Tuesday, September 30, 2008

Bailout Details

There are 3 main reasons why I think this bill failed. 1) The $750B could be used to "repurchase assets troubling the US Financial System." This doesn't mean US assets. The Treasury had full plans of purchasing Europen and Asian failing assets. 2) During the Savings and Loan crisis, 4,000 banks failed. During the current crisis, it is less than 75. 3) Henry Paulson -

A quote from Congressmen AKIN of MO, "My colleagues, a week ago we were approached by Secretary Paulson, and he told us that there was a crisis and that he had a solution. He gave us the horns of a dilemma, two sharp, shiny points that we could impale ourselves on. One, that the financial system was going to collapse and implode, and the sky was going to fall. Certainly we wouldn't want to choose that. The other, we could write a $700 billion blank check. Those were our two choices.

The Details: - and I predict...Henry Paulson will go down as the single worst Treasury Secretary in the history of America.

• Provide up to $700 billion, starting with an initial $250 billion, to allow the Treasury Department to purchase troubled assets, mainly in the area of mortgages, that are weighing down the U.S. financial system.

• Give the Treasury Department, working with experts chosen by the government, the authority to fashion the asset purchase program. Treasury officials have suggested that a key approach will be the use of "reverse auctions" in which financial firms who succeed in selling their assets to the government will be the ones willing to take a lower price than other bidders.

• Impose restrictions on the pay and benefits received by executives whose companies are selling some of their bad assets through the government's purchase program.

• Require the Treasury to provide details of its purchases within two days of the transactions; various oversight boards would be created to monitor the operation of the program.

• Give taxpayers ownership stakes in companies whose bad assets are purchased. After five years, if the government is facing a loss in the program, the president would be required to submit a plan recommending how the money can be recouped from financial companies.

• Establish a program for banks to buy government insurance that would cover the principal and interest on certain troubled assets, rather than selling them outright. Premiums would vary depending on the assets' risk profile.

Wednesday, September 24, 2008

You're right, Clay, this isn't funny... it's freakin' hilarious!

Caleb is telling me that there shouldn't be a comma before Clay... only after. I think it should be the way I wrote it... anyone want to chime in on that?

Happy Birthday, Cindy!!

Technically, yesterday was Cindy's birthday, but I got this picture today, so I'm a day late, excuse moi.

Once upon a time, Cindy told us she had a stand up bear cake pan. Janet and I were skeptical, as you might imagine, that such a fantastic invention existed, and it didn't help when Cindy "couldn't find it." Much like if someone told you they had a pet leprechaun, but then couldn't find it. But Cindy found the cake pan and so for her birthday (plus one day) Janet and I decided to make her a stand up bear cake. I baked the cake, and then Janet, whose taking cake decorating at Hobby Lobby, iced him. I think he turned out pretty cute.... TAAAA DAAAAA....

Monday, September 22, 2008

NBC News at 10

"A banana chases a monkey, and both end up in jail."

Apparently, the police "didn't think the prank was funny," but I find the fact that this was the top news story HI-larious!

Sunday, September 21, 2008

For Those Interested in what is Happening in the Economy

Excerpts from 2 WSJ articles. The second one is linked if you want to read the whole thing.

1: "Gone is the faith, shared by the nation's leadership with varying degrees of enthusiasm, that the best road to prosperity is to unleash financial markets to allocate capital, take risks, enjoy profits, absorb losses. Erased is the hope that markets correct themselves when they overshoot...

But in the past 2 weeks, the US government, keeper of hte flame of free markets and private enterprise, has:

- nationalized the two engines of the US mortgage industry, Fannie Mae and Freddie Mac, and flooded the mortgage market with taxpayer funds to keep it going'

- crafted a deal to seize the nation's largest insurer, American International Group, Inc, fired its CEO and moved to sell it off in pieces.

- extended government insurance beoyond bank deposits to $3.4 trillion in money-market mutual funds for a year (remember that there is no gold standard, so the government has to issue debt to back these investments. Debt that is purchased by foreign governments and investors, not all who wish to see the US succeed -cj)

- banned, for 799 financial stock, a practice at the heart of stock trading, the short-selling in which investors seek to profit fram falling stock.

- allowed or encouaged the collaps or sale of two of the four remaining, free-standing investment banks, Lehman Brothers and Merrill Lynch;

- asked Congress by next week to agree to stick taxpayers with hundreds of billions of dollars of illiquid assets from financial institutions so those institutions can raise capital and resume lending (you now own the foreclosed house next to you, but will recieve no direct benefit from your investment -cj)"

- David Wessel -WSJThe Panic of 1792

2: http://online.wsj.com/article/SB122186662036058787.html

Savings and Loan Crisis:

It used to be that savings-and-loan associations were staid institutions that stuck to home loans and lured savings-account depositors with blankets and toasters. But during the 1980s, the industry expanded wildly into commercial real-estate lending, spurred by deregulation and poor regulation, according to Mr. Blinder.The business model worked as long as the S&Ls made more money on their loans than they had to pay for deposits. But the model broke down when interest rates rose, and the institutions found themselves paying more for deposits than they earned from fixed-rate loans in their portfolios."In addition," said Mr. Blinder, "they went into a lot of what could only be called stupid real-estate investments."From 1986 through 1995, about half of the 3,234 S&Ls in the U.S. closed, leaving federal insurers stuck with tens of billions of dollars in bad loans. In 1989, after eight months of debate, Congress created the Resolution Trust Corp. to make depositors whole, investigate allegations of wrongdoing and deal with the husks of the S&L industry.At the time, skeptics warned that government was reaching too far into the marketplace, and predicted darkly the RTC would be saddled with bad assets for generations.Indeed, the government ended up owning shopping centers, homes and resorts, along with an odd collection of assets put up as collateral for S&L loans, including Picasso and Warhol paintings, a 30-horse merry-go-round, a Colonial-era whiskey distillery, a drawstring made from Martha Washington's gown and 800 units of semen from a registered Brahma bull.By the time the S&L cleanup was over, it had cost U.S. taxpayers about $124 billion in non-inflation-adjusted dollars, according to FDIC research. Mr. Davison, the FDIC historian, wrote in a 2006 journal article: "Perhaps a measure of the RTC's success is that little more than a decade after it closed, this agency that provoked so much debate is now largely forgotten."

Tha Panic of 1792:
The nation's first president was in his first term when the U.S. ran into its first financial panic.
In 1791, the federal government assumed obligations that such states as Massachusetts and South Carolina owed from the Revolutionary War, part of a larger deal that included moving the national capital from New York to Philadelphia to Washington. Taking on the states' obligations added about $18 million to a total U.S. domestic debt of $65 million -- debt securities that proved attractive to financial speculators.
Primary among them was William Duer, a well-connected New York businessman who schemed to start a New York bank to drive down the price of Bank of New York stock and win control of BONY on the cheap. He and his colleagues also intended to corner the market on government 6% bonds, so-called Sixes.
Treasury Secretary Alexander Hamilton, the founder of BONY, watched the developments with alarm. "I have learnt with infinite pain the circumstance of a new Bank having started up in your City," Mr. Hamilton wrote to a New York associate, according to research by economic historians Richard Sylla, Robert E. Wright and David J. Cowen. "Its effects cannot but be in every view pernicious," because of the damage they caused to "the whole system of public Credit, by disgusting all sober Citizens and giving a wild air to everything."
The price for Sixes in New York jumped markedly from early December to mid-January. By March, the bubble had burst, with the price of the bonds dropping 25% over two weeks.
Working without a historical blueprint, Hamilton engineered an innovative response. The Treasury borrowed money from the banks and used it to buy government bonds, lifting the market price. He also told banks to accept bonds as collateral for loans to securities brokers, with the government guaranteeing the collateral.
"What Hamilton did in 1792 is just like what Paulson and Bernanke are doing now," said Mr. Sylla, who teaches at the Stern School of Business at New York University.
The financial system stabilized in April, and not a single bank failed until 1809. Mr. Hamilton's improvisation did the trick, or at least so concludes Mr. Wright, also at NYU. He named his son Alexander Hamilton Was Wright.

The Panic of 1907:
The century that followed was punctuated by financial instability. There was the panic of 1819, during which states passed laws delaying foreclosures on real estate and personal property.
In 1841, another bout of financial volatility sent land values plummeting. States that had been depending on land taxes suddenly found themselves short of cash; nine of them defaulted on their debts. There was talk of a federal bailout, but Congress balked. Some states raised taxes and paid up; others swapped canals or other assets with their creditors.
"There were banking panics all of the time," said Princeton University economist Alan Blinder, former vice chairman of the Federal Reserve Board. "The banking panic of 1907 was particularly pernicious."
One immediate cause of the panic involved a failed attempt to corner the market on stock in a particular copper company. That led to a run on banks and trusts that had made loans for the plot, starting with the Knickerbocker Trust Co. Public confidence in other financial institutions soon evaporated.
The Treasury injected millions of dollars into the banking system. But it was really J. Pierpont Morgan (JPMorgan), the banking magnate and undisputed king of New York financial markets, who saved the day. He had been in Virginia for a church conference when the panic hit, and he took an overnight train back to New York City. He dispatched his lieutenants to figure out which banks were in the worst trouble, then he called the bankers to his home. Working through the night, he browbeat the others into forming a joint pool of capital that they would use to pay depositors at banks that faced runs.
Once depositors saw that they were going to get their money, the panic eased. "Where's J.P. Morgan when we need him?" joked Mr. Blinder.
Six years later, Congress established the Federal Reserve system, creating a lender of last resort for the country's financial system.

The Great Depression:
By 1933, four years after the infamous stock-market crash, about 1,000 American homeowners a day were losing their houses to the bank. President Franklin Delano Roosevelt and Congress created the Home Owners' Loan Corp., an ambitious government agency designed to prevent foreclosures on an enormous scale.
The agency bought defaulted mortgages from banks, then refinanced them at lower rates for fixed, 15-year terms. Over the three years it accepted applications, the agency was swamped with 1.9 million requests; about half of the applicants had monthly incomes of between $50 and $150.
Ultimately, the agency issued mortgages, averaging $3,039 apiece, to some one million homeowners. About one in 10 Americans with nonfarm, owner-occupied dwellings secured aid from the agency, according to a 1951 paper by C. Lowell Harriss of Columbia University.
The current mortgage crisis involves securities backed by subprime home loans. But during the 1930s, there was no secondary market for securitized mortgages. So the agency had to hold the mortgages for the full terms. It finally closed up shop in 1951, with about 80% of borrowers having paid their loans off on time or early.
The agency earned the government a small profit. "You save 80% of the people from being tossed out of their homes, and it didn't end up costing the government a dollar," said Lee Davison, a historian at the Federal Deposit Insurance Corp., another Great Depression creation.

Thursday, September 11, 2008

Wednesday, September 10, 2008

Things Said in my House Tonight

"I like my beans like a good merlot. I want them to rip the saliva right off my tongue."
- Caleb

Courtney: "I will never lose you, I can always follow the trail of dripping. I mean look at your shirt... what's wrong with you? You were drinking water from a glass, how did it even get on your shirt?"
Caleb: "I don't like to close my mouth all the way."

That last conversation sounds like it was said in anger, but I was actually laughing uncontrollably when I asked him what was wrong with him... good times.

Tuesday, September 9, 2008

Stupid Mac

My computer died. I shut it down last Tuesday and it never woke up again. At least it went peacefully in its sleep. We took it to the Apple store last night and they told us the hard-drive was dead and we wouldn't be getting any of our stuff back. Music, videos, and pictures, mostly of Blythe, all gone. It's heartbreaking. Stupid Mac with your lies about never breaking down.

I then had to sit through Caleb writing a song about me insisting on getting a Mac and how if he had to do it over again he would've gotten a Dell. Catchy tune... dang him.

Sunday, September 7, 2008

I am officially boycotting MTV...forever.