Friday, October 31, 2008

40 Years: Its Been An Interesting Ride

Tomorrow is an anniversary for me. On November 1, 1968, I started out as a municipal bond salesman and began my career in the field of investment securities. That was 40 years ago and I have seen and read a lot. I have read books, articles, research reports and newspapers in those 40 years that have covered almost every aspect of the field of investments. I did not study business in college, but I did enroll myself in a lifetime of learning about money and investments and a whole lot more. The bottom line is that in a highly competitive industry such as the investment industry, there needs to be regulations, oversight, transparency and people committed to bringing this about. The present financial crisis which has our nation, as well as other nations struggling, is man made. That may sound too simple an analysis, but it is true. There are economic cycles, I will not debate that fact, but the highs and lows, like bi-polar, need to be held in check. The medicine for a healthy economy is enforcement of proper regulations, oversight and transparency. Couple that with the removal of the rating of debt by private for profit companies and placing that responsibility with the Federal Government, and I think that would go a long way to prevent another financial disaster. I do not have all the answers, but there are good men out there that do. I hope the next administration will make use of these good men to level the playing field. Our economy will repair itself with time. The big question is: how much time will it take? I have voted for the ticket that I believe has the best chance to make the necessary changes and do it in the shortest time possible. I voted for OBAMA-BIDEN. I hope everyone that reads my blog will give serious consideration to my appeal to vote for OBAMA-BIDEN.

Stay tuned.

Thursday, October 30, 2008


Having my old hard drive put in my "new' ibook so I can do all the things I used to do. Today, I am taking a pass. All the other "old farts" (the expression is better in Yiddish), like me, can have their say today. I have nothing to add until tomorrow.

Stay tuned.

Wednesday, October 29, 2008

Rebuilding Our Economy

The Federal Reserve Bank is expected to lower the Feds Fund rate to 1% today. The question is: will this help? Yes and no is my answer.

Years ago, when I was managing bond portfolios and trading bonds for bank trust departments, we had an expression, “pushing on a string.” What does it mean to push on a string? Well, if you think about a piece of string on a table and you push on it at one end, what happens? The string just folds up as the far end of the piece of string does not move. That expression best described the bond market when the market had no buyers. The Federal Reserve Bank raised interest rates, but the conditions were such that even with higher interest rates people were not buying bonds.

Today, the situation is slightly different in that it is now the banks that don’t want to lend to the borrowers. Trust and confidence are two pieces of an economy that can not be regulated or enforced. When fear takes a grip over the markets most players take there money to the sidelines, and banks are no exception. The banking regulations that rebuilt the trust and confidence in our banking system from the period of the Great Depression forward has been damaged by people that were just plain stupid. Stupid in that they did not understand how markets work, or how easy it is to upset the delicate balance upon which every market depends.

With the Federal Reserve Bank making interest rates low and very attractive, and the U. S. Treasury backing up the banks every step of the way, and with a little spending by the government here at home on our infrastructure, perhaps trust and confidence that our domestic economy will get back on track and start growing again, and, then “the smartest men in the room” our commercial bankers, will start making loans to ordinary people, so our economy will repair itself. Because, it is the ordinary people that borrow and spend and repay their loans that make our economy grow. I have said this before and I will say it again, economics is not brain surgery or rocket science. Economics is trust in the medium of exchange, our money, our savings and our demand deposits, the banks’ confidence in the willingness of borrowers to repay loans in a timely manner, and a little not so common sense that we are all in this together.

It is so easy to destroy an economy with thoughtless stupid actions, and it is so hard to rebuild that which has been destroyed. A building can be brought down in a matter of seconds, but building a great structure takes months if not years.

Stay tuned.

Tuesday, October 28, 2008

The Smartest Man In The Room

The smartest man in the room.

Anti-intellectualism in America.

I do not write poetry, but if I did, the above two lines would be my poem for today. There are different kinds of smart. There is the smart that can remember lots of facts and numbers, and there is the smart that can do something with the facts and numbers whether they are memorized or not.

The former chairman of the Federal Reserve Bank, Alan Greenspan, is, in my opinion, one of those people that can retain a lot of facts and numbers, and can use them to build a case for deregulation. This I think he did and now we have a financial crisis that has brought our economy to the edge. I do not believe that Alan Greenspan or Milton Friedman believed that deregulation would lead to an economic crisis, but then again, I do not believe Alan Greenspan or Milton Friedman ever played one down in the NFL either. If they had, perhaps they would not have embraced the philosophy of deregulation. Sitting in the comfort of one’s office in a nicely tailored suit is a long ways from the reality of the NFL on game day. Perhaps if each one had played a few downs of football at that level, they would have better understood the need for regulation in a competitive environment.

There were men of knowledge and experience that could have debated Greenspan on the issue of deregulation, but I am sure they were not in the room when the debate was going on. When I was working just a few years ago for the State of Ohio, I got to hear a lot of stories from marketers passing through. One story, I got to hear a few times that I would like to tell now is about who is the mark. The guy that told this story said his father had told him this as a piece of advice. “If you find yourself in a card game and you look around the table and you can not spot the mark, then you are the mark.” It is my opinion, that when Alan Greenspan argued for deregulation of the financial markets, there were several marks in the room and they all were Congressional representatives that did not know the difference between a bid and an asked price. They all thought that they were not the mark at the table, but they were. How do I know this? Simple, look at what deregulation of the financial markets has done to our economy. And, make no mistake, the present financial crisis is directly related to the deregulation of the financial markets and the lack of enforcement of banking and investment securities regulation by the SEC.

Hopefully, after this presidential election, and the Obama-Biden ticket wins, we will see steps taken to bring meaningful regulation back to the financial markets and banking. Trust and faith and all those nice words mean nothing without real enforceable regulation. I sure hope that when the debate begins that Arthur Levitt and Paul Volcker are in the room and sitting at the table.

Stay tuned.

Monday, October 27, 2008

Executive Experience?

A lot has been written and said on TV about executive experience and how it might relate to the work of a president in the White House. Well, George W. Bush and Dick Cheney both had executive experience before they became President and Vice President of these United States and it did not, in my opinion, help them do a very good job. Also the heads of Merrill Lynch, Bear Stearns, Lehman Brothers and AIG all had executive experience too, and we know what kind of a job they did for their respective companies. So, my question is: What is so great about executive experience, if it is just time spent at a desk with no thinking taking place? Which reminds me of a line from one of Saul Bellows' novels in which he described the mind of the mother of his girl friend as working like a sewing machine, the needle going up and down, but no stitching taking place. In this presidential election we have four people with little if any executive experience. Yes, I know Sarah Palin is the Governor of Alaska, and that is executive experience. But here the United States has an opportunity to pick a president and a vice president with an education and intelligence. The people will have to decide who those two people are and what ticket they are running on. I figured that out a while ago, and I voted. I hope Americans will go to the polls and vote too.

The Sunday New York Times had a nice little article in the Sunday Business section of the paper about the three heads of the three major rating agencies, spell that companies, giving testimony before the House Committee last week. I am still waiting for someone at a higher pay grade than mine, remember I am retired, to say that the responsibility for the rating of fixed-income assets, such as notes and bonds, belongs with the Federal Government. The private sector can not do this important work any more than the players in the NFL can officiate the games in which they are playing. When someone at that higher pay grade comes to that conclusion, perhaps the markets will free up like a drain does after it receives a bottle of DRANO.

Stay tuned.

Saturday, October 25, 2008

Saturday Is For Art

I thought about posting my latest of the "Level Playing Field" pieces that I have been working on, but I am too tired. Besides, I would rather wait until I am finished before I post. This morning I will post a few of the "Level Playing Field" pieces I have done and call it a day.

I, like a lot of people, am glad to see the price of gasoline coming down. Over a year ago I wrote to friends of my concern that $4 a gallon gasoline would cause our domestic economy a great deal of trouble. Some would argue that the Bush Administration did the right thing to stay out of the problem by not selling oil from our government held petroleum reserves. I am not sure, given the other financial problems the country was facing, that making no attempt to enter the market and sell or making the threat to sell oil would not have been a better way to go. Long before the banks and their credit and investment problems entered the scene, the ever increasing price of gasoline was presenting a hardship in the form of a tax on most Americans. If the price of oil was going up because of international demand from China, India and the Middle East, where is that demand now? The Bush Administration, in my opinion, could have done more than sit on their hands when the price of gasoline started to shoot up, but that would have been counter to their political philosophy of letting the markets take care of themselves. We have seen what happens when markets are left to take care of themselves. Even the old central banker, Mr. Alan Greenspan, has seen and learned what happens when markets are left to take care of themselves. Government has a role to play and the federal government does play a role, it is just a matter of what kind of role they play and whose side do they play for.

Friday, October 24, 2008

ibook Problems Solved

I had a little ibook trouble, but have a "new' ibook and hope to be posting tomorrow.

Thursday, October 23, 2008

FFIRA: Federal Fixed-Income Rating Administration

Yesterday while I was listening and watching the House of Representatives' hearing on the bond market meltdown, I heard a phrase I had not heard in quite a while, "shopping a bond rating." What is shopping a bond rating? Simply put, shopping a bond rating is when an investment banker goes from one rating agency (company) to another looking to see who will give their bond issue, which they are underwriting, a higher rating than the other rating companies.

Why is the bond rating so important? Well, if you could have heard the men from the rating companies talk to members of Congress yesterday, you would have been led to believe that the rating companies give only an "opinion". Yes, an "opinion" is what the investment bankers pay the rating companies for, just an "opinion". Unfortunately, that "opinion" put this country, in part, in the financial crisis that we now find ourselves.

I love it when a professional backs off the importance of what they do. In this case, the rating companies are only giving an opinion. An opinion that results in millions of dollars being invested in a particular bond issue. Add up all the mortgage-backed bond issues that have been rated by the rating companies and you have several billions of dollars of investment securities, being traded around the world, being placed into public and private pension funds, and the rating companies are only selling an "opinion".

What if you could buy a mile of road construction for your state? You might go to three or four construction companies that building roads and say to them, " how many feet are in your mile of road?" The company that would give you the best price per mile and have the longest mile would get the business. Or, when you go to buy some meat you find a butcher that gives 20 ounces and calls it a pound of meat. We all know 16 ounces equals a pound, but what the hell, if one butcher wants to give 20 ounces to the pound and charge the same as those selling 16 ounces to the pound, who are we to argue.

Am I crazy? No, I am not crazy. I just think that investment bankers should not be able to "shop" a bond rating any more than a drug company should be able to "shop" for the approval of their new drugs by going from one Food & Drug Administration to another FDA. There is only one FDA, and I believe there should be only one rating agency and that rating agency should be run by the Federal Government. If Wall Street brings a bond to be rated to the Federal Agency for Fixed-Income Ratings, then they take the rating they get and they don't "shop" the rating with the other rating companies. A mile is a mile, and a pound is a pound. Let's stop the BS!!!

I know that nothing is perfect whether it is done by the private sector or the government, but I do know that taking the rating of billions of dollars of bonds, and taking it out of the for profit side of the business would go a long way to improving the whole bond rating process. The amount of financing done by asset-backed bonds has changed the landscape of Wall Street tremendously over the last 30 years. With the creation of the whole asset-backed sector of the fixed-income market, the number of bond issues underwritten by investment bankers has exploded. The rating of billions of dollars of asset-backed bond issues requires that the government step in and take over the rating process. If the rating of bonds remains in the hands of the private for profit sector, it is just a matter of time before we visit the same financial crisis again.

Stay tuned.

Wednesday, October 22, 2008

Fixed-Income Credit Ratings, A Job for Uncle Sam

Today a committee of the House of Representatives heard from people associated with the rating agencies. I listened to a good deal of the hearings and thought that what I heard was a lot of what I had been writing about the credit rating companies in my blog. The big difference between me and the committee is that I do not think it is possible for these companies to fix themselves no matter how many fancy words they use or reforms they promise to make. If it is important enough for the Food & Drug Administration to be a government run agency, then, it is my opinion, it is important enough for the responsibility for the rating of fixed-income assets, that number into the trillions of dollars, to be done by an agency of the Federal Government. While this may not be full proof, any more than the FDA is full proof, it would be one hell of a lot better than the existing system. The rating companies have let down the investing public before the present disaster in the mortgage bond arena, when they failed to down grade New York City in the 1970's. As long as the credit rating responsibility remains in the hands of private for profit companies, there will continue to be disasters as we go forward. Credit ratings can not be bought if they are to mean anything to the financial community, period. The House Committee hearings are a good show, but without a majority of members taking the position that for profit companies by their very nature can not do this job right, it is just a matter of time before there are more credit disasters and more hearings.

Stay tuned.

Tuesday, October 21, 2008

The Presidential Elections

With so much out there to write about and make comments, I am going to take a break. The presidential campaign has another two weeks until election day and both campaigns are working hard to get people to vote for them. There is nothing wrong with that, that is what campaigning is all about. But why the personal attacks? We know from our own history that from the first days of our republic, personal attacks against the candidates running for office is nothing new. Mean and dishonest things were said about many of the men we call our Founding Fathers of this nation. So, the intelligent thing to do is to put those personal attacks aside. Concentrate on the issues and the policies and vote for the person you feel will best serve the country or for that matter your interests.

I have already voted, and I voted for Obama-Biden. I am a Democrat, but I know the Obama-Biden administration can not do all the things I think should be done. However, I think they will do more of the things that I think should be done than the Republican ticket. The philosophy of economic deregulation as it applies to finance and banking is a failed philosophy. The financial problems that millions of Americans find themselves in today can be traced back to the failed policies of the Bush administration. The United States, in my opinion, needs to shore up its policies as they relate to banking and investment banking. The rest of the world can not be expected to continue to purchase our debt if we do not put our house in order. I believe that an Obama-Biden administration has the best chance to correct the mistakes made during the last eight years and before and place our economy on a sounder footing. Regulation is not a four-letter word!!! Proper oversight would have been a lot cheaper than the trillions of dollars lost in the stock market, and now being spent by the Federal government in the bailout/rescue package just passed by the Congress.

I think the OBAMA-BIDEN ticket is the best ticket for most of American, if not all of America.

Stay tuned.

Monday, October 20, 2008

At The Cellular Level: Bonds And Cancer

For the large institutional buyer of investment securities, credit worthiness is, in my opinion, the most important factor in the decision to purchase a fixed-income security for a portfolio.

There are several different treatments for fighting cancer. One of those treatments or strategies, that is still being worked on, is to manipulate certain proteins so the cancer cells will not take in nourishment from the blood supply of the body they are in. Work on this particular kind of research has been done at The Ohio State University. (See, they do things besides play football at Ohio State.) At the cellular level, without hurting the patient, it some day will be possible to stop the growth of a tumor right in its tracks. For all those cancers that are inoperable, this strategy and treatment will someday save millions of lives.

Now, let us jump back to the field of finance and fixed-income investments and portfolios. Remember, I said in my opinion credit worthiness is the most important factor in the decision to purchase a fixed-income security. Well, let me change that slightly. Credit worthiness and the credit rating assigned to an asset-backed bond that is made up of several mortgages, car loans or manufactured housing loans is of critical importance. If a portfolio manager that is managing a portfolio of asset-backed bonds, finds out that the AAA rated bonds that have been purchased for the portfolio are not really of AAA quality, the portfolio manager has what amounts to as a “cancerous tumor” instead of a AAA portfolio.

When the market makers at the large securities firms realize that there may be a problem with the creditworthiness of asset-backed bonds, trading in those securities comes to a halt. Who wants to buy asset-backed bonds for their trading position if they do not know what the value of the properties behind the mortgages are?

The way I see the growth in the volume of asset-backed bonds and the growth of the asset-backed bond market is much the way I see a cancer permitted to grow. The AAA credit rating that was given to these asset-backed bonds gave the portfolio managers in this country and around the world, the signal that these securities were of the highest credit worthiness. Without the AAA rating, the cancer that these asset-backed bonds carried would have never invaded all those institutional portfolios. Some portfolio managers, hungry for yield, may have bought un-rated asset-backed bonds, but few, in my opinion, would have placed a significant percentage of their fixed-income portfolios in such questionable credits. Without the AAA credit rating, the mortgage-backed bond market would have never permitted the housing bubble, spell cancer, to grow. Without the purchasing power of the institutional portfolios, public and private pension funds, the housing bubble would have been stopped in its tracks.

Now, if what I wrote today does not make any sense to you, please do not feel bad. My mind works differently that most peoples. First, I am left-handed and secondly, I was raised in a different environment than most. Crazy ideas were pretty much the norm in the house where I grew up. But, that said, I do know something about bonds and the bond markets and what a meltdown is. Unless the rating of fixed-income assets, especially those asset-backed bonds, are moved to a governmental agency instead of a private for profit company, the pain and suffering and financial loss of this meltdown will be seen again.

Stay tuned.

Saturday, October 18, 2008

Saturday Is For Art

Recently I was introduced to a man, who teaches art, and another class for non-artists that explores what goes into a piece of art and how the artist goes about creating a piece of art. We were brought together because he was interested in a specific group of American artists and it was thought that I may have some knowledge about this group's background. It turns out that I had a book, a novel, that my new friend was looking to read for the lecture he wanted to develop about this group of artists. He also asked me about my art work and encouraged me to think about it.

This morning I am going to post a few pieces that are titled "Mother & Child". In the 1980's, the group known as the "Religious Right" talked a lot about the United States being a Christian nation. Even though I was educated to believe that the United States, unlike European nations, had no State religion, I was troubled by the fact that there were people that felt that unless one believed in Christ, they could not be a good citizen of the United States. I thought of myself as a good citizen in that I almost always voted, I had served my country in the military and even spent one year in Korea, I paid taxes and participated in my community doing a wide range of volunteer activities. Yet, the group called the Christian Right got me thinking about how I could bring together my love for my country, while at the same time not believing in Christ. What came out of this conflict within me was my first painting "Mother & Child: An American Icon" oil on board, 1992. In this painting, I was able to bring together elements of Christianity and my love for my country, while at the same time not forgetting that my tradition did not include Christ. Over the years, I have repeated the Mother & Child theme in other paintings. This morning I am posting a few of them.

Friday, October 17, 2008

Oh, My old ibook

My old ibook needed go in the shop for repair, so I did not write anything Friday morning. I really do not have any bits of wisdom this evening, except to say vote on election day November 4. If you don't know who to vote for, think about the last 8 years and imagine what 4 more like those last 8 would look like. Maybe a McCain-Palin ticket could inflict enough pain and suffering on the United States in 4 years to equal what it took Bush-Cheney to do in 8. But, I have a feeling that the majority of Americans have seen enough, and know which team will make a positive difference. I think that team will be


Stay tuned.

Thursday, October 16, 2008

Change Still Comes Hard

Civilization does not move in a straight line. By this I mean that change comes hard. A few years back a pharaoh tried to change the religion of ancient Egypt from a belief in many gods to a belief in one god. He ran into resistance and historians believe he died as a result of his efforts to bring about this sudden change. Years later, another group of people adopted this belief in one god and in fact it flourished.

After the stock market crash of 1929 and the Great Depression that followed, there were changes in ideas and attitudes about government’s role in protecting her people in the United States. Believe it or not these same ideas concerning the protection of her citizens came from Europe. Germany had laws to act as a safety net for her people before the 20TH Century. Many of the ideas that came out of the New Deal were based on the simple idea that government had a role to play in the security of her people. But, not everyone saw this as a good thing. Today, unfortunately, there are still people that think government should not look out for the well being of her people. Those that do not like government protecting her people call this socialism. Laws that protect people’s savings in banks is not, in my opinion, socialism. Laws that protect people from being swindled by investment banks and brokers is not socialism. Laws that ensure that we have police and fire protection is not socialism.

On November 4, the American people have a choice. They can vote for McCain, a Republican, and a party that believes in deregulation. Or, they can vote for Obama-Biden, Democrats, that believe government has a role in protecting her people from being made marks for the financial industry. If you do not like what has happened to your 401-K or your personal investment portfolio, I suggest that you strongly consider voting for Obama-Biden. The Democrats are still trying to protect the people after almost 80 years. Change still comes hard.

Stay tuned.

Tuesday, October 14, 2008

At The Cellular Level of The Financial Crisis

Like most of you out there, I read a newspaper. My newspaper is the Sunday New York Times. My city’s Sunday paper is not much for news, so I read the Sunday Times. But even the New York Times’ writers do not fully understand what they are writing about when it comes to writing about the financial crisis and bonds and the markets. They know all the terms, but like someone explaining how the human body functions without understanding what takes place at the cellular level, these writers can only go so far in their explanation. Let me just say now, I do not know everything about the financial markets because I have not traded every type of financial instrument that has come down the pike, but I do understand the importance of credit ratings.

As I have written before many times, credit ratings are the weights and measures of the financial industry. Without confidence in weights and measures, commerce would grind to a halt. Without confidence in the credits of financial instruments, markets grind to a halt.

Let me give you a little visual explanation. Have you ever looked carefully at a gold coin? Gold coins have ridges running around the outer edge of the coin. Our own silver dollars, fifty cent, quarters and dimes also have these fine little ridges around their outer edge. Do you know why they put these little ridges on the outer edge? The reason is simple. So people do not shave some of the gold or silver from the coin and in turn short change you. Years ago, people of lower business ethics would scrape the gold or silver from the edge of the coin and when they got enough gold or silver they sold it. Mints realized that to prevent this practice of shaving, ridges would be the thing to stop that. People when they received their change would check their coins that they were not tampered with.

Credit ratings on bonds that do not meet certain credit standards is the same as the practice of shaving gold and silver coins. What I am asking the Federal Government to do is take the responsibility of assigning credit ratings to either the Federal Reserve Bank, the Securities & Exchange Commission or a new Federal Agency that would put the ridges around the bonds, especially those asset-backed bonds like mortgage bonds.

The meltdown in the bond markets is directly related to the fact that the market makers no longer have any confidence that the asset-backed bonds are what the ratings say they are. As a result, at the cellular level of the financial animal, the organism has shut down. I hate to beat a dead horse, but I think an explanation at the cellular level of the financial crisis is important.

Stay tuned.

Monday, October 13, 2008

Columbus Day 2008

I have no new insights to offer this Monday morning. Confidence and trust are two things that can not be bought or regulated. The economic philosophy that promotes deregulation is a total bust. It will takes months, not days, to build confidence and trust again in the markets and with our financial institutions. Our economy must repair itself and this will take time. Poor public policy has brought us to this point, and it will take good public policy to rebuild our economy and instill confidence and trust in our institutions. America has a clear choice on November 4, more of the same stupid public polices that brought us all to where we are today, or smart public policy that will rebuild our country and trust in the financial institutions that are so much a part of our lives in the 21st century. Vote for OBAMA-BIDEN!!!

Stay tuned.

Congratulations to Paul Krugman for being awarded the Nobel Prize for his work in economics.

Sunday, October 12, 2008

Sunday Special

The philosophy of deregulation is a complete failure. If the prophets of deregulation had so much faith in the correctness of their economic philosophy, that the markets will correct themselves, then why aren't they doing that? The answer is simple. Deregulation is the philosophy when it means the wealthy can make marks of the old, the young, the poor and the middle class, but when the fire gets too close for the wealthy, as it is now, the philosophy of deregulation is placed aside to save the skins of the wealthy. From "divine right of kings" to "trickle down economics" to "deregulation", to "let the markets take care of the problem", the wealthy class has come up with economic philosphies that suit them and their class. What about the middle class? The middle class does not count in their minds. The middle class was put on this earth to serve the wealthy. The middle class is to be fed chants of "USA, USA, USA" and any other crap that they can swallow with their pretzels and beer. Laws and government policies are written for the benefit of the wealthy. But now those same laws and policies have resulted in the wealthy and upper middle class losing their wealth and thus their status. Now something must be done, we can not have the wealthy and upper middle class suffer any more than they have too. We don't have enough spas for all of them at one time, or do we?

The people that should receive the bailout/rescue will not see it. No more than the people that suffered through Katrina saw any help. The wealthy and well connected will come out of this OK, but the old, the young, the poor, and the majority of the middle class will not recover for many years. Those that still think Reagan, Bush and Bush are so smart, well some people never learn. Those that still embrace deregulation because regulation, oversight and transparency costs too much, must not count the billions of dollars that the American people will pay for the bailout/rescue. Those that pray, had better pray that enough Americans can now see the light, the philosophy of economic deregulation is the false prophet. Even God was smart enough to know that man needed ten commandments.

Saturday, October 11, 2008

Saturday Is For Art

Can you see behind the mask? Which mask do you choose? It has been a tough week at many levels for me, but none of the ride has been entirely new. As my father would say, " I feel like I am on the merry-go-round for just another time." Today we would say, "been there, done that." We get the government we deserve, but not all of us deserve such poor leaders. Some of us have voted for leaders that understand that deregulation of the economy is plain stupid. In every corner of our lives there is the need for some regulation, laws, codes, stop signs, traffic lights. Have you ever experienced a power failure where the traffic lights go out? Most of the people will automatically understand that the intersection then becomes a 4-way stop, and cars must take turns. But then there is always a few who think that the 4-way stop is for everyone else except them, and then sometimes there is an accident because some bonehead can not act civilized. Well the financial markets are no different. While many people would do the right thing, in the financial business where greed is the religion of the day, people have little empathy for their fellow man. The conservative right has said that regulation adds cost to business. Well, how much cost is this bailout/rescue costing? By the time all is said and done, the cost willbe in the trillions of dollars. The conservative political-economic philosophy of Ronald Reagan, George H.W. Bush and George W. Bush is bankrupt. BANKRUPT!!! Policies of deregulation have lead America to this point. Blaming the huge financial problems on a few bad mortgages is a sick joke. The problem goes so much deeper than that. Why do you think that after all the mortgage rescue legislation the stock market is still falling? This is about a lot more than bad mortgage bonds and the fact that no one wants to make a market in bonds they don't know what is in them. And yet, with all the problems that we have with the economy, conservatives are still talking about deregulation as being the answer. America has a chance to save itself this November 4 by voting and voting for OBAMA-BIDEN. The political-economic philosophy of the Republican Party is bankrupt and has already done considerable damage to the American economy. Another four years of the same stupid policies will be the end of the middle class in America. Enjoy your weekend.

Friday, October 10, 2008


I have said all I care to say this week. I know there are millions of my fellow Americans worried about the decline in the stock markets not only in the USA, but around the world. Those that voted for Reagan and the two Bushes and believe in their economic philosophy of deregulation, well, now you have and see what it brings. Where is Phil Gramm and Alan Greenspan to tell us it is all in our minds? That we are a bunch of whiners? Americans, there is only one smart vote this November 4, and that is to vote for Obama-Biden. I said the smart thing to do is to vote for OBAMA-BIDEN.

Stay tuned.

Thursday, October 9, 2008

At The Vortex Of The Credit Markets

Individuals have credit scores. Anyone who has spent any time on their computer has seen ads about knowing your credit score. When people go to buy a house, their credit score is part of the information that is included in the application for a mortgage. Bonds and notes issued by states, counties, cities or authorities have a credit score too. Corporations that issue debt whether it is commercial paper, notes, or bonds have a credit score as well. Basically, the credit score tells a lender or investor the individual's, or the municipality's, or the corporation’s willingness and ability to pay back the money borrowed (principal and interest). When the credit score involves a corporation or municipality or an authority, the three major credit rating companies, Moody's Investor Services, Standard & Poors and Fitch do the credit analysis and assign a rating. These ratings start at the top with a AAA rating and move down to double-A (AA), then single-A (A). Moody’s then goes with Baa, Ba and then B, while S&P goes with BBB, BB and the B. Ratings go all the way to single-C and below. The system as it stands today can be improved, I do not think there is any question about that.

Years ago when I was working with bonds and bond portfolios, it was known that one way to improve the investment performance of a bond portfolio you managed was to do your own credit research. It was a known fact on the street that the rating companies were slow to act on new information. A portfolio manager could buy a bond that he thought might be in line for an up grade in rating before the rating companies actually up graded the corporation or municipality. By buying a bond that might be up graded, the portfolio manager could realize a higher market value for that bond after the up grade by the rating companies took place. A portfolio manager could also sell a bond that his research showed might be in for a down grade. The actual market value of bonds traded is based on their desirability: yield/ price.

The rating of debt instruments is a very important factor in the life of the bond markets. Without confidence in the rating process or the rating companies, the bond market grinds to a halt. If people buying gas had no confidence in the pumps they were using to pump their gas, what might happen? Confidence and trust in the fact that you are receiving a gallon of gas for your money is essential. What would people do if every time they put their credit card into the gas pump to pump gas, they got ripped off at the pump? What would happen to the trucking industry if truckers could not depend on receiving the correct amount of diesel they were paying for? Weights and measures and their accuracy are essential for commerce as it is for the financial markets as well. Getting short changed in one is no different than being short changed in the other.

Congress needs to take up this issue of rating debt instruments because it is at the vortex of what makes up the credit markets. I hope someone will explain this to them.

Stay tuned.

Wednesday, October 8, 2008

The Economic Engine 2008

Did you watch the Presidential Debate last night? I thought it was a good debate. Both men presented their positions and now the voters will decide which man they want to be president for the next four years.

But where are we economically speaking? Today the world is facing a financial crisis. Just a few short months ago, it was the United States that was having economic problems, today the rest of the world is feeling the pain as well. For a long time, the United States has been the economic engine, or locomotive as some would put it, that pulled along other nations’ economies much the same way that a locomotive pulls a train. But, when the locomotive slows down, the whole train slows down. Those of you who play poker and understand what it means to the game if one or more big winners remove themselves and their winnings from the game, can easily understand what the increased cost of oil and in turn gas and diesel have meant to our domestic economy. $700 billion dollars can not be taken out of our domestic economy without there being some decline in economic activity . As the price of a barrel of oil comes down, and gas and diesel come down in price, people will once again be able to buy more than just basic necessities and gas. This is where alternative sources of energy are important to change the economic equation as it relates our domestic energy needs. But, now the delicate balance and confidence have been shaken and people are thinking twice before spending their money. So much of an economy, as sophisticated as ours, is dependent upon faith and confidence. Take away faith and confidence and economic activity declines. The next administration will need to play a role in rebuilding the faith and confidence the average American consumer has in the American economy. It is not like there is nothing that can be done to change this. Throughout the United States, there are projects that need to be started from bridges to other parts of our infrastructure. The Federal Government will have to take the lead in restoring faith and confidence to the economy. Once the American engine of economic growth starts moving again, the rest of the world will follow just like the cars in a train.

Stay tuned.

Tuesday, October 7, 2008

Watch The Presidential Debate Tonight

I hope everyone that can will watch the Presidential Debate tonight at 9pm EST. Our country is facing some very difficult times a head. If you have not made up your mind who you want to vote for, take the time to watch and listen to the debate tonight. The economic and regulatory problems facing the United States are very real. Each one of us and our families and friends' lives in part will depend on the kind of leadership our country elects for the next 4 years. Those that think that it does not make any difference who is elected, should re-think that opinion. The economic problems of the present are man made. Much of the economic pain and suffering that American families are facing could have been avoided with the right leadership. Since February, I have written about the economy and the securities industry to include banking and investment banking. The way out of this politico-economic mess that we are in is possible, but before it can be fixed, the problems that put us where we are must be recognized. It is my opinion, that the philosophy of deregulation of the banking and securities industry is at the heart of our problems. Financial markets will not regulate themselves any more than the players in the NFL will regulate there conduct during the heat of a game if there were no officials. Regulation, oversight, auditing and transparency must be put back into the financial markets in the United States, not just for our own good, but for the good of the world markets that depend on our leadership. The finanical market is a global village. We are all in this together and the rest of the world looks to the United States to fulfill its role as a leader.

Stay tuned.

Monday, October 6, 2008

Write Congressman Barney Frank

To those who have read Moneythoughts over the last several months, know I have been beating the drums about the need for the rating of debt securities, bonds and notes, to be taken over by the Federal Government. The private for profit companies that presently do this important work have failed the investing public too numerous times. I have stated that the rating of debt securities, especially asset-backed bonds like mortgage bonds, is as important as the division of weights and measures is to commerce. So, On Saturday Octber 3, 2008, I wrote Congressman Barney Frank with my suggestion. One member of a group of men I get together with on Sunday morning for coffee said I need to build a grassroots movement if I really want Congress to take a serious look at my suggestion. So, I am printing my letter to Congressman Frank and asking you to write or copy this letter and mail it to Congressman Frank. If you think it is a good idea, please pass the letter on to a friend. I believe that this suggestion I am making would go a long way to improve the integrity of the bond markets.

October 3, 2008

Congressman Barney Frank
2252 Rayburn Building
Washington, DC 20515

Dear Congressman Frank:

When you rewrite the regulations dealing with securities and their transparency, please consider taking the responsibility for the rating of debt securities away from the private sector and making it a responsibility of either the Federal Reserve Bank or the Securities & Exchange Commission. For too many years the companies that give out the bond ratings have failed investors both public and private with their incompetence. Think of the rating system for debt securities as the same as you would the importance of the division of weights and measures for commerce, for in essence this is what it is for the financial markets dealing in asset-backed debt securities. Without the handing out of the AAA ratings on mortgage-backed bonds, there would have never been a housing bubble in the first place. Moody’s, S&P and Fitch are in part responsible for the air that filled the housing bubble. This one change in the rating of all debt securities would bring a renewed confidence to the bond markets not just in the United States, but around the world.

Thank you for your consideration.


sign your name

If Congress received a few hundred, maybe a few thousand, letters like this one, perhaps they would take a serious look at the way ratings are given to debt securities and why this important function should be put in the hands of a not-for-profit agency of the Federal Government.

Stay tuned.

Saturday, October 4, 2008

Saturday Is For Art

These six pieces are from what I refer to as THE ENVELOPE COLLECTION. They were all done before 2008 on black envelopes that I received reports and saved because I liked the texture of the paper. I am working on a square piece on plywood and hope to show a picture in progress in a week or two.

Friday, October 3, 2008

Real Leaders Please Step Forward

Panic is not a good thing. Years ago, when I was with one of the five bank trust departments that I worked, we used to talk about the day when everybody would want to go through the “door” at the same time.

Markets are fragile. An orderly market has both buyers and sellers. The mix may vary from time to time, even within a matter of minutes, but as long as there are people bidding for an item, in this case a security, the market is functioning. The problem occurs when there is no one bidding.

Think of it as a beating heart. The top chambers are bidding and the bottom chambers are asking. If the top chambers stop working, you have a heart attack. It is just that fragile. Bidders or market makers put up the companies money to make a market in either bonds, stocks or even both. But, when there are no buyers, it becomes a workout market. In other words, the guy that on a good day will give you a bid on your securities now is only willing to facilitate a trade if he has a buyer committed at a specific price on the other side of the trade. In the early 1980’s, I had to work out municipal bonds in just such a market.

This rescue/bailout piece of legislation will go a long way towards taking the pressure off everyone wanting to go through the “door” at the same time. We need to rebuild the confidence in the market. In fact, we need to rebuild the confidence in several markets around the world. This is no longer just an American problem, this is a world wide problem. We may think we live on this planet in our jeans and t-shirts by ourselves, but we don’t. The financial markets circle the globe and they keep “beating” just like a heart does continuously. The time for America to show leadership is now. If we want the rest of the world to respect us when we chant “U” “S” “A”, we had better start with chanting it quietly to ourselves. This is no time for a weak heart. Those that can lead will lead and those that can’t should get out of the way. The rest of the world is looking to us to deal with our current financial problems now. Will the real leaders please step forward.

Stay tuned.

Thursday, October 2, 2008

Wisdom To Do The Right Thing

While the U.S. Senate passed the Economic Recovery/Bailout Bill last night, and the U.S. House is likely to follow either today or tomorrow and do the same, the economy of the United States is not going to roll over and fly right immediately. The problems were produced by a government that turned a blind eye to the realities of business. And, in my opinion, the realities of life in America. Show me anything where money and competition are involved without adequate regulation and oversight, and I will show you a disaster.

This whole economic disaster says more about the American culture of greed than perhaps we want to admit. As a country in the last 100 years, we had been through tough times starting with the Stock Market Crash of 1929 and The Great Depression that followed. Congress had created legislation to protect the individual investor in his dealings with banks and brokerage firms. But, after a measure of success for several years, the laws on the books were considered by some and then by a majority to be no longer needed. It was foolish to believe that regulation and oversight could be removed from the game and everyone would continue to play by the rules.

It gets down to the fact that some people believe that other people are not as good as they are, and thus do not deserve the protections that were afforded to them by the laws of the land. Those that do not have the education or are now so old that the education they once had no longer serves them, became marks for the greedy. But now, with trillions of dollars invested in public and private pension funds, IRAs and 401’s, the game that was thought to need no enforcement of the rules, has put millions of retirees and soon to be retired people at risk. What have we done to our country and to our people? Are the laws crafted by our government only for the protection of the wealthy few? How else do you explain the place we find ourselves in today? Americans have every right to be angry, hurt and have feelings that they have been deceived. The best and the brightest in government did not look out for the good of all of the people. But, now those that had the least to do with the making of this crisis, are being asked to suffer the most. Where is the justice in that?

Our economy is too big to turn around on a dime. This recovery will take years, for confidence is not something instilled over night. This November our country has an opportunity to take a new direction as it elects a new president. The choice to me is crystal clear. I know it is time for a change. It is a time to put regulation, oversight and transparency into the way America does business. No one, regardless of their education, race or station in life, deserves to be a mark. Shooting fish in a barrel is not sport. Taking the uneducated and the old to the cleaners is not business. It is criminal and it should be prevented and punished.

For me, there is only one choice - Obama-Biden. I hope a majority of Americans will come to realize that this choice is the right choice for them as well.

Stay tuned.

Today I celebrate my 66th birthday. I have been around for a few years and I have seen much. This is a great country. It is my country and it has been my country my whole life. But, even great countries must have the wisdom to do the right thing for its people.

Wednesday, October 1, 2008

Politics, Calendars & Economics

So, now we have to wait until Thursday to see if a new revised “bailout” bill will be passed by the House of Representatives. I was watching TV news on Monday when the bailout bill failed to receive a majority of votes and went down to defeat. But then to my surprise, members of congress came before the TV cameras and said they could not get to this bailout bill until Thursday because of the Jewish holiday, Rosh Hashanah, the Jewish New Year. For those of you who are not aware of this, the Jewish calendar or Hebrew Calendar (5768) started a few years before the Georgian Calendar (2008) that most of us use. In fact, it started a few thousand years before the calendar we use today. This calendar is a solar lunar calendar and as a result of this, the Jewish New Year comes on a different day each year as it relates to the Georgian Calendar most of the world uses. So, perhaps you can understand my surprise when those members of congress gave as their excuse for not getting back to work the Jewish New Year holiday.

To understand where I am coming from, you have to place yourself in the mind of a Jew. That means, you are very much aware of all the misconceptions held by non-Jews about Jews. One of the biggest is that Jews control all the money. If you have never heard this, great. But, I am sure there are more than a few people out there that have heard someone say this or they read it. Second, that the Jews control all the political power. Another thing that is not true.

But when Barney Frank and his fellow Democrats got in front of the TV camera and said, “we’re out here until Thursday because of the Jewish holiday, I could not believe my ears. Fine. Take off for the Jewish holiday, but do not tell everyone that this bailout bill is being held up until Thursday because a few members of congress are Jewish. This bill could pass without a single Jewish member of congress being present. But, the impression it gave me was something else.

As I said, when you are Jewish, you carry a lot of history on your back. Some of it is good and some of it is bad. At 65, this is the first time in my life that I can remember members of congress coming before the TV cameras and saying a bill will have to wait because of a Jewish holiday.

Now for a word why this bill did not pass. Politics.

I have no doubt about the urgency of this bill to help the economy and I mean the whole economy, not just Wall Street. But, unless a new understanding of the importance of regulation and oversight is found in congress, we will be traveling this road again. The lessons that were learned in the 1930’s unfortunately will have to be learned again. Perhaps we should have a National holiday where we go to our place of worship and read every year the history of what happens to our economy when we throw regulation and oversight out the window. I am not suggesting a state religion, but since so many of us worship money, perhaps it would not be a bad idea if we set aside a day to remember how we got to this terrible place economically.

Tomorrow night is the vice presidential debate, and I hope everyone that can watch this debate will watch and listen to this debate. At 72, McCain would be the oldest president to be elected to a first term of office. The position of vice president is much like the position of the backup quarterback in the NFL. The backup stands with a clipboard in his hands and watches the game. But, when the starting quarterback goes down and doesn’t get up, the backup grabs his helmet and runs out onto the field. The backup on a good team makes almost a seamless transition. They don’t drop the ball. When you watch the debate tomorrow night, think about that person stepping in and taking over the position of the President of the United States. That is why we have backup quarterbacks and vice presidents. Think about this one.

Stay Tuned.