The Right Tools For The Job

Today I would like to address two issues. The first is the so-called bailout of Bear Stearns, the fifth largest investment banking house on Wall Street. One comment that I received was that my defense of the actions taken by the Fed were that of a “true banker.” Naturally, that is one man’s opinion. I think the fallout from not taking the actions taken by the Fed would have been several times more costly to the system and the whole economy. It was not just about saving Bear Stearns from going down, it was about saving all the firms that did trades with Bear Stearns and cleared through Bear Stearns that would have presented our domestic economy and the world economies with an unnecessary calamity of such great proportions. In my humble opinion, the price to be paid for teaching such a lesson clearly was not worth the price to be paid by so many.

In the Sunday New York Times, Robert J. Shiller, professor of economics and finance at Yale, wrote a piece titled “The Fed Gets a New Job Description.” In the article, Shiller says that the recent actions by the Fed to stabilize the financial services industry is the right direction for the Fed to be taking and evolving into new responsibilities. There is a quote printed in bold type that reads “The long road from banker’s bank to market stabilizer.” This I do not agree with, nor do I think this is the direction the Fed should taking, so, let me explain.

Let us say you have several large swimming pools, and at these swimming pools we have life guards and water filtration workers. One day when the life guards are on break, a swimmer gets into trouble and needs to be rescued. So, the water filtration worker jumps in and saves the swimmer. Question: Because the water filtration worker saved the swimmer, do we add life saving to the water filtration worker’s job description? I don’t think so!

The Fed is our central bank. It is not the Securities & Exchange Commission or any other of the regulatory agencies in Washington whose job it is to prevent a melt down of the system. The Fed fills the vacuum because Congress does not have the balls to write the regs necessary for the financial services industry in the 21st century. That is a poor way to run a railroad. When Senator Bunning asked if our financial system is so frail that one investment bank could do so much damage to the whole system, I could not believe my ears. The Congress chipped away at the Glass-Steagall Act over the years and now they wonder what happened to their safety net? (The Glass-Steagall Act was replaced by the Gramm-Leach-Bliley Act of 1999, which effectively repealed the former.) If we use this line of logic, would it not follow that the FBI be responsible for all traffic lights in every city?

Congress needs to step up to the plate and put together legislation that will improve upon that which was and will effectively work for the good of us all in the years to come as it relates to the financial services industry. For the Fed to just expand their responsibilities to market stabilizer, in my opinion, does not strengthen the system. Do we want to drive around with our airbags already deployed? Let the central bank get back to being a central bank with some modifications, but let us make the Congress do the heavy lifting of writing the regs for the new century. I hope Bernanke and the other members of the Fed will explain to the Congress the need for better regs and the proper number of shoes on the ground to do the job right.

When I was a kid, my dad had a work shop and in the shop there were several power tools. I remember asking my dad about a tool I saw advertised on TV that did several types of wood working jobs, an all-in-one wood working tool. As a hardware store man and someone who knew how to use good power tools, my dad did not think much of a tool that did many functions. A fine lathe, drill press or table saw that was made to perform its function and do it with a high degree of accuracy, is what the craftsman wants and demands to produce truly great work. Perhaps it is time for Congress to realize that regulations and oversight demand the right tools to do the job right. The all-in-one tool may get the job done for the weekend hobbyist, but it can hardly stand up to the requirements for commercial production. Our place in the financial services industry in the global economy demands that we put together a regulatory body that can meet the challenges of the 21st century.

Friday, the jobs lost numbers came out. Add to that figure for the three months of 2008, the jobs lost in the fourth quarter of 2007, and we are looking at over a half million jobs lost in the economy. There is a price to be paid for this too. That price is going to be in dollars and lives lost. Where are these people going to go and what are they going to do? For the government to sit on their hands is not the smart way to go. If anything, projects to rebuild and repair our infrastructure should be put into action now. There is a disaster out there waiting to happen if we do not act and act now, we all will pay a much heavier price than unemployment insurance. Stay tuned.

Saturday Is For Art

The top painting is from what I call The Envelope Collection. The painting was done on a black envelope 12" by 9" in acrylic paint. The painting in the middle is painted on wood 13" by 9" in oil. The title is Mother & Child: An American Icon '96. For this piece I took a piece of left over wood, known as a 2" by 10" and covered it first with either gesso or latex white paint. Since my grand parents are why I am an American, and because they were just like so many other immigrants that came to America in search of a better life, I decided to put each of their names on the painting with mine below with the date. The bottom painting was done as part of a poster for a fund raiser for a homeless shelter in downtown Dayton, Ohio. I was asked to volunteer for this project. The poster for the fund raiser looked like an envelope with all the info about the fund raiser on the front of the envelope. The bottom painting of the stamp became the postage stamp of the envelope (poster). The invitations that were mailed out appeared just as the poster. I am not a graphics designer, but when you're a non-profit, I guess any free art work is better than none. They liked the design so much they used it again in 1994 for the poster and the invitations. The perspective is looking down a street into the city and their are no houses. The painting was done in July 1993 when postage was just 29 cents. Postage is now 41 cents. I like to buy stamps as I enjoy the art work that goes into them, but I think when it gets to 50 cents to mail a letter or pay a bill, I will stop buying stamps and use another method. When I was a little boy, postage was 3 cents, then 4, then 5 and every so many years the postage went up. Why would anyone want to put their money in a savings account when they are losing purchasing power every year. Monetary policy in this country is slanted in the direction of people who know how to use debt and are able to borrow. Poor people can't borrow because you need a credit score to borrow. The working poor that put their money under the mattress or even in a savings account at a bank lose money every year and pay taxes on the interest which hardly keeps them even in purchasing power. There is no level playing field for the poor, just a lot of promises never kept. Then when red lining and other discriminatory practices were halted, the predators took over. And, now we have the sub-prime mortgage mess that we all are suffering because of.

Read The Numb3rs

Unless you live at 1600 Pennsylvania Avenue, Washington, D.C., you are probably aware of the fact that the domestic economy of the United States is headed in the direction of a recession and has been for several months. For many Americans the recession is already upon them. One man is waiting for the two consecutive quarters of negative economic growth before he concedes that fact, and he lives in The White House at 1600 Pennsylvania Avenue.

Numbers are important, but it is the direction or trend of the numbers that speaks the loudest. Coupled with direction or trend is the speed of the direction that numbers are increasing or decreasing. For example, the Labor Department announced today that employers slashed 80,000 jobs in the month of March. This number standing alone by itself tells us a little. The number is significant because of its size alone. But, when you add the 80,000 lost jobs in March to 76,000 lost jobs in January and another 76,000 lost jobs in February, you have a very meaningful number. The total number of jobs lost since the beginning of the new year stands at 232,000 jobs. This does not include the jobs lost in the fourth quarter of 2007 as a result of the housing crisis. You don’t need to be an economist to see the significance of such large jobs lost numbers. The domestic economy is in serious trouble.

Given the employment situation in the United States today, it would have been even more disastrous if the Fed had sat on their hands and done nothing in the face of a bankruptcy by Bear Stearns. (See Thursday’s posting for more about that.)

It is important to look at the big picture. Our economy is made up of many facets, sectors, industries and spread over a wide geographical area. Not to view the effect a particular crisis has on the rest of the economy is just plain stupid and irresponsible.

A case can be made that the planned breakdown of regulations and their enforcement as they pertain to the financial sector lead in part to the economic crisis today. Certainly the financial sector's crisis if nothing else. That fact along with the fact that fuel costs, gas and diesel, have been rising so rapidly during the last 12 to 18 months, and taking purchasing power out of the hands of the consumer, all this has caused our economy to falter. (See previous postings on oil.)

I am going to give it a rest here for the week. Tomorrow is Saturday, and Saturday is for art. There are so many things that need to be fixed to repair our domestic economy, let’s hope that some people with good minds will be listened to. Stay tuned.

Return of Dr. Frankenstein

In the Senate Finance Committee hearing today it has been reported that Senator Bunning referred to the Fed's actions to prevent the train wreck from Bear Stearns going down the tube as "socialism". What can I say? Socialism? Naturally, giving oil companies tax breaks is not socialism. Right! This comment represents a kind of stupidity that works for the American people in the Congress. I pity the poor people of Kentucky, they deserve better.

How do you explain, to people that have half a brain at best, what an implosion of the financial system would look like? To call the actions of the Fed, with regards to the Bear Stearn/JP Morgan situation, socialism, is irresponsible and less than a half-brained accusation. Why stop there? Why not call Chairman Bernanke and his fellow Fed associates, or comrades, a bunch of communists and say what you really feel. Let's get out those old red baiting slogans and dust them off. How about a nice conspiracy theory for dessert?

One thing good people learn real quick when they leave the private sector and bring their skills and knowledge to the government is that politics rules. Under the right set of circumstances no one is exempt, anyone can be thrown under the bus.

Dr. Frankenstein, Dr. Frankenstein

Right about now Ben Bernanke, chairman of the Fed, is probably asking himself why he did not become a doctor. Oh, I know that he has a doctorate in Economics. What I mean is a physician, as I am sure his mother must have said to him at one point in his young life, “Ben, you’re smart enough to be a doctor.” Half the guys in my frat house were studying to become doctors and the other half lawyers. There were a few like me that fell through the cracks. The way I see it, if Bernanke had become a physician first, and then became a specialist in proctology, and then went back and got his Ph.D. in Economics, he would be better equipped to deal with all the assholes in congress that do not understand a thing about economics or the financial markets.

For the Fed to have left Bear Stearns go under would have been malpractice in the first degree. Any member of congress that does not understand the scope of such a financial disaster on the entire financial services industry and in turn on the whole economy, demonstrates either a certain naiveté or an inexcusable ignorance at what was at stake. Bernanke went before congress yesterday and was questioned as is their job, but for congress to use this discussion as an opportunity to play to the gallery, in my opinion, only showing their stupidity. It really only shows how much behind the learning curve these members are.

All the talk about bailout is nonsense. Bear Stearns was not bailout of anything. What people need to understand is that the entire financial system is tied together by trades that have not yet settled. To stand by and let the fifth largest investment bank go down the tube without lifting a finger would have caused more than just a ripple effect throughout the financial services industry. Avoiding a massive train wreck on Wall Street most certainly avoided a massive train wreck on Main Street. Trust the man leading the Fed, he did the right thing. No one would be second guessing the Fed’s decision to act when they did, if a computer simulation of what would have been, could be put on the big screen. Perhaps that is what Bernanke should consider doing the next time he meets with members of congress, have plenty of pictures and graphs so that he can explain in detail why he did what he did. Maybe a cartoon in color with a musical soundtrack pitched at congress’ level could be crafted.

Interesting that there has not been any condemnation of the Fed’s actions as they relate to the Bear Stearns/JP Morgan action by any foreign central banks. Those that know just how bad things could have been if the Fed failed to act have enough sense to keep quiet. An economic engine the size of the United States standing idle as its fifth largest investment bank went under would cause panic around the world. Interesting that other central banks understood the consequences of inaction, but our own congress does not have the brains to process the Fed’s action. I admire the calm and patience Bernanke brings to the table as he slowly yet methodically explains what is taking place at these sessions of econ 101.

These problems of oversight and regulation must be revisited during the next administration. We can only hope that Bernanke and others that talk with congress will take the time and effort to explain why the present regs are not working. Remember, Bernanke did not cause the problem, the banking and investment industries have changed and grown, but now is the time for new measures to be put in place. Stay tuned.

Keep On Trucking, I Hope

Many years ago when I was in Munich Germany, I went to the “old” art museum many times. On the walls of some of the galleries were some huge paintings that seemed like they took up the whole wall. These paintings told a story and within each one there were several smaller stories taking place. Some of these beautiful oils were by Rubens and others, by lesser known artists. These paintings you did not just look at, you studied them. And, if you were lucky enough to visit them again and again, you would see something new each time you stood before them. You could stand to the right or left or in the center, and you could stand close or you could take several steps back as each location on the floor would give you a different perspective of a very large picture.

When we look at the economy in the United States today, it is much like looking at a huge painting or mosaic glass window. Many pieces make up the whole. Each piece when joined with every other piece makes the complete picture. The problem with the economy today is that many of the pieces are not operating the way they should be. Unfortunately, the leadership in Washington has been so busy with themselves, that they have forgotten that they had a job to do for the people they represent besides getting themselves reelected. The wheels of the economy may be ready to come to a halt.

Yesterday on the news, there was a story about the truckers and the price of diesel. A little known fact to me was that 80% of the trucking done in the United States is done by independent truckers. These independent truckers can not make it given the sharp increase in the cost of diesel. In an earlier posting, I stated the everything we wear, eat and use in our daily lives travels to us by truck. This is not an “urban legend”, this is a fact. And, these independent truckers are pulling there trucks off the road because the price of fuel means they are not making any money after they do the arithmetic.

Yesterday there were hearings in Washington and a few oil company executives gave testimony about the price of oil and fuel and how our own policies have kept the production of fuel down. Congress bashed them about their profits and why they did not spend more money on alternative sources of fuel. That did a lot of good. The problem remains. Diesel is the fuel that America runs on and unless something is done to ease the shortage of diesel fuel and bring the price down, this country is looking at an economy that might fall into a serious recession.

Disconnect all the dots that holds this nation together by the trucking industry, and we will all be staying home. Everything moves by truck, and the truckers are saying they can’t make it. Either trucking rates have to go up so that truckers can make a living or nothing is going to move on our highways. The alternative is for the price of diesel to go back down.
Congress, the ball is in your court, you can make an attempt to bring about a lowering of diesel prices or you can change the tax laws as they affect truckers. You have some tools in your tool bag, and you better start using them. Even congress people need to eat. Without this serious problem addressed and addressed soon, inflation will take off at an even greater rate than its been. Inflation will affect more than just food prices, inflation will affect interest rates and now the picture is complete. We are right back to the beginning. The Fed wants to keep interest rates low to help us through the present credit crisis. 2008 is going to be a long year. Stay tuned.

Moving Around Organizational Boxes

Writing a lot about nothing takes years of study, training and education. Those that achieve this ability find work often in universities, foundations and corporations. However, those that really excel in this fine art skill find there greatest rewards working for the government.

Yesterday, the U.S. Treasury Secretary Paulson gave a speech dealing with the new movement of boxes in the Federal Government. This rearrangement of boxes is not restricted to only government organizations, but is also done by universities, foundations and corporations. The uninitiated may feel that this movement of organizational boxes is meaningless. Unfortunately, for the untrained eye, this may appear to be the case. But, I can assure you that for those that have studied, trained and educated themselves to the subtleties of this fine art skill, the subtle differences are immediately apparent.

The movement of boxes in organizations whether government or the private sector is an art form that requires knowledge, but above all a trained eye and respect for the various perspectives that the rearranged boxes present. This skill takes years to develop and only the very brightest of individuals are entrusted with this very skilled and quite intellectual work.

Those in the press that were looking for meaningful changes in regulations that would effect the banking and investment banking sectors of our domestic economy do not quite understand the importance of the subtle movement of organizational boxes in government. This is unfortunate for all concerned for it leaves many feeling let down by what some believe to be inadequate measures and movement. I can assure you that while these measures may seem to be minimal and without merit, that in the minds of the trained and educated, the actions that were taken by Treasury Secretary Paulson are monumental. If only in his mind and that of the Administration and certain members of Congress, these changes are for our own good.

The bottom line is that nothing tangible will be done during the present administration. This mess that took years to create will be waiting for the next occupant of the Oval Office. Why would anyone want to give so much of themselves to their country as being President of the United States?

Since the administrations in office in the years 1981-84, 1985-88, 1989-92, 1992-96, 1997-2000, 2001-2004 and 2004 to the present, an assault on banking and securities regulations growing out of the Great Depression, the Acts of the 1930’s and 1940’s, have been undone. Safety nets are called safety nets because they act as safety nets. If they did not do their job, we would call them “unsafety nets.” Well, guess what? With the help of people that have studied, trained and educated themselves in the movement of boxes, the government with the urging of the private sector, has dismantled the safety nets that were created in the ‘30’s and 40’s for the purpose of preventing a financial crisis once, twice, three times or more.

I have been hanging around this planet for 65 years, and I have watched the events for many years. Either I am getting smarter as time goes by, or, it is really all over my head. But, this country is in for some tough times unless people that know how to move organizational boxes decide that just moving organizational boxes is not going to get the job done. I can tell you this: we are part of the world economy and the world financial systems. If you think the rest of the world will put up with our nonsense forever, you are wrong. And, if you don’t believe me, then just watch. What you are about to see in the next several years, will be the dismantling of the United States as a financial super power. Those people in government and the private sector can wear the darkest blue hand tailored suits they can get their hands on and and wear the best shirts and ties on the market, but money talks and bullshit walks, so get your walking shoes on because we are going to be doing a lot of walking. Stay tuned.