I’m still not going to vote for Obama

Posted: October 20, 2008 | Author: | Filed under: No Obama | Tags: , , , | 4 Comments

My reasons haven’t changed.

My top 10 reasons why I’m not voting for Barrack Obama:

1. His has specious pastors and associates (Rezko, Ayers, Wright, Farakhan, Michelle Obama …).

2. When he’s off the teleprompter and in a debate,  he shows no understanding of policy–especially foreign policy and diplomacy.

3. Whenever there is a vote on something difficult, he doesn’t vote or he votes present so he says things but does nothing.

4. His list of achievements can be summed up in one bullet point:  getting into office, jobs, and schools on something less than merit and hard work.

5. His demeanor reminds me of Dubya. He is smug, arrogant and when questioned comes off as some one whose entitled to NOT be questioned on anything.

6. He got his house and side yard in a sweet heart deal with his friend Rezko, the felon.

7. He got his two terms in the Il. state legislature by getting his opponents thrown out on technicalities and got the U.S. senate position when his Republican opponent quit when his supposedly sealed divorce records got opened mysteriously.

8. Michigan primary (sic):  If he can get pledged delegates by not being on the ballot, then I want some Michigan pledged delegates too.  Basically I hate injustice and every thing the RBC and the DNC did to rig the nomination for him falls into that heading.  The entire primary process was contorted so he could get the election.  The roll call was a sham.  The caucuses were gamed and Florida and Michigan were brought back into the fold only after all the delegates were either replaced or bullied into supporting him.

9. He says he will negotiate with leaders of rogue nations which is just one of the reasons he’s been endorsed by the likes of Kim Jong Il, Khadafi, Hamas, Fidel Castro …

and the number 10 reason I’m not voting for Obama:

The Invisible Hand vs. The Big Stick

Posted: October 18, 2008 | Author: | Filed under: Equity Markets, U.S. Economy, Uncategorized | Tags: , , , , , | 1 Comment

 “The reason that the invisible hand often seems invisible is that it is often not there.” (Making Globalization Work, 2006)

Nobel Prize winning economist (2001) Joseph E. Stiglitz

After finding out about it on MiradorWealth.com.au, I’m participating in an on line debate at Economist.com concerning regulating the financial system after this crisis.  It is interesting to read the comments because they come from all over the world and they come from folks that participate one way or another in the financial markets.  Right now 63% of the participants (led by American Economist Joseph Stiglitz) want more regulation of financial markets.

Here is his opening argument:

The current crisis is caused, in part, by inadequate regulation. Unless we have an adequate regulatory system—regulations and a regulatory structure that ensures their implementation—we are bound to have another crisis. This is not the first such crisis in the financial system that we have had in recent decades. Indeed, around the world, it is more unusual for a country not to have had a financial crisis than to have had one. They have occurred in societies with “good institutions”—like those in Scandinavia—and in societies without such institutions. They have occurred in developed and in developing countries. The only countries to have been spared so far are those with strong regulatory frameworks.

The side against regulation is taken up by Myron Scholes who is an equally impressive American Finance Professor.  Here is his opening argument:

There is now a rising chorus among regulators, politicians, and academics claiming the freedom to innovate in the financial domain should be curtailed.  This stemmed from the apparent recent failures in mortgage finance and credit default swaps and the apparent need for governments and central banks to “bail out” failing and failed financial institutions around the world directly through capital infusions and indirectly by providing a wide array of liquidity facilities and guarantees. They claim that freedom in global financial markets has proceeded at too rapid a pace without controls—in particular with an incentive system that rewards risk-taking at the expense of government entities—and as a result “throwing sand in the gears” of innovation will reduce “deadweight costs” and “moral hazard” issues.

Here are my thoughts.

Financial markets are not like other markets. To function properly, there needs to be transparency and trust. If transparency and trust are not there, they do not work, and if financial markets don’t work, nothing works in an economy.

Regulations should be put into place that increase transparency and increase trust. This does not mean they should be used to push social agendas like ‘affordable housing’. This means that rules of dealing in a market should be clearly established and a regulator should ensure they are followed. Rules concerning leverage, capitalization, prudent underwriting standards, and standardization of contracts all lead to transparency and trust. Countries with the standards attract capital and grow. Countries without do not attract capital and stall. Adequate regulation would have stopped this financial panic. We still have not unwound the rogue credit default swap market. We have yet to determine the full impact this will have on the current situation and it remains an unquantified risk hanging out there in the ethos like a cancer ready to spread. Unless we ensure these markets cannot be gamed, we will lurch from one financial panic to another.

As the financial crisis winds its way through history the discussion concerning the role of regulation, deregulation, and future policy will be an important one.  I suggest you get involved with that discussion because it is just that, an important one.

Senator Joe Biden (MBNA-DE)

Posted: October 16, 2008 | Author: | Filed under: U.S. Economy, Uncategorized | Tags: , , , , , , | Comments Off on Senator Joe Biden (MBNA-DE)

I about fell off my chair listening to the third presidential debates when Senator Obama suggested that Senator Biden was some how a champion of middle America and the little guy.   I was beginning to think that Obama had some how gotten into his own koolaid.  Joe Biden, especially when it comes to economic issues, is not the friend of working families who get in a tight pinch. Here’s the comments and here’s the original transcript.

OBAMA: Well, Joe Biden, I think, is one of the finest public servants that has served in this country. It’s not just that he has some of the best foreign policy credentials of anybody. And Democrats and Republicans alike, I think, acknowledge his expertise there.

But it’s also that his entire life he has never forgotten where he came from, coming from Scranton, fighting on behalf of working families, remembering what it’s like to see his father lose his job and go through a downward spiral economically.

And, as a consequence, his consistent pattern throughout his career is to fight for the little guy. That’s what he’s done when it comes to economic policies that will help working families get a leg up.

Senator Obama evidently has forgotten about two things for which we can thank Joe Biden.  The first is the current bankruptcy bill which makes it difficult for folks who get into financial trouble for things like unemployment and overwhelming health catastrophic costs to ever recover from.  The second is that he’s never met a credit card company supported bill he doesn’t like.

Here’s what one liberal blogger said about that bill while Biden was still running for President.  Notice that it also references another ‘progressive’ blog.

The bankruptcy bill is such a cruel piece of legislation, especially to single mothers and people without health insurance, that Kos crossed Biden right off his list of potential candidates. I’m unaware of any major or medium size blogger that supports Biden’s campaign…and it really all comes back to the bankruptcy bill.

There was also this (as reported by the NY Time) floating around concerning dealings behind the passage of the same bankruptcy bill.

 During the years that Senator Joseph R. Biden Jr. was helping the credit card industry win passage of a law making it harder for consumers to file for bankruptcy protection, his son had a consulting agreement that lasted five years with one of the largest companies pushing for the changes, aides to Senator Barack Obama’s presidential campaign acknowledged Sunday.

Senator McCain voted for this bill as well as Senator Biden.  Senator Obama voted against this bill, but seems to have conveniently forgotten it.  The NY Times also reported, in that same article cited above, this:

Consumer advocates say that Senator Biden was one of the first Democratic leaders to support the bankruptcy bill, and he voted for it four times — in 1998, 2000, 2001 and in March 2005, when its final version passed the Senate by a vote of 74 to 25.

Travis Plunkett, legislative director of the Consumer Federation of America, a consumer group that opposed the bill, said that Senator Biden had provided a “veneer of bipartisanship” that eventually helped the credit card companies win over other Democrats. “He provided cover to other Democrats to do what the credit industry was urging them to do,” Mr. Plunkett said.

Here’s more on “Credit Card Joe” from the National Review Online.  When Joe was in some financial trouble himself, he got help from the CEO of MBNA.

 John Cochran, the company’s vice-chairman and chief marketing officer, did pay top dollar for Biden’s house, and MBNA gave Cochran a lot of money—$330,000—to help with “expenses” related to the move. A few months after the sale, as Biden’s re-election effort got under way, MBNA’s top executives contributed generously to his campaign in a series of coordinated donations that sidestepped the limits on contributions by the company’s political action committee. And then, a short time after the election, MBNA hired Biden’s son for a lucrative job in which, according to bank officials, he is being groomed for a senior management position.

It is possible that the next financial debacle comes from this kissing cousin to the subprime market:  credit cards.  They are also users of some of the most deceptive lending practices you can find. You’ll recognize some of these I’m sure.  How about that Over Limit Fee and bump you get in an interest rate when the company just okays a purchase rather than rejecting it?  Here’s one that is my personal “favorite” since it is an ongoing F**k for me at the moment.  It is the fine print that says the bank will apply all payments to the lowest interest rate bearing things first. You can’t even send them a specific payment for anything else.  When I tried to pay off a $40 cash advance I had to pull during my flight from Hurricane Katrina (which is the ONLY cash advance I’ve ever had and due to my banks being closed and underwater) I was told I’d have to pay the entire balance off.  I pulled $40 to help pay a Toll for the Kansas Tollway on my way to my daughter in Nebraska. That $40 is now a balance of $254.76 because I can’t get the silly thing down far enough to even dream of paying off that. It’s the very last thing they will EVER apply my payments towards so thanks Joe, thanks for supporting those credit card companies!!  I have to say you’re a real peach by my standards as a solidly middle class person and little guy!

So, my next question is do you think Joe’s been a part of this discussion OR even a sponsor of bills to eliminate these unfair practices?  Nope.  The so-called Dodd-Levin The Credit Card Accountability Responsibility and Disclosure Act has a few sponsors listed here at  Senator Levin’s website.  It’s worth a read because it is a bill that would definitely help the middle class that relies so heavily on credit card debt.  Is this going to be yet another missed chance at regulating an industry (like the subprime market) that goes into fueling a financial crisis? If so, what will be the terms of the bailouts and where will Senator Biden, MBNA-DE stand?

 

Congratulations! You’re an Investment Banker!

Posted: October 15, 2008 | Author: | Filed under: Equity Markets, U.S. Economy, Uncategorized | Tags: , | 1 Comment

Now what? 

Well, I suggest you start looking at the terms and conditions of our new portfolio and clients.  Right now, it’s $250 billion that you and I share with all the other U.S. Tax Payers.  So far, about $125 billion dollars has been divvied up among the major banks. In return for that investment, we get preferred stocks and warrants for common stock.   There are some sweeteners for us and a few for them.  This is the first of the plans that are supposed to ‘inject’ money into banks and ‘unfreeze’ the credit markets.  The release of similar plans by the Europeans on Monday gave us that huge bounce on Monday.  (Remember the one I thought could be a dead cat bounce and possibly is?)

The European plan also provided the structure for the terms of this deal as well as the impetus to move on it.

So, what goodies do our financial intermediaries get from the deal?

1)  The US will guarantee new debt issued by banks for three years. This means any bank that lends to another doesn’t have worry about getting it back.  That also means that they don’t have to hold a large amount in reserve for potential loan losses so it should expand consumer lending.

2)  The Fed will become the buyer of last resort for commercial paper.  This means if a bank is lending to a business in the short run to help it with its working capital needs for things like buying inventory or bridge loans to cover day-to-day business expenses, and the business defaults, the Fed will buy the commercial paper from the bank.  The bank will not suffer the loss.  This is again decreases default risk and means the banks don’t have to worry about upping their reserves for potential loan loses or holding back loans to businesses that may have less than stellar ratings.  A good example of businesses with less than stellar ratings are Ford, GM, and a lot of the airline companies.

3) The FDIC will offer an unlimited guarantee on bank deposits that are not interest bearing.  Since several European banks did this, this is a response to stop the possible flow of business checking accounts and payroll accounts to foreign banks.  There may be some consumer accounts, campaign, or non-profit checking accounts that get protection here also but it is primarily geared to businesses.

What do we get?

1) Bank Equity:  The government will get preferred shares and warrants for common stock with an expectation of a ‘reasonable’ return.   This means that the government gets first shot at any profits and dividends earned by the bank holding company.  No dividends can be given to common stock holders without first paying preferred stock holders.  Preferred stock also has priority in terms of ownership of any assets liquidated in a bankruptcy.  Most preferred stock does not come with voting rights.  A warrant is a security that allows the holder to purchase a share of common stock in that bank holding company at a specified price.  This price is usually higher than the current market price of the common stock. Some warrants stay attached to the preferred stock and basically serve to increase the yield on that stock.  Others can be detached and sold on the side.

The preferred stock that will be issued in this plan will pay special dividends.  At first, it will be at a 5% interest rate that will increase to 9% after five years.  The warrants will be worth 15% of the face value of the preferred stock. (The basic reason for the warrants is that if the stock goes up, the government can exercise the warrant, get the stock from the bank holding company, sell it on the market, and realize a profit.  These profits then go to the Treasury to pay down the Federal Deficit and offset the cost of the program.)

2)  Restrictions on Executive compensation for those institutions that sell shares to the government.  These restrictions include a clawback provision and a ban on golden parachutes as long as the Treasury holds equity issued under this program.

Clawback provisions are written in a way that the government can recover performance-based compensations to CEOs and other executives in the bank to the extent they later determine that performance goals were not actually achieved.  You have to write the specifics into the contract but usually it can be due to a restatement of financial results as well as some other reasons.  The restatement of the financial results usually has to be significant.  It can also kick in if there are determined to be some kind of misconduct. 

Gold parachutes are guaranteed severance compensation packages that  will executives receive if control of a company changes hands that results in a management shift.

Who do we own to date:

$25 billion:  Citigroup, JPMorgan Chase, Bank of America (parent now of Merrill Lynch), Wells Fargo (parent now of Wachovia)

$10 billion: Goldman Sachs, Morgan Stanley

Others with less than that:  Bank of New York, State Street and thousands of yet unannounced little guys.

Other issues:  At this time, the banks will not be asked to eliminate dividends.  CEOs are not required to resign.  All of the banks signed the agreement and entered into the deal so there would not be any stigma based on who needed the program and who did not.  We’ve basically just semi-nationalized the banking system in the U.S. 

Okay, so now we’re all investment bankers.  What I want to know is when do we get our bonus checks?

Dead Cat Bounce or a Hint of Bull?

Posted: October 14, 2008 | Author: | Filed under: Equity Markets, Hillary Clinton: Her Campaign for All of Us, John McCain, No Obama, U.S. Economy | Tags: , , , , , , | 1 Comment

The equity markets some times experience good days even in the worst of bear times.  These up days are frequently just the dread dead cat bounce.  This label comes from the saying that even a dead cat bounces if you throw it.  You’re going to hear two things from me today; probably in two different posts.  The first is just a line by line look at the Obama and McCain approaches to the economic panic.  The second is the Paulson announcement to make $250 billion available to banks to help them recapitalize.  I’m watching some of the interbank lending markets unfreeze, so it might be more than a dead cat bounce.  There might be a hint of the bottom which would be something to celebrate.

I was trying to read this last night as well as a some literature on the Bank Capital Channel of Monetary Policy (something only an economist could love but is important in terms of looking at the possible outcomes for this move).  I unfortunately chose to do it at my local bar and became the immediate target of the shriek of the Obamatrons and all the usual stuff:  “racism, Palin is a c*nt, it’s okay for us to call her that because McCain called his wife that, no Obama NEVER said women get third trimester abortions because they’re blue, do you get all your information from fox news? racism, racism, racism.” I’m beginning to wonder if they hand out an instruction card with the koolaid on how to insult the unindoctrinated? 

Sigh, so I’m working on this for your this morning instead.  You’ll have to give me a wide berth as I try to do this in the peace and quiet of my house over coffee instead of red wine.  Oh, also, just so you know I am now Miss Perfect and Miss Know it all.  It felt like high school ALL over again.  I think they were trying to ensure that the other two ex-Hillary supporters who were resigned to voting for the “ONE” would not leave the fold with anything as meaningless as facts and the truth.  There was also a Republican and a Ron Paul supporter in the room to make things nice and interesting.  For some reason, I got the brunt of the abuse. I can’t tell you how many times I was told to just get over Hillary.

So, any way, here goes the girl with the glasses again.  While the market chews on the Paulson plan, I’ll start with my take on the McCain and Obama crisis plans in this post.

Obama’s plan seems centered on unemployment.  This is a bit odd because the problem at the moment is not unemployment for most of the country.  The only thing I can figure is this, combined with his plan to double the government’s loan guarantees for automakers, is a pander for votes in places like Michigan.  Since the rust belt is important to winning the election, and the rust belt is the only place where unemployment is above normal at the moment, I have to cynically say this has nothing to do with financial crisis but everything to do with the electoral college.

I think giving employers a $3,000 tax credit for each new hire to encourage job creation is a good economic policy.  At the moment, however it is not necessary and expensive.  Until it looks like unemployment in the country as a whole is going to be a problem, I’m sticking with my view that this is just a pander to folks in important swing states in a not so subtle disguise.

His second idea is just plain awful and would create incredible long term problems.  This is the idea that you should allow Americans of all ages to borrow/withdraw from retirementsavings without a tax penalty.  One of our biggest problem right now (long and short) is that folks are NOT saving enough for retirement. Pulling anything out right now ensures those folks will be worse off in the future.  Also, withdrawing funds from these accounts at the bottom of the market is like stealing future life style from people.  People that do not need to do this will be encouraged to do so and it will make their lives worse in the long run.  This is a stinker and I hope folks don’t follow through with it.  If you’re thinking about doing this, please, please don’t.

I’m more hopeful about Obama’s suggestion of creating a mechanism to lend monies to cities and states with fiscal problems if this is done in a reasonable, thoughtful way.  We’d need to see that current Treasury work in the markets is helping the municipal bond function and we need to be careful about exactly how the funds will be used.  I’m afraid this could be turned into an expensive giveaway to interests rather than a real problem solver.  For this suggestion, the devil will be in the details.  This is my same take on his proposal to allow struggling small businesses to apply for loans from the SBA’s disaster funds to the tune of $5 billion.  This sounds good on the surface and could help getting much need operating loans to some of the hardest hit players.  I’d like to see the exact nature of the terms, however.  You need to know what the terms of borrowing are and what kind of things the funds can be used for.  Also, is this for existing businesses or new start-ups?  The new-start ups would be highly risky propositions and subject to fraud.

Obama rehashed the Hillary suggestion of a 90-day moratorium on most home foreclosures.  This would be geared to folks that are trying to make payments or partial payments.  This is a good start, but again, it has to be followed by some kind of way to renegotiate the foreclosures or it’s basically just a few months grace.  Some details are needed on what to do with the frozen mortgages.  My hope is those details may be forthcoming, but I’m not holding my breath.

All of the Obama suggestions are very costly and there are no funding suggestions.  At one time he was talking about windfall profits on oil companies but given the state of the economy now, I doubt there’s going to be any windfall profts on which to draw.  The gas around here is running less than $3.00 a gallon.  I can’t help but think the record level profits of the oil companies are not going to be around the next few quarters.  Oil futures are about $80 a barrel right now, so my guess is no windfall profits to tax.  So, another dimension of all Obama’s points is where is he getting the money?  I always liked Hillary’s plans because they came with funding sources so they were grounded in realism and not promises.

The McCain Plan was introduced today with the Hillary suggestion of the Treasury Departmentbuying troubled mortgages at face value and giving qualified homeowners instead government-guaranteed, low interest mortgages.  I’m already on the record supporting this in earlier posts since I firmly believe the short term solution is to bottom house prices.  The mortgages would be based on the residences’ reduced value.  We need to focus here on the details of ‘qualified’ homeowners because it does not need to be done with speculators or vacation properties.  McCain has said there would be two possible funds for the valuation differences so I’m not clear which one he’s going for or if it’s giong to be some combination of both.  Basically, either the taxpayer or the lenders would pay the difference.

Several other of his proposals are pretty typical of Republican approaches which focus on tax reduction.  They are targeted tax reductions which is something I’m particularly big on.  This is different than just throwing money at the entire market and hoping some of it trickles down and sidewise.  McCain’s first proposal focuses on seniors (an important voting group) and allows them to withdraw from the IRAs or 401k’s in 2009 and 2010 while reducing their taxes to a flat 10 percent.  Since this only applies to those over 59, there are no penalties so it’s different than the Obama plan.  This is okay, since these folks ARE retired and a worktime of compounding is not something they will need in the future.  This plan would cost about $36 billion and I’m assuming it will be financed with deficit spending because there are no specified funding sources.  This would giving a few years of buying power which would be stimulatory to the economy.  It also protects seniors from any unknown problems.  It’s probably partially motivated to get seniors into the McCain camp but it would impact the country as a whole.

There are three other tax measures put forth by McCain.  The first is a 50 % reduction in the capital gains tax on stock profits.  It is currently 15% to 7.5% for a period of two years.  This plan has a price tag of about $10 billion.  If any one is getting many capital gains right now, I’d sure like to meet them.  This probably only benefits the Warren Buffet type and is a nod to Republican business interests.  The more interesting plan is the accelerated tax write off for stock losses.  Americans will be able to deduct $15,000 in losses for the tax years 2008 and 2009.  This is a change from the current $3,000 losses.  He would also suspend taxes on unemployment insurance benefits for both 2008 and 2009.  These targeted proposals may actually help the little guy who is panicking right now and pulling whatever money he has out of stocks.  It would definitely help any one that does become unemployed also.  I’m not sure how big the effect of these would be, but they are not bad ideas.

So, you can chomp on this while I go work out on the details of the Paulson announcement and watch what appears to be a stablizing stock market.  I’ll also go check for bulls, bears, and any bouncing dead cats.  Also, some earnings reports are coming out today, so that should provide some good information to the market.

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