As you may already know, the media price of a house in the Detroit area has fallen to $7500. Yes, that is correct, $7500. You can buy a decent house in Detroit with a credit card. You probably won't be able to purchase a hut in Madagascar for the same price!
The incompetence which brought us current the misery, tells us that it is overnight become competent. Whereas, it could not "see" a crisis even in early 2007- ala Mr. Ben's remark about the subprime being a contained disease- it now has a full-scale solution to this problem. Not a chance.
The only solution which will benefit the people is an orderly auction of assets held by banks, insurance companies, and other financial and non-financial zombies.
Saturday, March 14, 2009
Sunday, January 25, 2009
Davos lite ... circa 2009
What a difference a year can make. For starter, the U.S. has a new and intelligent president. Second, Davos World Economic Forum is on longer. The good old rich boys are rich no more. Goldman Sachs has canceled its brash annual party. Lehman Brothers is, of course, a no show, and so is Mr. Pandit, the wobbly chair of Citi. Mr. Thain, who anticipated to host a power breakfast at Davos on Friday morning, could not- he was thrown out of BofA on Thursday, Jan. 22, 2009! Amazing is the word.
Tuesday, January 20, 2009
BHO ...
In little less than one hour, the 44th president of the United States of American will be a previously little-known non-European ancestry Barack Hussein Obama. He will be the most international of the American presidents. Best wishes to him.
It is also poignant to reflect that BHO's presidency comes in little over two years after the US capture of Saddam Hussein led to his execution on Dec. 30, 2006.
It is also poignant to reflect that BHO's presidency comes in little over two years after the US capture of Saddam Hussein led to his execution on Dec. 30, 2006.
Sunday, January 18, 2009
why we need a sea change in attitude... and creating zombie mortgagees
A great deal of effort in Washington and the Fed rests on concocting schemes for mortgage loan modification: to give a bankruptcy judge the power to modify balances and interest rates, enforcing that lenders modify loans so that people who can NOT afford their homes stay in their homes: kind of like creating zombie mortgagees.
The story below tells us why none of these schemes will make a serious dent in the whole financial mess machine. The overwhelming reason for why this will not work is that until and unless our perception of what wealth is changes and we see a sea change in our attitude about wealth in this country, we are destined to go on erring again and again with outlandish notions of what assets are worth.
We need to come to terms with the notion that wealth creation is not the same as credit (debt) creation. Over the last decade or so, what has driven us to dizzying heights was the simple availability of credit. We did not build wealth, just the illusion of wealth through debt creation.
Washington Post article - reproduced with permission below in its entirety- encapsulates why this problem is not going away any time soon, UNTIL we see this sea change which is alluded to here. Below, is some pointed excerpts from this fine article:
The story below tells us why none of these schemes will make a serious dent in the whole financial mess machine. The overwhelming reason for why this will not work is that until and unless our perception of what wealth is changes and we see a sea change in our attitude about wealth in this country, we are destined to go on erring again and again with outlandish notions of what assets are worth.
We need to come to terms with the notion that wealth creation is not the same as credit (debt) creation. Over the last decade or so, what has driven us to dizzying heights was the simple availability of credit. We did not build wealth, just the illusion of wealth through debt creation.
Washington Post article - reproduced with permission below in its entirety- encapsulates why this problem is not going away any time soon, UNTIL we see this sea change which is alluded to here. Below, is some pointed excerpts from this fine article:
------ "They think (referring to loan modification proposals) it's 'Let's Make a Deal,' but it's not," said Evan Wagner, an IndyMac spokesman.
------"Wagner ticks off some memorable ones: The couple who rejected several offers even though they were 10 months delinquent. The investor who owned four properties but refused to sell any at a loss to help save her primary residence. The borrower who was approved for modification but was disappointed that IndyMac couldn't help with his credit card debt."
The Growing Foreclosure Crisis
One oft-repeated assertion no longer holds true. Those in trouble are not, primarily, lower-income borrowers. The foreclosure crisis has become a wave, afflicting neighborhoods of every stripe -- but particularly communities created by the boom itself.
By Dina ElBoghdady and Sarah Cohen
Washington Post Staff Writers
Saturday, January 17, 2009; A01
Before Robin Bohnen and her husband, Shane, bought a $1.16 million Mediterranean-style house in an upscale Southern California suburb two years ago, they were not cash-strapped, debt-ridden or credit-impaired.
Now they are all of the above. Soon they also may qualify for one more distressing category: home lost to foreclosure.
"Wake me up, can this really be happening?" the 42-year-old Bohnen says. As she tries to describe how it feels to have the nation's financial crisis land in her living room, the phone rings. She ignores it. "It's probably the bank -- again," she says.
Bohnen once owed her comfortable lifestyle to the dizzying growth that transformed Southern California over the past decade, creating a boom that led many to believe their home values would keep climbing. As the owner of a furniture store born during the housing boom, she provided bean bag chairs and bedroom sets for the brand-new communities that easy credit built.
Now, she and husband just owe. They cannot afford their $6,400 monthly payment, and in this plummeting market, they wouldn't make enough on a sale to pay off their mortgage or recoup the 20 percent they put down to buy their Riverside County home.
They're "underwater," industry parlance for borrowers who owe more on their mortgage than their houses are worth. They have joined the growing line of homeowners seeking a break from their lenders.
Both the departing and incoming administrations in Washington have promised help on the foreclosure front, but providing help requires federal regulators to get their collective arms around the size and shape of the crisis. That isn't easy. No one agency collects information on every loan, every borrower and every delinquency.
But interviews and a Washington Post analysis of available data show that the foreclosure crisis knows no class or income boundaries. Many borrowers ensnared in the evolving mortgage mess do not fit neatly into the stereotypes that surfaced by early 2007 when delinquency rates shot up. They don't have subprime loans, the lending industry's jargon for the higher-rate mortgages made to borrowers with shaky credit or without enough cash for a down payment.
The wave of subprime delinquencies appears to have crested. But in October, for the first time, the number of prime mortgages in delinquency exceeded the subprime loans in danger of default, according to The Post's analysis.
This trend shows up most acutely in California and other high-growth regions, such as Arizona, Nevada, Florida and pockets of the Washington region, most notably in Prince William and Prince George's counties.
The recession has made it tougher for people to pay their mortgages, and crashing home prices have left many borrowers underwater, unable to sell or refinance their way out of trouble. One of every five mortgage holders now has a home worth less than the mortgage on it, according to First American CoreLogic, a firm that tracks mortgages and provided data for The Post's analysis.
Of the 20 Zip codes with the highest share of underwater loans, seven are in California and four are in Riverside County, the vast exurb southeast of Los Angeles where the Bohnens live. Riverside's unemployment rate has zoomed to 10 percent, well above the national average of 7.2 percent. About 94,200 people in the county are looking for work, many of them formerly employed in the real estate, banking and construction industries, according to the county's economic development agency.
The foreclosure crisis hasn't played itself out. The next wave looms in the form of a new batch of adjustable-rate mortgages scheduled to reset over the next two years. Unless the market comes back with a roar, which is unlikely, more borrowers will struggle to hang on to their homes.
Southern California was the epicenter of the housing bubble, in many ways. Four of the largest lenders had offices there, and Riverside County became a showcase for how communities can create wealth through real estate. Now the county is a case study of what can happen when the only industry in town is growth itself.
"These economies were self-feeding off the housing boom. And when the boom went bust, there was no safety net to fall back on," said Sean Snaith, an economist at the University of Central Florida's business school.
Money To BurnAfter the technology stock bust of 2001, which hit California and its sun-kissed regions particularly hard, investors and consumers sunk their money into real estate. Some wanted high returns. Others sought the perceived safety.
"They thought housing was a sure thing because there had never been, since the Great Depression, a sustained drop in housing prices," said Alan Blinder, former vice chairman of the Federal Reserve and now a professor at Princeton University. "There had been isolated drops in certain geographies, but not across the nation."
The federal government played a central role in the boom. The Fed cut a key short-term rate to rev up the economy following the tech bust, enabling lenders to borrow money at low rates, lend that cash to home buyers at higher rates and then sell the mortgages to other institutions, said Esmael Adibi, an economist at Chapman University, south of Los Angeles.
"The lenders had ample amounts of money, and they needed customers," Adibi said. "The best places to find customers were areas with expensive housing, where people had a hard time using traditional mortgages that required a 10 to 20 percent down payment."
Some of the priciest real estate was in California, making it a natural base for the busiest lenders, including New Century Financial and Ameriquest Mortgage, both defunct; Countrywide, which Bank of America has bought; and IndyMac, a Pasadena-based bank taken over by the federal government last summer and recently sold to a group of private investors.
"These companies spread their wings in California and then moved on to other parts of the country, such as Las Vegas, Phoenix and southern Florida," Adibi said.
In Las Vegas and Florida, speculators and second-home buyers snapped up properties as fast as anyone could build them. In California, buyers competing for a bit of coastal real estate drove prices to levels beyond most people's reach, said Albert Saiz, a real estate professor at the University of Pennsylvania's Wharton school. Buyers frozen out of those markets moved further inland, to areas such Riverside County, where land was plentiful. "That demand translated into new construction," Saiz said.
In 2005 and 2006, more than half the homes sold in Southern California were in Riverside and neighboring San Bernardino County, pumping thousands of new jobs into the regional economy, said John Husing, an independent economist. "Real estate became what gold was to the gold mining towns," he said. "Everyone's job was tied to the mine, whether they realized it or not."
By early 2006, the construction sector comprised about 11 percent of Riverside County's job base -- more than double what it was two decades earlier, according to Beacon Economics, a California research firm.
For a brief time in 2005, the housing market showed signs of cooling nationwide and interest rates edged up. Lenders reacted by reaching out to even riskier borrowers with more subprime and other exotic loans to keep the home-buying frenzy going, said Howard Shapiro, an analyst at investment bank Fox-Pitt Kelton.
Some lenders wooed borrowers with generous terms once reserved for the most creditworthy. Mortgage financiers Fannie Mae and Freddie Mac, eager to profit, started buying more of these loans -- in effect, subsidizing the market.
Blinder used the Wile E. Coyote character in the old Road Runner cartoons to explain what happened to prices next: "The coyote is running, running until he runs off the mesa, suddenly he's out there in thin air and stays there for a while -- then crash," he said.
The markets that crashed the hardest were the ones where prices had climbed the fastest.
'No Equity, Just Debt'On a drive through Riverside County, it's easy to spot the foreclosures: Green lawn. Green lawn. Green lawn. Brown lawn.
The grass doesn't get watered when incomes dry up, mortgage payments stop and families move out. Robin Bohnen can see patches of brown from her house. A neighbor to her right and another to her left lost their homes in the past year. Her arms flail as she describes life in a financial vise.
The home to the left is listed for $699,900 and the other for $725,000. She and her husband owe $932,000 on their house, so they're facing at least a $200,000 shortfall. That's not what they expected when they bought their home two years ago. The economy looked good then, the housing market was still thriving and the house seemed like a steal. It was the cheapest available in the exclusive gated community that they had been eyeing for some time.
A lender offered them a mortgage that allowed them to pay interest only for the first five years. They were not asked to document their income, which put their mortgage into the class of loans known as "Alt-A," so called because they are an alternative to a prime (or A) mortgage.
It turned out to be a risky decision. What galls the Bohnens is that they brought $233,000 to the table when they bought the house -- cash they had pulled out of their previous home, which was under contract for sale. But the sale fell apart just before the scheduled closing date, and while the agent was confident of finding a new buyer at the time, the house never sold. It is now in foreclosure.
As the housing market tanked, so did their income. Robin Bohnen's three-year-old furniture franchise couldn't make it without a steady supply of new homeowners, so she gave it up. Her husband, who had earned hundreds of thousands of dollars in yearly commissions selling law-enforcement equipment, was hurt indirectly: His main employer cut him loose after several California cities, pinched by declining property tax revenue, cut back on buying police gear.
Bob Livingston, a real estate agent and friend of the Bohnens, tried to sell the house.
"I couldn't," he said. "Everyone looked at it and wanted to pay foreclosure prices."
Now the Bohnens are tapped out. They missed their third mortgage payment yesterday and can barely keep up with their homeowner association dues. Their twins are in college and their 4-year-old in day care. They're working with a housing counselor to try to modify their loan.
"We have no equity, just debts," Robin Bohnen said. "We've maxed out our credit cards and gone through all our savings and retirement accounts."
Once equity vanishes, income matters far more than the kind of mortgage a borrower has. Luke Rizzo, another Riverside County homeowner, took out a 30-year, fixed-rate mortgage in 2003. He put down $125,000, but he, too, is teetering on foreclosure's edge.
In 2006, Rizzo lost his job as an information technology manager at Lockheed Martin and sunk deep into credit card debt as he tried to keep up with his mortgage payment. He bought the house for $460,000. The house next-door recently sold in foreclosure for $340,000. His debt has climbed to $498,000 because he took out a $200,000 home-equity line. That money was spent on landscaping and living expenses.
Rizzo's lender initiated foreclosure six months ago but recently rescinded the action without explanation. Rizzo is confused. He and his wife have started packing, just in case. "When you have a $2,800-a-month mortgage," said Rizzo, who has found work as an electrician, "it doesn't take much to get behind."
Walking AwayAgainst this backdrop of plunging values, some homeowners are dumping their homes even if they can make the payments, real estate agents and lenders said. A California lawyer even launched an online calculator, www.payorgo.com, to help borrowers decide.
"There's this easy come, easy go mentality," said Mike Novak-Smith, a real estate agent in Moreno Valley, a working-class part of the county. "Some people would rather hold onto their pickup truck or Mercedes than their homes."
In 2006, about 25 percent of Riverside County home buyers took out loans without making a down payment, according to SMR Research, which analyzes mortgage data. For those borrowers, Novak-Smith says, their loan payments are akin to rent: They essentially have no stake in their homes, which makes walking away easier.
"So they get a ding on their credit record. No big deal," he said. "They wait a few years and buy again."
Diolinda Igma, a real estate agent in Riverside County, went through this calculation before she and her husband, who works for a public utility, stopped making payments on their Moreno Valley home. They were underwater on their adjustable-rate mortgage, due to reset in 2010.
Because most lenders will not modify a loan until the borrower has missed payments, Igma said she fell behind to get her lender's attention. "I had to be practical," she said. "Why wait for 2010? Why keep putting money into a house we'll lose?"
The Igmas took out two loans to buy their $437,000 house. The second enabled them to buy without putting money down.
After Igma missed five payments, her lender came through. The bank lowered the interest on the first loan from 5.5 percent to 3.5 percent and extended the life of the loan to 40 years from 30. The lender added the missed payments to the loan. If not for that, the couple was prepared to move back into their much smaller first home, which they have been renting out.
The decision to walk away involves a mix of emotions and pragmatism. People get angry when they see a neighboring house in foreclosure sell at a deep discount, said Carri Clark, a mortgage broker at Mortgage Tree Financial in the city of Riverside. They see their home value eroding and their equity disappearing, but their mortgage payment remains the same.
"I had one the other day and she's telling me, 'We're going to buy this other house and let the one we've got go because it's a money pit," Clark said. "They have three homes, including a vacation home and rental property. . . . I keep telling people: 'You signed a promissory note. You told the bank you'd pay it back. It's like marriage. It's for better or worse.' "
For all those reasons, Carol Byrd, a real estate agent, does not want to walk away from her home. But she will if she has to, she said.
Three years ago, Byrd bought a home for $525,000, in the city of Riverside, getting a no-money-down mortgage. Back then, she was selling 50 homes a year and earning roughly $350,000 annually.
Byrd makes nothing close to that now, but her lender thinks the potential for that income is still there. To keep her in the mortgage, the lender has agreed to postpone her foreclosure until August and defer half of her payment, a temporary savings of $1,600 a month. The unpaid portion will be tacked onto future payments.
Byrd said the arrangement would not work long term. She wants her loan modified to reflect the current value of her house -- about $250,000. If not, then she's at peace with the consequences.
"If I have to rent, I have to rent," she said. "It's not the end of the world."
Beware The Alt-AFederal regulators recently held a one-day seminar in Riverside for troubled IndyMac customers interested in a loan modification. About 4,200 were invited. Only 250 showed up, half of whom probably will not qualify for a more affordable loan.
The turnout underscores a common complaint from lenders, who say many struggling borrowers do not respond to outreach efforts and when they do, they come with inflated notions about what can be done.
"They think it's 'Let's Make a Deal,' but it's not," said Evan Wagner, an IndyMac spokesman.
Wagner ticks off some memorable ones: The couple who rejected several offers even though they were 10 months delinquent. The investor who owned four properties but refused to sell any at a loss to help save her primary residence. The borrower who was approved for modification but was disappointed that IndyMac couldn't help with his credit card debt.
IndyMac specialized in Alt-A loans. The unraveling of this type of loans has devastated several other large lenders, including Countrywide and Washington Mutual.
Initially, Alt-A loans catered to financially sophisticated borrowers with strong credit scores and hefty down payments who would not or could not document their income or assets. People who were self-employed or whose income fluctuated paid higher rates to take out these no-hassle loans.
For years, Alt-A loans performed as well as prime ones, reinforcing the idea that income hardly mattered if a borrower had good credit, said Dave Stevens, a former Freddie Mac official and now president of Long & Foster.
"We had a period of time with ever-improving housing market conditions and there was no history of default to look back on," Stevens said. "Every year, the investors and lenders were proved right, that certain people did not need to document their income, so the lenders started becoming more lenient."
Increasingly, Alt-A mortgages came to be known as "liar loans" because so many lenders and borrowers did not provide accurate income data. Lenders also took on more risky borrowers and aggressively marketed Alt-A loans, including option adjustable-rate mortgages like the one Byrd used to buy her home.
Byrd's loan, which came with a 1.5 percent teaser rate for the first five years, let her decide how much to pay each month. Most borrowers who took out these option ARMs from 2004 to 2007 chose to pay no more than the teaser rate. They can keep doing so until their interest rate adjusts or they reach a certain percentage of the principal (10 to 25 percent, depending on the lender).
The excess money they owe is added to their balance so that they owe more than they borrowed on the house. Fitch Ratings expects monthly payments to jump 63 percent on average (or $1,053) on loans adjusting in 2009 and 2010, which will undoubtedly cause a rise in defaults.
Already, 24 percent of option ARMs were at least two months late in September, up from 5 percent a year ago, said Mahesh Swaminathan, a Credit Suisse mortgage strategist.
"We're seeing delinquencies rise even before the recast date has hit," Swaminathan said. "After the recasts, the weakness will increase. In 2010 and 2011, the recasts will peak."
Tense QuestionsRobin Bohnen hit a wall when she sought to modify her loan. The lender told her it would not rework loans that are not adjusting immediately, she said. Her Alt-A loan doesn't reset until 2011.
Shane Bohnen lets his wife deal with the lender. He was reluctant to speak for this story. He figures no one will have any sympathy for a family living in a $1 million house.
"We came in with eyes wide open," he says, standing in the kitchen. "We knew what kind of loan we had."
"Oh, really," Robin Bohnen says. She darts him a look from the living room couch before launching into a series of questions that gives some hint of the tension that inevitably comes with financial trouble.
"Did you know that the housing market was going to collapse?" she says to her husband. "Did you know I was going to lose my store? Did you know you were going to lose your job? Come on. There was no reason to believe any of this would happen. It's not like we did anything impulsive. You've been doing this job for 10 years and making good money."
"Twelve years," he said. "It's been 12 years."
And he walked away. The conversation was over, for now.
Minutes later, the phone rang again, a reminder that for the Bohnens, the end was nowhere in sight.
Thursday, January 01, 2009
The great deflation myth ... has there been a bursting of a buuble?
First off, happy new 2009. 2008 was by all accord a financially disastrous year, but it was not such a bad year, after all. We all (re)learned the meaning of trust and confidence. As in not trusting our elected or unelected officials, or the crony financial engineers.
The talk these days is to prevent the great deflation from taking hold of our lives. The Fed and Treasury have (are) done (doing) everything to pump $$ into the system. The effective lending rate is zero, if not negative. Billions (i. e. the new millions) are being thrown into the markets, for all to have. Well, not just all of us, but some of us, that is the GMs, Cerberus (sorry, Chrysler), bulge banks, etc. Soon, it may be the home builders and then the defunct subprime lenders.
Flash back only six months ago, in the summer of 2008, all talk was about the inflation beast. Prices of things people us every day, were going up, as far as the eyes could see. The Fed was duly warning of the coming inflationary cycle. The very same people who were chasing us into the inflationary scare, are now chasing us into the deflationary scare. Who do you believe? Uhh, it is the same 2008 question again: who do you trust? But, these are the same people who cover both sides of this story.
If you believe for the moment that we are in a deflationary environment, then you are a believer. We do not enter into arguments with you here. When a balloon is pumped with air and then develops a leak, it deflates. You fix the leak and further pump air and its radius gets bigger. Another leak develops, and air gushes out. This, is also called deflation. But, when the balloon is so full of air- like most of us- that it fabric has become so sheer that it is in danger of bursting into many pieces, and suddenly a large hole appears and air gushes out, it can no longer be called deflation. The process of leaking is a regulatory attempt at self-correcting an out of equilibrium process, and driving it toward equilibrium. This is what is happening now, contrary to many believes that we have had a bursting of the bubble.
Put another way, we are going through a process in which super inflated assets are reverting to norm and self-correcting. Unless and until that we go below the mean values for a whole range of assets, we are not deflating. That is all.
The talk these days is to prevent the great deflation from taking hold of our lives. The Fed and Treasury have (are) done (doing) everything to pump $$ into the system. The effective lending rate is zero, if not negative. Billions (i. e. the new millions) are being thrown into the markets, for all to have. Well, not just all of us, but some of us, that is the GMs, Cerberus (sorry, Chrysler), bulge banks, etc. Soon, it may be the home builders and then the defunct subprime lenders.
Flash back only six months ago, in the summer of 2008, all talk was about the inflation beast. Prices of things people us every day, were going up, as far as the eyes could see. The Fed was duly warning of the coming inflationary cycle. The very same people who were chasing us into the inflationary scare, are now chasing us into the deflationary scare. Who do you believe? Uhh, it is the same 2008 question again: who do you trust? But, these are the same people who cover both sides of this story.
If you believe for the moment that we are in a deflationary environment, then you are a believer. We do not enter into arguments with you here. When a balloon is pumped with air and then develops a leak, it deflates. You fix the leak and further pump air and its radius gets bigger. Another leak develops, and air gushes out. This, is also called deflation. But, when the balloon is so full of air- like most of us- that it fabric has become so sheer that it is in danger of bursting into many pieces, and suddenly a large hole appears and air gushes out, it can no longer be called deflation. The process of leaking is a regulatory attempt at self-correcting an out of equilibrium process, and driving it toward equilibrium. This is what is happening now, contrary to many believes that we have had a bursting of the bubble.
Put another way, we are going through a process in which super inflated assets are reverting to norm and self-correcting. Unless and until that we go below the mean values for a whole range of assets, we are not deflating. That is all.
Saturday, November 22, 2008
Righting the economy and jobs...
President-elect Obama has unveiled his plan for creating up to 2.5 million jobs by 2011 (Nov. 22, 2008). This is a step in the right direction. He mentioned fixing the decaying roads, schools, and new energy initiatives. All are admirable, but the United States also needs a crucial transportation infrastructure it desparately lacks. A particularly acute need, giving its vast extent. It needs to move people quickly and efficiently from point A to point B.
Many proposals are on the table; making better fuel-efficient cars, hybrid cars, plug-in cars, hydrogen-storage vehicles, and on and on. All are useful and research in new technology must continue and be funded, but none of these proposals address the main underlying deficiency which the US faces: lack of a credible fast, efficient long-distance transportation network.
What is needed is, of course, a fast high speed rail network which covers the whole country and provides quality of service similar to the bullet-train (Shinkansen) or high-speed train (TGV). With speeds in excess of 200-300 miles per hour, it would take 4-5 hours to travel to from NYC to Chicago. The cost and emission per passanger will be much less (at least an order of magnitude) than the cost and emission using a car or airplane.
In addition, this proposal would be many many people to work. A completely new and fast rail network will be needed. Let the 3 car companies go bust. Save the autoworkers and put them to work on the hi-speed rail network. They have all the expertise as builders, assemblers, and engineers to design, assemble, and build this network.
It will be the New new deal. It will work.
Many proposals are on the table; making better fuel-efficient cars, hybrid cars, plug-in cars, hydrogen-storage vehicles, and on and on. All are useful and research in new technology must continue and be funded, but none of these proposals address the main underlying deficiency which the US faces: lack of a credible fast, efficient long-distance transportation network.
What is needed is, of course, a fast high speed rail network which covers the whole country and provides quality of service similar to the bullet-train (Shinkansen) or high-speed train (TGV). With speeds in excess of 200-300 miles per hour, it would take 4-5 hours to travel to from NYC to Chicago. The cost and emission per passanger will be much less (at least an order of magnitude) than the cost and emission using a car or airplane.
In addition, this proposal would be many many people to work. A completely new and fast rail network will be needed. Let the 3 car companies go bust. Save the autoworkers and put them to work on the hi-speed rail network. They have all the expertise as builders, assemblers, and engineers to design, assemble, and build this network.
It will be the New new deal. It will work.
Monday, November 10, 2008
"...utter failure"
The election is over and we have a new president (BHO). The old lady of US journalism (The New York Times), opined an editorial on the last hours of November 4, 2008 (the election day), and announced to new world that
"... His (Obama's) triumph was decisive and sweeping, because he saw what is wrong with this country: the utter failure of government to protect its citizens. He offered a government that does not try to solve every problem but will do those things beyond the power of individual citizens: to regulate the economy fairly, keep the air clean and the food safe, ensure that the sick have access to health care, and educate children to compete in a globalized world."
The editors of the Times are right. The government failed utterly to protect its citizens. The likes of The Times did all they could to bring this about. Where was the Times when it could through the power of pen, oppose the war on Iraq in 2002-2003? By part directing the great orgy of mass mania in support of an ill-intentioned war, the Times has made itself, for eternity, complicit in the failure of the government to protect its citizens.
This will be true.
"... His (Obama's) triumph was decisive and sweeping, because he saw what is wrong with this country: the utter failure of government to protect its citizens. He offered a government that does not try to solve every problem but will do those things beyond the power of individual citizens: to regulate the economy fairly, keep the air clean and the food safe, ensure that the sick have access to health care, and educate children to compete in a globalized world."
The editors of the Times are right. The government failed utterly to protect its citizens. The likes of The Times did all they could to bring this about. Where was the Times when it could through the power of pen, oppose the war on Iraq in 2002-2003? By part directing the great orgy of mass mania in support of an ill-intentioned war, the Times has made itself, for eternity, complicit in the failure of the government to protect its citizens.
This will be true.
Saturday, October 04, 2008
weapons of fear ....
It was only seven Falls ago, the cities of New York and Washington, DC were gripped in utter fear. Pain and suffering were everywhere. New York and Washington, DC were savagely attacked and burned. Pols of all stripes had gathered in fear to legislate laws against the attackers and their financiers. A poorly-read and understood set of legislation passed in the Congress. They became the Patriot Act. The country was bailed out.
It was even more recent, six Falls ago, the nation was gripped in fear. The specter of weapons of mass destruction from a far and small rogue nation was upon us. It was employed with great effectiveness and sheer genius to lead a large proud nation into war. No weapons of mass destruction were ever found in that small rogue country. They were discovered only five years later in New York, and in London. They were the financial weapons of mass destruction.
It was even more recent, six Falls ago, the nation was gripped in fear. The specter of weapons of mass destruction from a far and small rogue nation was upon us. It was employed with great effectiveness and sheer genius to lead a large proud nation into war. No weapons of mass destruction were ever found in that small rogue country. They were discovered only five years later in New York, and in London. They were the financial weapons of mass destruction.
Monday, September 22, 2008
The last week that was ....
Last week was momentous; Fred and Fan were nationalized, so was AIG, then all of the Lehman Brothers went belly up- with explicit backing of the taxpayers, read Lehman's bankruptcy records- Merrill Thundering Herd was corralled in by BofA, and the Treasury wants to spend $700 bn, why not $1000 bn, as Kenneth Rogoff has correctly suggested in The Financial Times. Now we learn that Morgan Stanely and no-longer Goldman Sachs will be "independent", in their usual sense, and will be regulated like other banks. Quite sobering stuff...
We thought there were a few laughable items from last week:
- Lehman Canary Wharf building owners are worried that their lease agreement with Lehman, which is to run through 2033- they are predicting that Lehman would survive until then- may not be honored. No kidding. But the interesting part is that the lease is guaranteed for a solid 4 years by none other than AIG! (WSJ, Sept 17, 2008)
- last week CBOE in Chicago was such a crowded place, that some traders carried extra pens in their pockets; the rationale: "if they dropped one on the ground, it would be impossible to pick it up." (WSJ)
- Ross L. Smotrich was a "top-notch" RE analyst for Bear Stearns, before it was given to JP Morgan with the help of the Fed. He lost his job, of course, but landed a new one quickly with Lehman. Mr. Smortich, who according to Institutional Investor magazine was the 2nd best RE analyst in 2006, may again be out of the job. (WSJ) We wonder where he would be employable: how about WaMu. Quick, before it goes belly up!
One factoid: what is a common characteristic between Bear Stearns, Lehman Brothers, AIG, and Merrill Lynch? Aside, of course, from the fact that they all were run by billionaire fools.
A: they survived the Great Depression banking crisis. But, not this one, so when analogies are made with the last great banking crisis, it is worth remembering that while this is the greatest since the Great Depression, but it may well turn out to top it.
We thought there were a few laughable items from last week:
- Lehman Canary Wharf building owners are worried that their lease agreement with Lehman, which is to run through 2033- they are predicting that Lehman would survive until then- may not be honored. No kidding. But the interesting part is that the lease is guaranteed for a solid 4 years by none other than AIG! (WSJ, Sept 17, 2008)
- last week CBOE in Chicago was such a crowded place, that some traders carried extra pens in their pockets; the rationale: "if they dropped one on the ground, it would be impossible to pick it up." (WSJ)
- Ross L. Smotrich was a "top-notch" RE analyst for Bear Stearns, before it was given to JP Morgan with the help of the Fed. He lost his job, of course, but landed a new one quickly with Lehman. Mr. Smortich, who according to Institutional Investor magazine was the 2nd best RE analyst in 2006, may again be out of the job. (WSJ) We wonder where he would be employable: how about WaMu. Quick, before it goes belly up!
One factoid: what is a common characteristic between Bear Stearns, Lehman Brothers, AIG, and Merrill Lynch? Aside, of course, from the fact that they all were run by billionaire fools.
A: they survived the Great Depression banking crisis. But, not this one, so when analogies are made with the last great banking crisis, it is worth remembering that while this is the greatest since the Great Depression, but it may well turn out to top it.
RIP Investment banking ? Or start socialed IB...
The Federal Reserve announced yesterday (Sunday Sep 21, 2008, according to the New York Times) that the still standing- but barely breathing "independent" investment banks, Morgan Stanley and Goldman Sachs) will become deposit bearing banking institutions and will be regulated under the Fed banking rules.
Is this the end of the 3rd Gilded Age? The end of investment banking and the ferocious craze of the last two decades? Or, is this the beginning of socialized investment banking, one with explicit government backing, taking in the losses, and passing on the profits, or the taxpayers of the United States have each become an investment banker?
When the critical decisions of the age are being made by non-elected officials (read Fed, Treasury, Wall Street), we're bound to go where no man has been before ....
Is this the end of the 3rd Gilded Age? The end of investment banking and the ferocious craze of the last two decades? Or, is this the beginning of socialized investment banking, one with explicit government backing, taking in the losses, and passing on the profits, or the taxpayers of the United States have each become an investment banker?
When the critical decisions of the age are being made by non-elected officials (read Fed, Treasury, Wall Street), we're bound to go where no man has been before ....
Monday, July 14, 2008
Sunday, July 13, 2008
Is the former Iraqi minister of information a US Senator?
Here's some inspiring comments from Senator Christopher Dodd (D-CT) on Fannie Mae and Freddie Mac, the toasted special government agencies, which hold nearly 80% of the US junk mortgages (see Barron's March 10, 2008 issue):
"What's important here are facts," Dodd said. "And the facts are that Fannie and Freddie are in sound situation. They have more than adequate capital -- in fact, more than the law requires. They have access to capital markets. They're in good shape. The chairman of the Federal Reserve has said as much. The secretary of the Treasury as said as much." (BusinessWeek Online, July 13, 2008)
Doesn't he sound very much like Mohammed Said al-Sahhaf, the former Saddam Hussein's minister of information, who made enormous fame by saying
"There is no presence of American infidels in the city of Baghdad",
as US tanks were rolling into the city (April 9, 2003)?
We think so
"What's important here are facts," Dodd said. "And the facts are that Fannie and Freddie are in sound situation. They have more than adequate capital -- in fact, more than the law requires. They have access to capital markets. They're in good shape. The chairman of the Federal Reserve has said as much. The secretary of the Treasury as said as much." (BusinessWeek Online, July 13, 2008)
Doesn't he sound very much like Mohammed Said al-Sahhaf, the former Saddam Hussein's minister of information, who made enormous fame by saying
"There is no presence of American infidels in the city of Baghdad",
as US tanks were rolling into the city (April 9, 2003)?
We think so
Tuesday, May 06, 2008
Resolution of Democratic presidential dilemma
This is such a simple, yet brilliant idea that we're not sure why the brilliant, yet simplistic mass media did not think of it, ala a masterful resolution of the Clinton-Obama election fight, which will today be on highlight in North Carolina. We're thinking of a Clinton-Obama or Obama-Clinton ticket for the rate for the White House.
You see, under our scheme, it should not matter whether it is Clinton-Obama or Obama-Clinton ticket for November. Hillary would divorce Bill, and likewise Barack divorces Michelle and marry each other. How very brilliant. The joint ticket would decide in the privacy of their bedroom, which one would want to be the president and which should be vice-president. That is.
It also makes it simple for McCain.
We were led to this idea after a Moscow tabloid apparently, out of financial desperation, reported that Putin was divorcing his wife and marrying a young Olympic gymnast.
You see, under our scheme, it should not matter whether it is Clinton-Obama or Obama-Clinton ticket for November. Hillary would divorce Bill, and likewise Barack divorces Michelle and marry each other. How very brilliant. The joint ticket would decide in the privacy of their bedroom, which one would want to be the president and which should be vice-president. That is.
It also makes it simple for McCain.
We were led to this idea after a Moscow tabloid apparently, out of financial desperation, reported that Putin was divorcing his wife and marrying a young Olympic gymnast.
Monday, May 05, 2008
It's a riot... food for thought
This is not exactly today's or even yesterday's news, although we have alluded to it in past posts... there's a food inflation of biblical proportion going on. Everyone is caught up on it. The Economist, one of the early birds in bringing this to attention, calls it the "Silent Tsunami" (April 19, 2008). Many commentators blame the new US Energy bill (let's call it policy!), that gives preferential treatment to those who will burn corn (maize) for fuel (let's call it bio fuel!). It is a perverse thought; to wit the idea that you must (as the bill stipulates) use food item to run your SUV, when over one billion people go to bed (euphemism for sleeping on dirt) every night, malnourished.
It is a crazy world. How about using corn, rice, or wheat as sustenance, not only for our brave bombers, who drop bombs on ants from 45,000 feet, but also for our long-range bombers, so that we would more efficiently and less costly drop 5000-lb bombs on the same people who so desperately need the very corn, the rice and the wheat used as jet fuel.
It is a crazy world. How about using corn, rice, or wheat as sustenance, not only for our brave bombers, who drop bombs on ants from 45,000 feet, but also for our long-range bombers, so that we would more efficiently and less costly drop 5000-lb bombs on the same people who so desperately need the very corn, the rice and the wheat used as jet fuel.
Monday, March 17, 2008
The subprimate Bears
"Bear Stearns' balance sheet, liquidity and capital remain strong." (March 10, 2008, Bloomberg)
Alan Schwartz, the top subprimate CEO at Bear Stearns
The subprimates at the Bear's den have done it again- to the poor taxpayers of this nation. Notch this as another bail-out for them. Don't expect a single penny due the taxpayers though.
We remain convinced that the $2/share offer by JPM for Bear Stearns was a shame-you-all offer, directed at the other so-called prime (now subprime) non-deposit bearing banks. GS, MS, ML, and LEH will stand up and take notice now. Never mind your prime brand name, prime office locations, prime intellectual capital, if you don't have hard capital to back those things up, you're nothing. Well, worth nothing. JPM is licking its chops. These guys are pros in this game. They've done it at least once before in 1907.
This is what happens when we have toxic capital, toxic economy, and toxic finance.
Alan Schwartz, the top subprimate CEO at Bear Stearns
The subprimates at the Bear's den have done it again- to the poor taxpayers of this nation. Notch this as another bail-out for them. Don't expect a single penny due the taxpayers though.
We remain convinced that the $2/share offer by JPM for Bear Stearns was a shame-you-all offer, directed at the other so-called prime (now subprime) non-deposit bearing banks. GS, MS, ML, and LEH will stand up and take notice now. Never mind your prime brand name, prime office locations, prime intellectual capital, if you don't have hard capital to back those things up, you're nothing. Well, worth nothing. JPM is licking its chops. These guys are pros in this game. They've done it at least once before in 1907.
This is what happens when we have toxic capital, toxic economy, and toxic finance.
Friday, January 25, 2008
one person decides the US monetary policy... any guesses?
It is agreed that the US monetary policy is decided upon by the Federal Reserve bank and its monetary policy setting board whose chair is Chairman Bernanke. On Tuesday morning of January 23, 2008- actually, it took a bit longer than that, the world learned that Bernanke was not that person. Sure, he shaved a massive 0.75% from the interest rates before the markets opened in the US to a sure sell-off, but the decision to make that colossal cut, was not made by him.
Any guesses as to who that person might be?
It is Jérôme Kerviel, the so-called rogue trader, at Société Générale, the 2nd largest bank in France, who took a gamble on the stock futures market and lost 1.5 billion euros, which combined with other mistakes the bank made, cost the company $7 billion. The bank started unwinding into an unfavorable climate, causing panic and leading to a major sell-off across the globe. It was Mr. Kerviel, and not the fear of a US recession, or Mr. Bernanke, who made the rate-cut decision.
Now you know.
Any guesses as to who that person might be?
It is Jérôme Kerviel, the so-called rogue trader, at Société Générale, the 2nd largest bank in France, who took a gamble on the stock futures market and lost 1.5 billion euros, which combined with other mistakes the bank made, cost the company $7 billion. The bank started unwinding into an unfavorable climate, causing panic and leading to a major sell-off across the globe. It was Mr. Kerviel, and not the fear of a US recession, or Mr. Bernanke, who made the rate-cut decision.
Now you know.
Wednesday, January 23, 2008
hiss... do ya want coffee in your gas tank, it's a lot more expensive...
So, we're told that gasoline is getting outrageously expensive and the knock on effect of more price hike will be less consumer spending and an economic recession. Is gas really that much more expensive?
Even accounting for the fact that since 2001, petrol has increased a 3.5 fold in dollar terms, while in euros, it has increased a factor 2, gasoline is still DIRT cheap. Here's why. Suppose, you pay $4 per gallon at the pump, that's 3.125 cents per fluid ounce. Take an average cup of coffee- roughly 10 ounces, this translates to a whopping 31.25 cents per cup of gasoline. The last time, we checked, a cup of coffee at Dunkin Donuts, never mind Starbucks, was about $1.50 per cup, a factor of 4.8 less expensive, if you drank gasoline.
The same goes with crude oil. A barrel of oil holds 42 gallons (5376 ounces), so at $100 per barrel, it costs 1.86 cents per ounce. Therefore, to compete with coffee, another of those wonderful American addictions, the price of crude oil has to increase by a factor of 80, or more like $8000 per barrel of crude oil, for it to hurt, or get the Americans off their habit.
Now, that's expensive.
Even accounting for the fact that since 2001, petrol has increased a 3.5 fold in dollar terms, while in euros, it has increased a factor 2, gasoline is still DIRT cheap. Here's why. Suppose, you pay $4 per gallon at the pump, that's 3.125 cents per fluid ounce. Take an average cup of coffee- roughly 10 ounces, this translates to a whopping 31.25 cents per cup of gasoline. The last time, we checked, a cup of coffee at Dunkin Donuts, never mind Starbucks, was about $1.50 per cup, a factor of 4.8 less expensive, if you drank gasoline.
The same goes with crude oil. A barrel of oil holds 42 gallons (5376 ounces), so at $100 per barrel, it costs 1.86 cents per ounce. Therefore, to compete with coffee, another of those wonderful American addictions, the price of crude oil has to increase by a factor of 80, or more like $8000 per barrel of crude oil, for it to hurt, or get the Americans off their habit.
Now, that's expensive.
are we getting greener or it just sounds so?...
There is considerable hype, as you know, about people, companies, suppliers, governments, and even plants, getting "green" (read environmentally acceptable). Is this really the case?
An Observer article in January 18, 2008 issue of the Financial Times put things in rather clear perspective. Over the course of last two decades, the average US vehicle weight has increased from 3221 lbs to 4144 lbs, an increase of over 28%, while the average horsepower has risen from 118 hp to 223 hp, a whopping increase of 89%, while the fuel-economy of an average US car has gone from 22 to 20.2 mph, a DECREASE of 8%.
Are we greener now than we were 20 years ago? Really!
An Observer article in January 18, 2008 issue of the Financial Times put things in rather clear perspective. Over the course of last two decades, the average US vehicle weight has increased from 3221 lbs to 4144 lbs, an increase of over 28%, while the average horsepower has risen from 118 hp to 223 hp, a whopping increase of 89%, while the fuel-economy of an average US car has gone from 22 to 20.2 mph, a DECREASE of 8%.
Are we greener now than we were 20 years ago? Really!
Thursday, December 27, 2007
quotables ...
"Credit was so plentiful when Mr. Macklowe purchased his Manhattan office building from Blackstone, he only needed to put in $50 million of equity to secure $7.1 billion in debt..." This is an equity ratio of 0.704%, about the same as what people paid for mortgages in 2002-2006!
- Wall Street Journal, December 26, 2007
"Lending is going to be tight for the next year or two,". About what it was when the interest rate was, well, not nearly zero!
- WSJ, Dec. 26, 2007
"Good old days: lenders made healthy profits when they were able to offload risks." Yes, when the unsuspecting fools were aplenty. Guess, who has to pay now?
- WSJ, Dec. 26, 2007
Even if we took the meager numbers of today for the losses, around $100 billion, it translates to more than $300 per person, child, adult, and fool, in this country. In UK, the price paid per person for bailing out Northern Rock, turns out to be 1000 pounds.
sophisticated investor malice
Examples abound these days. Here's one from Washington Times, "The complexity of the loans was exceeded only by the complicated schemes banks developed to package the loans and market them to sophisticated investors..." (Blame abounds for the housing bust, WT, Dec. 27, 2007). We're left wondering who really these "sophisticated" investors may be? The Persian gulf sheiks? The Chinese barons? The Russian oligarchs? The Norwegians pensioners? Really.
The massive fraud perpetrated on the citizens of the world by the US bulge banks is reflected in the statement of one of the brains in this business, John Stumpf, CEO of Wells Fargo bank in the same article, "It's interesting that the industry has invented new ways to lose money, when the old ways seemed to work just fine." It is called greed, Mr. Stumpf. When opportunities exist to bilk more milk from the herd, "sophisticated investors" will exploit it.
Aside from all the accolades bestowed on the sophisticated investor, who by the way, is now losing his shirt, the root cause of this mess is the securitization of mortgage in the first place. It was not long ago, roughly 30 years ago, that a house was a place to live, raise a family, grow old, nurture relationships with neighbors and friends, and expect that it was a safe place to live. Not anymore, thanks to RMBS (residential mortgage-back security). An oxymoron, in the exact sense of the word. RMBS was created in the 80's to expand the lending. It did a lot of good. RMBS, as packages, were sold initially, but the the underlying loans, and by default the risk, were kept on the balance sheets of the originating banks. This meant in the minimum that capital was stashed away to hold the loans. It also meant that houses were still viewed as places to live. No longer. Thanks to derivatives and hedging, loans are not kept in house, therefore, banks saw it, at least until the beginning of this year, as not a risk on the balance sheet. Once "sophisticated investors" got involved, then houses were like stocks, with the same amount of security and longevity. Enter condo flippers, the equivalent of stock day traders. Now, we're here!
Sunday, December 02, 2007
"should have tried to get my cat a subprime mortgage..."
No, this is not funny any more, but it reflects just how bad and maybe good, things had become back in the good old days of easy credit. As reported in an interesting article in the Denver Post, (Origins & Consequences, December 2, 2007), a veteran mortgage brokers thinks that it would have been than easy back in the old glory days of subpriming the population out of existence.
Now, the bulge banks are to the rescue: they want through their stooges at the Fed and the treasury, to lessen the burden on the subprimers who are being foreclosed out of their homes, by working out a deal to "freeze" the reset interest rates on the ARM mortgages. Wishful thinking. Never mind, that many of these people were not your average joe six-pack who needed a roof over his head- more than 40% of subprimes were issued in 2005 and 2006 to condo-flippers. Never mind, that many of these subprimers were middle-class folks who wanted to live like kings, as the article above illustrates. Never mind, that many of these same folks did not put a single penny toward the equity on their houses- yes, sure they paid hefty origination fees and the bulge banks and brokers (BBB) made tonnes of millions on the securitization of chopping up of these mortgages into slices (call them tranches) and selling them to unsuspecting Europeans, Asians, American, and Martians. Never mind, that nearly all of these same mortgages were sold, sold off, and then more, to who knows who? The very recent report that four Norwegian municipalities are on hook for tens of millions of Citibank subprime junk is an early indication.
Let's examine this: in the first place, who owns the original debt certificate? Many of these same people, were/are living in their borrowed dwelling are mere renters- this is the formal definition of someone who lives somewhere and does not own an equity in that same house. When you have no equity in your house from the get-go, how in the world can you be considered an owner? Just what do you own?
If, however, you look at it from the opposite angle, things are much clearer: the BBB need help and big time. They need help, guess from who, yes the tax payers and the special government agencies (SGE), you know that Fannie Mae and the Freddie Mac. BBB want to "freeze" the loan rates so that not so many houses go into foreclosure. The problem is that they are unable to do that, because they can't trust each other on a loan, as they don't know what the other bank owns and how much? As we said in these pages before, the risk has not been mitigated, it has been lost. We need to find out where it has gone. But, there's not much time until the next quarter and the next financial report.
This is the story as is being told.
Now, the bulge banks are to the rescue: they want through their stooges at the Fed and the treasury, to lessen the burden on the subprimers who are being foreclosed out of their homes, by working out a deal to "freeze" the reset interest rates on the ARM mortgages. Wishful thinking. Never mind, that many of these people were not your average joe six-pack who needed a roof over his head- more than 40% of subprimes were issued in 2005 and 2006 to condo-flippers. Never mind, that many of these subprimers were middle-class folks who wanted to live like kings, as the article above illustrates. Never mind, that many of these same folks did not put a single penny toward the equity on their houses- yes, sure they paid hefty origination fees and the bulge banks and brokers (BBB) made tonnes of millions on the securitization of chopping up of these mortgages into slices (call them tranches) and selling them to unsuspecting Europeans, Asians, American, and Martians. Never mind, that nearly all of these same mortgages were sold, sold off, and then more, to who knows who? The very recent report that four Norwegian municipalities are on hook for tens of millions of Citibank subprime junk is an early indication.
Let's examine this: in the first place, who owns the original debt certificate? Many of these same people, were/are living in their borrowed dwelling are mere renters- this is the formal definition of someone who lives somewhere and does not own an equity in that same house. When you have no equity in your house from the get-go, how in the world can you be considered an owner? Just what do you own?
If, however, you look at it from the opposite angle, things are much clearer: the BBB need help and big time. They need help, guess from who, yes the tax payers and the special government agencies (SGE), you know that Fannie Mae and the Freddie Mac. BBB want to "freeze" the loan rates so that not so many houses go into foreclosure. The problem is that they are unable to do that, because they can't trust each other on a loan, as they don't know what the other bank owns and how much? As we said in these pages before, the risk has not been mitigated, it has been lost. We need to find out where it has gone. But, there's not much time until the next quarter and the next financial report.
This is the story as is being told.
Monday, November 12, 2007
See the fear is in their eyes... desparation to follow
True as the fundamental human traits, the bloodbath that many, including us, had predicted to happen in the world financial systems has begun, read for instance this report from BBC. The US housing subprime disaster, on which many, we emphasize many, gorged on and profited handsomely, is now biting every hand that touched this toxic mix. "Its getting to the point where everything seems scary and that its hard to trust what financial institutions are saying." (a trader in Japan, Nov. 12, 2007). Japan Nikkei is at its lowest point in the last 15 years, i. e. to the point in time when the last mortgage disaster, remember the S&L crisis, hit the US and UK.
What non sense. We were promised, ala the Fed and other talking heads, including the heads of Citigroup, Merrill Lynch, and other trustworthy masters, that the subprime mess will be not spread and its effects on the economy will be limited. Ah, what these really smart, but NOT trustworthy people, ignored to tell us was that it is almost impossible to factor in human's most mundane feelings, such things as fear and greed. Yes, a few of these trustworthy bulge bank heads of states- let us not forget, many of these banking institutions have larger budgets than most countries on Earth- are gone. The fear has spread, even though, the actual subprime dosed CDO and other exotic creations of the financial markets in NYC and London, may or may be not. The trust is gone, as exemplified according to the utterance of the above Japanese trader.
Homebuliders are next to follow. It was just announced that the company which started the condo craze in the 1950's, Levitt and Sons, has filed for bankruptcy. A lot more will follow in this bloodbath.
Credit worthiness is not worth a penny any more. This is what happens when the largest pillar in the financial system, the trust, is largely gone. What will follow is first the break in the consumer credit.. Many will also default on their personal credit card debts, after maxing on their housing ATMs. To counter, the classic cycle will follow. The central banks will be forced to cut. Cut, they will and push up inflationary pressures. Companies, gorged in credit from the last cycle, are forced to cut forces, pushing up unemployment, hence embarking on the next round of debt bankruptcies.
We are now in the first few innings of this process, which could likely end this cycle of globalization, as the last one almost 100 years ago did.
What non sense. We were promised, ala the Fed and other talking heads, including the heads of Citigroup, Merrill Lynch, and other trustworthy masters, that the subprime mess will be not spread and its effects on the economy will be limited. Ah, what these really smart, but NOT trustworthy people, ignored to tell us was that it is almost impossible to factor in human's most mundane feelings, such things as fear and greed. Yes, a few of these trustworthy bulge bank heads of states- let us not forget, many of these banking institutions have larger budgets than most countries on Earth- are gone. The fear has spread, even though, the actual subprime dosed CDO and other exotic creations of the financial markets in NYC and London, may or may be not. The trust is gone, as exemplified according to the utterance of the above Japanese trader.
Homebuliders are next to follow. It was just announced that the company which started the condo craze in the 1950's, Levitt and Sons, has filed for bankruptcy. A lot more will follow in this bloodbath.
Credit worthiness is not worth a penny any more. This is what happens when the largest pillar in the financial system, the trust, is largely gone. What will follow is first the break in the consumer credit.. Many will also default on their personal credit card debts, after maxing on their housing ATMs. To counter, the classic cycle will follow. The central banks will be forced to cut. Cut, they will and push up inflationary pressures. Companies, gorged in credit from the last cycle, are forced to cut forces, pushing up unemployment, hence embarking on the next round of debt bankruptcies.
We are now in the first few innings of this process, which could likely end this cycle of globalization, as the last one almost 100 years ago did.
Thursday, August 23, 2007
Discount window to toxic debt hell...
Finally, on Friday, August 16, 2007, the Federal Reserve capitulated to the unraveling of the debt markets- mortgages, commercial paper, etc.- and reduced the so-called "Fed discount rate" by 500 points to 5.75%. This is the rate the central bank charges commercial banks in direct borrowing. This rate is still another 500 points above the short-term consumer rate of 5.25%. The Fed intends this to be the case, that is the Fed is the so-called lender of last resort. It wants to make this "discount window" borrowing to be expensive for the banks.
The problem is when the Fed does what it did last Friday, it usually means that there is a hidden problem in the credit markets. When Bank of America decides to invest $2 billion in the troubled large mortgage lender, Countrywide Financial, as it did today, some interpret it as a vote of confidence, but the reality may very well be that there's a supersized risk of repricing lurking around the corner- so large in fact that BofA is worried about its own financial health, if and when Countrywide goes under. So hellish the problem of toxic hell is, that in one-day four bulge banks- BofA, Citi, Wachovia and J.P. Morgan Chase- borrowed $500 million each to cover their positions. Such expensive borrowings are often harbingers of more systemic problems.
On their way to spreading risk, the financial engineers of today, the Ponzi schemers of yesteryear, overlooked two key issues: reducing risk burden invites riskier decisions, and casting the risk net wide hides risk. The former led to the subprime toxic mess, among other stuff, and the latter is now coming back to bite the hide of bulge banks and later us, the consumers and citizens.
The problem is when the Fed does what it did last Friday, it usually means that there is a hidden problem in the credit markets. When Bank of America decides to invest $2 billion in the troubled large mortgage lender, Countrywide Financial, as it did today, some interpret it as a vote of confidence, but the reality may very well be that there's a supersized risk of repricing lurking around the corner- so large in fact that BofA is worried about its own financial health, if and when Countrywide goes under. So hellish the problem of toxic hell is, that in one-day four bulge banks- BofA, Citi, Wachovia and J.P. Morgan Chase- borrowed $500 million each to cover their positions. Such expensive borrowings are often harbingers of more systemic problems.
On their way to spreading risk, the financial engineers of today, the Ponzi schemers of yesteryear, overlooked two key issues: reducing risk burden invites riskier decisions, and casting the risk net wide hides risk. The former led to the subprime toxic mess, among other stuff, and the latter is now coming back to bite the hide of bulge banks and later us, the consumers and citizens.
Friday, August 10, 2007
Subprime Money Market Fund ? ... Toxicity spreads
Read all about it... The credit mess, courtesy of the bulge banks and brokers is fully upon us. The EU Bank (ECB) has injected more than $130 b into the EU banking system as emergency loans- this happens because the balance of loans which are tallied up every night becomes dangerously out of whack. The US Federal Bank may not far behind. France's largest bank shut down more than $2 b in its funds.
In the US, it started with the subprime mortgages- the so-called toxic wastes. Put another way, loans made to people who did not have collateral. Simple as that. First, was the New Century Mortgage, next was the three large funds at Bear Stearns- we cautioned that this "bears watching" in a post earlier this summer. Then, came the not-so-subprime, Alt-A, American Home Mortgage, which went belly up only last week. This was the wake-up call, as it meant, the subprime was not quite then subprime. It had spread to all sectors.
Now, comes the scary news that money market funds (MMF), to most people equivalent to bank savings accounts, could in danger (read Wall Street article, "Money Funds May Hold Subprime, Too", August 9, 2007). This is because, MMF hold commerical-papers, which are also backed at times by mortgage-backed bonds, so they are exposed to subprime.
But, we argue that this is just the beginning. As, James Melcher of Balestra Captial is quoted in a New York Times article (August 10, 2007) “It’s like popcorn in a kettle,” “First you have one or two pops, then it turns into a cacophony." There you have it. It may start with the subprime as the first corn to pop, but soon others will follow. This party has just begun. The night is still young. This baby has legs... you add yours here!
In the US, it started with the subprime mortgages- the so-called toxic wastes. Put another way, loans made to people who did not have collateral. Simple as that. First, was the New Century Mortgage, next was the three large funds at Bear Stearns- we cautioned that this "bears watching" in a post earlier this summer. Then, came the not-so-subprime, Alt-A, American Home Mortgage, which went belly up only last week. This was the wake-up call, as it meant, the subprime was not quite then subprime. It had spread to all sectors.
Now, comes the scary news that money market funds (MMF), to most people equivalent to bank savings accounts, could in danger (read Wall Street article, "Money Funds May Hold Subprime, Too", August 9, 2007). This is because, MMF hold commerical-papers, which are also backed at times by mortgage-backed bonds, so they are exposed to subprime.
But, we argue that this is just the beginning. As, James Melcher of Balestra Captial is quoted in a New York Times article (August 10, 2007) “It’s like popcorn in a kettle,” “First you have one or two pops, then it turns into a cacophony." There you have it. It may start with the subprime as the first corn to pop, but soon others will follow. This party has just begun. The night is still young. This baby has legs... you add yours here!
Sunday, July 29, 2007
China's Y2K? The 2008 Olympics ...
Many a pundits would argue that the binge of expenditure and investing in dotcom era companies came to a tickle, after the enormous binge of spending to squelch a bug called the year 2000 bug: it was then (late 1990's) thought and quite aggressively pursued that because the internal clocking systems on computers could handle only two-digit years, "00" for the year 2000, would be interpreted as the year 1900 and we would be send to the stone age. Nothing of the sort came along, of course, but enormous amounts of money were spent on "fixing" this bug.
A few months later, the Nasdaq and other stocks with it crashed into oblivion.
Next year, China is going to put on a spectacular show, likely to be the greatest fireworks show on earth: the 2008 Summer Olympics. This year alone, the cost of putting this show together is going to be around $40 billion. Although this is small compared with the GDP per capita of close to $2000, it is a large fraction of its construction economy. Given the history of post-Olympic malaise in previous host countries, one would have to wonder, if this whole episode, would turn into an ugly China Y2K. We will have to wait and see.
A few months later, the Nasdaq and other stocks with it crashed into oblivion.
Next year, China is going to put on a spectacular show, likely to be the greatest fireworks show on earth: the 2008 Summer Olympics. This year alone, the cost of putting this show together is going to be around $40 billion. Although this is small compared with the GDP per capita of close to $2000, it is a large fraction of its construction economy. Given the history of post-Olympic malaise in previous host countries, one would have to wonder, if this whole episode, would turn into an ugly China Y2K. We will have to wait and see.
Cost of interdependency ... a Ponzi scheme
In an excellent article in the Wall Street Journal, the editors of the BreakingViews.com section (Financial Insight, July 27, 2007) point out the hazards of interdependency of banks, hedge funds, and private equity houses and strike a blow in the heart of the misguided fallacy that, for instance, subprime mortgage mess should remain contained to one sector of the economy of the wealth sector.
Now that seemingly the "liquidity" is being drained from the market, bulge banks, which normally would have to become restrictive about providing loans to risky funds (read hedge funds) and other managers of loan obligations (read CDO and CLO), are finding themselves in a bind. The main reason here is that in the time of easy money and easy credit, banks loan to private equity to support the insatiable appetite for leveraged buy-outs (LBO) so that these soon-to-be dinosaurs could go on getting more obese. These so-called "bridge loans" are nice and juicy income-generators, so long as they remain what they are: bridge loans, until some else buys them from the banks.
The customers, it turns out, are the hedge funds, and CDOs and CLOs. Oooops! If the credit is becoming tight, you don't want to loan to risky hedge funds, but those same funds are also your main buyers. You're stuck, and may be the dance partners are not on the floor anymore. You're hooked with billions and billions of risky loans. This is what sank the Bears Stearns funds a month ago, and the same is happening to the commercial market.
Put another way, this is a scheme, where one transaction is dependent on the proceeds of another transaction in the same ecosystem, i. e. the Ponzi scheme. Thus far, all Ponzi schemes have collapsed and most are illegal. This may also be.
To see how tight things are becoming, consider that in the 1st half of 2007, more than $575 billion CLOs were issued, nearly $96 billion per month. In the month of July, no more than $2 billion have been issued thus far (S$P).
Now that seemingly the "liquidity" is being drained from the market, bulge banks, which normally would have to become restrictive about providing loans to risky funds (read hedge funds) and other managers of loan obligations (read CDO and CLO), are finding themselves in a bind. The main reason here is that in the time of easy money and easy credit, banks loan to private equity to support the insatiable appetite for leveraged buy-outs (LBO) so that these soon-to-be dinosaurs could go on getting more obese. These so-called "bridge loans" are nice and juicy income-generators, so long as they remain what they are: bridge loans, until some else buys them from the banks.
The customers, it turns out, are the hedge funds, and CDOs and CLOs. Oooops! If the credit is becoming tight, you don't want to loan to risky hedge funds, but those same funds are also your main buyers. You're stuck, and may be the dance partners are not on the floor anymore. You're hooked with billions and billions of risky loans. This is what sank the Bears Stearns funds a month ago, and the same is happening to the commercial market.
Put another way, this is a scheme, where one transaction is dependent on the proceeds of another transaction in the same ecosystem, i. e. the Ponzi scheme. Thus far, all Ponzi schemes have collapsed and most are illegal. This may also be.
To see how tight things are becoming, consider that in the 1st half of 2007, more than $575 billion CLOs were issued, nearly $96 billion per month. In the month of July, no more than $2 billion have been issued thus far (S$P).
Saturday, June 23, 2007
slice and dice risk... this one bears watching
The sub-prime mortgage mess that has now bitten the hide of one of the original houses of the Wall Street (New York Times, June 22, 2007) bears watching. There's now a fear of a contagion. Bear Sterns, the large Wall Street bank has had to put up 3.2 billions dollars to rescue one of its troubling funds from collapse, after the creditors came knocking. There's however, a much more messier, fund which Bear holds that is likely even a larger mess, as it holds more riskier sub-prime assets.
It was a fortnight ago, that it was thought that financial risk was done away with for good. The idea is that by pooling risky assets, such as loans to people who could not afford them in the first place, loans to companies which can not afford them ever (think buy-out), into collateralized debt obligations (CDO) and turning around and selling them to a basket (or is it basket case) of investors, risk will be sliced into so many small pieces that at any one time, the amount of risk (presumably, a measurable quantity) held by any one entity would be minuscule.
This idea works in theory, but in practice, since human psychology is not quite yet separable into measurable quanta, what happens often is the exact opposite, i. e. more risk is taken on and again more risk and more and more. Consider the following: if a bank knows that it could only hold on to a mortgage, after taking fees and commissions, for only a few hours at best, before it is securitized into CDO and other instruments and sold on the market, now matter how risky, don't you think, it would take on more risk, if the object in this game is to make more fees and commissions? Of course, it would be. The goner is, of course, the fiduciary duty of a financial institution and this is what we are witnessing today.
This mess will likely get bigger before it gets smaller. Remember that the sub-prime mess began with small lenders last year, spread to home builders, and is now moving up the financial food chain.
It was a fortnight ago, that it was thought that financial risk was done away with for good. The idea is that by pooling risky assets, such as loans to people who could not afford them in the first place, loans to companies which can not afford them ever (think buy-out), into collateralized debt obligations (CDO) and turning around and selling them to a basket (or is it basket case) of investors, risk will be sliced into so many small pieces that at any one time, the amount of risk (presumably, a measurable quantity) held by any one entity would be minuscule.
This idea works in theory, but in practice, since human psychology is not quite yet separable into measurable quanta, what happens often is the exact opposite, i. e. more risk is taken on and again more risk and more and more. Consider the following: if a bank knows that it could only hold on to a mortgage, after taking fees and commissions, for only a few hours at best, before it is securitized into CDO and other instruments and sold on the market, now matter how risky, don't you think, it would take on more risk, if the object in this game is to make more fees and commissions? Of course, it would be. The goner is, of course, the fiduciary duty of a financial institution and this is what we are witnessing today.
This mess will likely get bigger before it gets smaller. Remember that the sub-prime mess began with small lenders last year, spread to home builders, and is now moving up the financial food chain.
Sunday, June 17, 2007
Fee-based society...
It has been wondrous to see how we have become addicted to fees for all manners of services which we use, pay for, and administer. Take a few examples; we pay fees, and often more of these days, for renting a car- concession and infrastructure-associated reconstruction fees at airports and other transportation centers. We pay fees, of course, to use turnpikes and motorways; now that private equity and bulge-banks are getting into buying up public right-of-ways, more fees to come. Airlines charge all kinds of fees; fees for security, use of gates, and even fuel.
Speaking of private equity, fees are the name in town. The management charges a fee for taking a company private, or take in investment dollars, and then charges around 20%- at least the self-respecting kinds do- as fees on any spoils earned.
Take your normal, vanilla-type bank. Fees are charged every time, one uses an out-of-network ATM, additional fees for writing checks above a certain number- all right, this may not be as a big issue these days with online banking. Fees are levied for not-sufficient-funds. In fact, some banks make around 20-25% of their profits this way- by charging you and me right and left.
Credit card companies likely invented the whole business in the first place.
In educating our kids, we have learned that there's tuition, which we expect would be used to pay for expenses, and then there are tuition fees, registration fees, and other campus fees.
Fees have become the norm, rather than being exceptions, and accordingly have developed into an instrument of more than a financial hook on society. A society which becomes addicted or forced to accept "additional expense" for service, is also a society which can be more readily manipulated and controlled.
Speaking of private equity, fees are the name in town. The management charges a fee for taking a company private, or take in investment dollars, and then charges around 20%- at least the self-respecting kinds do- as fees on any spoils earned.
Take your normal, vanilla-type bank. Fees are charged every time, one uses an out-of-network ATM, additional fees for writing checks above a certain number- all right, this may not be as a big issue these days with online banking. Fees are levied for not-sufficient-funds. In fact, some banks make around 20-25% of their profits this way- by charging you and me right and left.
Credit card companies likely invented the whole business in the first place.
In educating our kids, we have learned that there's tuition, which we expect would be used to pay for expenses, and then there are tuition fees, registration fees, and other campus fees.
Fees have become the norm, rather than being exceptions, and accordingly have developed into an instrument of more than a financial hook on society. A society which becomes addicted or forced to accept "additional expense" for service, is also a society which can be more readily manipulated and controlled.
Sunday, May 13, 2007
Age of luxury ... "age of irrationality"
In a recent interview with the Financial Times, Francois- Henri Pinault, (May 5- May 6, 2007) owner of Yves Saint Laurent and Gucci, the luxury trademarks, believed that ”(t)here are more rich people in the world, in many different areas, so the business is much less cyclical than it was 10 years ago. I believe the market could more than double. We are entering what I think is an age of irrationality and return to fantasy - and luxury is a part of that. We are at the beginning of a social trend, change in values that could go on for years - the age of rationalisation, after all, lasted for more than a century."
Mr. Pinault therefore believes that this golden-age of fantasy may go on for another few decades. We suppose if he's correct that we have entered the age of irrationality, then his statement above must also be considered irrational!
Mr. Pinault therefore believes that this golden-age of fantasy may go on for another few decades. We suppose if he's correct that we have entered the age of irrationality, then his statement above must also be considered irrational!
Alcoa - Alcan alchemy..
The recent announcement by the Aluminum Company of American (Alcoa) to acquire the Aluminum Company of Canada (Alcan) for $33 billion dollars, see Alcoa Press Release, May 7, 2007, is nothing if not historically interesting. Alcoa Press Release claims that "(t)he combination of Alcoa and Alcan creates a stronger, more diverse global competitor with the scale and cost structure to be competitive over the long term within a rapidly changing industry landscape. Alcoa and Alcan will bring together a complementary portfolio of businesses and benefit from a broader talent base, enhanced research and development expertise, and shared values."
How true. These two were one same company some 79 years ago and were broken up to address the same scale issue alluded to in the press release. We all know what happened to the stock markets and the world economies just one year later, in1929!
How true. These two were one same company some 79 years ago and were broken up to address the same scale issue alluded to in the press release. We all know what happened to the stock markets and the world economies just one year later, in1929!
Sunday, February 04, 2007
carbon rations.... what price progress?
Must has been said and much is being debated, even at the White House, on how to tackle the coming warming of the planet. According to a recent, the first of four coming reports, from the Intergovernmental Panel on Climate Change (IPCC), the temperatures are due to increase an average of 1.8-4C (3.2-7.2F) over this century, and that "... the net effect of human activity since 1750 has been one of warming," co-lead author of the report, Dr Susan Soloman told delegates in Paris (BBC News, February 2, 2007).
This is much appear to be certain. What is not is to how to cope and control the damage from the instatiable use of fossile energy. Part of the solution, according to the Kyoto platform, is for a usable and verifiable system of carbon exchange, with which, companies and countries that use more energy and hence produce more of the offending gases, can buy credits from other companies or countries that do not. A number of exchanges, paralleling the futures exchanges, have sprung up.
Here is the delimma: the US produces more than 1/2 of all CO2 gases, so it is fair to suggest that its numbers should be brought down. It is projected that China will become the most offending nation in the next two decades, especially if the US and other so-called developed countries, reduce their green-house gas emissions. Add to this volatile mix, the emergence of India, Russia, Brazil and the Middle East, and you have a recipe for disaster.
The developed world, however this is defined, should act, and now, to reduce the CO2 emission. What is morally reprehensible, is to ask the developing world to just as equally contribute to this reduction regime. Over the last one and a half century, it was the fossible fule, read oil, that acted as the engine of growth; more than ingenuity, guts, sweats, and tear. Yes, if it were not for the use of oil, in abundance, we would not be here today. To suggest, in the absence of a credible and functioning development strategy for growth, that the developing countries, should simply reduce emission, i. e. stop development, is shear nonsense.
We do NOT, as yet, know how to progress, without the use of fossile fuel. In case, you're wondering about the hydrogen economy, we must use fossile fuel, and lots of it, to extract the hydrogen that is needed to run the hydrogen economy! Add to the hypocrisy, is that some of the championing faces of the new climate debate, say for instance, the California governer, Mr. Schwarzenegger, drive hybrid, but yet gas-guzzling, SUVs.
To change the landscape of the cimate debate, how about starting by making the production of large SUVs illegal? Far-fetched?
This is much appear to be certain. What is not is to how to cope and control the damage from the instatiable use of fossile energy. Part of the solution, according to the Kyoto platform, is for a usable and verifiable system of carbon exchange, with which, companies and countries that use more energy and hence produce more of the offending gases, can buy credits from other companies or countries that do not. A number of exchanges, paralleling the futures exchanges, have sprung up.
Here is the delimma: the US produces more than 1/2 of all CO2 gases, so it is fair to suggest that its numbers should be brought down. It is projected that China will become the most offending nation in the next two decades, especially if the US and other so-called developed countries, reduce their green-house gas emissions. Add to this volatile mix, the emergence of India, Russia, Brazil and the Middle East, and you have a recipe for disaster.
The developed world, however this is defined, should act, and now, to reduce the CO2 emission. What is morally reprehensible, is to ask the developing world to just as equally contribute to this reduction regime. Over the last one and a half century, it was the fossible fule, read oil, that acted as the engine of growth; more than ingenuity, guts, sweats, and tear. Yes, if it were not for the use of oil, in abundance, we would not be here today. To suggest, in the absence of a credible and functioning development strategy for growth, that the developing countries, should simply reduce emission, i. e. stop development, is shear nonsense.
We do NOT, as yet, know how to progress, without the use of fossile fuel. In case, you're wondering about the hydrogen economy, we must use fossile fuel, and lots of it, to extract the hydrogen that is needed to run the hydrogen economy! Add to the hypocrisy, is that some of the championing faces of the new climate debate, say for instance, the California governer, Mr. Schwarzenegger, drive hybrid, but yet gas-guzzling, SUVs.
To change the landscape of the cimate debate, how about starting by making the production of large SUVs illegal? Far-fetched?
Friday, December 22, 2006
It's a shame and a burden on taxpayers too...
The reality is now setting in that the three climbers who took on the North face of Mt. Hood in Oregon last week, are likely dead- one has been found dead already. This is a shame at these times of family gatherings, and one must associate with their loved ones who are left to grieve with a reckless decision made by three thrill seekers.
From the scope of search and rescue- now recovery- mission, the local and national law and rescue operations, one must wonder just how much energy, effert, and people's tax dollars, have been invested and wasted on this sad endeavor. A decision by three individuals, w/o consideration, has used up resources necessary for society's needs.
There's no denying that in a free country, you must be assured that you have the freedom to enjoy all that this country has to offer, and on occasions make an ass of yourself, but one should also be reminded that everyone of us has a responsibility to use but not abuse the society's natural and man-made resources. Climbing the North face of any mountain in winter is simply a foolish act.
Contrast this rescue operation to that conducted a few weeks ago in Washington State to find an stranded car.
From the scope of search and rescue- now recovery- mission, the local and national law and rescue operations, one must wonder just how much energy, effert, and people's tax dollars, have been invested and wasted on this sad endeavor. A decision by three individuals, w/o consideration, has used up resources necessary for society's needs.
There's no denying that in a free country, you must be assured that you have the freedom to enjoy all that this country has to offer, and on occasions make an ass of yourself, but one should also be reminded that everyone of us has a responsibility to use but not abuse the society's natural and man-made resources. Climbing the North face of any mountain in winter is simply a foolish act.
Contrast this rescue operation to that conducted a few weeks ago in Washington State to find an stranded car.
'tis the season to spend, spend, and destroy the environment?!
By now, you have surely heard the adage that it is the US consumer who's holding up this economy, i. e. the rampant, and one might assume reckless, spending by the consumers is keeping the construction workers, retails workers, car manufacturers, etc. etc., on their jobs earning wages.
Now, there is a new twist: the more you spend, the more you wreak havoc on the environment. That we have referred to: the more you use, the more you use energy. From eating, to traveling, to buying clothes, we use energy, i. e. burn fossile fuel, and contribute to the CO2 footprint. Anotherwords, the less you buy, and the less you use, the less CO2 footprint.
Everytime you visit a McDonald or any other food outlet, you order food items and you increase the CO2 emission. In two distinct ways: one is simply by eating and creating the ensuing trash, and the other is by consuming food items that are, in the age of advanced agribusiness and globalization, delivered to you from hundreds or thousands of miles away, hence contributing to greenhouse gas emissions. This is called the food mile.
Enjoy the holidays and spend less.
Now, there is a new twist: the more you spend, the more you wreak havoc on the environment. That we have referred to: the more you use, the more you use energy. From eating, to traveling, to buying clothes, we use energy, i. e. burn fossile fuel, and contribute to the CO2 footprint. Anotherwords, the less you buy, and the less you use, the less CO2 footprint.
Everytime you visit a McDonald or any other food outlet, you order food items and you increase the CO2 emission. In two distinct ways: one is simply by eating and creating the ensuing trash, and the other is by consuming food items that are, in the age of advanced agribusiness and globalization, delivered to you from hundreds or thousands of miles away, hence contributing to greenhouse gas emissions. This is called the food mile.
Enjoy the holidays and spend less.
Saturday, December 16, 2006
Goldilocks, deadlocks...
The Democrats have won both houses of next congress and the economy- or at least the stock market- is doing pretty well. There's lot of money and lots of ambitions going around. On the economic front, the catch phrase is "goldilocks", suggesting that the conditions are just ripe for both growth and low inflation, hence low interest rates. The proponent of this theory claim that with productivity high, growth will continue, and the stocks will march on higher and higher, and this will overcome low employment rate, which tends to push pressure on wages on the upside and stoke inflation.
On the political front, the buzz is "deadlocks", a term used to suggest that with congress in Democrats hands and the Whitehouse in Repulicans hands, there will be so much back and forth going on that very little in terms of regulations and legislations, the stuff these folks are supposed to do on people's behalf, will get accomplished. This, in turn, is good for the stock markets, as fewer intervention by the regulators, the more hedge fund managers could fool around with your money, or whoever's money it is. Hence, good for the goldilocks.
On the political front, the buzz is "deadlocks", a term used to suggest that with congress in Democrats hands and the Whitehouse in Repulicans hands, there will be so much back and forth going on that very little in terms of regulations and legislations, the stuff these folks are supposed to do on people's behalf, will get accomplished. This, in turn, is good for the stock markets, as fewer intervention by the regulators, the more hedge fund managers could fool around with your money, or whoever's money it is. Hence, good for the goldilocks.
Thursday, November 23, 2006
May all residents be lucky every day...
On Wednesday, Nov. 22, 2006, a massive gas explosion in a township near Boston, see for instance, BostonGlobe article on Nov. 23, "... heavily damaged two dozen houses, left nearly 400 people homeless, and sent glass shards and rubble raining on a total of 90 buildings in a quarter-mile radius". On one died in this huge blast. Mass. Governor, Mitt Romeny, after touring the devastation, compared it to a "miracle that you have the equivalent of a 2,000-pound bomb going off in a residential neighborhood at night when everybody is home and no one is dead and no one is seriously hurt."
We should all be indeed thanksful on this Thanksgiving Day. Let us pray that the residents in any town in the middle east or elsewhere, whose neighborhood is visited upon by a 2000-lb bomb, are so lucky.
We should all be indeed thanksful on this Thanksgiving Day. Let us pray that the residents in any town in the middle east or elsewhere, whose neighborhood is visited upon by a 2000-lb bomb, are so lucky.
Thursday, June 29, 2006
inflation for the masses...
Today, June 29, 2006, the US Federal Reserve Bank is expected to lift the short-term interest rate to 5.25%, the 17th times it had raised the rate in as many meetings. This is in response to the specter of raising inflationary pressures. It is said, depending on who you believe or listen to, that the nominal inflation rate is around 4-4.5% annually, but the rate that the Fed listens to is the one that excludes the cost of so-called volatile items, the core inflation rate, is running around 3%. Not so bad, at all.
The core inflation is, of course, for people who do not drive cars, even the hybrid kind, heat or cool their houses, do not eat very much, and do not get ill or at least do not seek medical help no matter how sick they get. That is, more like people in most of Africa! Instead, these people- we're referring again to those in the US whose inflation rate is the core inflation rate- spend all their money buying flat-panel displays, computers, gaming machines, software, but not business software, GM or Ford cars that are hugely and artificially discounted, and stock up on home appliances. The core inflation rate is for these people.
Which of these categories do you belong to?
The core inflation is, of course, for people who do not drive cars, even the hybrid kind, heat or cool their houses, do not eat very much, and do not get ill or at least do not seek medical help no matter how sick they get. That is, more like people in most of Africa! Instead, these people- we're referring again to those in the US whose inflation rate is the core inflation rate- spend all their money buying flat-panel displays, computers, gaming machines, software, but not business software, GM or Ford cars that are hugely and artificially discounted, and stock up on home appliances. The core inflation rate is for these people.
Which of these categories do you belong to?
Monday, June 26, 2006
Use less... less energy
A good deal of paper, or the case maybe pixels, is allocated to draw attention to the use of energy in our lives. Mr. Gore wants us to learn how to save the environment- this is a very good thing- and the National Academies has just released (June 2006) a report on the evidence for the increased temperature during the last few decades, being the warmest period in the last 400 years. The scientific debate continues and it should.
The premise for any debate on energy use and enviromental issues should begin with this basic notion that everything we use, uses energy. As a society, we are not going to "kick the energy habit" or "save the whales", if we do not learn to use less of everything. Take paper napkins; everyone I know uses them and plenty of "them" at home and away from home. A large portion of trash (read waste) that we produce is in the form of paper products. Imagine, if we disciplined ourselves to use less paper towels, in the kitchen, in the bathroom, and in restaurants. We will, collectively, save more on energy, and by producing less trash, of course, make for a better environment. Now, this is not going to make the disposable napkin industry all that happy.
Case in point is Japan; in Japanese restaurants, known for cleanliness, you're given ONE sanitary napkin before the meal is served. That is it. Somehow, everyone seems to be able to get by by one. In Japanese bathrooms, at least the public kinds, there are no wash cloth or tissues to dry hands after washing. You ask what do people do; most Japanese carry small hand towels with themselves. Now, I'm not suggesting this as a solution for this country, but you get the point.
The premise for any debate on energy use and enviromental issues should begin with this basic notion that everything we use, uses energy. As a society, we are not going to "kick the energy habit" or "save the whales", if we do not learn to use less of everything. Take paper napkins; everyone I know uses them and plenty of "them" at home and away from home. A large portion of trash (read waste) that we produce is in the form of paper products. Imagine, if we disciplined ourselves to use less paper towels, in the kitchen, in the bathroom, and in restaurants. We will, collectively, save more on energy, and by producing less trash, of course, make for a better environment. Now, this is not going to make the disposable napkin industry all that happy.
Case in point is Japan; in Japanese restaurants, known for cleanliness, you're given ONE sanitary napkin before the meal is served. That is it. Somehow, everyone seems to be able to get by by one. In Japanese bathrooms, at least the public kinds, there are no wash cloth or tissues to dry hands after washing. You ask what do people do; most Japanese carry small hand towels with themselves. Now, I'm not suggesting this as a solution for this country, but you get the point.
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Sheila Bair, head of the Federal Deposit Insurance Corp., has said over the weekend (July 12-13, 2008) that "the overwhelming majority of banks in this country are safe and sound." (Los Angeles Times)
"In most of the cities and towns of this country, this Wall Street panic will have no effect." -- Paul Block (President of the Block newspaper chain), editorial, Nov. 15, 1929
"For six years American business has been diverting a substantial part of its attention, its energies and its resources on the speculative game... Now that irrelevant, alien and hazardous adventure is over." -- Business Week, Nov. 2, 1929
"Unless we are to have a panic, which no one seriously believes, stocks have hit bottom." -- R. W. McNeal, financial analyst, October 1929
"Gentleman, you have come sixty days too late. The depression is over."
-- Herbert Hoover, responding to a delegation requesting a public works program to help speed the recovery, June 1930