I resolve some of the issues of the day…

March 6, 2009

(Copyright 2009)

I have some ideas on how to resolve some issues of the day:

THE MORTGAGE CRISIS: President Obama has announced his program, but as far as I can tell it only offers help to a limited few. While at one time I leaned toward thinking he ought to get the foreclosure problem solved first to bring stability to the financial system since we found out nearly our whole economy was tied up in bundled mortgage securities, I no longer feel that way. Let the market sort it all out and somehow get back to a realistic system of financing housing that would probably look like the way it was done thirty years ago or so. Hefty down payment, fixed-rate mortgage, the likelihood one would have the ability to pay a prerequisite.

California, the state that is broke, has an asinine new program to pay a gigantic tax credit for anyone buying a brand new (just built) home. Thousands of empty homes, and we need new ones? That’s the California mentality. (There is also a similar federal program, but I understand it is not limited to new homes.  But here’s the question, why the tax incentives? Finally there are bargains galore out there — except no one knows the future of a home investment now. But we do know the government needs the tax money, to pay off the national debt if nothing else. ) 

THE BANKING CRISIS: Please! Stop the insanity! Let the too big to fail banks fail, because like the small town no government bailout bank official said on ABC News, “they’re not too big to fail, they’re just too big.

Okay, so I’m not an economist, but it would seem to me that eventually some element of capitalism will fill the void left by banks too fearful or too greedy (they want to see how much they can extort from the government first) to do what it is they are chartered to do – loan (not give away) money.

I think all along what we should have done is go around the high flying investment bankers and let them stew in their own juices. Perhaps the bailout money should have been put into a temporary government loan entity.

The government using taxpayer money has showered trillions of dollars on those boo hoo babies who can only fly in private jets away from the riffraff (I feel some of their anticipated pain – in my own world far lower down on the totem pole I find myself going to the freak show that is the low cost supermarket). The Wall Street bankers must use government bailout money to wine and dine at plush resorts because, well in their world that is the way business is done. Of course back in the not-so-old days what happened if you made bad business decisions is you slipped out of that privileged world and, well, went into real estate. But things got so out of hand in the financial industry that the piles of bad debts worked their way into the system like a cancer. But the upside for the investment bankers was that they realized they now had leverage to blackmail the government and the people.

But it’s all a bluff. Call’em on it.

THE DOMESTIC AUTOMAKERS: They were going the wrong direction way before the current economic crisis. They were not flexible enough and let their production costs soar too high. And why would any company be saddled with paying people who no longer work for it? Let poorly managed companies fail and make way for better managed ones.

Actually that does not have to mean the end of the domestic auto industry. It does mean different players, and if the United Auto Workers don’t see reality, it may push the industry into the southern states where the foreign auto makers have found willing and appreciative workers.

I realize that as long as the Big Three were rolling in doe the UAW simply took the opportunity to get in on the action. But when market share plummets, what’s left?

HEALTH CARE: Some Republican lawmaker was quoted in a blog I read pronouncing that health care is not a right. Who said it was? Well, okay, many have, but I support universal health care of some type, but I would never hold that it was a constitutional right. But that does not mean that we as the people cannot provide for ourselves some health security through the structure of government. I have some hope now that the demand from the people is going to outweigh the selfish interest groups who stood in the way of this need for so long. I saw some little sign on the news that the private health insurance industry is in more of a compromise mood now that it has seen the true power of the people and their call for change as was witnessed in the last election. Financing will be the big stumbling block. Making the “rich” pay doesn’t work because that still doesn’t get the amount needed. I hate to say it, but the late conservative William F. Buckley Jr. and the more liberal ousted former Democratic governor of California Gray Davis agreed on one thing: the bulk of the taxes always have to come from the middle class (and don’t ask me for a precise definition of that) because there are more of them. But, although they struggle, all the other industrialized nations of the world finance some form of universal health care. But we wouldn’t want to see how they do it, would we? Okay, I’ll give you a hint: they pay for it by somehow spreading the costs. And why the business community (not really a homogeneous group, I suppose) is not solidly behind universal health care, I don’t know. I realize small business people have to have mixed feelings. That’s because they go to local chamber of commerce meetings where they wear white shoes and start out their presentations with the standby Republican right wing sarcastic joke: “Hi I’m from the government and I’m here to help you.” So the point is, government help is something to shun because it comes with strings attached, that is unless it is a small business loan or a tax credit for hiring foreign workers or moving production overseas. But in reality, employees covered for health insurance without any liability on their (businesses) part would seem manna from Heaven. Then again we could just write off the part of the population that can’t or no longer can afford health care and leave them to get sick and die, thereby saving tax expense and giving us more air to breathe.

Democracy altered bailout, can it kill it???

September 28, 2008

(Copyright 2008)


By Tony Walther

While a compromise has been reached in the $700 Billion Wall Street bailout bill and it may go to the House as early as Monday, I would think that the same public outcry that caused it to be delayed and reworked could kill it outright, although the pressure from money experts who have a vested interest in a system that up until now has been working quite well for them may win out nonetheless. This stuff is so complex that few, if any, seem to fully understand this global market and highly sophisticated finance (the basics reamin simple, though).

I believe you can get a full text of the bill via your usual news sources, such as CNN online, and I know that Huffington Post online has it too (I have not read it).

I recommend you read the comment from Susan at the bottom of this blog. Personally, I do not pretend to have the answer for all of this, but I do have thoughts. My old lead and previous, but related blog follows (and please read the comment):

Today, Sunday, it looks as though some type of compromise has been reached in the $700 billion Wall Street bailout bill and I think it proves that democracy is alive and well in America.

And not a minute too soon, this is happending, for the second richest man in America, Warren Buffet, has reportedly warned congress that if it does not get something done ASAP that there will be a complete “economic melt down” across the nation. While I wonder on that, who can argue with Warren Buffet?

But the reason I say that democracy is alive and well is that last weekend the Bush administration tried to push through a one-way no questions asked bill that would have simply given $700 billion in taxpayer money to the Secretary of the Treasury to hand out to reckless speculators. But there was an outcry among the public with e-mails (and thank God for e-mail) and phone calls flooding the offices of congress. That alerted congressmen and senators that they needed to pay attention to the public will. So now a compromise is in the works, that while extraordinary will hopefully be a more prudent, sober, and reasonable approach.

The question in my mind remains as to whether this is all necessary and whether the free market should be allowed to work. On the other hand, it is probably inaccurate to say we simply have a free market. There are government controls, but sometimes they have not been enforced and we may need a little more oversight, to say the least.

An interesting thing about language —  a senator was telling reporters of the problem and I think he gave an example why poor English often heard in everyday speech is misleading. People often use the double negative, such as “it don’t have no value.” I already forgot how the senator actually expressed himself, but he awkwardly said something about mortgage-backed securties the government proposes to buy up “don’t have no value.” Actually, as he went on the explain, that doesn’t mean they do not have value, it means just what he said, they don’t have no value, instead they have value, but the problem is no one knows what it is. He said the governmnet will set a value on them. Now I am not exactly sure how that works, and he indicated he did not totally understand it either, but he said that eventually when (and if) the markets stabilize, the government (and in turn one hopes the taxpayers) stands to make a profit, but it could also only break even or worse yet, lose. (I did not mean that the senator was inarticulate, he was just making a statement in an impromtu fashion.)

The underlying problem is that the bubble burst in the housing market and along with it mortgage- backed securities, and something not realized by many of us, our total economy from Wall Street to Main Street has been riding on these securities. And now there is a lot of paper out there which is either worthless or at least the market does not know its value, so the credit market has come to a standstill at the higher levels, at least, and stocks are expected to tumble if the uncertainty remains.

The following is an already-posted blog on the same theme:

…I’m reading that the powers that be are still hoping to get some version of the $700 billion Wall Street bailout bill into law or all-but into law over this weekend. And I have read in a couple of places where people have reminded the public that it was not just Wall Street who got carried away but anyone who is over-extended on their credit or who went into a mortgage and should have realized they had no ability to keep it up. It all adds to the mound of bad debts that have clogged our financial system. I still say just cancel everyone’s debt and let us start over again – but then I suppose that would make everything worthless, I don’t know.

As little as I know about economics, I have written a lot this past week or so. I have noticed that nearly a week after we were told the world would come to an end if congress did not pass Bush’s bailout with no strings attached for Wall Street everything is still standing, okay a couple of banks have gone under. I still say, take it a step at a time and along the way let’s revamp the system, not perpetuate the problem.

For some strange reason, business people, who often or usually consider themselves conservative, have over these past many decades pushed folks to charge things up on credit cards and the real estate industry, abetted by Wall Street financiers, and yes Democratic (and Republican, I think) politicians pushed for everyone to get in on home ownership and either dropped qualifications or looked the other way as to the probability that folks could really pay back their mortgages.

The old timers were right. They shied away from credit and saved back, putting their money out at interest, knowing that better a lender than a borrower be (although someone has to borrow for someone to lend).

And the inflation in housing caused by easy credit hurt renters too. They have to pay high rents for landlords who don’t own property free and clear and may be behind on their own payments and property taxes.

I’m so far out of my league in economics that probably no one would want to pay attention to me, but I think there is something to be said for a cash society. In capitalism, there does need to be capital, and in order for there to be capital (at least the kind with any liquidity), there needs to be savings so financial institutions can take those savings and lend them out at interest. If there is caution and careful rules, such as requiring sufficient reserves, things can work out fine.

And now I’m really getting in too deep. But I think that for the most part capital should be used to invest in things such as the production of food and durable goods, and the provision of services, all of which, along with jobs created in the process, make up our quality of life. But when you reduce the whole thing to some type of gambling game in which you just borrow money and lend it out and then turn around and borrow money on the money you lent out and so on, that can lead to too much wealth in too few hands and a reduction in the quality of life for the nation as a whole. I know that some of the financial trading has the utility purpose of I think they call it adding liquidity to the market. There has to be safeguards, though, in order to prevent the near catastrophe we are told we are facing.

I apologize or beg forgiveness to anyone who has read this far and understands this whole thing far better than I and feels he or she has just suffered a fool. But don’t get too haughty, I think I get it better than you may realize.

A new hostage crisis, the culprit: Wall Street

September 21, 2008

(Copyright 2008)


By Tony Walther

The more I read stories about bundled mortgage securities and bank credit swaps and derivatives and short selling and even naked short selling the more I resent the fact that I didn’t study the right thing in school, but moreover I resent the fact that Wall Street could hold the rest of the nation hostage – “bail us out or we pull the pin and we all go to hell!”

There has to be something wrong with an economic system in which a relatively small number of people can hold us all hostage like this.

Certainly our government should have, and on some level did, see this coming and so did a lot of folks who have only a general sense of economics. When you borrow more than you can afford to pay back, when you over extend yourself, as an individual or as a business, and when lenders ignore whether you are putting up enough collateral or whether that collateral is real, as opposed to bogus paper (what do they call them, instruments?), you know eventually something bad is bound to happen. But if everyone else is doing it, it becomes accepted and even expected.

In reality, there is a lot of guilt to go around, from individual home owners to major investors and investment institutions. One big difference is that some of these (not all) major investors can go running to Uncle Sam and black mail him into bailing them out. You, Mr. and Mrs. Homeowner, or Mr. and Mrs. Small Business Operator try that trick, Uncle Sam will condescendingly shake his wise head and give you a stern lecture about being prudent with your money and taking personal responsibility, at least the Republican Uncle Sam will.

I am hoping that the Democrats (even though they are as a whole just as guilty as anyone else) demand something, a lot of things, in return for this gift of a trillion dollars or more to private enterprise, that is the assuming of virtually all the financial institution mortgage debt in the latest plan being worked out by the Bush administration. There needs to be relief for homeowners, maybe small business, and heck, why not even demand support for universal health care? Although, this financial crisis works for the anti-universal health care folks because what with the financial rescue effort they will cry crocodile tears and say, sorry no funds available (up until now they only had the war to take care of that – but heaven sakes, what if peace broke out?).

And here I’ll go into my universal health care pitch or rant: I currently (probably not for long) have private health insurance and it (the private plan) seems to think its goal is to not pay or put off paying (although it does pay a lot), and the whole thing is not efficient (medical office personnel and my wife and I having to re-bill, make phone calls) and all this for a hefty premium. Meanwhile the hospital I have used is being starved of the cash and supplies and personnel it needs because the for-profit company that owns it has it on the auction block. Gee that works so well for patients. Yup, private enterprise always provides the best and most efficient service (yes that was sarcasm).

I am sick and tired of hearing about how free-wheeling capitalism without government interference takes care of everything. And then I read that John McCain wants to tax my health insurance, and McCain wants to privatize Social Security.  I thought that notion had already been disposed of – can you imagine how folks would feel if their Social Security was subject to Wall Street whims, especially in this current environment? Oh, I know, the diehards will argue and show me charts on the stock market where over the long run………. Then I have to ask, what if you only have a short run?

I am not against the capitalist system; I’m one hundred percent behind it. But apparently there does have to be regulations.

Didn’t we as a nation go through this before in the Roaring Twenties when Wall Street and the man on the street were flying high over-extending themselves by buying on the margin and then it all came crashing down in 1929? And then it was: “hey buddy can you spare me a dime?”

I guess this time around so many were flying high by buying houses and refinancing and financial institutions were busy in their backrooms bundling up mortgages and selling them as securities to be resold and divided up so much that no one is sure who owns what or who owes what to whom – although I’m told that can be determined (in case you had any ideas). Meanwhile you have short sellers and other types of speculators who produce no product and provide dubious service (I know, they provide “liquidity”), but siphon off one heck of a lot of capital.

Maybe the notion of free and unregulated capitalism has lost its appeal.

If not, let’s just say no to the debt assumption our government is planning and let the free market do its job.

Footnote: George W. Bush was our first, and hopefully last, president to hold an MBA degree.

No help for Lehman Brothers a good thing…

September 15, 2008

(Copyright 2008)


By Tony Walther

And the mighty and greedy keep falling. On the heels of the federal government bailing out investment house Bear Stearns, and then taking over the two mortgage giants, Fannie Mae and Freddie Mac (and banks, including IndyMac, failing), I’ve just read (Sunday) in the online New York Times that Merrill-Lynch, in the hole over bad deals in mortgage securities, is selling itself to Bank of America and the hapless Lehman Brothers, also caught in the mortgage crisis, is filing bankruptcy and headed toward liquidation because it could not find a buyer and the government refused to bail it out (thank goodness for that).

The economy really is the number one issue, or should be, in this presidential election, rather than the current popular attractions, “Lipstick on a Hockey Mom”, starring Sarah Palin, Queen of the Klondike, and “Escape From Hanoi”, starring aging playboy, Every time-I-Think-About-Being Held-Five-Years-in-a-Hole-I-Buy-Another-House John McCain.

It seems just like yesterday that I was listening to that smooth-talking stock broker-radio show host on KFBK in Sacramento with the tone of “greed is good” and if you make money you must be doing something right. And when he mentioned names such as Merrill-Lynch and Bear Stearns and Lehman Brothers there was that tone of reverence. And the message always was that if the government would just get out of the way, even more money could be made and we would all be the better for it under the God Ronald Reagan’s philosophy of trickle down economics (if my stocks are up, boy you can give me a shine). And the only French you need to know is “laissez faire”.

I’m sure that if he’s yet on the air he is still an apologist for the greed- is-good crowd, but I think it has been proven that all those money worshipers were not so clever as had been put forward. I mean basically they ran up a mountain of bad debt in the mortgage industry in the biggest Ponzi scheme ever perpetrated. Well maybe it was clever, but it was dishonest. But now their houses of cards have fallen, but they threaten to take down the country with it all.

I’m pleased at least that the government has decided not to come to the rescue of Lehman Brothers. I think there will have to be some failures and some lessons learned.

The danger, of course, is that our whole economy will collapse (and I guess 401Ks tied to investments are somewhat in danger), but really how strong is an economy built on deception? (we already know the answer to that.) And what good will it do to keep propping up a corrupt economy that will in the end bankrupt the nation?

As dire as things are, I think the economy will or can heal itself, if we let it, and if the conservatives, most of whom seem to call themselves Republicans, really believed in what they say, they would let it do just that with a minimum of government intervention, preserving the existing and limited federal bank deposit protections, of course.

And while I know nearly nothing of investment and securities law, it would not surprise me if existing laws on the books could go a long way toward protecting us from such imprudent and fraudulent investment schemes if only they were enforced by the regulating agencies.

P.S.  With Bank of America already buying out the failed mortgage lender Countrywide Financial and now this, it is the largest brokerage house and consumer banking franchise in the nation, according to the Times. I wonder how vulnerable all this makes Bank of America.