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.

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.

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.

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?