Friday, February 20, 2009

More economic fix thoughts

We could have fixed the economy already if:

the almost $1T already (in direct recapitalization and guarantees to financial co’s) had been spent on buying mortgages directly(at avg of .50 on dollar), lowered interest rates to 4%, wrote down mrtgs where necessary, and sat on those loans for the 5-10 yrs it would have taken to clear up the mkts.

The govt could have done this with 10yr bonds at an avg rate of 4% so the interest write down would cost them nothing.

The principal write down would most likely avg out to "a wash" between the mrtgs that turned out to be worth less or more than the .50 they were bought for.

Net-Net this would have been MUCH less expensive in the long run IMO but too many people refuse to be willing to do what they see as helping "others" when in fact it "helps them" (and everyone else) as well.

If someone wants to argue this idea by saying "we had to re-capitalize the banks" please realize that buying the mrtgs from banks "would" (in and of itself) be recapitalizing them (twice, in fact). Once with the money used to buy the mrtgs and once by the fact that removing those assets from their books means they don't need as much offsetting capital (re-capitalizing them by default).

The only reason a majority of people tend to think it would be a mistake for the Govt to buy MBS's is that those "avg Joe's" have no idea how the economics of the situation plays out and they are simply basing their opinions on visceral responses (emboldened by many in the media) to the thought of someone, other than themselves, getting help they "may" or "may-not" deserve.

To think otherwise about the reasoning of the so called overwhelming majority is to give those "avg Joes" (people who don't follow the markets or economics "at all") far, far too much credit. For Pete's sake, even some of the "masters of the universe" don't understand the economics of the past or current situation (that many of them played a part in)...

--> Original Economic fix post

Thursday, February 19, 2009

America needs to let go of past racial issues

We'll never be a truly "United" States until we can stop highlighting every single "first" for a one ethnic group or another. Some people actually appear to seek personal gain by preserving divisive feelings and stirring up past ethnic problems for the sake of creating controversy. Other demagogues continually invoke the past whenever it's convenient in order to advance their particular agenda or career (Al Sharpton comes to mind).

We make a big deal about the first person of a particular group to do this or that. Why do we have special awards ceremonies for separate groups? The first black coach to be on the NFL champion team? Seriously...? How big a deal are we going to make when the first black swimmer wins a gold medal. Why couldn't we simply celebrate it as an "American" swimmer's gold as opposed to making it about race? Is society better off having some of these racially separate awards ceremonies (for actors/athletes/singers/teachers/etc.) or would we be better of with one awards show for everyone as equals? Why not have the NAAAP (National Association for the advancement of "all people" instead of the NAACP?

Some people have a seemingly never-ending view of reparations due for past wrongs endured. However, the point needs to be addressed of just how much is required? When is enough, enough? Without such a "declaration" the end is never in sight nor is it remotely "achievable". Other groups have been wronged in the past (The Irish and Japanese Americans come to mind) yet people don't continue to bring it up at every opportunity or single out the "first Irish" or "first Japanese" person to do this or that...

Isn't the goal (or at least shouldn't it be) to come together as a nation and heal? This can never be accomplished if we keep drawing attention to our differences rather than embracing our common bonds. No one alive today was brought here on slave ships or was a slave or slave owner (although Japanese who were in internment camps are still alive) . Within 50yrs no one will be alive who had to endure or witness separate drinking fountains, bathrooms, etc.

Yes, we need to remember the past so as not to repeat mistakes. We do that with history books and National holidays. We also have great museums (Air&Space, Natural History, Holocaust, etc.) to aid in remembering our past. There's a new MLK Nat'l park memorial (adding to tributes across the country), as well as a new Smithsonian Nat'l Museum of African American History & Culture is in the planning stages which further the cause of remembering what is in "the past"...

So yes, let's remember and learn from history. However, there's a big difference between 1) being aware of, correcting, and atoning for, past mistakes and 2) utterly refusing to get past, and in fact perpetuating, those mistakes. In short, I believe we'll never truly be a "United" people until we can have events occur "without" making it about race, sex, or whatever. Let's get past Americans...

Political Blame Games & Puppet Leaders

Some people want to blame the economy on the administration of the past 8yrs but that’s a fundamentally incorrect viewpoint. If people did some actual homework they’d learn that the root of this problem was spread through the yrs of Regan (too much deregulation), Clinton (requiring mrtg lending to non-credit worthy borrowers), and Bush (allowing excessive leverage). Obviously, financial companies and consumers played a key part of the problem as well (plenty of blame to go around). In actuality, a given President has less impact than the House/Senate in causing these problems but most people will always give credit (or assign blame) to the most recent President they’ve had.

IMO, it's really unfortunate that we have democratic parties at all. We'd be better off if we had no specific parties. That way we could get past all the preconceived notions associated with being labeled a "democrat" or "republican" and just let people concentrate on "the issues" rather than the tiring and old "partisan politics"...

It’s amazing that some people actually believe that if someone's a republican or democrat they will obviously perform exactly like all other R/D’s. One of the big reasons votes seem to be "aligned" on one side or the other is due to the political bartering going on behind the scenes that sways the vote of weak politicians who base their votes on political favors or re-election concerns rather than what they truly believe in. You have to realize that plenty of politicians feel equally split between many of the issues that "traditionally" defined people as liberal or conservative. Unfortunately, those people are forced to be associated with and "pick" (R) or (D) because they'd lose if they ran as independent...

We need actual compromising legislation and so far, the Pelosi led congress is doing anything but be bipartisan. Even my Father-in-law hates Pelosi and he’s one of those people I referred to who will only vote for someone if they’re in his party (democrat in his case). The majority rules idea also fails to support having elected officials in the first place. Why? Well, if that were the case we could just post all the legislation online and have secure internet votes using the concept of “majority rules”.

Sure, your elected official should agree with your viewpoints most of the time but there are times when they should go against the wishes of their constituents because those constituents don’t understand the topic and are basing their support on “gut feelings” more than facts. The first bailout is a perfect example. I’m not talking about the way it was executed, I’m talking about what it was “supposed to be for” at the time it was being discussed and voted on. Most Americans were against it purely because of their visceral response to what they perceived to be going on. The problem was that the issues were complex enough that the typical “avg Joe” didn’t understand the economic interconnections of “wall street” and “main street”. Actually, many congressmen don’t even understand those interconnections. In reality, most politicians are just “avg Joes” who’ve been elected to make politics their main job. Part of that job includes being more familiar with legislation than the typical avg Joe who’s too busy with their normal lives to keep up with all the legislation being voted on. A leader is someone who can vote “against” the majority when necessary. A puppet just does whatever the majority of their constituents want (even if it’s not the right decision). “Majority rules” is a concept that supports puppets. We need fewer puppets and more leaders who, when necessary, have the fortitude to make the tough decisions…

Economic fix that should've been done months ago

Job loss is a by-product of the problem not "the problem". Here's an explanation of why, imo, removing the so called "toxic" assets (toxic due to an illiquid mkt) would stimulate the economy:

In a nutshell...
1. It would allow banks to stop accounting for those assets (this is, by default, bank recapitalization).
2. The actual money paid for the assets would be a direct recapitalization.
3. Private equity would invest once the question mark associated with those assets was gone (additional recapitalization).
4. 1-3 would enable the financial co's to provide huge amounts of lending capital to businesses & consumers. This would generate a lot of growth and, as a by-product, JOBS.
5. Those jobs cause increased consumer confidence and spending.
6. Increased spending causes increased demand which causes increased production, more jobs, and housing stabilization. This becomes a self feeding circle of recovery.
7. This recovery causes the "toxic" assets to rapidly become "non-toxic" and the gov't makes money on most of the assets it bought.

I believe we'd be in much better shape today if this had been done 5-6 months ago.

Regarding politicians: The same people demanding passage of a quick (an ok, but not perfect) stimulus plan should be demanding we buy those non-trading "toxic" assets for a "reasonable" price! A reasonable price should be one that is reasonably assumed to be correct with a certainty of 70-80 percent (i.e. paying an ok, but not perfect price). That price would probably be somewhere in the .50 range.

Do you agree? Disagree? Don't care and just hope we'll eventually crawl out from this problem?

P.S. I'm also in favor of 1. Mortgage modifications and 2. A Social Security stimulus that would basically give SS recipients 3yrs worth of check increases "up front" (as in now). They'd get their next check increase after this "advance" was accounted (approximately 3yrs from now). These two things could add “oomph” to the recovery process. The SS stimulus is practically no cost to the gov't because it's basically "an advance".

Economic Fix Part Two

(I oiginally wrote this months ago (before I used this blog) but the info is still pertinent.)