Monday, March 30, 2009
Yesterday on MEET THE PRESS, Secretary Geithner was asked about securitization. In fact, the moderator David Gregory asked Secretary Geithner the same question about securitization twice. Neither time did Secretary Geithner answer his question about securitization. Why? I can not believe that Timothy Geithner does not know what securitization means, after all he was the head of the New York Federal Reserve Bank before coming to the Treasury Department. So, what is going on here?
Just for review, securitization is the bundling of home mortgages, car loans or even credit card receivables, and then made into debt instruments known as bonds. These bonds differ from corporate or municipal bonds that pay interest every six months and their principal at maturity. Mortgage bonds pay interest periodically and return principal periodically as mortgages are paid down and paid off.
It was the triple-A ratings on many of these structured asset bonds that lead to the bond market meltdown for these bonds, and these same bonds have been known in the press and TV as toxic bonds or toxic assets. Unfortunately for every one the rating went on before the quality went in. Many of these bonds that were made up of sub prime mortgages had no business receiving a triple-A rating.
To compound the mistake, insurance companies, like AIG, issued insurance policies, called credit default swaps, to protect bondholders against default of the triple-A rated bonds, made up of the sub prime mortgages and other loans that were bundled (securitization). A bit of irony is that the same investment bankers that did the underwriting of the sub prime mortgages, and shopped the credit rating agencies for the triple-A rating, were the same people to be paid off when AIG received the government bailout to make good on the credit default swap contracts that they so greedily underwrote.
That is why some people are upset that the companies that received full payment from AIG on those credit default swap contracts that AIG sold, were none other than the same investment banks that were receiving government bailouts too. Yes, Head I win, tails you lose!
Securitization is a financial tool. Used properly, correctly and with meaningful credit ratings that are not shopped by the underwriters, securitization can be a very useful financial tool in growing our economy. The fact that Secretary Geithner did not answer David Gregory’s question is puzzling nevertheless. Perhaps, Secretary Geithner knew if he answered the question about securitization that the next question to follow would not be so tame.
Saturday, March 28, 2009
Friday, March 27, 2009
This morning my brother sent me the Op-Ed piece from the New York Times by Paul Krugman titled THE MARKET MYSTIQUE. I read the piece and I disagree with his conclusion. I do not know if I am allowed to disagree with an economist that won the Nobel Prize in Economics; however, since I do not know how to contact the Nobel Foundation for permission, I will proceed with my post anyway.
Professor Krugman makes the statement that “securitization failed.” Securitization did not fail. What failed was the credit ratings agencies. Remove the responsibility of rating the structured debt obligations from the private sector and put it will the Federal Government and that would go a long way to give the securitization of mortgages, car loans, etc. the kind of independent bond ratings that would make the process of securitization work. Securitization failed because the underwriters were able to shop the credit rating agencies for ratings.
In previous postings, I described in detail how the credit rating agencies permitted the bubble to grow and grow. In previous postings, I described in detail how the triple-A rated collaterized mortgage obligations found a market throughout the world. The gate keepers to this whole process of securitization were the credit rating agencies, but the men running the three largest credit rating agencies caved to the pressure from the investment bankers and instructed their people to pass out the triple-A credit rating like candy on Halloween. The CRAs were only looking out for their bottom line and felt no responsibility to the investors that used their credit ratings for guidance.
The mathematical models that were available to the credit rating agencies were not used. That does not mean that securitization failed, what failed was the Federal Government’s responsibility to give oversight to the Federally regulated credit rating agencies. Ask Senator Chuck Schumer about what hand he played in weakening their responsibilities to the investment community. That information was printed in the Sunday New York Times on December 14, 2008, yet not a word of that article was picked up and discussed on any of the news shows that week. Why?
Securitization did not fail. What failed was a financial system that regarded investors as fish to be shot in a barrel. Securitization is a financial tool, used properly it can be an important part of the of the capital markets.
Thursday, March 26, 2009
Today Secretary Geithner goes before the House Committee on Financial Services to talk about the new regulations that the Federal Government will want to bring to the financial markets. In the little reading that I have done on this subject, I have yet to see any mention of the reforms that are planned for the Credit Rating Agencies (CRAs). There is talk about hedge funds and credit default swaps, but not a word about these agencies that place a credit rating on the bonds that credit default swaps are created to insure. To insure against those very bonds failing is the purpose of a credit default swap.
In that my blog, if I am lucky, is read by a dozen people a day, I still feel that I should try and bring some light to the subject of credit ratings. The whole purpose for structured debt is to expand credit for our economy. These instruments exist because of the demand for credit, and because on the other side of the transaction there are investors looking for a place to put their money to work. Pension funds, endowments, foundations and mutual funds are the buyers of structured debt obligations. And, these institutions use the credit rating system as a guide to determine the mix of risk they wish to put in their fixed income, also known as their bond portfolio. Without confidence in the credit rating system, credit ratings such as a triple-A rating is meaningless. If the highest rating, the AAA rating, is meaningless, what does that say about the ratings below AAA?
Whatever regulation the Congress decides on, I sincerely hope that they fund the new regulations with the necessary people and tools to do the job right. But, who is going to watch that Congress does not sell us out again? To me a good statement of Congress’ sincerity would be to hang a few past members on the steps of the Capitol. Those that worked to destroy the regulatory framework that protected us all for the many years since the Great Depression need to be punished. Let that serve as a warning to all members of Congress that those that sell out the American people for a few pieces of silver will pay a price. That is how I feel about it.
Wednesday, March 25, 2009
Perhaps this is as good of time as any to take a few steps back from the economic scene in the United States and take a look at what we have. Did you watch the President's press conference last night?
First, it is quite evident to me that we have a President that has a highly developed brain. This is a real plus as the job he found waiting for him when he entered The White House was already complicated by the fact that our domestic economy was in the toilet. But, as we all know, the economy is more precisely the political-economy and that means that simple economic problems can not be taken care of by simple economic policy adjustments. Washington, D.C. is our own rabbit hole where things that appear to us outside the Beltway have a way of appearing to those inside the Beltway inverted. Remember the inverted relationship that bond prices have to bond yields? Remember, as price goes up yields come down, and as prices of bonds come down their yield goes up. Well, there are other inverted relationships that I have observed over many years. Some are quite funny, like the more a tie costs the stronger the food magnet in the tie. Cheap ties never attract any food, only an expensive tie will find food the very first time you wear it. Doing the right thing for the majority of the American people is another of those inverse relationships. If you help your constituents when they are down, will they remember you when times are good? Some people remember those that helped them when they needed help and some do not.
It appears that new regulations for the banking and securities industry are on the way. It will be interesting to see what we wind up with. When you make your living shooting fish in a barrel, the idea that you would be made to actually learn how to fish is a pretty frightening prospect. No more financial muggings? Well, I am waiting to see what they will unveil. My pet project, the credit rating agencies, CRAs, is what I am most interested in seeing what they do. Will they eliminate the conflict of interest between the CRAs and the underwriting bankers? Unless they solve this problem, I do not see how bond credit ratings for structured debt financing will have the confidence of the investing community around the world.
I enjoy watching this President work. It is refreshing to see someone who has the capacity to do the job right. His job is not an easy one as he is working against the rabbit hole and the people that live down that rabbit hole. But, if enough of us outside the Beltway support his efforts on our behalf, I think he can make our economy better and prepare the way for our country to lead in the 21st century.
Tuesday, March 24, 2009
The Government’s plan to auction off the so called toxic assets needs to be given a chance. To have the banks sit with mortgage-backed bonds in their portfolios and wait for them to work their way out of the system will take years and will delay the economic recovery.
The sad truth is that we, our country, needs some of these players that helped to get us in this financial mess in the first place. While analogies are never quite perfect, this is like needing the bomb maker to now take apart the bomb.
Portfolio managers and traders that maintain a position using their own capital, their company’s capital or a combination of the two, put their abilities on the line each second of the day that the markets are open for trading. That is why they are paid the big bucks. Trading investment securities is nothing more than a high stakes poker game.
Getting these mortgage-backed bonds to start trading again will be no easy trick. However, if I was Paul Krugman or anyone else with little actual experience as a bond trader in New York or any other large capital market, I would keep quiet on this point. You do not know what is possible when it comes to bond traders and the bond market. Having been involved at one time, and knowing the kind of people that take those jobs, I would not bet against them.
Nothing is perfect when it comes to working the country out of a mess that our Congress had a hand in creating. Let us not worry about who is going to make money. Let us keep our eyes and our minds on our own resources and continue to manage them as best we can. If the toxic asset program is successful, it will be good for the nation as a whole. Yes, some people will make money, but no one takes risk without the possibility of making money. That is just how markets work. Stepping on the gas pedal may in itself be fun, but unless the car moves forward as a result of pushing on the pedal, the novelty would quickly wear off.
I think that there is a good chance this toxic asset program that the Treasury has put forth has a good chance for success. The alternative to it is to do nothing and that would certainly cost us another ten years or more of no growth in our economy. The risk is worth the rewards. Let the games begin.
Monday, March 23, 2009
Everyone has their opinion about the Stimulus Plan, and I am no exception. Here is a simple idea that will put more money into the hands of hard working people and families.
As you may or may not know, people that own a home and have equity in their home can get a Home Equity Loan from a bank. Home Equity Loans permit homeowners to borrow money, but more importantly, they permit homeowners to deduct their interest expense on the Home Equity Loan from their taxes. Just as mortgage interest is tax deductible, so too is the interest on a Home Equity Loan.
People that have Home Equity Loans do not have to carry a balance on their credit cards and pay a higher interest rate that is also not deductible from their Federal Income Tax. My proposal would be to permit the interest rate expense on credit cards to be deductible the same way that the interest rate charges on a mortgage or Home Equity Loan are deductible for homeowners.
There must be millions of people, young and old, that rent and do not have this option because they do not own property on which to get a Home Equity Loan. But, by giving anyone and everyone that pays interest on a credit card balance the opportunity to deduct their interest expense on their Federal Income Tax filing, would put money back in the hands of people that are almost certainly struggling to keep their heads above water. I have no exact number as to how much money this would put back in the hands of working families, but I would be willing to bet that conservatively speaking, it could amount to several billion dollars.
I think this would level the tax playing field a bit. As so many people are losing their homes and even more are on the edge of losing their homes, giving people the opportunity to deduct their interest expense on all their credit cards at the end of the year could amount to a big enough number that would certainly permit more money to get back in the hands of people and families that need it.
That is my idea for today. Simple. To the point. I think this idea is a good idea and would make for a better Stimulus Plan. What do you think?
Saturday, March 21, 2009
LEVEL PLAYING FIELD No. 2, oil on wood wine box lid
With the men's college basketball championship going on right now is perhaps a good time to talk a little about the concept of a level playing field. Why is it in sports we demand a level playing field for all the players and teams? No one would think it fair or sporting to give one team an unfair advantage during the game. Regardless the size of the school, each team plays with five players on the court, and everyone plays by the same rules. Without this simple concept, no one would bother to watch or take interest in such a game.
When President Obama and his administration along with our Congress and hopefully the Federal Reserve Bank sits down to rewrite the rules for the banking, investment and the entire financial industry, they need to keep in mind the importance of the concept of the level playing field. The individual investor nor the institutional pension funds should be the mark for a financial mugging. This is quite simply not sport. Just as the rules of basketball make it the game that it is today, so too, the regulation, oversight and transparency must be at the foundation of a successful capital markets for both sides of a transaction.
Friday, March 20, 2009
With all the serious economic stuff going on in the world today, we Americans spend our time talking about the most stupid stuff. Let me amend that to the people on TV that are still talking about such things as the AIG bonus, and the fact that our President can walk, talk and chew gum all at the same time. Thank God for college basketball and March Madness, so I have a reason to turn the channel from all those cable news shows. Oh, and a few Republicans have found fault with President Obama for taking the time to fill out his brackets for the college basketball championship. I guess after the last eight years, it is frightening to think that our President could walk, talk, chew gum and fill out the brackets for the college basketball championship all at the same time without causing his brain to have a hernia.
Being a critic is so much easier than actually creating something, so I guess it would follow that there are more critics than doers. TV political analysts know very little about economics, the financial markets and how they operate, and yet they have the soap box.
The Republicans, many of them are in Congress, have criticized President Obama and the actions he has taken to bring this nation out of our recession. It would be nice if the American people had an opportunity to hear more often from real economic professors that understand the financial markets as well as macroeconomics.
Our President is doing a good job. Let us give him the support to bring our economy back on track. And then, hopefully the members of Congress will put laws in place to prevent another meltdown of these proportions. Deregulation, lack of oversight and transparency does not work, and it is time for the American people to wake up to this reality. This is why your 401-k is a 201-k. People that work hard their whole lives do not deserve to be made fish being shot in a barrel, or marks for a financial mugging by the greedy people on Wall Street. It is time for ordinary people to wake up to the fact that Wall Street in conjunction with Congress did this to the American people. Unless people wise up to this fact, the laws that will prevent this from happening again will not be written.
Thursday, March 19, 2009
Stupid is as stupid does.
This whole thing with AIG and the retention bonuses is just so much crap. Congress fucks up the security laws that have guided this country for better than half a century and now they are upset about less than $200 million in retention bonuses. As Bill Clinton would say, “give me a break.”
After listening to the CEO of AIG in front of a committee of Congress yesterday, it was easy for me to understand why these bonuses were paid and how they related to the bigger picture of security positions that added up into the trillions of dollars. Congress getting all worked up about less than $200 million when the CEO is trying to work out AIG’s position in some very complicated swaps, with the help of certain key employees, is ridiculous to my way of thinking. But, whoever said Congress does or understands the smart way through a problem.
Let us say you are on the operating table having open heart surgery and on a heart lung machine. Would you want the hospital to pay the heart surgeon a retention bonus to finish the operation and close you up, or, would you like the hospital to fire the surgeon and risk your life because they may not be able to get another skilled heart surgeon in the operating room in time to finish your operation? That is pretty much what the CEO of AIG described to the committee of Congress yesterday.
When a trader or portfolio manager is working on a position that must be hedged every night before they go home, AIG can not afford to switch horses in mid stream. Liddy, the CEO of AIG, made the right decision when you consider he was paying out less than $200 million to protect a position that had a value of more than a trillion dollars. Only our Congress would berate a man, who came out of retirement and was willing to work for ONE DOLLAR a year, through such shit.
The level of understanding of the financial industry in the 21st century by our Congress is abysmal. God help us all if these clowns can not get up to speed on this shit. If they truly understand this stuff, but are acting like clowns to squeeze the last ounce of drama out of this, then I think we are not any better off. If these jokers will wrap themselves in the flag, why would they not take advantage of the bonus nonsense to make some noise?
Wednesday, March 18, 2009
The Federal Reserve Bank knows what the problem is. Before the domestic economy of the United States stops declining and starts to move in a positive direction, the flow of credit for housing, education, credit cards and cars must be growing not contracting. The Fed's answer is to buy $300 billion in debt. Whether this will work, I am not sure, but I can tell you that this is not a long term solution to the problem of credit in the United States. At some point, the powers that be, whether it is the Federal Reserve Bank or the Congress, must bite the bullet and deal with the credit rating system that is a complete failure. I have written about this almost every day, and I will continue to write about this until I see a comprehensive solution to the credit rating agency problem. Without credit ratings, there is really no effective debt markets. At this point in time, the CRAs have no creditability. I have repeatedly called for the Federal Government to take over this responsibility much the same way government checks the weights and measures in commerce. At some point, perhaps the people in charge will wake up to the fact that without a creditable credit rating agency system, there will continue to be a problem in the re-establishment of the debt markets for doing business in the 21st century.
Tuesday, March 17, 2009
First things first: Happy St. Patrick’s Day to everyone that celebrates this day of friends, fun and drinking.
Yesterday at The White House there was a ceremony with President Obama and small business people from around the country. President Obama announced that the Federal Government would be buying between $10 and $20 billion in Small Business Administration loans from commercial and community banks. In his presentation at The White House, President Obama made mention of the fact that in order for banks to be able to continue to lend money to small businesses, that they would need the Federal Government to buy up these loans, so they can make new loans when they sell the old loans to the Federal Government. This is all well and good, but $10 to $20 billion is not enough to really get this economy moving.
A better way to do this is for the Federal Government to take over the credit rating responsibility from the credit rating agencies and guarantee that the Federal Government will stand behind the credit ratings of the small business loans that would then be bundled into bond issues and then sold around the world. If the Federal Government did this, the restriction of $10 to $20 billion would be unnecessary as supply and demand would take over.
I do not mean to continue to beat a dead horse, but when are these experts at the Treasury Department and the Federal Reserve Bank going to wake up to the fact that they can get a lot more money in the hands of small businesses around the country if they simply fix what is broken -- the credit rating agencies. As I have written before, this is not brain surgery or rocket science. Bundling loans into debt obligations is nothing new as we have been doing this for years. With a responsible credit rating system the flow of credit can once again be up and running.
At some point, these bright well educated men have to figure this out. It is the credit rating system stupid.
Monday, March 16, 2009
A lot has already been written about the bonuses that AIG, the insurance company, has to pay its employees in the London branch of the company that sold the credit default swaps that put AIG in so much trouble. Hell, it brought the company down except the the Federal Government bailout. And, we have heard from the experts that AIG must pay these bonuses because of contract law in England. This kind of crap gets a lot of attention, but really has nothing to do with the restoration or flow of credit for consumers in our domestic economy.
I find it difficult to understand how so much talking can be done about the economy, the stimulus package, unemployment and even what the First Lady is wearing, and not a word is spoken about how the credit rating agencies are going to be fixed.
Perhaps the Federal Government is looking into and preparing to bring fraud charges against the three largest credit rating agencies, and that is why no one is talking about them. I am not a lawyer. I know nothing about being a lawyer, but I have watched a lot of cop shows on TV and I read The Wall Street Journal for over 35 years. If putting a AAA rating on all those mortgage-backed bonds was not fraud, then I do not know what fraud is. Perhaps the Federal prosecutors have to show intent, not simply that the credit rating agencies were stupid to give these bonds their AAA rating.
If the credit rating agencies used mathematical models to assist them in their research that lead to the AAA ratings, and the math from the models showed that these bonds should not have received the AAA rating, but the bonds were given the AAA rating anyway, would that not be a clear case of fraud? I guess we will have to leave that for the lawyers to decide.
As I have written on MONEYTHOUGHTS many times, without a creditable and honest, with no conflict of interest, credit rating system, the flow of credit for housing, manufactured housing, car loans and credit card debt will be seriously impacted. Credit and the securitization of credit into bonds is the way business is done in the 21st century. Remember, credit is no more than the bringing together of the individual that needs to borrow money with the organization that has money to lend. The large pools of investable cash are found in state pension funds and mutual funds, and it is because of the development of structured debt obligations that credit exists beyond the walls of the commercial banks.
I am waiting to see what the new regulations that will be governing the banking and securities industry will look like as we go forward. At some point, even this must reach the light of day.
Saturday, March 14, 2009
Sometimes a painting starts with an idea and other times, at least for me, it starts with a particular picture frame. One of my next painting projects got started because I had this old picture frame with a gold insert. The frame looks fairly old yet it is in good condition except that it needed a coat of paint. I decided to paint the wood frame with gold acrylic paint after putting down a primer coat of red oxide. The frame now has a nice fresh look. The other day I bought a piece of canvas board 16" by 20" and placed it on the back of the insert so I could trace the outline of the insert's opening. Then I removed the board from the insert and started to draw what will eventually be another version of a painting I made in 1995 titled "Mother & Child, Level Playing Field Out The Window". I donated that painting to the Clifton Senior Center's Progressive Dinner in the summer of 1995 and it sold at their silent auction. That was the only time I donated a painting to that group because they never asked me for a painting again. I guess someone did not like the painting even though it sold and they made money. As I said, I donated the painting for FREE. The painting was in oil on board and I framed it myself. Political art in Clifton is evidently a no no. You know my attitude about that, F**k'em, political art is what I do. Today, I have posted a photo of the original painting, as it looked, just before turning it over to the people at the silent auction.
Friday, March 13, 2009
There is a difference between the study of economics and our economy. Economics is the study of such things as supply and demand for goods and services. While our economy on the other hand involves what I like to refer to as the politico-economic interpretation of events, which after they take place, becomes our history.
The three sectors that President Obama has placed at the top of his “to do list” are energy independence, healthcare reform and education. Besides getting our domestic economy moving forward again, with the flow of credit to those points around the country, the Obama administration has taken a page from history, and quite correctly in my opinion, decided that these three sectors will be the foundation upon which the Obama administration will build our future.
Some people will disagree with his priorities and others will say this is not the responsibility of the central government. Those that disagree with those three priorities are entitled to their opinion, but if you have been in the United States since 1973, you know what an oil embargo is and what it can do to our economy. As for the second argument that this is not the responsibility of the central government, I would answer that national security is the responsibility of the central government and importing 70% of the oil we need weakens our national security. From a purely economic perspective, importing $700 billion worth of foreign oil is not good for an economy to run such trade imbalance. Exporting cash for oil when there are other forms of energy within the borders of our country is quite simply poor economic policy. We need to control a greater percentage of our energy needs from a national security standpoint if nothing else.
Healthcare is perhaps the toughest of the three sectors to argue because there are millions of opinions about how healthcare should be done. Everything from do not touch a thing to universal healthcare for all. The interesting thing since the attempt to reform healthcare during the Clinton administration is that the business sector has come to realize that if other countries take on the burden of healthcare costs from the giant corporations, that our corporations are at an economic disadvantage to compete on price of goods sold in the USA. If foreign corporations had to add the cost of healthcare back into the price of their products, American made products would find themselves on a more level playing field. American industry has now come to realize that healthcare costs have put them at a price disadvantage against Europe and Asia. As a result of this change, healthcare reform in the United States is an economic necessity.
And finally the education sector is the future of this nation. The United States does not have a national education policy, and yet test scores of American children are constantly compared to test scores of children from around the world where nations have a national education policy. If we have any hope of remaining an important country in the 21st century, we must develop better education policies to meet the challenges ahead.
We must be able to meet a series of challenges at the same time, much like anything else in life we must be able to walk and chew gum.
Thursday, March 12, 2009
Unemployment in the United States has reached a high of 5.3 million. And, while many many economists have said that a bigger stimulus package is needed to pull our domestic economy out of the current recession, and to prevent a possible depression, the Republican members of Congress find fault with the fact that President Obama can walk and chew gum at the same time.
Before we restart our economy, the foul lines need to be put down in something more than chalk dust. The games that are played on Wall Street require real regulation and our government’s commitment to put in place enough trained people to enforce the rules. The Madoff Fraud, while perhaps one of the biggest headline catching of all the wrong doings that took place, is certainly not the only one.
Over the years the apparatus that was put in place to protect the investor, whether large or small, was systematically destroyed by a political philosophy of deregulation. Money to the politicians from Wall Street paved the way to have the safe guards, that were put in place generations ago to protect investors, weakened to the point that a fraud of $50 billion could occur. The new financial instruments, such as credit default swaps, that have come along since the original rules were set in place, must be included when the new regulations are written.
The talking heads of TV news programs and the people that come on their shows do not know enough about the way the capital markets operate to make intelligent noises about what needs to be done. There are people on President Obama’s team of advisors that understand the capital markets and know the changes that must be made before the flow of credit can once again be truly a world wide bond market. Confidence in the credit ratings assigned to collaterized mortgage obligations (CMOs) and other structured debt instruments is very basic to the flow of credit around the world and the lifting of our economy, and thus our stock market.
Stocks will eventually (once again) sell at a price earnings ratio, but only when there are tangible earnings and some indication that the earnings per share are moving in an upward direction. While this may be several months or a year away, the growth in earnings will come to our economy, and those that can see beyond the next several months will be rewarded. There are many corporations that will make a strong comeback when this economy turns.
Tuesday, March 10, 2009
No one wants to bite the bullet or take responsibility for the financial disaster. The business people that paid the lobbyists to push for the changes in the rules and laws that protected all of us from a financial disaster are not going to raise their hand and admit their mistakes anymore than the politicians who took their money and voted to change the laws that worked since the 1930s and 1940s. Now Bernake thinks we need a holistic system of regulation, but no where do I see him or anyone else addressing the issue of the credit rating agencies (CRAs). This is something to watch for me because I could clean up this mess in a month or two if I had President Obama’s ear. Where is Paul Volcker? I can not believe Paul Volcker does not know the formula to fixing the flow of credit. Larry Summers could handle this too, I think. There must be some strong politics behind the lack of movement. I can not for the life of me believe that these two guys, Volcker and Summers, do not know how to fix this thing. This is not rocket surgery.
Monday, March 9, 2009
Two points, then I am going to put my blog away for the day.
First, after listening to the talking heads and politcians on TV, especially the news programs on Sunday morning, it is my opinion that there is more bull being spoken than actual knowledge about the economy or the banking and investment banking situation in the United States or around the world. No one, I repeat, no one is talking about the credit rating agencies and the key role they play in the movement of credit in the 21st century, nor their pivotal position as it relates to structured financial obligations, and the world wide bond markets. So, either these people don't understand the important role credit ratings play in the movement of credit from the borrower of credit to the investor in credit obligations, or no one has the balls to deal with the problem, the conflict of interest the CRAs have with the underwriters. Until this conflict of interest is dealt with effectively, and confidence and honesty can be brought to the credit rating porcess, the movement of credit is going to continue to go no where for structured asset obligations. The fact that TV talking heads, the print journalist, nor the politicans talk about this situation, leads me to believe that they do not understand the important role the CRAs play in the flow of credit in the 21st century. The talking they encage in misses the point.
Second, it is good to hear that science will once again take the lead in medical research. Stem cell research will now get back to exploring all possibilities. I could write more about my feelings about the Bush administration's position on science, but why bother. President Bush is gone now. Now is the time for science to prevail.
Sunday, March 8, 2009
Address of T-Birds is 4529 Vine Street.
Sunday 4:00 to 6:00.
Mike Shannon, Editor, Spitball: The Literary Baseball Magazine
Fred: I assumed you know all the details of the CASEY Banquet but then I thought ... maybe not. It'd be great to see you there so here's the scoop:
Sunday March 8 from 4-6:00 pm at T-Birds Pub in St. Bernard. T-Birds is across the street on Vine from St. Clement Catholic grade school and about 2 blocks north of Roger Bacon High School.
Cost is $10. You get a subscription to Spitball ... AND ... a copy of Hallowed Ground, the big & beautiful ballpark art calendar made every year by Bill Goff. The calendar retails for $17 plus $6 shipping, so it's a nice perk.
Doug Feldman will be the guest speaker and will talk about his new book on the 1976 Reds. Charles Alexander will also be there to sign any of his many outstanding books.
Take care, YB, Mike
Ps. Please forward this email to any of your contacts who are baseball fans and tell them, if they wouldn't already know, about the main purpose of the event: to honor the 10 best bb books of the previous year. We will have 150+ bb books all published in 2008 on display as usual.
After reading the above information, you might wonder what this is all about. Well, in 1987 I met Mike Shannon, one of the Founders of SPITBALL, THE LITERARY BASEBALL MAGAZINE. The Wall Street Journal did an article about Mike and his baseball magazine and since he was living in Cincinnati, I looked him up in the phone book to talk with him about his love for baseball. I found out that he also liked to play fast pitch soft ball and that he had a team that played in Northside on Wednesday or Thursday nights. In 1987, I was only 46 and I loved to play fast pitch softball so I joined his team. As a left hander, I played in the outfield in hard ball; however, for fast pitch soft ball, I loved to play catcher. The snap of that ball hitting my glove as the batter whiffed through the third strike was the sweetest sound to my ears. But, that doesn't tell you much about Mike Shannon and SPITBALL. Mike started publishing SPITBALL in the early 1980s and also started giving an award to the best baseball book published each year. He called the award the CASEY AWARD, named after the famous poem Casey at the Bat. So, every year Mike holds a "banquet" to award the best baseball book of the year and to sell subscriptions to his magazine. In the old days, he had the banquet at the Carnegie Art Center in Covington, KY and he served beer, hot dogs and peanuts in the shell, just like at the ball park. I lost contact with Mike over the years; however, baseball would always get us back together. If you love baseball and you love reading books about baseball, then you need to get in your car and come to the SPITBALL BANQUET today at 4pm in St. Bernard, Ohio. The info is at the top. DON'T DRESS UP, THIS IS A FUN TIME AS YOU CAN EVEN WHERE A BASEBALL SHIRT IF YOU GOT ONE. For $10, you get a subscription to SPITBALL, a calendar worth $17 bucks and an opportunity to look at the 150+ baseball books published in 2008. I am going to try and make it myself.
Saturday, March 7, 2009
The art opening last night was a lot of fun. Many friends came to the show. Above are the paintings as they appeared in the show. At this moment, I do not have any photos of people or myself at the show, but perhaps later today I will post some.
Friday, March 6, 2009
Expressing ourselves whether by word or paint is basically putting ourselves out there for the world to see, to judge and to comment. When I worked in the investment and banking industry in the more conservative Midwest, I knew I had to keep my political opinions to myself. I remember as an officer at the banks I worked for that we received once a year a card to sign with our Fair Share printed on it for the United Appeal. If you were smart, you signed your card and accepted the fact that it was a form of "job insurance" and that it was a good idea to keep your head down because this was not the time to be recognized as sticking out. So, while you keep your opinions and your feelings to yourself, you nevertheless have your own opinions about the way society is run and the political polices that affect your life. By 1988, I had been working with bonds and other investment securities for 20 years, my children were older, and I was no longer coaching soccer. I had time to express my ideas and feelings in paint about the conservative society in which I lived. My political art started in 1988 and has continued to the present. Tonight I am participating in an art show with four other artists. My work is both political and social in content. I do not paint just pretty pictures. I am looking forward to seeing my friends and perhaps meeting a few new people. Cincinnati, like any city in America, is changing every day. So, perhaps they are more ready for my political art in 2009 than they were in 1992. I hope so.
Thursday, March 5, 2009
Yesterday I had the opportunity to listen to Gordon Brown, the Prime Minister of Great Britain, speak to a joint session of Congress. Brown came to talk about the up coming economic conference to take place next month in Europe. The Prime Minister laid the ground work for the need for international cooperation to bring the economies of the world back from the recession that nearly all of the large economies of the world are now experiencing. Even the Prime Minister recognizes that the philosophy of deregulation does not work in an age of global financial dealings. As I have written before, banking and the underwriting of credit in the 21st century is the realm of structured financial debt instruments. And, going forward, if mortgage-backed bonds, manufactured housing-backed bonds, car loan bonds and credit card debt bonds are going to play a viable part in the world wide bond market, then something must be done to raise and restore the creditability of the credit rating agencies (CRAs). Without meaningful credit ratings for structured debt obligations, there can be no world wide bond market. And, without a world wide bond market, the flow of credit from the borrower to the investor can not be completed. Without repeating myself, as I have written about this before, the need to address the problems surrounding the CRAs and their conflict of interest with the bond underwriters of the collateralized mortgage obligations (CMOs), the bond market meltdown and the issue of toxic assets can not be resolved. I hope that participants in the economic conference next month in Europe are serious about their recognition of the importance of world wide cooperation with regard to the implementation of meaningful banking and securities regulations.
Wednesday, March 4, 2009
The Republican Party may not realize it, but they are moving at a high rate of speed into a dead end. They are moving the few pieces they have left on the chess board into a corner from where there is no where to go. We all know that you can fool all of the people some of the time, but you can not fool all of the people all of the time. Given that economic conditions can make people more aware, this is hardly the time to be negative about our president, his administration of the government's business or the survival of our country. Fair minded people will reject such a negative attitude from one coast to the other. If Rush Limboss is the brain trust of the Republican Party, the Republican Party has their own problems to deal with.
Tuesday, March 3, 2009
Today is Square Root Day, so, I am wishing everyone that reads my blog a Happy Square Root Day.
Would it not be great if economics was just about numbers? Unfortunately, it is not. Because we are people living in a complex society in the 21st century, and because there are so many sectors of the economy with so many special interests, that we have what I like to call a politico-economic interpretation of history.
We do not have royalty in the United States. By royalty, I mean we do not have titles like Duke and Earl. We once had two Dukes. One was a center fielder and the other lead a band, but I think you know what I mean. However, in any complex society there are people that fight harder than others to obtain status and privilege. I do not have a problem with that. What I have a problem with is fraud or quite plainly cheating. People that commit fraud like it even better if that fraud is outside the law. For example, the credit default swaps that were sold by the insurance companies were not governed by law or federal securities regulations. When it came time to pay on the credit default swaps, the insurance companies that sold them did not have the reserves to make good on their commitments. That is fraud. That is where some of our bailout money went.
In the months and weeks ahead, Congress will be dealing with the issue of banking and securities regulations. I hope that they realize that no small part of the problems this country faces with regards to the economy, the toxic assets held by the banks, the bond market meltdown and the destruction of trillions of dollars in wealth once held by the middle class, is directly attributable to the philosophy of deregulation that was pushed for by the banking and securities industry. Deregulation does not work any more than shooting fish in a barrel is sport fishing. I wish I had the forum of those guys on the radio to make my case. Anyone that has a sense of fairness in sports or any other thing for that matter, would understand that without regulation and people to enforce that regulation fairly, we will revisit these problems again.
The next Square Root Day is April 4, 2016, 4/04/16. If you are wondering the one after that, it is May 5, 2025 (5/05/25).
Monday, March 2, 2009
As there are several political balls in the air as we begin the first week of March 2009, I want to talk a little about the word socialism. It seems that this word socialism has crept into the political-economic discussion on TV and radio since President Obama and his administration have taken office. I could be wrong, but I do not recall the word socialism being used when President Bush was asking Congress for the TARP program to help out the banks and the insurance company known as AIG. We all know that words have their own power for good or evil, as anyone that reads just a little history will acknowledge.
What is socialism? Here are three definitions of socialism. Socialism is any of various economic and political theories advocating collective or governmental ownership and administration of the means of production and distribution of goods. Second, socialism is a system of society or group living in which there is no private property, a system or condition of society in which the means of production are owned and controlled by the state. Third, socialism is a stage of society in Marxist theory transitional between capitalism and communism and distinguished by unequal distribution of goods and pay according to work done.
When you have a dead battery and you get someone to give you a jump start, you do not agree that those jumper cables are going to be attached to your car for the rest of your life. This point I am making may sound stupid, but it is no more stupid than to believe that the “jumper cables” that are being used to get our domestic economy moving forward again are going to remain a permanent fixture of our economy in the United States.
Even the talking heads on TV news programs are beginning to recognize that the philosophy of deregulation, and the weakening of the government agencies that were responsible for the enforcement of the banking and securities regulations that remained, is at the center of the toxic assets, meltdown of the structured asset bond market and the collapse of our banking and investment banking industry.
All of these measures that have been taken by the Federal Government to date, have been done to keep people in their homes (private property) and to save the commercial banking system in the United States. This is hardly a move towards socialism. Socialism would not bother with giving cash to the banks in exchange for preferred stock. Socialism would simply nationalize the banks and be done with it.
The Stimulus Package is designed to get the private sector of our economy moving again by supporting basic necessities such as police, fire and teachers, as well as other state workers that provide basic services to people in each of our 50 states. That spending along with the infrastructure programs will get people back to work and rebuild our country for the 21st century.
Remember the jumper cables story, no one is driving around town or country with jumper cables hanging from their car because they need a jump start. What we do need is better regulations for the securities and banking industry in the 21st century. Hopefully, that will be an important part of what the Obama administration has in mind for our economy.