You can check how your representatives voted on The Bailout, aka House Vote 674.
Arizona's four Republican and four Democrat representatives all voted No.
Thanks -- that took guts.
Tuesday, September 30, 2008
Monday, September 29, 2008
The Bailout is Dead! Long Live the Bailout!
The Bailout is Dead!
The 'revised' bailout bill failed. For 99% of citizens this is a good thing - the bailout was only going to treat the symptoms on Wall Street while ignoring the real problem - a bunch of Americans with too much debt. Two weeks of negotiation merely managed to turn a 3-page blank check into a 110-page blank check. Kudos to the House Republicans and Democrats who voted no. There are plenty of options that have a historically-proven chance of succeeding, this is not one of them.
I like Nouriel Roubini's HOME plan, though a Swedish-style nationalization would probably work too. In any event, the taxpayer should be guaranteed equity in the institution being bailed out. Astute observers will note this is exactly what Warren Buffett demanded when the Oracle of Omaha invested capital in Goldman Sachs.
Long Live the Bailout!
Bloomberg is reporting that the Fed has decided not to wait that the Fed has decided not to wait for our elected representatives to bailout the finance industry. They are going to 'inject' (aka print) $630,000,000,000 into the global financial system starting...now. I don't know why they'd shovel $630B through the backdoor instead of $700B. Maybe the willful violation of Congress' authority would be noticed?
Ben Bernanke is going to use the power of the press to defeat the nation's debt - by making the dollar worthless.
This kind of approach tends to piss off your lenders, like China, who may decide to stop lending. Let's hope other lenders do not follow suit because the US will default on its debt if they do.
What can/should you do?
If you want to know more, I highly recommend the following:
Economist blogs:
The 'revised' bailout bill failed. For 99% of citizens this is a good thing - the bailout was only going to treat the symptoms on Wall Street while ignoring the real problem - a bunch of Americans with too much debt. Two weeks of negotiation merely managed to turn a 3-page blank check into a 110-page blank check. Kudos to the House Republicans and Democrats who voted no. There are plenty of options that have a historically-proven chance of succeeding, this is not one of them.
I like Nouriel Roubini's HOME plan, though a Swedish-style nationalization would probably work too. In any event, the taxpayer should be guaranteed equity in the institution being bailed out. Astute observers will note this is exactly what Warren Buffett demanded when the Oracle of Omaha invested capital in Goldman Sachs.
Long Live the Bailout!
Bloomberg is reporting that the Fed has decided not to wait that the Fed has decided not to wait for our elected representatives to bailout the finance industry. They are going to 'inject' (aka print) $630,000,000,000 into the global financial system starting...now. I don't know why they'd shovel $630B through the backdoor instead of $700B. Maybe the willful violation of Congress' authority would be noticed?
Ben Bernanke is going to use the power of the press to defeat the nation's debt - by making the dollar worthless.
This kind of approach tends to piss off your lenders, like China, who may decide to stop lending. Let's hope other lenders do not follow suit because the US will default on its debt if they do.
What can/should you do?
- Pay off all credit-card debt. Borrowed money is about to get expensive.
- Re-finance all adjustable rate debt to fixed rates. When your debt is at a fixed rate, inflation works to erase it.
- Sell large assets denominated in USD and move any cash savings to (currently) solid currencies: Canadian/Australian/Hong Kong dollars, the Euro is pretty good except the Euro-zone is about to have its own subprime meltdown. You can do this at E*Trade; it's easy. Remember, just as inflation eats away at your debt, it eats away at your savings.
- Invest in commodity indices like energy (RJN) and metals (RJZ). The nice thing about investing in energy commodities is that it will offset what you are paying at the pump. Energy commodities are also priced in dollars, so they will increase in price with inflation (as will gas prices).
If you want to know more, I highly recommend the following:
Economist blogs:
- Nouriel Roubini's Economonitor
- Greg Mankiw's Random Observations for Students of Economics
- Brad DeLong Grasping Reality With Both Hands
- Peter Schiff - Crash Proof
- Jim Rodgers - Hot Commodities and A Bull in China
Sunday, September 21, 2008
Vote in '08!
The 2008 Presidential election is drawing near and with it, your chance to help determine the direction of our country.
If you're not registered to vote, please do so now. It's easy and registration deadlines are approaching quickly. In Arizona, the deadline is October 6 and you can register register or request your mail-in ballot online.
Both the Obama and McCain campaigns detail their policy proposals on their websites. The policies are easy to read and (last time I checked) do not contain the rhetoric you often hear them described through. I think there's a good chance you will learn something new about the candidates' views on issues you care about and whole-heartedly recommend reading both sides.
If you're wondering whether some statement is 'true', a good place to check is the non-partisan FactCheck.org. I've also found Wikipedia to be a good start point for research. As you can imagine, the Wikipedia biographies and topics central to the election have seen much addition and review.
Vote in '08!
If you're not registered to vote, please do so now. It's easy and registration deadlines are approaching quickly. In Arizona, the deadline is October 6 and you can register register or request your mail-in ballot online.
Both the Obama and McCain campaigns detail their policy proposals on their websites. The policies are easy to read and (last time I checked) do not contain the rhetoric you often hear them described through. I think there's a good chance you will learn something new about the candidates' views on issues you care about and whole-heartedly recommend reading both sides.
If you're wondering whether some statement is 'true', a good place to check is the non-partisan FactCheck.org. I've also found Wikipedia to be a good start point for research. As you can imagine, the Wikipedia biographies and topics central to the election have seen much addition and review.
Vote in '08!
Thursday, September 18, 2008
Chandler Community Emergency Response Team
I am in the second week of the 'G-17' class of the Community Emergency Response Team (CERT) offered by the city of Chandler. The idea behind CERT is to train folks in the community to be able to assist in and help organize responses to emergencies within the community.
The class runs 7 weeks and covers the following topics:
They announced a new CERT class will be starting on next week on Friday 9/26; you can sign up online if you are interested. Gilbert has a CERT program as well. Be prepared to invest 3 hours per-week.
P.S. If I give you a fire extinguisher for Christmas, this is why.
The class runs 7 weeks and covers the following topics:
- Disaster Preparedness, Terrorism, and CERT
- Disaster Fire Safety & Suppression; the CERT Organization
- Disaster Medical Operations I
- Disaster Medical Operations II
- Basic Search and Rescue
- Disaster Psychology
- Course Review and Disaster Simulation
They announced a new CERT class will be starting on next week on Friday 9/26; you can sign up online if you are interested. Gilbert has a CERT program as well. Be prepared to invest 3 hours per-week.
P.S. If I give you a fire extinguisher for Christmas, this is why.
Sunday, September 07, 2008
We now own Fannie and Freddie
The Federal Housing Finance Agency (FHFA) has just placed Fannie Mae and Freddie Mac into conservatorship with investment and guidance from the Treasury. This action is taken in coordination with the Federal Reserve.
It appears the Treasury is going to invest $100 billion each into Fannie and Freddie.
A bit of background:
FHFA was formally established Sept 3, 2008 (3 days ago) by combining two other government agencies.
The deal appears to be structured in a way that the Treasury has not assumed the $1.6T debt of Fannie and Freddie. Whether the market believes this debt is going to be backstopped by the Treasury is another matter.
This 'bail-in' is remarkably similar to similar actions taken by the International Monetary Fund and the Treasury to combat financial crises in Mexico in 1992 and Asia in 1997. The main difference is that today's actions are much larger -- $200B compared to maybe $100B for Asia, which was lent by the developed world via the IMF -- not just the U.S..
The general idea here is that Fannie and Freddie must survive because they play a critical role in the US mortgage market liquidity. Failures by the mortgage market-makers would literally freeze the housing market -- no selling or buying at any price unless you're paying cash.
What do Fannie and Freddie do, exactly?
Fannie and Freddie improve market liquidity by:
What did Fannie and Freddie do wrong?
Fannie and Freddie got into trouble by investing their own capital in these mortgage-backed securities because they saw all their large-investor customers making money hand-over-fist during the housing bubble.
They literally drank their own Kool-Aid.
Compounding this problem is that Fannie and Freddie were/are Government Sponsored Entities (GSEs). The trouble is that GSEs are strange public-private beasts and though technically their debt is not backed by the government, many in the market sort of believed it was. This meant investors were willing to lend Fannie and Freddie very large sums of money at close-to-Treasury rates. The T-bill is one of the world benchmarks for safe money. Fannie and Freddie took this money and bought the far-from-safe-MBSes it was selling.
What's Treasury (You) doing?
Just to re-iterate, Fannie and Freddie own almost half of the U.S.' mortgage assets.
Now the Treasury (this means you and your taxes) is trying to clean up the mess by giving them $200B and a plan. Treasury Secretary Paulson appears to be doing a pretty good job managing this mess. The capital infusion comes with real provisions to protect taxpayers and restructure the way Fannie and Freddie do business, which was a key to success in the Mexico and Asian bail-in.
The responsibility to execute this plan and to prevent further occurrences of this kind of problem fall to the next President -- be sure to ask your candidate about it.
It appears the Treasury is going to invest $100 billion each into Fannie and Freddie.
A bit of background:
- Fannie Mae and Freddie Mac hold over $5 trillion in US mortgage-backed securities, almost half of the $12T total.
- Fannie and Freddie currently have about $1.6 trillion of debt, owed mostly to large, often foreign, investors.
- Fannie and Freddie both raised capital in recent stock offerings ($14.4B and $6B, respectively), but this capital is being eaten away by the massive losses it is taking on the mortgage-backed securities it owns.
A conservatorship is the legal process in which a person or entity is appointed to establish control and oversight of a Company to put it in a sound and solvent condition. In a conservatorship, the powers of the Company’s directors, officers, and shareholders are transferred to the designated Conservator.Conservatorship is basically Chapter 11 for organizations "too big to fail."
FHFA was formally established Sept 3, 2008 (3 days ago) by combining two other government agencies.
The deal appears to be structured in a way that the Treasury has not assumed the $1.6T debt of Fannie and Freddie. Whether the market believes this debt is going to be backstopped by the Treasury is another matter.
This 'bail-in' is remarkably similar to similar actions taken by the International Monetary Fund and the Treasury to combat financial crises in Mexico in 1992 and Asia in 1997. The main difference is that today's actions are much larger -- $200B compared to maybe $100B for Asia, which was lent by the developed world via the IMF -- not just the U.S..
The general idea here is that Fannie and Freddie must survive because they play a critical role in the US mortgage market liquidity. Failures by the mortgage market-makers would literally freeze the housing market -- no selling or buying at any price unless you're paying cash.
What do Fannie and Freddie do, exactly?
Fannie and Freddie improve market liquidity by:
- buying individual mortgage loans from the primary lender (Chase Mortgage, for example)
- packaging individual mortgages into larger collections called mortgage-backed securities or collateralized-debt obligations with certain risk-reward properties
- selling these securities back to commercial and investment banks, but also to sovereign wealth, real-estate, pension, and hedge funds
What did Fannie and Freddie do wrong?
Fannie and Freddie got into trouble by investing their own capital in these mortgage-backed securities because they saw all their large-investor customers making money hand-over-fist during the housing bubble.
They literally drank their own Kool-Aid.
Compounding this problem is that Fannie and Freddie were/are Government Sponsored Entities (GSEs). The trouble is that GSEs are strange public-private beasts and though technically their debt is not backed by the government, many in the market sort of believed it was. This meant investors were willing to lend Fannie and Freddie very large sums of money at close-to-Treasury rates. The T-bill is one of the world benchmarks for safe money. Fannie and Freddie took this money and bought the far-from-safe-MBSes it was selling.
W. T. F.
What's Treasury (You) doing?
Just to re-iterate, Fannie and Freddie own almost half of the U.S.' mortgage assets.
Now the Treasury (this means you and your taxes) is trying to clean up the mess by giving them $200B and a plan. Treasury Secretary Paulson appears to be doing a pretty good job managing this mess. The capital infusion comes with real provisions to protect taxpayers and restructure the way Fannie and Freddie do business, which was a key to success in the Mexico and Asian bail-in.
The responsibility to execute this plan and to prevent further occurrences of this kind of problem fall to the next President -- be sure to ask your candidate about it.
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