Monday, September 29, 2008

Don't Bail Me Out, Bro! (part 5)

Holy shenanigans, Batman. As Jack Buck once said, "I don't believe, what I just saw." The events today in the House of Representatives and on Wall Street are combining to be a much less visceral but no less dramatic series of events.

We here at the Loop and the Lou are not running a political blog. And in polite company, it is proper to avoid conversations regarding politics and religion. But the politics of the day are truly interesting and possibly historically pivotal. We will continue to cover them until it gets petty, at which point, we will return full coverage of all of life's events.

But for now, the House voted down the $700 billion bailout bill. It's not even clear how this happened. Depending on who you are, this is either Nancy Pelosi's fault or 12 GOP Congressmen's fault. Was this about details or about principle?

Probably both. Afterall, about 40% of Democrats voted against this bill too. I watched a clip of Nancy Pelosi's speech, and she really did pick the wrong time to blame this crisis on a Republican. She basically said it was Clinton who lifted us up, and the wreckless policies of this administration that got us here. Dumb. First off, no one in politics is clean from the causes of this. But if you are looking to go back in time, the Democrats would probably shoulder a slight majority of blame. But I'm not going to get into the petty stuff, remember?

The compromise sought in this bill was to protect taxpayers. It is unclear what that means exactly, since passing this bill would have guaranteed an increase in taxpayer liability and an increase in future inflation. However, the many Democrats who voted against this bill were citing CEO bonus control and individual mortgage relief as reasons. Two very good liberal reasons.

There were however many Republicans who voted against this bill and against the President. (The President and the Secretary of the Treasury were both "very disappointed" in separate statements.) There appears to be more principle flowing from the GOP's side. Here is at least one guy's take on it from MI:

"In the Bolshevik Revolution, the slogan was 'Peace, land, and bread.' Today, you are being to asked to choose between bread and freedom. I suggest the people on Main Street have said they prefer their freedom, and I am with them."
--Thaddeus McCotter (R-MI)

That may be a little dramatic, but is it off the mark? Wall Street responded with the largest ever fall off in history, dropping 777 points. We can see that the closer one is to Wall Street, the worse this is going to hurt. However, do not fear, today's drop off was not even in the top 10 in percentage drops in history.

And that brings us to some of the Bull Street we've been hearing about this. I have been hearing talking heads trying to explain how credit will no longer exist in our country. Really? Apparently, most of these people assume that the average business is run like an investment firm, where we over-leverage everything in sight and borrow huge short-term sums to balance the sheets out at the end of the day, only to return those funds the next morning. Here is what Wall Street has been up to, according to an email I received:

"These "investment pros" are constantly borrowing money to fund their business as I have just come to understand in my new job. They take the investments and borrow against these existing securities to be able to further their great ideas. Each night, they run up huge negative balances based on their investment ideas. However, they must balance out so they borrow billion of dollars from other investors (repo trades) overnight to cover their great ideas of the day. To get this cash, they have to put up their existing securities as collateral. However, as their existing collateral became more and more toxic, they began to have a harder time borrowing the money on a nightly basis because no one wanted to lend them money with their collateral."

So now, we are being made to believe that every business out there is borrowing money just to keep their lights on (I heard this on TV from a CNN financial expert). Is this really the case? I know credit is essential, but are normal businesses going to immediately go down because of all of this? I highly doubt it. This will probably affect mainly the obviously bad credit instruments for quite some time, but as we've said before, that's a good thing. A Representative from Delaware on Fox named Dutch Ruppersberger, who in spite of having a really cool name, was telling the audience how bad the situation was. His example: McDonald's was unable to get a loan to expand its coffee business.

Well I'm glad it's time to panic, when McDonald's doesn't have access to cheap capital, we should bail them out. If I have to get out of my car for coffee on my way to work, then the terrorists have already won. This was after he had claimed that this really isn't even a "bailout". This should show you how if you keep chanting the same mantra long enough, a lot of people will believe it. Not a bailout? McDonald's expanding for coffee = my kids going to college?

I do doubt this will be a permanent defeat though. In other words, although many of the Congressmen are against this thing in principle, many are against it in detail only. I have not seen or heard anything that has lead me to believe that passing this bill would do anything but obscure true economics. As many have been saying, this bill is another huge example that our government is working with Wall Street to "privatize the gains and socialize the losses." Many Democrats and some Republicans could be convinced to vote for this bill, sacrificing principle or showing all lack of it, if we, our federal government, had the ability to make some money off of this deal. I suspect that case will be made.

Do not give in though and do not be panicked by this mess. Everyone trying to sell property, heavily invested in Wall Street, dependent upon give-away credit, or even employed by a financial firm is going to have a rough ride coming up. The question is, do we want to guarantee our losses as taxpayers by bailing out this industry, or do we want to keep our money and take our chances on a natural recovery? This bailout is no guarantee for lower gas, lower food and a return to 20% returns in the market, you can believe that.

But for me, today, I got some hope that at least some people in D.C. have a heartbeat. I got some hope that some citizens care enough, one way or the other, to email their Senators and Representatives. I found some belief that although Congress has been fooled several times by this President into "hurry up and vote" scare tactics, that there has been debate on this bill. I found some hope that some people in Congress still believe it is their sworn duty to represent their constituents. It is not the President's job to craft legistlation -- and certainly not the Treasury Secretary's -- and I was happy today to see some members of Congress take their jobs personally and seriously. That's bipartisanship I can live with.

Thursday, September 25, 2008

Don't Bail Me Out, Bro! (part 4)

It's running thick. I have gotten to the point where I really don't believe the people in Washington D.C. understand what is going on, what their constituents demand or what got us here in the first place. It is becoming clear to me there is not much we can even do about it. The President went on TV last night to convince the American People that this bailout package is the right thing to do. I'm not really sure why he even did that. Would Congress or the Senate stand up to these guys if we said, "NO!"?

So I will keep this one short. If you are confused as to what has been going on in our country's economy -- mostly on wall street -- then read our previous posts on the subjects below to get up to speed.

Then, if you feel like you can spare 10 minutes of your life to reinvest in our country, email your 2 senators and your 1 representative. You can find out who they are here, click on the electronic correspondence links, and send them a quick email voicing your opposition to this measure. I did this today and it took 10 minutes. You don't need to say anything fancy, just tell them that you are against this bailout and that the only meaningful taxpayer protection offered is a vote "no."

As for the politics driving this thing, I really hope we are all learning the importance of working and investing in our own country and in our own leadership. All the little slips and slides of consolidating power over the years are now painfully obvious.

Government regulation can never stay current enough to react to changes in the free market. The answer is not more legislation to regulate the economy, it's less. Free markets (when unregulated) are self-governing.

The problem was not with homeowners, as even our President falsely hinted at. In the basic risk-reward relationship, those taking risks are those who seek a reward to be compensated for that risk. When a bank loans you money, THEY are taking the risk because they are getting the reward in the form of a rate of return. It is they and those backing them who messed this baby up, not prospective homeowners operating under regulated false signals (artificially low interest rates caused by the Fed and morally hazardous lending practices mostly caused by government regulated Fannie May and Freddie Mac).

It is becoming apparent to me now that those entrenched in power really do believe that their Constitutional duty is to manage our economy. Most people must believe this too, since so many continue to credit Clinton for a great economy and blame Bush for a bad one, when those reputations are merely products of coincidental timing. Therefore, few politicians want to lose power, so they will do something, anything to become "decisive" and wash their hands.

And we as a people have become increasingly gullible. I have received so many emails about "alternative" bailouts or "responsible" solutions to these problems that do not in any way propose anything more than new regulations that will become out-dated for sure within a generation. But people are believing these opinions because they come from the Wall Street Journal, or fellow "conservatives" or people who are finance experts. Of course people working in finance are "pro" these measures, their asses are mostly on the line here, even those not in the mortgage industry.

I watched the Bush speech today when I found time. Scoring my previously posted drinking game, if I were loose with it, I would have gotten hammered. The actual language was more closely guarded, though the message was more vicious and specific than I could have anticipated. It was appalling to hear the President threaten our ability to send our kids to college if we didn't back this bill, simply appalling.

These vague threats have kept back the otherwise angry throngs of people, just as the vague economics of the mortgage-backed financial communities have caused this problem. Keep it simple, America, and stick to your guns -- both figuratively and literally.

Wednesday, September 24, 2008

Don't Bail Me Out, Bro! (part 3)

Whoa is me. There is a lot of anger growing about this bailout, especially about how it is getting rushed through Congress right now. Let's look at some of the quotes coming out.

Tony Fratto, the White House spokesman said that delaying this bill would be "unthinkable." He later described their intentions on getting a "clean bill" out and that he wanted to "remind everyone that just recently we passed a very large housing bill to help homeowners" and that if we don't pass this bill quickly, our economy would be in "a very very serious situation." That's two very's for the easily intimidated. C'mon, Tony, relaaax, have a drink!

I thought our economy was already in a serious situation. I thought gas prices and food prices were going up. I thought jobs were going overseas as they have been for decades (where's my bail out there?). And wait just a minute, back up, when did it become the federal government's job to manage the economy?

The facts seem to suggest that the policies that got us here -- the policies that are only sustainable by borrowing money from taxpayers and giving it to the financial community in ever-larger amounts -- are the only way we can continue to stay drunk on wall street. If you have any investments, you know that financial firms have been raking in money hand over fist. Are 20% annual returns a normal thing when you're not actually producing anything? I doubt it. Can anyone distinguish between the stock market and a form of regulated gambling these days? Most of these companies don't even pay dividends and their price per share/earnings per share ratios are so far off, you need the Hubble telescope to graph them.

And now that these guys are taking it in the neck, we are supposed to lend them money? Although $700 billion is on the table, the final cost of this hangover should easily reach $1 trillion of brand new money borrowed from us in the form of printing it, lending it, taking on the risk of default and then having the inflation trickle down like a bad game of Plinko.

Here is the sad truth. There is no good way out of this for any of us. The question is do we keep our $1 trillion in our pockets and gut this thing out, or do we lend it to rich, bad judgement guys, buy the debt no one else will pay that much money for, and hope they will spur the economy in a magic way that will promote growth (which is better known in Communism as Price Fixing)? That's been our model, by the way, to incur huge amounts of federal and personal debt and then justify it by "growing" our economy through consumption. But there is no intrinsic value in that, as anyone knows. No one has ever grown their wealth by buying stuff, especially on credit.

Our country needs to go through some tough times, whether we admit it or not; whether we do it now in an abrupt, honest way by saying "thanks but no thanks," or set ourselves and our kids up for something worse by shrinking our pain today into just a government regulated headache. Housing prices and wall street prices need to correct themselves. The massive public and private debt need to be paid down, not expanded.

Here is some language in the bill that is actually getting some Congressmen a little nervous:

** This bill authorizes the Treasury Secretary to purchase up to $700 billion in mortgage-related assets at any one time. That means $700 billion is only the very beginning of what wil hit us.

** Financial institutions are "designated as financial agents of the Government." Hooray for socialism! I thought we had fought Communism in the 80's, not embraced it.

** "Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency." This would make the Treasury Secretary, a non-elected bureaucrat, the most powerful man in our economy.

Jim Rogers, a really rich guy, said a month or so ago that the "US is more Communist than China right now." But Warren Buffet can't be wrong can he? He's certainly on the up and up, after all he just put $5 billion into Goldman Sachs. Looks like we need more and more regulation, eh?

I guess that means we're already on the hook for this thing. Warren Buffet never takes the losing side of bets.

Don't lose all faith. Only 7% of the American Public is for this thing. If you believe in democracy and local government, shoot off an email to your Congressmen and Senators and let them know how you feel about this deal.

Also, if you like drinking games, crack open a beer and tune in to President Bush's apologetics, which he is preparing now. Take a drink every time he says the following words or phrases:

"tough choices"
"toxic assets"
"can't afford"
"Great Depression"
"Secretary Paulson"
"Chairman Bernanke"
"make no mistake"

and if he mentions the war on terror or national security, finish your six pack.

Monday, September 22, 2008

Don't Bail Me Out, Bro! (part 2)

This is going to get a whole lot worse before it gets better. And I don't claim to undertand the whole thing. But whenever I turn the TV on to see if it's any bit more interesting than it was yesterday, I realize how little information is on it. The politicians of both parties are blaming each other for the mess, falsely claiming to have solutions and yet contributing to future problems, if not current ones.

So here's a fun game. Below is a big picture of what I understand to be the basic setup of our current situation. I'm not an economist, so if you are and know better, fill in the gaps or correct the mistakes. However, I think this is pretty decent. I've added in a bunch of lightening bolts that represent the "moral hazards" of our current system. Guess what, no silver bullets. But at the same time, they should not be the same size, some of them are much more important than others. Care to guess which ones match up with which bullets on the list?

Lightning Bolts:
*The formation of highly complicated mortgage-based debt products called tranches.
*The lack of diversity, integrity and leadership between the GOP and Democrats.
*The Treasury Secretary and Chairman of the Federal Reserve are appointed by the president and are smarter than him.
*The risk-free rate of return is determined by a centralized banking authority, not a free market.
*The Federal Reserve has a history of enabling the Financial Industry with bail outs.
*Congress does not have any authority or auditing power over the Fed.
*Our money supply is not based on gold or hard assets and is not audited by the people.
*Global insurance companies offered insurance contracts on bad debt they didn't take the time to understand.
*Congress has regulated and insured Fannie May and Freddie Mac in an effort to push home ownership policy, espcially for minorities and low-income families, regardless of the economics of it.

These did not all happen in a specific order. Clearly, the Fed has been around so long, most people think you're crazy if you seriously call into question the effectiveness of its existence. The Gold Standard is for quacks (right?), although it had been good enough for our country for the vast majority of our existence until 1971. We must have gotten a lot smarter in 1971 by magic.

Furthermore, causes and effects are getting reversed. Massive mortgage foreclosures by "homeowners" were not the cause of this mess but the effect of it. If you watched the previously posted video series by Peter Schiff, he illustrates how for some time it was easier for consumers to buy a house than to rent an apartment. A cautious landlord usually demands first and last month's rent, a damage deposit, proof of employment, references, etc, whereas greedy mortage initiators just demanded signatures. Afterall, the landlord has to "live with" his tennants, but the mortgage initiators were selling these debts for fees.

I don't claim to have all the causes down cold. I don't know. You can see how complicated a simple version is getting. Yet this is the economy our centralized bank is claiming they can more effectively manage than a more spread out free market could.

This bailout comes along and I'm still shocked how many people just go along with it. Maybe it makes sense, after all, the only alternative we're given is that there is no way we could contain this disaster, either in the U.S. or globally (it is now our stated duty to manage the global economy, aparrently).

And with all this mess... with all these questions and uncertainties and huge bills sitting there... no one is standing up to question the Federal Reserve's very existence. Unelected and unregulated. And don't be fooled into thinking we need more regulation. Regulation is one of the main reasons we're here and one of the main reasons the problem got big instead of corrected itself in a distributed way.

For those who like computing, imagine if the internet were run on one central computer, and that computer were run by a small handful of guys who went to yale and harvard whom we could never replace. Would we trust any aspect of that setup?

Finally, an interview that you should watch.

Sunday, September 21, 2008

Don't Bail Me Out, Bro!


What the heck is going on here?

First AIG gets a big fat bailout for $85 billion of taxpayer dollars, then a bailout slush fund is proposed by our "financially conservative" president for $700 billion. That's no small chunk of change. That is approximately $200 billion more than the Iraq war has cost us so far. It is 2,200 "bridges to nowhere." So where do these financial bridges go?

They go to all the guys in nice suits like the board of AIG pictured above. These poor guys, they've had some tough times. Knuckleheads. Rascals! Wall Street just got drunk, according to President Bush. So instead of making them cleanup their own mess and endure their self-induced hangover, we are going to mop their floors with our money.

Which of these two men do we elect? Which of these two men is in charge? I only know the answer to one of these questions.

The main justification for this massive entitlement program for our hard-luck, ivy league banking community is that if we didn't do it, we would not be able to contain the disaster. The disaster would be so big, we can't even describe it to you. Most of us tend to accept whatever men in dark blue suits say, after all they are richer and more educated than us. And, it really is confusing. Collateralized Debt Obligation, what the...? I doubt they even know what is going on themselves. But, to ask a simple question, if Wal-Mart made a series of really bad decisions and was unable to pay its bills on time, would the American people shout to bail them out? Would that situation be too complicated to understand? Would the disaster be impossible to contain?

Here is my understanding of the situation. Our centralized bank, the Federal Reserve, held mortgage rates artificially low for too long. Our centralized government backed Fannie and Freddie, basically saying, no matter how greedy you get, we'll back you up. Fannie and Freddie then decided since they were gambling risk-free with other people's money to buy up as much debt as possible. Normal people were trying to realize their American Dream by buying houses and were making decisions on false economic signals. Builders were over-building. House prices were inflating. You don't need to be an economist to know this, you just need to have been paying attention to where you live. Peter Schiff explains it way better than I could.

This post could go on forever. But out of respect to our many, many readers, I will cut it short. The final analysis is this: A small cadre of men runs our banking system, and they are not elected by us, nor are they audited by our elected Congress. They operate under the delusion that they can manage our economy better than the free-market could. When they mess up, they immediately snap into stiff stances and say, "Not on my watch." So rather than paying the piper for their mistakes, we get to.

And our Congress, which has been reduced to "an inkblot" (thanks, Bruce Fein), just rubber stamps and passes the buck. Pay attention America! Your bank accounts just got smaller. Since last I checked, our country was massively in debt, which means the capital for these buy outs is being printed out of smoke, thus inflating our dollar even more.

I still don't understand what it means to say that part of this bill is to raise the debt ceiling. "Debt ceiling"? Sounds more like a debt target to me.

Friday, September 19, 2008

Content Not Aside... Who Are They Trying To Kid?

As readers may remember, TLATL provided indepth political coverage of the Republican National Convention live from John Stamos' hot tub. Regarding the speech delivered by Governor Palin, our correspondent made the assertion that "Content aside, I thought she was a good speaker." In hindsight, that might have been better stated, "Content aside, I thought she did a fine job of delivering a speech."

In the first two weeks after the RNC, the Palin pick for VP looked not only like the best option that the Republicans had, but a shrewd political move. She was sharp at the RNC. She was a woman. A pretty woman. Her religious beliefs and lifetime membership of the NRA soothed the doubts far right-wingers had of a McCain known to battle his own party. White women everywhere were remarking how much they just plain liked her. The media's coverage of the 2 tandems practically portrayed the election as a race between Obama and Palin.

All this before we'd ever heard Palin interviewed as a potential Vice President. And then, on Sept 11, ABC's Charles Gibson interviewed Palin.
Part 1 Part 2 Part 3 Part 4

Yikes. I don't blame Palin. It's not her fault that she lacks the experience expected of a Vice President. But that the Republicans go through this charade... trying to flip her inexperience into claims that since she's not a Washington insider. Look out! She's coming to shake things up! Putting forth this notion that she has Foreign Policy experience because you can see Russia from Alaska...

Sen. Chuck Hagel, a Republican, said it so well - "That kind of thing is insulting to the American people." Thank you, Chuck. It's good to hear that not all Republicans are crazy.

On the lighter side, Saturday Night Live opened its season this week with a Palin / Clinton press conference. I had been waiting for this for so long. So many times over the last few months I've wished SNL wasn't in reruns, just to see them mock the campaigns (the Jesse Jackson goof up, especially). When Tina Fey was nominated for VP, I knew SNL would have some good material. SNL may not be nearly as funny as it used to be, but they do political humor well. Anyway... here's that opening...

Monday, September 15, 2008

Kim John Ill

Ok, I'm probably the 117th person to use that title, but it's too hard to pass up.

Speculation has reemerged in the most recent issue of The Economist that the leader of the Democratic People's Republic of Korea has fallen ill. The article is a quick read and provides a good synopsis of the reasons to speculate on Il's health, the lack of apparent successors to Il (he doesn't have a younger brother Raul), and the state of nuclear proliferation agreements.

Perhaps the most meaningless but most interesting tidbit is that Kim Jong Il has a son who is known only for his obsession with Eric Clapton. This can only be explained by the fact that if you say Pyongyang 5 times really fast, it sounds like the solo in White Room.

What I'm surprised we haven't heard more speculation on is the death of Osama bin Laden. We have only heard scratchy audio tapes of him in the past 2-3 years, with vague "kill the infidels" messages. I know each tape has been authenticated by audio tests, but isn't it possible that it could be someone who sounds nearly identical to bin Laden, or that they've reused audio from previous recordings?

Not to mention that most official messages from the top al Qaeda leadership recently has come from Ayman al-Zawahiri, historically al Qaeda's #2. Throw in the intelligence that bin Laden has had a history of kidney trouble, which is probably not easily treated in the caves of Warizistan, and bin Laden have yet again eluded capture... by dying.

Of course, it could be that al Qaeda deems it too risky to produce any communication from bin Laden, if he is indeed holed up in the caves along the Afghan-Pakistani border. More likely is that the U.S. will not even hint at his death without it being certain, as a "resurrected" bin Laden would be much worse press than declaring him dead would be good.

We may have another cluse soon, though. In 2004, bin Laden delivered a video message just prior to the U.S. presidential election. The absence of some kind of "Ha-ha" before Bush leaves office would only add to the reasons to believe he's dead.

Tuesday, September 9, 2008

Yet Another Internet Game

Exercise your brain with this flash-based game that challenges you to use physics to solve problems. It's not a waste of time if you have to think.

The game may take a little while to load, but it has a good tutorial to walk you through how to play.

To make it more entertaining, narrate everything that you're doing in Professor Frink's voice.

Wednesday, September 3, 2008

Politics, Politics

That's so awesome that Tina Fey is going to be Vice President. She's hilarious!

The RNC so far is about as exciting as Bingo Night. And attended by the same crowd, too - I mean how many 70+ people did they show? And after watching the DNC, it felt like Entourage ended and someone changed the channel to The Golden Girls.

But remember, if there's one thing old people do, it's vote. With a vengeance. What else do they have to do? The DNC was filled with celebs the likes of Julia Stiles and Clay Aiken. Sure they're around when the cameras flash, but when the voting booths open, they'll be passed out in John Stamos' hot tub.

Man, there are a lot of old white people in the audience. John Stewart must be having a field day with this.

To recap what I've seen so far, there have been a number of really boring speeches. Mitt Romney set the stage for a 2012 campaign with a pretty far-right agenda. Rudy Giulliani actually had decent charisma and rhtyhm, and went after Obama pretty hard. Too bad his politics scare the heck out of me.

Drill, baby, drill? Dumb baby dumb.

And now Sarah Palin. Content aside, I thought she was a good speaker. Especially compared to the snoozers that preceded her. Content not aside, her speech was pretty much the same high-rhetoric, low-content, fact-twisting speech of all speeches in both conventions. Hopefully we'll get into policies soon.

It's pretty clear that the Republicans have swung this far back to the right, and this is going to be a fight. In the coming months we'll no doubt see many people in their 20's and 30's pumping Obama. But we'll also be getting calls from Estelle Getty pumping McCain. And complaining about Blanche.