Thursday, April 30, 2009

Get To The Point

Today I am taking leave to help an old friend. My answers to repairing the damage caused by the financial crisis will have to wait another day. This weekend I am going to write the Chairman of the Fed, Ben Bernanke, a letter in which I will make the argument that in the 21st century, it is the responsibility of the Federal Reserve Bank to take control of the credit rating business as it relates to fixed income (bonds) ratings (the rating of equities can remain in the private sector), because credit, whether it be for a house, a car, a credit card or a student loan, is a form of money, and as Paul Volcker said to the Economic Club of New York and quoted in THE NEW YORKER*, “the Fed’s job is to act as custodian of the nation’s money.” When securitization became a fact of life, and mortgages, manufactured housing, car loans and credit card debt could be bundled and traded as an investment security, the Fed, in my opinion, lost influence over the expansion of the money supply. If the Fed is the “custodian of the nation’s money” then by definition the Fed is responsible for credit and most certainly the expansion of credit. In the world of structured finance debt obligations, the expansion of this kind of money is directly tied to the credit rating process. You do not have to have a Ph.D. in economics to figure this out, or win a Nobel Prize in Economics. If Paul Volcker is correct, then it follows that it is the Fed’s responsibility to influence/control the growth of the money supply and the expansion of credit. Remember credit in the 21st century is money. I rest my case.

*THE NEW YORKER (magazine) December 1, 2008, p.60.

Stay tuned.

Wednesday, April 29, 2009

The First 100 Days

With everything that is going on in the United States this week, the big story in and on the news is President Obama’s First 100 Days in Office. Thank goodness the talking heads on TV news can count to 100, or did they have to hire a mathematician to do that for them. While President Obama has been busy turning our economy around in his first 100 days, the big story for me is the political shift that continues to take place in America.

In ancient times in Egypt, there was a Pharaoh that tried to bring change to his kingdom. The state religion of the people of Egypt then had many gods and the high priests that controlled and interpreted their religion were happy with things as they were. But, the new young Pharaoh decided that the old religion was wrong, and that there was only one god, and that god was in the heavens. You might say he was a head of his times. The young Pharaoh, it is believed was murdered, and the kingdom went back to worshipping their many gods as they had done for hundreds if not thousands of years before. Change does not come easy, or without paying a price.

I was in my late teens and early twenties during the height of the Civil Rights Era in the United States. I was also very much interested in social justice as I had been since I was a young boy and visited the slums in the West End with my grandfather, who owned property on West Sixth Street. To fully understand and appreciate the shift this country has made over the last 50 years, you have to understand a little history. While great things can happen in a short span of time, it is not the norm when talking about social and cultural history.

The movement to a more progressive or liberal orientation both socially and politically has been taking place in the United States for many years. But, this last presidential election has seen something that has not occurred in the history of the United States before. We have elected our own African prince as President at a time when the state economic-religion needs to be changed. The high priests on Wall Street will not give up their gods for a single truth. The truth that ethics and laws of a higher order should be the rule of the day for everyone that invests their money in investment securities. Regardless if you are an individual investing for your retirement or a state pension fund investing for millions of people, the rule of law with an eye towards transparency should be the road taken.

This is the fight that is taking place in the halls of Congress and The White House right now. Those on top, those with the money and influence will not allow a new order to come in without a fight. But, their is political movement taking place as Senator Arlen Specter is now a Democrat. Perhaps with a few more shifts, the ground work will have been set for a new and better regulatory environment as the people of the United States deserve. Regulations, oversight and transparency that will level the playing field for all who work to give their family a better life now and a chance at security for the future.

Stay tuned.

Tuesday, April 28, 2009

Mister, Can You Spare A Dime?

After I posted the piece I wrote yesterday, I printed a hard copy and sent it to President Obama. I know he will never read what I write, and I doubt whether anyone in The White House will read it either. But, I feel this way, what the hell, it is only 42 cents and a little time. I have lots of time.

I am disappointed that we have not heard more about the new regulations for the banking, mortgage banking, investment banking and most importantly the credit rating agencies. The issue of salaries for these top bank executives to me is a bull shit issue. Here is why I feel that way. The big money is made in underwriting structured finance bond issues. This is where the growth in the credit rating agencies business was coming from. Without more regulatory oversight of the credit rating agencies, the financial crisis which we are now paying for will be repeated almost for certain.

I seriously doubt whether President Obama is being advised by his Wall Street plants to take the responsibility for the credit rating business and place it within the Federal Reserve Bank. My argument that credit ratings are to finance what weights and measures are to commerce has, I would bet, never seen the light of day in The White House. Wall Street knows where the golden eggs are and they are not on The White House lawn.

Too few people understand the role of a central bank to a nation’s banking system. Even fewer people understand monetary theory or monetary policy. The man that I thought we would be hearing from, who knows and understands monetary theory and policy, Paul Volcker, has remained silent. I guess Volcker did not get a speaking part in his latest role. This bothers me because, while I do not know Volcker personally, I have a great deal of respect for his ability and integrity. A silent Paul Volcker in a production that has sound is disturbing to me. Where is Paul Volcker and why have we not heard a word out of him? This is a red flag as far as I am concerned.

I write about money, but more importantly I write about credit. Credit is money in the 21st century. Take a look around you and see all the things that you have bought using some form of credit. Then multiply that by the number of households in the United States. Now you have a number that will give you a grasp as to how big the credit business is in this country. If you were at the head of a money making business that was involved in providing credit, would you want the Federal Government telling you how to run your business? If you had a sizable war chest to lobby Congress not to change the game, and add better regulation, oversight and transparency, would you not use it? Taking more zebras off the field will reduce the number of red flags thrown, that idea is simple to understand. But, what happens to the long term quality of the game?

Change you can believe in? Like I told a reporter from The Toledo Blade a few years ago that was asking me about the Coin Funds at the Ohio Bureau of Workers’ Compensation, the only thing I know about coins are the ones I put in the parking meters. I am beginning to think the only thing I know about change is the kind I put in the parking meters too. And, guess what? The meter is running for all of us.

Stay tuned.

Monday, April 27, 2009

Money Talks And Bull Shit Walks

Paul Krugman in his Op-Ed piece today in The New York Times brings to our attention that salaries on Wall Street are on there way back up to 2007 levels, and how these financial engineers, the bankers, do not deserve this kind of money given that they are now playing with public assistance money, just like the much talked about mothers getting public assistance to feed their children.

Wake up Paul Krugman!!! Life is not about what is fair, life is about what you can walk away with. Anyone smart enough to win a Nobel Prize in Economics should know that the bankers on Wall Street will go right back to their greedy ways as soon as we are all looking the other way.

Thomas Jefferson comes to mind now for some reason. He was a brilliant man who understood men and what needs to be done when a society gets too full of itself. At least when those in the positions of power forget who put them there.

It all goes back to money. Money to fight regulations is nothing new. This has been going on since the beginning of time. How much government money has Wall Street spent on lobbyists just in the first three months of 2009? About $9 million tax payer dollars I believe I read. And, where did that money come from? The Federal bailout money is being used to fight better regulations to insure that Wall Street does not create another financial crisis and bond market meltdown. And, the bankers on Wall Street are fighting against the politicians taking away a culture of excess. What I like to call "shooting fish in a barrel." Making "marks" out of ordinary people because Congress is willing to look the other way. When will this nonsense stop?

We only have ourselves to blame when we get it in the back of the neck. Politicians follow the money. Politicians need money to run political campaigns. Political campaigns are not funded by the poor. The poor do not have a voice because it take money to get access. The Wall Street bankers have access and they have some of their own people in President Obama’s cabinet and in The White House.

President Obama promised change, change we can believe in. Well, I will believe it when I see it. Money still talks and bull shit walks. And the cock crows when the sun comes up. Maybe Thomas Jefferson was right.

Stay tuned.

Saturday, April 25, 2009

Saturday Is For Art

LEVEL PLAYING FIELD OUT THE WINDOW measures 12"x9" and is painted in acrylic. But what does it mean to say level playing field out the window? All week we read and listen to people that either talk on TV or write articles in newspapers and magazines about the financial crisis and the resulting recession that has hit our economy. And, while it is never said, everyone knows that this financial crisis was man made, it was not an act of God, or Mother Nature. People on Wall Street lobbied Congress to throw out the rules that had guided this country since The Great Depression. The balance that once existed between the borrower and the lender, the broker and the investor, the bankers and the public-at-large was thrown out the window. Now Congress, or more accurately, the members of Congress act like it was all Wall Street and their greed that resulted in the bond market meltdown and the recession that followed, but the truth is, Wall Street could not have accomplished what they wrought without the help of Congress. The Level Playing Field was thrown Out The Window, and Congress, represented by our flag in the picture, watched silently as it all took place. This is the meaning of LEVEL PLAYING FIELD OUT THE WINDOW. Anyone interested in purchasing the original painting already framed can contact me through comments. The price delivered is $750.

Friday, April 24, 2009

Where Would We Be Without Credit Cards?

A few years back when I was a young municipal bond salesman, I was speaking with a bank president in Ashland, Kentucky. What I learned from him that day was that the farmers that banked with his bank, did not deposit their proceeds when they sold their crops in the bank, but rather took cash money, dollar bills, and went back to each place or store they had borrowed and paid what they owed. This is the way their fathers and grandfathers had done it and this is the way they continued that tradition.

The banker also shared with me the fact that had all these farmers deposited their proceeds from the sale of their crops in the bank, that there would have been more money in the community banks to lend, and thus that would have aided the growth of the local economy.

When a deposit is made in a bank, the bank creates additional money by making loans, and those loans create additional demand deposits which explains how banks facilitate the expansion of credit, which is another form of money.

Now fast forward to the present situation with many of the credit card companies closing out individual’s credit cards, and even paying them to tear up their credit card. If everyone in the United States took scissors and cut up all their credit cards and started to pay for everything with a check or cash, the domestic economy of the United States would have what would amount to as a financial heart attack. In other words, if you did not have the cash in your pocket or in your checking account to write a check, you would defer the purchase until you had the money. Can you see how such a drastic change in the reduction of the use of credit would nearly collapse the domestic economy of the United States?

There is an old story coaches give their teams before a big game where their opponent is likely the stronger team. It goes like this, “these boys put their pants on one leg at a time, just like you.” Well, these bankers put their pants on one leg at a time, just like the rest of us. But it is going to take a clever President Obama and some tough politicians to move these bankers to do what is best for the country, when they are wired to do what is best for themselves. They come to public service AFTER they have made their killing, not BEFORE.

Stay tuned.

Thursday, April 23, 2009

Perhaps Not Every Morning

When I was thirteen years old, I would get up in the morning and put my Phylacteries (Tefillin) on my left arm and my head and say the morning prayers that Jewish men have been saying for thousands of years. There is something to be said for repeating practices and words of wisdom and thanks. Too often old wisdom is tossed aside only to be replaced by greed and deceit.

In the news again today is the discussion of credit and the banks. The bankers are meeting with President Obama at The White House to talk with him about the interest rates they are charging consumers on their credit cards. In that credit cards play an important, if not vital, role in our economy today, and in that these major banks have received money (credit) from the Federal Government, it makes sense that the Obama administration would take an interest in the fees the major credit card issuers are charging the American consumer.

Yes, I am back talking about credit because in the 21st century, credit is money. If I drew a diagram showing how credit moves through the economy, how borrowers and lenders are brought together, you might then get the picture as to what credit and the credit rating agencies mean to our economy. Several days ago I wrote that if money was the life blood of our economy, then the fraud committed by the credit rating agencies is the Leukemia that froze the system of credit and in turn the growth of our domestic economy.

I am still calling for the Federal Government to place the responsibility of credit ratings with the Federal Reserve Bank. This is the proper place for the measurement of credit risk to be done. No shopping the three major credit rating agencies for the triple-A rating. No more not inspecting the file before slapping the sought after triple-A rating on any piece of junk that has a nice fee attached to it. The measurement of credit must have the confidence of the ultimate buyer of the credit note. Without confidence in the product, there is no expansion of the credit markets and no growth of our domestic economy.

The big banks are also spending Federal bailout money to pay for their lobbyists to lobby for them in the halls of Congress. I am sure they are not asking Congress for more regulations. The culture of Wall Street is to take advantage of the “mark” and never look back. Shooting fish in a barrel is the way Wall Street goes fishing. New regulations are needed to protect the consumer and the overall economy from another financial crisis. Make no mistake, change will not come easy. These bankers will fight hard to preserve and protect their hunting territory.

One of these days the people in Congress may wake up to the war they are in, until then, I will continue to talk about credit. Perhaps not every morning, but enough to keep you thinking about it.

Stay tuned.

Wednesday, April 22, 2009

Give The Man A Chance

Let us shift gears today and talk about something else besides the CRAs. A lot has been made recently of President Obama’s shaking hands with Hugo Chavez of Venezuela. The talking heads on TV and some politicians being interviewed bring up the issue of the lack of human rights in Venezuela, and how under Chavez human rights have been abused by his government. This is all true, but should it be a reason not to have contact and talks with Hugo Chavez? Take a step back in history and ask yourself, should other countries have not had diplomatic relations with the United States in the 1950s and 1960s?

Here we were, claiming to be beacon of human rights, during the Cold War, and we had our own black American citizens not being able to vote, not being able to eat at a drug store lunch counter, not being able to attend state universities in the Deep South and having dogs and fire hoses turned on them for wanting their civil rights. That was not that long ago. Perhaps the talking heads and the politicians can not weigh these facts with the facts of the situation in Venezuela today. What if nations of the world broke off diplomatic relations with us over our own failures to live up to what we claimed was the birth right of all Americans?

In the early 1970s, President Nixon opened relations with China, and the Democrats were supportive of his actions. Today, President Obama is trying to improve our relationships with countries that we need to be at the very least talking with. Is it too much to expect the Republicans to support his efforts to talk with leaders of countries we have lost contact during the Bush administration?

The whole picture brings into focus the importance of knowing your history. Without understanding where these other leaders are coming from, and the culture and political history of their countries, it will be difficult for us to make progress for a better world. I think the Republicans, as well as anyone else that does not know “The Diplomatic History of The United States” check out a book or two and get up to speed. And, read about our own human rights’ history before we start finding fault with the Obama administration for reaching out to our neighbors.

Give the man a chance, we are a strong country, and we should never be afraid to talk. That is what diplomacy is about, talking.

Stay tuned.

Tuesday, April 21, 2009

Change We Can Believe In

Finding the right words and bringing it all together in a kind of unified field theory, that upon being read, everyone understands the gravity of what I have been writing about these many months, and those words spread across the Internet and country like a well crafted video or song, is beyond my abilities. While that kind of talent I wish I had, I do not, and my subject matter, in my opinion, does not belong in a video to amuse or a song to be sung in the shower. The subject of credit and how it is rated, and who does the rating, is like a golden thread that is woven through every square inch of the fabric of our domestic and world economy.

Last night, I was working as a gallery attendant at the Contemporary Arts Center and I had a very enjoyable conversation with a couple from Dusseldorf, Germany. He was a retired chemist with a Ph.D. and she was a retired school teacher. They are in their 70’s and visiting the United States as they have traveled to many parts of the world. Naturally, we talked a little about the economy in Germany and the U.S. He told me that the laws were changed in Germany too, and that several banks had gotten themselves in trouble investing in hedge funds. Those that did not invest in hedge funds, he said, were not in trouble. I brought up the issue of the credit rating agencies and bent his ear a bit with my story that the CRAs should be shut down and that the responsibility for credit ratings should reside with the Federal Reserve Bank. To my surprise, he said, that the German Central Bank, their Fed, is thinking about doing just that. Why should I be surprised that the Germans would recognize this blatant conflict of interest that lies between the investment bankers as underwriters and the CRAs, which they pay a fee for the rating? I told the retired chemist that I hoped that their Prime Minister, Merkel, would tell President Obama that this change is the right way to go. That this change is the kind of change we can believe in.

The issue of credit ratings from short term paper, like commercial paper, to 30 year bonds, touches everyone of us. There is not a thing we use in our daily lives that is not touched by credit ratings and the cost that that credit eventually falls on us, the individual consumer. From the food we buy at the grocery store, to the car we drive to work, to the credit card we use to fill the tank of our car, to the medical bills we pay for our children’s dental and health care, credit and credit ratings is an expense that plays a role for all of us.

One of these days, I will hit the right combination of words and images, and perhaps then my effort will not be for naught.

Stay tuned.

Monday, April 20, 2009

President Obama: Can You Hear Me?

Is President Obama being told the truth about the credit rating agencies and the role they played in creating the financial crisis and the bond market meltdown of collateralized mortgage obligations(CMOs)?

I can not sing like Susan Boyle, but I do have something important to say.

Where is Paul Volcker? Why have we not heard from him? Why do we not see and hear from Paul Volcker on the Sunday news shows or cable news shows during the week? We see and hear from Dr. Larry Summers quite often. We see and hear from Secretary Geithner quite often. Why are we not hearing from the man that was the Chairman of the Federal Reserve Bank during the crisis of the late ‘70’s and early ‘80’s? Paul Volcker is the man that brought us through a financial crisis before. Why is he being kept silent?

Summers and Geithner were involved in the problem before they were involved in the solution to the banking crisis. Summers has taken big bucks in speaking fees from the big banks. Geithner was head of the New York Federal Reserve bank during this crisis.

If the key to the recovery to our domestic economy is the recovery of the banking system, and the key to the recovery of credit flowing from lenders to borrowers is the banks, then why is not anyone talking about the role of the credit rating agencies to the flow of credit?

So, I come back to my first question: Is President Obama being told the truth about the role of the credit rating agencies and the role they play in reestablishing the flow of credit?

99.999% of the people out there do not know what I am talking about, and it is because even the President is not an expert on investment banking and the bond market for structured debt obligations that this issue, in my opinion, is being kept from him by his advisers. Why are they keeping the truth about the role the credit rating agencies play in the process of the creation and flow of credit?

This is my paranoid answer. I believe that the investment banks on Wall Street do not want the game changed. The investment bankers have a vested interest in seeing to it that the credit rating agencies remain in the hands of the corporations that run them and that they not lose their responsibility for rating credit obligations such as notes and bonds and commercial paper. The conflict of interest that exists between the investment banking firms and the credit rating agencies preserves for the investment bankers the ability to shop credit ratings and, the bottom line, make money off the BUY side. Taking advantage of the BUYERS of structured debt obligations IS where the big money is made, and the investment bankers want that business to remain untouched.

My question is: Can the BUY side be fooled all of the time? I doubt it. At least not so soon after being abused by the SELL side before this last financial crisis.

Even a very bright and intelligent President Obama, with a law degree from Harvard, can not know all the details of the credit markets. The President must depend upon his advisers and what they are telling him. What are they telling him about the need for change in the credit rating agencies and the way they affect the flow of credit here in the United States and around the world?

Stay tuned.

Saturday, April 18, 2009

Saturday Is For Art

Here are a few pictures from my day in Columbus, Ohio at the Middle School where my friend Yolanda is an Art Teacher. She invited me to come and talk about making art from materials that usually get thrown away like stryrofoam, cardboard, cereal boxes and materials like that. I had a nice time and I hope that these 8th grade children will realize that making art is something they can do the rest of their lives. Even when they get as old as I am.

Later in the day I hooked up with an old friend, Eric, from my days when I worked for the State. It was good to see Mac and Hutch again at their beautiful offices downtown. I drove back rather late, yet somehow I am up early this morning.

Friday, April 17, 2009

Off To Columbus To talk About Art

Today I am driving up to the Columbus, Ohio area to visit a middle school and show them my art work that I create from styrofoam, cardboard, cereal boxes, glue, gesso and paint. My friend Yolanda is an Art Teacher at this middle school and invited me to talk to her class today. I am looking forward to sharing my interest in art and creating art with these children. Unlike bankers who take cash and turn it into trash, an artist does just the opposite. Artists take trash and turn it into something we call art, and then hopefully we sell it for cash.

With regards to this blog MONEYTHOUGHTS, we need to find more people to send letters or articles to The White House about the credit rating agencies (CRAs). Few people understand the importance these CRAs play in the big picture. I have talked about them and explained about how what they do is vital to the whole credit process. Securitization is not the problem if done the right way, and with true credit ratings placed on the securities. The problem in a nut shell is the conflict of interest between the way the CRAs are paid by the investment bankers that seek the triple-A rating. The investment bankers are paying for the credit rating, and herein lies the problem. I have been calling for the Federal Reserve Bank to take over the responsibility of the CRAs, just as the department of weights and measures is not in the hands of the private sector. Because this is such a small and unknown piece of the credit picture, few have addressed this problem. We all need for credit to flow again for our economy to grow and for our own lives and careers to move forward. Join me and try to get 2 people to write the White House about this issue.

Stay tuned.

Thursday, April 16, 2009

More Light, More Light, More Light!

As I have written many times, the economics is the easy part, it is the political side of the solution to the recession and the financial crisis that is the hard part to fix. The people at the top of the economic pyramid are not going to give up their position and place of economic power without a fight. They will use both Republicans and Democrats to win the concessions they believe they need to maintain their money, their power and their status. Those of us far removed from the heights of their glass towers can not begin to imagine how hard these people will work to buy access and influence among those that write the laws of the land. I am afraid that even the President of the United States has to work with these people, as there just no way around them. Banking and the creation of credit is the Life Blood of our economy in the 21st century. To expect a huge change without a fight from the powers in place is very unrealistic. I do not know what is the best we can hope for. We will have to see what unfolds. But one thing is for sure, if we stay silent and do not raise our voices, we will visit more of the same and our past will be our future if not worse. The idea that people’s savings and investments can be trashed, and no one is held accountable should not stand. Fraud has been committed and fraud should and must be prosecuted. More attention and light is needed to be brought to the subject of the credit rating agencies, the commercial banks, investment banking, hedge funds and the conduct of Congress. 300 million plus people in the United States, and such a sliver of them run the show. More light, more light, more light!

Stay tuned.

Wednesday, April 15, 2009

If Money Is Our Life Blood, Then The Credit Rating Agencies Is The Leukemia

Yesterday I caught the first few minutes of President Obama’s speech about the economy. Let me make it clear that I am an Obama supporter and I have been since 2007. But, I am surprised that President Obama did not use the words “triple-A rating” when talking about the credit rating system yesterday in his speech. You can not fix something if you are afraid to call it by its name.

If money and credit are the life blood of our economy, then the credit rating agencies were the Leukemia that infected, weakened and eventually lead to the financial crisis and bond market meltdown of collateralized mortgage obligations (CMOs) in our economy and around the world. If money and credit, loans created by commercial banks, are to our economy what healthy red blood cells are to the body, then the fraudulent triple-A credit ratings that were placed on all those securitized debt obligations, amounted to the economy being over run by a proliferation of white blood cells that destroyed and weakened the flow of cash and credit to the many sectors of our economy.

President Obama is right when he says that getting the commercial banks healthy and lending money again is necessary for the rest of the economy to recover and grow, but he is making a huge mistake not to recognize the role that the credit rating agencies played in our financial downfall.

The long term fix is the removal of the responsibility of the credit rating function from the hands of the private sector. Credit ratings are to finance what weights and measures are to commerce. At one time a two-by-four measured two inches by four inches, but not anymore. Today a two-by-four is three and a quarter by an inch and five eighths. The triple-A credit rating, in the hands of the private corporations that slap them on, have lost their creditability. It is time for the Federal Reserve Bank to take on this responsibility. The Federal Reserve Bank makes the requirements for bank collateral to be triple-A rated, should they not be the rightful place to assess the viability of what constitutes a triple-A rating? Commercial banks pledge triple-A rated securities everyday in the performance of their work, who better than the Federal Reserve Bank to take responsibility for what is and is not of triple-A quality?

Our economy can not recover and grow without the flow of credit, credit for mortgages, cars, credit card debt and even a college education. Securitization of debt obligations permits our economy to grow because it matches up borrows with lenders with huge pools of cash to invest. However, without confidence in the credit rating system the recovery and growth of our economy will be truncate. The conflict of interest that is inherit in the way the credit rating agencies exist today can not and will not solve our economic problems.

Stay tuned.

P.S. Today I made a copy of my posting and sent it to THE WHITE HOUSE. If you think what I have written sums up your feelings, please feel free to make a copy of my blog's postings and mail them to THE WHITE HOUSE. In time, we may get our message across about the need to change the way business is done on Wall Street.

Tuesday, April 14, 2009

One-Ear Mickey

Today I am going to just post a couple of pictures of the same image. One taken from the right, the other taken from the left. You will notice that in both perspectives the mouse is missing an ear. Well, think about that, and think about what happened to that ear. This painting was inspired from a photograph I took while in Sonoma County, California, August 31, 2008.

Stay tuned.

Monday, April 13, 2009

Toxic, Toxic, Toxic

Toxic toys, toxic foods, toxic drywall, toxic assets and a toxic credit rating system, all the product of toxic thinking. Toxic, Toxic Toxic, that seems to be the word of the hour. Toxic substances can be identified because they have a chemical formula, but what about the toxic assets and the toxic bond credit rating system? Do we need a chemist or a toxicologist to identify the problems in the credit rating business? No, but it should only be that easy.

Toxic thinking leads to a toxic philosophy which leads to toxic deregulation which leads to a toxic economy. Where is this toxic economy? Here, in the United States we have children’s toys painted with lead based paint, food that makes people sick if it just does not kill them, drywall from China that gives off toxic fumes so strong and toxic that people have to leave their property, toxic assets that brought about a financial crisis in the banking and investment banking industry, and a toxic credit rating system, home grown and filled with fraud. This is what deregulation has done to the United States.

Governments are instituted among men because men are not angels, and laws are passed in order for there to be fairness and safety in a complex society where we do not make our children’s toys, but buy them, where we do not grow our own food, but buy it, where we do not build our own homes but have them built for us. Government has a place in each of these industries to protect and insure the well being of its citizens. A century ago, the Federal Government saw a need to protect its people from harm by creating the Food & Drug Administration. But, unless the people we send to Washington to enforce our laws have their heads on straight, the purpose of government is perverted for the benefit of the few that influence the levers of power.

Summers and Geithner are toxic molecules and part and parcel of the toxic formula that created the toxic deregulation that lead to the toxic assets in the first place. Does Wall Street need a 12 Step Program to right itself? There will be no long term economic recovery without the total dismantling of the credit rating system as it stands. President Obama needs to start working with nontoxic people.

Stay tuned.

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Saturday, April 11, 2009

Saturday is For Art

Creating a Work of art:
I have a friend that gives a class for Adult Continuing Education through the University of Cincinnati. The course that he gives dsicusses the process of creating art. Some people may think that in order to create art you have to go to an art supply store and buy a bunch of stuff. Believe it or not, you can create art with the stuff we throw out in the trash. When I was in the U.S. Army, I was stationed in Korea. This was in the mid 1960's. The Korean people showed me how much could be made out of trash. When I came home, I told my friends and family that what we throw out on trash day in America, Korea could build a country. What is my point? Creating art can be seeing the possibility of making something from what might be considered trash. The above piece is made of Styrofoam, cardboard, cereal boxes, newspaper, glue, gesso and finally paint. Yes, you have to buy glue, gesso and paint, but all the other materials can be found for free. I still save cereal boxes and other kind of boxes. Perhaps some day I will start using them again to create a new piece of art. I would like to wish all my followers and those that get lost and find themselves on MONEYTHOUGHTS, a Happy Passover or a Happy Easter or in the situations like mine used to be, both.

Friday, April 10, 2009

President Obama & We The People

There are many fields of study far more difficult to understand than the field of finance. Money, banking and investments like many other fields of study has their own vocabulary of terms, but once you know the terms and their definitions, the rest is pretty easy. You will have to believe me on this one, just take my word for it. Over a lifetime of working with stocks, bonds and portfolio management and meeting and working with people from the BUY and SELL sides of the business, I can tell you that while there are some very exceptional people involved, there are a lot of people of no more than average intelligence and ability.

From the regulations and Acts of Congress that came out of The Great Depression to protect the investing public, Americans thought that while there was risk involved in investing, that there was also laws and regulations in place to look out for their interests and protect them against out right fraud. This most recent experience in the United States, and that extended around the world, that brought about the financial crisis, which included the bond market meltdown of mortgage-backed bonds and the crisis with our commercial banks as well, was not only man made, but was deliberate. Yes, greed played a key role, but it should be understood that it was more than the greed on Wall Street that produced the economic crisis.

I have talked many times about the fact that if it was simply the question of economics, the job would be so much easier. The reality is that the problem is the fact that it is the political-economy. Members of Congress and The White House have all played a role in the financial and economic disaster that we all are now living with. The argument that government is the problem and not the solution is a bogus argument. The laws concerning the Securities & Exchange Commission, the Federal Reserve Bank and other governmental units such as the FBI, given the proper funding and attention could have prevented this crisis. But, as the old saying goes, “Money Talks and Bullshit Walks!” The mess we are in today was man made, and is directly related to the greed found in the towers in Manhattan and our capitol, Washington, D.C.

I hope there will be change as President Obama has promised, but the men working along side of him are the same men that brought about the problem. The talk that they are the only ones who know enough to get us out of this crisis is just plain bullshit. There are many knowledgeable people in the United States with degrees and certification that can do this work.

There are some key problems that need to be addressed, and it will be interesting if President Obama is smart enough to see through some of his adviser’s bullshit and call them out on these key issues. If President Obama can not do this, then it is up to the People, as in We The People, to inform him of what needs to be done.

Stay tuned.

P.S. Paul Krugman has said it better, or in another way in his piece in the New York Times.

Thursday, April 9, 2009

The Significance of The Triple-A Rating

For several months, I have been writing about the need for the Federal Government to take over the responsibility of the credit rating agencies. My argument is based on my opinion that credit ratings are to banking and investment management, what weights and measures are to commerce. Gas pumps and scales are checked by the local government for accuracy. The job and its responsibility are not left to the private sector of the economy. There is a reason for this. Consumers want to know that when they pay an amount for a gallon of gas, or a pound of meat, coffee or apples, that they are getting what they are paying for, a true and accurate measure. Should not the same be true for the billions of dollars of bonds and debt instruments of every stripe that are brought to market every year by investment bankers and their underwriting syndicates?

The mess that we find ourselves in today as it relates to the financial crisis, to include the bond market meltdown and the toxic assets being held by the banks, is that the credit rating agencies committed a fraud, several times over, in their pursuit of profit and higher levels of compensation for the people that run these for profit businesses. Where would we be as an economy if we could not trust the scales and pumps for the commodities that we buy everyday to sustain us? The problem is very real. This issue of trust in the credit rating business will hold back the economic recovery unless the Obama administration comes to realize the significance of the triple-A rating. The people in charge, believe it or not, are part of the problem. But, if enough public pressure is brought to bear and the people involved can no longer hold on to the status quo, then and only then, will change occur.

I need your help. We need to change the way business is done on Wall Street, but also the way business is done in the credit rating responsibility. The Federal Government must take over this function to bring trust and confidence to the triple-A rating. Banks and the very way banks operate require that the triple-A rating on a bond or debt instrument mean what it says.

Again, the financial crisis and the economy recovery can not be built on a foundation where the credit rating system is suspect. Help me by reading William K. Black’s interview with Bill Moyer, then make a hard copy with your computer printer and mail the hard copy of the interview to President Obama, The White House, 1600 Penna. Avenue, Washington, D.C. 20502

Working together, I think we can make a difference.

Stay tuned..

Wednesday, April 8, 2009

Don't Let Them Sweep This Under The Rug

It is my hope that everyone that is interested in the financial crisis and the bond market meltdown has read Bill Moyer's interview with William K. Black. This is an important piece of information from an authority on the subject, and not just some old guy that used to work with investments. This is also more than a Liberal or Conservative issue. It is more than a Republican or Democrat issue also. There is in this country, like I am sure in other countries, a group that feels they are above the average guy in the street and therefore they don't have to follow the rules like everyone else. What was done by the heads of the banks, the heads of the investment banking firms and the heads of the credit rating agencies was Fraud!!! Moving forward sounds nice, but first there must be justice. I listened to Paul Krugman last night say that if there is no change in the regulation of the banking, investment banking and credit rating agencies, that we will revisit where we are today in the near future. We are not going to take money out of politics, but we can, in numbers, show that we know the score and that we will vote out those that insult our intelligence by not moving swiftly to correct the deregulation problem that produced the economic disaster that has touched so many of us.

I am asking for your help. Get invloved. Send a copy of the Bill Moyer-William K. Black interview to The White House. Let President Obama know that the people are watching and have the knowledge to know what needs to be done. It is because this stuff appears to be technical and boring that politcians were able to deregulate under our very nose. Americans have lost trillions of dollars in valve in their investments, their 401-ks, 403-bs, etc. etc. Nothing will change unless The White House hears from enough people to know they have a problem if they continue to sweep this under the rug.

Scroll down and read the link to the Moyer-Black interview, and then go read it. Then make a hard copy and send it to President Obama, The While House, 1600 Penna. Avenue, Washington, D.C. 20502. You can make a difference. Make your voice heard.

Stay tuned.

Tuesday, April 7, 2009

Who is William K. Black?

William K. Black

Associate Professor of Economics and Law; A.B. (University of Michigan); J.D. (University of Michigan Law School); Ph.D. (University of California at Irvine)

Bill Black is an Associate Professor of Economics and Law at the University of Missouri – Kansas City (UMKC). He was the Executive Director of the Institute for Fraud Prevention from 2005-2007. He has taught previously at the LBJ School of Public Affairs at the University of Texas at Austin and at Santa Clara University, where he was also the distinguished scholar in residence for insurance law and a visiting scholar at the Markkula Center for Applied Ethics.

He was litigation director of the Federal Home Loan Bank Board, deputy director of the FSLIC, SVP and General Counsel of the Federal Home Loan Bank of San Francisco, and Senior Deputy Chief Counsel, Office of Thrift Supervision. He was deputy director of the National Commission on Financial Institution Reform, Recovery and Enforcement. His regulatory career is profiled in Chapter 2 of Professor Riccucci's book Unsung Heroes (Georgetown U. Press: 1995), Chapter 4 (“The Consummate Professional: Creating Leadership”) of Professor Bowman, et al’s book The Professional Edge (M.E. Sharpe 2004), and Joseph M. Tonon’s article: “The Costs of Speaking Truth to Power: How Professionalism Facilitates Credible Communication” Journal of Public Administration Research and Theory 2008 18(2):275-295.

George Akerlof called his book, The Best Way to Rob a Bank is to Own One (University of Texas Press 2005), “a classic.” Paul Volcker praised its analysis of the critical role of Bank Board Chairman Gray’s leadership in reregulating and resupervising the industry:

Bill Black has detailed an alarming story about financial - and political - corruption. The specifics go back twenty years, but the lessons are as fresh as the morning newspaper. One of those lessons really sticks out: one brave man with a conscience could stand up for us all.

Robert Kuttner, in his Business Week column, proclaimed:

Black's book is partly the definitive history of the savings-and-loan industry scandals of the early 1980s. More important, it is a general theory of how dishonest CEOs, crony directors, and corrupt middlemen can systematically defeat market discipline and conceal deliberate fraud for a long time -- enough to create massive damage.

Black developed the concept of “control fraud” – frauds in which the CEO or head of state uses the entity as a “weapon.” Control frauds cause greater financial losses than all other forms of property crime combined and kill and maim thousands. He recently helped the World Bank develop anti-corruption initiatives and served as an expert for OFHEO in its enforcement action against Fannie Mae’s former senior management.

He teaches White-Collar Crime, Public Finance, Antitrust, Law & Economics (all joint, multidisciplinary classes for economics and law students), and Latin American Development (co-taught with Professor Grieco, UMKC – History).


Yesterday I asked everyone to read the interview Bill Moyer had with William K. Black about the banking, investment banking and credit rating agencies fraud. Today I have posted a short bio of William K. Black. Yesterday in my comments section, I asked everyone to print out from their computer printer a copy of this interview and send it to The White House to the attention of President Obama.

The election in part was about CHANGE. Well, this interview describes a situation in which CHANGE is needed and needed NOW! The word HOPE was used a lot in the election campaign too, and I HOPE that President Obama will see that there are people like you and me, who know what the score is, and that we want a Level Playing Field!

Take a moment to make a hard copy of the Bill Moyer- William K. Black interview and send it with your cover letter to The White House. Whether you are a Republican, Democrat or an Independent, you need to join me and get your friends and fellow bloggers to join us and send a copy of the interview to President Obama, The White House, 1600 Penna. Avenue, Washington, D.C. 20502.

We all have suffered huge losses in our investments, our IRAs, our 401-Ks, our real property. A fraud was committed and we can not just move forward and sweep the mess under the carpet. This fraud has affected nearly every American and it is now time for people to say, "I have had enough, and I am not going to take it anymore!" If you don't act, you have no right to complain. Stand up for yourself, join me and send this interview to The White House. Make a statement today!!!

Stay tuned.

Monday, April 6, 2009

"Liar's Loans" And The Rating Agencies

Please take the time to copy down this link and read this story, an internview by Bill Moyer with William K. Black. Bill Black gives you in one interview what I have been writing about for more than a year now. This professor of law and economics knows what he is talking about and Americans need to read this.

Opening Day In Cincinnati 2009

Today is Opening Day in Cincinnati as the first professional baseball team, the Cincinnati Redlegs, takes the field against the New York Mets at 1pm. Opening Day is a big deal in Cincinnati with a parade that starts uptown at the historic Findlay Street Market and makes its way downtown to Fifth Street and Fountain Square. It is not the Big Red Machine of the 1970s, but then only people that lived here, or are serious baseball fans will remember those great Reds teams of 1975 and 1976. Those two years were the high points of the decade that saw the Reds play in the World Series against the Baltimore Orioles (1970), the Oakland A's (1972), the Boston Red Sox (1975) and the New York Yankees (1976). The '75 and '76 Reds won both those World Series with players like Johnny Bench, catcher; Tony Perez, 1st base; Joe Morgan, 2nd base; Davey Concepcion, shortstop; Pete Rose 3rd base; George Foster, left field; Ceasar Geronimo, center field; and Ken Griffey, Sr., right field. This team was as good as any team that put on a baseball uniform and that includes the 1927 New York Yankees. But baseball needs it own course in what makes a level playing field. Small market cities can not compete with Big market cities and the greed of some will over time weaken the fabric of Major League Baseball (MLB) in my opinion. The National Football League (NFL) and the National Basketball Association (NBA) have addressed the issue of the level playing field and are light years ahead of MLB. It is high time that the people that run MLB wake up before that goose that lays the golden eggs flys away. Good Luck to all the teams in MLB and may all the ballplayers have a healthy and safe season. PLAY BALL!!!

Saturday, April 4, 2009

Saturday is For Art

I do not remember where this old picture frame came from; however, I must have acquired it sometime along the way. It is made of wood and needed a coat of paint, so I gave it a coat of GOLDEN Red Oxide and then a coat or two of GOLDEN Gold. The painting was done on a piece of canvas board 16"x20". My friend Ballard at the COLLECTOR'S ART GROUP put it all together for me, and now it is ready to be placed with a collector. The title of this painting is MOTHER & CHILD: LEVEL PLAYING FIELD OUT THE WINDOW No.2.

Friday, April 3, 2009

Drop Down the Page and Read this Article by Michael Hiltzik

Please drop down the page and read this article written for the LA Times by Michael Hiltzik. There are many good points made in this article that deals with the problem of the credit rating agencies. There are a few technical points that fit into the overall picture and explain why the triple-A rating has an important place in banking. I realize that these are some very technical points as they relate to the banking industry, but I am afraid that until we tackle the technical points, because so much hangs upon them, that we will not understand the important role that the credit rating agencies play in the banking and investment industry.

The more people understand how the many pieces of the financial crisis fits together, the better chance that the politicians will have no cover to hind and not take on the changes in the credit rating agencies and the way they do business. We can not leave the credit rating agencies go on as they have in the past and expect that a more transparent market will emerge. This will not happen. When the majority of the people know and understand the deceit that these credit rating agencies committed, here in the United States and around the world, then the politicians will no longer be able to hind their misconduct as well.

The issue of the credit rating agencies is not just a minor point, it is what is at the cellular level of investments and banking both, and it must be addressed.

Stay tuned.

Read This Article Its Good

Credit rating firms are like cancer to the financial system
If the mortgage meltdown teaches us anything, it's that the work of these agencies isn't worth the paper it's on. Yet eradicating their influence may be the toughest regulatory challenge we face.
Michael Hiltzik
April 2, 2009
The chilling realization that some things in high finance will never change, notwithstanding the current crisis, came to me the other day when I discovered that the Federal Reserve would accept only AAA-rated securities as collateral for its new program to finance consumer loans.

On the surface this seems only prudent -- after all, what could be more gilt-edged than paper given a top investment grade by two of the three most-recognized credit rating agencies, as the Fed demands?

But the problem isn't the ratings. It's the raters. If the mortgage meltdown teaches us anything, it's that the work of the credit rating companies isn't worth the paper it's scribbled on.

The slipshod performance of these firms -- Moody’s Investors Service and Standard & Poor’s Ratings Services are the largest by far -- was a major contributing factor to the crisis. Yet the raters are so deeply embedded in the financial system that eradicating their pernicious influence may be the toughest regulatory challenge we face.

"They're like a cancer that's spread throughout our law, our banking regulations, our securities regulations, our insurance regulations," Frank Partnoy, who dealt with derivatives as an investment banker and now teaches law at the University of San Diego, told me this week.

By order of the Securities and Exchange Commission, for example, money market funds can't invest in paper below a certain rating. Institutional investors such as pension funds are often barred from buying bonds below a certain grade.

That means a rating firm's word can determine whether the market for a bond is huge or minuscule. For corporate issuers, a top credit rating is money in the bank because it means lower borrowing costs.

For investment managers, the ratings provide cover for half-baked decisions: If you blow a billion for a pension fund on a bad bond issue, you can always point to the AAA grade it got from Moody's or S&P (or both) and say, "Don't blame me."

Yet the rating process is shot through with conflicts of interest. The agencies get almost all of their income from fees for rating securities, and those fees are paid by the issuers of those securities. As a result, the raters are wary of giving low grades, fearing customers will get ticked off and take their business to a competitor that might be more, shall we say, flexible.

In a 2007 internal memo unearthed by the House Committee on Oversight and Government Reform, a Moody's executive wrote that the firm had been struggling for years to balance the quest for market share with the need to preserve the quality of its ratings.

The problem it kept running into was that the clients -- i.e., the issuers -- didn't want "good" ratings; they wanted high ratings. “Ratings quality has surprisingly few friends,” the executive wrote.

Issuers learned they could game the process by jawboning the agencies or applying a thin layer of rouge to junk securities. Partnoy, in his book about his Wall Street career titled "F.I.A.S.C.O.," tells of using some creative cosmetics to get an AAA rating from S&P for an investment trust that largely held bonds of a graft-ridden Philippines power company. (S&P eventually backed off the rating, but not by much.)

These practices contributed mightily to the disaster epic known as the mortgage-backed securities market.

Billions of dollars of mortgage bonds were blessed with AAA ratings even though the agencies hadn't looked closely at the underlying home loans, much less reevaluated them after home prices topped out. According to congressional testimony and documents, the firms often simply plugged into their rating formulas the representations about loan quality they were given by the issuers -- including such upstanding lenders as Countrywide and IndyMac.

The agencies try to defend this system. They take fees from issuers, they say, because that allows them to make all their ratings public without charging a subscription. They note that they downgraded mass quantities of mortgage securities as soon as the problems in the market emerged. (Critics contend they should have identified the problems before the rest of the world knew.) The firms say they're only giving opinions about creditworthiness, and shouldn't be blamed for "unanticipated developments in the markets," as a Moody's man told the House committee.

Partnoy and others say the financial system would be well-served by stripping the agencies of their regulator-endorsed authority. "No one has been as wrong as they were," he says, "yet we continue to rely on them."

Among the options to replace them, he suggests, why not try the markets, which have been much better at gauging the credit risk of bonds and other securities?

An investment manager might be limited to buying securities with market interest rates no more than a certain number of percentage points above the yields on bonds of known risk, such as Treasuries. The change would force investors to use their own judgment, rather than outsourcing it to S&P and Moody's.

Indeed, many leading institutional investors weaned themselves from official ratings years ago. One investment executive told Moody's in 2007 (according to another memo published by the House committee) that people who accepted the firm's ratings were "sucker" investment managers.

That's some endorsement. Now if only the Federal Reserve would get the message.

Michael Hiltzik's column appears every Monday and Thursday. Reach him at

Thursday, April 2, 2009

Financial Fool's Day?

“Sarkozy had previously threatened to walk out if the summit didn't achieve a strong statement on new financial regulations, warning that he considered action on tax havens, hedge funds and ratings agencies as the absolute minimum the negotiations must resolve.”

“Sarkozy and Merkel have tried to push regulation to the fore, calling for new scrutiny of ratings agencies and lightly regulated hedge funds. The summit will also examine ways to get so-called toxic assets — unsellable securities such as mortgage-backed bonds — off banks' balance sheet where they are impeding lending to consumers and businesses.”

“Obama has acknowledged that U.S. regulatory failures contributed to the crisis in the financial system, but urged a focus on solutions, saying "we can only meet this challenge together."

“Some 4,000 anarchists, anti-capitalists, environmentalists and others protested Wednesday around the Bank of England for what demonstrators had called "Financial Fool's Day."

The above quotes were taken from a story on-line about the G-20 meeting in London, England this week. The reason I copied and pasted these quotes is because the first two make mention of the RATING AGENCIES!!! I have been writing about the significance of the credit rating agencies for several months, and have only one New York Times article to point to and say see, this credit rating business is an important piece of the puzzle. Well, I am relieved that Sarkozy (France) and Merkel (Germany) have brought this to the attention of the G-20 leaders. Hopefully, someone will explain to President Obama why these two leaders made special mention of the “rating agencies” in their statements to the G-20.

Furthermore, there is a relationship between the investment bankers that bought or took out insurance, known as credit default swaps, on the very structured debt obligations that they underwrote. These guys knew that the triple-A rating that was slapped on these bonds did not deserve this high credit rating, so, they got AIG to sell them an insurance policy that stated if the bonds defaulted, they would pay them off in full. Those contracts broke the back of AIG. It was a branch in London of AIG that sold these credit default swaps to the very people that underwrote the junk in the first place. Interestingly enough, it was these investment banks that were paid off in full from the bailout money given to AIG. I thought you would enjoy knowing this as it is no longer April 1, and I can not be accused of making up a bad April Fool’s joke. What I have just written is no joke, it is what happened. The top recipients of money from AIG were none other than the same investment banks that received Federal Government bailout money themselves. And now you know the rest of the story.

People in Europe, or should I say the vast majority of people in Europe do not live as well as we do in the United States, so, perhaps we can understand their anger when the little they have is put at risk and yet the wealthy continue to drive big cars and fly around in private jets. They know that the bankers and brokers have played us all for fools, but do we have to be financial fools as well. The answer is in holding the politicians accountable for their actions, and that is for both sides of the aisle.

Stay tuned.

Wednesday, April 1, 2009

Words of Wisdom From Across the Waters

President Obama is meeting in Europe this week with heads of state of what has become known as the G-20. Jay Leno’s line that President Bush thought that “G-20” meant that he bingoed was right on the mark. This is a new day and a new President.

Well, it is a new day for the United States and our dealings with Europe under a new President and a new Secretary of State. Let us hope that the Europeans come to understand that the majority of Americans are no more happy than they are at the world wide recession and the meltdown of our capital markets, as they relate to structured debt obligations and credit default swaps and the deregulation of our markets that lead to this period of economic decline.

Hopefully, the European leaders will talk with President Obama about their feelings about deregulation of the capital markets. The current world wide economic recession and capital markets meltdown was made and broken in the United States, and we should take responsibility for our actions. The greed principle is alive and well in America. Perhaps it takes a group of foreign leaders to point out to our President that not only is the United States the economic engine in good times, but it can also be the engine of economic disaster such as in the present.

We need regulation, oversight and transparency for international capital markets to work. Without it we will be back in the same boat in the not too distant future.

The culture of Wall Street will not change on its own, serious regulation must take place before a real and sustainable economic recovery can take place. Hopefully, our Congress, that had a hand in this economic disaster, will hear the words of the European Leaders from across the waters too.

Stay tuned.