Thursday, August 23, 2007

Recent Stock Market Events

The steep, breathless reaction of the stock market to the escalating defaults in the mortgage market was rescued by a Federal Reserve cut in the discount rate. The fall in stock prices, almost 10% in one month, was exaggerated by two factors. First, hedge fund liquidations, the extent of which we will never know, were in the trillions of dollars. Second, panic in the mortgage market began spreading into other credit markets because other banks and corporations were unsure of the risk in each other's investment portfolios. As a result, they became hesitant to loan money to one another, even over night.

On Tuesday 8/20, the Fed encourage 5 of the nations largest banks to borrow from the discount window. Normally, this is an embarrassment for a bank, like borrowing money from your grandmother. The goal is to break the gridlock in intra-bank lending and to signal banks in the short run that the discount window is open for business.

What has not been mentioned in the media as far as I can tell is the underlying catalyst for the collapse in the mortgage and real estate markets. According to IRS data, real incomes have failed to rise for most of the 2000s. To make up for this shortfall most families have relied upon the increase in equity of their homes and credit cards to suppliment their incomes.

The strategy worked well, of course, when home prices were rising. However, home prices began to stall 2 years ago and we have just now begun to see the death of the creative financing that kept people upside-down in their homes. The real crisis is still ahead; supporting 2007 homes prices on year 2000 incomes.

The second bell of the credit crunch has yet to ring. Banks have been just as reckless with their credit card lending practices as they have with their mortgage lending if not more so. Capital One has already begun raising the cost of credit citing “business and economic factors." Should the rate of default begin to increase on credit card debt as well, banks can be counted upon to panic in an equally vigorous way. This could be a combination of raising interest rates and/or calling in existing balances in full bringing a collapse in upon themselves.

The unregulated growth of both mortgage lending and credit card debt has much to do with the Bush economic expansion. According to IRS data - "The growth in total incomes was concentrated among those making more than $1 million a year. The number of such taxpayers grew by more than 26 percent, to 303,817 in 2005, from 239,685 in 2000. These individuals, who constitute less than a quarter of 1 percent of all taxpayers, reaped almost 47 percent of the total income gains in 2005, compared with 2000." These fortunate few had little to do with economic growth over the past 6 years. Rather it was optimism and the hope of economic growth by the average citizen the fueled the expansion.

The most efficient way to redistribute this bulge of wealth is for the Federal Reserve to inflate the economy. To do so runs contrary to its primary mission. However, it may be the lesser of evils. Because the economy, like everything else touched by this adminstration, has been so grossly mismanaged, a radical approach may be required to jolt the balance of wealth back into equilbrium.

Sunday, July 29, 2007

Mistico Tribute

I am not sure who this wrestler is but staged or not he is a remarkable athletic.

Thursday, July 12, 2007

El Presidente

President Bush had a news conference today. Hasn't anyone told that guy he is cooked? The man really needs to change his vocabulary. Radicals and extremists, embolden al-Qaida, Iraq is a young democracy, as commander and chief I have an obligation, we continue to support the military, we can't afford to fail, that's an interesting question, it's been hard work; the man makes me nauseous. His arrogance is self-destructive.

If we learn anything from his presidency, one qualification we should look for in our leadership is the person's ability to flipflop. The ability to make corrections midcourse. Admit a mistake, take your licken, cut your losses and move on. It is a sign of maturity, not a sign of weakness. Ask anyone who has ever been successful at anything, they have made a lot of mistakes and learned from them.

Saturday, July 7, 2007

9/11 Revisited - Richard Gage, AIA Architect - Part 2

Everybodys Gotta Learn Sometime 1.0

Version 1.0 This is a medium resolution quicktime version of the film.

Moving Forward 9-11 Truth

"Why, of course, the people don't want war," Goering shrugged. "Why would some poor slob on a farm want to risk his life in a war when the best that he can get out of it is to come back to his farm in one piece?"

Naturally, the common people don't want war; neither in Russia nor in England nor in America, nor for that matter in Germany.

That is understood.

But, after all, it is the leaders of the country who determine the policy and it is always a simple matter to drag the people along, whether it is a democracy or a fascist dictatorship or a Parliament or a Communist dictatorship."

"There is one difference," I pointed out. "In a democracy the people have some say in the matter through their elected representatives, and in the United States only Congress can declare wars."

"Oh, that is all well and good, but, voice or no voice, the people can always be brought to the bidding of the leaders. That is easy.

All you have to do is tell them they are being attacked and denounce the pacifists for lack of patriotism and exposing the country to danger.

It works the same way in any country."

Herman Goering at the Nuremberg trials

Finally, slowly, eyes begin to open. The truth of 9-11 just won't go away. My expertise is in finance and as a result I find comfort in statistics. Real modeling, by engineers and architects without an axe to grind will be out soon. I was surprised to learn that Mr. Gage just became aware that WTC Bldg #7 imploded in on itself during the 9-11 attacks even though it was not hit by a plane. I get the impression he is pissed.

The second film is 1 hour and 12 minutes long but very entertaining. After seeing it, my first thought was "thank god for the internet." I encourage you to take a look.

Tuesday, July 3, 2007

Turning Green - Part II

For some reason, the idea of going green will not let me treat it silly and as a consequence won't leave my mind. If one extends the abstraction that our political elites are mutating to thrive upon the rising levels of carbon dioxide in our atmosphere and apply it to us all, the implication is a black hole in the fabric of metaphysics.

Suppose you are in the back seat of a car full of people powering over a Texas hill country highway late at night. The driver has the habit of looking at the person he is talking to. You are not sure how much he had to drink at the party. Everyone else seems comfortable so you try to relax. But you can't relax.

Behind the wheel, the thin, long, haired boy with a filament-mustache, turns around and asks if anybody needs a beer. Then you become angry, not with the boy, but with yourself. Your brother had offered you a ride but you left with a stranger to be with your girlfriend, Caitlyn, who has suddenly acquired a talent for palm reading when her new boyfriend asks how many children they will have.

You notice a guardrail to your left and beyond a rocky, moonlit canyon. The beige and blue Ford Bronco snaps past a road sign on your right warning of falling rock. As you wonder if the young driver has noticed, he accelerates into a straightaway. No one else in the car seems to care. The two girls in front introduce themselves as Jessica and Ashley. The driver, Michael, is Jessica's boyfriend. He turns and smiles, "How do you do." You think he should lose the mustache. Jessica and Ashley ask if your girlfriend can really read palms.

As you scold yourself for being such a prude, you see deer. They look frail and uncertain as the Bronco barrels towards them. Finally, a large doe, the mother, springs into a treetop gully followed by her fawn and disappear into the abyss. Somebody opens a beer and turns up the radio. Another road sign, this one yellow and black and shaped like a diamond. It shows hard turns left and right and below it there is a small triangular sign that says "Good Luck."

Straight ahead, another guardrail this one with reflectors look at you with an evil eye. "Michael!" you blurt. He turns. Maybe the mustache is okay, you think. "Watch your driving."

The Bronco explodes through the guardrail.

For a moment, the catclaw, lantana and blackbrush being crushed under the floorboard tickles your feet. Michael desperately forces down on the breaks. You hear Caitlyn exclaim "Oh my God, we are going to have five children!"

"Ya know" Caitlyn's boyfriend says, "my best friend died in a wreck like this. The ones in the back seat lived though." Chaos ensues. "Or was it because he wasn't wearing a seatbelt, I can't recall but don't worry honey."

You want to be angry with Michael. You trusted him, put your life in his hands and now he has killed you.

How careless.

At least Caitlyn will have a big, beautiful family.