Saturday Is For Art

January 31, 2009, the end of the first month of the year and only two more months of cold and snowy weather. In addition to the Obama postage stamp painting that I post today, I will post a couple of photos from this past week's snow fall. I want to repeat, I take pictures, I am not a photographer, so please realize that I just click and shoot. That's it, I don't do any more.

The Obama postage stamp painting was inspired by the recent ESQUIRE magazine cover. I changed it a bit and rather than paint President Obama in red and shades of blue, I painted him in shades of raw sienna and white mixed. I am thinking about reducing the image and printing them on 19"x13" paper on an Epson printer and offering them for sale. But then I might just reduce them down to the size of a postage stamp and sell sheets of them as stickers for people to use when they write their elected representatives. If you support the policies of the Obama administration, perhaps when you write to Washington it is good to let them know where you stand.

I hope everyone has a nice safe weekend and enjoy the Super Bowl if you are a fan.

Where Our Capital Winds Up

There is a lot of debate on the cable TV news programs as to what is stimulative and what is not stimulative for our domestic economy. I should not have to say “our domestic economy” as that is a bit redundant, but I do it for a reason, to emphasize the importance of differentiating between money that stays here in the United States, and money that leaves our economy. There is a difference in my opinion.

Earlier today a talking head made the comment that money given back by the government in the form of lower taxes or a tax rebate and used to pay down mortgage or credit card debt is not stimulative. I disagree. The problem in part is because there is a crisis of confidence within the banking system. I think that if the banking system saw mortgages current and credit card debt being paid back in a timely manner that that would give those institutions more confidence in our domestic economy as well. Those dollars that are used by consumers to pay down debt, do not necessarily leave the domestic economy. Those dollars create demand deposits at commercial banks which permit and encourage banks to lend money.

The problem that has been with us for some time is the fact that each year, for now a generation or more, larger and larger amounts of our money leaves our domestic economy and goes to pay for commodities and goods made overseas.

Think of the domestic economy as a basketball and the air that gives the ball its bounce as the money. But, if the ball is leaking air, the bounce changes and eventually there is not enough air in the ball for it too bounce. The government can put more money into the domestic economy and the bounce will come back, but if the leak is not corrected the bounce will eventually go flat. Money spent for oil imports and all the products that are imported from China and the rest of Asia, is money leaving our domestic economy.

The best stimulative bang for the buck for the Federal Government is investing in infrastructure and creating a demand for goods and services made in the USA. Hardwood floors that are made in Massachusetts by American workers is the kind of work that is stimulative for our domestic economy. Oil and products imported from abroad has less stimulative benefit because the money leaves the system.

This is why the economists that understand the importance of the movement of capital and its travels through our economy are all in agreement that the stimulus package needs greater attention and proportion to rebuilding our infrastructure.

Over the years America has become a nation that imports everything it wants. Fruit from South America in the winter, to clothes, cars and electronics from the Far East, to $700 billion dollars in oil from around the world and the Middle East. There is a price to be paid for not having a balance in our trade with the rest of the world. Stimulating our economy is just a piece of the problem, where that capital eventually ends up is also important to the long term welfare of our economy.

Stay tuned.

What Can I Say

Economics is a science and politics is an art, and when you put the two together you wind up with a politico-economic interpretation of history.

The Republican Party, the same political party that held the White House the last eight years and control of Congress up until 2006, now that they are out of the White House and no longer have control of the Congress, now suddenly have the economic solutions to all of our economic problems. This is possible, but not likely.

The banter about pork in the Stimulus Bill is just so much nonsense. It is because of policies going back a generation or more, that the money spent by Americans, leaves the country all too soon and does not continue to circulate within our domestic economy. The $700 billion dollars that we send overseas each year to pay for our oil is a nice chunk of change, that, if kept within the United States, would continue to circulate in our domestic economy, and be a source of capital for savings, investment, jobs and further consumption. Unfortunately, this path is short circuited by the fact that we do not have a comprehensive energy policy and thus, we are exporting our capital in exchange for oil. Where have the Republicans been since 1981?

The Republican Party must come up with something as they are the loyal opposition, but unfortunately, even the brighter conservative economists know that the Stimulus Bill needs to be bigger, more spending not less. To argue that a few million dollars here or there is pork is nuts when we are talking about spending nearly one trillion dollars.

If anything speaks to the sorry state of the Republican Party, that at one time had some very smart people, is the fact that the radio guy, Rich Limbaugh, is now the philosophical head of the Republican Party. If ever there was an argument for the dumbing down of America, recent events make this only too clear. I can not believe that a guy, whose followers call themselves “ditto heads” got into my blog about economics.

I need to take a step back and think for a while about this. In the mean time, the Stimulus Bill will pass. I only hope that the Obama administration will address the issue of the rating agencies in the near term.

Stay tuned.

The Smartest Guys In The Room

On Sundays, besides reading the Sunday New York Times, I watch a couple of the news programs. I started watching MEET THE PRESS when I was a young boy with my father. Back in the 1950’s, the program had a moderator and a panel of newspaper reporters and they would ask the guest questions. That must have been more difficult for the politicians and other guests as the panel had time to listen to the answers and ask tough follow up questions. Today the format is more of a one on one, and even a not so smart politician can get through the interview.

Talking about not so smart politicians being interviewed, John Boehner (R) Ohio, 8th District, was on MEET THE PRESS Sunday. Congressman Boehner I do not think has a Ph.D. in economics like former Senator Phil Gramm, which I think is a good thing because Senator Gramm, John McCain’s economic advisor during the presidential campaign, said that the recession was a mental recession, just in our heads, and that Americans were being a bunch of wieners.

Congressman Boehner lead off with the words, “I don’t think it will work”, when referring to the Obama administration’s stimulus plan. He does not think America can borrow and spend our way back to prosperity. For the last 8 years a Republican President, George W. Bush, and a Republican Congress has created a trillion dollar deficit and now they are the smartest guys in the room. Give me a break.

Now I would like to relate a story I read several years ago in The Wall Street Journal. The Wall Street Journal is, in my opinion, a damn good newspaper. While I did not agree with their editorials, the articles that appeared on the front page were well researched and very informative. One that I remember well was about a company in Massachusetts that wanted to sell a particular metal to the Defense Department. The Defense Department had plenty of that metal in stock, and did not want to be forced to buy more. But, the Congressman from their district got the Defense Department to buy the metal from the company anyway. Which brings me to the point, One man’s pork is another man’s what? Congressman Boehner thinks there is too much pork in the stimulus package that the Obama administration has put together. Whenever the spending is not for something related to defense, it is pork to the Republicans. Waste more money on metals that even the Generals in the Department of Defense do not need or want, but do not spend money on education, health care or infrastructure. Personally, I do not think that the Republicans in Congress, like John Boehner, are the smartest guys in the room. If they were, we would not be in the situation we are in today. Yes, I lay this recession and the financial meltdown directly at their feet. It is time for the men with the pretty faces to step back and let the guys with some brains take over.

I would think that the Republicans in Congress would be smart enough to get behind this president and his administration and work their butts off to help bring this country out of a recession that is, in my opinion, largely attributable to the incompetence of the Bush administration. That is, unless you believe that the Bush administration was successful in almost destroying the middle class and that was their objective. Take your pick, either they knew what they were doing and they achieved their desired results, or, the Bush administration was a bunch of incompetent hacks. Either way, the country is in the most serious place it has been economically since The Great Depression.

Stay tuned.

Washington: We See The Problem

After reading my Sunday New York Times, it appears that the new administration is moving in the right direction. The headline on the front page reads “Obama Plans Fast Action To Tighten Financial Rules” “New Scrutiny for Hedge Funds, Derivatives Market and Credit Rating Agencies.”

It does not appear that this administration is ready to scrap the credit rating companies and take the responsibility and put it with the Federal Reserve Bank or the Securities & Exchange Commission. In the real world this kind of drastic action will only be taken if all else fails, I guess. This is what the Times had to say,

“Some of these actions will require legislation, while others should be achievable through regulations adopted by several federal agencies.
Officials said they want rules to eliminate conflicts of interest at credit rating agencies that gave top investment grades to the exotic and ultimately shaky financial instruments that have been a source of market turmoil. The core problem, they said, is that the agencies are paid by companies to help them structure financial instruments, which the agencies then grade. Until we deal with the compensation model, we're not going to deal with the conflict of interest, and people are not going to have confidence that the ratings are worth relying on, worth the paper they’re printed on,”(said) Mary L. Shapiro, who testified earlier this month before being confirmed by the Senate to head the Securities & Exchange Commission.”

It does not take an Einstein to know that if the credit rating agencies are being paid by the investment bankers, who underwrite the structured financial instruments, that unless the underwriters get the AAA rating they are looking for, that they will then “shop” for another credit rating agency that will give them the AAA rating. Because these companies, the credit rating agencies, are corporations that are publicly traded with quarterly earnings reports, and CEOs, whose salary and bonus are usually tied to the growth in earnings of their corporation, the greed factor is alive, well and at work. Figuring out how to remove this major conflict of interest that the rating agencies have with their clients, the investment banks on "Wall Street", is at the heart of the matter. Without this conflict of interest worked out of the equation, it will be business as usual. Greed trumps all cards.

The article goes on to say,

“They are considering proposals to have the S.E.C. become more involved in supervising the underwriting standards of securities that are backed by mortgages.”

That sounds good, but they do not say how they are going to eliminate the conflict of interest. I happen to know a person that owns a company that writes mathematical models for structured finance. I also know that the credit rating agencies declined their offer to help them with their task of rating mortgaged-backed bonds. Had the credit rating agencies used the models offered to them, they would not have been able to give many of these mortgaged-backed bonds their AAA rating.

The real story is that the credit rating agencies really did not want to know that they should not be passing out their AAA rating like candy to children on Halloween.

Unless the conflict of interest problem is resolved, and it will take some tough and comprehensive regulations and oversight to do that, the problem of confidence in structured financial instruments will remain. The way out of the recession has many avenues, but the credit rating agencies solution is, in my opinion, directly tied to the speed of the economic recovery.

Stay tuned.

Saturday Is For Art

Today I am posting three paintings that are not finished, but I thought they were far enough along that they would nevertheless be interesting to look at. The first painting is a redo of a quite similar painting that I did in 1991 in oil and enamel paint and measured 36"x48". This painting is 16"x24" and is painted in acrylic. Over the years several people have given me favorable comments about the original painting. I thought it might be interesting to see if I could reproduce the original and perhaps create and little more depth in the painting by using color and perspective. The second painting was inspired by a recent VANITY FAIR cover. Then I saw the ESQUIRE cover with President Obama and decided to do that cover as well. Back in the early 1990's, I created six postage stamps on paper in oil. These two stamps are on MDO plywood and measure 24"x16" and are painted in acrylic. The VANITY FAIR postage stamp is 42 cents. Can you guess the postage number for the President Obama stamp? Right! 44 Cents. I thought they would make a nice pair of "stamps". Political art for me is a way to express my interest in what's happening in our country.

Trying To Hang On

A lot has happened this past week, and I think it is going to take me a while to let it all sink in. While the politicians in Washington debate, many throughout the country try to hang on. We have been told that the economy may get worse before it gets better. The Federal Government can take steps to slow, stop and turn around the economic spiral downward. It need not be done because of a war like it was done at the time of World War II. There is much work that needs to be done right here within the United States. The banking system and the capital markets need to be addressed. The flow of money, the creation of credit, the securitization of debt and the distribution of honest investment products are all necessary components of our economy in the 21st century. Without all of these components working properly, the growth, the expansion and the revitalization of our domestic economy is not possible. The field needs to be leveled, the white lines drawn and the rules of the game need to be enforced. People will come and play, but only when they perceive that the game is on the up and up. Trust and confidence must be restored so the game can go on. I just hope that there are enough people in Washington that care that there are people throughout the country trying to hang on.

Stay tuned.