Think About It
Alan Greenspan is going around the nation to promote his new book and to preach to the people that this current recession is not his fault, hoping all the blame will fall on his successor, Bernard Bernanke. I respectfully beg to differ. We have said in this column recently that this entire financial collapse started when Greenspan’s Fed kept interest rates at an unrealistic 1% for over a year during 2003-2004. The boom created by such quixotic actions always leads to an economic downfall within 5-7 years. Today, “We are it.” If you believe at all in the sanctity of the Federal Reserve, Bernard Bernanke is doing “a hell of a job” (excuse me, Pastor Jim) with his tools. He is attempting to get money flowing again in a market which has frozen because of the sub-prime mortgage debacle, and is emasculating the price of houses. As I have said before, however, I do not believe in the sanctity of the Federal Reserve, a pseudo-government consortium of private banks, which has absolute control of the US dollar, now worth 51 cents to the British and 68 cents to Europe.
If you remember the S & L bailout of 1989, Bush #1 pushed through the Resolution Trust Corporation to buy about 1,000 failed Savings and Loan Associations, and sell the their assets at a loss. RTC was funded by selling $157 billion of floating interest 30 year government bonds, which will eventually cost us between $500 billion and $1 trillion with interest. You will recall my saying if you owe $1,000 and can’t pay, you are in trouble. But, you see if you owe $157 billion and can’t pay, you have friends.
Now, back to the sub-prime debacle. We have talked about how these unrealistic mortgages were pooled, then sliced and diced and sold to investors. In order to sell the most odious of these packages, they relied on loss-insurance, or “credit-default swaps.” For a premium, an entity promises to buy defaults from you when they go bad. This industry guaranteed about $2.4 Trillion of bonds. The problem now is that the loss insurers are about to go broke, because of the massive amount of losses approaching. Two of the largest insurers, MBIA and Ambac, are likely to be bailed out by you and me. The reasoning: you and I cannot afford to let them fail! Pardon me? My dollar is worth 51 cents to the British now, and will probably be worth maybe 45 cents after the bailout, where is my profit? The Federal Reserve can print as much money as they like with no backing but their word, and every time they print more, the value of the dollars I hold goes down. My old granddaddy, who hoisted a few toddies before he quit, said: “You cannot drink yourself sober, and you can’t spend yourself rich.” Well said, granddad!
It appears the big mortgage bankers of New York, who originated, sold, and then also got caught holding a bagful of these collateralized debt obligations, may continue without a bailout. Why? Because No 1, they have sold big pieces of their ownership to foreign entities to raise more capital; and No 2, if we bail out MBIA, Ambac and others, their bad loans may eventually be bought at par (with our money, of course).
This is your money, Madison. This is your money, America. How much longer are you going to let your Federal government steal it from you? I repeat: We are the bosses, they are the employees. Our government, in the name of free trade and prosperity, has fostered turning us from a producer nation to a consumer nation, from a creditor nation to a debtor nation, from THE major world power, to a world (?) power. We have extended their employment contracts. We have stood and watched. We should be ashamed.
Tuesday, January 29, 2008
Saturday, January 19, 2008
SUB-PRIME DEBACLE
Think About It
Confused about all the fuss over the “sub-prime mortgage slime” and its ramifications? Give me 10 minutes and we will try to make sense of it and see how and why it turned the financial world upside down.
The Federal Reserve, which is really a pseudo-government organization owned by its member banks, controls the interest rates in this country. After the tech stock crash of 2000, and the event of 9/11/2001, they kept the Fed Funds rate as low as 1% for an extended period of time during 2003 and 2004. This was good for all of us who needed to borrow money for sensible purposes. But the people who had big money to lend were going crazy at such low returns. They said to the money brokers of New York, “We don’t care how you do it, just find us a way to make 8-11% on our money, and we will buy it all.” The money brokers, ever anxious to oblige (and make a fee) came up with the answer.
They invented SIV/s (structured investment vehicles) to buy CDO/s (collateralized debt obligations), and CMO/s (collateralized mortgage obligations) and they put together a lot of good and potentially bad mortgages into packages, and sold tranches (slices) to eager, money-hungry investors. You could pick the amount of risk and return you wanted, but it all appeared to be rated AAA. Some SIV/s even borrowed money short term, with asset backed commercial paper (ABCP), to buy long- term 30 year CDO/s. It’s like borrowing on your credit card to purchase someone’s home mortgage.
When word got out as to how bad some of these high interest mortgages were, the ABCP market completely dried up. Without the ability to refinance their short term debts, the SIV/s would have to sell their long term CDO/s, but there was no market and no one could even determine their value. To the rescue comes the Fed. Being the lender of last resort (they print money at will), they offered to lend to banks at their discount window, and even said they would take this bad paper as collateral for a short time, but longer than usually allowed.
Next, the Treasury Secretary encouraged the three largest banks to form an MLEC, (Master Liquidity Enhancement Conduit---or a huge pool of money) to buy securities from those SIV/s who could not sell to anyone else, and did not even know what they were worth. This keeps the SIV problems totally separate from the bankers, who were their creators.
Thus proves the old saw—if you borrow $1,000 and can’t pay, you are in trouble. But if you borrow $100 million and can’t pay, someone is going to help you out. We can’t afford to upset the money world. Someone should have learned a lesson from 1964, and LBJ. He told the Federal Housing Administration, until then one of the government’s only success stories, to quit lending based on credit worthiness, and to make their decisions based on what seemed to be “reasonable risks”. Within a few years, those borrowers who should not have been given loans defaulted, the lenders repossessed; and FHA, who had insured the loans, ended up with the houses; losing thousands of dollars on each one, when they resold them. Who lost? We did, because we are the government. Now, housing prices are going to be depressed for probably several years, and we lose again. Any time a boom is created by unreasonably low interest rates, a bust will follow in about 5-7 years. The Fed seems to enjoy ignoring history.
Confused about all the fuss over the “sub-prime mortgage slime” and its ramifications? Give me 10 minutes and we will try to make sense of it and see how and why it turned the financial world upside down.
The Federal Reserve, which is really a pseudo-government organization owned by its member banks, controls the interest rates in this country. After the tech stock crash of 2000, and the event of 9/11/2001, they kept the Fed Funds rate as low as 1% for an extended period of time during 2003 and 2004. This was good for all of us who needed to borrow money for sensible purposes. But the people who had big money to lend were going crazy at such low returns. They said to the money brokers of New York, “We don’t care how you do it, just find us a way to make 8-11% on our money, and we will buy it all.” The money brokers, ever anxious to oblige (and make a fee) came up with the answer.
They invented SIV/s (structured investment vehicles) to buy CDO/s (collateralized debt obligations), and CMO/s (collateralized mortgage obligations) and they put together a lot of good and potentially bad mortgages into packages, and sold tranches (slices) to eager, money-hungry investors. You could pick the amount of risk and return you wanted, but it all appeared to be rated AAA. Some SIV/s even borrowed money short term, with asset backed commercial paper (ABCP), to buy long- term 30 year CDO/s. It’s like borrowing on your credit card to purchase someone’s home mortgage.
When word got out as to how bad some of these high interest mortgages were, the ABCP market completely dried up. Without the ability to refinance their short term debts, the SIV/s would have to sell their long term CDO/s, but there was no market and no one could even determine their value. To the rescue comes the Fed. Being the lender of last resort (they print money at will), they offered to lend to banks at their discount window, and even said they would take this bad paper as collateral for a short time, but longer than usually allowed.
Next, the Treasury Secretary encouraged the three largest banks to form an MLEC, (Master Liquidity Enhancement Conduit---or a huge pool of money) to buy securities from those SIV/s who could not sell to anyone else, and did not even know what they were worth. This keeps the SIV problems totally separate from the bankers, who were their creators.
Thus proves the old saw—if you borrow $1,000 and can’t pay, you are in trouble. But if you borrow $100 million and can’t pay, someone is going to help you out. We can’t afford to upset the money world. Someone should have learned a lesson from 1964, and LBJ. He told the Federal Housing Administration, until then one of the government’s only success stories, to quit lending based on credit worthiness, and to make their decisions based on what seemed to be “reasonable risks”. Within a few years, those borrowers who should not have been given loans defaulted, the lenders repossessed; and FHA, who had insured the loans, ended up with the houses; losing thousands of dollars on each one, when they resold them. Who lost? We did, because we are the government. Now, housing prices are going to be depressed for probably several years, and we lose again. Any time a boom is created by unreasonably low interest rates, a bust will follow in about 5-7 years. The Fed seems to enjoy ignoring history.
Tuesday, January 1, 2008
WHO ARE NEO-CONSERVATIVES?
Think About It
True conservatives, arise and be wary. The neo-conservatives (neocons) are not really your friends and your brothers. Yet they are effectively taking control of the National Republican Party; which was revived in the 1960’s, when Barry Goldwater first cracked the wall the Democratic Party had built around the “solid south”.
The neocon’s “self confessed” godfather is Irving Kristol, father of William Kristol, Fox TV contributor and Editor of “The Weekly Standard”. Their origin was in the 1970’s among elite liberal intellectuals who grew disillusioned with the Democratic Party’s growing desire to focus the Federal government on social policies, and reluctance to spend adequately for defense. They decided to infiltrate the GOP.
According to Kristol senior, “their historical task and political purpose is to convert the Republican Party, and American conservatism in general, against their respective wills, into a new kind of conservative politics suitable to governing a modern democracy.” Their heroes include TR, FDR, and Ronald Reagan (the last, without adequate justification, in my opinion). They ignore Hoover, Eisenhower and Goldwater. They assert that the large majority of the present Party knows nothing, and could not care less, about neo-conservatism. Unfortunately, they are probably exactly right.
They agree to cutting tax rates in order to spur economic growth, but their attitude toward burgeoning Federal debt is far less risk adverse than most conservatives. They aver that budgetary deficits are the cost (temporary, they hope) of pursuing economic growth. They feel no alarm at government growth in the past century, seeing it as inevitable. They feel that most people prefer strong central government to weak central government. They espouse sympathy toward restricting social evils, in an attempt to hold the “religious right” in their camp.
But they are most easily defined by their foreign policy. They do not want one world government, but they want the U. S. to be an empire which dominates and controls the world. While calling themselves Patriots, they think it provincial to believe that our national interests begin and end at our borders. We are, rather, to enforce our ideological interests around the world. Unlike most conservatives, they have no reservation against military intervention and nation building. They see our military might as the result of the “bad luck” we had in having to fight wars in Korea, Viet Nam, the Gulf, Kosovo and Afghanistan. “The result,” they believe, “is that our military spending expanded more or less in line with our economic growth.” They believe that if you have such power, you have the responsibility to use it. Either you find opportunities to use it, or the world will discover them for you. They fear no danger in creating enemies around the world in the name of democracy and capitalism. This, in my opinion, is a misguided philosophy.
I have come to believe that you cannot “bestow” democracy upon any nation. Those who are not willing to pledge their own lives, fortunes and sacred honor to achieve such independence, can not hold it if given to them. Iraq, I offer, as my proof.
We should heed the admonition of “Ike” in his farewell address 40 years ago: “In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military industrial complex. The potential for the disastrous rise of misplaced power exists and will persist. We must never let the weight of this combination endanger our liberties or democratic processes. We should take nothing for granted. Only an alert and knowledgeable citizenry can compel the proper meshing of the huge industrial and military machinery of defense with our peaceful methods and goals, so that security and liberty may prosper together.” Well said, Ike
True conservatives, arise and be wary. The neo-conservatives (neocons) are not really your friends and your brothers. Yet they are effectively taking control of the National Republican Party; which was revived in the 1960’s, when Barry Goldwater first cracked the wall the Democratic Party had built around the “solid south”.
The neocon’s “self confessed” godfather is Irving Kristol, father of William Kristol, Fox TV contributor and Editor of “The Weekly Standard”. Their origin was in the 1970’s among elite liberal intellectuals who grew disillusioned with the Democratic Party’s growing desire to focus the Federal government on social policies, and reluctance to spend adequately for defense. They decided to infiltrate the GOP.
According to Kristol senior, “their historical task and political purpose is to convert the Republican Party, and American conservatism in general, against their respective wills, into a new kind of conservative politics suitable to governing a modern democracy.” Their heroes include TR, FDR, and Ronald Reagan (the last, without adequate justification, in my opinion). They ignore Hoover, Eisenhower and Goldwater. They assert that the large majority of the present Party knows nothing, and could not care less, about neo-conservatism. Unfortunately, they are probably exactly right.
They agree to cutting tax rates in order to spur economic growth, but their attitude toward burgeoning Federal debt is far less risk adverse than most conservatives. They aver that budgetary deficits are the cost (temporary, they hope) of pursuing economic growth. They feel no alarm at government growth in the past century, seeing it as inevitable. They feel that most people prefer strong central government to weak central government. They espouse sympathy toward restricting social evils, in an attempt to hold the “religious right” in their camp.
But they are most easily defined by their foreign policy. They do not want one world government, but they want the U. S. to be an empire which dominates and controls the world. While calling themselves Patriots, they think it provincial to believe that our national interests begin and end at our borders. We are, rather, to enforce our ideological interests around the world. Unlike most conservatives, they have no reservation against military intervention and nation building. They see our military might as the result of the “bad luck” we had in having to fight wars in Korea, Viet Nam, the Gulf, Kosovo and Afghanistan. “The result,” they believe, “is that our military spending expanded more or less in line with our economic growth.” They believe that if you have such power, you have the responsibility to use it. Either you find opportunities to use it, or the world will discover them for you. They fear no danger in creating enemies around the world in the name of democracy and capitalism. This, in my opinion, is a misguided philosophy.
I have come to believe that you cannot “bestow” democracy upon any nation. Those who are not willing to pledge their own lives, fortunes and sacred honor to achieve such independence, can not hold it if given to them. Iraq, I offer, as my proof.
We should heed the admonition of “Ike” in his farewell address 40 years ago: “In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military industrial complex. The potential for the disastrous rise of misplaced power exists and will persist. We must never let the weight of this combination endanger our liberties or democratic processes. We should take nothing for granted. Only an alert and knowledgeable citizenry can compel the proper meshing of the huge industrial and military machinery of defense with our peaceful methods and goals, so that security and liberty may prosper together.” Well said, Ike
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