Tuesday, September 30, 2008

The Day After the Failed Bailout Vote

Is this current finance and banking panic associated with the fear of reliving the Great Depression? The government desired bailout has morphed into populism at its finest (or worse).

Core to this is that the government will buy the assets in question cheap and sell them at a profit. If these assets are worth something, why aren't non-government entities -- private parties -- buying them? Perhaps this is buy and hold for a number of years and sell when the housing market rebounds? Who's going to manage these properties; handle the upkeep; evict the squatters for the years required for the market to rebound? Some new government agency?

Why is there no talk of letting troubled financial institutions declare bankruptcy? Is that wrong? Is it just too painful? Financially, that's the right answer.
Bankruptcy does not mean the company disappears; it is just owned by someone new (as has occurred with several airlines). Bankruptcy punishes those who took excessive risks while preserving those aspects of a businesses that remain profitable
Let's also get rid of failed entities and policies that caused this problem: Fannie Mae, Freddie Mac, and Community Reinvestment Act. Treat the causes not the symptoms.

A few interesting quotes the day after the failed bailout vote...

"Centralization of credit in the hands of the State, by means of a national bank with state capital and an exclusive monopoly." - Communist Manifesto, Karl Marx, plank #5.
We call it the Federal Reserve which is a credit/debt system nationally organized by the Federal Reserve act of 1913. All local banks are members of the Fed system, and are regulated by the Federal Deposit Insurance Corporation (FDIC). This private bank has an exclusive monopoly in money creation which in reality has ended the need for revenue from taxes. So why do they tax? To FOOL US into thinking we need them.
"When the government fails to pass a socialism bill and the market goes south, let it go south. I don't want to pass a socialism bill just to protect the stock market. This raw deal would make things worse." - Rush Limbaugh

"The fact that government bears such a huge responsibility for the current mess means any response should eliminate the conditions that created this situation in the first place, not attempt to fix bad government with more government. The obvious alternative to a bailout is letting troubled financial institutions declare bankruptcy. Bankruptcy means that shareholders typically get wiped out and the creditors own the company." - Jeffrey A. Miron, Harvard University

Capitalism works. If some financial institutions cannot make productive loans, others can. A disaster for one is an opportunity for another.

The so-called "credit freeze" is nothing more than the bad debt holders waiting for the bailout. Bankers would rather get 50 cents on the dollar for their under performing assets from the government bailout than the 20 cents they'd get in the true market.

Why do we think the $700b is all they need? Why not twice that? The government understates everything.

Why do we think the final legislation (that will probably get passed) will not include earmarks for pet projects and programs -- directly from those structuring the bill and indirectly from the lobbyist horde? Government always does the wrong thing.

Monday, September 29, 2008

Socialism Posponed by 23 Votes

Thanks goodness the Bush/Paulson/Reid/Pelosi $700B bailout failed. It defiles all logic why someone would favor rewarding poor business decisions. The only logic can be is that those in power are trying to protect their personal wealth. They could care less about the average American, despite their rhetoric. They also could care less about their future of their country.

Why is it the taxpayers' responsibility to help those bankers, lenders and left wing politicians that felt it was in their best interest to lend money to those unwilling to make reasonable home-purchase down payments and who would be unable to pay their mortgages if the economy turned negative?

It is not the responsibility of my wife and I. We pay our debts. We only assume debts that are reasonable. To us, at this stage in life, we have no debt. We'll never go in debt for anything ever again. We'd rather do without.

Today's vote on the Emergency Economic Stabilization Act of 2008 shows how poor of a leader Speaker Pelosi is. She is blaming the Republicans for the defeat. She insults every American by her rhetoric. Count the vote.

Democrats voted 140 to 95 in favor of the legislation, while just 65 Republicans backed the bill and 133 opposed it. 95 of those in her party voted against it. She was unable to convince 23 of them to vote for it. She's a disgrace as a party leader. She should resign (she'll never do that) or the leaders should get a new leader (they will if they lose the presidency in November).

The Act give TOO much power to the Treasury. It give the Secretary of Treasury the ability to decide which mortgages and assets that are clogging the balance sheets of which financial institutions. Oversight is poor. Taxpayer dividends are non-existent. It is a "give us your money, we know what's best, trust us" socialist monetary policy.

I could care less if Bush is "very disappointed." I do not buy into the sky is falling mindset. What if we do nothing? What if we left these businesses that make terrible financial decisions fail? What if we experience a period of high unemployment? What if credit is hard to get?

Capitalism rewards the most competitive; punishes those that cannot preform. Capitalism, if allowed to work, gets rid of the chaff. It is painful; tough love is always hard.

Sure the market fell a record 777 points (nearly 7%). It'll probably fall again tomorrow. It seems to me that if left alone, it will fall to an acceptable level, the poorly managed firms will fail, but over time, in months, not years, we will get back onto the road of prosperity. funny how the stock market works: for every share sold, someone buys. Before too long, it will become a buyer's market.

My biggest fear is that the same people who have placed us in this situation are the one's thinking they can get us out. I don't think so.

With the government taking ownership of much of the nation's mortgage paper (Fannie & Freddie -- who the liberals said would never fail and were well managed not too long ago), a huge, global insurance company (AIG), an investment bank (Bear Stears), propping up their remaining Wall Street wonder boys (Goldmans Sachs & Morgan Stanley), pumping billions more into the banking system, we have become a few huge steps closer to full-scale socialism. Next we need to take over a car company or two, perhaps an energy company and why not use a trillion or so in building a renewal energy conglomerate?

I thank those 228 elected officials (including my Rep, Jim Matheson) that had the cajones to vote against the Bush/Paulson/Reid/Pelosi request to stomp on the Constitution and steal from the American taxpayer.

I say let it ride! Government intervention be damned! And I really don't care what the rest of the world thinks.

Thursday, September 25, 2008

Wall Street Bailout Must Not Happen

I am sick of hearing the "suits" spouting off their "end of the world" and "worst ever" right before they restate their demand for $700 billion.

How will Treasury buy these assets? Will they use an open auction - allowing private people to bid on these bank securities? Why does all $700B need to be allocated at once?

We know the holders of these sub-prime mortgages and bonds cannot sell them. They had to mark these down to market level. Accounting rules freeze them in the marketplace.

What if they changed the "mark to market accounting" rule for the sub-primes only and not force them to mark them down to market value. Instead, just let them hold on to them for some predetermined period of time to free up the market. This may solve half the problem; certainly at a much lower cost.

Paulson and Bernanke are looking out for themselves and all of their Wall Street buddies. Bush is clueless. They want the taxpayers to lend the money -- no collateral of course. They will get these assets at pennies on the dollar. Over time, they will sell them, obviously at a rate higher than they bought them. There will be a profit. But will that money go back to the taxpayer? Absolutely not.

Regardless of whose in power, that profit money will go to their favorite government programs. Perhaps to establish socialized medicine; perhaps to make solvent social security; perhaps to fund carbon trading.

I care less about golden parachutes -- don't like it but that the least of our problems.

We already are on the hook for Freedie and Fannie. What was allowed to go on there was just criminal. The politicians seem reluctant to back away from assuming it is our Constitutional right to own a home; with nothing down; if you can't pay, the government will help you out -- rather those that are meeting their debt obligations and who made prudent financial decisions will help you out.

The consumers who made these leveraged purchases knowing they could not pay but felt is was a good deal at the time, because real estate only increases in value, right? These are often the same people who used their homes as a virtual ATM machine -- refinance after refinance -- for "life's necessities."

S&P, Moody's and Fitch all got it wrong on the assigned risks associated with debt securities. This forced the banks to recognize the losses associated with these assets, in many cases erroneously.

Ironically, the most regulated banks made the worst mortgage investments. You think maybe because of the failed "everyone must own a home" policy? The 1977 Community Reinvestment Act was another failed liberal government program.

The Bear Stearns bail out -- to the tune of $29B guarantee -- sent the wrong signal to the other investment banks. Bear still has some extremely valuable assets. Although Lehman was the unlucky one, they will live to fight another day if Paulson has anything to say about it. The $85B loan to AIG weakens the Federal Reserve's position significantly; though it does make us the proud owner of an insurance company.

Goldman Sachs and Morgan Stanley chose to swallow the banking poison instead of having it legislated upon them or being forced to merge like Merrill Lynch did with BOA. As banks -- they can now accept consumer deposits. Their risks will be lower along with their profits and personnel payouts, but they will survive.

The very people who created the mess are the ones asking to be bailed out and who are structuring the bailout. That's one reason they should not be allowed to prosper and steal money from the American people.

I am not panicking; though I know many have. I will stay firm. I wish I were in a position to buy. I am in this for the long term. If I don't make up my losses in 5-10 years, then so be it.

PS - in all of this mess, I have not heard one politician talk about reducing spending. Spending and debt is the main problem here. This bailout is more debt with no intention or ability to ever pay it off. The dollar may take a long time to recover.

Saturday, September 20, 2008

Deseret Peak

Deseret peak is a 11,031 foot peak in the Stansbury Mountains, in western Utah, near Grantsville. I hiked the 8.5 mile loop this morning starting out at 7418 feet and climbing the 3600 vertical feet.

This mountain range and its tallest peak are little known and little explored. (See SummitPost for details on this hike.) I did run into some Boy Scouts who seem to like to camp along the road leading to the trail head. Only a few made it to the top -- maybe a bit tough for 12-13 year olds.

The weather was cool, but not too cool. I went up the South Willow Creek trail -- a real good trail all the way to the top. I hiked in t-shirt and shorts until I arrived at the saddle. The wind was intense and cooler. I moved behind some tree clumps and put on some wind gear -- a necessity in the mountains regardless of the weather forecast.

I am not a real fast hiker but I made it to the summit in a little over 3 hours. Instead of returning the way I came up, I opted for the Pockets Fork - Dry Lake Fork trail. It also is a clear trail but it has some real steep areas. In some spots, the trails is very rough. I got rained on once.

Hiking is great exercise and a great way to escape the man-made world and to experience God's creations. Hiking and climbing a summit, even though it is just an 11,000 foot peak, is both challenging and rewarding.

Friday, September 19, 2008

Nationalization

To many, government is the answer to all of our woes. They must be excited about the fact that we taxpayers are now proud owners of an insurance company (80% equity at around $85B in AIG). The day before, the fed let Lehman Brothers move into bankruptcy and saw Merrill Lynch sell itself to the Bank of America.

We also own over half of the mortgages in America with our possession of Fannie Mae and Freddie Mac. We have a significant stake in investment bank Bear Stearns through its funding arrangement with JPMorgan Chase.

Today, the federal government, mainly under the direction of non-elected financiers (Paulsen and Bernanke), have requested that bad mortgages get removed from the books of the nation's financial institutions, to the tune of around $1T.

Non-elected officials are at the center of it because the bulk of Congress has left Washington, preferring to ignore the problem during the election run-up. At least Bush stayed and tried, I'll give him that.

It is not unreasonable that we taxpayers may become proud owners of one or more auto companies, namely GM and/or Ford, in the upcoming weeks.

The markets responded favorable all over the world in response to the U.S. government's plan to rescue banks from billions of dollars in bad debt.

This exuberant behavior is good but is probably short-term. There's an obvious problem with a bail-out of this size: the strength of the entity doing the bail out.

The WSJ calculated that the Fed has committed some $380 billion of its $888 billion in assets to the mortgage rescue operations. So a commitment of nearly $1T more clearly exceeds its ability to fulfill these obligations.

The financial risk of the U.S. government has increased. Tax revenues will certainly decline. T-bills are paying out nearly zero interest. It is only a matter of time before we see the U.S. government's financial risk increased. This will result in higher interest rates on the debt and an immediate increase in the federal debt.

Everything this administration and congress have done this year has been to take the country into deeper and deeper debt, from the stimulus package to the recent mortgage bailouts.

The "market" fundamentals are not sound. The bills will become due. There will be limited ability to pay and honor the commitments.

This nationalization strategy is flawed. This Marxist strategy may "work" in China, but it will not in America. Even if the underwhelming token candidate Obama wins in November and attempts his tax and spend policies (trumping Bush's version), it will take us deeper and deeper into the depths of no return.

Tuesday, September 16, 2008

Global Bear

With the colossal failure of the banking system and mortgage brokers couple with massive equity sell-offs, losses continue to mount. The blame game is on.

There are not enough fingers to point, be they aimed at greedy wall street firm and questionable government control programs including those that promise, if not guarantee everyone's "right" to own their own home.

IMO, I believe the core issue is debt. The debt games starts with the individual who lives beyond his/her means -- materialism gone amok as if it is their God-given right to own a large home, a second home or time share, drive multiple new cars, one various recreational machines, have the best in home furnishings and the latest electronics, vacations whenever to wherever.

It continues with the lenders who fail to recognize and manage financial risks, willing to lend money to whomever, whenever. The individual power brokers in the financing and banking sectors are caught up in enriching themselves and ensuring golden parachutes if things go south.

The worst thing the government can do at this point is to bail out any of these dying companies, as painful as it is for the individuals impacted. The Fed and the federal government was right in not saving Lehman Brothers. Merrill Lynch would have died also if Bank of America did not bail them out (I question BOA's rationale -- they might not be out of the woods themselves after this move). They were wrong in bailing out Bear Sterns.

There will be more, almost assuredly, starting with AIG and may include the big guys like Morgan Stanley and Goldman Sachs. This is a long way from being over.

What I hope to see happen after this calms down is those individuals that operated some of these high-finance companies, especially the heads of Fanny Mae and Freddie Mac, be held personally responsible for their roles in the debacle. If the government can take the leaders of Enron, Worldcom, Tyco, Adelphia, etc. down in the accounting scandals of 2002, there is no reason they should not do the same for the mortgage and financial brokers of 2008.

Capitalism is getitng the blame in the MSM. Whereas I am not one for 100% laissez faire government, there are way too many governmental mandated controls and programs in place to allow the markets to operate freely.

The worst thing we need is to have a new president that will implement new taxes and a legislature that will gladly oblige.

We need true leadership in both Congress and the White House. Unfortunately, we do not have this now and will certainly not being getting it in November.

Wednesday, September 10, 2008

Lipstick On Pig

The Obama campaign is reeling. Any other time -- two weeks ago, two months or two years ago -- his "Lipstick On Pig" quote would have been just fine. But after Palin's Convention joke: "What's the difference between a hockey mom and a pit bull? Lipstick," the comment was clearly a jab at his competitor's VP selection.

Obama's statement: "You can put lipstick on a pig, it's still a pig. You can wrap an old fish in a piece of paper called change. It's still going to stink after eight years," was jab at both Palin and McCain. Palin the pig and McCain the smelly fish.

Obama goofed. When he gets of the teleprompter, what comes out of his month is anyone's guess. Same thing with Biden -- man he says some stupid things. (Today he said Hillary would have been a better VP than himself. Might be true but the candidate should not say it.)

Public relations has taught us how to handle these situations and the Obama camp is not handling it properly. He can blame is worshiping media for pounding the story, but the problem continues because he won't let it die and will not properly address it. He said something stupid, should apologize and try to move on.

The "spin-miesters" don't always work the way you hope they do. Sometime you just need to face-up, address it with total honesty, and hope it dies in a few days.

One of the problem with the Obama/Biden camp is they do no know how to deal with Palin. They keep saying she lacks the experience, that is an unknown, and a whole suite of erroneous actions, statements and gaffs they attribute to her. They are trying -- boy are they trying -- to dig up every piece of dirt on her they possibly can. they are making up lots of it.

A conservative woman -- the worst possible threat to Obama. It is and has never been about equal rights -- women's rights -- rather 100% about ideology, liberal ideology.

Palin was a good pick from a political perspective because of the uproar it has created.

It is not difficult to take the stance that none of the four Pres/VP candidates are qualified. None would be able to run a major corporation. Only puppets and self-aggrandizing people go into politics in the first place.

The presidential vote should be weighted on the presidential candidate -- his/her ideology, voting record and political leadership skills. I have no plans to vote for either the Democratic (will never vote for Democrat) or Republican candidates. I am a Constitutional Party (Chuck Baldwin) fan. He's not going to win but I have a 100 percent repulsion to Obama's politics and a 50 percent disagreement with McCain.

(The only reason I would even consider voting for McCain is because there is a greater chance of him appointing a traditional Supreme Court Justice and not a revisionist who would legislate from the bench.)

Wednesday, September 03, 2008

Transnistria (Moldova) -- Russia's Next "Rescue"

Transnistria, also known as Pridnestrovian Moldavian Republic, is a breakaway republic within the ex-Soviet state of Moldova. It is an autonomous territory, with its own government, parliament, military, police, postal system and its own currency, constitution, flag, a national anthem, etc.

Landlocked and very small Transnistria is located between the Dniester River in Moldova and Ukraine. The region had been part of the Russian Empire since 1792. The War of Transnistria triggered the PMR's declaration of independence in 1990. Russian troops have remained in the region as a peacekeeping force since 1992, "protecting" the 300,000 and 400,000 Transnistrians (which are nothing more than ethnic Moldovans, ethnic Russians and Ukrainians.)

Russia has no problem supporting geographical regions outside of Russia that declare their independence, especially if those autonomous regions are within ex-Soviet states.

Transnistria will be one of the next regions rescued by the gallant Russians. South Ossetia and Abkhazia were just the first in a series.

Tuesday, September 02, 2008

Unplanned Pregnancy ... the Missing Discussion

A major topic of discussion during this week's Republican National Convention, after Hurricane Gustav mellows, is the announcement on Monday by Alaska Gov. and McCain VP running mate Sarah Palin announcing the pregnancy and engagement of her 17-year-old daughter Bristol (to an 18 year old high school senior).

Certainly there is not a parent that does not have empathy for Mr. and Mrs. Palin and their daughter. And it certainly is a family matter.

It has been interesting to listen to the pundants: "a parent that cannot control her own child certainly cannot run a nation;" or "why doesn't she have an abortion?" There are many options to consider.

Apparently the young girl is opting to marry the father and raise the child. The LDS Church's stance on this is as follows:
When a child is conceived out of wedlock, the best option is for the mother and father of the child to marry and work toward establishing a family relationship. If a successful marriage is unlikely, they should place the child for adoption. Placing the infant for adoption helps unwed parents do what is best for the child. Adoption is an unselfish, loving decision that blesses the birth parents, the child, and the adoptive family.
The missing question that should be asked: is raising the child with a teen husband the best option for the child; for the couple?

The burden is heavy upon the young man to obtain his education and to find gainful employment, all while providing for his wife and new child. Without help from the couple's parents, the adoption option looks strong.

But like most people, they feel they can do it better and feel obligated to raise the child themselves. In this case, it may work out. But I'd at least like to see the MSM mention the possibility and to ask candidate Palin the question: why not adoption?