Saturday, September 25, 2010

Saturday Is For Art: A few Pencil Drawings

Here is a drawing of a couple of houses in the Oregon District of Dayton, Ohio that were exhibited in the Old Court House on Main Street in downtown Dayton in November, 1995. The drawings were done on foam-core board with a drawing surface on one side in pencil. I used several different hardness of pencils. There are actually two separate drawings, but they become one piece when I inserted them in to the window frame that I savaged from my 2-family back in Cincinnati. The height of the drawing is 16 inches with an overall length of 44 inches. In 2004, I started another large pencil drawing, but put it aside for a few years before I went back to it and completed it in 2007. This piece I titled MY ICONS, and I placed it too in an old wood window that I savaged from the apartment I lived in when I worked in Columbus Ohio. I have always loved drawing and looking a drawings. Drawing with a pencil, as a little boy, was my first art work. Too bad I never saved any of those early pieces. : )

Monday, September 20, 2010

No Bogus Triple-A Bonds Anytime In The Near Future

Yesterday, I was reading my Sunday New York Times, the Sunday Business Section, and what do I find? A professor of economics suggesting that the best way out of the recession is for the Federal Reserve Bank to inflate the money supply and that they should shoot for a target of a 3% annual inflation rate. Naturally, this professor acknowledged that seniors and others on a fixed income would most likely protest this idea. Hell, yes, I would protest this idea because it is pure stupidity.

Either this economics professor has never done anything other than being a student or a professor because if he had spent just a little time working in the capital markets, he would realize what a suggestion of 3% inflation would mean.

Why not fix that which is broken instead of coming up with cures that only compound the disease? The last thing we need is 3% inflation, as this is not going to facilitate the movement of credit from borrowers to investors.

Why not fix the credit system? This is where the problem is, in my opinion. Because Wall Street minted billions of dollars of bogus triple-A bonds before the financial crisis and the market meltdown, the rest of the civilized world is not in a hurry to buy anything more than our U.S. Treasury notes and bonds. This move by investors to buy quality has driven down nominal interest rates, and with inflation at a low point, interest rates on Treasuries have reach some very low numbers. But, reigniting inflation is not an answer in my book, and if this professor understood the responsibility of a central bank to all the participates of the monetary system, he would not be throwing the idea of 3% inflation around so cavalierly. I have written in the past that monetary policy should not be carried out with only the banks in mind, but there should be consideration for all members of the monetary system.

Fix the credit rating agencies and be surprised what that would do to open up the movement of credit again. But, the investors around the world and especially the large pension funds here at home must believe in the ratings that are placed on the new bond issues. No one is going to be investing in bogus triple-A bonds anytime in the near future.

Stay tuned.

Thursday, September 16, 2010

2 By 4 ? What's Up With This?

Have you ever wondered why we call a piece of wood that measures no more than one and five eighth inches by three and one half inches a two by four? Have you ever noticed that coffee makers say they will make 12 five ounce cups of coffee, while you thought a cup was a measure of 8 ounces? What's up with all this? Do we live in a time when measures and weights and credit ratings don't mean anything?

For months, I have written about the relationship of credit ratings, its failure, and the recession that the United States now finds itself in. Many very bright economists have written what they think will turn this economy around and get people back to work. There are arguments about taxes and who should pay what. I have never studied the impact of taxes on the growth rate of our domestic economy, but I am sure taxes, if set too high, could keep the economy from growing at a faster rate. But, when you look at tax rates around the world, our taxes are hardly at the top.

The problem with our domestic economy is the fact that credit has dried up. Credit has dried up at many levels, and the tools that gave this country the ability to sell its private debt around the world in the form of bonds are now broken. The fact that we no longer can have an active bond market for structured debt obligations such as mortgage-backed bonds, car loan bonds and other collateralized debt obligations, has impacted our economic growth. This is the problem not taxes. Tax rates were much higher in the 1980s and there was economic growth that set the stage for the economic growth of the 1990s.

The problem as I see it is not taxes, but the reluctance of Wall Street to clean up its act and bring creditability back to the credit rating system. When New York City defaulted on their General Obligation Notes in the 1970s, Wall Street firms that sold and underwrote municipal bonds started building their own bond analysis departments and started printing weekly credit reports on the new issues that were coming to market each week. Unfortunately, given the state of creditability of Wall Street banks such a solution today would be meaningless.

The fact remains: without a viable credit rating system, the movement of debt to investors around the world has broken down. The dollar denominated private debt securities from our domestic economy would be sought the world over, but first it has to be a real two by four before investors will touch it.

Stay tuned.

Monday, September 13, 2010

The Movement of Debt Grinds to a Halt

I went to the art show Saturday evening and talked with several people I have known from Clifton having lived there so many years. I did not win any awards for either of my 2 paintings that were in the art show. It is, nevertheless, nice to have your work displayed so the public can see what you are doing. My art work, my political satire art work, is not going to create much interest in Cincinnati. However, I will continue to do it as the mood moves me. I have tried other subjects and will continue to try new ones, but until I am moved to do something vastly different, I will continue to paint those ideas I like.

The election season is upon us and I really have nothing new to write about. I have had my say about what I thought would go a long way towards moving the domestic economy forward. Credit is very basic to our economy and the securitization of individual credit is a tool that can move the economy forward. Unfortunately, that tool was abused and the necessary repairs have not taken place to make that tool (securitization) a viable tool again.

The credit rating agencies play a essential role in the movement of credit, and the job they did during the recent housing bubble and financial disaster have left this tool (securitization) disabled. Those with influence that could have demanded the repair of the credit rating agencies have not stood up for reform. As a result, housing will continue to be a drag on the economy rather than stimulus. Eventually, Wall Street will figure this out and repairs to the system will then be made. After watching and listening to the politicians speak about our domestic economy, it is clear that they do not understand enough about the creation of credit, its movement from the borrow to the ultimate investor. There is plenty of cash in the hands of large pools of investible funds, such as public pension funds, but without confidence in the quality of the securitization of household debt, the movement of debt from borrow to investor grinds to a halt.

Stay tuned.