Get To The Point

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

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

Stay tuned.

The First 100 Days

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

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

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

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

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

Stay tuned.

Mister, Can You Spare A Dime?

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

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

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

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

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

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

Stay tuned.

Money Talks And Bull Shit Walks

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

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

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

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

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

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

Stay tuned.

Saturday Is For Art

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

Where Would We Be Without Credit Cards?

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

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

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

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

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

Stay tuned.

Perhaps Not Every Morning

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

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

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

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

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

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

Stay tuned.