Wednesday, March 25, 2009
Tuesday, March 24, 2009
Geithner's Choice (and Why It Makes Sense)
There seems to be a lot of confusion out there about what the Geithner plan is, and what choices the administration had.
So in the spirit of economics for the rest of us, here is my humble attempt to break down Geithner's choices into easy-to-digest chunks.
Feel free to add corrections, comments.
1. Let the banks fail. But this has international implications. If we let Citibank fail, it drags down Asia, European markets with them. We really would not be popular internationally if we allowed it. Who knows what the global economic impact would be. Too risky.
2. Let the toxic assets stay where they are and fester. This is what Japan did. This is why their banks took so long to come out of the zombie state.
3. Put banks into some sort of temporary/permanent receivership. (Similar to Swedish model). Once again, the US GDP is the largest in the world, and it is not accurate to compare the two countries. But even if we did put them into receivership, we have to deal with the toxic assets. Then we have to decide how much they are worth.
Here's where many have philosophical differences.
Some trust the government to be able to evaluate these assets accurately (and remember, there are so many of these assets, trillions of dollars of assets to evaluate... this could take YEARS(!?)
I, personally, don't trust that the government will be able to evaluate them. (Not when they spend $10K on a toilet seat.) I think politics, not the market will come into play and screw everything up. I also think the government would cave to bank lobbyist pressure and the taxpayers would end up paying MORE than the assets are worth.
Also, you can't evaluate these assets objectively. Cost is objective, value is always subjective, you need a market. E.g. you know what your house is now, but how much you will get when you sell it tomorrow or a year from now is a guess. All the government can do is hold the assets until they think they're worth something. (I also question that we have the resources to take over all those banks, heck, we haven't even staffed treasury fully and completely.)
4. Sell toxic assets at auction on the market.
A) with a lot of subsidy; B) with less subsidy; C) with no subsidy
A) is the most realistic because these are high risk products that need a strong incentive for investors to purchase.
After auction put bank regulations back in place that used to prevent this sort of "too big to fail" scenario. Learn lesson.
(Government also makes money on the back end with higher taxes on wealthy. Anyone who makes a killing at the Toxic Asset Yard Sale/Auction will have to pay their fair share of taxes.)
The Toxic Asset auction is different from the SubPrime market because the investor walks in knowing exactly what s/he is getting: a mixture of junk, with some potential gems thrown in. These investments won't be given "AAA" risk ratings, as the credit default swaps were.
You invest, you take your chances. The possibility exists that you will lose your money, but you take that risk.
Because despite all the populist rage, the fact of the matter is whatever shenanigans that Wall Street engaged in, they were legal. I don't place the blame for our current predicament on Wall Street. Wall Street did what Wall Street is there to do, make money.
I place the lion's share of the blame on the politicians who dismantled the regulation that used to be in place to prevent this sort of catastrophe.
After toxic assets are cleared off the banking books, the small investor will be able to purchase homes more easily with a freeing up of credit and more inventory on the market.
Right now the banks are holding onto these bad mortgages because they are waiting for a better market. But when the auctions start, it puts pressure on the banks to sell. If I'm BofA and I see that Citibank is starting to unload, I have to decide do I hang onto these risky assets, or do I get rid of them while I can and minimize my financial damage.
But what I want to know how the small investor get some of this Toxic Asset action? Or will the big guys cherry pick all the good stuff and leave the rest of us with the dregs? Yard sale, indeed.
So in the spirit of economics for the rest of us, here is my humble attempt to break down Geithner's choices into easy-to-digest chunks.
Feel free to add corrections, comments.
1. Let the banks fail. But this has international implications. If we let Citibank fail, it drags down Asia, European markets with them. We really would not be popular internationally if we allowed it. Who knows what the global economic impact would be. Too risky.
2. Let the toxic assets stay where they are and fester. This is what Japan did. This is why their banks took so long to come out of the zombie state.
3. Put banks into some sort of temporary/permanent receivership. (Similar to Swedish model). Once again, the US GDP is the largest in the world, and it is not accurate to compare the two countries. But even if we did put them into receivership, we have to deal with the toxic assets. Then we have to decide how much they are worth.
Here's where many have philosophical differences.
Some trust the government to be able to evaluate these assets accurately (and remember, there are so many of these assets, trillions of dollars of assets to evaluate... this could take YEARS(!?)
I, personally, don't trust that the government will be able to evaluate them. (Not when they spend $10K on a toilet seat.) I think politics, not the market will come into play and screw everything up. I also think the government would cave to bank lobbyist pressure and the taxpayers would end up paying MORE than the assets are worth.
Also, you can't evaluate these assets objectively. Cost is objective, value is always subjective, you need a market. E.g. you know what your house is now, but how much you will get when you sell it tomorrow or a year from now is a guess. All the government can do is hold the assets until they think they're worth something. (I also question that we have the resources to take over all those banks, heck, we haven't even staffed treasury fully and completely.)
4. Sell toxic assets at auction on the market.
A) with a lot of subsidy; B) with less subsidy; C) with no subsidy
A) is the most realistic because these are high risk products that need a strong incentive for investors to purchase.
After auction put bank regulations back in place that used to prevent this sort of "too big to fail" scenario. Learn lesson.
(Government also makes money on the back end with higher taxes on wealthy. Anyone who makes a killing at the Toxic Asset Yard Sale/Auction will have to pay their fair share of taxes.)
The Toxic Asset auction is different from the SubPrime market because the investor walks in knowing exactly what s/he is getting: a mixture of junk, with some potential gems thrown in. These investments won't be given "AAA" risk ratings, as the credit default swaps were.
You invest, you take your chances. The possibility exists that you will lose your money, but you take that risk.
Because despite all the populist rage, the fact of the matter is whatever shenanigans that Wall Street engaged in, they were legal. I don't place the blame for our current predicament on Wall Street. Wall Street did what Wall Street is there to do, make money.
I place the lion's share of the blame on the politicians who dismantled the regulation that used to be in place to prevent this sort of catastrophe.
After toxic assets are cleared off the banking books, the small investor will be able to purchase homes more easily with a freeing up of credit and more inventory on the market.
Right now the banks are holding onto these bad mortgages because they are waiting for a better market. But when the auctions start, it puts pressure on the banks to sell. If I'm BofA and I see that Citibank is starting to unload, I have to decide do I hang onto these risky assets, or do I get rid of them while I can and minimize my financial damage.
But what I want to know how the small investor get some of this Toxic Asset action? Or will the big guys cherry pick all the good stuff and leave the rest of us with the dregs? Yard sale, indeed.
George W. Bush Library in Planning Stages
Some partisan humor I received in an email...
The George W Bush Presidential Library is now in the planning stages and accepting donations.
The Library will include:
The Hurricane Katrina Room, which is still under construction.
The Alberto Gonzales Room, where you won't be able to remember anything
The Texas Air National Guard Room, where you don't even have to show up
The Walter Reed Hospital Room, where they don't let you in
The Guantanamo Bay Room, where they don't let you out
The Weapons of Mass Destruction Room, which no one has been able to find
The National Debt Room, which is huge and has no ceiling
The Tax Cut Room, with entry only to the wealthy
The Economy Room, which is in the toilet.
The Iraq War Room (After you complete your first visit, they make you to go back for a second, third, fourth, and sometimes fifth visit.)
The Dick Cheney Room, in the famous undisclosed location, complete with shotgun gallery.
The Environmental Conservation Room, still empty
The Supreme Court Gift Shop, where you can buy an election.
The Airport Men's Room, where you can meet some of your favorite Republican Senators
The Decider Room, complete with dart board, magic 8-ball, Ouija board, dice, coins, and straws
Note: The library will feature an electron microscope to help you locate and view the President's accomplishments
The library will also include many Famous Quotes by George W. Bush:
* 'The vast majority of our imports come from outside the country.'
* 'If we don't succeed, we run the risk of failure.'
* 'Republicans understand the importance of bondage between a mother and child.'
* 'No senior citizen should ever have to choose between prescription drugs and medicine.'
* 'I believe we are on an irreversible trend toward more freedom and democracy - but that could change.'
* 'One word sums up probably the responsibility of any Governor, and that one word is 'to be prepared'.'
* 'Verbosity leads to unclear, inarticulate things.'
* 'I have made good judgments in the past. I have made good judgments in the future.'
* 'The future will be better tomorrow.'
* 'We're going to have the best educated American people in the world.'
* 'One of the great things about books is sometimes there are some fantastic pictures.' (During an education photo-op)
* 'Illegitimacy is something we should talk about in terms of not having it.'
* 'We are ready for any unforeseen event that may or may not occur.'
* 'It isn't pollution that's harming the environment. It's the impurities in our air and water that are doing it.'
'I stand by all the misstatements that I've made. --George W. Bush to Sam Donaldson
Right-Wing Radio Host Calls Michelle Obama "Trash"
Right-wing radio host Tammy Bruce let her freak flag wave while subbing for regular DJ Laura Ingraham.
Bruce erupted into a bitter jealous racist rage against Michelle Obama, calling her "trash."
Gotta love the GOP. At least they're consistent in their repulsive behavior.
Bruce erupted into a bitter jealous racist rage against Michelle Obama, calling her "trash."
Gotta love the GOP. At least they're consistent in their repulsive behavior.
Monday, March 23, 2009
Treasury to Sell Toxic Assets at Auction
Today the Treasury released its plan to wipe toxic assets off the banks balance sheets and help free up credit.
Today there was an upsurge on stocks. Wall Street likes this plan because the health of the stock market is highly dependent on the health of our banking system.
This video is very helpful at explaining the financial crisis.
The Crisis of Credit Visualized from Jonathan Jarvis on Vimeo.
Right now the banks are holding onto their toxic assets because they don't want to lose money by selling them. (The same way many of us are holding onto stocks right now that are worth less than what we bought them for. If we sell, we lose money... but if we hold, it's a stalemate)
But if there are auctions with investors bidding on those assets, it puts market pressure on the banks to release them. If I'm BofA and I see that Citibank is starting to sell, then I don't want to be left out of the loop and miss possible deals, and I'm going to sell too.
Currently, the banks are holding onto a lot of foreclosed properties because they can't sell them. But once credit starts flowing to homebuyers and property investors, they're going to start releasing those foreclosed properties on the market.
Most small investors probably aren't savvy enough to take advantage of these asset auctions, but we will be able to take advantage of the real estate deals that come up.
The only thing that concerns me is that here in Southern California we have TOO much housing. We have a housing glut.
In my town, there are buildings upon buildings of empty condo developments. How much that will depress the real estate market, I'm not sure.
Today there was an upsurge on stocks. Wall Street likes this plan because the health of the stock market is highly dependent on the health of our banking system.
This video is very helpful at explaining the financial crisis.
The Crisis of Credit Visualized from Jonathan Jarvis on Vimeo.
Right now the banks are holding onto their toxic assets because they don't want to lose money by selling them. (The same way many of us are holding onto stocks right now that are worth less than what we bought them for. If we sell, we lose money... but if we hold, it's a stalemate)
But if there are auctions with investors bidding on those assets, it puts market pressure on the banks to release them. If I'm BofA and I see that Citibank is starting to sell, then I don't want to be left out of the loop and miss possible deals, and I'm going to sell too.
Currently, the banks are holding onto a lot of foreclosed properties because they can't sell them. But once credit starts flowing to homebuyers and property investors, they're going to start releasing those foreclosed properties on the market.
Most small investors probably aren't savvy enough to take advantage of these asset auctions, but we will be able to take advantage of the real estate deals that come up.
The only thing that concerns me is that here in Southern California we have TOO much housing. We have a housing glut.
In my town, there are buildings upon buildings of empty condo developments. How much that will depress the real estate market, I'm not sure.
Sunday, March 22, 2009
Bush Responsible for Mortgage Crisis
Some of the right-wing whackadoodles are trying to pin the blame on our financial mess on President Obama.
Those of us who think rationally know how crazy this is... but for the record, here is a Business Week article dated October 2008 about state whistleblowers who tried to raise the red flag about subprime lending, but were thwarted by the Bush administration.
Those of us who think rationally know how crazy this is... but for the record, here is a Business Week article dated October 2008 about state whistleblowers who tried to raise the red flag about subprime lending, but were thwarted by the Bush administration.
Toxic Asset Plan to Rely on Hefty Gov't Subsidies
The Treasury department will release its bank bailout plan in the coming week.
In a nutshell, it will coax private investors to buy toxic assets (bad mortgages) from banks--in some cases with up to 97% government subsidies. In other words, an investor could buy $100 million's worth of high-risk mortgages for $3 million.
The banks will be happy because they get the equivalent of a reset button with their balance sheets wiped clean. But they would be under far more scrutiny from here on out, with the feds demanding more oversight. No more "too big to fail."
Since taxpayers will be absorbing the majority of the loss, will opportunities be available to the small investor to reap some of the benefits as well?
In a nutshell, it will coax private investors to buy toxic assets (bad mortgages) from banks--in some cases with up to 97% government subsidies. In other words, an investor could buy $100 million's worth of high-risk mortgages for $3 million.
The banks will be happy because they get the equivalent of a reset button with their balance sheets wiped clean. But they would be under far more scrutiny from here on out, with the feds demanding more oversight. No more "too big to fail."
Since taxpayers will be absorbing the majority of the loss, will opportunities be available to the small investor to reap some of the benefits as well?
Bidding Wars Return to CA Real Estate
From Wall Street Jounal: A glimmer of hope in California--home prices have dropped enough so that buyers are competing for the best properties. Existing home sales in January 2009 doubled from January 2008.
This is not to say that we're out of the woods. We still don't know the magnitude of the number of foreclosures that banks have been hanging onto and how this will effect the market.
This is not to say that we're out of the woods. We still don't know the magnitude of the number of foreclosures that banks have been hanging onto and how this will effect the market.
Saturday, March 21, 2009
Friday, March 20, 2009
Alaskan School Officials Protest Palin's Stimulus Refusal
Sarah Palin has rejected $172 million in stimulus funds for the state of Alaska.
$74 million of those funds are for education, aimed at mostly poor and special education students. These are districts with extremely high drop-out rates.
School officials are dismayed, disappointed, and "stunned." Some are lobbying the state legislature to overturn the decision.
In Palin's own school district, 60 out of 1,200 teachers might have to be laid off because of her refusal of stimulus funds.
How very sad that the children of Alaska must suffer so that Palin can score political points.
$74 million of those funds are for education, aimed at mostly poor and special education students. These are districts with extremely high drop-out rates.
School officials are dismayed, disappointed, and "stunned." Some are lobbying the state legislature to overturn the decision.
In Palin's own school district, 60 out of 1,200 teachers might have to be laid off because of her refusal of stimulus funds.
How very sad that the children of Alaska must suffer so that Palin can score political points.
White House to Plant New Garden
The White House will soon break ground on a kitchen garden. A fabulous idea championed by food guru Alice Waters that will encourage Americans to eat more locally grown and organic produce.
Thursday, March 19, 2009
Obama Administration Launches New Site to Help Homeowners
You can use the self-assessment tools to see if you are among the 7 to 9 million homeowners who may be able to get assistance. Go to makinghomeaffordable.gov for more info.
Tuesday, March 17, 2009
Profile of Chris Hughes, Creator of MYBO
Fast Company profiles Chris Hughes, creator of Facebook and MYBO
Monday, March 16, 2009
Hillary Clinton to Travel to Mexico
Our Secretary of State will be in Mexico from March 25-26 to discuss transnational issues, particularly the Merida Initiative, which is aimed at combating drug trafficking from Mexico, Central America, and the Caribbean.
Friday, March 13, 2009
Hillary and Michelle Together
The dynamic duo. Secretary of State (and former First Lady) Hillary Clinton welcomes guest speaker (and current First Lady) Michelle Obama at the International Women of Courage Awards.
Barack Oblogger's Pick - "Obama: All Access" DVD
Obama All Access is a collection of two years' worth of 60 Minutes segments about Barack Obama.
Included is a comprehensive collection of Obama's political speeches, ranging from his 2004 speech at the Democratic National Convention--the beginning of his political trajectory--to his celebratory speech on electon night after becoming the President-elect.
In addition, there is footage of Obama that has never been seen before.
Included is a comprehensive collection of Obama's political speeches, ranging from his 2004 speech at the Democratic National Convention--the beginning of his political trajectory--to his celebratory speech on electon night after becoming the President-elect.
In addition, there is footage of Obama that has never been seen before.
Obama All Access is a complete and personal portrait of Obama's presidential journey.
Thursday, March 12, 2009
Matthews Rips Into Bush Legacy
Things heated up when former Bush press secretary Ari Fleischer appeared on Hardball in an attempt to spin the Bush legacy to the American people.
(What was most shocking was when Fleischer defended the Iraq war by placing it in the context of 9/11 and asking whether we wanted Saddam to "attack again"? Hello? Is he still saying that Saddam was responsible for 9/11?)
Matthews challenged Fleischer on many of his lies (there were too many to count).
What ensued was truly a moment of beauty. Smackdown on the Neocon.
(What was most shocking was when Fleischer defended the Iraq war by placing it in the context of 9/11 and asking whether we wanted Saddam to "attack again"? Hello? Is he still saying that Saddam was responsible for 9/11?)
Matthews challenged Fleischer on many of his lies (there were too many to count).
What ensued was truly a moment of beauty. Smackdown on the Neocon.
Visit msnbc.com for Breaking News, World News, and News about the Economy
Tuesday, March 10, 2009
Huge Rally on Wall Street (It's the Banks, Stupid!)
Stocks surged after Citibank CEO Vikram Pandit reported that the bank has had profitable year thus far.
Our financial woes right now really have nothing to do with the stimulus or pork-barrel spending. It's all about the banks being able to give credit to consumers so that they can BUY MORE STUFF.
Healthy banks = more credit given = more consumers spending. Anything else is just cable news chatter.
Federal Reserve Chair Ben Bernanke stated that the key to our economic recovery is to stabilize the financial system.
Of course the federal government can help staunch the flow by keeping people employed in the construction fields with the "shovel ready" projects supported by the stimulus. But the bulk of jobs are going to be had from businesses that need to hire people because consumers are spending and supporting their products.
Right now, those of us who are employed are having difficulty obtaining credit to do the things that would help stimulate our household economies like refinancing for a better rate or getting a loan to buy a new car.
Free up the credit and the economy will improve.
Our financial woes right now really have nothing to do with the stimulus or pork-barrel spending. It's all about the banks being able to give credit to consumers so that they can BUY MORE STUFF.
Healthy banks = more credit given = more consumers spending. Anything else is just cable news chatter.
Federal Reserve Chair Ben Bernanke stated that the key to our economic recovery is to stabilize the financial system.
Of course the federal government can help staunch the flow by keeping people employed in the construction fields with the "shovel ready" projects supported by the stimulus. But the bulk of jobs are going to be had from businesses that need to hire people because consumers are spending and supporting their products.
Right now, those of us who are employed are having difficulty obtaining credit to do the things that would help stimulate our household economies like refinancing for a better rate or getting a loan to buy a new car.
Free up the credit and the economy will improve.
Monday, March 9, 2009
Hannity Frolics at the Bunny Ranch Brothel
When the stimulus package was first presented, Arizona Republican congressman Trent Franks went on the warpath on Fox News, erroneously claiming that stimulus funds would go to fund a train running from "Disneyland to the Moonlight Bunny Ranch."
Watch the video:
What Franks didn't know is that Sean Hannity, Fox News' top conservative commentator, might be first in line to buy a ticket.
If you click here to the Bunny Ranch's website, Hannity looks like he really REALLY enjoyed his time there cavorting with the resident prostitutes.
Now that's one stimulating stimulus!
Watch the video:
What Franks didn't know is that Sean Hannity, Fox News' top conservative commentator, might be first in line to buy a ticket.
If you click here to the Bunny Ranch's website, Hannity looks like he really REALLY enjoyed his time there cavorting with the resident prostitutes.
Now that's one stimulating stimulus!
Wednesday, March 4, 2009
Stimulus Watch Gives a List of Stimulus Projects by State
Stimulus Watch provides a list of stimulus projects categorized by state. You can then drill down and search by city to see specific projects. Check to see how stimulus funds are being used in your community.
I see in my own city there are such "socialist" projects as streetlights and road repair.
I see in my own city there are such "socialist" projects as streetlights and road repair.
Tuesday, March 3, 2009
Clinton Speaks About Palestinian State
Secretary of State Hillary Clinton addressed the International Conference in Support of the Palestinian Economy for the Reconstruction of Gaza, held in Sharm el-Sheikh, Egypt.
How the Stimulus Will Help Your State
Click here to see CNN's map of how the stimulus funds will help your state.
Monday, March 2, 2009
GOP Chair Steele Apologizes to Rush
GOP chair Michael Steele has fallen into party lockstep and apologized to GOP Grand Poo-Bah, Rush Limbaugh.
How long do you think Steele has before he decides to step down because of "personal obligations"?
Rahm Emanuel played this GOP trainwreck and its motley cast of characters masterfully.
Pass the popcorn folks. It's gonna be fun!
How long do you think Steele has before he decides to step down because of "personal obligations"?
Rahm Emanuel played this GOP trainwreck and its motley cast of characters masterfully.
Pass the popcorn folks. It's gonna be fun!
Sunday, March 1, 2009
Rahm Emanuel: Rush Limbaugh Is the Voice and Intellect of the GOP
Click here to watch Rahm Emanuel's interview on Meet the Press.
Good work Rahm, keep pushing the GOP to the fringe right.
And if there are Republican politicians don't march in lockstep with the Dittohead platform, let them publicly come out and say so.
Rush Limbaugh for President in 2012!!!
Here is a partial transcript:
Click here to watch Rush's speech at conservative convention CPAC.
UPDATE: Evidently "freedom lovin'" Rush doesn't know the difference between the Declaration of Independence and the Constitution.
And GOP chair Michael Steele stressed that he, not Rush, was in charge of the party, and that Rush got "ugly" in his rhetoric.
From CNN:
UPDATE 2: Looks like the GOP allowed independent thought for about 24 hours. GOP Chair Michael Steele has already apologized to Grand Poo-Bah of the Republican Party Rush Limbaugh.
So much for the new and improved hippity-hoppity GOP. It's the Cheetos brigade that runs that party.
Good work Rahm, keep pushing the GOP to the fringe right.
And if there are Republican politicians don't march in lockstep with the Dittohead platform, let them publicly come out and say so.
Rush Limbaugh for President in 2012!!!
Here is a partial transcript:
SCHIEFFER: We talked about Newt Gingrich a lot this morning and now you bring up Rush Limbaugh. Who do you think now speaks for the Republican Party?
EMANUEL: You just named him: it is Rush Limbaugh. He has laid out his vision, in my view. And he said it clearly. I compliment him for that. He's been very up front and I compliment him for that. He's not hiding. He's asked for President Obama and called for President Obama to fail. That's his view. And that's what he has enunciated. And whenever a Republican criticizes him, they have to run back and apologize to him and say they were misunderstood. He is the voice and the intellectual force and energy behind the Republican Party. He has been up front about what he views and hasn't stepped back from that, which is he hopes for failure. He said it and I compliment him for his honesty. But that's their philosophy that is enunciated by Rush Limbaugh and I think that's the wrong philosophy for America...
SCHIEFFER: Do you think that he's that important that other Republicans are paying that much attention to him?
EMANUEL: Well, he was given the keynote basically at the [CPAC conference] to speak. When a Republican did attack him he clearly had a turn-around and comeback and basically said that he apologized and was wrong. I think do think he's an intellectual force, which is why the Republicans pay such attention to him.
Click here to watch Rush's speech at conservative convention CPAC.
UPDATE: Evidently "freedom lovin'" Rush doesn't know the difference between the Declaration of Independence and the Constitution.
And GOP chair Michael Steele stressed that he, not Rush, was in charge of the party, and that Rush got "ugly" in his rhetoric.
From CNN:
Steele, chairman of the Republican National Committee, said in an interview with CNN that he, rather than Limbaugh, is "the de facto leader of the Republican Party."Are the Republicans engaging in a self-destructive game of Rushin Roulette?And Steele described Limbaugh as a performer.
Rush Limbaugh is an entertainer. Rush Limbaugh's whole thing is entertainment," Steele said. "Yes, it is incendiary. Yes, it is ugly.
UPDATE 2: Looks like the GOP allowed independent thought for about 24 hours. GOP Chair Michael Steele has already apologized to Grand Poo-Bah of the Republican Party Rush Limbaugh.
So much for the new and improved hippity-hoppity GOP. It's the Cheetos brigade that runs that party.
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