Monday, November 30, 2009
Our central bank is a complex tool, that used correctly can maintain the integrity of the US Dollar and supply the economy with enough money (credit) to facilitate our economic growth. Too much money in circulation and you run the risk of inflation, while too little money can hold back the growth of the economy. Simple?
Now comes the Senate and Senator Christopher Dodd and his Senate Finance Committee. They are suppose to understand the basics of a central bank, our Federal Reserve Bank. The Fed, as it is known, is today the scape goat for the economic crisis of 2007-08 and the present. But, is it fair to make the Fed and its Chairman, Ben Bernanke, the scape goat for the actions of the Senate, the prior Fed Chairman, Alan Greenspan and prior administrations? Politics is not about being fair, politics is about taking credit and getting re-elected.
In 1999, with the "leadership" of Senator Phil Gramm, the Senate passed the Gramm-Leach-Bliley Act which gutted what was left of the Glass-Steagall Act that prevented commercial banks from owning brokerage firms and insurance companies. Later, under President George W. Bush's administration, Senator Gramm slipped in another Bill called the Commodity Futures Modernization Act. After doing all this "good work", Senator Gramm left the Senate and went to work for UBS (Union Bank of Switzerland), who bought Paine Webber, a brokerage firm due to the deregulation Bill of Senator Gramm.
The Fed's role in all of this is unknown to me, but to blame the current Chairman for the mess that was made by the US Senate seems to me a bit unfair. Perhaps Congress should make everyone working at the Fed wear a little yellow cloth bank sewn to their left breast pocket of their suit coats. In this way, we can make those people working at the Fed first-class scape goats for everyone to see.
The Fed is not the problem. The new legislation that is being crafted by Senator Dodd and his fellow senators will tie the hands of the Fed to operate and conduct monetary policy. The Fed has an assortment of tools it can use to conduct monetary policy and its three basic tools can not be taken away or else we will no longer have an independent central bank. Remember, there are other central banks and their governments around the world that understand how a central bank is suppose to operate. Fucking up our central bank with a bunch of stupid regulations will not go unnoticed by the central banks in the rest of the world. Politics is one thing, but fucking up the monetary system of the United States is a whole lot bigger.
Sunday, November 29, 2009
The Cincinnati Bengals play the Cleveland Browns today at one o'clock at Paul Brown Stadium. How many states can have such a situation as two professional football teams playing each other, founded by the same man and in the stadium named after him? Is it any wonder that the Pro Football Hall of Fame is in Ohio. While the first pro team may have been the Canton Bulldogs, Paul Brown was one of the founders of modern football in America.
After that disappointing loss to the Oakland Raiders last week, which the coaches played to sit on a lead (stupid), let us hope that the players have some say in the game plan for today. The offensive coordinator of the Bengals needs to use the players he has to their full advantage. On paper, this game should not even be close. But, the Browns will give a lot of fight and try like hell to win their second game of the season. Bengals need to play to win, not sit on a few point margin.
Monday, I plan to talk about Senator Chris Dodd and the new legislation coming out off the Senate that will restrict the ability of the Fed to conduct monetary policy. Oh, I know everyone will be hardly able to wait to read that.
How about a picture of a level playing field for Sunday?
Saturday, November 28, 2009
Well, I hope everyone had a nice Thanksgiving. I did not go out shopping on Black Friday. I went to the Cincinnati Art Museum to view the new Art Nouveau Jewelry & Glass exhibit and the Chinese scroll painting exhibit "Tigers and Carp". If you like beautiful Tiffany glass and beautifully designed jewelry, you will enjoy this exhibit. I haven't put up my gold fish paintings in a while, so why not go with them this Saturday. Nothing political, as we can all use a break from that stuff. On Friday the University of Cincinnati football team beat Illinois from the Big Ten, to take their season's record to 11-0. Next week they play Pitt at Pittsburgh. Good Luck Bearcats.
And now a word from our sponsor: SKI CINCINNATI t-shirts make excellent gifts for the Holidays. You can buy SKI CINCINNATI t-shirts at the following gift shops and store -- Contemporary Arts Center at 6th & Walnut and on-line from their web store; Cincinnati Museum Center at the old train station, Union Terminal; Cincinnati Art Museum in Eden Park; and Benchmark Outfitters in Blue Ash on Kenwood Rd.
Friday, November 27, 2009
Today is black Friday in America, and everyone knows what that means. Well, today is also Black Friday in Dubai and the world doesn't know what that means yet. Dubai's investment company Dubai World has asked its creditors, big banks around the world, if it can suspend paying on its debt for six months because it is out of cash. How much are the banks on the hook for? The people that know say $59 billion, with a "B". So, Europe and the United States now have to figure out what is the downside if Dubai World should default. When you owe $59 billion, believe me, the bankers will work with you. One small caveat, Dubai doesn't have any oil. This should be interesting to watch.
Thursday, November 26, 2009
Wednesday, November 25, 2009
There are so many issues to discuss that deal with the economy and our financial markets, but today is the day before Thanksgiving, so let us be thankful for what we have, and hope that others, less fortunate than us, will have a better Thanksgiving next year. All of us must keep spreading the word about the virtues of the "level playing field" and how more comprehensive regulations of banking and investment securities will give everyone an opportunity to have a piece of the pie. The turkeys at the top of the economic pyramid are, for the most part, oblivious to the fragile situation so many are now in as a result of the greed and utter contempt for the working class, shown by the actions of those that call themselves capitalists. Those that maintain the high ground do not give up their position of wealth and privilege without a fight. But, with the numbers on our side and the vote still in our hands, let us resolve that this Thanksgiving we will continue the struggle to bring the knowledge and courage to our leaders and representatives. Have a Happy Thanksgiving everyone.
Tuesday, November 24, 2009
Economics is easy. You know what's hard? Politics is hard. Without politics an economic system of regulations, transparency and enforcement would be no problem. But just as designing something on paper with a pencil is simpler to do than actually fabricating the object, so too is getting the Congress and the Administration to understand the importance of firm regulations a major problem to our economic recovery.
While I was not around in the early 1930s when the Great Depression hit this country, I believe that many feared that the future of this nation may very well have been at stake. The economic situation was very bad and politicians, I think, realized that serious regulation was in order. The Acts that came out of the Great Depression kept this nation moving forward for several decades, in my opinion. The train got off the track when a level playing field took a back seat to greed. The laws that came about, or the lack of laws that did not come about to deal with the new financial instruments like credit default swaps, lead to the financial crisis and the bond market meltdown of 2007-08.
Whether Congress or the Administration realizes that the level playing field needs to be restored in order for the movement of credit to once again pull our economy out of this recession is the question. We can not look to the banks and their leaders to ask the Federal Government to do the right thing. Their greed knows no bounds as is evident by the stupid remarks these leaders make about their role in the financial problems that have engulfed this country, and in some cases the world over the last several years. There were crisis all along the way until the water broke in 2007, but the politicians, perhaps due to their lack of knowledge, did not realize that the problem was just getting patched and getting bigger.
Perhaps, it will take a period of ugliness to fall across the face of this nation before the right things are done and the level playing field is restored. I hope I am not around if that is what it will take because it ain't going to be pretty.
Monday, November 23, 2009
Yesterday I read, "Fed Under Fire As Public Anger Mounts." The public, not understanding what the Fed does is angry over the fact that the banks are now going to be paying large bonuses to its employees, and for the bail out. But, as former Secretary Paulson said, the lack of knowledge about finance and monetary policy and theory among even the educated has lead us to this point. Why blame the Fed? I guess because they are an easy target because few really understand what a central bank does. They become the scape goat for the blunders and mistakes of the Congress.
Our Fed, our central bank, is charged with running monetary policy for the country. The Fed can not control the economy, yet it certainly can influence the supply and demand for money. The Fed has basically three tools to influence monetary policy. The first is Open Market Operations. This is where the Fed buys US Treasuries from the banks and thus puts more reserves into the system. By selling US Treasuries, the Fed can take reserves out of the banking system. This buying and selling influences the growth rate of the money supply which is something the Fed is responsible for. The Fed wants there to be enough money in the money supply to carry on the business of commerce and trade. Second the Fed can influence interest rates by raising and lowering the interest rate at which banks lend each other reserves. This is referred to as the Fed Funds rate. And, third, and the biggest tool is the reserve requirement which the Fed can change and by doing so can help create more credit or less credit in the system. Banks can create loans from deposits. When they create a new deposit, they can lend a percent of that deposit, and continue the practice until there are no more reserves to hold against the original deposit they have received. In this way, Banks can expand the money supply as people and businesses borrow to make new purchases.
The Fed, in my opinion, has two jobs. The first is to protect the integrity of the US dollar. The second job is to see to it that there is enough money, the growth of the money supply, to carry on the business of the economy.
Congress passes laws that makes the Fed's job more complicated, but they do not know this. The end of the Glass-Steagall Act in 1999, created a banking system that the Fed could not control and whose influence was at risk. Now after the Financial markets and the economy have hit bottom, the popular thing to do in Washington is to blame the Fed. The Fed did not make all the mess. The Fed may have kept interest rates too low for too long a time under former Chairman Greenspan, but the Fed did not cause the resulting economic meltdown. The Fed that runs monetary policy as our central bank makes a good scape goat because Congress does not understand monetary policy nor monetary theory. This leaves the Fed the perfect whipping boy of the people.
If the Congress and the Obama administration are serious about fixing the economy, then they should come to the aid of the Fed and not let the ignorant take the lead in bashing the Fed. We need a central bank in an economy where credit and the movement of credit is so important. It is time for Congress to learn something about the limitations of the Fed and monetary policy. The Fed can not fix everything that Congress breaks.
Sunday, November 22, 2009
"Historic Health Care Bill Clears Senate Hurdle" is an important start. The friends of the insurance companies failed to stop the debate on health care reform. The Republicans were on the wrong side of so many historic issues, it would take a book to just list them. Health care is a right in the United States, not for just the privileged.
The Bengals play in Oakland this afternoon and we are wishing them well. The addition of Larry Johnson hopefully will prove to be a rare smart move by the Bengals.
Saturday, November 21, 2009
This is going to be short and quick as I promised to help my friend Stert with some stuff with the pickup truck this morning.
Today the Healthcare Bill is up for a vote in the Senate. I hope that a public option survives in the Bill. Lots of people don't want a public option or insurance company reform, but I am on the other side of this issue. I think insurance companies need reform and need to compete. Having a monopoly only serves the owners of the monopoly, and healthcare in the USA, in my opinion, is not something that should be a monopoly or a near monopoly situation. For the millions of people that don't have health insurance, can't afford it or were dropped because they needed to use it, I hope the public option passes. I am a Liberal, and I am not backing down.
My Icons pencil on paperboard, 2004-07. Signed prints available.
Friday, November 20, 2009
Friday, and I am again peddling my sunflower print for $50 US, that includes the mailing tube and first-class postage to anywhere in the universe (if FedEx goes there, I will ship it). Anyone interested in buying a print can contact me at: firstname.lastname@example.org for more info. With the holidays just around the corner, just think what unique gift a sunflower print would be. Signed Prints are available framed for $150 US, and that includes shipping.
If you would rather buy one of my Ski Cincinnati t-shirts, you can go on-line to the Contemporary Arts Center gift shop in Cincinnati and buy a short or long sleeve t-shirt with the Ski Cincinnati logo on the front. This is yet another piece of my creative mind as the Creative Director of Ski Cincinnati.
I am doing my best to get this economy moving, and I am peddling my stuff. You see, I did not receive a bail out from the Government. Those interested in my political art can contact me at my email address too. I have several paintings that I completed during the last few years that are done in acrylic on board and are framed.
Thursday, November 19, 2009
The TV on MSNBC is talking this morning about the large banks, and the fact that they are not lending small businesses money, but rather speculating with the TARP money in markets where they can make larger profits without all the trouble and paperwork of lending to small businesses.
If ever there was an argument for a return to the Glass-Steagall Act of the 1930s, this is it. Permitting banks to take advantage of borrowing at the Fed at 0% interest rate, while at the same time investing in markets that pay greater profits if they are right in their bets, or, if they are wrong, the Federal Government picks up the tab, is no way to run a railroad. You don't have to be an Einstein to understand that.
Unfortunately, the situation is now much more complicated by the fact that banks are no longer just banks. This has a lot to do with margins, and that is not so simple. The Federal Government needs to take a few steps back and look at what legislation during the Clinton administration created. The simple answer is that the country needs to go backwards and return to banks lending money to businesses. The whole purpose of banks in the 21st century should be to make credit available to small businesses and individuals. Investment banking should be a separate business, the investment bankers know this, that is why they wanted to get into banking. Banking provides a source of funds to invest and then, with less risk and paperwork, they can then play the markets. The problem is, they are playing the markets with the tax payers money at this point.
Wednesday, November 18, 2009
Have you ever had someone say to you "let's get together"? At the time that they said it, you knew they didn't mean it, but it sounded nice nevertheless. Well, that's the way I feel people talk about competition. They like the way it sounds, but they really don't mean it. I know we all have our stories of where we saw pure competition take a back seat to winning. The stories of sports competitions that saw individuals cheat would easy fill a book. But cheating does not just occur in sports. Cheating occurs in business as well, where the rewards can make someone very rich.
Greed is alive and well around the world. It would be ridiculous to pretend that greed only exists on Wall Street among those plying their talents in the trading rooms of the investment securities firms that are left standing. But given the history of money and banking, underwriting and peddling securities, that reasonable and intelligent people would come to the conclusion that: it is not the tools of the business that are bad, but rather the way those tools are used.
I come back to the mortgage-backed bond because I think it is an excellent example of how technology has permitted great strides in the financing of homes and the growth to our economy and home ownership. By bundling mortgages and securitizing them into mortgage-backed bonds, the market can bring borrowers and lenders together. However, if there is cheating in this process, the bonds will eventually fail and the bond market will have a meltdown as no one will know which mortgage-backed bonds are good.
The history of investment banking in the United States is a history of resourcefulness, intelligence and greed. The object of the Federal Government, in my opinion, is to permit resourcefulness and intelligence to exist while at the same time using regulation, transparency and enforcement to control greed. It worked for many years, but the money made on Wall Street got so big that buying the Government was not out of the realm of possibilities. Let us hope that the new regulations will protect the investor while at the same time permitting our economy to grow. Credit in the 21st century is the currency of choice, and without credit the economy will suffer. But, without meaningful regulation to check greed, we are all headed back down the same road again.
Tuesday, November 17, 2009
Monday, November 16, 2009
After so many years, it is nice to go back and read the histories you have read before. The history of money and banking from colonial times to the present, I am no stranger to, yet this new book has certainly jogged my memory and given me new ways to look at the present financial situation.
In early times counterfeiting was a big piece of the story of money and banking in the American colonies and later in the young nation known as the United States. But, first let us review just what counterfeiting is. A counterfeit is an imitation made with the intent of fraudulently passing as genuine. Counterfeit products are produced with the intent to take advantage of the established worth of the imitated product. We all are familiar with brands that have knock-offs made cheaply to ride on the reputation of the real thing. So, let us establish that money, coin and paper currency, are not the only things that can be counterfeited.
Now let us move to the present and the investment bankers of Wall Street and mid-town Manhattan. Between the underwriters, the investment bankers, and their accomplishes, the credit rating agencies, Wall Street created collateralized mortgage obligations (CMOs) that were in essence counterfeit. In the 19TH century there were counterfeiters that printed paper money that was not backed by bonds on deposit with the state, or was exchangeable into gold, silver or copper coins. Wall Street in the 21ST century continued a practice of making money the way money was made before the Federal Government printed all of our currency. Now, Wall Street not being able to print their own counterfeit money, issue bonds that take the place of counterfeit money. The methods have changed over the years, but the result is all the same, taking money from people by deception.
In an era where bonds are issued in book entry form, rather than registered or bearer form, the counterfeiters do not need to even counterfeit a piece of paper to resemble the real thing. Today, the deception is created in a more sophisticated way. Working in tandem, the underwriters (investment bankers) and the credit rating agencies work together to create the "legal" counterfeit bonds. The triple-A rating is as bogus as a three dollar bill, but that is all that is required to carry this deception forward.
Taking advantage of investors, both individual and institutional, is what Wall Street and the credit rating agencies have done through the counterfeiting of a "brand" much the same way a brand is counterfeited in so many other products. The deception is achieved by giving the buyer the belief that what is being purchased is not imitation. The bond market had a meltdown because it was overrun with imitations of mortgage bonds carrying the highest credit rating given. This is just one more argument why the issuance of the triple-A credit rating should reside with the Federal Reserve Bank, and out of the hands of the credit rating agencies that are compensated for their work by the investment bankers underwriting those very bonds.
In my opinion, somewhere an Attorney General needs to be looking into prosecuting this conspiracy to create counterfeit mortgage-backed bonds.
Sunday, November 15, 2009
I have decided to rearrange my Sundays. I am back reading the Sunday New York Times and watching the NFL. Running out to Blue Ash for coffee is no longer in my plans. My time and money are in too short of supply to be wasted. There is also much work to be done around the house as leaves and brush are everywhere.
The UC Bearcats continue to remain unbeaten. They managed to get past West Virginia 24-21 on Friday night. I hope the Bengals can do the same with the Steelers this afternoon.
Now it is time to watch the Sunday morning News programs.
Friday, November 13, 2009
While the country is reading Sarah Palin's book, I am going to get a copy of Stephen Mihm's book titled A Nation Of Counterfeiters: Con Men, And The Making Of The United States, copyright 2007. I came across this gem while I was "playing" on the Internet.
When you watch TV these days, you get a pretty good idea as to what the TV people think is important to the American people. While I think Sarah Palin had no business being a heart beat away from the presidency, that is my opinion, I nevertheless find her fun to watch on TV. Watching Tina Fey as Sarah Palin is even more fun than watching Sarah Palin herself.
With all the weighty issues facing our country, it is nice to know that Sarah Palin can provide so many with a smile. Where that smile might originate is not important because, by Friday, I think we all can agree that we will take a smile wherever we can get one.
There are some rumblings in Congress, I have heard, as new regulations governing the casino known as Wall Street, may be about to see some serious changes. That should put another smile on my face.
Thursday, November 12, 2009
Our domestic economy is coming back, but coming back slowly. Confidence, in my opinion, is the key ingredient. However, on the other hand, the politicians in Washington are not doing much to improve our confidence. The new watered-down regulations are a sick joke. The politicians know that there are only a few thousand people that bother to read this stuff, so they can get away with almost anything because of the ignorance of the majority of people. The complexities of finance and the financial markets are really too much for most people to wrap their minds around. But, with all this said, our domestic economy will recover.
Since I have not put up my sunflower print since the first of November, I am again peddling my art. This signed full color print of my painting of two sunflowers is for sale for $50, and that includes the mailing tube and postage anywhere in the world. Anyone interested in purchasing a print can write me at: email@example.com for further instructions. The paper measures 14" x 11" and the actual print measures 13" x 10.5". Be the first on your block to own this beautiful sunflower picture!
Wednesday, November 11, 2009
This morning I have many ideas running around in my head and I really do not know where to begin. Last night, before I went to sleep, I read an article about Larry Summers in VANITY FAIR (magazine), December 2009. At the same time I was reading this article, I was thinking about the fact that in Tuesday's post about Goldman Sachs "doing God's work", I did not ask the question: How can people that refer to themselves as "Masters of the Universe" be "doing God's work"? Does not that make them Gods being "Masters of the Universe"? So much for that. Making fun of these highly educated and polished men and women from Wall Street does not bring us any closer to the solutions to our problems, so enough.
I enjoyed reading the article about Larry Summers, a former Secretary of the Treasury, President of Harvard University, etc, etc. The article went on about how smart Larry Summers is, but it did not give one example of his creative mind. Being an expert on public policy and economic policy is well and good, but what the Obama administration needs is not genius so much as a good repairman.
In previous posts, I have mentioned the godfather of securitization and how securitization changed the financial scene in the United States and the world. This man, who changed mortgages into bonds, is Lewis S. Ranieri. A guy who came out of the back office of Salomon Brothers to change the world. Not only are mortgages bundled in to bonds, but so many other loans, such as car loans and credit card debt, made into securities that are then sold around the world. All of this is a good thing, but if any part of the creation of these securities is compromised, the entire financial product will fail.
Tools are a great thing. Tools help us do a job, but tools can not be abused or they will not produce the desired results. Bundling mortgages, car loans and credit card debt is not the problem. The problem stems from the fact that the credit rating agencies (CRAs) are being bought by the underwriters (investment bankers) to place their triple-A credit rating on bonds that should not receive a triple-A rating.
The new legislation coming out of the Senate from what I have read does not address the problem of the credit rating agencies in a meaningful way. This must be corrected in order for the economy to recover. Credit ratings must mean something in the future. There is nothing wrong with the genius of securitization. The weak link in the process is the credit rating agencies and the fact that the underwriters, the investment bankers, are paying the CRAs for the ratings. Here is your conflict of interest, and where the abuse begins and must be stopped!
My idea is to continue to let the CRAs do the ratings, BUT have the triple-A ratings approved by the Federal Reserve Bank. In this way there is a check and balance to the CRAs handing out their highest rating, the triple-A, to every piece of shit that comes across their desks. The Fed has a direct interest in what constitutes a triple-A because the Fed requires banks to hold triple-A credits in their portfolios.
Having a Harvard education is nice, but it is not the only kind of education. Lewis S. Ranieri did not go to Harvard, yet the Obama administration would be smart to get Lewis Ranieri helping them put this economy back on track. Lewis Ranieri built this railroad.
* And Paul Volcker too!
Tuesday, November 10, 2009
Goldman Sachs is in the news everyday. In fact, if TV wanted to have a Goldman Sachs: Hour of Power on Sundays with Lloyd C. Blankfein hosting, it would not be outside the realm of possibility. Mr. Blankfein is the CEO of Goldman Sachs. Recently he gave an interview to the Financial Times of London in which he said that bankers do "God's work". Naturally, a lot of people are angry about his statement, but I would prefer to examine it more closely. Mr. Blankfein went on to explain by saying, "we're very important. We help companies to grow by helping them raise capital. Companies that grow create wealth. This, in turn, allows people to have jobs that create more growth and more wealth. We have a social purpose."
I find nothing wrong with the second statement, but the part about doing "God's work", I have a little difficulty. First, we need to establish whose "God" Mr. Blankfein is talking about. As the world is a very diverse place with many different beliefs, we can not assume that Mr. Blankfein is talking about anyone's God in particular. While no established religions professes to believe in the ALMIGHTY DOLLAR, Goldman Sachs' "God" may very well require worship at such an altar. But, from here, I will let the theologians have their say as I am not into discussing theology, but would rather turn to the second part of Mr. Blankfein's statement about the economic good of bankers' activities.
Everything Mr.Blankfein said in his second statement is true, but it is hardly the complete picture. His statement about bankers having a social purpose is true, but incomplete. He does not talk about the issuance of bonds or the borrowing side of the equation. The "buying" of credit ratings from the credit rating agencies is not exactly "God's work" in my opinion. Nor is the purchase of credit default swaps on mortgage-backed bonds that should have never been underwritten in the first place, "God's work". And, where in the cosmos of "God's work" can we explain the need for a Federal Government bailout? Has the Federal Reserve Bank become the new Vatican? If Mr. Blankfein and Goldman Sachs are doing "God's Work", why is a Federal bailout necessary? Render unto the Fed that which is the Fed's, and the rest unto Goldman Sachs?
Read LIAR'S POKER by Michael Lewis and then contrast that book with Lloyd Blankfein's statement that Goldman Sachs is doing "God's work". The fact that this CEO is so out of touch with most Americans does not surprise me. The people at the top of the economic pyramid breathe a rarified air that the rest of us mortals can not appreciate. While they have their heads in the clouds, they believe that the rest of us back down on earth have our heads up our asses. They own the air we breathe, Washington, D.C. and The White House. You see, Mr. Blankfein is after all a Democrat.
Monday, November 9, 2009
There is a lot of talk about the fact that unemployment in the United States is now above ten percent. Yes, this should be a concern of the Federal Government, but it should also open the Obama administration's eyes to why this is the case. I am sure that every flavor of economist has his or her opinion and solution, so, why not let me add my opinion to the pile?
I start with money, and as I have written several times before, money in the 21st century in the USA is credit. Credit requires confidence. In fact, in answering a comment last week, I said, "confidence is the currency of finance." Without confidence that people are going to be repaid, people will not lend. If you were in a card game like poker, you would not bet your money on a hand if you thought that when you laid your hand down the picture cards that you thought you held were now 2s and 3s. How long would you continue to play under those conditions? The credit rating agencies and system is suspect and because of this, credit is not moving into the hands of borrowers. The credit rating agencies permitted the bubble in the housing market and until the issue of confidence in credit ratings is corrected, the economy will continue to be slow in its recovery.
Talking about poker leads me to my next point, the culture of Wall Street and why "too big to fail" needs to be dealt with effectively. There is a small book I would like to recommend to those readers that would like to get a feel for what the people on Wall Street are like. This book probably did not make Oprah's Book Club, but, nevertheless, I think it is a good book to read. I read Liar's Poker by Michael Lewis in 1989 when the book was first published. For me, the book was shall we say, right on the money. I think the members of the Obama administration need to read this book and then kick Summers and Geithner out of the party. These two guys are part of the problem because they are not able to see that the Wall Street culture of "my balls are bigger than yours" has to end, or at least be regulated.
If anyone is not familiar with the game of liar's poker that is played with dollar bills, you can learn about it on-line at Wikipedia.
The title again of the book about Wall Street and its culture is: Liar's Poker: Rising Through The Wreckage On Wall Street by Michael Lewis, 1989. The book is available in paperback on-line used for a couple of bucks, and it is worth every cent if you are interested in the culture and people that brought us to where we are today in our financial crisis.
Sunday, November 8, 2009
The University of Cincinnati Bearcats just got by the Huskies of CT. The Huskies gave the Bearcats all they could handle, quite a game. UC wins 47-45.
The Bengals play the Ravens today and the weather could not be better for November. Good Luck Bengals!
The sunflowers are now gone. Next spring we will plant more sunflowers.
Saturday, November 7, 2009
A dried out sunflower, two houses in the Oregon District in Dayton, Ohio and My Icons.
November has arrived. There is still lots of color on the ground, but winter is approaching. The photo is one of the sunflowers from my yard. The pencil drawings of the two houses in the Oregon District are from 1995. And, the pencil drawing My Icons is from my head, started in 2004 and completed in 2007.
Friday, November 6, 2009
Well, if you are tired of reading about the financial crisis and the bond market meltdown, you can now see the movie. American Casino (2009) is a documentary by Leslie and Andrew Cockburn. You can read reviews of this film on the Internet. I learned about this documentary while reading The New Yorker September 7, 2009, Out Of The Shadows by David Denby, pp 84-85. I like Denby's review of the film because he goes into some of the financial razzmatazz that lead to the meltdown. I need to get hold of this film, or, find a theater in Cincinnati that is showing it. Cincinnati showing a documentary about something that happened during the Bush administration is a joke in and of itself. Those from Cincy will know what I am talking about. I hope the Obamas plan to show this film at The White House!!!
BTW, I sold another sunflower print yesterday. People have an opportunity here to buy a signed print by a contemporary American artist (and an old artist at that) that has yet to be discovered on the national stage for as little as $50 bucks. What do you get for your investment? A signed full color print of two sunflowers talking about Van Gogh that measures 13" x 10.5". Here is something you can enjoy looking at while you are waiting for it to appreciate in value. Such a deal! Those who do not know what the sunflower print looks like can see it in earlier posts.
Thursday, November 5, 2009
This week the Federal Reserve Bank, known as The Fed, decided to keep the interest rate at which they lend money to commercial banks at 0% to .25%. The Fed is doing this because they believe that this will help the recovery of the economy and especially it will help bring back the housing market. This is partly true. Low interest rates make it easier for builders to build and buyers to buy, but is this what caused the problems in the first place? The answer to that question, in my opinion, is NO.
The bundling of mortgages into bonds that can then be sold to investors is an excellent financial tool to promote the growth of the housing market and the economy. The problem is that until this tool has some improvements made to it, better engineering, this financial tool will be too dangerous to use. What is wrong with this financial tool, the collateralized mortgage obligation (CMO)? The piece of the tool that needs work is its "electrical wiring". The way this tool is now wired, it can give the holder of this financial tool, the CMO, a terrible financial shock. That shock comes in the form of the CMO being worthless because the triple-A rating given to the CMO is also worthless. When you invest in an electric drill, you want to know that when you turn the drill on, you are not going to get the shock of your life. The CMO that came out of Wall Street with the bogus triple-A ratings knocked a lot of portfolios on their financial asses. Period.
So, The Fed keeping rates low is a good thing, but something has to be done about the issuance of the triple-A rating. I have written several times before that I think the Federal Reserve Bank should be the gate keeper of the triple-A credit rating much the same way that the Food & Drug Administration (FDA) is the gate keeper for our drugs. I know this is not perfect, but at least the credit rating agencies will know that they actually have to do the credit work on the bundles of mortgages before giving out their triple-A rating. The Fed also requires that commercial banks hold triple-A credits in reserves and therefore, in my opinion, The Fed is the right agency to pass on the creditability of the credit rating agencies' ratings.
Someone should tell President Obama what is broken and how it can be fixed. Keeping interest rates low is only a part of the solution.
Wednesday, November 4, 2009
I think the word about Paul Volcker being marginalized in the Obama administration is getting around. That is the good news. Whether anything is going to change is a whole different story. I saw something about Volcker being marginalized on MSNBC yesterday morning, so, it is definitely getting some play. The question to ask now is, can President Obama get Volcker on a one on one and hear for himself what needs to be done to correct the problem that hangs over all of our heads - Too Big To Fail!!!
Summers and Geithner must go is the other piece of this puzzle. They are between President Obama and Volcker. This stuff, as I have written in the past, is not rocket surgery. Letting commercial banks have a casino within the holding company is just not smart. Who would build a factory with volatile explosives and then run flames through the walls? It does not take a genius to realize that at some point the flames will ignite the explosives. Commercial banking and investment banking should be separated again, AND, they should go back to being partnerships, and that means no publicly traded equity securities.
Too Big To Fail will continue to be a problem, AND, this problem will, in my opinion, hold back the economic recovery. The issues about the credit rating agencies is another problem, but that is a separate issue from the banks. President Obama can not know everything, that is why he has advisers. Let us hope he talks to the right ones about the issue of Too Big To Fail.
Tuesday, November 3, 2009
Today is election day and those of us who live in Cincinnati get to vote for our mayor and nine members of city council, or, as I refer to them as The Three Stooges Cubed. I don't know what these people have or don't have on the ball, but from the way this city is run, I would say, don't have much on the ball is closer to reality. We do get to vote on some important issues this year and because of the issues on the ballot, I am going to cast my vote.
I have lived in this city since 1942 except for the two years in the army in the mid 60s. Over that time, I have watched the migration out of the city itself. Families looking for a nice place to live with a good school system have left the city of Cincinnati. At one time, the Cincinnati Public Schools were very good. But, with the quality of leadership in the education process declining and the money to support a superior education system not there, the city of Cincinnati, like other cities in Ohio, lost population to the surrounding areas . Money for public education is tied to the property tax, and as a result, the areas with the more affluent families and the bigger properties have the money to support a better quality school system, and teachers are attracted to the better systems.
My wife and I lived in the city, but navigated around the public school system by placing our children in alternative programs. One alternative program, the German-English Bilingual Alternative School (GEBAS) became the most popular school on our street. At one point, there were so many children on our street going to the GEBAS program that I thought they were preparing them for the Fourth Reich. Today, parents line up in the rain and cold to enroll their children in this program because it is so good.
It is my opinion, that if the funding of education was changed from the property tax, that a better school system could be built in Cincinnati and with the better system, attract families back to the city. But, that is just my opinion, as I only have those parents camping out in the rain and cold, to put their children in a superior program, to make my point. If you build a better public education system, families will come.
Back to the economy tomorrow, so, do your civic duty and go vote. A lot of men and women gave their lives so we could vote, so vote.
Monday, November 2, 2009
Sunday I watched the two morning news shows I have been watching for years. This Week on ABC and Meet The Press on NBC. I go back a long ways with Meet The Press as I watched it with my father in the 1950s.
In Cincinnati, This Week comes on first and it is almost the same thing every week. The conservative George Will giving his conservative take on the world while the Dems that are more liberal listen. The Rev. Sharpton was on this past Sunday and I wonder, other than he is black, why is he on. George Will serves up his brand of intellectual conservative folklore and the Rev. Sharpton should have hit it out of the park, yet he sat there and let it pass. This crap about the conservatives wanting less government is a bunch of nonsense. The Republican Party and the Democrat Party listen to the people that pay the money for access, period. The conservative talk about less government is just plain nonsense because if they really meant it, there would be more competition in health care insurance just for one example. Where are the conservatives when it comes to creating a level playing field and promoting more, not less, competition? So much for George Will and his conservative folklore.
Tim Geithner, the Treasury Secretary was on Meet The Press with David Gregory. Geithner needs to attend the Dick Cheney school of public speaking. I loved it when Dick Cheney appeared on the Sunday news shows. Cheney always acted like he was telling you something you didn't fully understand. I liked the way he would tilt his head and explain to the interviewer as if he was going to educate you about the finer points of his argument. Cheney was full of shit most of the time, but he had confidence that he knew more than the person asking the questions. Geithner needs to answer the questions and at least act like he knows what he is talking about even if he doesn't. It never stopped Dick Cheney.
The economy is going to take quite a while to come back. The playing field is still not level. The new regulations with regards to Wall Street are still a joke. Smart money is not going to get back in the game until there is real transparency. So, the Obama administration has a choice, a fast or a slow economic recovery. They are not going to bite the hand that gives them so much campaign money, and that is exactly what Wall Street does. So, be prepared for this economic recovery to take some time as the credit markets and the credit rating agencies are not ready to be trusted. Without effective movement in the credit markets, our domestic economy will not expand very rapidly.
I was asked to comment on CIT, and here is my comment.
Read the CIT story. Bottom line: confidence in the end is the currency of finance. The Federal Government is made up of people who do not understand how the credit markets work. The credit rating agencies are more important than the majority of the people understand, especially in government. Garbage in garbage out at the credit rating agencies pollutes the whole credit environment. Few people in a position to do anything, or say anything understands this. The Federal Government just lost $2.3 billion on preferred stock in CIT, and it could have been worse. Aren't we all happy to know this. President Obama does not know what he needs to know, and, his administration isn't going to tell him. At least not Summers and Geithner. Sorry, but we are in for some weak times economically, so, enjoy whatever else it is you like because, economically there is not going to be much to enjoy.
Sunday, November 1, 2009
The sunflowers are long gone, and the Bengals do not play today. In past years, when the Bengals had a bye week, people would say, "at least they can't lose today." But, the Bengals have a 5-2 record. Not bad.
The University of Cincinnati Bearcats won Saturday 35-7. The BCS dropped them to 8th in their poll after they beat Louisville. Politics, politics, politics. The BCS wants schools at the top of the poll that "travel" well for the big bowl games. So, if a smaller school does well, the BCS is not exactly thrilled to put a team like the Bearcats in the top five. If the Bearcats defeat their last four opponents, and finish their season undefeated, what will the BCS do then?
Since I am selling my sunflower print, I might as well post that picture again. This sunflower print is available for $50, and that includes the mailing tube and postage anywhere in the USA. Just stop and think, for $50, you can own a beautiful full color signed print of two sunflowers on 14" x 11" paper.