There is so much stuff to whine about, I just don't know where to start. Needless to say, the whole thing with the Bernie Madoff funds is a real shame no matter how you look at it. I heard a story on the radio this morning about how the banks, which have been the beneficiaries of the bailout, have refused to let newspapers know how they intend to spend the cash. Should they? In our newly socialist society, should they be required to?
Anyhow, I'll think up some interesting stuff to write about ... soon.
Wednesday, December 24, 2008
Sunday, December 7, 2008
The Title of This Blog
When I choose the title for this blog, I was taking a stab at irony. Up until recently, this particular train wreck wasn't getting much attention. Now that it is, there does not seem to be a whole lot of press dealing with the central reason why things were allowed to get so bad. I feel compelled therefore, to offer the following explanation.
If it's okay for the highest elected officials in this country to lie, then why not us?
I am not a fan of the whole conspiracy theory way of looking at things, so I do not want any possible readers to make that connection. But, there are a few questions that need to be answered. For instance, as they say on Law and Order, follow the money. When one follows the money as it relates to the really big lie, WMD and the connection between Iraq and Sept. 11, one quickly realizes the reason why James Baker fought so hard to get W into the White House. Baker was a board member, along with Bush I, in the Carlyle Group. Who's that you say? Probably the company that has profited the most from the wars. Carlyle is a private equity firm in Washington DC founded mostly by Bush I cabinet members. It invested in defense contractors who, up until Sept. 11, really weren't making that much money. I guess they needed a war to get their cash flow running. Anyhow, Carlyle has made a ton during the last seven years. So, it begs the question, just what was the motive behind lying about the threat posed by Iraq? Further, what would have been the situation here at home had the American public been more focused on domestic matters as opposed to foreign? Would this depression have been avoidable?
I wrote the preceding last Sunday morning. What I wanted to do was posit the idea that our leaders set the tone that enabled the greedy mo-fo's in the Street to take us to the cleaners. Unfortunately, in addition to my literary ability, Frank Rich of the NY Times did it for me in his column today. I won't reprint it here, but I think that's it's pretty accurate. I think that the rating agencies and the law firms are staffed by basically honest people. But when the country is managed by people who, so obviously, are not, it becomes less likely that people will actually hold to their moral principals.
Makes sense? I kinda think so. Then there's the cult of personality exerted by wealthy people. I've never really gotten it, that is, why people are so taken by someone with money. As an example, let's suppose that I'm an idiot savant. Let's further suppose that the thing that I'm good at is brain surgery. Let's further suppose that, because I'm so good, I get $100,000 for each operation that I do and that I do two or three each and every week. I'll guarantee you that the first words out of the mouth's of almost every person that sees me get out of my Bentley limo won't be, hey, look at that idiot, but rather, wow, I'll bet that that son of a bitch is really smart. The point is (as I've said below), that when some Wall Street type, who makes $40 million annually walks into your office, most folks tend to think that what they say has some weight. When all of the folks in a particular segment of the market all say the same thing and they all made $40 million last year, the people in the rating agencies, enamored as they are by the power of money, really didn't have a prayer. They believed that the Wall Street types were right because they must be, because they had so much money. You know, I'll bet that the Wall Street types even thought that they were right. But, if they weren't, what the heck, Bush and Cheney lied, why can't we?
If it's okay for the highest elected officials in this country to lie, then why not us?
I am not a fan of the whole conspiracy theory way of looking at things, so I do not want any possible readers to make that connection. But, there are a few questions that need to be answered. For instance, as they say on Law and Order, follow the money. When one follows the money as it relates to the really big lie, WMD and the connection between Iraq and Sept. 11, one quickly realizes the reason why James Baker fought so hard to get W into the White House. Baker was a board member, along with Bush I, in the Carlyle Group. Who's that you say? Probably the company that has profited the most from the wars. Carlyle is a private equity firm in Washington DC founded mostly by Bush I cabinet members. It invested in defense contractors who, up until Sept. 11, really weren't making that much money. I guess they needed a war to get their cash flow running. Anyhow, Carlyle has made a ton during the last seven years. So, it begs the question, just what was the motive behind lying about the threat posed by Iraq? Further, what would have been the situation here at home had the American public been more focused on domestic matters as opposed to foreign? Would this depression have been avoidable?
I wrote the preceding last Sunday morning. What I wanted to do was posit the idea that our leaders set the tone that enabled the greedy mo-fo's in the Street to take us to the cleaners. Unfortunately, in addition to my literary ability, Frank Rich of the NY Times did it for me in his column today. I won't reprint it here, but I think that's it's pretty accurate. I think that the rating agencies and the law firms are staffed by basically honest people. But when the country is managed by people who, so obviously, are not, it becomes less likely that people will actually hold to their moral principals.
Makes sense? I kinda think so. Then there's the cult of personality exerted by wealthy people. I've never really gotten it, that is, why people are so taken by someone with money. As an example, let's suppose that I'm an idiot savant. Let's further suppose that the thing that I'm good at is brain surgery. Let's further suppose that, because I'm so good, I get $100,000 for each operation that I do and that I do two or three each and every week. I'll guarantee you that the first words out of the mouth's of almost every person that sees me get out of my Bentley limo won't be, hey, look at that idiot, but rather, wow, I'll bet that that son of a bitch is really smart. The point is (as I've said below), that when some Wall Street type, who makes $40 million annually walks into your office, most folks tend to think that what they say has some weight. When all of the folks in a particular segment of the market all say the same thing and they all made $40 million last year, the people in the rating agencies, enamored as they are by the power of money, really didn't have a prayer. They believed that the Wall Street types were right because they must be, because they had so much money. You know, I'll bet that the Wall Street types even thought that they were right. But, if they weren't, what the heck, Bush and Cheney lied, why can't we?
Saturday, December 6, 2008
Entrepreneurship 101
Not to beat a dead horse, but, I Googled myself the other day and found a bit that I submitted to some newspaper in June of 2006 wherein I talked about the impending disaster. I mention this because, now that it's here, I have no one to blame but myself for helping to start a new business in this environment.
I tend to look for immediate gratification and in the retail business, you don't always get it ... or anything even close. So, like any good cancerian, I need to blame someone else. I choose, THE MEDIA! Every time that I turn on the radio there is so much doom and gloom being spouted, it's no wonder that nobody is spending any money. So Media, SHUT UP! BE POSITIVE for a change. Talk about what people need to do to get things moving again. Tell them to come to Revolution Cycle and Ski and buy stuff - lots of stuff. Tell them to pay full retail price and not to look for bargains. Tell them NOT to go to the "big box" stores to buy some piece of junk bicycle that will fall apart in an hour or two. Tell them to support local businesses and to avoid the mall - malls are all about corporate greed. YES! the same greed that got us into this mess in the first place.
Finally, a little snow would be nice ... please?
I tend to look for immediate gratification and in the retail business, you don't always get it ... or anything even close. So, like any good cancerian, I need to blame someone else. I choose, THE MEDIA! Every time that I turn on the radio there is so much doom and gloom being spouted, it's no wonder that nobody is spending any money. So Media, SHUT UP! BE POSITIVE for a change. Talk about what people need to do to get things moving again. Tell them to come to Revolution Cycle and Ski and buy stuff - lots of stuff. Tell them to pay full retail price and not to look for bargains. Tell them NOT to go to the "big box" stores to buy some piece of junk bicycle that will fall apart in an hour or two. Tell them to support local businesses and to avoid the mall - malls are all about corporate greed. YES! the same greed that got us into this mess in the first place.
Finally, a little snow would be nice ... please?
Wednesday, November 26, 2008
What The Press Does Best
In keeping with the more serious nature of this blog, I thought that I'd put up some really heavy material. But first, I was reading an article in the Times this morning by Thomas Friedman. It reminded me that none of the talking heads ever offer solutions, only criticism. I suppose, that this is all right, but it has always been a source of frustration to me. I've always taken the position, that one really does not have the ability to criticise unless they actually know more than the person that they are critical of.
Anyhow, that's why I appreciate the following essay by Jack Handey from the November 24 issue of the New Yorker. I hope that it's okay to reprint it here.
THE PLAN
by Jack Handey
NOVEMBER 24, 2008
The plan isn’t foolproof. For it to work, certain things must happen:
—The door to the vault must have accidentally been left open by the cleaning woman.
—The guard must bend over to tie his shoes and somehow he gets all the shoelaces tied together. He can’t get them apart, so he takes out his gun and shoots all his bullets at the knot. But he misses. Then he just lies down on the floor and goes to sleep.
—Most of the customers in the bank must happen to be wearing Nixon masks, so when we come in wearing our Nixon masks it doesn’t alarm anyone.
—There must be an empty parking space right out in front. If it has a meter, there must be time left on it, because our outfits don’t have pockets for change.
—The monkeys must grab the bags of money and not just shriek and go running all over the place, like they did in the practice run.
—The security cameras must be the early, old-timey kind that don’t actually take pictures.
—When the big clock in the lobby strikes two, everyone must stop and stare at it for at least ten minutes.
—The bank alarm must have mistakenly been set to “Quiet.” Or “Ebb tide.”
—The gold bars must be made out of a lighter kind of gold that’s just as valuable but easier to carry.
—If somebody runs out of the bank and yells, “Help! The bank is being robbed!,” he must be a neighborhood crazy person who people just laugh at.
—If the police come, they don’t notice that the historical mural on the wall is actually us, holding still.
—The bank’s lost-and-found department must have a gun that fires a suction cup with a wire attached to it. Also a chainsaw and a hang glider.
—When we spray the lobby with knockout gas, for some reason the gas doesn’t work on us.
—After the suction cup is stuck to the ceiling, it must hold long enough for Leon to pull himself up the wire while carrying the bags of money, the gold bars, and the hang glider. When he reaches the ceiling, he must be able to cut through it with the chainsaw and climb out.
—Any fingerprints we leave must be erased by the monkeys.
—Once on the roof, Leon must be able to hold on to the hang glider with one hand and the money and the gold bars with the other and launch himself off the roof. Then glide the twenty miles to the rendezvous point.
—When we exit the bank, there must be a parade going by, so our getaway car, which is decorated to look like a float, can blend right in.
—During the parade, our car must not win a prize for best float, because then we’ll have to have our picture taken with the award.
—At the rendezvous point, there must be an empty parking space with a meter that takes hundred-dollar bills.
—The robbery is blamed on the monkeys. ♦
I like irony, don't you?
Anyhow, that's why I appreciate the following essay by Jack Handey from the November 24 issue of the New Yorker. I hope that it's okay to reprint it here.
THE PLAN
by Jack Handey
NOVEMBER 24, 2008
The plan isn’t foolproof. For it to work, certain things must happen:
—The door to the vault must have accidentally been left open by the cleaning woman.
—The guard must bend over to tie his shoes and somehow he gets all the shoelaces tied together. He can’t get them apart, so he takes out his gun and shoots all his bullets at the knot. But he misses. Then he just lies down on the floor and goes to sleep.
—Most of the customers in the bank must happen to be wearing Nixon masks, so when we come in wearing our Nixon masks it doesn’t alarm anyone.
—There must be an empty parking space right out in front. If it has a meter, there must be time left on it, because our outfits don’t have pockets for change.
—The monkeys must grab the bags of money and not just shriek and go running all over the place, like they did in the practice run.
—The security cameras must be the early, old-timey kind that don’t actually take pictures.
—When the big clock in the lobby strikes two, everyone must stop and stare at it for at least ten minutes.
—The bank alarm must have mistakenly been set to “Quiet.” Or “Ebb tide.”
—The gold bars must be made out of a lighter kind of gold that’s just as valuable but easier to carry.
—If somebody runs out of the bank and yells, “Help! The bank is being robbed!,” he must be a neighborhood crazy person who people just laugh at.
—If the police come, they don’t notice that the historical mural on the wall is actually us, holding still.
—The bank’s lost-and-found department must have a gun that fires a suction cup with a wire attached to it. Also a chainsaw and a hang glider.
—When we spray the lobby with knockout gas, for some reason the gas doesn’t work on us.
—After the suction cup is stuck to the ceiling, it must hold long enough for Leon to pull himself up the wire while carrying the bags of money, the gold bars, and the hang glider. When he reaches the ceiling, he must be able to cut through it with the chainsaw and climb out.
—Any fingerprints we leave must be erased by the monkeys.
—Once on the roof, Leon must be able to hold on to the hang glider with one hand and the money and the gold bars with the other and launch himself off the roof. Then glide the twenty miles to the rendezvous point.
—When we exit the bank, there must be a parade going by, so our getaway car, which is decorated to look like a float, can blend right in.
—During the parade, our car must not win a prize for best float, because then we’ll have to have our picture taken with the award.
—At the rendezvous point, there must be an empty parking space with a meter that takes hundred-dollar bills.
—The robbery is blamed on the monkeys. ♦
I like irony, don't you?
Friday, November 21, 2008
Thursday, November 20, 2008
Deflation or a Wicked Correction
Take that GM!
Markets are leading indicators. Right now, their telling us that the shit has hit the fan. I haven't read anything yet today, but if the markets are any indication, we really are in a lot of trouble. Here are a few numbers that I think are significant; the 90-day bill is trading at at .02% yield (that's 2/10's of one percent, more buyers than sellers?) oil closed at less than $50/barrel (the Brent crude contract was at $47.47). Last spring, oil was trading at $140 plus. The Dow closed at 7,552 a drop of greater than 5% on the day and, if memory serves, it's been less than one year since it set a record at 14,000 plus. So the drop in the Dow is close to 50% from its highs.
So, is it a correction or is it all based on proper valuation - which takes a correction in order to occur. There can be absolutely no doubt, that all markets were way overdone. When that happens, there is always a correction. So, are we there yet? Is it time to buy? Where will we be in six months? One thing is certain, there was rampant speculation in a few markets - commodities and real estate for sure but probably some others as well.
What's in a name anyhow? I'm thinking correction. The markets were overdone and now their not. I suppose that there is value out there someplace, but who really has the nerve to step up to the plate? Anybody, and if there isn't anybody, will it deflate some more?
Tuesday, November 18, 2008
KISS
Keep It Simple Stupid ...
In attempting to think through the idea of having the treasury actually pay the missing P&I payments on the mortgages that provided collateral to the defaulted MBS, I have come up with the following:
So far, the treasury has purchased about $158 billion in preferred stock with warrants in a bunch of US financial institutions. I calculated the future value of that number using a 6% fixed rate payment and 1/360 of the $158 billion as a monthly payment (hey, I know that the formula is wrong, but bear with me). The FV comes out to almost $513 billion. What this says is, that if the treasury just put the $158 billion aside and re-invested it someplace like the treasury yield curve, e.g. guess at the cash flow needed to amortize the mortgage pool and then buy a strip of government securities in an equal amount, it would have more than enough cash to pay monthly P&I. I would guess, that $440 million (158 billion/360) is a tad more than what is needed to get the cash flow running in all of the defaulted MBS. In other words, my formula is close enough for government work.
Remember folks, the big issue for AIG, as an example, is credit default swaps. That is, AIG was the counter party on swaps that, kind of, insured the credit worthiness of a bunch of equity tranches of MBS issued by the Street. CDS's made it possible for the Street to leverage the equity in these deals which, in the event of a default, compounds the problem by some really big factor. So big, in fact, that Lehman, Merrill and Bear Stearns have ceased to exist and a number of other firms have gotten their heads handed to them. So, in my last post I suggested that paying the P&I payments for the referenced securities in the swaps would restore their credit ratings. If the securities are, once again, AAA, then the problem goes away, does it not? Further, if the MBS has cash flow, it can be used as collateral and liquidity will be restored to the system.
I suppose it's really wishful thinking for me to expect that anyone who can actually do anything about this mess will ever read this blog. Or is it?
One last thought - before the first CMO was issued, the barrier that was put in front of the idea most often was, "if this is such a good idea, how come nobody has dome it?" I mention this, because I really don't think that the mindset of most folks in the system has changed in the last 25 years. That is, there is very little in the way of creativity. The Street is good at copying other people's ideas, which probably has a lot to do with the reasons why this mess happened in the first place. The point is, when one copies another persons idea, the copier usually doesn't understand the original idea. They just do it and what is good for the goose is good for the gander in the realm of getting approval to do anything that one's competitor is doing in the Street.
Remember, all of the firms know what all of the others are doing. When one is making tons of money, they ALL want to get in on the game. My original premise when writing this blog was, that managers in the street did not know the risk in this junk. But, they needed profits to keep their bonuses as high as the competition and here we are.
In attempting to think through the idea of having the treasury actually pay the missing P&I payments on the mortgages that provided collateral to the defaulted MBS, I have come up with the following:
So far, the treasury has purchased about $158 billion in preferred stock with warrants in a bunch of US financial institutions. I calculated the future value of that number using a 6% fixed rate payment and 1/360 of the $158 billion as a monthly payment (hey, I know that the formula is wrong, but bear with me). The FV comes out to almost $513 billion. What this says is, that if the treasury just put the $158 billion aside and re-invested it someplace like the treasury yield curve, e.g. guess at the cash flow needed to amortize the mortgage pool and then buy a strip of government securities in an equal amount, it would have more than enough cash to pay monthly P&I. I would guess, that $440 million (158 billion/360) is a tad more than what is needed to get the cash flow running in all of the defaulted MBS. In other words, my formula is close enough for government work.
Remember folks, the big issue for AIG, as an example, is credit default swaps. That is, AIG was the counter party on swaps that, kind of, insured the credit worthiness of a bunch of equity tranches of MBS issued by the Street. CDS's made it possible for the Street to leverage the equity in these deals which, in the event of a default, compounds the problem by some really big factor. So big, in fact, that Lehman, Merrill and Bear Stearns have ceased to exist and a number of other firms have gotten their heads handed to them. So, in my last post I suggested that paying the P&I payments for the referenced securities in the swaps would restore their credit ratings. If the securities are, once again, AAA, then the problem goes away, does it not? Further, if the MBS has cash flow, it can be used as collateral and liquidity will be restored to the system.
I suppose it's really wishful thinking for me to expect that anyone who can actually do anything about this mess will ever read this blog. Or is it?
One last thought - before the first CMO was issued, the barrier that was put in front of the idea most often was, "if this is such a good idea, how come nobody has dome it?" I mention this, because I really don't think that the mindset of most folks in the system has changed in the last 25 years. That is, there is very little in the way of creativity. The Street is good at copying other people's ideas, which probably has a lot to do with the reasons why this mess happened in the first place. The point is, when one copies another persons idea, the copier usually doesn't understand the original idea. They just do it and what is good for the goose is good for the gander in the realm of getting approval to do anything that one's competitor is doing in the Street.
Remember, all of the firms know what all of the others are doing. When one is making tons of money, they ALL want to get in on the game. My original premise when writing this blog was, that managers in the street did not know the risk in this junk. But, they needed profits to keep their bonuses as high as the competition and here we are.
Friday, November 14, 2008
Cash Flow & liquidity
Like everyone, I really wish that I could cook up an answer to this mess. Could it possibly be as simple as reversing the lack of liquidity?
Let me explain: mortgage assets are held by the most important financial institutions in the world. Those assets stopped providing the cash flow that was necessary for their holders to pay the carrying costs associated with keeping those assets on the books. When the first few holders got out, asset prices began to fall, this started a downward spiral in asset valuation, this started a mark-to-market call for more collateral or lower advance rates which caused more selling and here we are. The fed tried to step in and provide cash flow, but the problem was greatly compounded by an institutional slamming on of the brakes.
Now we seem to be in a situation where liquidity is in the system, but the banks are either not lending, or companies are not borrowing. Either way, the economy has also slammed on the brakes.
So, what causes a recession? Simple, three consecutive quarterly drops in GPD. Oh, what causes that? Well, retail sales plays a big part. Then there's a lack of corporate expansion, defined as corporate contraction which results in people getting laid off. Then there is confidence - my personal favorite - with out confidence, nobody does nuthin!
By using clever financial engineering - defined as making assets "affordable", by lowering monthly carrying costs - the wizards on the Street made it possible for a ton of people to be able to buy a ton of new stuff. Now, most people do not need new cars and new houses and new appliances, the sale of which provides the primary engine of economic growth. So, this gets me back to the whole question of liquidity. When people have no ability to pay for the stuff that they never should have purchased in the first place, it results in the default of those peoples' contractual obligation to pay. That sentence tells the whole story. But, instead of the bailout providing cash flow to defaulted assets, it is going into troubled institutions like AIG and Fannie and Freddie.
I don't have the time to really think this through, but I have mentioned the possibility of using an REIT type structure to get mortgage assets back on a cash flow basis. That is, keep as much of the foundation of the mortgage market in place by making sure that there is a "monthly mortgage constant" for all of the crap that was issued. If the defaulted assets that backed up the credit default swap market were, once again, rated where they were when the whole thing took off, wouldn't it be redundant to provide more cash to the issuers of the swaps?
Doesn't it seem to you that these dopes are treating the symptoms and not really trying to find a cure?
Am I over-simplifying? Doesn't it make sense though? Think about it! I have to go to work.
Let me explain: mortgage assets are held by the most important financial institutions in the world. Those assets stopped providing the cash flow that was necessary for their holders to pay the carrying costs associated with keeping those assets on the books. When the first few holders got out, asset prices began to fall, this started a downward spiral in asset valuation, this started a mark-to-market call for more collateral or lower advance rates which caused more selling and here we are. The fed tried to step in and provide cash flow, but the problem was greatly compounded by an institutional slamming on of the brakes.
Now we seem to be in a situation where liquidity is in the system, but the banks are either not lending, or companies are not borrowing. Either way, the economy has also slammed on the brakes.
So, what causes a recession? Simple, three consecutive quarterly drops in GPD. Oh, what causes that? Well, retail sales plays a big part. Then there's a lack of corporate expansion, defined as corporate contraction which results in people getting laid off. Then there is confidence - my personal favorite - with out confidence, nobody does nuthin!
By using clever financial engineering - defined as making assets "affordable", by lowering monthly carrying costs - the wizards on the Street made it possible for a ton of people to be able to buy a ton of new stuff. Now, most people do not need new cars and new houses and new appliances, the sale of which provides the primary engine of economic growth. So, this gets me back to the whole question of liquidity. When people have no ability to pay for the stuff that they never should have purchased in the first place, it results in the default of those peoples' contractual obligation to pay. That sentence tells the whole story. But, instead of the bailout providing cash flow to defaulted assets, it is going into troubled institutions like AIG and Fannie and Freddie.
I don't have the time to really think this through, but I have mentioned the possibility of using an REIT type structure to get mortgage assets back on a cash flow basis. That is, keep as much of the foundation of the mortgage market in place by making sure that there is a "monthly mortgage constant" for all of the crap that was issued. If the defaulted assets that backed up the credit default swap market were, once again, rated where they were when the whole thing took off, wouldn't it be redundant to provide more cash to the issuers of the swaps?
Doesn't it seem to you that these dopes are treating the symptoms and not really trying to find a cure?
Am I over-simplifying? Doesn't it make sense though? Think about it! I have to go to work.
Tuesday, November 11, 2008
HISSSSSSSSS
What's that sound? Could it be the sound of deflation sneaking into the world economy? I wonder what it will take to sell all of the RV's and all of those houses in Compton, CA and Clark County, NV and don't forget all of those big trucks and SUV's.
Which brings me to GM. The fact that those big dopes have the nerve to ask for government help is way beyond my ability to comprehend. I know that the auto industry is a big part of the US economy and there are tons of people who depend on its success for employment. But ... remember back in the early ninety's when the auto industry was faced with the dilemma surrounding the gas consumption of their newest innovation, the SUV? the solution was not to make the cars more efficient as a thinking company should, but rather to "lobby" to have the SUV's designated as trucks thereby qualifying them for lower gas mileage. Now, I take the position, that each of us has a moral responsibility, an imperative, to use as little energy as possible. Therefore, I might be a bit opposed to the whole idea of the SUV ... period. But, to get the entire consuming public of the US into buying into the idea that a big station wagon is a truck is a pretty good trick. Still not as good as light beer, e.g., make it manly and the dopes who drink it have to buy twice as much to get drunk. Now, there's a really good trick. I'll bet that whoever cooked that one up is in the advertising hall of fame.
Anyhow, AIG and the rest of the idiots that are the recipients of the government's largess should be taken into the public square and flogged by the rest of us. The economy is going into the tank. Deflation is VERY REAL and it is going to kill many businesses in the country. If GM gets a handout, then so should we. At least bike shops are responsible green businesses that deserve help. The companies that are getting it though are the ones that put us in the hole to begin with.
It is a bitter irony indeed, that I saw it coming, tried to warn about it and now may end up a victim.
Which brings me to GM. The fact that those big dopes have the nerve to ask for government help is way beyond my ability to comprehend. I know that the auto industry is a big part of the US economy and there are tons of people who depend on its success for employment. But ... remember back in the early ninety's when the auto industry was faced with the dilemma surrounding the gas consumption of their newest innovation, the SUV? the solution was not to make the cars more efficient as a thinking company should, but rather to "lobby" to have the SUV's designated as trucks thereby qualifying them for lower gas mileage. Now, I take the position, that each of us has a moral responsibility, an imperative, to use as little energy as possible. Therefore, I might be a bit opposed to the whole idea of the SUV ... period. But, to get the entire consuming public of the US into buying into the idea that a big station wagon is a truck is a pretty good trick. Still not as good as light beer, e.g., make it manly and the dopes who drink it have to buy twice as much to get drunk. Now, there's a really good trick. I'll bet that whoever cooked that one up is in the advertising hall of fame.
Anyhow, AIG and the rest of the idiots that are the recipients of the government's largess should be taken into the public square and flogged by the rest of us. The economy is going into the tank. Deflation is VERY REAL and it is going to kill many businesses in the country. If GM gets a handout, then so should we. At least bike shops are responsible green businesses that deserve help. The companies that are getting it though are the ones that put us in the hole to begin with.
It is a bitter irony indeed, that I saw it coming, tried to warn about it and now may end up a victim.
Sunday, November 9, 2008
The Country Turns A Page
We have a new president elect. It will be interesting to see where we go from here. For selfish reasons, It would be swell to see some of that bail-out cash headed towards the SBA so that it would be available to small businesses like ours.
Anyhow, like a lot of people, I was a bit of a skeptic as it relates to the way the polls had Obama in front. Reading a few things this morning on the subject, I had a thought ... the main stream news media is, obviously, way out of touch. I think that it has to do with the way that so many people, most under 35 or so, communicate. TV and newspapers are not the outlets through which information is disseminated. It now comes through Utube, blogs, facebook and other electronic media. This is a very good thing primarily because, one picture is worth 1,000 words. It happened to that big dope in Virginia when he used a racially insensitive term and welcomed a reporter to the "real Virginia" Within a few days, (was it Warner?) was on his way to oblivion. For whatever reason though, the real significance was the accuracy of the comments as presented on Utube. There is the speaker - no denial anymore. This fact did not seem to register with the main stream media. This was proven within the last several weeks as those same people missed so badly WRT Obama's popularity. This is especially true as it relates to the way that the Palin woman conducted herself. How could those dopes possibly think that her diatribes would not end up on the web?
So, the point is, we now have a new generation that's going to be making all kinds of things happen. I'm glad. I hope that, in the future, their influence will be as positive as the Obama election.
Anyhow, like a lot of people, I was a bit of a skeptic as it relates to the way the polls had Obama in front. Reading a few things this morning on the subject, I had a thought ... the main stream news media is, obviously, way out of touch. I think that it has to do with the way that so many people, most under 35 or so, communicate. TV and newspapers are not the outlets through which information is disseminated. It now comes through Utube, blogs, facebook and other electronic media. This is a very good thing primarily because, one picture is worth 1,000 words. It happened to that big dope in Virginia when he used a racially insensitive term and welcomed a reporter to the "real Virginia" Within a few days, (was it Warner?) was on his way to oblivion. For whatever reason though, the real significance was the accuracy of the comments as presented on Utube. There is the speaker - no denial anymore. This fact did not seem to register with the main stream media. This was proven within the last several weeks as those same people missed so badly WRT Obama's popularity. This is especially true as it relates to the way that the Palin woman conducted herself. How could those dopes possibly think that her diatribes would not end up on the web?
So, the point is, we now have a new generation that's going to be making all kinds of things happen. I'm glad. I hope that, in the future, their influence will be as positive as the Obama election.
Sunday, October 26, 2008
GO BACK TO MY JULY 20 POST
As soon as you read that post, you will realize that most of what I have written here was right on the mark. Why, because most of what has been written by the REAL experts during the last few days, is in that post. The difference, I've been saying it for the last several years. So, go down to the bottom of this page and click on "old posts".
I need to put something together that deals with the lack of cash flow in defaulted MBS. I need to think a bit more and I need to try to find out more and I really don't know where to look.
I need to put something together that deals with the lack of cash flow in defaulted MBS. I need to think a bit more and I need to try to find out more and I really don't know where to look.
Wednesday, October 22, 2008
Ya, Fix This!
We've all had a chance to think a bit about the liquidity crisis and the government fix. The only thing that we can all agree on however, is that it's awfully expensive. I don't have to go into my lotto analogy to explain just how much one trillion dollars is. We all know that it's a lot of money - $50,000 a year for 20 million years.
The blurb about Wachovia's third quarter loss of $26 billion caught my eye this morning. The press release said that the loss is related to a portfolio of loans that they got in the acquisition of a California lender in 2006. The loans have some goofy name, but they are of the negative amortization variety and are adjustable rate and they have a very low start or teaser rate. Now, how could any reasonable person NOT figure out that these loans, secured by over-valued property and made to people who could barely qualify at an interest-only teaser rate, were going to default? I'm not particularly bright, and I figured it out long before the fall. There can be only two explanations; 1. the companies involved - from mortgage originators all the way up to the end security buyers - are staffed by idiots or 2. the companies involved knew that the whole mess was going to blow up and did nothing about it. So, you have to ask yourself, just how much malfeasance has there been and who is going to pay for it?
I know that the present circumstances can not be tolerated, and that the Fed and the Treasury had to step in. A big part of the reasons though, are owing to the knee jerk reaction on the part of banking institutions when they stopped making credit available. Hopefully, this will ease soon and the funds market will recover. The alternative is not very pretty.
It's really a shame, that the voters in this country stopped thinking. With a bit of luck, reason will return to the November fourth election.
Hope so.
The blurb about Wachovia's third quarter loss of $26 billion caught my eye this morning. The press release said that the loss is related to a portfolio of loans that they got in the acquisition of a California lender in 2006. The loans have some goofy name, but they are of the negative amortization variety and are adjustable rate and they have a very low start or teaser rate. Now, how could any reasonable person NOT figure out that these loans, secured by over-valued property and made to people who could barely qualify at an interest-only teaser rate, were going to default? I'm not particularly bright, and I figured it out long before the fall. There can be only two explanations; 1. the companies involved - from mortgage originators all the way up to the end security buyers - are staffed by idiots or 2. the companies involved knew that the whole mess was going to blow up and did nothing about it. So, you have to ask yourself, just how much malfeasance has there been and who is going to pay for it?
I know that the present circumstances can not be tolerated, and that the Fed and the Treasury had to step in. A big part of the reasons though, are owing to the knee jerk reaction on the part of banking institutions when they stopped making credit available. Hopefully, this will ease soon and the funds market will recover. The alternative is not very pretty.
It's really a shame, that the voters in this country stopped thinking. With a bit of luck, reason will return to the November fourth election.
Hope so.
Sunday, October 12, 2008
THINK!
I always thought that it would be fun to make a bike trailer on which I would rig a large sign that had just one word ... THINK! I'd ride around St. Cloud, MN and the masses would see the sign and be transformed into seeing the world as it really existed. This revelation would usher in a Renaissance in the "American Dream" - which is NOT home ownership but rather, freedom and opportunity. An understanding that all of us are immigrants - it's just a question of how many generations each of us goes back. Armed with that understanding, each of us will embrace the ideal that a reliance on ALL of our neighbors is essential to the long-term well being and stability of our community. Further, that community forms the base of our country. A crack in the community (New Orleans) will eventually lead to a crack in the stability of whole the country.
Now, I can't really write. I can't do lots of things that I'd like to be able to do. I can, however think, maybe too much. All people have the ability to think. The question is, do they and if they do, just what exactly do they think about? I don't want to sound cynical or convey the impression that there is some kind of intellectual sonbbery going on here. BUT, when people are too preoccupied by the travails of just getting by each day, they can NOT think about the wider world.
So, you have to ask yourself, is there more to this whole credit crunch than meets the eye? My cynical self says, yes. My idealistic self says, no way - the banks, mortgage companies and the real estate brokers were just being nice by helping all of those folks (who could not afford to buy a house) realize the "American dream".
It all started with "Ozzie And Harriet" and "Leave It To Beaver" - as all Nick At Nite viewers know, those TV shows from the 50's are proof positive that the American Dream really does exist. BTW, did you know that the first dirty words ever used on TV were uttered by June Cleaver? To wit, "Golly Ward, you were pretty rough on the beaver last night". Anyhow, when most of the residents of suburban America are primarily concerned with meeting their next mortgage and credit card payments, they tend to miss a lot of what's going on around them. Like world events, wars, that kind of stuff. Things like trampling on the rights that made this country the place that everyone in the world wanted (past tense) to live.
Not to diverge, but, in 1930's Germany, inflation was so high, workers insisted on getting paid twice per day. It got so bad however, that the loaf of bread that was purchased in the morning, with the 1/2 day's pay, had doubled by evening and the workers couldn't buy their daily bread. This angered most people. When people get angry, they tend not to look inward, but to look for an external source of their frustration. Enter Hitler. He gave the German people someone to hate ... someone to blame. Ten years later, six million of those people were dead and Germany was in ruins.
Now, here we are on the precipice, looking into the vastness that is the future of this country. From the edge of the cliff on which I stand, things don't look to promising. There is a lot be angry about. Here is the point, John McCain and his running mate are giving folks someone to blame. Unlike the people mentioned above that don't have time to think, I got up early enough this morning to read the paper. What I found makes me VERY sad and VERY nervous.
I'm being non-linear but, The proper context is important. I've been around for a while. I've learned quite a bit and I've seen quite a bit. In the 1960's, I saw the assassination of three extraordinarily important leaders in this country. When Robert Kennedy was killed, a bit of me died along with him. I became a cynic. I stopped believing that anyone with a higher moral purpose would lead this country. Guess what, when I started reading about Barak Obama, I got it back. That's why, when I read the paper this morning, I became VERY concerned about what could happen to him.
As she is quick to remind us, Sara Palin is a very ordinary American. I agree in one important sense - she does not think. If she had the capacity to think, she would not try to incite the ignorant masses that listen to her into a frenzy of blood lust. How could any reasonable person, especially one who aspires to be the president of the US, stand by when people in a crowd scream for the murder of anyone ... let alone another person who is running for president?
It's time to wake up. We can't elect people to any office when their agenda is so clearly anti everything that this country really stands (stood) for.
We live in a very small world and it's in trouble on many fronts. We got into this mess because we all stopped thinking. We listened to the rhetoric of a group of people who lied to get us to support a misguided war. We absolved them of any responsibility in their duty to oversee the prudent operation of the capital markets.
We are in an awful pickle.
Please, THINK when you vote.
Wednesday, October 8, 2008
Liquidity IS the Issue
Nothing has really changed during the last week, but the markets around the world now realize, that there really seems to be a liquidity crisis. This is very bad. The lack of liquidity growing out of the lack of cash flow in MBS owned by the Street started the whole thing and now, it has spread into the world-wide banking system. This is very bad indeed.
I've never watched the entire movie, but this is, pretty much, the scenario in It's A Wonderful Life. Isn't there a run on the bank? How does it get solved? Did the fix in the movie work? Is it, really, a wonderful life? Do the people in Washington know as much as the folks who wrote the script?
Isn't this a bit silly? But, is it more silly than what's being suggested by the talking heads and the politicians? As evidenced by the lack of liquidity, there is no institutional confidence in the banking system. This is a really critical. If the big institutions have lost confidence, when will it spread into the consumer sector? Can the Fed and the FDIC hold up under a raft of bank liquidations?
I've been saying for the last year or so, that anyone would have to be nuts to run for president given the current economic and world environment. Ask yourself this, do the candidates, all of them - from city councils all the way up to presidential - really inspire confidence, huh, do they? (here's a fun fact, the guy who wrote the script for Dirty Harry had that speech - are ya feelin lucky punk, huh? - printed in his obit by the NY Times) So, you have to ask yourself, are ya feelin lucky?
I'm going to ride to work and I'm going to stop along the way to buy a lottery ticket. I hope that my bike isn't stolen while I'm in the store because, I'm not feelin lucky, am I, punk?
Monday, September 29, 2008
OOPS, The Bailout Didn't Pass
Since the announcement of this rescue package, I've been trying to figure out if the markets are in the midst of a liquidity crisis. The markets worked on September 12, 2001. They didn't work very well in October of 1979 and again in 1987 (what's next month?). I just checked the funds rate, and overnight has averaged less than 2% for the last month or so. Seems to me, that if there was no liquidity, the funds rate would be higher. I have no idea about what's going on in the bond market - governments seem to be functioning just fine but I don't know about corporates and we all saw what happened to stocks today.
The more I think about it, my idea about doing a gigantic REIT would seem to have merit. The problem is, that the property underlying the defaulted MBS is not likely to come back to a value anywhere near the principal balance of the mortgage secured by it. If there are houses in the collective collateral pool that continue to be occupied, that implies that there is some ability to generate cash flow. Maybe not equal to the P&I necessary to amortize the loan according to schedule, but some. If the bailout is equal to the difference between the whole huge monthly P&I payment and what homeowners can afford to pay, it's likely that the total amount that the government will end up paying would be quite a bit less than $700 billion.
Somebody is servicing all of these loans. In the documents there should be information related to the mortgagor's income - not all of these loans were no-doc. A simple calculation by the servicer tells us what the borrower can afford to pay. That becomes their new P&I. The difference between that and the original payment is what the government subsidy ought to be. That gets the mortgages back on a cash flow basis.
As for the loans that have already defaulted ... there's not much that can be done if we assume that a third party has purchased the property. The original homeowner still has their obligation to pay the loan and the title holder who foreclosed has gotten some cash out of the sale of the property. Therefore, the original homeowner's debt has been lowered and the proceeds to the sale passed through to the trust that is secured by the mortgage. So, there is debt, but no cash flow.
Maybe I'm taking to simplistic an approach to this situation. But, if logic has anything to do with finding a solution, shouldn't it be getting the underlying mortgages back on a cash flow basis?
Something else I'd like to know - which institutions are getting the proceeds of the bailout and what are they giving up? Lehman, AIG, Merrill, Bear, WaMu and a few others have written their junk down to zero. What percentage of the mess did they own? Can there possibly be an additional $700 billion out there that has no cash flow? Why won't a REPO type deal work?
WILL SOMEBODY PLEASE TELL ME WHAT'S GOING ON?
The more I think about it, my idea about doing a gigantic REIT would seem to have merit. The problem is, that the property underlying the defaulted MBS is not likely to come back to a value anywhere near the principal balance of the mortgage secured by it. If there are houses in the collective collateral pool that continue to be occupied, that implies that there is some ability to generate cash flow. Maybe not equal to the P&I necessary to amortize the loan according to schedule, but some. If the bailout is equal to the difference between the whole huge monthly P&I payment and what homeowners can afford to pay, it's likely that the total amount that the government will end up paying would be quite a bit less than $700 billion.
Somebody is servicing all of these loans. In the documents there should be information related to the mortgagor's income - not all of these loans were no-doc. A simple calculation by the servicer tells us what the borrower can afford to pay. That becomes their new P&I. The difference between that and the original payment is what the government subsidy ought to be. That gets the mortgages back on a cash flow basis.
As for the loans that have already defaulted ... there's not much that can be done if we assume that a third party has purchased the property. The original homeowner still has their obligation to pay the loan and the title holder who foreclosed has gotten some cash out of the sale of the property. Therefore, the original homeowner's debt has been lowered and the proceeds to the sale passed through to the trust that is secured by the mortgage. So, there is debt, but no cash flow.
Maybe I'm taking to simplistic an approach to this situation. But, if logic has anything to do with finding a solution, shouldn't it be getting the underlying mortgages back on a cash flow basis?
Something else I'd like to know - which institutions are getting the proceeds of the bailout and what are they giving up? Lehman, AIG, Merrill, Bear, WaMu and a few others have written their junk down to zero. What percentage of the mess did they own? Can there possibly be an additional $700 billion out there that has no cash flow? Why won't a REPO type deal work?
WILL SOMEBODY PLEASE TELL ME WHAT'S GOING ON?
Saturday, September 27, 2008
$700 Billion Equals 1,400,000,000 Bicycles @ $500 Each
That's one billion four hundred million bicycles at a cost of $500 each - that's a lot of bicycles, almost five for every person in the USA.
I've been able to learn a bit more about what's in the works as it relates to the rescue plan. Rather than re-hash that, here's my two cents relating to a description of the securities and what it will take to price them.
Most importantly, there is no market for this stuff, so any value is completely arbitrary. If the purchase price of any of this stuff is equal to its book value, its current holders are getting the deal of the century. Further, under that scenario, there is a pretty good probability that this $700 billion will never be repaid on accounta the underlying property will never have enough value to generate the kind of cash flow to reach as far down the priority chain as to get to the bottom most tranches of the deals. (see below for a discussion of cash flow in CDO's - in a nutshell though, a pool of mortgages, say 5,000 with an average balance of $250,000 or $1,250,000,000 total, is pledged to the repayment of a series of notes. The notes get divided up and their cash flow gets prioritized with the highest rated classes [tranches] getting first dibs on principal and interest payments from the collateral pool. The last tranches in line are the equity portions of the deals. If there is not enough cash flow generated by the collateral pool, the equity gets nothing or, at best, less than what was originally projected.) It is the equity in the deals that the Street has for sale.
By the way, when the Street began to understand that the sub-prime market was a bit outside the range of their ability to comprehend, they "re-securitized" the equity that they were holding, making it into Collateralized Debt Obligations or CDO's. The Street held on to the equity of the new securities and sold what they could. Modeling junk like this is next to impossible. Not only that, but one needs to get ones hands on the indentures for each deal. I assume that they were all private placements, so there is a lower requirement for disclosure. In other words, there is a low probability that anyone other than the dealer that did the deal actually has the cash flow modeled.
Remember, the mortgages underlying this junk have defaulted. In addition, the property is worth much less than the mortgages. So, we have mortgages with no cash flow secured by property that has depreciated by about 50%. Do you think that the treasury is going to get its (our) money back?
Now, here is what I don't understand. 1. Who is responsible for pricing? 2. What is the treasury buying? Are the sellers taking any portion of the loss? Bigger picture question, is there a liquidity crisis? If there is, how come nobody is talking about it. It seems to me as though, that markets are functioning - but I'm pretty far away
and I haven't had time to speak to anyone who knows.
So, why not set up a program that is like what the Street was using before the meltdown. They were financing these positions until they ran out of cash flow and then capital. The firms that are left have capital but they need cash flow. If the treasury does a massive REPO secured by this junk, the Street will still be on the hook and there will be some accountability as it relates what happens down the road.
I don't know ... but I wish I did. I'll bet that someone makes a ton of money on this junk at some point in the future though.
Hey, why not do a MASSIVE REIT? Have the treasury buy it and the tax payers own it. As property is sold, dividends flow out to the tax payers as repayment of tax that we never should have had to pay.
I've been able to learn a bit more about what's in the works as it relates to the rescue plan. Rather than re-hash that, here's my two cents relating to a description of the securities and what it will take to price them.
Most importantly, there is no market for this stuff, so any value is completely arbitrary. If the purchase price of any of this stuff is equal to its book value, its current holders are getting the deal of the century. Further, under that scenario, there is a pretty good probability that this $700 billion will never be repaid on accounta the underlying property will never have enough value to generate the kind of cash flow to reach as far down the priority chain as to get to the bottom most tranches of the deals. (see below for a discussion of cash flow in CDO's - in a nutshell though, a pool of mortgages, say 5,000 with an average balance of $250,000 or $1,250,000,000 total, is pledged to the repayment of a series of notes. The notes get divided up and their cash flow gets prioritized with the highest rated classes [tranches] getting first dibs on principal and interest payments from the collateral pool. The last tranches in line are the equity portions of the deals. If there is not enough cash flow generated by the collateral pool, the equity gets nothing or, at best, less than what was originally projected.) It is the equity in the deals that the Street has for sale.
By the way, when the Street began to understand that the sub-prime market was a bit outside the range of their ability to comprehend, they "re-securitized" the equity that they were holding, making it into Collateralized Debt Obligations or CDO's. The Street held on to the equity of the new securities and sold what they could. Modeling junk like this is next to impossible. Not only that, but one needs to get ones hands on the indentures for each deal. I assume that they were all private placements, so there is a lower requirement for disclosure. In other words, there is a low probability that anyone other than the dealer that did the deal actually has the cash flow modeled.
Remember, the mortgages underlying this junk have defaulted. In addition, the property is worth much less than the mortgages. So, we have mortgages with no cash flow secured by property that has depreciated by about 50%. Do you think that the treasury is going to get its (our) money back?
Now, here is what I don't understand. 1. Who is responsible for pricing? 2. What is the treasury buying? Are the sellers taking any portion of the loss? Bigger picture question, is there a liquidity crisis? If there is, how come nobody is talking about it. It seems to me as though, that markets are functioning - but I'm pretty far away
and I haven't had time to speak to anyone who knows.
So, why not set up a program that is like what the Street was using before the meltdown. They were financing these positions until they ran out of cash flow and then capital. The firms that are left have capital but they need cash flow. If the treasury does a massive REPO secured by this junk, the Street will still be on the hook and there will be some accountability as it relates what happens down the road.
I don't know ... but I wish I did. I'll bet that someone makes a ton of money on this junk at some point in the future though.
Hey, why not do a MASSIVE REIT? Have the treasury buy it and the tax payers own it. As property is sold, dividends flow out to the tax payers as repayment of tax that we never should have had to pay.
Thursday, September 25, 2008
I Had it Right Five Years Ago!
OK, I know that beating a dead horse is really a waste of time. However, I want to stress, that the US congress really does not have a clue about what is happening around it. You can surmise as you will, but congress (not the fun kind) is populated by very average power hungry people that really do not understand how complicated the world is at the moment. Further, thanks to that lovable exterminator from Texas, the Hammer himself, Tom Delay, the staffs of both houses as well as the committees, have been seriously diminished - both intellectually as well as physically. One would hope therefore, that when outside experts offer their opinions about impending disaster, the members of congress might listen ... or maybe think a bit.
So, here is an e-mail that I sent to my house representative on 8/28/03. Kennedy was a CFO at a decent sized company prior to going to Washington. As such, I thought that he may have some comprehension of the risks associated with the lack of disclosure both in company's financial statements as well as in the SEC documents related to the sale of securities ... like that crap that we are now being asked to buy ... all $700 billion of it.
----- Original Message -----
From: Harry Forsyth
To: mark.kennedy@mail.house.gov
Sent: Thursday, August 28, 2003 9:02 AM
Subject: Musings on economic cycles
Dear Congressman Kennedy,
I recently moved to Sartell.
I was happy to learn that our congressional representative is a member of the Financial Services Committee - an interesting assignment in the midst of a very interesting economic cycle.
I'd be extremely interested in knowing your views on:
1. the possible impact of an erosion in the value of single family property on the ability of Ginnie, Fannie and Freddie to stand up to a default rate greater than 10%.
2. the extremely liberal interpretation of the recent FASB FI 46 - that the accounting profession has taken as it relates to continuing to allow sponsors of SPEs to finance hundreds of billions in assets off of their books.
I've been suffering under the naive assumption that Sarbanes/Oxley and new SEC disclosure rules were going to force the accountants to actually disclose the real risks associated with off balance sheet vehicles.
I know that these are loaded questions. However, I also know, that the extreme amount of liquidity in the capital markets today is contributing to what could become a worse economic disaster than that of the 1930's. The exact same set of circumstances that inflated the Japanese bubble, e.g., the leveraging of the value of single family housing, is subtly doing the same thing here in the US. Ask yourself this, how could the capital markets possibly fund in excess of three trillion (what's that as a percentage of GDP?) in new mortgages this year. Where does that much capital come from and why do investors put up that much money? Does it make sound economic sense for the agencies to allow LTVs to exceed 95%? Who establishes that value and what kind footing does it really rest on. How much debt does the average consumer actually have, and what is their ability to repay it in a down cycle?
Next time you're in the district, drive around and count the number of for sale signs. Note too, the number of cars on the road - where has the money to pay for all of these assets come from?
It won't be long before prices start their inevitable decline.
Best regards,
Harry Forsyth
So, here is an e-mail that I sent to my house representative on 8/28/03. Kennedy was a CFO at a decent sized company prior to going to Washington. As such, I thought that he may have some comprehension of the risks associated with the lack of disclosure both in company's financial statements as well as in the SEC documents related to the sale of securities ... like that crap that we are now being asked to buy ... all $700 billion of it.
----- Original Message -----
From: Harry Forsyth
To: mark.kennedy@mail.house.gov
Sent: Thursday, August 28, 2003 9:02 AM
Subject: Musings on economic cycles
Dear Congressman Kennedy,
I recently moved to Sartell.
I was happy to learn that our congressional representative is a member of the Financial Services Committee - an interesting assignment in the midst of a very interesting economic cycle.
I'd be extremely interested in knowing your views on:
1. the possible impact of an erosion in the value of single family property on the ability of Ginnie, Fannie and Freddie to stand up to a default rate greater than 10%.
2. the extremely liberal interpretation of the recent FASB FI 46 - that the accounting profession has taken as it relates to continuing to allow sponsors of SPEs to finance hundreds of billions in assets off of their books.
I've been suffering under the naive assumption that Sarbanes/Oxley and new SEC disclosure rules were going to force the accountants to actually disclose the real risks associated with off balance sheet vehicles.
I know that these are loaded questions. However, I also know, that the extreme amount of liquidity in the capital markets today is contributing to what could become a worse economic disaster than that of the 1930's. The exact same set of circumstances that inflated the Japanese bubble, e.g., the leveraging of the value of single family housing, is subtly doing the same thing here in the US. Ask yourself this, how could the capital markets possibly fund in excess of three trillion (what's that as a percentage of GDP?) in new mortgages this year. Where does that much capital come from and why do investors put up that much money? Does it make sound economic sense for the agencies to allow LTVs to exceed 95%? Who establishes that value and what kind footing does it really rest on. How much debt does the average consumer actually have, and what is their ability to repay it in a down cycle?
Next time you're in the district, drive around and count the number of for sale signs. Note too, the number of cars on the road - where has the money to pay for all of these assets come from?
It won't be long before prices start their inevitable decline.
Best regards,
Harry Forsyth
Wednesday, September 24, 2008
$700,000,000,000
SEVEN HUNDRED BILLION DOLLARS!
Think about that number ... it's really too abstract. It comes to $2,333.33 for every person in the US or roughly $9,000 per household. It's a lot of money. Golly, I sure am glad that we've got such smart people running for the presidency. Can we draft Bill Bradly ... PLEASE? How about Michael Bloomberg?
BTW, I heard that Henry Paulson left Goldman with about $400 million. Nice payday. Just in case you all didn't realize it, Goldman Sachs is probably the best Investment bank in the world. It is also staffed with the brightest people and it has the most tightly controlled partnership in the business. In fact, the ONLY way to get your capital out of the firm is to go into government. This is why John Corzine ran for the senate and why Paulson is treasury secretary. Conflict of interest - can't have that, no favoritism, no that would never do.
I found some old e-mails that I'll put up tomorrow.
Think about that number ... it's really too abstract. It comes to $2,333.33 for every person in the US or roughly $9,000 per household. It's a lot of money. Golly, I sure am glad that we've got such smart people running for the presidency. Can we draft Bill Bradly ... PLEASE? How about Michael Bloomberg?
BTW, I heard that Henry Paulson left Goldman with about $400 million. Nice payday. Just in case you all didn't realize it, Goldman Sachs is probably the best Investment bank in the world. It is also staffed with the brightest people and it has the most tightly controlled partnership in the business. In fact, the ONLY way to get your capital out of the firm is to go into government. This is why John Corzine ran for the senate and why Paulson is treasury secretary. Conflict of interest - can't have that, no favoritism, no that would never do.
I found some old e-mails that I'll put up tomorrow.
Sunday, September 14, 2008
A Little, Accurate, History
avarice |ˈavəris|
noun
extreme greed for wealth or material gain.
Harry's definition; an uncontrollable urge to look the other way when, in the face of making huge amounts of easy money, otherwise astute managers allow their staff to do deals they do not understand - even remotely.
To really grasp what went wrong, one must go back to the immediate post ENRON period. The Financial Accounting Standards Board, FASB and the Securities Exchange Commission, that oversees it, were charged with coming up with new accounting guidelines that would dictate that ALL financial companies keep ALL of their assets on balance sheet. The new rules would eliminate the off balance sheet treatment used by ENRON (and most major banks) for "subsidiaries" referred to as Special Purpose Entities or Corporations (SPE's or SPC's). The abuses employed by the companies that used this off-balance sheet treatment was rotten to the core and really misstated their financial positions.
FASB actually came up with a decent set of new guidelines. The process took about two years to complete. When it was all over though, the new guidelines were completely gutted and loopholes inserted where there had originally been pretty tight reporting requirements, e.g., any parent company was to be required to consolidate all of its subsidiaries regardless of their SPE status. At the time, the new FASB requirements were aimed, primarily, at asset-backed commercial paper issuers. Most of these companies were were owned by large commercial banks. All of them were, effectively, guaranteed by those banks through the issuance of stand-by letters of credit. The regulators looked the other way though, in the face of a very effective lobbing effort by the ABA and the new regs. were gutted and the banks continued to use off-balance sheet entities as a way to generate new business with corporate borrowers.
Fast forward to the rise of sub-prime mortgage lending. As is the case with any non-agency MBS, there needs to be an issuer. The issuer needs to some kind of a corporate entity, usually and SPE and the SPE is usually owned by a shell company. The difference between mortgage finance and other types of ABS though, is that an MBS issue really needs to have actual equity. Some times, dependent upon the prospect for defaults, slow payments, fraud or etc., the equity classes of securities within a deal may be as high as 10 or 15%.
This might be a good time for a primer on the way ABS work. All deals are based upon cash flow. Cash flow is based upon a regression analysis of the way that a particular asset class has worked in the past. Credit cards and auto loans are considered to be the easiest to model and mortgages the most difficult on accounta the correlation between interest rates and mortgage re-finance or prepayments. Defaults, unlike other asset classes, were never a real issue in MBS until the introduction of sub-prime loans. So, cash flows were modeled and a couple of standard deviations were built into the rating process to protect buyers and hundreds of billions of deals were sold. Except for those times when there were were spikes in interest rates, resulting in extreme extension or shrinking of the lives of MBS assets, the market worked pretty well. This is owing to the fact that mortgages were really good loans. Fanny and Freddie were tough lenders that used well thought out underwriting standards and their guarantees were never tested because the default rate on conventional fixed-rate conforming loans stayed at less than 1/2 of 1% for decades. There were hiccups related to qualifying ARM's at teaser rates, but nothing like the current fiasco.
Back to the present: we were discussing the equity classes of MBS deals. This has always been where the risk has been buried in MBS finance. For the most part, if a lender understood the elements of prepayments, it could estimate risk within 100 basis points or so. Relating to sub-prime though, traditional cash flow analysis went out the window. It was replaced by analysis that was based on LTV as opposed to the strict underwriting qualification of borrowers. This meant, that if the shit hit the fan,
lenders had to rely on the liquidation of the underlying value of the mortgaged properties instead of the excess cash flow that was typically built into MBS deals. Now, LTV has always been important and it was in sub-prime as well. Except, the buyers of the equity class in sub-prime placed their bet on the continuation of a rising real estate market, not sound lending. As we now know, the deals had no excess cash flow. They had a bunch of defaulted loans and the underlying property has yet to be liquidated.
This gets me to the point that I have been trying to make in previous posts, e.g., there must have been a ton of money in these deals because there is no way on Earth that the Street would have bellied up to the bar to buy this crap unless there was. Now, we come around to off-balance sheet financing. I really don't know for sure because I wasn't there. However, there is a pretty good bet, that the entities that held the paper and for which the Street was the only source of financing were not reported until it was too late. In the case of Bear, they were "funds" and Bear was the sole agent responsible for doing the repurchasing agreements that kept them afloat. Bear was also the guarantor - just like the ABCP programs that were so effectively used by the commercial banks. So, one must ask ones self, if the FASB and the SEC had not caved when trying to eliminate off-balance sheet financing, would we be in this pickle now?
noun
extreme greed for wealth or material gain.
Harry's definition; an uncontrollable urge to look the other way when, in the face of making huge amounts of easy money, otherwise astute managers allow their staff to do deals they do not understand - even remotely.
To really grasp what went wrong, one must go back to the immediate post ENRON period. The Financial Accounting Standards Board, FASB and the Securities Exchange Commission, that oversees it, were charged with coming up with new accounting guidelines that would dictate that ALL financial companies keep ALL of their assets on balance sheet. The new rules would eliminate the off balance sheet treatment used by ENRON (and most major banks) for "subsidiaries" referred to as Special Purpose Entities or Corporations (SPE's or SPC's). The abuses employed by the companies that used this off-balance sheet treatment was rotten to the core and really misstated their financial positions.
FASB actually came up with a decent set of new guidelines. The process took about two years to complete. When it was all over though, the new guidelines were completely gutted and loopholes inserted where there had originally been pretty tight reporting requirements, e.g., any parent company was to be required to consolidate all of its subsidiaries regardless of their SPE status. At the time, the new FASB requirements were aimed, primarily, at asset-backed commercial paper issuers. Most of these companies were were owned by large commercial banks. All of them were, effectively, guaranteed by those banks through the issuance of stand-by letters of credit. The regulators looked the other way though, in the face of a very effective lobbing effort by the ABA and the new regs. were gutted and the banks continued to use off-balance sheet entities as a way to generate new business with corporate borrowers.
Fast forward to the rise of sub-prime mortgage lending. As is the case with any non-agency MBS, there needs to be an issuer. The issuer needs to some kind of a corporate entity, usually and SPE and the SPE is usually owned by a shell company. The difference between mortgage finance and other types of ABS though, is that an MBS issue really needs to have actual equity. Some times, dependent upon the prospect for defaults, slow payments, fraud or etc., the equity classes of securities within a deal may be as high as 10 or 15%.
This might be a good time for a primer on the way ABS work. All deals are based upon cash flow. Cash flow is based upon a regression analysis of the way that a particular asset class has worked in the past. Credit cards and auto loans are considered to be the easiest to model and mortgages the most difficult on accounta the correlation between interest rates and mortgage re-finance or prepayments. Defaults, unlike other asset classes, were never a real issue in MBS until the introduction of sub-prime loans. So, cash flows were modeled and a couple of standard deviations were built into the rating process to protect buyers and hundreds of billions of deals were sold. Except for those times when there were were spikes in interest rates, resulting in extreme extension or shrinking of the lives of MBS assets, the market worked pretty well. This is owing to the fact that mortgages were really good loans. Fanny and Freddie were tough lenders that used well thought out underwriting standards and their guarantees were never tested because the default rate on conventional fixed-rate conforming loans stayed at less than 1/2 of 1% for decades. There were hiccups related to qualifying ARM's at teaser rates, but nothing like the current fiasco.
Back to the present: we were discussing the equity classes of MBS deals. This has always been where the risk has been buried in MBS finance. For the most part, if a lender understood the elements of prepayments, it could estimate risk within 100 basis points or so. Relating to sub-prime though, traditional cash flow analysis went out the window. It was replaced by analysis that was based on LTV as opposed to the strict underwriting qualification of borrowers. This meant, that if the shit hit the fan,
lenders had to rely on the liquidation of the underlying value of the mortgaged properties instead of the excess cash flow that was typically built into MBS deals. Now, LTV has always been important and it was in sub-prime as well. Except, the buyers of the equity class in sub-prime placed their bet on the continuation of a rising real estate market, not sound lending. As we now know, the deals had no excess cash flow. They had a bunch of defaulted loans and the underlying property has yet to be liquidated.
This gets me to the point that I have been trying to make in previous posts, e.g., there must have been a ton of money in these deals because there is no way on Earth that the Street would have bellied up to the bar to buy this crap unless there was. Now, we come around to off-balance sheet financing. I really don't know for sure because I wasn't there. However, there is a pretty good bet, that the entities that held the paper and for which the Street was the only source of financing were not reported until it was too late. In the case of Bear, they were "funds" and Bear was the sole agent responsible for doing the repurchasing agreements that kept them afloat. Bear was also the guarantor - just like the ABCP programs that were so effectively used by the commercial banks. So, one must ask ones self, if the FASB and the SEC had not caved when trying to eliminate off-balance sheet financing, would we be in this pickle now?
Wednesday, September 10, 2008
Congress (not the fun kind)
Remember that I told you that I'd written my congressional representatives. I pointed out that there was a very serious crisis in the offing and that I had some constructive suggestions as to how to get in front of the whole mess. I really focused on the leverage of FNM and FHR with emphasis on a mild increase in foreclosures and that effect on their meager capitalization. Well guess what, I found a response. Here it is:
September 6, 2007
Dear Harry,
Thank you for contacting me about the regulation of the federal housing finance system. I appreciate hearing from you on this important issue.
In recent years, information has surfaced about mismanagement and financial irregularities at Fannie Mae and Freddie Mac, two government sponsored enterprises (GSEs) that hold a large percentage of America's outstanding mortgages. In response, Congress has considered several pieces of legislation to strengthen accounting practices and regulation of the GSEs and the overall federal housing finance system.
As you may know, Representative Barney Frank introduced H.R.1427, the Federal Housing Finance Reform Act of 2007, on March 9, 2007. This bill would create a new federal regulator, the Federal Housing Finance Agency, to oversee the GSEs and ensure that they accomplish their mission of creating a secondary mortgage market that expands the flow of mortgage money in the American economy in order to better meet the nation's housing needs. As a member of the House Financial Services Committee, I firmly believe and understand that a new regulator is necessary to ensure the safety and soundness of these enterprises.
The bill would also create an "affordable housing fund" by taking a percentage of the GSEs' total mortgage portfolios to pay for housing grants and projects. While I support improved access to affordable housing, I believe this is a damaging course of action. The additional cost to the GSEs will inevitably be passed along to consumers in the form of higher fees, thereby raising the costs of purchasing a home or refinancing an existing mortgage. In other words, the fund could effectively result in a tax on middle- to lower-income American homebuyers. Consequently, I opposed the bill when it came to a vote on May 22, 2007.
The Federal Housing Finance Reform Act is now awaiting consideration by the Senate. I believe establishing a world-class regulator for the GSEs is critical and it is my hope that concerns regarding the affordable housing fund will be resolved before H.R. 1427 returns to the House for a final vote. I can assure you that I will continue working to strengthen our housing finance system, to help all Americans realize the dream of home ownership.
Once again, thank you for contacting me. Please keep in touch.
Sincerely,
Michele Bachmann
Member of Congress
Isn't it grand when our representatives are so understanding of what's going on around them? I was VERY specific on what was happening as it relates to, 1. GSE leverage and 2. the folly related to underwriting based (solely) on expected LTV - no mention of either. I also like the part about a possible tax increase to ordinary Americans. What, do you suppose, will happen to our already burgeoning federal deficit and who will pay for it?
September 6, 2007
Dear Harry,
Thank you for contacting me about the regulation of the federal housing finance system. I appreciate hearing from you on this important issue.
In recent years, information has surfaced about mismanagement and financial irregularities at Fannie Mae and Freddie Mac, two government sponsored enterprises (GSEs) that hold a large percentage of America's outstanding mortgages. In response, Congress has considered several pieces of legislation to strengthen accounting practices and regulation of the GSEs and the overall federal housing finance system.
As you may know, Representative Barney Frank introduced H.R.1427, the Federal Housing Finance Reform Act of 2007, on March 9, 2007. This bill would create a new federal regulator, the Federal Housing Finance Agency, to oversee the GSEs and ensure that they accomplish their mission of creating a secondary mortgage market that expands the flow of mortgage money in the American economy in order to better meet the nation's housing needs. As a member of the House Financial Services Committee, I firmly believe and understand that a new regulator is necessary to ensure the safety and soundness of these enterprises.
The bill would also create an "affordable housing fund" by taking a percentage of the GSEs' total mortgage portfolios to pay for housing grants and projects. While I support improved access to affordable housing, I believe this is a damaging course of action. The additional cost to the GSEs will inevitably be passed along to consumers in the form of higher fees, thereby raising the costs of purchasing a home or refinancing an existing mortgage. In other words, the fund could effectively result in a tax on middle- to lower-income American homebuyers. Consequently, I opposed the bill when it came to a vote on May 22, 2007.
The Federal Housing Finance Reform Act is now awaiting consideration by the Senate. I believe establishing a world-class regulator for the GSEs is critical and it is my hope that concerns regarding the affordable housing fund will be resolved before H.R. 1427 returns to the House for a final vote. I can assure you that I will continue working to strengthen our housing finance system, to help all Americans realize the dream of home ownership.
Once again, thank you for contacting me. Please keep in touch.
Sincerely,
Michele Bachmann
Member of Congress
Isn't it grand when our representatives are so understanding of what's going on around them? I was VERY specific on what was happening as it relates to, 1. GSE leverage and 2. the folly related to underwriting based (solely) on expected LTV - no mention of either. I also like the part about a possible tax increase to ordinary Americans. What, do you suppose, will happen to our already burgeoning federal deficit and who will pay for it?
Saturday, September 6, 2008
Who Couldn't See it Coming?
I really wish that I hadn't pulled the first posts down ... they told the story rather well. There is a certain glee that I feel as it relates to being right about this mess. However, that is (way) overshadowed by the knowledge that things are going to get worse. I will really never understand how things could have gotten this bad. Three or four years ago, when I was railing against the GSE's, I was actually beginning to believe that they might survive. It then became more and more obvious that the supply/demand equation relating to housing was skewed much to far on the supply side. The inevitable conclusion, a major sell-off, has begun to take effect. I think that it's going to get worse and the fact that the federal government has set a precedent by coming to the rescue of the GSE's will make it worse still. I know that the country really couldn't let Fanny and Freddie fail, but the tab for the rescue is staggering - people in Washington actually speak about $1,000,000,000,000 (that's one trillion, one thousand billion) as if it's a number that they actually understand. They don't. By the way, the budget as submitted by the administration for FY 2009 amounts to roughly a $42,000 tax bill for every household in this country (what they actually pay about $12, to $15,000, largely because of the mortgage deduction) - that did not count defense and it certainly did not count the cost of the subject bail-out.
Anyhow, I am one of three partners in a newly formed small business. Each of us has put our "life savings" into it. We sell bicycles and cross country skis. What is the prospect for our future in a recession caused by the excesses of an easy credit culture? Will the federal government come to OUR rescue if we begin to fail? The government is saving the financial institutions that have given us the credit that we needed to open our doors. Now, however, those companies will be the beneficiaries of the GSE bailout for which we bear the ultimate financial responsibility. It will be interesting to see, should businesses like ours begin to get behind the old eight ball, just how understanding the banks will be when they begin to start collection procedures - remembering, that they are in business simply because they have been saved by the government. I suppose that, in our society, that gives them the right to make the lives of we citizens miserable.
As I point out in the previous post, I have written to many people, both in and out of government, to warn of this disaster. Again, because I felt that you had to be a complete financial moron or to be in the pocket of those "special interests", not to see this coming. Now that it's here, it's too late to stop and the people to whom I've written are more concerned with getting re-elected than devoting any energy to solving this problem.
We deserve what we have gotten ... we vote based upon trivia. We are all victims of dopes like Carl Rove whose single-mindedness has won elections for a bunch of, at best, average intellects. We are about to vote again. Look at who's running - what is their agenda? Really? What do we ask of them?
I've said for the last few years, that if Fanny and Freddie fail, that it will make the depression look like a walk on the beach. That is nothing more than a hollow cliche. However, is it true?
Anyhow, I am one of three partners in a newly formed small business. Each of us has put our "life savings" into it. We sell bicycles and cross country skis. What is the prospect for our future in a recession caused by the excesses of an easy credit culture? Will the federal government come to OUR rescue if we begin to fail? The government is saving the financial institutions that have given us the credit that we needed to open our doors. Now, however, those companies will be the beneficiaries of the GSE bailout for which we bear the ultimate financial responsibility. It will be interesting to see, should businesses like ours begin to get behind the old eight ball, just how understanding the banks will be when they begin to start collection procedures - remembering, that they are in business simply because they have been saved by the government. I suppose that, in our society, that gives them the right to make the lives of we citizens miserable.
As I point out in the previous post, I have written to many people, both in and out of government, to warn of this disaster. Again, because I felt that you had to be a complete financial moron or to be in the pocket of those "special interests", not to see this coming. Now that it's here, it's too late to stop and the people to whom I've written are more concerned with getting re-elected than devoting any energy to solving this problem.
We deserve what we have gotten ... we vote based upon trivia. We are all victims of dopes like Carl Rove whose single-mindedness has won elections for a bunch of, at best, average intellects. We are about to vote again. Look at who's running - what is their agenda? Really? What do we ask of them?
I've said for the last few years, that if Fanny and Freddie fail, that it will make the depression look like a walk on the beach. That is nothing more than a hollow cliche. However, is it true?
Sunday, July 20, 2008
Why Blog?
I posted a few comments related to the mess generally referred to as the mortgage crisis but got no comments. Having felt the heavy hand of the federal government in the past, I was a bit worried about what may happened if I were too critical of how we got into this mess, especially as it relates to those lovable GSE's, Fanny and Freddy. Anyhow, I deleted the posts. To summarize though, I pointed out the folly of believing that companies with leverage in excess of 100 times are actually AAA, implied government guarantee or not. I also pointed out that the profit centric nature of the Wall Street firms, the rating agencies, the mortgage originators and the law firms that brought the securities to market are at the core of the reasons why the whole thing happened in the first place. The decision makers put aside common sense and prudent judgement and substituted avarice.
Actually taking the word of people who are instructed to skew their analysis so that securities can be rated and placed is folly at its best. Further, when underwriters are naive enough to actually put their own capital at risk, one can be assured that the inmates are in charge of the asylum. Throw in a few well placed PAC's, dole out a few million and anything becomes possible. The Prudent Man Rule, what the heck is that? Seriously folks, who really needs greater than ten or $15 million a year to survive? Yes, I'll approve this deal that I haven't a clue as to how it works so long as my bonus stays in the neighborhood of $30 million.
The talking heads are now speaking about what went wrong. Nobody however, has really focused on the reasons why the Fed and the Treasury are being forced to step up to the plate. Think derivative. Think credit default swap. Think about the extent to which Fanny and Freddie are up to their armpits in that market. Think about the consequences of a failure of those guarantors in the event of a default. Think about the federal deficit, now, and then throw in another several hundred billion on top of that as a result of rewarding the incredible incompetence at the helms of all of these firms. Yes, ladies and gentlemen, we are in a pickle and it's going to get worse.
When I was in the thick of it all, I never really got it. I never really understood how seemingly intelligent people could be so centered on money to the exclusion of all else in their shallow existence. Further, how anyone could judge someone to be intelligent based solely on their ability to make money?
I've written members of congress, op-ed writers and others to tell them about the perils of participating in the sub-prime mortgage market. Nobody got it or nobody took the time to really think about what could happen. How could any reasonable person actually believe that the residential mortgage market could possibly be one-dimensional? How could any prudent person take the word of an analyst who has never lived through a down market? I know, let's take the word of the Realtors and the mortgage bankers, no, no, no, let's trust the ABA no, they have an ax to grind also. I know, let's trust the home builders - they'd never screw the banks would they? No wait, let's rely on the rating agencies. They're staffed with people who make about 10% of what the people who request their approval make. Do you suppose that people at S&P and Moody's are more interested in getting into Wall Street firms than protecting investors? No way! How about the SEC? Do you suppose that they would succumb to pressure from congress to be lax on accounting and disclosure? And, we all know that congress would never exert pressure on anyone simply because someone donated money to their campaigns, would they? And if they did, they'd totally comprehend what it was that they were pressuring for, wouldn't they?
Anyhow, I write a blog that nobody reads. It's better to vent though, isn't it?
Actually taking the word of people who are instructed to skew their analysis so that securities can be rated and placed is folly at its best. Further, when underwriters are naive enough to actually put their own capital at risk, one can be assured that the inmates are in charge of the asylum. Throw in a few well placed PAC's, dole out a few million and anything becomes possible. The Prudent Man Rule, what the heck is that? Seriously folks, who really needs greater than ten or $15 million a year to survive? Yes, I'll approve this deal that I haven't a clue as to how it works so long as my bonus stays in the neighborhood of $30 million.
The talking heads are now speaking about what went wrong. Nobody however, has really focused on the reasons why the Fed and the Treasury are being forced to step up to the plate. Think derivative. Think credit default swap. Think about the extent to which Fanny and Freddie are up to their armpits in that market. Think about the consequences of a failure of those guarantors in the event of a default. Think about the federal deficit, now, and then throw in another several hundred billion on top of that as a result of rewarding the incredible incompetence at the helms of all of these firms. Yes, ladies and gentlemen, we are in a pickle and it's going to get worse.
When I was in the thick of it all, I never really got it. I never really understood how seemingly intelligent people could be so centered on money to the exclusion of all else in their shallow existence. Further, how anyone could judge someone to be intelligent based solely on their ability to make money?
I've written members of congress, op-ed writers and others to tell them about the perils of participating in the sub-prime mortgage market. Nobody got it or nobody took the time to really think about what could happen. How could any reasonable person actually believe that the residential mortgage market could possibly be one-dimensional? How could any prudent person take the word of an analyst who has never lived through a down market? I know, let's take the word of the Realtors and the mortgage bankers, no, no, no, let's trust the ABA no, they have an ax to grind also. I know, let's trust the home builders - they'd never screw the banks would they? No wait, let's rely on the rating agencies. They're staffed with people who make about 10% of what the people who request their approval make. Do you suppose that people at S&P and Moody's are more interested in getting into Wall Street firms than protecting investors? No way! How about the SEC? Do you suppose that they would succumb to pressure from congress to be lax on accounting and disclosure? And, we all know that congress would never exert pressure on anyone simply because someone donated money to their campaigns, would they? And if they did, they'd totally comprehend what it was that they were pressuring for, wouldn't they?
Anyhow, I write a blog that nobody reads. It's better to vent though, isn't it?
Subscribe to:
Comments (Atom)
