Monday, February 16, 2009

The Work Is Not Done


The Stimulus Bill has passed Congress and now will be signed into law by President Obama on Tuesday February 17.

The Republican Party is fighting for its life. And, it should be no surprise that no one in the House of Representatives voted for the economic stimulus plan. After eight year of President George W. Bush, a President whose policies almost destroyed the middle class, the Republicans are in serious trouble. As the old saying goes, you can fool all of the people some of the time, but you can’t fool all of the people all of the time, has placed our two party system at risk. The Republican Party will, if it is to survive as a major political party, have to turn to serious thinkers with a sound political philosophy. It will have to be based on something more than the destruction of the middle class. As I am not a Republican, and never have been, this is not my problem, but if I was, I would not be looking to talking heads on the radio to rebuild the party. There is a conservative political philosophy, and while I do not agree with it in this age of interdependence and a very complex economic society, there may be areas for discussion that have not been explored. Perhaps men like George Will and a few other thoughtful, and not mean spirited souls, will emerge to lead them.

Money and banking in today’s world can be summed up in one word, securitization. Securitization is the process where a number of unrelated borrowers of mortgages, car loans or credit card debt is bundled into a large package of like debt and then divided up in to securities, bonds, and sold around the world. This process brings together, in a very efficient way, borrowers and investors. The problem we have seen as a result of the housing bubble and the eventual meltdown of the structured debt financing market is the fraud that crept into the process of correctly rating this kind of debt obligations. As a result of this wide scale fraud, the markets do not operate for these debt vehicles and they have now become referred to as toxic assets.

The challenge for the U.S. Treasury is to get the markets to function again, because in the 21st century, money and banking is on an international scale, and, while English is not a requirement, mathematics is the universal language, and everyone who trades these bonds knows that without confidence in the rating system, there is no market. The issue of “mark to market” was discussed last week and how it impacts the capital requirements and lending ability of banks was covered.

So, now that the Stimulus Bill has been passed and is ready to be signed into law by the President, the only thing left for the smartest people in the room is to take care of the conflict of interest inherent in the rating agency business. Once these bright fellows solve that problem, I would think that next to buying up some of those toxic assets, the capital markets would once again be ready to trade structured financial assets.

Stay tuned.

5 comments:

Butch said...

I'm neither a Republican or Democrate, more independent. I too voted Obama and I was HOPING that he would go through items "line by line" as he said he would. Stimulus may be needed but supporting a 'salt marsh mouse' study or whatever it is will not bring homes to market, jobs in great numbers or support the financial institutions. BOTH sides need to get their heads out of the sand and think about the masses, not the few.

LceeL said...

I'm sorry, Butch, but it's those types of concerns - or their expression - that the Bush Administration specialized in. There has to be room for the 'salt marsh mouse' - if we turn away it will be gone - and once it's gone it ain't coming back. And who knows what the consequences are of letting a species go extinct - for any reason - but especially because we have 'greater concerns'.

moneythoughts said...

Butch, I think any research or study may have benefit to our own survival. There are animals and plants that may hold the key or cure for some of our diseases. But, on another level, I agree with Lou that once a species is gone it is gone forever. You never know when other forms of life may hold the secrets to a healthier life for all of us.

Butch said...

I'm sorry guys. Don't take me wrong it is just that you might as well build the bridge to nowhere in Alaska, it would hire more people to work than studying the life of a mouse or any other creature. Believe me, I know what it is to learn from the creatures of the world for medical or enviromental concerns, however, my point was that it and some other items stuck in the bill just aren't what we Americans are looking for. Maybe I used the wrong item to make a point and true, the Republicans haven't helped themselves one bit. I didn't hear them offer any insight into what should be in the bill. As far as I'm concerned the mouse is out. This is so so typical of the political process, either party.

Being a product of the 60's, when I hear there is a mouse in the stimulus package I figure there is a snake in the wood pile.

You have to watch them all and in this issue, I disagree with the mouse and it's place. Sorry.

moneythoughts said...

That is the great thing about our country, that everyone has a voice to say what they think. Congress is a body that does imperfect work. Or, as has been said, a camel is a horse designed by a committee, yet the camel may long funny, it may very well get us where we need to go. Hopefully, this stimulus bill will do enough good for our country and we will not be in this desert any longer than we need be. Happy President's Day!