I hope that I am not showing my age but the New York Times used to proclaim that it contained "All the News Fit to Print" and it was essentially good to its word. This iconic newspaper is still the best source of main stream intelligentia. It is no longer the newspaper of Harrison Salisbury, David Halberstam, James Reston, Tom Wicker, Anthony Lewis or William Safire but we can all be grateful that it hasn't been purchased by Rupert Murdoch (at least NOT YET!).
HOWEVER, when a hack like me is a week ahead of it by reading the better blogs, we should all be concerned (or you should all be reading me!).
Geithner is getting questioned about AIG. Banks are in trouble. Obama wants to increase regulation of financial institutions. Goldman Sachs has decided to go easier on the bonuses.
Bernanke is feeling the pressure. Paulson's judgements are now suspect. Volker has been summoned to restore order (when an early Reagan confidante is seen as the answer to our problems, you can be sure that times have changed).
I gather that Obama has given the State of the Union address tonight. I passed on it. That charade has more applause signals than the typical sitcom. Wouldn't it be nice to hear him say that he messed up......misplaced priorities......would atone for past errors in judgement influenced by political motivations. What would we do with the truth? What if Clinton had told us that in fact he was playing with an intern and that it was none of our business so long as it was consensual? What if Tiger Woods told us that it was damned near impossible for him to resist the women that threw themselves at him? Aren't you all waiting for it to happen? Not me.
I would have to stop believing in the Easter Bunny.
Wednesday, January 27, 2010
Thursday, January 21, 2010
Street Sense: Obama Irritates Us
I really surprised myself in writing the last post on Obama and the lost opportunity. I resolved when I started writing a blog that I would avoid discussing politicians. My feeling in general about politicians is that it's virtually impossible to know what they really believe in. They say the politically expedient, or read from a script. My best recollection of a truth coming from a politician was the incredible interview conducted with an exhausted George H.W. Bush aboard Air Force One during his failed re-election campaign. The reporter (the pox on me that I cannot remember his name) asked Bush what he would do if his daughter had been impregnated as a result of a rape. The pro life candidate answered that he would have obviously arranged for an abortion. His answer did not surprise me as I had some inkling of his sensibilities. That he answered honestly almost knocked me over. That's when I started turning off the volume when a politician would speak. I figured I had at least an equal chance to understand what they were about by watching body movements than by actually listening to them.
So why revisit Obama? Because now that he has lost his chance to get his health care bill passed, he is starting to discuss regulating the banks. It irritates Street Sense (admittedly it wouldn't if we thought he read our blog and changed directions because of our post!) that it took a punch from the electorate to do what he should obviously have done right from the beginning. Take on the banks and take back the country.
Next, get the companies that gave AAA ratings to those bundled mortgages. Frisk the AIG executives. Look closely at Bernanke and Geithner. Round up Paulson and all the usual suspects. Make the banks feel the pain as much as the consumer has.
But damn it all Barack, why didn't you do this right off the bat? This sudden shift tells me that you were not confused or paralyzed by the situation as I thought you might have been. The timing of your shift is all political.
President Obama, this is going to be TOUGH work. This is taking on the economic royalty in the country. They will not be overthrown without a fight. You will have a real battle on your hands, and it will take alot more than political expediency as motivation to wage this war. It will be you or them. This is the real reason that you were elected. Go get em!
I'd like to be able to turn the volume back up when you speak.
So why revisit Obama? Because now that he has lost his chance to get his health care bill passed, he is starting to discuss regulating the banks. It irritates Street Sense (admittedly it wouldn't if we thought he read our blog and changed directions because of our post!) that it took a punch from the electorate to do what he should obviously have done right from the beginning. Take on the banks and take back the country.
Next, get the companies that gave AAA ratings to those bundled mortgages. Frisk the AIG executives. Look closely at Bernanke and Geithner. Round up Paulson and all the usual suspects. Make the banks feel the pain as much as the consumer has.
But damn it all Barack, why didn't you do this right off the bat? This sudden shift tells me that you were not confused or paralyzed by the situation as I thought you might have been. The timing of your shift is all political.
President Obama, this is going to be TOUGH work. This is taking on the economic royalty in the country. They will not be overthrown without a fight. You will have a real battle on your hands, and it will take alot more than political expediency as motivation to wage this war. It will be you or them. This is the real reason that you were elected. Go get em!
I'd like to be able to turn the volume back up when you speak.
Sunday, January 17, 2010
Street Sense: What Did Barack Know and When Did he Know it?
I assume that most of us shared excitement at the emergence of Obama. More than any other politician since the mythology surrounding JFK, this guy seemed to represent hope and change.
I can hardly imagine what he fell into once elected. His genius advisors (educated at Goldman Sachs University as were Bush's) certainly fed him the same malarkey that the Congress was served. Save the banks or you will preside over the greatest depression in history. Given that the only person having accurately predicted this was a foreigner named Roubini, I can imagine that believing fellow Harvard alum seemed a heck of alot more plausible.
Once he got an inkling of the truth, what the hell was he supposed to do? Have his own cabinet members indicted? That would have been a tough start for his administration. And let's face it: Obama does like the good life. It's OK to be a democrat and affluent. Take Kerry and Kennedy for examples. Limousine liberals are as old as the crucifixion.
At some point, he had to know that he was doomed. He had to realize that he was not going to be the new FDR. Were I him, I would have turned my attention to where he decided to place it: health care. If he could pull that off, the recession/depression would be decidedly secondary. No one man would be blamed for an economic collapse when the historians have their say. But one man could be deemed the savior of health care. Can you blame him?
He will likely be a one term president because he has presided over the continuing economic debacle. I predict that he will be a Secretary of State in a future administration. His talent and gifts will be recognized and utilized in the future. With luck, he will speak out about what paralyzed him and his administration.
He will eventually realize that behind every revolution is a man with a dream. Willing to sacrifice his life for a cause. He will remember the southern black pacifist preacher that paved the way for him. This was a man that received the Nobel Prize for PAST achievent. He will rue the lost opportunity. Unless he really IS a limousine liberal.
I can hardly imagine what he fell into once elected. His genius advisors (educated at Goldman Sachs University as were Bush's) certainly fed him the same malarkey that the Congress was served. Save the banks or you will preside over the greatest depression in history. Given that the only person having accurately predicted this was a foreigner named Roubini, I can imagine that believing fellow Harvard alum seemed a heck of alot more plausible.
Once he got an inkling of the truth, what the hell was he supposed to do? Have his own cabinet members indicted? That would have been a tough start for his administration. And let's face it: Obama does like the good life. It's OK to be a democrat and affluent. Take Kerry and Kennedy for examples. Limousine liberals are as old as the crucifixion.
At some point, he had to know that he was doomed. He had to realize that he was not going to be the new FDR. Were I him, I would have turned my attention to where he decided to place it: health care. If he could pull that off, the recession/depression would be decidedly secondary. No one man would be blamed for an economic collapse when the historians have their say. But one man could be deemed the savior of health care. Can you blame him?
He will likely be a one term president because he has presided over the continuing economic debacle. I predict that he will be a Secretary of State in a future administration. His talent and gifts will be recognized and utilized in the future. With luck, he will speak out about what paralyzed him and his administration.
He will eventually realize that behind every revolution is a man with a dream. Willing to sacrifice his life for a cause. He will remember the southern black pacifist preacher that paved the way for him. This was a man that received the Nobel Prize for PAST achievent. He will rue the lost opportunity. Unless he really IS a limousine liberal.
Street Sense on Bank Insolvency
An interesting change happened in the beginning of 2009. Obama and crew changed the accounting rules for banks. Banks no longer had to "mark to market" their assets. What does this mean? It means that if a bank has a bad asset, such as a mortgage that was no longer performing, or was essentially in default because the collateral no longer was sufficient enough to cover the note, that it is no longer required to declare/book the impending loss SO LONG as the bank states that it would keep the asset to term. It is a desparate strategy, but not without some theory behind it. The government hoped that the banks could earn their way out of this mess, and eventually book their losses with huge profits to offset the red ink. That was the hope when it was decided to throw massive money at the banks. Of course, this was reserved only for the largest banking institutions whose failure would have traumatized the economy. Had we allowed those banks to fail, the economic pain would have been unprecedented. On the flip side, had we held these institutions responsible for their mistakes, they would have gone into bankruptcy and would have been purchased for pennies on the dollar by businesses that had avoided the risks that buried these boys. It would have been "bye bye" banks, replaced by the smarter operators that would have been able to "buy buy" the banks. Never happened though.
The masters of the universe proved to be immune from confronting their errors. This is now commonly known as the "too big to fail" theory. It is the modus operandi of the day, and we will
pay for these bailouts doubly and then some when the chickens come to roost. That having been said, let's go back to the premise of this post.
These big banks seem to be making crazy money. Huge performance bonuses are paid to productive employees. As well they should be. If I had a contract working for one of these banks and was bringing in serious money backed by a compensation agreement that called for a draw and a commission, I would expect to be be paid. The fundamental problem with this situation is that these banks should have been allowed to fail. It would have been regretable for these employees that would have lost their bonuses. Perhaps even unfair philosophically. But life is unfair. I would not have worried about these blokes however. Their winnings were also philosophically unfair. When you bet on a losing team, you are supposed to lose. That's the economic contract that we make with an employer: they bet on us, and we bet on them. If we don't perform, we are shown the back exit. If they don't perform, we can choose our exit, but
the end result is the same. As so it should be. I have owned businesses where I could not recruit top employees because my business viablity was uncertain. Alas, it cuts both ways.
As always, I digress from the main point, and it is the following: these huge banks backstopped by the government are broke. That they do not have to "mark to market" their assets continues the charade that we live under. Look at the "little" guys. Last year's bank failures cost the FDIC more than the entire mess that came to be called the S & L disaster of the early 90s. There were 120+ bank failures last year. There are currently OVER 550 banks on the problem list. The FDIC is essentially broke. They are raising funds by increasing their premiums to solvent banks in order to continue their mandate for existence. I have a dear friend that is on the board of a tiny bank whose main task is to figure out a way to pay these additional premiums. He is not optimistic. How ironic. We'll kill the little guys to finance the bigger failures. When is it going to stop? Wish I could give you a bouquet of optimism. It will not stop. Property values continue to decrease......unemployment is brutal (and DO NOT think for ONE moment that it is actually 10%), new jobs pay less, the consumer valiantly tries to deleverage out of necessity but at the expense of our consumer spending driven economy, all the while trying to pay mortagages on properties that are upside down. Soon, strategic default will be viewed as noble and certainly not a failure. Sound like a downward spiral? Damn us all, it is.
Could Obama have done anything about it? Stay tuned.
The masters of the universe proved to be immune from confronting their errors. This is now commonly known as the "too big to fail" theory. It is the modus operandi of the day, and we will
pay for these bailouts doubly and then some when the chickens come to roost. That having been said, let's go back to the premise of this post.
These big banks seem to be making crazy money. Huge performance bonuses are paid to productive employees. As well they should be. If I had a contract working for one of these banks and was bringing in serious money backed by a compensation agreement that called for a draw and a commission, I would expect to be be paid. The fundamental problem with this situation is that these banks should have been allowed to fail. It would have been regretable for these employees that would have lost their bonuses. Perhaps even unfair philosophically. But life is unfair. I would not have worried about these blokes however. Their winnings were also philosophically unfair. When you bet on a losing team, you are supposed to lose. That's the economic contract that we make with an employer: they bet on us, and we bet on them. If we don't perform, we are shown the back exit. If they don't perform, we can choose our exit, but
the end result is the same. As so it should be. I have owned businesses where I could not recruit top employees because my business viablity was uncertain. Alas, it cuts both ways.
As always, I digress from the main point, and it is the following: these huge banks backstopped by the government are broke. That they do not have to "mark to market" their assets continues the charade that we live under. Look at the "little" guys. Last year's bank failures cost the FDIC more than the entire mess that came to be called the S & L disaster of the early 90s. There were 120+ bank failures last year. There are currently OVER 550 banks on the problem list. The FDIC is essentially broke. They are raising funds by increasing their premiums to solvent banks in order to continue their mandate for existence. I have a dear friend that is on the board of a tiny bank whose main task is to figure out a way to pay these additional premiums. He is not optimistic. How ironic. We'll kill the little guys to finance the bigger failures. When is it going to stop? Wish I could give you a bouquet of optimism. It will not stop. Property values continue to decrease......unemployment is brutal (and DO NOT think for ONE moment that it is actually 10%), new jobs pay less, the consumer valiantly tries to deleverage out of necessity but at the expense of our consumer spending driven economy, all the while trying to pay mortagages on properties that are upside down. Soon, strategic default will be viewed as noble and certainly not a failure. Sound like a downward spiral? Damn us all, it is.
Could Obama have done anything about it? Stay tuned.
Tuesday, January 12, 2010
Street Sense on Banks: Institutions and Solvency
Every quack that writes a blog (and I am no exception) aspires to have a unique and evenhanded approach to the subject matter. Typically, we say that there are two sides to every story. In this instance, I hope to convince that there are conflicting but true stories when it comes to banks, bailouts, and profitability.
My first Street Sense post hopefully conveyed the point of view that understanding the banking inconsistencies was as easy as predicting a horse race. Whether you were wearing patent leather shoes at the track, or a J. Press suit on the trading floor, it did not matter. The race was fixed.
So now what? Here it is: the big story of 2010 will be the crisis in banking. Getting a loan will be difficult. Not because of you; because of them. Banks make money by lending you money. As my second posting recognized.....they make money by paying savers nothing, and charging borrowers lots.
Simple equation, right? Those HUGE reported profits are the proof. Not exactly.
The banks are still losing their (our) shirts. Oh sure, a couple of them seem to be making obscene profits. They are using government money to apparently make serious dough. How? Not by lending money, and not because they are investing money in businesses or the consumer to be sure. They are gambling with your money. High risk bets. If only they were high risk bets. When the government has deemed you too big to fail, betting the farm is a rather safe proposition. If you lose, you win. If you win, you win.
But these seemingly prosperous banks are essentially bankrupt. These banks, and 500+ of the others NOT backstopped by our government, (which should be renamed the Kingdom of Government Sachs), are finished. More on that next time.
My first Street Sense post hopefully conveyed the point of view that understanding the banking inconsistencies was as easy as predicting a horse race. Whether you were wearing patent leather shoes at the track, or a J. Press suit on the trading floor, it did not matter. The race was fixed.
So now what? Here it is: the big story of 2010 will be the crisis in banking. Getting a loan will be difficult. Not because of you; because of them. Banks make money by lending you money. As my second posting recognized.....they make money by paying savers nothing, and charging borrowers lots.
Simple equation, right? Those HUGE reported profits are the proof. Not exactly.
The banks are still losing their (our) shirts. Oh sure, a couple of them seem to be making obscene profits. They are using government money to apparently make serious dough. How? Not by lending money, and not because they are investing money in businesses or the consumer to be sure. They are gambling with your money. High risk bets. If only they were high risk bets. When the government has deemed you too big to fail, betting the farm is a rather safe proposition. If you lose, you win. If you win, you win.
But these seemingly prosperous banks are essentially bankrupt. These banks, and 500+ of the others NOT backstopped by our government, (which should be renamed the Kingdom of Government Sachs), are finished. More on that next time.
Sunday, January 10, 2010
Street Sense on Social Security
Sometimes the best solutions are the simplest. Wasn't it Einstein that said something to the effect concerning his theory of relativity "I wish that it were so simple that God might have written it." No such pretense here, but I do recognize how often we avoid the obvious. I have not been subject to this mortal coil for very long, but there is something that I remember clearly from my youth.
My elders commonly said that, and I quote loosely but for effect: "I hope that I live long enough to see a social security check." Back then, retirement age was 65. In my home town, the regular guy worked in a factory and was able to make ends meet. The classic story was that the poor bastard kicked off just when he started receiving the coveted check.
When was the last time you heard someone hope to receive social security before their demise? Not a once I would guess. The big dilemma these days involves whether to retire at 62 and take less money in exchange for earlier collection, or to hold out until 65 in order to not be penalized for continuing to make a living at that age. But that's the key phrase: continuing to make a living.
Only the few truly expect to be able to retire at 65. Given the recent hit on retirement portfolios, even those that previously felt secure looking at retirement do not intend to stop working. That option no longer exists. Why not?
Life expectancy. Find out what life expectancy was when FDR started social security. What is it today?
The solution is simple: one should not be entitled to Social Security until the age of 70. We are all working as long as we can. Just as our forefathers did. We should be entitled to collect when we need it, at a retirement age that reflects current reality. It never was intended to be a 20 year annuity.
I expect to live until the age of 79. I hope to live long enough to receive a Social Security check.
My elders commonly said that, and I quote loosely but for effect: "I hope that I live long enough to see a social security check." Back then, retirement age was 65. In my home town, the regular guy worked in a factory and was able to make ends meet. The classic story was that the poor bastard kicked off just when he started receiving the coveted check.
When was the last time you heard someone hope to receive social security before their demise? Not a once I would guess. The big dilemma these days involves whether to retire at 62 and take less money in exchange for earlier collection, or to hold out until 65 in order to not be penalized for continuing to make a living at that age. But that's the key phrase: continuing to make a living.
Only the few truly expect to be able to retire at 65. Given the recent hit on retirement portfolios, even those that previously felt secure looking at retirement do not intend to stop working. That option no longer exists. Why not?
Life expectancy. Find out what life expectancy was when FDR started social security. What is it today?
The solution is simple: one should not be entitled to Social Security until the age of 70. We are all working as long as we can. Just as our forefathers did. We should be entitled to collect when we need it, at a retirement age that reflects current reality. It never was intended to be a 20 year annuity.
I expect to live until the age of 79. I hope to live long enough to receive a Social Security check.
Saturday, January 9, 2010
Street Sense Blog Intro
First off, I am not an economist. I am not an investment advisor. I am not politically active. I am also not stupid. I saw what was coming back in the summer of 07. I took my few sheckels out
of the stock market in October of 07. Just naively thought that I had caught a market cycle accurately for the first time in my life. I never for a moment imagined what was coming next.
The first revelation came at the time of the demise of Lehman Brothers. Why them? Why not Bear? Heck, they were all suddenly in trouble. The AIG situation was frightening. It looked as though complete collapse was imminent. Paulson & crew told congressmen that martial law might be needed if our financial pillars collapsed. I could tell that we were going to witness dramatic changes in our economic system. But the notion of threatening to impose martial law bothered me. It weighed on my mind. I could easily understand that Bush had no clue. It was equally easy to envision that congressmen would be confused and essentially impotent to deal
with what was presented as an unprecedented situation since the late 20s. But martial law? When had the US become a banana republic? Who were these "wise" men pushing these buttons?
It seemed as though they had one thing in common:Goldman Sachs. This was the elite firm on Wall Street. Still is. Or at least the most solvent thanks to all the political connections derived from their alum in the Bush administration as well as previous administrations.. The oddity in the allowed collapse of Lehman was difficult to explain. Was the government drawing a line in the sand? Not a chance. Lehman was Goldman's biggest competitor. Former Goldman czars in the Bush administration were the least likely to assist Lehman. Lehman's CEO had never worked for Goldman. This wasn't family. It was decided to let Lehman fail.
Could Goldman alum really behave so callously? Why not? We came to discover that these were the same investment pros that were selling the bad bundled mortgage paper to one set of clients while shorting the same paper. We came to learn that the bailout of AIG engineered by Goldman alum working in the government paid Goldman 100% on the dollar to the tune of 13 billion. When you get in trouble, you always find out who your friends are. But this was about stacking the deck in the guise of saving AIG. This "friendship" is incestuous and disengenuous. Also unethical and likely illegal.
Alot of odd things were happening in the fall of 08, and George W hadn't the capacity to know or understand. This was essentially a bloodless coup, with the largest financial institutions in the country taking over because their brethren in the government had deemed them too big to fail hence the Treasury coffers were opened to save them. Nice place to be when your business is backstopped by the government.
I cease my ranting today with the latest update to the ongoing scandals (never to be prosecuted if I am correct). Tim Geithner is revealed to have told the AIG folks to not disclose where the bailout money was going back in 08. In a comical twist, the AIG folks wanted to disclose where it was going. When the corporate guys want to regulate themselves more than the regulators do,
then head for the hills.
Herein, I will be looking at the present but I submit to you: what is past is prologue.
of the stock market in October of 07. Just naively thought that I had caught a market cycle accurately for the first time in my life. I never for a moment imagined what was coming next.
The first revelation came at the time of the demise of Lehman Brothers. Why them? Why not Bear? Heck, they were all suddenly in trouble. The AIG situation was frightening. It looked as though complete collapse was imminent. Paulson & crew told congressmen that martial law might be needed if our financial pillars collapsed. I could tell that we were going to witness dramatic changes in our economic system. But the notion of threatening to impose martial law bothered me. It weighed on my mind. I could easily understand that Bush had no clue. It was equally easy to envision that congressmen would be confused and essentially impotent to deal
with what was presented as an unprecedented situation since the late 20s. But martial law? When had the US become a banana republic? Who were these "wise" men pushing these buttons?
It seemed as though they had one thing in common:Goldman Sachs. This was the elite firm on Wall Street. Still is. Or at least the most solvent thanks to all the political connections derived from their alum in the Bush administration as well as previous administrations.. The oddity in the allowed collapse of Lehman was difficult to explain. Was the government drawing a line in the sand? Not a chance. Lehman was Goldman's biggest competitor. Former Goldman czars in the Bush administration were the least likely to assist Lehman. Lehman's CEO had never worked for Goldman. This wasn't family. It was decided to let Lehman fail.
Could Goldman alum really behave so callously? Why not? We came to discover that these were the same investment pros that were selling the bad bundled mortgage paper to one set of clients while shorting the same paper. We came to learn that the bailout of AIG engineered by Goldman alum working in the government paid Goldman 100% on the dollar to the tune of 13 billion. When you get in trouble, you always find out who your friends are. But this was about stacking the deck in the guise of saving AIG. This "friendship" is incestuous and disengenuous. Also unethical and likely illegal.
Alot of odd things were happening in the fall of 08, and George W hadn't the capacity to know or understand. This was essentially a bloodless coup, with the largest financial institutions in the country taking over because their brethren in the government had deemed them too big to fail hence the Treasury coffers were opened to save them. Nice place to be when your business is backstopped by the government.
I cease my ranting today with the latest update to the ongoing scandals (never to be prosecuted if I am correct). Tim Geithner is revealed to have told the AIG folks to not disclose where the bailout money was going back in 08. In a comical twist, the AIG folks wanted to disclose where it was going. When the corporate guys want to regulate themselves more than the regulators do,
then head for the hills.
Herein, I will be looking at the present but I submit to you: what is past is prologue.
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