive losses in October. So the fourth-quarter results for the firms whose fiscal year ended last month should be particularly bleak. And that will bring fresh concerns in the markets.
The other front that's building is a new wave of foreclosures. I've talked before about option ARMs, and how the resets have accelerated due to the negative amortization caps being reached. We'll see those build in earnest beginning in the first quarter, with the peak coming in late 2009 to early 2010. By early next year, banks will own more than one million properties nationwide. The foreclosure sales will depress home prices further, more borrowers will find themselves upside down, and the "jingle mail" will continue, in an ugly death spiral.
Also, historically, the single biggest factor driving mortgage defaults is loss of a job. With joblessness poised to reach the highest level in decades next year, that also bodes ill for foreclosures.
The good news is that if you're in the market for a house in a year or two, it'll be the best buyer's market in US history. And - with Nevada leading the nation in foreclosure filings for a full two years now - those trips to Vegas are going to be much cheaper.
See? I don't just spread doom and gloom. There's a silver lining to every dark cloud.
Next week, Morgan Stanley and Goldman will be the first of the financials to post fourth-quarter earnings. And it will not be pretty.
Big banks' problem assets mushroomed to more than $600 billion in the third quarter, a 15.5% quarter-on-quarter increase. And the change in direction of the TARP (which was passed after the third quarter ended) means the value of those assets is sharply lower this quarter. For some financials that report monthly, we saw massive losses in October. So the fourth-quarter results for the firms whose fiscal year ended last month should be particularly bleak. And that will bring fresh concerns in the markets.
The other front that's building is a new wave of foreclosures. I've talked before about option ARMs, and how the resets have accelerated due to the negative amortization caps being reached. We'll see those build in earnest beginning in the first quarter, with the peak coming in late 2009 to early 2010. By early next year, banks will own more than one million properties nationwide. The foreclosure sales will depress home prices further, more borrowers will find themselves upside down, and the "jingle mail" will continue, in an ugly death spiral.
Also, historically, the single biggest factor driving mortgage defaults is loss of a job. With joblessness poised to reach the highest level in decades next year, that also bodes ill for foreclosures.
The good news is that if you're in the market for a house in a year or two, it'll be the best buyer's market in US history. And - with Nevada leading the nation in foreclosure filings for a full two years now - those trips to Vegas are going to be much cheaper.
See? I don't just spread doom and gloom. There's a silver lining to every dark cloud.
Friday, December 5, 2008
What's In The Cabinet?
At long last, Hank Paulson and the Bailout Mania crew give me a respite to address President-elect Obama's cabinet picks. Straight to it, then.
Secretary of State: Hillary Clinton
Yes, she's high-profile, but a statesperson? Hillary can be far from diplomatic at times, to the point of downright abrasiveness. She also has a habit of pursuing her own agenda, and she surely sees herself as Obama's equal, if not superior. So she may turn out to be a bit of a loose cannon. Then there's that bundle of testosterone-charged, loose-lipped baggage she carries around. I'm also a tad uncomfortable with her ties to Palestine.
On the flip side, I acknowledge that I'm no Hillary fan, and thus probably biased. And, there could have been far worse picks. I'll give this one a B-, with benefit of the doubt factored in.
Secretary of Defense: Robert Gates
This one frankly puzzles me. Yes, continuity's a good thing (sometimes). And yes, this provides the token Republican appointee that makes Obama look like a moderate. And yes, Gates is no Rummy. He also has a solid pedigree: USAF, CIA, NSC. But for a President who opposed the Iraq War from the very beginning, it still puzzles me. Yet, I can't argue with his qualifications, so I'll give this one an A.
National Security Advisor: Gen. James Jones
Another solid pedigree, and a more logical pick for Obama's cabinet, as he's been critical of the current administration's handling of the Iraq War. With his resume, this is an easy A.
Attorney General: Eric Holder
A Clinton administration holdover, which smacks of more-of-the-same, Washington insider politics. Instrumental in Clinton's 11th-hour pardon of Marc Rich. That gets him a C.
Secretary of Homeland Security: Janet Napolitano
She was Anita Hill's attorney in the Clarence Thomas case, and she led the investigation of Michael Fortier in the Oklahoma City bombing case. She's also one of the most highly-regarded governors in the US. But what does she know about homeland security? I'd rather see an ex-military or intelligence pick here. C.
Treasury Secretary: Tim Geithner
Career bureaucrat that lacks the Street experience or financial education for this post, and instrumental in every bad deal Hank Paulson's made this year. He's a Paulson clone. This warrants an F, especially given the economic maelstrom we're in.
National Economic Council: Larry Summers
Treasury Secretary under Clinton. Essentially fired as President of Harvard. A social economist in the Rubin mold. Would probably support nationalization of everything, a new New Deal, and trade limits. I'll upgrade him to a D because he's at least an educated economist who has a reasonable body of research work, even if the conclusions are misguided.
Commerce Secretary: Bill Richardson
I like the guy, but he should head Energy again, not Commerce. A career bureaucrat who has zero experience in the private sector. A business leader should head Commerce. C-, just because he's smart and I like him.
Health & Human Services: Tom Daschle
I never did like him, and this is another old-school Washington insider pick. And close ties to the health care lobby help to earn him a D for this role.
Chief of Staff: Rahm Emanuel
Another Washington insider, career bureaucrat pick, though he did spend a couple years in investment banking with Wasserstein Perella. Far left, and known for being a caustic pit bull. I don't like this pick, but I honestly don't know enough about the guy to offer lower than a neutral C.
Press Secretary: Robert Gibbs
From what little I know of the guy, he favors censorship of media outlets that might criticize his guy. Serving a President who seems to embrace a thought police type of strategy, that's a bit worrisome. Another C, in part due to how little is known of him and in part because he's just the press secretary, for crying out loud.
Overall
That Obama's opponent in the general election was derisively referred to as "McSame" is bitterly ironic, given that Obama's picks - including his veep - smack of old-school, business-as-usual, Washington politics. There is no doubt that McCain would have brought more outsiders in, including business leaders and people with more knowledge of things like health care and homeland security.
There are also deep ties to the Clinton administration throughout Obama's cabinet, which may be a play to the former Clinton base to shore up a run for a second term, which history tells us Obama will launch by February. But for a guy who ran on "Change," a continuation of inside-the-Beltway log-jam inertia politics is apparent evidence that he doesn't really know what change is. And this cabinet won't bring it.
The bottom line? I looked in the cabinet, and found nothing but stale leftovers.
Secretary of State: Hillary Clinton
Yes, she's high-profile, but a statesperson? Hillary can be far from diplomatic at times, to the point of downright abrasiveness. She also has a habit of pursuing her own agenda, and she surely sees herself as Obama's equal, if not superior. So she may turn out to be a bit of a loose cannon. Then there's that bundle of testosterone-charged, loose-lipped baggage she carries around. I'm also a tad uncomfortable with her ties to Palestine.
On the flip side, I acknowledge that I'm no Hillary fan, and thus probably biased. And, there could have been far worse picks. I'll give this one a B-, with benefit of the doubt factored in.
Secretary of Defense: Robert Gates
This one frankly puzzles me. Yes, continuity's a good thing (sometimes). And yes, this provides the token Republican appointee that makes Obama look like a moderate. And yes, Gates is no Rummy. He also has a solid pedigree: USAF, CIA, NSC. But for a President who opposed the Iraq War from the very beginning, it still puzzles me. Yet, I can't argue with his qualifications, so I'll give this one an A.
National Security Advisor: Gen. James Jones
Another solid pedigree, and a more logical pick for Obama's cabinet, as he's been critical of the current administration's handling of the Iraq War. With his resume, this is an easy A.
Attorney General: Eric Holder
A Clinton administration holdover, which smacks of more-of-the-same, Washington insider politics. Instrumental in Clinton's 11th-hour pardon of Marc Rich. That gets him a C.
Secretary of Homeland Security: Janet Napolitano
She was Anita Hill's attorney in the Clarence Thomas case, and she led the investigation of Michael Fortier in the Oklahoma City bombing case. She's also one of the most highly-regarded governors in the US. But what does she know about homeland security? I'd rather see an ex-military or intelligence pick here. C.
Treasury Secretary: Tim Geithner
Career bureaucrat that lacks the Street experience or financial education for this post, and instrumental in every bad deal Hank Paulson's made this year. He's a Paulson clone. This warrants an F, especially given the economic maelstrom we're in.
National Economic Council: Larry Summers
Treasury Secretary under Clinton. Essentially fired as President of Harvard. A social economist in the Rubin mold. Would probably support nationalization of everything, a new New Deal, and trade limits. I'll upgrade him to a D because he's at least an educated economist who has a reasonable body of research work, even if the conclusions are misguided.
Commerce Secretary: Bill Richardson
I like the guy, but he should head Energy again, not Commerce. A career bureaucrat who has zero experience in the private sector. A business leader should head Commerce. C-, just because he's smart and I like him.
Health & Human Services: Tom Daschle
I never did like him, and this is another old-school Washington insider pick. And close ties to the health care lobby help to earn him a D for this role.
Chief of Staff: Rahm Emanuel
Another Washington insider, career bureaucrat pick, though he did spend a couple years in investment banking with Wasserstein Perella. Far left, and known for being a caustic pit bull. I don't like this pick, but I honestly don't know enough about the guy to offer lower than a neutral C.
Press Secretary: Robert Gibbs
From what little I know of the guy, he favors censorship of media outlets that might criticize his guy. Serving a President who seems to embrace a thought police type of strategy, that's a bit worrisome. Another C, in part due to how little is known of him and in part because he's just the press secretary, for crying out loud.
Overall
That Obama's opponent in the general election was derisively referred to as "McSame" is bitterly ironic, given that Obama's picks - including his veep - smack of old-school, business-as-usual, Washington politics. There is no doubt that McCain would have brought more outsiders in, including business leaders and people with more knowledge of things like health care and homeland security.
There are also deep ties to the Clinton administration throughout Obama's cabinet, which may be a play to the former Clinton base to shore up a run for a second term, which history tells us Obama will launch by February. But for a guy who ran on "Change," a continuation of inside-the-Beltway log-jam inertia politics is apparent evidence that he doesn't really know what change is. And this cabinet won't bring it.
The bottom line? I looked in the cabinet, and found nothing but stale leftovers.
Thursday, December 4, 2008
I'll Give Hank This - He's Nimble
Once again, I had intended today to address President-elect Obama's cabinet picks, but Hank Paulson's keeping me busy. The former All-American offensive lineman for Dartmouth must have been one heck of a lead blocker in his day, given his ability to reverse direction.
Not long ago, Hank said he wouldn't be asking Congress for the second $350 billion tranche of the TARP money. Now, apparently he's considering doing just that. For what, you may ask?
Apparently encouraged by the surge of mortgage applications last week after rates fell more than a half-point, Hank wants to subsidize mortgage rates through Fannie and Freddie to bring rates down to 4.50%, effectively returning us to the days before the Depository Institutions Deregulation and Monetary Control Act of 1980 (DIDMCA).
Prior to DIDMCA, savings and mortgage rates were fixed. Then came the hyperinflation of the 1970s, brought on by one oil shock after another. So President Carter appointed Paul Volcker, a monetarist, to chair the Fed. Prior to Volcker, the Fed had primarily used the money supply as its primary policy tool. Volcker changed that, using the Fed funds target and the discount rate to shape policy.
To combat inflation, Volcker jacked up the Funds target into the high teens. Using interest rates in this way wreaked havoc on fixed savings and lending rates, so DIDMCA was passed, to allow those rates to float freely. One result of that was the S&L crisis, but it was the right move; we just exacerbated that crisis with one government invervention bungle after another, rather than just letting the free market work its Darwinian magic (sound familiar?).
So now Hank wants to fix mortgage rates at 4.50%, figuring that will solve the housing crisis once and for all by making mortgages more affordable. First, if this fix could really solve the housing crisis, why didn't Hank and Ben do it last spring, when they first reluctantly acknowledged that there was a crisis?
And second, does anyone really think it'll work? Not me.
The problem with housing is not affordability, it's simple supply and demand, those oft-overlooked but omnipresent forces that shape all things economic. I'll say this slowly, in case anyone in Washington is reading these words:
The ... problem ... is ... that ... we ... built ... way ... too ... many ... houses.
Given projected demographic and immigration trends at the beginning of this decade - both of which can be reliably predicted - we needed to build on the order of 1.5-1.6 million new homes a year throughout the decade. Housing starts were above that trend from 2002 to 2006, reaching as high as 2.3 million, and averaging about 1.9 million.
The result? An oversupply of housing stock on the order of about 1.7 million homes by the end of 2006. In other words, builders could have sat completely idle for an entire year before supply and demand returned to equilibrium.
Of course, they haven't, though they've slowed the pace considerably. But that slower pace has only served to work off a little less than half the glut thus far, which is why home prices keep falling. Add to that the huge increase in foreclosures, resulting in empty houses, and you begin to understand why we are where we are today.
Lower mortgage rates will not entice buyers into a market where home prices continue to fall. And the most recent price data suggest a re-acceleration of the pace of decline in home prices. By some reports, houses are undervalued in certain markets. But those markets aren't the problem. In the worst bubble areas, home prices still have further to fall.
The only way to entice people into those homes is to provide an incentive for people who couldn't otherwise afford a home - in other words, couldn't qualify for a mortgage at any rate of interest other than zero - to buy. The way to do that is to relax lending standards.
Again - sound familiar? That's how the bubble was formed in the first place. Lending standards have now returned to sanity, and there they should stay. We cannot afford another asset bubble of any kind in this economy.
Now, one could argue that lower rates mean more people facing foreclosure can afford to refinance. Again, lending standards come into play. The only thing lower rates will do is help those with good credit to be able to refinance into a lower-cost mortgage - folks like you and me, who bought no more house than they could afford, put up a reasonable down payment, and pay our bills on time.
We're not the problem. We're not facing foreclosure. And those that are cannot - and should not - be able to qualify for a mortgage. Besides, even if they get a new loan at a lower rate, said loan should be no more than the value of the home it's financing. Given the number of homes whose value is lower than the current mortgage balance, that won't fix the problem; you can't pay off the original mortgage with the refi.
Unfortunately, what's called for is a draconian and Darwinian response: let the people who can't afford to be homeowners stop being homeowners through the sadly painful foreclosure process. Shoe-horning those people into homes they couldn't afford to begin with sounded like a noble cause when the Barney Franks of the world pushed it back in the mid-'90s, but it was a gross disservice to those poor folks now facing eviction. And to the US taxpayer and the poor saps who bought the crap bonds backed by those loans.
Not long ago, Hank said he wouldn't be asking Congress for the second $350 billion tranche of the TARP money. Now, apparently he's considering doing just that. For what, you may ask?
Apparently encouraged by the surge of mortgage applications last week after rates fell more than a half-point, Hank wants to subsidize mortgage rates through Fannie and Freddie to bring rates down to 4.50%, effectively returning us to the days before the Depository Institutions Deregulation and Monetary Control Act of 1980 (DIDMCA).
Prior to DIDMCA, savings and mortgage rates were fixed. Then came the hyperinflation of the 1970s, brought on by one oil shock after another. So President Carter appointed Paul Volcker, a monetarist, to chair the Fed. Prior to Volcker, the Fed had primarily used the money supply as its primary policy tool. Volcker changed that, using the Fed funds target and the discount rate to shape policy.
To combat inflation, Volcker jacked up the Funds target into the high teens. Using interest rates in this way wreaked havoc on fixed savings and lending rates, so DIDMCA was passed, to allow those rates to float freely. One result of that was the S&L crisis, but it was the right move; we just exacerbated that crisis with one government invervention bungle after another, rather than just letting the free market work its Darwinian magic (sound familiar?).
So now Hank wants to fix mortgage rates at 4.50%, figuring that will solve the housing crisis once and for all by making mortgages more affordable. First, if this fix could really solve the housing crisis, why didn't Hank and Ben do it last spring, when they first reluctantly acknowledged that there was a crisis?
And second, does anyone really think it'll work? Not me.
The problem with housing is not affordability, it's simple supply and demand, those oft-overlooked but omnipresent forces that shape all things economic. I'll say this slowly, in case anyone in Washington is reading these words:
The ... problem ... is ... that ... we ... built ... way ... too ... many ... houses.
Given projected demographic and immigration trends at the beginning of this decade - both of which can be reliably predicted - we needed to build on the order of 1.5-1.6 million new homes a year throughout the decade. Housing starts were above that trend from 2002 to 2006, reaching as high as 2.3 million, and averaging about 1.9 million.
The result? An oversupply of housing stock on the order of about 1.7 million homes by the end of 2006. In other words, builders could have sat completely idle for an entire year before supply and demand returned to equilibrium.
Of course, they haven't, though they've slowed the pace considerably. But that slower pace has only served to work off a little less than half the glut thus far, which is why home prices keep falling. Add to that the huge increase in foreclosures, resulting in empty houses, and you begin to understand why we are where we are today.
Lower mortgage rates will not entice buyers into a market where home prices continue to fall. And the most recent price data suggest a re-acceleration of the pace of decline in home prices. By some reports, houses are undervalued in certain markets. But those markets aren't the problem. In the worst bubble areas, home prices still have further to fall.
The only way to entice people into those homes is to provide an incentive for people who couldn't otherwise afford a home - in other words, couldn't qualify for a mortgage at any rate of interest other than zero - to buy. The way to do that is to relax lending standards.
Again - sound familiar? That's how the bubble was formed in the first place. Lending standards have now returned to sanity, and there they should stay. We cannot afford another asset bubble of any kind in this economy.
Now, one could argue that lower rates mean more people facing foreclosure can afford to refinance. Again, lending standards come into play. The only thing lower rates will do is help those with good credit to be able to refinance into a lower-cost mortgage - folks like you and me, who bought no more house than they could afford, put up a reasonable down payment, and pay our bills on time.
We're not the problem. We're not facing foreclosure. And those that are cannot - and should not - be able to qualify for a mortgage. Besides, even if they get a new loan at a lower rate, said loan should be no more than the value of the home it's financing. Given the number of homes whose value is lower than the current mortgage balance, that won't fix the problem; you can't pay off the original mortgage with the refi.
Unfortunately, what's called for is a draconian and Darwinian response: let the people who can't afford to be homeowners stop being homeowners through the sadly painful foreclosure process. Shoe-horning those people into homes they couldn't afford to begin with sounded like a noble cause when the Barney Franks of the world pushed it back in the mid-'90s, but it was a gross disservice to those poor folks now facing eviction. And to the US taxpayer and the poor saps who bought the crap bonds backed by those loans.
Wednesday, December 3, 2008
More Bailout News
I had meant to turn my attention to my take on President-elect Obama's cabinet picks today, but that will have to wait. In addition to today's "Realized Losses" post, I have a few more bail-out comments.
The Detroit Three have upped the ante. Now, they want $34 billion, not $25 billion. As with the TARP, each mounting request grows.
Yesterday, it was reported that vehicle sales in the US hit a 26-year low. Given population growth since 1982, that is sobering. This morning, one of the talking heads on Bubblevision actually blamed Congress for the weak sales, arguing that would-be buyers stayed out of the market in November, fearing one or more US automakers would file bankruptcy. His point was that if Congress had bailed out the auto industry at their first request, sales would have jumped.
Balderdash.
Toyota isn't asking for a handout, and its year-over-year sales decline in November was worse than Ford's. Do you suppose that perhaps consumers are scared to buy a big-ticket item because they're facing the worst economic downturn since the Great Depression? Or that none but the most stellar credits can obtain financing? To paraphrase George Stephanopolous, it's the fundamentals, stupid.
The GAO has added its concerns over the TARP to those of the oversight panel appointed to review the bail-out (wait - wasn't that the GAO's job to begin with?). Specific criticisms included lack of a plan to ensure the TARP meets its goals. Heck, other than the rather fuzzy goal of "increasing lending," I'm not sure the TARP actually has any goals. The GAO also found that Treasury needs to roughly quadruple the staff assigned to adminstering the fail-out. Oh goody, more government spending on bureaucrats' salaries.
The TARP was intended to improve banks' access to capital, among other things. Well, it's having quite the opposite effect. China's sovereign wealth fund, the China Investment Corp., is done with investing in US financials. Having already lost $6 billion on investments in Morgan Stanley and Blackstone Group, the CIC's chairman said, "The policies of the developed nations on these institutions are not clear. Until they are clear, I don't dare to invest in them."
Gee, thanks, Hank. Your waffling has inspired the same confidence among the Chinese as it has here at home.
One other tidbit on Bubblevision this morning came from a guy on the floor of the Exchange, who was commenting on this morning's numbers. Among them was the fact that US productivity grew more than expected in the third quarter. But he failed to point out that it grew at its slowest pace thus far this year, in spite of much leaner payrolls. Why? Because output is leaner still.
But his most outrageous comment was that the better-than-expected result "demonstrates that companies are being proactive and getting out in front of this crisis."
Ahem. This was a third-quarter number, and we've been in recession since last December - a recession that some of us predicted many months earlier. If that's "getting out in front of it," I'm all the more glad I'm short those companies.
The Detroit Three have upped the ante. Now, they want $34 billion, not $25 billion. As with the TARP, each mounting request grows.
Yesterday, it was reported that vehicle sales in the US hit a 26-year low. Given population growth since 1982, that is sobering. This morning, one of the talking heads on Bubblevision actually blamed Congress for the weak sales, arguing that would-be buyers stayed out of the market in November, fearing one or more US automakers would file bankruptcy. His point was that if Congress had bailed out the auto industry at their first request, sales would have jumped.
Balderdash.
Toyota isn't asking for a handout, and its year-over-year sales decline in November was worse than Ford's. Do you suppose that perhaps consumers are scared to buy a big-ticket item because they're facing the worst economic downturn since the Great Depression? Or that none but the most stellar credits can obtain financing? To paraphrase George Stephanopolous, it's the fundamentals, stupid.
The GAO has added its concerns over the TARP to those of the oversight panel appointed to review the bail-out (wait - wasn't that the GAO's job to begin with?). Specific criticisms included lack of a plan to ensure the TARP meets its goals. Heck, other than the rather fuzzy goal of "increasing lending," I'm not sure the TARP actually has any goals. The GAO also found that Treasury needs to roughly quadruple the staff assigned to adminstering the fail-out. Oh goody, more government spending on bureaucrats' salaries.
The TARP was intended to improve banks' access to capital, among other things. Well, it's having quite the opposite effect. China's sovereign wealth fund, the China Investment Corp., is done with investing in US financials. Having already lost $6 billion on investments in Morgan Stanley and Blackstone Group, the CIC's chairman said, "The policies of the developed nations on these institutions are not clear. Until they are clear, I don't dare to invest in them."
Gee, thanks, Hank. Your waffling has inspired the same confidence among the Chinese as it has here at home.
One other tidbit on Bubblevision this morning came from a guy on the floor of the Exchange, who was commenting on this morning's numbers. Among them was the fact that US productivity grew more than expected in the third quarter. But he failed to point out that it grew at its slowest pace thus far this year, in spite of much leaner payrolls. Why? Because output is leaner still.
But his most outrageous comment was that the better-than-expected result "demonstrates that companies are being proactive and getting out in front of this crisis."
Ahem. This was a third-quarter number, and we've been in recession since last December - a recession that some of us predicted many months earlier. If that's "getting out in front of it," I'm all the more glad I'm short those companies.
Realized Losses
Much has been made about the accounting distinction between "realized" and "unrealized" losses during the current financial crisis, particularly in how it relates to the holdings of US financial institutions. Today, I will digress to talk about a couple of truly realized losses this world has recently experienced.
Al Ortolani was the head trainer at Pittsburg State University, my alma mater. While I was in college, one of my many majors was health and recreation, and that afforded me the opportunity to take Al's training class. The man was a perfectionist, but always available to his students, and he had a quick wit. He was old-school, something I've grown to admire.
So good at his craft was Al that he was selected to be the trainer for the US Olympic swim team on several occasions, and also worked with the Pan Am games and other international events. He even had a gold medal to show for his Olympic efforts.
Al was also PSU's first baseball coach, and his teams won two conference titles. The PSU baseball field is named for him, and Al coached the team's present coach. As recently as last year, at a spry 79 years of age, Al would sit in the dugout with the team, regaling the lads with stories of games and seasons past.
Al also roamed the sidelines of PSU football games, walking up and down the field to follow the action, carrying one of those little can/stool combinations, and unfolding it to have a seat and watch the game. Last year, my daughter and I had were on the sidelines, and my daughter was snapping pictures for her high school photography class. We were near the south goal line, watching the action come our way, when up walked Al. He unfolded his stool and sat nearby.
He then struck up a conversation with my daughter, as though he'd known her all her life. He talked about what a great day it was, and how if she positioned herself just so she could get a great shot of the unfolding play. After he walked away, I told her who he was, and she realized that his son, Al Jr., is an English teacher at her high school. He's one of the best-liked teachers there - no surprise, given the tree that apple fell from. Al's friendliness was among the many little things that has made my daughter so comfortable with the PSU environment that she's decided to follow her old man's footsteps next year and attend there.
Al passed from this world last week, at the age of 80. He was loved by all who knew him, and he'll be missed. But if an angel sprains an ankle in heaven, he or she will be well taken care of.
John Dallam was a member of my church. After retiring from a career in engineering and construction, John began our Habitat for Humanity ministry. He's responsible for some 90 or so homes that have been built in the Kansas City metro. He also served as an usher and a greeter, and counted the weekly offering.
After John's health prevented him from continuing to lead the Habitat effort, he awakened early one morning, convinced he heard God speak to him. What did God say to this tireless one-man mission team?
"John, you're not doing enough."
So John developed a program to teach teens in the church the construction trade, a program that came to be known as Body Builders. Through it, he created dozens of young John Dallams to go out and do Kingdom work here on earth, making their community a better place for those less fortunate.
John will also be missed by those of us who knew him, as he passed last Sunday. But as one of our pastors noted, in John 14 Jesus says, "In my Father's house there are many rooms ... I go to prepare a place for you." Now, He has plenty of help in doing so.
Rest in peace, Al and John.
Al Ortolani was the head trainer at Pittsburg State University, my alma mater. While I was in college, one of my many majors was health and recreation, and that afforded me the opportunity to take Al's training class. The man was a perfectionist, but always available to his students, and he had a quick wit. He was old-school, something I've grown to admire.
So good at his craft was Al that he was selected to be the trainer for the US Olympic swim team on several occasions, and also worked with the Pan Am games and other international events. He even had a gold medal to show for his Olympic efforts.
Al was also PSU's first baseball coach, and his teams won two conference titles. The PSU baseball field is named for him, and Al coached the team's present coach. As recently as last year, at a spry 79 years of age, Al would sit in the dugout with the team, regaling the lads with stories of games and seasons past.
Al also roamed the sidelines of PSU football games, walking up and down the field to follow the action, carrying one of those little can/stool combinations, and unfolding it to have a seat and watch the game. Last year, my daughter and I had were on the sidelines, and my daughter was snapping pictures for her high school photography class. We were near the south goal line, watching the action come our way, when up walked Al. He unfolded his stool and sat nearby.
He then struck up a conversation with my daughter, as though he'd known her all her life. He talked about what a great day it was, and how if she positioned herself just so she could get a great shot of the unfolding play. After he walked away, I told her who he was, and she realized that his son, Al Jr., is an English teacher at her high school. He's one of the best-liked teachers there - no surprise, given the tree that apple fell from. Al's friendliness was among the many little things that has made my daughter so comfortable with the PSU environment that she's decided to follow her old man's footsteps next year and attend there.
Al passed from this world last week, at the age of 80. He was loved by all who knew him, and he'll be missed. But if an angel sprains an ankle in heaven, he or she will be well taken care of.
John Dallam was a member of my church. After retiring from a career in engineering and construction, John began our Habitat for Humanity ministry. He's responsible for some 90 or so homes that have been built in the Kansas City metro. He also served as an usher and a greeter, and counted the weekly offering.
After John's health prevented him from continuing to lead the Habitat effort, he awakened early one morning, convinced he heard God speak to him. What did God say to this tireless one-man mission team?
"John, you're not doing enough."
So John developed a program to teach teens in the church the construction trade, a program that came to be known as Body Builders. Through it, he created dozens of young John Dallams to go out and do Kingdom work here on earth, making their community a better place for those less fortunate.
John will also be missed by those of us who knew him, as he passed last Sunday. But as one of our pastors noted, in John 14 Jesus says, "In my Father's house there are many rooms ... I go to prepare a place for you." Now, He has plenty of help in doing so.
Rest in peace, Al and John.
Tuesday, December 2, 2008
More Bailout Mania
Just when you thought it was safe to go back into the water ... Even as I was writing yesterday's post, House Speaker Pelosi and a group of US governors were meeting to hammer out details (read: pork) of a $500 billion stimulus package. Early hints are that it'll include extension of unemployment benefits (read: incentive to remain unemployed instead of taking a job now, which seems counter to the package's stated intent of creating jobs, but just as there's no "I" in "team," there's no "logic" in "legislation"); money for road and infrastructure construction (hopefully those jobs pay well enough to entice people off the unemployment rolls); money for the states to spend as they see fit (pork); a middle-class tax cut (define "middle-class," please); and "investments in renewable energy" (the benefits of which we'll hopefully see in our lifetimes).
I'll bet the OMB is having a devil of a time keeping up with their budget deficit projections. I hope they're using pencil.
After the TARP was passed, Congress created a panel to oversee its deployment (gee, wonder what that cost?). The head of the panel, in an early report, has concluded that "the government does not seem to have a coherent strategy for easing the financial crisis," according to the New York Times, which went on to report that "the government instead [seems] to be lurching from one tactic to the next without clarifying how each step fits into an overall plan."
Really? We had to create an oversight panel to reach that conclusion? I think the markets have already figured that out, and publish their own "report" with every 500-point drop in the Dow.
The panel's chairwoman also said that while giving banks money to lend appears to be a good idea assuming the problem is a lack of said funds, if the problem is really that borrowers' creditworthiness is deteriorating along with the economy, "pouring money into banks isn't going to fix that problem."
Again, we had to create an oversight panel to figure that out? Not to pat myself on the back, but Congress could save a lot of taxpayer money by just reading this blog.
The Detroit Three are back in Washington today, as this is the deadline for them to offer up a plan that will convince Congress that it's worth giving them a pile of bail-out money. I'm betting they get it. Merry Christmas, Mr. Taxpayer.
A final whimsical note: Fannie Mae and Freddie Mac announced on November 20 that they will temporarily halt foreclosure actions on occupied homes while they work on a mortgage modification program. The suspension will last through the holidays (Merry Christmas, Mr. Deadbeat Homeowner), and will affect about 16,000 borrowers.
Gee, that'll help tons. Total foreclosure filings in the US in October alone were about 280,000.
On a related note, B of A's aggressive plan to modify about 400,000 mortgages has hit a snag: bondholders have filed a class-action suit against the bank to kill the plan, which would place the financial burden of the modifications on bondholders. The suit calls for B of A to buy back the securitized loans before they can modify them, which would place the estimated $8.4 billion cost of restructuring the mortgages back on B of A. The CEO of the firm that brought the suit to court correctly noted, "Until we talk about protecting investors, desperately needed capital will not flow back to this market."
I'll bet the OMB is having a devil of a time keeping up with their budget deficit projections. I hope they're using pencil.
After the TARP was passed, Congress created a panel to oversee its deployment (gee, wonder what that cost?). The head of the panel, in an early report, has concluded that "the government does not seem to have a coherent strategy for easing the financial crisis," according to the New York Times, which went on to report that "the government instead [seems] to be lurching from one tactic to the next without clarifying how each step fits into an overall plan."
Really? We had to create an oversight panel to reach that conclusion? I think the markets have already figured that out, and publish their own "report" with every 500-point drop in the Dow.
The panel's chairwoman also said that while giving banks money to lend appears to be a good idea assuming the problem is a lack of said funds, if the problem is really that borrowers' creditworthiness is deteriorating along with the economy, "pouring money into banks isn't going to fix that problem."
Again, we had to create an oversight panel to figure that out? Not to pat myself on the back, but Congress could save a lot of taxpayer money by just reading this blog.
The Detroit Three are back in Washington today, as this is the deadline for them to offer up a plan that will convince Congress that it's worth giving them a pile of bail-out money. I'm betting they get it. Merry Christmas, Mr. Taxpayer.
A final whimsical note: Fannie Mae and Freddie Mac announced on November 20 that they will temporarily halt foreclosure actions on occupied homes while they work on a mortgage modification program. The suspension will last through the holidays (Merry Christmas, Mr. Deadbeat Homeowner), and will affect about 16,000 borrowers.
Gee, that'll help tons. Total foreclosure filings in the US in October alone were about 280,000.
On a related note, B of A's aggressive plan to modify about 400,000 mortgages has hit a snag: bondholders have filed a class-action suit against the bank to kill the plan, which would place the financial burden of the modifications on bondholders. The suit calls for B of A to buy back the securitized loans before they can modify them, which would place the estimated $8.4 billion cost of restructuring the mortgages back on B of A. The CEO of the firm that brought the suit to court correctly noted, "Until we talk about protecting investors, desperately needed capital will not flow back to this market."
Monday, December 1, 2008
Bailout Mania
Okay, it took me a little longer to get to this post than I thought. And yes, I was wrong about the sustainability of the dead-cat response to the massive two-day sell-off of a couple weeks ago. But the cat's headed back to earth today.
First, I'll talk about Bailout Mania, the newest game in Washington. It's like Monopoly, but you get to print money when you run out. Then, I'll offer my take on Obama's financial/economic "dream team" - in essence, letting you know whether the team's a nightmare.
Bailout Mania kicked into overdrive last week. Let's see if we can follow the logic. Paulson, after rushing the TARP through Congress, then reversing course on how to deploy the funds, invests the first round of $125 billion in several big banks that say they don't need the capital. But Paulson shoves it down their throats anyway, to prove the markets won't punish those banks for taking it, and thus encourage other banks that DO need the capital to step up to the window.
The market punished them anyway. In the first three weeks after the intial investment, the seven largest recipients saw their share prices decline by anywhere from 32% to 71%.
The biggest loser was Citigroup, the largest bank holding company in the US, whose share price went to less than $4 - Bear Stearns territory, in other words.
So last Monday, Treasury announced it would pump another $20 billion into Citi, on top of the $25 billion injected in the first round. Hey, why not? It worked so well the first time, let's see what it can do this time. What's a 71% loss off a share price of $3.77?
Citi's market value fell $49.8 billion from the first-round TARP announcement through the Friday before Treasury announced it would pony up the next $20 billion - in other words, its value declined more than the combined infusion from the taxpayer. True, it's rebounded since then, to about $7 a share as of this writing. But that's still a loss of more than $30 billion.
And more importantly, Citi's written off $60 billion over the last four quarters, averaging about $15 billion a quarter. So the capital infusion's only going to be good for about another year or so, at best, before Citi has its hand out again.
What's even more sinister about the Citi bailout, though, is the heretofore unprecedented move of backstopping losses on some $306 billion of Citi's bad investments and loans. So those losses will accrue directly to the US taxpayer.
What? Where are the checks and balances here? This is outside the TARP, as the amount of those losses is unknown at this point. CreditSights reported the deal was "structured in a way that existing debt holders are not impaired and equity investors are not overly diluted." But the taxpayer is screwed.
The very next day, the Fed announced it would buy $800 billion in mortgage-backed bonds and consumer loan-backed bonds, in an effort to add liquidity to those markets.
Wait a minute - wasn't that the original intent of the TARP? And again, where are the checks and balances?
Let's follow the Paulson daisy-chain here:
1. Paulson asks Congress to whisk through a $700 billion financial bail-out plan, and after some initial resistance, Congress agrees, but only after adding $100 billion or so of pork. A Treasury official acknowledges that the number was pulled out of thin air, and there is no "plan" regarding what will be done with the money.
2. Paulson announces that he'll use the money to buy crap bonds from banks, improving liquidity and hopefully shoring up valuations.
3. The UK announces a plan of their own, but says they'll use the money to take equity stakes in banks.
4. Paulson decides he likes the UK plan better, and reverses course, saying Treasury will inject equity into US banks.
5. Sensing reluctance on the part of US banks to ask for the money, lest the market punish them for being the weak sisters they are, Paulson forces the first round of money on nine banks that say they don't need it.
6. The market punishes said nine banks.
7. Paulson spends the entire first round of TARP money.
8. The Fed - with no Congressional approval - commits $800 billion to do what the TARP was intended to do to begin with. (Note that the Fed is already broke and borrowing money.)
Does this make sense? More importantly, does it inspire confidence that our Treasury Secretary knows what he's doing?
No, and no.
Total Fed and Treasury commitments to bail-outs to date are more than $7 trillion, or half of GDP. And, as one Congressman said, "Whether it's lending or spending, it's tax dollars that are going out the window and we end up holding collateral we don't know anything about. The time has come that we consider what sort of limitations we should be placing on the Fed ..."
No, that time was several trillion dollars ago.
A Financial Times article today raised the question that I, and others like me, have been asking for months now: are governments around the globe going to be able to fund these commitments? More than $2.5 billion of bonds are going to have to be issued next year alone to fund this mess. And who's going to buy them? Wall Street? Nope. China? Maybe, maybe not. But if they do, they're going to want astronomical interest rates on them.
At least Congress turned down Detroit - or did they? They sent the execs back to Michigan, chastised for flying into Washington on private jets (memo: next time take Amtrak, a la Joe Biden), and told them to come back when they have a plan. So now they're talking about car-pooling.
I will die of terminal mirth if the car breaks down.
So they'll come up with a plan, Congress will add some pork to it, and Bailout Mania will continue. I'm sure of it.
On to Obama's financial team. In brief, I'm underwhelmed.
Volcker, I like. But he should be Fed Chairman. He'd know what to do, and he's tough enough to do it. I think. I mean, he used to be, but he may be going soft in the noggin, considering that he's hitched his wagon to somebody who likes bail-outs. Instead, Volcker will chair a new group called the Economic Advisory Board.
Just what we need, a new economic advisory group. Guess the Council of Economic Advisors and the National Bureau of Economic Research weren't enough (both of these will get further mention below).
As for the former, it will be headed by former Clinton Treasury Secretary Larry Summers. Summers is a very smart guy (as is Volcker). But not a great forecaster. (Does that description remind you of anyone? Hint: his initials are Ben Bernanke. Or Alan Greenspan.) Summers advocates another big stimulus package, which will only add to the effects of Bailout Mania.
But the appointment with the most teeth is Treasury Secretary, for that role - as we've seen only too clearly - carries significant power. Power enough to bankrupt the nation.
Obama's pick for that spot is current New York Fed Bank President Tim Geithner. Wall Street lauded the pick.
Anything Wall Street lauds should scare the bejeebers out of you and me these days.
Geithner is the consummate deal-maker, a guy who can bring banking and investment bank (an entity that now has gone the way of the dodo bird) heads together in a smoke-filled back room and get them to agree to anything. But the deals he brokers are of questionable value. To wit: he's had a hand in everything from the Bear bail-out to the Lehman non-bail-out to the AIG deal.
My problem with Geithner is that he's a career bureaucrat. He's got degrees in government, Asian studies and international economics. That last one is okay, but what did he do with it?
He started his career with Kissinger and Associates in DC. Then, he went on to the Treasury, where he was Undersecretary for International Affairs under Bob Rubin and Summers. After that, he went to work for the Council on Foreign Relations, then the IMF, before heading the New York Fed, where he's also vice-chair of the Federal Open Market Committee. Sounds like he'd have made a better Secretary of State, with all that foreign affairs experience.
My concern is that he doesn't understand some of the more arcane nuances of Wall Street. And even if he does, his involvement in the Bear, Lehman and AIG deals - all of which were bad deals in my view - make him a questionable pick. But he's been described as a "very unusually talented young man ... [who] understands government and understands markets."
Of course, that description came from Hank Paulson. And, like Paulson, Geithner thinks Treasury should have expanded authority. Yikes.
In closing, here's my reference to the National Bureau of Economic Research. The NBER is the official proclaimer of recessions. Today, they announced that the US economy officially entered recession last December.
In so doing, they proved my predictions of April and May of 2007 correct. Back then, I was about the only guy making those predictions, when I said we'd enter recession by the beginning of 2008. So thank you, NBER. You are now on my Christmas card list.
First, I'll talk about Bailout Mania, the newest game in Washington. It's like Monopoly, but you get to print money when you run out. Then, I'll offer my take on Obama's financial/economic "dream team" - in essence, letting you know whether the team's a nightmare.
Bailout Mania kicked into overdrive last week. Let's see if we can follow the logic. Paulson, after rushing the TARP through Congress, then reversing course on how to deploy the funds, invests the first round of $125 billion in several big banks that say they don't need the capital. But Paulson shoves it down their throats anyway, to prove the markets won't punish those banks for taking it, and thus encourage other banks that DO need the capital to step up to the window.
The market punished them anyway. In the first three weeks after the intial investment, the seven largest recipients saw their share prices decline by anywhere from 32% to 71%.
The biggest loser was Citigroup, the largest bank holding company in the US, whose share price went to less than $4 - Bear Stearns territory, in other words.
So last Monday, Treasury announced it would pump another $20 billion into Citi, on top of the $25 billion injected in the first round. Hey, why not? It worked so well the first time, let's see what it can do this time. What's a 71% loss off a share price of $3.77?
Citi's market value fell $49.8 billion from the first-round TARP announcement through the Friday before Treasury announced it would pony up the next $20 billion - in other words, its value declined more than the combined infusion from the taxpayer. True, it's rebounded since then, to about $7 a share as of this writing. But that's still a loss of more than $30 billion.
And more importantly, Citi's written off $60 billion over the last four quarters, averaging about $15 billion a quarter. So the capital infusion's only going to be good for about another year or so, at best, before Citi has its hand out again.
What's even more sinister about the Citi bailout, though, is the heretofore unprecedented move of backstopping losses on some $306 billion of Citi's bad investments and loans. So those losses will accrue directly to the US taxpayer.
What? Where are the checks and balances here? This is outside the TARP, as the amount of those losses is unknown at this point. CreditSights reported the deal was "structured in a way that existing debt holders are not impaired and equity investors are not overly diluted." But the taxpayer is screwed.
The very next day, the Fed announced it would buy $800 billion in mortgage-backed bonds and consumer loan-backed bonds, in an effort to add liquidity to those markets.
Wait a minute - wasn't that the original intent of the TARP? And again, where are the checks and balances?
Let's follow the Paulson daisy-chain here:
1. Paulson asks Congress to whisk through a $700 billion financial bail-out plan, and after some initial resistance, Congress agrees, but only after adding $100 billion or so of pork. A Treasury official acknowledges that the number was pulled out of thin air, and there is no "plan" regarding what will be done with the money.
2. Paulson announces that he'll use the money to buy crap bonds from banks, improving liquidity and hopefully shoring up valuations.
3. The UK announces a plan of their own, but says they'll use the money to take equity stakes in banks.
4. Paulson decides he likes the UK plan better, and reverses course, saying Treasury will inject equity into US banks.
5. Sensing reluctance on the part of US banks to ask for the money, lest the market punish them for being the weak sisters they are, Paulson forces the first round of money on nine banks that say they don't need it.
6. The market punishes said nine banks.
7. Paulson spends the entire first round of TARP money.
8. The Fed - with no Congressional approval - commits $800 billion to do what the TARP was intended to do to begin with. (Note that the Fed is already broke and borrowing money.)
Does this make sense? More importantly, does it inspire confidence that our Treasury Secretary knows what he's doing?
No, and no.
Total Fed and Treasury commitments to bail-outs to date are more than $7 trillion, or half of GDP. And, as one Congressman said, "Whether it's lending or spending, it's tax dollars that are going out the window and we end up holding collateral we don't know anything about. The time has come that we consider what sort of limitations we should be placing on the Fed ..."
No, that time was several trillion dollars ago.
A Financial Times article today raised the question that I, and others like me, have been asking for months now: are governments around the globe going to be able to fund these commitments? More than $2.5 billion of bonds are going to have to be issued next year alone to fund this mess. And who's going to buy them? Wall Street? Nope. China? Maybe, maybe not. But if they do, they're going to want astronomical interest rates on them.
At least Congress turned down Detroit - or did they? They sent the execs back to Michigan, chastised for flying into Washington on private jets (memo: next time take Amtrak, a la Joe Biden), and told them to come back when they have a plan. So now they're talking about car-pooling.
I will die of terminal mirth if the car breaks down.
So they'll come up with a plan, Congress will add some pork to it, and Bailout Mania will continue. I'm sure of it.
On to Obama's financial team. In brief, I'm underwhelmed.
Volcker, I like. But he should be Fed Chairman. He'd know what to do, and he's tough enough to do it. I think. I mean, he used to be, but he may be going soft in the noggin, considering that he's hitched his wagon to somebody who likes bail-outs. Instead, Volcker will chair a new group called the Economic Advisory Board.
Just what we need, a new economic advisory group. Guess the Council of Economic Advisors and the National Bureau of Economic Research weren't enough (both of these will get further mention below).
As for the former, it will be headed by former Clinton Treasury Secretary Larry Summers. Summers is a very smart guy (as is Volcker). But not a great forecaster. (Does that description remind you of anyone? Hint: his initials are Ben Bernanke. Or Alan Greenspan.) Summers advocates another big stimulus package, which will only add to the effects of Bailout Mania.
But the appointment with the most teeth is Treasury Secretary, for that role - as we've seen only too clearly - carries significant power. Power enough to bankrupt the nation.
Obama's pick for that spot is current New York Fed Bank President Tim Geithner. Wall Street lauded the pick.
Anything Wall Street lauds should scare the bejeebers out of you and me these days.
Geithner is the consummate deal-maker, a guy who can bring banking and investment bank (an entity that now has gone the way of the dodo bird) heads together in a smoke-filled back room and get them to agree to anything. But the deals he brokers are of questionable value. To wit: he's had a hand in everything from the Bear bail-out to the Lehman non-bail-out to the AIG deal.
My problem with Geithner is that he's a career bureaucrat. He's got degrees in government, Asian studies and international economics. That last one is okay, but what did he do with it?
He started his career with Kissinger and Associates in DC. Then, he went on to the Treasury, where he was Undersecretary for International Affairs under Bob Rubin and Summers. After that, he went to work for the Council on Foreign Relations, then the IMF, before heading the New York Fed, where he's also vice-chair of the Federal Open Market Committee. Sounds like he'd have made a better Secretary of State, with all that foreign affairs experience.
My concern is that he doesn't understand some of the more arcane nuances of Wall Street. And even if he does, his involvement in the Bear, Lehman and AIG deals - all of which were bad deals in my view - make him a questionable pick. But he's been described as a "very unusually talented young man ... [who] understands government and understands markets."
Of course, that description came from Hank Paulson. And, like Paulson, Geithner thinks Treasury should have expanded authority. Yikes.
In closing, here's my reference to the National Bureau of Economic Research. The NBER is the official proclaimer of recessions. Today, they announced that the US economy officially entered recession last December.
In so doing, they proved my predictions of April and May of 2007 correct. Back then, I was about the only guy making those predictions, when I said we'd enter recession by the beginning of 2008. So thank you, NBER. You are now on my Christmas card list.
Monday, November 24, 2008
Interlude
Okay, tomorrow I'll get to my Paulson, Geithner and bail-out bashing. For now, I've got to take on the lighter side of the news.
First, we learn that Ashlee Simpson - Homer's daughter? - name her kid "Bronx Mowgli." What??? Do these people think they can insulate these kids from the real world forever? Or are they just setting them up for a reality TV spot 20 years from now? Or are they really savvy, and banking on the likelihood that, by the time their kids are grown, the world as we know it will have ceased to exist, due to the coming global financial meltdown?
My guess is that they're just clueless. Keanu Reeves said it best in "Parenthood" (and I'm paraphrasing): "You need a license to buy a gun, or drive a car. But any idiot can be a parent."
Next, Madonna has divorced her ex, Guy Ritchie. Why? Ritchie's "unreasonable behavior." Let's see, Madonna's done a porn book, converted to the whole Kabbalah thing, and, of course, released many songs that are just plain painful to listen to. But Ritchie's "unreasonable?" The only unreasonable thing I can find about the guy is that, after years of putting up with her general freakiness, he said he didn't want any of her money. Dude, this is the bail-out era - get what you can, while you can. Lord knows you paid your dues.
Okay, my PSU Gorillas got jobbed Saturday, losing by three points to the detestable Bearcats of Northwest Mizzourah State U. by a total of three points, after coughing up three turnovers and suffering a pathetically bad late-hit-out-of-bounds call that gave the 'Cats a field goal that would provide the deciding margin of victory.
No matter. The 'Cats travel to Abilene, Texas to take on the Wildcats of Abilene Christian U. - which whupped the 'Cats in their own house in the season opener. More significantly, the offensive juggernaut that is ACU won their Saturday playoff game against cross-state rival West Texas A&M by the score of 93-68 - that's football, folks, not basketball. ACU scored their 93 points in just 23 minutes of possession. The NW D was totally befuddled by Pitt in the second half Saturday. With ACU's no-huddle offense, plus their trifecta of the best QB, RB and WR in Division II football, NW is toast on D. They'd better come up with a way to score 95 points on ACU - which may not be all that hard, come to think of it.
First, we learn that Ashlee Simpson - Homer's daughter? - name her kid "Bronx Mowgli." What??? Do these people think they can insulate these kids from the real world forever? Or are they just setting them up for a reality TV spot 20 years from now? Or are they really savvy, and banking on the likelihood that, by the time their kids are grown, the world as we know it will have ceased to exist, due to the coming global financial meltdown?
My guess is that they're just clueless. Keanu Reeves said it best in "Parenthood" (and I'm paraphrasing): "You need a license to buy a gun, or drive a car. But any idiot can be a parent."
Next, Madonna has divorced her ex, Guy Ritchie. Why? Ritchie's "unreasonable behavior." Let's see, Madonna's done a porn book, converted to the whole Kabbalah thing, and, of course, released many songs that are just plain painful to listen to. But Ritchie's "unreasonable?" The only unreasonable thing I can find about the guy is that, after years of putting up with her general freakiness, he said he didn't want any of her money. Dude, this is the bail-out era - get what you can, while you can. Lord knows you paid your dues.
Okay, my PSU Gorillas got jobbed Saturday, losing by three points to the detestable Bearcats of Northwest Mizzourah State U. by a total of three points, after coughing up three turnovers and suffering a pathetically bad late-hit-out-of-bounds call that gave the 'Cats a field goal that would provide the deciding margin of victory.
No matter. The 'Cats travel to Abilene, Texas to take on the Wildcats of Abilene Christian U. - which whupped the 'Cats in their own house in the season opener. More significantly, the offensive juggernaut that is ACU won their Saturday playoff game against cross-state rival West Texas A&M by the score of 93-68 - that's football, folks, not basketball. ACU scored their 93 points in just 23 minutes of possession. The NW D was totally befuddled by Pitt in the second half Saturday. With ACU's no-huddle offense, plus their trifecta of the best QB, RB and WR in Division II football, NW is toast on D. They'd better come up with a way to score 95 points on ACU - which may not be all that hard, come to think of it.
Friday, November 21, 2008
Still No Bottom
It's been a while since I've posted. I was traveling last week with my lovely wife, driving around the Midwest with stops in St. Charles, MO (quaint), Louisville (for meetings), Memphis (for blues, a tour of the Gibson guitar factory and good, unhealthy Southern food), Springdale, AR (for some great fried chicken at AQ Chicken House, also quite unhealthy), and winding up in Pittsburg, KS to watch my beloved Gorillas smack down the University of Nebraska-Omaha for the second time this season, this time in a first-round NCAA Division II playoff game.
UNO's mascot is the Mavericks. It's been a tough year for Mavericks.
Okay, on to the topic at hand. I've been meaning to do some serious Paulson-bashing, but I'll try and get to that this weekend. The past two days in the market, while wildly profitable for contrarians like me, have been stunning enough that I need to take pause and address the question that Bubblevision asks every day:
Are we at the bottom?
Short answer: nope.
Yes, yesterday we breached the 2002 low on the S&P, which is now roughly half its level when I first predicted back in '01 that it would trade sideways for a decade or so. And we came close to the '02 low on the NASDAQ. But we ain't there yet.
A few simple answers to the question, "why?"
First, I saw a video interview with a technical analyst yesterday, and he was asked what he thought of the notion that stocks are cheap and we all should be buying. (Remember how the Oracle from Omaha told us all to buy stocks back in October? Brilliant dude, that Mr. Buffett. You'd have been better off taking your investment advice from Jimmy Buffett than Warren.) Anyway, the techie gave a very simple but sage answer:
"If stocks are cheap, why are they going down?"
Indeed. If stocks are cheap, there should be more buyers than sellers, which is the classic trader's answer to the question, "Why are we rallying?" Prices are going down, meaning there are more sellers than buyers. If stocks were cheap at these levels, the converse would be true.
Second, there are some fundamental things that I doubt anybody but me looks at, that tell me there's pain and suffering ahead that has not been priced into the market. To wit:
1. The NAHB Housing Market Index fell to a fresh all-time low of 9 this month. To put that in perspective, it was at 20 in April, above 30 a year before that, above 50 a year before that, and above 70 in mid-2005. And, as I've noted before, it correlates very well with the S&P 500, lagged about 18 months. Well, a year and a half ago, it augured for a low on the S&P of 600-ish. Before this month's new record low, it foretold a bottom in the S&P about 18 months out, at even less than that. And now, it's lower still.
I'm not using that as the basis for an argument that the S&P will fall to, oh, say 200. But it will certainly fall further. You have to dance with the one that brung ya, and housing brought us to this dance. The worst is not over yet for housing, so the worst is not over yet for the broader economy and the stock market. And the bottom for stocks could be a year or more away, though I'll probably turn cautious in about six months or so. Probably.
2. On a similar note, housing starts in October were the lowest ever. Let me repeat that: we started construction on fewer new homes in October than we ever have. Oh, okay, technically it's only since the data was first recorded - in 1959. A few scant months before I first graced this planet with my presence. But still - consider population growth since then. Yeah, you can go back further in time and find a date when we were building fewer homes. But they might just have been made out of lodgepoles and buffalo hides. Like I said, the worst is not over for housing, and as housing goes, so goes the economy.
(Oh, building permit issuance hit a record low, too, and they lead housing starts. So don't look for any improvement in starts soon, lest you think they're at a bottom too.)
3. Not only did the Empire Manufacturing Index - a survey-based index of manufacturers in the New York Fed region - fall to a new low in November, some of its components tell stories that are not yet priced into the market, but will affect it when the birds come home to roost.
a. Prices paid fell from an index level of 31.71 to 20.48. That's welcome news, as it means manufacturers' costs went down. Given that the component was as high as 77.89 in July, when oil prices peaked, that's a real positive.
However, prices received collapsed, falling from 20.73 to just 6.02. They had been generally tracking well with prices paid, but the sharp drop shows that, with the consumer in hibernation, companies have very suddenly lost all pricing power. They can't get financing, and now they can't sell product without just slashing prices. That will crush profits, beyond what current earnings expectations have factored in.
b. The number of employees component fell from -3.66 to -28.92, in a single month. And the average workweek fell from -9.76 to -25.30 (zero is neutral for these numbers, so negative readings signal contraction). This tells us two things. First, factories in the region cut payrolls sharply in November. We have yet to see the actual payroll numbers for the overall economy for the month, but they're likely to be shocking, below what's priced in. And second, for workers that remain, factories have slashed overtime. That's usually the last thing to go. And it means that those workers' purchasing power is eroding sharply.
Then there were a couple of things that seemingly might be priced into the market, but really aren't yet.
First is Citigroup's announcement that it will lay off 53,000 workers. Yeah, Citi's stock tanked, and dragged the markets with it, though the decline was broad-based. But Citi may yet fail or have to be sold or rescued. And, we have yet to price in the effect of those massive job cuts on spending, which has already fallen out of bed. Indeed, if the forecast for next week's personal spending release comes to realization, we'll see the weakest year-over-year pace of spending growth - barring the post-9/11 anomaly - since 1961. Weaker spending is expected, but not that weak.
Second, the possible bankruptcy of the automakers is not yet fully reflected, I don't think. Again, the impact on spending will be devastating, though I believe that allowing them to file Chapter 11 is still preferable to a bailout.
To digress briefly, let me explain why. The Detroit Three want $25 billion. The likely split is about $11 billion for GM and about $7 billion each for Chrysler and Ford. That's about two quarters' worth of cash at the current burn rate. So they'll either fail next year anyway, or need more cash. Lawmakers seem to be getting that, hence their reluctance to add more to the bulging bailout debt burden.
Back to the broader issue. Goldman Sachs released a report today forecast a whopping 5% decline in GDP growth this quarter, and unemployment hitting 9% at the end of 2009, and rising further into 2010. That is not priced into the markets. Even the Chicago Fed Bank President warned today that this recession will probably last through all of next year, when most earlier estimates called for weakness to subside around mid-year. Again, current equity valuations factor in those earlier estimates, not the new reality. (Well, it's not a new reality to me, but it is to Goldman and the Chicago Fed chief.) And a University of Michigan survey found that consumers expect the jobless rate to exceed 8.5% next year, so they apparently concur with Goldman.
Some of those consumers buy equities, at least through mutual funds. So, back to the techie's point - more sellers than buyers means stocks aren't cheap, and prices will fall further.
The simple fact that, after a massive two-day rout, we couldn't produce the usual euphoric dead-cat bounce today, is evidence that the tone is finally going full-bore bearish. So the bottom is yet to come.
UNO's mascot is the Mavericks. It's been a tough year for Mavericks.
Okay, on to the topic at hand. I've been meaning to do some serious Paulson-bashing, but I'll try and get to that this weekend. The past two days in the market, while wildly profitable for contrarians like me, have been stunning enough that I need to take pause and address the question that Bubblevision asks every day:
Are we at the bottom?
Short answer: nope.
Yes, yesterday we breached the 2002 low on the S&P, which is now roughly half its level when I first predicted back in '01 that it would trade sideways for a decade or so. And we came close to the '02 low on the NASDAQ. But we ain't there yet.
A few simple answers to the question, "why?"
First, I saw a video interview with a technical analyst yesterday, and he was asked what he thought of the notion that stocks are cheap and we all should be buying. (Remember how the Oracle from Omaha told us all to buy stocks back in October? Brilliant dude, that Mr. Buffett. You'd have been better off taking your investment advice from Jimmy Buffett than Warren.) Anyway, the techie gave a very simple but sage answer:
"If stocks are cheap, why are they going down?"
Indeed. If stocks are cheap, there should be more buyers than sellers, which is the classic trader's answer to the question, "Why are we rallying?" Prices are going down, meaning there are more sellers than buyers. If stocks were cheap at these levels, the converse would be true.
Second, there are some fundamental things that I doubt anybody but me looks at, that tell me there's pain and suffering ahead that has not been priced into the market. To wit:
1. The NAHB Housing Market Index fell to a fresh all-time low of 9 this month. To put that in perspective, it was at 20 in April, above 30 a year before that, above 50 a year before that, and above 70 in mid-2005. And, as I've noted before, it correlates very well with the S&P 500, lagged about 18 months. Well, a year and a half ago, it augured for a low on the S&P of 600-ish. Before this month's new record low, it foretold a bottom in the S&P about 18 months out, at even less than that. And now, it's lower still.
I'm not using that as the basis for an argument that the S&P will fall to, oh, say 200. But it will certainly fall further. You have to dance with the one that brung ya, and housing brought us to this dance. The worst is not over yet for housing, so the worst is not over yet for the broader economy and the stock market. And the bottom for stocks could be a year or more away, though I'll probably turn cautious in about six months or so. Probably.
2. On a similar note, housing starts in October were the lowest ever. Let me repeat that: we started construction on fewer new homes in October than we ever have. Oh, okay, technically it's only since the data was first recorded - in 1959. A few scant months before I first graced this planet with my presence. But still - consider population growth since then. Yeah, you can go back further in time and find a date when we were building fewer homes. But they might just have been made out of lodgepoles and buffalo hides. Like I said, the worst is not over for housing, and as housing goes, so goes the economy.
(Oh, building permit issuance hit a record low, too, and they lead housing starts. So don't look for any improvement in starts soon, lest you think they're at a bottom too.)
3. Not only did the Empire Manufacturing Index - a survey-based index of manufacturers in the New York Fed region - fall to a new low in November, some of its components tell stories that are not yet priced into the market, but will affect it when the birds come home to roost.
a. Prices paid fell from an index level of 31.71 to 20.48. That's welcome news, as it means manufacturers' costs went down. Given that the component was as high as 77.89 in July, when oil prices peaked, that's a real positive.
However, prices received collapsed, falling from 20.73 to just 6.02. They had been generally tracking well with prices paid, but the sharp drop shows that, with the consumer in hibernation, companies have very suddenly lost all pricing power. They can't get financing, and now they can't sell product without just slashing prices. That will crush profits, beyond what current earnings expectations have factored in.
b. The number of employees component fell from -3.66 to -28.92, in a single month. And the average workweek fell from -9.76 to -25.30 (zero is neutral for these numbers, so negative readings signal contraction). This tells us two things. First, factories in the region cut payrolls sharply in November. We have yet to see the actual payroll numbers for the overall economy for the month, but they're likely to be shocking, below what's priced in. And second, for workers that remain, factories have slashed overtime. That's usually the last thing to go. And it means that those workers' purchasing power is eroding sharply.
Then there were a couple of things that seemingly might be priced into the market, but really aren't yet.
First is Citigroup's announcement that it will lay off 53,000 workers. Yeah, Citi's stock tanked, and dragged the markets with it, though the decline was broad-based. But Citi may yet fail or have to be sold or rescued. And, we have yet to price in the effect of those massive job cuts on spending, which has already fallen out of bed. Indeed, if the forecast for next week's personal spending release comes to realization, we'll see the weakest year-over-year pace of spending growth - barring the post-9/11 anomaly - since 1961. Weaker spending is expected, but not that weak.
Second, the possible bankruptcy of the automakers is not yet fully reflected, I don't think. Again, the impact on spending will be devastating, though I believe that allowing them to file Chapter 11 is still preferable to a bailout.
To digress briefly, let me explain why. The Detroit Three want $25 billion. The likely split is about $11 billion for GM and about $7 billion each for Chrysler and Ford. That's about two quarters' worth of cash at the current burn rate. So they'll either fail next year anyway, or need more cash. Lawmakers seem to be getting that, hence their reluctance to add more to the bulging bailout debt burden.
Back to the broader issue. Goldman Sachs released a report today forecast a whopping 5% decline in GDP growth this quarter, and unemployment hitting 9% at the end of 2009, and rising further into 2010. That is not priced into the markets. Even the Chicago Fed Bank President warned today that this recession will probably last through all of next year, when most earlier estimates called for weakness to subside around mid-year. Again, current equity valuations factor in those earlier estimates, not the new reality. (Well, it's not a new reality to me, but it is to Goldman and the Chicago Fed chief.) And a University of Michigan survey found that consumers expect the jobless rate to exceed 8.5% next year, so they apparently concur with Goldman.
Some of those consumers buy equities, at least through mutual funds. So, back to the techie's point - more sellers than buyers means stocks aren't cheap, and prices will fall further.
The simple fact that, after a massive two-day rout, we couldn't produce the usual euphoric dead-cat bounce today, is evidence that the tone is finally going full-bore bearish. So the bottom is yet to come.
Friday, November 7, 2008
Give Me a Break!
I could be talking about today's curiously bi-polar stock market rally. (I will, momentarily.)
Or, I could be next in line to ask the government for a bailout of my own. (Heck, I may even do that.)
But no, I'm talking about all the global slurping over Obama's election as the next US president.
Yeah, it's an historically significant event. But, come on:
France's junior minister for human rights said, "This is the fall of the Berlin Wall times ten."
Are you kidding me? France, of all countries, whom we rescued from German occupation, says that the end of Communism in Germany was one-tenth as important as electing an African-American president - one that we don't even know yet will make a good one? (The guy went on to say, "on this morning, we all want to be American, so we can take a bite of this dream unfolding before our eyes." Dude - you don't have the intestinal fortitude to be American.)
An Israeli man said, "This may be the beginning of a new world. It marks the end of old elites." Yeah, and opens the door to new elites. But seriously, a new world? He's going to be the next POTUS, for crying out loud. Being African-American makes it a historical watershed. But it doesn't necessary mean he'll usher in revolutionary new ways to govern. Heck, you could argue that he doesn't even know HOW to govern, and will be learning on the job. Just ask his number two guy.
Some are even calling him president of the world, which, I guess, is only appropriate, since he himself called himself a "citizen of the world" on his recent world tour.
But the worst offender was a US foreign policy fellow, who said this:
"If you look at Jesus Christ, he walked on water and fed the 5,000 and he ended up getting crucified, so I think it's not unlikely that President-elect Obama is gonna disappoint some people too."
Wow. Maybe he really is "The One." Or maybe this guy's just another loose-lipped nut.
************
On to the rally. Let's see: unemployment is the worst in 14 years, the US economy has shed a half-million jobs in the last two months, Ford and GM are each burning through $7B a quarter and will soon run out of cash, and ... we get a 250-point rally.
The job situation's just going to get worse. At least one US automaker will fail next year, unless we outright nationalize them. Yeah, I know, Obama promised more bailout money. Which will come from ... where? Treasury got to be running out of ink. Also, Obama wants the money to be restricted to use in developing more fuel-efficient cars (you know, ones with fully-inflated tires).
That's not Detroit's problem, see - nobody's buying cars, not even hybrids. (And gas is cheap again.) Why not? Because they're all scared they're going to join the ranks of the unemployed soon. And the banks aren't lending to anybody who isn't uber-prime. And interest rates are going up, not down, in spite of the Fed giving away money (more on that in a minute).
Detroit's problem is a burn rate that is threatening its solvency. So, give 'em another $25B - about $8B apiece for GM, Ford and Chrysler, if you divvy it up equally, though it would probably be based on market cap or assets or ... hey, I know, how about "to each according to his need?" - and they've got another quarter's worth of cash to burn through. They just want to buy time, hoping this recession will end soon.
It won't. And even with more bailout money, one or more will eventually run out of cash and fail.
And that'll just exacerbate things. Washington's talking about the "hundreds of thousands" of jobs that would be lost if GM went down.
Try a couple million or more.
That's the estimate when you factor in the feeder plants, like glass companies and battery makers and seat belt manufacturers. Add in the third-order effects like the cafe next to the battery plant or the bar down the street from the glass company - which will go belly up from being empty at lunch or after work, respectively - and it gets even uglier.
I saw this in Anderson and Muncie, Indiana when I was an S&L examiner during the rust belt slump of the late '80s. Both were big GM feeder towns. Anderson had five financial institutions. Of those, four were given a "5" rating by their regulators, and one a "4." A "5" means, "We're going to find you a merger partner." A "4" typically means, "Next time we visit, we're going to give you a '5'."
You think "jingle mail" - the practice of dropping the keys in the mailbox and abandoning the house to the lender - is a new practice? Wrong. It was rampant throughout the rust belt in the late '80s. They all lit out for Texas, drawn by the oil boom.
Which also went bust, and they did it again in Texas, and headed to California. Then they did it again in the California real estate bust of the mid-90s, and moved to Vegas and Phoenix.
And guess what?
Each of these exoduses (exodi? I don't know) contributed to the S&L crisis, at least the first two. So things are going to also get worse for the banks if a GM fails.
All of this augurs for something other than a simple free-market response. But you know me, I just have this funny aversion from bankrupting the future to make the present less painful.
And that brings me to interest rates. Bond markets are scared of all this bailout money. Treasury issuance is getting huge. Ugly huge. Next week will bring a record deficit for the month of October, the first month in the US fiscal year. And it's going to get worse. We just can't keep adding to it.
Bond guys get this. So rates are going up. Foreign investors are going to demand the same. Heck, we'll probably see our Treasury debt downgraded. And credit's tightening again.
This is all just a mess. And stocks are rallying.
But I'm still short, confident that we have not seen the bottom yet.
************
A final note: AIG has already begun paying down its government loan, sooner than it anticipated.
How, you ask?
By floating commercial paper under the Fed's new funding facility that buys commercial paper. In other words, they're borrowing from the Fed via CP to pay back the outright loan they got from the Fed.
Isn't government intervention wonderful?
Or, I could be next in line to ask the government for a bailout of my own. (Heck, I may even do that.)
But no, I'm talking about all the global slurping over Obama's election as the next US president.
Yeah, it's an historically significant event. But, come on:
France's junior minister for human rights said, "This is the fall of the Berlin Wall times ten."
Are you kidding me? France, of all countries, whom we rescued from German occupation, says that the end of Communism in Germany was one-tenth as important as electing an African-American president - one that we don't even know yet will make a good one? (The guy went on to say, "on this morning, we all want to be American, so we can take a bite of this dream unfolding before our eyes." Dude - you don't have the intestinal fortitude to be American.)
An Israeli man said, "This may be the beginning of a new world. It marks the end of old elites." Yeah, and opens the door to new elites. But seriously, a new world? He's going to be the next POTUS, for crying out loud. Being African-American makes it a historical watershed. But it doesn't necessary mean he'll usher in revolutionary new ways to govern. Heck, you could argue that he doesn't even know HOW to govern, and will be learning on the job. Just ask his number two guy.
Some are even calling him president of the world, which, I guess, is only appropriate, since he himself called himself a "citizen of the world" on his recent world tour.
But the worst offender was a US foreign policy fellow, who said this:
"If you look at Jesus Christ, he walked on water and fed the 5,000 and he ended up getting crucified, so I think it's not unlikely that President-elect Obama is gonna disappoint some people too."
Wow. Maybe he really is "The One." Or maybe this guy's just another loose-lipped nut.
************
On to the rally. Let's see: unemployment is the worst in 14 years, the US economy has shed a half-million jobs in the last two months, Ford and GM are each burning through $7B a quarter and will soon run out of cash, and ... we get a 250-point rally.
The job situation's just going to get worse. At least one US automaker will fail next year, unless we outright nationalize them. Yeah, I know, Obama promised more bailout money. Which will come from ... where? Treasury got to be running out of ink. Also, Obama wants the money to be restricted to use in developing more fuel-efficient cars (you know, ones with fully-inflated tires).
That's not Detroit's problem, see - nobody's buying cars, not even hybrids. (And gas is cheap again.) Why not? Because they're all scared they're going to join the ranks of the unemployed soon. And the banks aren't lending to anybody who isn't uber-prime. And interest rates are going up, not down, in spite of the Fed giving away money (more on that in a minute).
Detroit's problem is a burn rate that is threatening its solvency. So, give 'em another $25B - about $8B apiece for GM, Ford and Chrysler, if you divvy it up equally, though it would probably be based on market cap or assets or ... hey, I know, how about "to each according to his need?" - and they've got another quarter's worth of cash to burn through. They just want to buy time, hoping this recession will end soon.
It won't. And even with more bailout money, one or more will eventually run out of cash and fail.
And that'll just exacerbate things. Washington's talking about the "hundreds of thousands" of jobs that would be lost if GM went down.
Try a couple million or more.
That's the estimate when you factor in the feeder plants, like glass companies and battery makers and seat belt manufacturers. Add in the third-order effects like the cafe next to the battery plant or the bar down the street from the glass company - which will go belly up from being empty at lunch or after work, respectively - and it gets even uglier.
I saw this in Anderson and Muncie, Indiana when I was an S&L examiner during the rust belt slump of the late '80s. Both were big GM feeder towns. Anderson had five financial institutions. Of those, four were given a "5" rating by their regulators, and one a "4." A "5" means, "We're going to find you a merger partner." A "4" typically means, "Next time we visit, we're going to give you a '5'."
You think "jingle mail" - the practice of dropping the keys in the mailbox and abandoning the house to the lender - is a new practice? Wrong. It was rampant throughout the rust belt in the late '80s. They all lit out for Texas, drawn by the oil boom.
Which also went bust, and they did it again in Texas, and headed to California. Then they did it again in the California real estate bust of the mid-90s, and moved to Vegas and Phoenix.
And guess what?
Each of these exoduses (exodi? I don't know) contributed to the S&L crisis, at least the first two. So things are going to also get worse for the banks if a GM fails.
All of this augurs for something other than a simple free-market response. But you know me, I just have this funny aversion from bankrupting the future to make the present less painful.
And that brings me to interest rates. Bond markets are scared of all this bailout money. Treasury issuance is getting huge. Ugly huge. Next week will bring a record deficit for the month of October, the first month in the US fiscal year. And it's going to get worse. We just can't keep adding to it.
Bond guys get this. So rates are going up. Foreign investors are going to demand the same. Heck, we'll probably see our Treasury debt downgraded. And credit's tightening again.
This is all just a mess. And stocks are rallying.
But I'm still short, confident that we have not seen the bottom yet.
************
A final note: AIG has already begun paying down its government loan, sooner than it anticipated.
How, you ask?
By floating commercial paper under the Fed's new funding facility that buys commercial paper. In other words, they're borrowing from the Fed via CP to pay back the outright loan they got from the Fed.
Isn't government intervention wonderful?
Wednesday, November 5, 2008
Now What?
Okay, as widely expected, an Obama win is in the bag. What does this mean?
It means I can watch TV again.
Seriously, I'll throw out my two cents' worth on the Obama victory from a political standpoint, then I'll talk about the economy and the markets, both from the perspective of the impact of an Obama presidency, and then in a broader sense.
As far as the political stuff, I believe strongly that it's time for healing. So I won't talk about my worst-case concerns with the guy. We'll just let the chips fall where they may, and if those concerns are realized, I'll have to refrain from saying "I told you so," I suppose. I'm okay with that.
Meanwhile, President-elect Barack Obama is my president, and as an American, I will, as I always have, do everything in my power to make America a better place for all of its citizens - unselfishly.
My general take is pretty simple. I was listening to some talking heads this morning, and they were talking about how many Obama voters, in the exit polls, said they were voting FOR Obama, not AGAINST McCain or Bush or the GOP. One guy said he thought the reason for that is that Obama's supporters genuinely like the guy.
I say poo.
How can you "genuinely like" a guy you've never met? We don't even know who he is. Every candidate has a campaign face, and he's certainly no exception. I think it's two things: one, as my doc pointed out this am when I was having my annual physical (which seems ironically appropriate the day after this election), he's so charismatic that he makes people think they know him. And two, his supporters were generally so desperate for change that they wanted to like him, they needed to like him.
I guess a third factor is that, in the internet age, everybody who reads a blog or a message board post or an e-mail or a PM or a text message thinks they know the other person. But there are screen personas, as we all know, just as there campaign faces.
Heck, I've never even actually taken an economics class in my life, and I'm actually a spearfisherman by trade. (Just kidding.)
Obama doesn't bring us a track record. He doesn't bring much experience. He's been campaigning for president virtually since he hit the Senate floor, and he hasn't served in a meaningful committee role, or authored any meaningful legislation, or even voted "yea" or "nay" on very many meaningful pieces of legislation.
His plans aren't really very detailed or well-defined. When he does provide details, he's prone to change them (maybe that was the "change" he kept promising). He uses a lot of keywords, like "hope," "change," and so on. That resonates with people more than actual plans do, because most people wouldn't know a good plan from a bad one, but they like happy talk.
So why did so many who don't actually know him, want so much to "like" him that they hoodwinked themselves into thinking they did?
Simple: they like the idea of him.
So the bottom line, to me, is that we elected an idea. I just hope it turns out to be a good one.
************
On to the economy. I think we saw today just what the markets think of an Obama presidency, now that they've had time to digest it.
Simply put, he'll be bad for business. On Wall Street and Main Street. Oh, some isolated pockets will do well, like stem cell research biotech firms. But by and large, increasing corporate and capital gains taxes hurts businesses. So does dramatically increasing regulation. So, at least initially, the markets will react unfavorably.
And if he does all the stuff he wants to do, he'll be bad for the overall economy. Of course, he won't be able to, given the sheer magnitude of the cowpie he's inherited. But if he had his druthers, he'd tax the bejeebers out of most of us, re-distribute the wealth, and double foreign aid (not his own, that wouldn't be a meaningful number - I mean taxpayer aid).
The key is with whom he surrounds himself, and no post is more important than Treasury chief. Several names have been mentioned. My take:
Larry Summers. Former Undersecretary. Smart guy. Unfortunately, you don't know what these guys are going to turn into when they hit Washington and have the Pelosis of the world demanding that they print more money to give away.
Warren Buffett. Would be an unmitigated disaster. This is "special interests" in all caps, the same guy who wrote a Wall Street Journal op-ed piece exhorting us all to buy stocks - a few days after he bought stakes in GE and Goldman, and a few days before the market tanked.
Paul Volcker. Not a Treasury guy, but he'd be my pick for Fed chief. Bernanke's chairmanship is up February 1, 2010, but I'm sure he could be persuaded to step down. If not, just lock him in a room with Volcker. I give Paul about ten minutes to bring him around.
My personal pick would be Bill Seidman, the former FDIC head.
On to the markets themselves.
From the bottom on October 27 until today, the Dow had risen by triple-digits four of those six days, and fell by just 5 points and 74 points on the other two. That produced a 17.7% gain over those six days. As a former colleague used to say, "Now if ya annualize that ..." Pretty remarkable.
Know what's even more remarkable? That stock traders produced that kind of rally in the face of this economic news over those six days:
1. A new record drop in home prices. (Housing is what brought us into this mess, and it's still getting worse. But at least that has been expected for a while.)
2. A record low in consumer confidence, dating back to 1967, when the data was first recorded. (Do stock traders not get that this means that even worse consumer spending than was previously expected is in store, which could not possibly have been priced into the market?)
3. The lowest reading on the Richmond Fed factory survey since at least 1993, when that data was first kept.
4. We did get a Fed rate cut, but that was entirely priced in by the futures markets - arguably, since the futures pits bet 50-50 on a 75 basis point cut, the market should have tanked at only 50 basis points. (It did sell off 74 points that day.)
5. A decline in GDP - not as big as expected, but a drop in personal consumption that was three times as bad as forecast. Again, this should tell us the consumer's totally out of the game, and is likely to remain so.
6. A paltry increase in personal income, and the biggest one-month drop in personal spending since 2005 - the worst year-over-year reading since 2003.
7. Continued above-target inflation.
8. The worst reading on the Chicago Purchasing Managers' Index since 2001.
9. The weakest domestic auto sales since 1983.
10. The worst reading on the broadest, national factory survey since 1982.
11. A decline in factory orders more than three times what was expected.
12. A 20% drop in mortgage applications, to the lowest level since 2000.
13. A huge spike in planned layoffs - up 80% vs. the same month last year.
14. A similarly huge spike in the number of private-sector jobs lost - about 50% more than forecast, and the biggest number since 2001.
15. A record decline in service sector sentiment.
Are you depressed yet? I sure am. This basically tells us things:
A. The consumer outlook is bleak. No amount of stimulus will help that.
B. Job losses are mounting, and will get worse, exacerbating A.
C. The factory sector is doing a rapid death-spiral into the economic crapper, which will exacerbate B, which will exacerbate A.
D. Home prices continue to fall unabated, and after B and C kick in, will fall further, exacerbating the foreclosure issue and causing more bank failures.
None of this was priced into the market. Don't let the talking heads on Bubblevision fool you. The market's steep October decline was all about the credit markets. Before, the panic was due to big banks and insurers and brokerage firms and mortgage guarantors failing. That's what the market reacted to through October.
Folks, now, we're talking about countries failing. Entire nations. Argentina, Ukraine, Pakistan, Iceland, Hungary and Belarus are all on the bubble. The IMF is running out of dough. China won't pony up to help them.
We are not yet at a market bottom. And today is an indication that the dead cat is coming back down.
Just wait 'til Friday's jobs report hits.
It means I can watch TV again.
Seriously, I'll throw out my two cents' worth on the Obama victory from a political standpoint, then I'll talk about the economy and the markets, both from the perspective of the impact of an Obama presidency, and then in a broader sense.
As far as the political stuff, I believe strongly that it's time for healing. So I won't talk about my worst-case concerns with the guy. We'll just let the chips fall where they may, and if those concerns are realized, I'll have to refrain from saying "I told you so," I suppose. I'm okay with that.
Meanwhile, President-elect Barack Obama is my president, and as an American, I will, as I always have, do everything in my power to make America a better place for all of its citizens - unselfishly.
My general take is pretty simple. I was listening to some talking heads this morning, and they were talking about how many Obama voters, in the exit polls, said they were voting FOR Obama, not AGAINST McCain or Bush or the GOP. One guy said he thought the reason for that is that Obama's supporters genuinely like the guy.
I say poo.
How can you "genuinely like" a guy you've never met? We don't even know who he is. Every candidate has a campaign face, and he's certainly no exception. I think it's two things: one, as my doc pointed out this am when I was having my annual physical (which seems ironically appropriate the day after this election), he's so charismatic that he makes people think they know him. And two, his supporters were generally so desperate for change that they wanted to like him, they needed to like him.
I guess a third factor is that, in the internet age, everybody who reads a blog or a message board post or an e-mail or a PM or a text message thinks they know the other person. But there are screen personas, as we all know, just as there campaign faces.
Heck, I've never even actually taken an economics class in my life, and I'm actually a spearfisherman by trade. (Just kidding.)
Obama doesn't bring us a track record. He doesn't bring much experience. He's been campaigning for president virtually since he hit the Senate floor, and he hasn't served in a meaningful committee role, or authored any meaningful legislation, or even voted "yea" or "nay" on very many meaningful pieces of legislation.
His plans aren't really very detailed or well-defined. When he does provide details, he's prone to change them (maybe that was the "change" he kept promising). He uses a lot of keywords, like "hope," "change," and so on. That resonates with people more than actual plans do, because most people wouldn't know a good plan from a bad one, but they like happy talk.
So why did so many who don't actually know him, want so much to "like" him that they hoodwinked themselves into thinking they did?
Simple: they like the idea of him.
So the bottom line, to me, is that we elected an idea. I just hope it turns out to be a good one.
************
On to the economy. I think we saw today just what the markets think of an Obama presidency, now that they've had time to digest it.
Simply put, he'll be bad for business. On Wall Street and Main Street. Oh, some isolated pockets will do well, like stem cell research biotech firms. But by and large, increasing corporate and capital gains taxes hurts businesses. So does dramatically increasing regulation. So, at least initially, the markets will react unfavorably.
And if he does all the stuff he wants to do, he'll be bad for the overall economy. Of course, he won't be able to, given the sheer magnitude of the cowpie he's inherited. But if he had his druthers, he'd tax the bejeebers out of most of us, re-distribute the wealth, and double foreign aid (not his own, that wouldn't be a meaningful number - I mean taxpayer aid).
The key is with whom he surrounds himself, and no post is more important than Treasury chief. Several names have been mentioned. My take:
Larry Summers. Former Undersecretary. Smart guy. Unfortunately, you don't know what these guys are going to turn into when they hit Washington and have the Pelosis of the world demanding that they print more money to give away.
Warren Buffett. Would be an unmitigated disaster. This is "special interests" in all caps, the same guy who wrote a Wall Street Journal op-ed piece exhorting us all to buy stocks - a few days after he bought stakes in GE and Goldman, and a few days before the market tanked.
Paul Volcker. Not a Treasury guy, but he'd be my pick for Fed chief. Bernanke's chairmanship is up February 1, 2010, but I'm sure he could be persuaded to step down. If not, just lock him in a room with Volcker. I give Paul about ten minutes to bring him around.
My personal pick would be Bill Seidman, the former FDIC head.
On to the markets themselves.
From the bottom on October 27 until today, the Dow had risen by triple-digits four of those six days, and fell by just 5 points and 74 points on the other two. That produced a 17.7% gain over those six days. As a former colleague used to say, "Now if ya annualize that ..." Pretty remarkable.
Know what's even more remarkable? That stock traders produced that kind of rally in the face of this economic news over those six days:
1. A new record drop in home prices. (Housing is what brought us into this mess, and it's still getting worse. But at least that has been expected for a while.)
2. A record low in consumer confidence, dating back to 1967, when the data was first recorded. (Do stock traders not get that this means that even worse consumer spending than was previously expected is in store, which could not possibly have been priced into the market?)
3. The lowest reading on the Richmond Fed factory survey since at least 1993, when that data was first kept.
4. We did get a Fed rate cut, but that was entirely priced in by the futures markets - arguably, since the futures pits bet 50-50 on a 75 basis point cut, the market should have tanked at only 50 basis points. (It did sell off 74 points that day.)
5. A decline in GDP - not as big as expected, but a drop in personal consumption that was three times as bad as forecast. Again, this should tell us the consumer's totally out of the game, and is likely to remain so.
6. A paltry increase in personal income, and the biggest one-month drop in personal spending since 2005 - the worst year-over-year reading since 2003.
7. Continued above-target inflation.
8. The worst reading on the Chicago Purchasing Managers' Index since 2001.
9. The weakest domestic auto sales since 1983.
10. The worst reading on the broadest, national factory survey since 1982.
11. A decline in factory orders more than three times what was expected.
12. A 20% drop in mortgage applications, to the lowest level since 2000.
13. A huge spike in planned layoffs - up 80% vs. the same month last year.
14. A similarly huge spike in the number of private-sector jobs lost - about 50% more than forecast, and the biggest number since 2001.
15. A record decline in service sector sentiment.
Are you depressed yet? I sure am. This basically tells us things:
A. The consumer outlook is bleak. No amount of stimulus will help that.
B. Job losses are mounting, and will get worse, exacerbating A.
C. The factory sector is doing a rapid death-spiral into the economic crapper, which will exacerbate B, which will exacerbate A.
D. Home prices continue to fall unabated, and after B and C kick in, will fall further, exacerbating the foreclosure issue and causing more bank failures.
None of this was priced into the market. Don't let the talking heads on Bubblevision fool you. The market's steep October decline was all about the credit markets. Before, the panic was due to big banks and insurers and brokerage firms and mortgage guarantors failing. That's what the market reacted to through October.
Folks, now, we're talking about countries failing. Entire nations. Argentina, Ukraine, Pakistan, Iceland, Hungary and Belarus are all on the bubble. The IMF is running out of dough. China won't pony up to help them.
We are not yet at a market bottom. And today is an indication that the dead cat is coming back down.
Just wait 'til Friday's jobs report hits.
Sunday, November 2, 2008
"Dear Senator Obama ..."
No, I'm not going to write the Senator a letter. I don't want him to have my e-mail address. But if I were going to write him one, this is what it would say:
"Thank you for finally saying something substantive, something more than just platitudinous references to 'Hope' and 'Change.' In doing so, you have caused me to re-think my decision regarding my vote in Tuesday's presidential election.
You see, before your statement, it had been my intent to write in Ron Paul's name. You, Sen. McCain, and Sen. Biden all voted for the ill-conceived bailout plan, demonstrating to me your total ignorance regarding all things economic. But with a few simple words, you swayed me.
You called me selfish, because I believe that I pay enough in taxes as it is.
I don't know about hope, but talk about audacity.
Let's examine just how selfish I am. Yes, I make a very comfortable living - above your threshold of 'rich,' depending on the day, since your definition seemingly changes by the day. But I'm comfortably above the lowest threshold you threw out, at least. What do I do to redistribute my wealth, besides paying taxes?
Well, for starters, I give a considerable amount to charity - more than you, in fact, even though you're a multi-millionaire and I'm not. The money I voluntarily give helps repair and improve schools in the local community - schools the government refuses to take care of with its tax dollars. It helps feed and clothe the homeless in Kansas City as well. It helps hurricane victims in the Gulf region, tornado victims in Greensburg, KS, and flood victims in Iowa and Missouri. It helps bring medical care to the poor in Mexico, helps house and educate displaced flood victims in Honduras, helps build churches in Russia and the Ukraine, and helps fight the spread of AIDS and malaria in sub-Saharan Africa.
I also take care of my own. When my Mom's furnace shot craps a couple of years ago, during the winter, and she called me in tears, not having the money to replace it, I bought her a furnace. When my elderly aunt and her daughter didn't have enough money to fly from Texas to North Carolina earlier this year to attend the funeral of my cousin, who had died quite suddenly, I used my frequent flyer miles to buy their tickets.
Why am I reluctant to pay more in taxes, given that I'm such a charitable soul?
Simple: I'm a better steward of money than you and your ilk. I think I can do a little better job of redistributing wealth than giving it to makers of wooden arrows for toy bow-and-arrow sets. You obviously can't.
Neither can McCain, and neither can Biden. Hence my conclusion that I should vote my conscience and write in Ron Paul, who can, even though I knew that would be a throw-away vote that would benefit you. Much as my vote for Ross Perot in 1992 was a de facto vote for Bill Clinton.
But, as I said, you've swayed me.
Let's talk about you now. You have a grandmother in Kenya, who, according to you, lives on a buck-fifty a day. You're a multi-millionaire. Ever send her a check? Nope. But you saw fit to use her story in your best-selling book, the one that netted you millions. When you spent taxpayer money for a trip to Kenya to further your campaign for president, you stopped in on granny for a photo op. Then you told her you didn't have any more time to spend with her, because, hey, you're a busy guy.
Don't worry, Barack. Granny loves you anyway.
You also have a half-brother in Kenya who lives in poverty, and whom you also don't help.
Then there's Auntie Zeituni, your "favorite aunt," according to your memoir. (Even more audacity: a 47-year-old guy who has yet to accomplish anything of substance in his life writes a memoir? When the original assignment was to write a book on race relations? Apparently you think your life story is more important than the global issue of race relations.)
Auntie Z. lives in a slum in Boston. You used her in your book. But have you given her a dime? No. Now, we learn that she's here illegally. When asked about it, you basically suggest she should be deported: "all appropriate laws should be followed."
Oh, but she broke yet another law: she contributed $260 to your campaign. Yes, even though you never gave her so much as a dime of the riches you reaped from the book you used her in, she - who lives in public housing - gave you $260. Since she's not a citizen, that's an illegal contribution. Bet you're not advocating that all appropriate laws be followed on that one, huh?
You also said of Auntie Z., "I never really knew her." So what did she do to gain "favorite aunt" status - promise you that if you ever ran for president she'd give you money?
Then there's Uncle Omar, who also lives in poverty in Boston - or he did, until thieves broke into his place and beat and robbed him, then he was evicted.
And about your charitable giving: it's a woefully pitiful fraction of your income. And you never gave a dime until you declared your candidacy.
So, I'm selfish? Dude, given your net worth, your income, your treatment of your family, and your giving, you're the poster child for selfishness.
Oh, don't get me wrong. I know many people like you - people who brag incessantly about how much money they make or how well their investments are doing, but don't do a thing to help their families, don't show any interest in how their kids or grandkids or aged parents are doing, don't give a dime to charity, and don't lift a finger to help those less fortunate than them. And to a person, these aren't the stereotypical GOP fat-cats, at least not the ones I know. They're the self-described 'centrists' who've never voted for somebody without a 'D' behind their name in their lives, who get their jollies ridiculing people of faith, and want government to regulate everything. Obama supporters, all.
And, like you, empty buckets.
Well, I have no use for the lot of you. And for you to have the audacity to call me selfish, because I don't want to put yet more money into the hands of a socialistic wealth-redistributing pork-barrel spendthrift like you, is just the last straw.
Sorry, Barack. But I can't throw away a vote on principle for Ron Paul, even though I - unlike you - am a principled guy.
I'm voting on the best chance to ensure that Barack Obama is never POTUS.
Thanks to you, I'm voting for John McCain."
"Thank you for finally saying something substantive, something more than just platitudinous references to 'Hope' and 'Change.' In doing so, you have caused me to re-think my decision regarding my vote in Tuesday's presidential election.
You see, before your statement, it had been my intent to write in Ron Paul's name. You, Sen. McCain, and Sen. Biden all voted for the ill-conceived bailout plan, demonstrating to me your total ignorance regarding all things economic. But with a few simple words, you swayed me.
You called me selfish, because I believe that I pay enough in taxes as it is.
I don't know about hope, but talk about audacity.
Let's examine just how selfish I am. Yes, I make a very comfortable living - above your threshold of 'rich,' depending on the day, since your definition seemingly changes by the day. But I'm comfortably above the lowest threshold you threw out, at least. What do I do to redistribute my wealth, besides paying taxes?
Well, for starters, I give a considerable amount to charity - more than you, in fact, even though you're a multi-millionaire and I'm not. The money I voluntarily give helps repair and improve schools in the local community - schools the government refuses to take care of with its tax dollars. It helps feed and clothe the homeless in Kansas City as well. It helps hurricane victims in the Gulf region, tornado victims in Greensburg, KS, and flood victims in Iowa and Missouri. It helps bring medical care to the poor in Mexico, helps house and educate displaced flood victims in Honduras, helps build churches in Russia and the Ukraine, and helps fight the spread of AIDS and malaria in sub-Saharan Africa.
I also take care of my own. When my Mom's furnace shot craps a couple of years ago, during the winter, and she called me in tears, not having the money to replace it, I bought her a furnace. When my elderly aunt and her daughter didn't have enough money to fly from Texas to North Carolina earlier this year to attend the funeral of my cousin, who had died quite suddenly, I used my frequent flyer miles to buy their tickets.
Why am I reluctant to pay more in taxes, given that I'm such a charitable soul?
Simple: I'm a better steward of money than you and your ilk. I think I can do a little better job of redistributing wealth than giving it to makers of wooden arrows for toy bow-and-arrow sets. You obviously can't.
Neither can McCain, and neither can Biden. Hence my conclusion that I should vote my conscience and write in Ron Paul, who can, even though I knew that would be a throw-away vote that would benefit you. Much as my vote for Ross Perot in 1992 was a de facto vote for Bill Clinton.
But, as I said, you've swayed me.
Let's talk about you now. You have a grandmother in Kenya, who, according to you, lives on a buck-fifty a day. You're a multi-millionaire. Ever send her a check? Nope. But you saw fit to use her story in your best-selling book, the one that netted you millions. When you spent taxpayer money for a trip to Kenya to further your campaign for president, you stopped in on granny for a photo op. Then you told her you didn't have any more time to spend with her, because, hey, you're a busy guy.
Don't worry, Barack. Granny loves you anyway.
You also have a half-brother in Kenya who lives in poverty, and whom you also don't help.
Then there's Auntie Zeituni, your "favorite aunt," according to your memoir. (Even more audacity: a 47-year-old guy who has yet to accomplish anything of substance in his life writes a memoir? When the original assignment was to write a book on race relations? Apparently you think your life story is more important than the global issue of race relations.)
Auntie Z. lives in a slum in Boston. You used her in your book. But have you given her a dime? No. Now, we learn that she's here illegally. When asked about it, you basically suggest she should be deported: "all appropriate laws should be followed."
Oh, but she broke yet another law: she contributed $260 to your campaign. Yes, even though you never gave her so much as a dime of the riches you reaped from the book you used her in, she - who lives in public housing - gave you $260. Since she's not a citizen, that's an illegal contribution. Bet you're not advocating that all appropriate laws be followed on that one, huh?
You also said of Auntie Z., "I never really knew her." So what did she do to gain "favorite aunt" status - promise you that if you ever ran for president she'd give you money?
Then there's Uncle Omar, who also lives in poverty in Boston - or he did, until thieves broke into his place and beat and robbed him, then he was evicted.
And about your charitable giving: it's a woefully pitiful fraction of your income. And you never gave a dime until you declared your candidacy.
So, I'm selfish? Dude, given your net worth, your income, your treatment of your family, and your giving, you're the poster child for selfishness.
Oh, don't get me wrong. I know many people like you - people who brag incessantly about how much money they make or how well their investments are doing, but don't do a thing to help their families, don't show any interest in how their kids or grandkids or aged parents are doing, don't give a dime to charity, and don't lift a finger to help those less fortunate than them. And to a person, these aren't the stereotypical GOP fat-cats, at least not the ones I know. They're the self-described 'centrists' who've never voted for somebody without a 'D' behind their name in their lives, who get their jollies ridiculing people of faith, and want government to regulate everything. Obama supporters, all.
And, like you, empty buckets.
Well, I have no use for the lot of you. And for you to have the audacity to call me selfish, because I don't want to put yet more money into the hands of a socialistic wealth-redistributing pork-barrel spendthrift like you, is just the last straw.
Sorry, Barack. But I can't throw away a vote on principle for Ron Paul, even though I - unlike you - am a principled guy.
I'm voting on the best chance to ensure that Barack Obama is never POTUS.
Thanks to you, I'm voting for John McCain."
Tuesday, October 28, 2008
"Back in the US, Back in the US, Back in the US ... SR"
Does anybody still think we're not a socialist republic? Then read this:
http://biz.yahoo.com/ap/081028/financial_meltdown.html
This line is particularly chilling:
"Though there are limits on how much Washington can pressure banks, (Perino) noted that banks are regulated by the federal government.
'They will be watching very closely ...', she said."
I hear jackboots.
Bank regulators' job is not to tell banks what business decisions to make. Their job, as my boss back when I was among their ranks told me, is to shoot the wounded.
Some are drinking the administration's kool-aid, the flavor that says if the banks are getting taxpayer dollars, being told what to do with them is just one of the strings that rightfully should be attached to a handout.
Okay, let's try that logic on you, dear reader: let's assume you were one of the lucky recipients of a tax rebate check last summer. Let's further assume you wanted to save it for your kids' education, or pay down your credit card balance. Instead, some fed goon in Ray-Ban aviators shows up at your door, escorts you to a dark sedan with heavily tinted windows, drives you to the mall, and makes you spend every last dime on more crap you don't need.
How would you feel?
Attaching those strings up front to the bank deal might have been okay, except Paulson knew no bank would take the money if he dictated their business. Heck, just the way he doled it out was totalitarian.
In the UK (from whom Paulson stole the idea of nationalizing banks, or "injecting capital" as we like to call it on this side of the pond), they went to the nine largest banks and said, take it if you want it. Five did, and their stocks got hammered. The other four declined, and theirs only got slapped around a bit.
So Paulson figured our banks would be skittish about taking the aid. So he sits the nine largest US banks down in a private meeting and says, you're taking this money - period - but we'll "leak" that you were forced to, so investors won't think you actually needed the dough, even though we know some of you desperately do. Then other banks will see that your stock prices didn't tank after you got the capital infusion, and they'll belly up to the bar.
First they force banks to take capital they don't want (with some strings attached, by the way, like exec comp limits). The banks - who are only in this position in the first place because they got punch-drunk on bad loans - have sobered up and now don't want to make those loans, especially during a recession, when credit quality across the spectrum deteriorates. Instead, they want to insulate against the further write-downs that are sure to come, de-leverage their bloated balance sheets, and build capital - and also perhaps acquire some of the weak sisters. In short, return the industry to health.
Instead, Paulson's spiking the punch. And with everybody at the party honoring the AA pledge, he's hinting at using his jack-booted bouncers to - instead of doing their jobs and throwing out the unruly ones - force-feeding the booze to the crowd.
More bad loans are not the answer to this economy - quite the opposite. Paulson, Bush, et al don't get that though. They think we can consume our way out of any mess. Not this time.
The other troubling aspect to this is that it further reduces transparency at a time when we desperately need it in the markets. They're not saying who actually might need the capital among these first nine, and they're not revealing the ones that are approaching them, but getting rejected.
Why?
For fear their stock prices might fall once the news gets out that they're 1) short of capital and 2) so weak that even Uncle Sam won't take a flier on them.
In other words, the banks are hiding information from their shareholders and depositors about how weak they are - information those constituencies have a right to know. And the very regulators that are charged with preventing them from doing that are colluding with them in the effort.
http://biz.yahoo.com/ap/081028/financial_meltdown.html
This line is particularly chilling:
"Though there are limits on how much Washington can pressure banks, (Perino) noted that banks are regulated by the federal government.
'They will be watching very closely ...', she said."
I hear jackboots.
Bank regulators' job is not to tell banks what business decisions to make. Their job, as my boss back when I was among their ranks told me, is to shoot the wounded.
Some are drinking the administration's kool-aid, the flavor that says if the banks are getting taxpayer dollars, being told what to do with them is just one of the strings that rightfully should be attached to a handout.
Okay, let's try that logic on you, dear reader: let's assume you were one of the lucky recipients of a tax rebate check last summer. Let's further assume you wanted to save it for your kids' education, or pay down your credit card balance. Instead, some fed goon in Ray-Ban aviators shows up at your door, escorts you to a dark sedan with heavily tinted windows, drives you to the mall, and makes you spend every last dime on more crap you don't need.
How would you feel?
Attaching those strings up front to the bank deal might have been okay, except Paulson knew no bank would take the money if he dictated their business. Heck, just the way he doled it out was totalitarian.
In the UK (from whom Paulson stole the idea of nationalizing banks, or "injecting capital" as we like to call it on this side of the pond), they went to the nine largest banks and said, take it if you want it. Five did, and their stocks got hammered. The other four declined, and theirs only got slapped around a bit.
So Paulson figured our banks would be skittish about taking the aid. So he sits the nine largest US banks down in a private meeting and says, you're taking this money - period - but we'll "leak" that you were forced to, so investors won't think you actually needed the dough, even though we know some of you desperately do. Then other banks will see that your stock prices didn't tank after you got the capital infusion, and they'll belly up to the bar.
First they force banks to take capital they don't want (with some strings attached, by the way, like exec comp limits). The banks - who are only in this position in the first place because they got punch-drunk on bad loans - have sobered up and now don't want to make those loans, especially during a recession, when credit quality across the spectrum deteriorates. Instead, they want to insulate against the further write-downs that are sure to come, de-leverage their bloated balance sheets, and build capital - and also perhaps acquire some of the weak sisters. In short, return the industry to health.
Instead, Paulson's spiking the punch. And with everybody at the party honoring the AA pledge, he's hinting at using his jack-booted bouncers to - instead of doing their jobs and throwing out the unruly ones - force-feeding the booze to the crowd.
More bad loans are not the answer to this economy - quite the opposite. Paulson, Bush, et al don't get that though. They think we can consume our way out of any mess. Not this time.
The other troubling aspect to this is that it further reduces transparency at a time when we desperately need it in the markets. They're not saying who actually might need the capital among these first nine, and they're not revealing the ones that are approaching them, but getting rejected.
Why?
For fear their stock prices might fall once the news gets out that they're 1) short of capital and 2) so weak that even Uncle Sam won't take a flier on them.
In other words, the banks are hiding information from their shareholders and depositors about how weak they are - information those constituencies have a right to know. And the very regulators that are charged with preventing them from doing that are colluding with them in the effort.
Friday, October 24, 2008
An Outrage
After I learned my Congressman's vote was bought by $64k of campaign contributions by financials the day of and day after the TARP vote, I sent him this e-mail. Vote your conscience. Dennis Moore is a criminal who should be removed from office and spend the rest of his life behind bars.
"Dear Congressman Moore,
I wrote you at the time of the TARP vote, urging you to vote against it.
You voted for it.
You then responded to me, and today, I responded to you.
Now, I've learned why you voted for the TARP.
Big finance bought your vote. For a lousy $64,000. For that amount of money, you sold your constituents and the rest of the American people down the river, to the tune of a trillion dollars.
Yet you have the audacity to post on your website the outrageous - if grammatically fractured (which should come as no surprise given your apparent intellectual impairment) words:
"We must change our budgeting practices that will put our future generations deeply in debt. Tough choices must be made, but if Kansas families have to live within a budget, and it's time the federal government did as well."
You'd get a "C" in a middle-school English class for those lines. But you'd get an "F" in economics.
Maybe you meant to say, "We must change our budgeting practices TO put our future generations deeply in debt." Because that's how you voted.
Why?
Because you sold your soul, and your constituents' tax dollars, for the $64,000 in campaign contributions that you received the day of your vote for the TARP and the day after from financial institutions that would benefit from your vote.
Your defense?
"So what? I've raised a million dollars in this campaign."
Yeah - one vote at a time.
You, sir, are a criminal, on the worst order. You should spend the rest of your natural life behind bars. It is a travesty that you have the gall to post the National Debt Clock on your website, with those fractured-English words quoted above.
A debt clock that you've been all too willing to accelerate through your own reckless spending.
Hey, Dennis - I've got a few extra bucks lying around, because I saw this crap coming and I'm short this market. Can I buy a vote or two? What's your going rate? Like the Bunny Ranch, or other houses of prostitution, do you have a menu that I can download, that will show me how much a vote on this bill or that would cost me? I might hit the bid for the right vote.
Don't bother sending it to me, though. I'm sure you've got your price, but I would never pay for your vote. You are despicable, and again, should spend the rest of your life in a Federal cell with your pal Barney Frank.
Rest assured that I will instead spend my dollars fighting tirelessly to remove you and your ilk from office, permanently.
Sincerely,
Brian Hague"
"Dear Congressman Moore,
I wrote you at the time of the TARP vote, urging you to vote against it.
You voted for it.
You then responded to me, and today, I responded to you.
Now, I've learned why you voted for the TARP.
Big finance bought your vote. For a lousy $64,000. For that amount of money, you sold your constituents and the rest of the American people down the river, to the tune of a trillion dollars.
Yet you have the audacity to post on your website the outrageous - if grammatically fractured (which should come as no surprise given your apparent intellectual impairment) words:
"We must change our budgeting practices that will put our future generations deeply in debt. Tough choices must be made, but if Kansas families have to live within a budget, and it's time the federal government did as well."
You'd get a "C" in a middle-school English class for those lines. But you'd get an "F" in economics.
Maybe you meant to say, "We must change our budgeting practices TO put our future generations deeply in debt." Because that's how you voted.
Why?
Because you sold your soul, and your constituents' tax dollars, for the $64,000 in campaign contributions that you received the day of your vote for the TARP and the day after from financial institutions that would benefit from your vote.
Your defense?
"So what? I've raised a million dollars in this campaign."
Yeah - one vote at a time.
You, sir, are a criminal, on the worst order. You should spend the rest of your natural life behind bars. It is a travesty that you have the gall to post the National Debt Clock on your website, with those fractured-English words quoted above.
A debt clock that you've been all too willing to accelerate through your own reckless spending.
Hey, Dennis - I've got a few extra bucks lying around, because I saw this crap coming and I'm short this market. Can I buy a vote or two? What's your going rate? Like the Bunny Ranch, or other houses of prostitution, do you have a menu that I can download, that will show me how much a vote on this bill or that would cost me? I might hit the bid for the right vote.
Don't bother sending it to me, though. I'm sure you've got your price, but I would never pay for your vote. You are despicable, and again, should spend the rest of your life in a Federal cell with your pal Barney Frank.
Rest assured that I will instead spend my dollars fighting tirelessly to remove you and your ilk from office, permanently.
Sincerely,
Brian Hague"
Check, Please!
As in, "checks and balances." Remember those? What happened to them? Did I go Rip van Winkle there, and miss the re-write of the Constitution?
Fed Chairman Ben Bernanke announced this week that the Fed will spend $600 billion to buy crap investments from money market mutual funds. This is outside of the $700 billion TARP.
On whose authority?
The Fed is broke - it's borrowing money in the markets, by having Treasury issue bonds, which they're doing at a gluttonous pace. So where will the money come from?
You know where.
The FDIC (which is also near-broke) already turned money market funds into bank accounts, by covering them with deposit insurance. Never mind the fact that money market funds aren't banks, which are the purview of the FDIC. And never mind the moral hazard of rewarding people who sought the higher yield of a money fund relative to a bank account, perfectly willing to live with the risk of placing their money uninsured.
Until, of course, they actually start losing it.
Banks are also the purview of the Fed. Not mutual funds. What's next, equity mutual funds? Hey, why not?
But what I really want to know is, where does Ben Bernanke get the authority to spend 600,000,000,000 taxpayer dollars? And why is no one outraged about this, besides me?
************
Meanwhile, on a related note, Hank Paulson has now announced that he'll use the TARP to buy into insurance companies too. What's next? This guy really does look like a buffoon these days - running around like a chicken with its head cut off. He has no earthly clue what he's doing, or what he'll do next. Might as well make some popcorn and just sit back and watch the show.
************
I was watching Bubblevision a few days ago, and Mark Haines was interviewing Mohamed El-Erian, the co-CEO of PIMCO, which is the largest bond-fund manager in the world. El-Erian is a smart dude, by the way. Haines asked him how the recent equity market carnage was going to impact the psyche of the average American.
El-Erian (I'm paraphrasing here): "Well, they're going to open their 401(k) statement, and they're going to decide to cut back, and consume less. And for the next five years or so, we're going to move to a more savings-based economy."
Haines (looking aghast): "If we move to a savings-based economy, what kind of economy do we have?"
A healthy one. The kind that, in 1982 when the savings rate was about 10%, spawned a nice, long, sustainable period of economic and stock market growth, with nary a bubble. Guys like Haines are part of the problem.
************
Did anyone else watch The Blame Game this week? You know, that entertaining game show on C-SPAN where our elected leaders waste more of our money by calling the "culprits" on the carpet and asking them inane questions, trying to obfuscate the fact that it is actually Congress itself that is to blame for most crises?
Now, I'm not saying that Alan "Mr. Bubble" Greenspan has no culpability in this mess, though his sin was not in opposing regulation so much as it was in encouraging speculative risk-taking by keeping money artificially cheap too long. The Godfather of Leverage should learn what a friend and I were discussing today at lunch: if you fill the ocean with chum, the sharks will feed. The sharks are doing nothing wrong in this instance; they are merely doing what sharks do. They do not need behavior-modifying regulation. They need their food source restricted. Stop dumping the chum, and they'll stop feeding on it.
And I'm not saying the SEC hasn't been asleep at the switch, nor the ratings agencies. I don't know why they picked on John Snow. For one thing, his successor bears far more guilt than he does, but of course Paulson, along with Bernanke, is the darling of our socialist government right now. So let's go after their predecessors. The other reason they shouldn't have picked on Snow is that, with a big smile on his face, he called them out, noting that he came before them pleading for curbs on Fannie and Freddie in 2003 and again in 2005, only to have them reject his pleas.
Rep. Frank Mica of Florida correctly pointed out that the blame lies with those who accepted sweetheart loans from Countrywide in favor of blocking regulation and pushing reckless lending, like Senate Banking Committee Chair Christopher Dodd did. Or those who took record amounts of money from Fannie Mae, like Senator Obama did. On that latter point, Mica complained that the final hearing on this matter isn't scheduled until November 20 - after the election.
But Committee Chairman Waxman called Mica's comments "political," and said that now is not the time to get political. Like all of this isn't political to begin with. Sadly, you won't see Mica's comments on the evening recaps. And nobody but my wife and I were probably watching the full hearings.
The same thing happened after the S&L crisis: Congress commissioned a study and grilled everybody in the industry, seeking to know what caused the crisis. I've said this before, but I'd just haul in a big mirror and hold it up in front of 'em.
************
I've said for the better part of a year now that the stock market has been ignoring what the bond market's been telling it. Today, the US stock market is ignoring what the rest of the world is telling it. Asia sold off to the tune of 8-9% overnight. Europe, about 5%, after the UK reported its first GDP contraction in 16 years. US stock futures were halted limit down in overnight trading. The Dow plunged nearly 500 points just after the opening bell.
Right now, it's off a mere 2.15%, and may just rally to a gain on the day.
But is the US market overdone? Hardly. A money manager from Blackrock was on Bubblevision this morning, saying, "The US economy just fell off a cliff in October."
Dude. GDP growth was negative in the fourth quarter of last year. It was only positive in the first quarter of this year due to an inventory build-up. It was only positive in the third due to a) the mailing of tax rebate checks, which were spent on gas, and b) strong exports thanks to a weak US dollar, a trade that has played itself out. This wasn't a sudden "fall off a cliff." It's been a slow, steady slide. You equity guys just never priced it in until now.
Well, next week we'll see third quarter GDP, and it'll be at least as weak as the UK's - maybe worse. Maybe then we'll see the gut-check that is due this market. Oversold? Methinks not, since the multiples don't yet reflect the coming slashed earnings guidance from US companies for 2009 and beyond. And actual earnings will likely miss guidance. (Misguidance - I made a funny!)
The Nikkei is down 56% from its peak, and Japan isn't even in recession yet. Trust me - we have further to fall.
Oh, and about Warren Buffett's recent exhortation to buy stocks, as he proclaimed he was doing? A real patriot, huh? And shouldn't we all throw our money behind an investor as savvy as the Oracle from Omaha?
Folks, understand this: no, Warren's not stupid. He's smart like a fox. And he recently took big stakes in Goldman Sachs and GE. Both of which are since on the bankruptcy bubble. Warren wants you to throw your money in, too, in hopes the momentum will prop the market up and salvage his big bets. In other words, he's joining Bush, Bernanke and Paulson in trying to jawbone stocks higher.
Don't drink the kool-aid.
************
My one-liner of the day: if ratings agencies rated wine, vinegar would be a 98.
************
I read a comment from a guy today who was talking about the priced-in likelihood that the Fed will cut the funds rate by half to three-quarters of a point next week. He said, "Their only option is to inflate our way out of this mess."
Tell me again how that works? I honestly don't know where they find these "experts."
************
I have a new idea for presidential debates. It comes from my undergrad days, when I majored in psychology.
Hook 'em up to an electric shock-delivering device. Every time they go beyond the time limit with an answer, or answer something other than the question that was posed, zap 'em.
Hard.
For every time they do it, increase the voltage.
Ultimate solution: electrocute all the politicians before they can get into office.
************
I leave you with this analogy, inspired by Dr. Greenspan, who referred to the credit crisis as a "tsunami."
It is indeed that. And Paulson, Bernanke, and Congress are standing on the beach, training huge, powerful fire-hoses at the coming mega-wave. They believe throwing all the water possible at the coming tsunami, they can turn it back.
Of course, they will be swamped. But by adding considerably to the water volume, they ensure that the wave will reach much further inland, and do much greater damage, than it otherwise would have.
Fed Chairman Ben Bernanke announced this week that the Fed will spend $600 billion to buy crap investments from money market mutual funds. This is outside of the $700 billion TARP.
On whose authority?
The Fed is broke - it's borrowing money in the markets, by having Treasury issue bonds, which they're doing at a gluttonous pace. So where will the money come from?
You know where.
The FDIC (which is also near-broke) already turned money market funds into bank accounts, by covering them with deposit insurance. Never mind the fact that money market funds aren't banks, which are the purview of the FDIC. And never mind the moral hazard of rewarding people who sought the higher yield of a money fund relative to a bank account, perfectly willing to live with the risk of placing their money uninsured.
Until, of course, they actually start losing it.
Banks are also the purview of the Fed. Not mutual funds. What's next, equity mutual funds? Hey, why not?
But what I really want to know is, where does Ben Bernanke get the authority to spend 600,000,000,000 taxpayer dollars? And why is no one outraged about this, besides me?
************
Meanwhile, on a related note, Hank Paulson has now announced that he'll use the TARP to buy into insurance companies too. What's next? This guy really does look like a buffoon these days - running around like a chicken with its head cut off. He has no earthly clue what he's doing, or what he'll do next. Might as well make some popcorn and just sit back and watch the show.
************
I was watching Bubblevision a few days ago, and Mark Haines was interviewing Mohamed El-Erian, the co-CEO of PIMCO, which is the largest bond-fund manager in the world. El-Erian is a smart dude, by the way. Haines asked him how the recent equity market carnage was going to impact the psyche of the average American.
El-Erian (I'm paraphrasing here): "Well, they're going to open their 401(k) statement, and they're going to decide to cut back, and consume less. And for the next five years or so, we're going to move to a more savings-based economy."
Haines (looking aghast): "If we move to a savings-based economy, what kind of economy do we have?"
A healthy one. The kind that, in 1982 when the savings rate was about 10%, spawned a nice, long, sustainable period of economic and stock market growth, with nary a bubble. Guys like Haines are part of the problem.
************
Did anyone else watch The Blame Game this week? You know, that entertaining game show on C-SPAN where our elected leaders waste more of our money by calling the "culprits" on the carpet and asking them inane questions, trying to obfuscate the fact that it is actually Congress itself that is to blame for most crises?
Now, I'm not saying that Alan "Mr. Bubble" Greenspan has no culpability in this mess, though his sin was not in opposing regulation so much as it was in encouraging speculative risk-taking by keeping money artificially cheap too long. The Godfather of Leverage should learn what a friend and I were discussing today at lunch: if you fill the ocean with chum, the sharks will feed. The sharks are doing nothing wrong in this instance; they are merely doing what sharks do. They do not need behavior-modifying regulation. They need their food source restricted. Stop dumping the chum, and they'll stop feeding on it.
And I'm not saying the SEC hasn't been asleep at the switch, nor the ratings agencies. I don't know why they picked on John Snow. For one thing, his successor bears far more guilt than he does, but of course Paulson, along with Bernanke, is the darling of our socialist government right now. So let's go after their predecessors. The other reason they shouldn't have picked on Snow is that, with a big smile on his face, he called them out, noting that he came before them pleading for curbs on Fannie and Freddie in 2003 and again in 2005, only to have them reject his pleas.
Rep. Frank Mica of Florida correctly pointed out that the blame lies with those who accepted sweetheart loans from Countrywide in favor of blocking regulation and pushing reckless lending, like Senate Banking Committee Chair Christopher Dodd did. Or those who took record amounts of money from Fannie Mae, like Senator Obama did. On that latter point, Mica complained that the final hearing on this matter isn't scheduled until November 20 - after the election.
But Committee Chairman Waxman called Mica's comments "political," and said that now is not the time to get political. Like all of this isn't political to begin with. Sadly, you won't see Mica's comments on the evening recaps. And nobody but my wife and I were probably watching the full hearings.
The same thing happened after the S&L crisis: Congress commissioned a study and grilled everybody in the industry, seeking to know what caused the crisis. I've said this before, but I'd just haul in a big mirror and hold it up in front of 'em.
************
I've said for the better part of a year now that the stock market has been ignoring what the bond market's been telling it. Today, the US stock market is ignoring what the rest of the world is telling it. Asia sold off to the tune of 8-9% overnight. Europe, about 5%, after the UK reported its first GDP contraction in 16 years. US stock futures were halted limit down in overnight trading. The Dow plunged nearly 500 points just after the opening bell.
Right now, it's off a mere 2.15%, and may just rally to a gain on the day.
But is the US market overdone? Hardly. A money manager from Blackrock was on Bubblevision this morning, saying, "The US economy just fell off a cliff in October."
Dude. GDP growth was negative in the fourth quarter of last year. It was only positive in the first quarter of this year due to an inventory build-up. It was only positive in the third due to a) the mailing of tax rebate checks, which were spent on gas, and b) strong exports thanks to a weak US dollar, a trade that has played itself out. This wasn't a sudden "fall off a cliff." It's been a slow, steady slide. You equity guys just never priced it in until now.
Well, next week we'll see third quarter GDP, and it'll be at least as weak as the UK's - maybe worse. Maybe then we'll see the gut-check that is due this market. Oversold? Methinks not, since the multiples don't yet reflect the coming slashed earnings guidance from US companies for 2009 and beyond. And actual earnings will likely miss guidance. (Misguidance - I made a funny!)
The Nikkei is down 56% from its peak, and Japan isn't even in recession yet. Trust me - we have further to fall.
Oh, and about Warren Buffett's recent exhortation to buy stocks, as he proclaimed he was doing? A real patriot, huh? And shouldn't we all throw our money behind an investor as savvy as the Oracle from Omaha?
Folks, understand this: no, Warren's not stupid. He's smart like a fox. And he recently took big stakes in Goldman Sachs and GE. Both of which are since on the bankruptcy bubble. Warren wants you to throw your money in, too, in hopes the momentum will prop the market up and salvage his big bets. In other words, he's joining Bush, Bernanke and Paulson in trying to jawbone stocks higher.
Don't drink the kool-aid.
************
My one-liner of the day: if ratings agencies rated wine, vinegar would be a 98.
************
I read a comment from a guy today who was talking about the priced-in likelihood that the Fed will cut the funds rate by half to three-quarters of a point next week. He said, "Their only option is to inflate our way out of this mess."
Tell me again how that works? I honestly don't know where they find these "experts."
************
I have a new idea for presidential debates. It comes from my undergrad days, when I majored in psychology.
Hook 'em up to an electric shock-delivering device. Every time they go beyond the time limit with an answer, or answer something other than the question that was posed, zap 'em.
Hard.
For every time they do it, increase the voltage.
Ultimate solution: electrocute all the politicians before they can get into office.
************
I leave you with this analogy, inspired by Dr. Greenspan, who referred to the credit crisis as a "tsunami."
It is indeed that. And Paulson, Bernanke, and Congress are standing on the beach, training huge, powerful fire-hoses at the coming mega-wave. They believe throwing all the water possible at the coming tsunami, they can turn it back.
Of course, they will be swamped. But by adding considerably to the water volume, they ensure that the wave will reach much further inland, and do much greater damage, than it otherwise would have.
Thursday, October 23, 2008
Support-Hosed
That's me. That's you. That's us.
Why is the US government - under a Republican administration, no less - throwing so many resources at trying to prop up markets?
President Bush speaks Monday before the market opens. Coincidence? Bernanke speaks later in the day. Paulson's up on Tuesday.
Aren't stock investors supposed to be at risk of losing money?
Same with houses. What goes up too much, must come down. And yet plans still abound to bail out irresponsible people who bought more house than they could afford on terms they couldn't repay. (Yes, yes, along with the poor few who were pushed by realtors and duped by lenders, but trust me, they're the minority. Just as there are no atheists in a foxhole, everyone's a victim in a crisis, especially when the handouts start flowing.)
Yet fresh plans abound to bail out homeowners. Why? "We've got to stop home prices from falling further!" Am I the only one who recognizes the lunacy in that? "We've got to stop rocks from falling after we throw them in the air! We've got to stop fires from burning our forests!" Some things, you can't stop.
Nor should you. If home prices have risen too much, they need to correct. Why? Because if you prop them up, the ultimate correction will be even more painful.
Want a parallel? We had a nice, sustainable long-term growth trend going in stocks in the '80s and early '90s. Then, things got bubble. Alan Greenspan warned of "irrational exuberance."
Then he lost all rationality. He made money dirt-cheap in the middle of that irrational exuberance. Why?
Because a big hedge fund was about to fail. One fund. But the hue and cry from big institutional investors - many of them foreign banks - pressured Mr. Bubble to save the day. So he did. And thereby spawned the dot-com bubble.
That bubble burst in 2000. Mr. Bubble then kept interest rates too low, too long, inflating another asset bubble. Stocks never had a chance to fully retreat to their long-term sustainable growth trend, so we propped 'em up again. Happy times. The Dow hit a new record high of over 14,000 last October.
As Oliver Hardy used to say to Stanley Laurel, "Now look what you've done!"
So they want to do it again. Unbelievable. Those who fail to learn from their past mistakes are doomed to repeat them, as Santayana said.
As for housing, the latest goofy plan comes from FDIC Chair Sheila Bair. Acknowledging that Paulson's Homeowner Hope plan, hatched in July, was "too little, too late," she wants to hatch another one.
Did anybody else get the irony in that? If the plan in July was "too late," isn't it even later now? Or is my calendar off? Do you have to wind calendars for them to work? I'm a bit confounded.
Her plan is based on the "success" the FDIC has had in re-structuring delinquent mortgages on the books of its recent acquisition, IndyMac. Let's examine that success.
Since taking over IndyMac - also in July - the feds have examined its books and found that 60,000 of its mortgages are at least 60 days past due.
That's 60,000 loans, people - at one institution. Just one.
They also found that two-thirds of them qualify for Bair's re-structuring experiment. That's 40,000 loans, unless my calculator's on the fritz along with my calendar.
As an aside, though, that's 20,000 that can't be restructured - at one institution. Just one.
So 40,000 loans can be worked out. So the feds have send more than 15,000 loan modification notices out, and have called "thousands more," offering better terms. And how many of those borrowers have hit the bid?
Three thousand five hundred.
Let's recap this model of success: since July, the FDIC has mailed more than 15,000 letters (you and I bought the stamps, by the way) to deadbeat borrowers. (Again, yes, some of them truly fell on hard times. But the majority just bought more house than they could afford, on terms they couldn't repay, and/or didn't have any savings in the event they lost their job, and/or had too much credit card and auto loan debt, and/or simply didn't want to meet their mortgage obligation anymore if the value of their house wasn't going up by double digits every year.)
But I digress. They mailed these letters, and made "thousands" more phone calls, which should have gotten them to at least half the eligible borrowers. Of that, they've managed to restructure about 17% of those they've communicated with. Or about 5% of the total.
At one institution.
Meanwhile, mortgage foreclosures in the third quarter shot up 71% year-over-year in the third quarter.
So tell me again how efficiently the feds are going to be able to replicate this smashing success nationwide - especially when they've already been trying for the same span of time Ms. Bair's had the keys to IndyMac?
By the end of this year, banks will own a third of all US real estate for sale. REO sales are the only sales taking place these days, because the prices are at bargain-basement levels. That's driving down the price of every home in every neighborhood where there's a bank-owned home for sale. Do you think that additional growth of REO won't drive home prices down more? And do you think bank failures won't continue to mount as the real estate losses tally up?
Of course they will, on both counts. And it's the natural order of things when we've built more homes than people need, and leveraged the system to the hilt, top to bottom.
But they want to prop prices up, on both houses and stocks.
I don't want to be here when the next bubble bursts. No economy can withstand three huge back-to-back asset bubbles in such a short span of time. And I don't want to witness the collapse.
Thankfully, I won't have to. They will fail. Washington can no more stop this thing than you or I could stop a runaway train by standing in front of it.
But they can sure make it worse.
Why is the US government - under a Republican administration, no less - throwing so many resources at trying to prop up markets?
President Bush speaks Monday before the market opens. Coincidence? Bernanke speaks later in the day. Paulson's up on Tuesday.
Aren't stock investors supposed to be at risk of losing money?
Same with houses. What goes up too much, must come down. And yet plans still abound to bail out irresponsible people who bought more house than they could afford on terms they couldn't repay. (Yes, yes, along with the poor few who were pushed by realtors and duped by lenders, but trust me, they're the minority. Just as there are no atheists in a foxhole, everyone's a victim in a crisis, especially when the handouts start flowing.)
Yet fresh plans abound to bail out homeowners. Why? "We've got to stop home prices from falling further!" Am I the only one who recognizes the lunacy in that? "We've got to stop rocks from falling after we throw them in the air! We've got to stop fires from burning our forests!" Some things, you can't stop.
Nor should you. If home prices have risen too much, they need to correct. Why? Because if you prop them up, the ultimate correction will be even more painful.
Want a parallel? We had a nice, sustainable long-term growth trend going in stocks in the '80s and early '90s. Then, things got bubble. Alan Greenspan warned of "irrational exuberance."
Then he lost all rationality. He made money dirt-cheap in the middle of that irrational exuberance. Why?
Because a big hedge fund was about to fail. One fund. But the hue and cry from big institutional investors - many of them foreign banks - pressured Mr. Bubble to save the day. So he did. And thereby spawned the dot-com bubble.
That bubble burst in 2000. Mr. Bubble then kept interest rates too low, too long, inflating another asset bubble. Stocks never had a chance to fully retreat to their long-term sustainable growth trend, so we propped 'em up again. Happy times. The Dow hit a new record high of over 14,000 last October.
As Oliver Hardy used to say to Stanley Laurel, "Now look what you've done!"
So they want to do it again. Unbelievable. Those who fail to learn from their past mistakes are doomed to repeat them, as Santayana said.
As for housing, the latest goofy plan comes from FDIC Chair Sheila Bair. Acknowledging that Paulson's Homeowner Hope plan, hatched in July, was "too little, too late," she wants to hatch another one.
Did anybody else get the irony in that? If the plan in July was "too late," isn't it even later now? Or is my calendar off? Do you have to wind calendars for them to work? I'm a bit confounded.
Her plan is based on the "success" the FDIC has had in re-structuring delinquent mortgages on the books of its recent acquisition, IndyMac. Let's examine that success.
Since taking over IndyMac - also in July - the feds have examined its books and found that 60,000 of its mortgages are at least 60 days past due.
That's 60,000 loans, people - at one institution. Just one.
They also found that two-thirds of them qualify for Bair's re-structuring experiment. That's 40,000 loans, unless my calculator's on the fritz along with my calendar.
As an aside, though, that's 20,000 that can't be restructured - at one institution. Just one.
So 40,000 loans can be worked out. So the feds have send more than 15,000 loan modification notices out, and have called "thousands more," offering better terms. And how many of those borrowers have hit the bid?
Three thousand five hundred.
Let's recap this model of success: since July, the FDIC has mailed more than 15,000 letters (you and I bought the stamps, by the way) to deadbeat borrowers. (Again, yes, some of them truly fell on hard times. But the majority just bought more house than they could afford, on terms they couldn't repay, and/or didn't have any savings in the event they lost their job, and/or had too much credit card and auto loan debt, and/or simply didn't want to meet their mortgage obligation anymore if the value of their house wasn't going up by double digits every year.)
But I digress. They mailed these letters, and made "thousands" more phone calls, which should have gotten them to at least half the eligible borrowers. Of that, they've managed to restructure about 17% of those they've communicated with. Or about 5% of the total.
At one institution.
Meanwhile, mortgage foreclosures in the third quarter shot up 71% year-over-year in the third quarter.
So tell me again how efficiently the feds are going to be able to replicate this smashing success nationwide - especially when they've already been trying for the same span of time Ms. Bair's had the keys to IndyMac?
By the end of this year, banks will own a third of all US real estate for sale. REO sales are the only sales taking place these days, because the prices are at bargain-basement levels. That's driving down the price of every home in every neighborhood where there's a bank-owned home for sale. Do you think that additional growth of REO won't drive home prices down more? And do you think bank failures won't continue to mount as the real estate losses tally up?
Of course they will, on both counts. And it's the natural order of things when we've built more homes than people need, and leveraged the system to the hilt, top to bottom.
But they want to prop prices up, on both houses and stocks.
I don't want to be here when the next bubble bursts. No economy can withstand three huge back-to-back asset bubbles in such a short span of time. And I don't want to witness the collapse.
Thankfully, I won't have to. They will fail. Washington can no more stop this thing than you or I could stop a runaway train by standing in front of it.
But they can sure make it worse.
Subscribe to:
Posts (Atom)