Post Off!

There was a fascinating moment when I was first in Japan back in 1997, and I entered the post office.

A world of not just stamps, but bill pay, basic banking, insurance, and connection to other government resources all in one place. Denver has 311 for some of the latter, for instance.

By then I had a private bank account, but today's American could use proper passbook savings in USA, and basic simple fee checking accounts in lieu of non-banking 'card' services, also called non-traditional banking alternatives? Under this idea, anyone could walk in and open up an account.

Further, the insurance we could provide US citizens were we to take up this different vision, would be basic coverage to drive, rent, or even buy a simple government backed life insurance policy that wouldn't lapse, and could always be redeemed.

Not just collecting stamps, our post office could be a front line remedy for any bill collectors- allowing the payor ample time and space to drop by the local Post office, and maybe pay from the PO savings account they held.

Alloting this preferred treatment, the Post office will have the ability to operate at a nominal and marginal profit, not reliant upon stamp and shipping costs to sustain income.

Finally, Amazon, Fed Ex, and other services should be sent to the back of the pile with priority given to paychecks, pensions and paperwork that the current go-go e-forms of the dont read just click "ok" culture will eventually be slowed with discovery of the law.

Such to say we need to get rid of the current Postmaster General, and get the business of ordinary people done fairly and on time, expanding the very definition of the public postal offices.

Been meaning to write that for two dozen years.

A Modest Proposition

This is my first post since the Trump Administration took over.

I will not reduce this piece in any manner towards the 'ad hominem,' attacking the individual flaws, not a rebuttal to the premise of the opposition, found throughout this nation today.  Remember 'ad hominem' is a fallacy.

We are at a juncture in our nation's life where decisions for the future are now being discussed.  Taxes, Health, and Life, Liberty and the Pursuit of Happiness....

To whit:

In my treatise Metaeconomics, I define a non-tax structure of currencies to create a greater and more abundant state of living;

Seven Market Categories each with their own 'Class' of currencies calibrated to each market need.

1. Survival

2. Social

3. State

4. National

5. International

6. Bourses

7. Macrofinance

The premise and conclusion is that we are commodifying the bare necessities of life, and by not having a proper Benefit-Cost structure for everyone to agree to and reference, we inadvertently have put an actual dollar amount to the Earth, humanity itself, and the individual lives of citizens in general.

As such, I now entreat my recommendations to our present Administration.

The above scheme is well too complex for our current governments systems.  That said we need to talk about Milton Friedman's tax proposal the ruling party are now distorting vastly.  That is the little postcards we will be sending in to address nominally our annual tax portion.

I feel the current Congress wants to eat their cake and have it too.  It seems legislators take to tax exemptions like a cat to catnip-- they cant but help to assist their "constituent(s)" in being picked to 'win.'  Government shouldn't be in the business of picking winners and losers!

I. When all loopholes are closed: we only need an across the board tax of 11%, no loopholes across the board, to over-fund the Treasury, and begin to pay down the debt, and balance the budget.  And to be clear this is across the board-- capital gains, passive income, asset transfer, etc.

1.  First tier, and first moneys are tax free!  The first earned annual $15,000 Single, $25,000 Joint, and $250,000 Business are not taxed.

By lifting the burden of the underclass, we will create an operating market that functions freely at the initial or lowest levels.  This ideally stimulates the creative forces to invest in themselves, but does not allow any taxpayer to 'subcontract' to themselves, so as to only declare minimum tax-free income in, say, five different Taxpayer IDs, that still wholly are the account of that prime TIN in order to avoid taxes altogether.

In other words, just as the FDIC insurance only covers banked money up to $250,000, many elite create "Account ladders," where each portion of their cash wealth is held in as many $250,000 bank accounts, as needed, to insure the whole fortune. 

Similarly, business declarations must be transparent-- that is the premise of the postcards.  We already have the means to audit in real time all the electronic transactions (that would include all Federally approved institutions) nationally.  Cash and assets would only be investigated on sums above this initial threshold.

2. Second tier, 10%-  No deductions no loopholes and no 'motivational tax.'  It is in the interest of the State to ensure that every citizen has the freedom and liberty to pursue their specific happiness. The abundant tax breaks are designed to encourage a citizen to (a) buy a home, (b) get married, and (c) have kids.  That is the formula to create more citizens, a natural resource.  The more citizens, the more tax revenue, and so tax breaks have been tinkered with to create the byzantine code extant.

After initial first tier clearance, this second tier would cap at $40,000 Single, $100,000 Joint, and $650,000 Business.

For example:

Ralph Doe made $38,000 in a year, he would only have a "tithe to the state" upon the remaining $23,000-- thus a tax of $2,300-- and Ralph can easily estimate how much to save, every year.  

The Smiths earned $55,000 jointly, and because they could anticipate and easily calculate, they saved to pay the 'tithe;' ($55k - $25k = $30 x .1 = $3,000).

Acme LLC, a small cap C-Corporation, earned $422,000 in a year, and having been granted the first $250k tax-free to do as they need and want, they then earned an additional $172,000 above the exemption ($422k-$250k=$172k x .1 = $17,200). 

Sorry no write offs or loop holes, because when Milton Friedman made the tax simplification argument, it included ending all the bizarre and overly detailed escapes from taxation creating an effective net zero. 

Large cap businesses currently operate with most or all of their tax liability erased by every esoteric tax break currently on the books-- not the nominal 39%.  The savings for larger companies will occur with the redundancy of certain financial specialists they require to staff in order to have the "net zero" tax.

3. Third Tier, 12.5% after second tier and up to: $100,000 Single, $250,000 Joint, and $1,000,000 Businesses, annually.

4. Fourth Tier, 15% after third tier and up to: $650,000 Single, $1,000,000 Joint, and $10,000,000 Businesses, annually.

5. Final Tier, 20% after fourth tier and after fourth tier annual maximums.

All loopholes and favors are closed, except the ability to write off only donations to any 501c3 non-profit organization.  Other 501s, such as political organizations, or any other TIN classes are not "Tax Free," and have to conform to the above scheme.  (Maybe also keep the Mortgage Deduction, [and the State-level taxes] but again that begins the slippery slope of horse trading for more esoteric tax breaks.)

This final nominal 20% should also be tithed upon all capital gains, estate, and transfer taxes above the fourth threshold-- and realize a net TAX CUT OF OVER 25%!

This is just a simple tithing scheme.

II. Trump Care (ACA)

Here I provide a simple testimonial;  The ACA saved my life.

I have been recovering my health since 2009 when I began experiencing what was diagnosed as Arthritis.  When I finally got ACA health care in 2014, I was allowed my pre-existing conditions to be treated, I began to successfully manage symptoms I would have died of probably by 2016 without healthcare.

It turns out I have been in chronic pain via fibromyalgia much of my life.

By creating a safety net for all citizens, we increase the Potential Energy of the Economy (promising intrinsic future GDP).

Health is critical.  I have argued in my last post extensively.

By allowing our overseas competition to fund free health care we compete with an implied reverse tariff against us.  By insuring their citizens, they relieve businesses of cost burden to carry Employees.

Further, if we just simply eliminate the age requirement for Medicare, and wrap the Federal Employee Insurance (that Congress and Federal Employees have), and the VA System in to the folds of Medicare and Medicaid, most citizens would be able to rid themselves of illness and diseases to improve our productivity.

This leads to one of the most serious issues for the general benefit and health of our citizenry: Environment.

III. Reconcile Environmental and Economic policies.

I am totally saddened by the situation in Japan of Fukushima.  The robots died within minutes of contacting the radiation pit spewing radioactivity into the Pacific Ocean and destroying our fisheries.  Not to mention Garbage Island.

We are at a juncture where if we fail to act and coordinate amongst ourselves as humans on this earth, Mother Earth will shake us off-- in 100, 1000, or 10,000 years-- at the rate we are going how much longer do you assume we can last?

The natural resources are being opened up to industry, and regulations are being diminished, destroyed and dumped like a bad habit.

Climate Extremity deniers have failed to prove their premise now for forty years!  Data regarding man-made carbon increases was first uncovered in the 1960's from a military surveillance in Hawaii.  By the 1980's James Burke appeared throughout the Western world attempting to explain the probabilities and ramifications of our unchecked growth.  In the 1990's Kurt Vonnegut, Jr., created the words, "thermodynamic system," in an earnest appeal to the public to help comprehend our situation of overall increasing temperatures.  By, 21st century, Vice-President Gore further explained that our ignorance is costing us RIGHT NOW, very dearly.

Which helps us to arrive at International Relations.

IV. The World occurs with or without us.

1. Environment: The Paris Accord has been the result of decades of International Negotiations-- Kyoto, Doha, and Paris-- representing monumental achievements of Diplomacy.

Our failure to embrace the completion of the International realization that we as a species have very little time to have any say in what world we leave the next seven generations is abysmal. This is no surprise to the "woke folk," including the 99.9% of Scientists that agree we are facing a Monumental Challenge as a species.

The people who doubt "Global Warming" have a point.  Earth still has winter.  But Snow (winter-- a Season, not a climate) doesn't disprove what is best termed Climate Extremity-- hurricanes needing a Category 6 level?  (Remember basic science: where if a molecule is heated the energy excites [expands], and that is how every day we boil water for coffee, tea, etc.-- hence oceans providing increasing water to the excited storms.)

2. Diplomacy: The 'talking tough,' emphasis on conflict in the International arena is a fools errand.

In my book (available as second draft [still haven't corrected the indexes]) Metaeconomics, I define Perpetual or Constant (k) Warfare (W).  Perpetual Warfare (kW) is impossible to sustain and is NOT STABILITY.  History bears this out over and over.

War makes profits.  It devistates the underclasses.  And it also destroys our Terra Firma upon which we succor.

V. Conclusion

We are simultaneously the Oldest Democracy, yet one of the younger nations.

In my various travels abroad, I have heard repeated many times the opinions that we are viewed as an Adolescent by the International community-- picking on the weakest Nuclear Power (NK), but also cozying up to the closest rival (Russia) and Bully.  We must shake off this juvenescence!

Until we can recognize the simultaneous pulls of on the one hand providing guidance to other democracies by best example and primary superpower, while on the other having the humility to learn from ancient nations (France, Japan, etc.), we will not be followed as a world leader within the International Community.

I hope we Americans can make something work to address all of the above.  But I wont be surprised if I am further ignored.... that's Okay, because I am pushing neither "Like," nor "Ignore" on my Social Media radar. Life is more subtle and complex than the simple binary matrices we prefer, just because it fits in our head.

In this day of instant gratifications, immediate knowledge, and mass sub-culturalism (where people only listen to what agrees with their world view, as opposed to facts of concrete reality) we must comprehend that facts, factors, and proven (amongst all the sciences here we reviewed, economic) theory should be respected, observed and obeyed.

I am not going to go for another 30 years with the elites arguing that 'trickle down economics' operates within the mechanics of economy, is somehow to the benefit of all, and good economic and social policy (lest we compare the environmental disasters we are regularly carrying out in this grand open chemistry experiment).

So 'snapoutofit' and create reasonable by-partisan laws with clear-eyed leadership, please.

The Golden Fleece-down

Comcast won approval. Okay, but (and I haven't read the resrictions) should we not limit this transaction from a perspective of the possession or easement of telecommunicative ("two-way") devices in places of private residence or commerce in conjunction with the Potential of an implied warrant* the real issue: data mining, data collection, financial data sharing; etc.

*The former issue was similar to the subsidized railways of the 19th century, and now that much of the hard infrastructure is "owned," this implied or real monopoly on a market-by-market basis, in conjunction with certain content monopoly issues (channel restrictions, access limitations, and slower speeds for content not preferred) all imply that this will be bad for consumers.

This is a merger of Producer and Distributor to attempt to break this deal down into the simplest terms, and they have the customers "clicks" right in their hand.

I have Comcast Service, and it isn't as good as all that. Technical issues quite frequently, and local outages. That said, ATT U-Verse had major outages right over the holidays (as many are well aware) nation wide.

I would like to see better consumer protections... my bill has only gone up, and not just as a direct function of inflation.

How does this benefit consumers directly?

My World and the rest of the world....

Wow, Just found an old Newsletter I sent out at the end of Winter 2005 ~ 6, which recommends a heavy and long investment into the reintroduced thirty year T-Bill:

Starting January 2006
Date 2 yr 3 yr 5 yr 7 yr 10 yr 20 yr 30 yr
02/06/06 4.62 4.57 4.51 4.52 4.55 4.69 N/A
02/07/06 4.61 4.57 4.52 4.54 4.57 4.73 N/A
02/08/06 4.64 4.61 4.55 4.55 4.56 4.75 N/A
02/09/06 4.66 4.62 4.55 4.55 4.54 4.72 4.51
02/10/06 4.69 4.67 4.59 4.59 4.59 4.76 4.55
02/13/06 4.68 4.66 4.58 4.58 4.58 4.76 4.56
02/14/06 4.69 4.68 4.61 4.61 4.62 4.80 4.60
02/15/06 4.71 4.68 4.60 4.60 4.61 4.78 4.58
02/16/06 4.69 4.67 4.59 4.59 4.59 4.77 4.57
02/17/06 4.66 4.64 4.55 4.54 4.54 4.71 4.51
02/21/06 4.71 4.68 4.59 4.58 4.57 4.72 4.53
02/22/06 4.68 4.66 4.57 4.55 4.53 4.68 4.48
02/23/06 4.72 4.70 4.63 4.58 4.56 4.70 4.51
02/24/06 4.74 4.70 4.64 4.60 4.58 4.71 4.52
02/27/06 4.74 4.71 4.66 4.61 4.59 4.74 4.55
02/28/06 4.69 4.67 4.61 4.57 4.55 4.70 4.51
03/01/06 4.71 4.68 4.63 4.60 4.59 4.74 4.56
03/02/06 4.72 4.72 4.68 4.66 4.64 4.80 4.62
03/03/06 4.76 4.75 4.71 4.69 4.68 4.84 4.66
03/06/06 4.77 4.77 4.76 4.74 4.74 4.91 4.72
03/07/06 4.77 4.79 4.76 4.75 4.74 4.91 4.72
03/08/06 4.72 4.77 4.75 4.74 4.73 4.91 4.72
03/09/06 4.72 4.77 4.75 4.74 4.74 4.91 4.72
03/10/06 4.74 4.80 4.77 4.76 4.76 4.93 4.74
03/13/06 4.74 4.81 4.78 4.78 4.77 4.95 4.77
03/14/06* 4.66 4.72 4.68 4.69 4.71 4.89 4.71
03/15/06 4.69 4.72 4.69 4.70 4.73 4.93 4.75
03/16/06 4.62 4.62 4.60 4.61 4.65 4.86 4.70
03/17/06 4.65 4.64 4.62 4.63 4.68 4.89 4.72

Postmark on returned newsletter.

Source: Federal Reserve.gov ; http://bit.ly/asBCk9


***

(4.75% interest tax free for thirty years is a good bet even right now....)

~~~

If I was right about that fun fact about the economy four years ago, then trust me when I say, HEMP is right for the Economy Today!

There have been no new actual arguments brought up by the opposition since my last Post, or Original Argument from 1993~4. Mostly we have seen the same old tired out retread Arguments of "Fear," and to much lesser extent "Greed," because actually YES wins the conversation about jobs, taxes, and the economy.

The fearful bits about elections, is one of the key reasons why I am actually sick of our political system. Washington was as Cincinnatus a citizen - soldier - then politician - then citizen, and the (low) level of discourse in our modern politics disenfranchises ordinary citizens.

So, Fear is something, but the reason we are given privacy to punch our ballot is that the vote must not be made under duress. That category then is hard to define once we take impersonal effects from the citizen... does not the economy itself pose a certain duress upon the perceptions of voters today?

Thus, even though there are legitimate problems in our economy, government, and state budgets, we must look past fear and ask simply, "Will this Proposal (proposition 19) actually help?" Make a positive impact on my life and the future of our State and Economy!

With an estimated $1.8BB in savings by redirection of Peace Officer efforts and incarceration, this can certainly be redistributed at a savings to governments, and then more than make up any potential slack posed by people doing more or less what they are already doing (and government make fewer or no taxes from it).

With an estimated $1.4BB in revenues to state and local governments, this is a real solution for today's issues-- INCLUDING JOBS!

I am glad, although unaffiliated with, have often voted Libertarian, as well as other third parties, that the Libertarians recognized and endorsed Prop 19, without waiver or condition.

This will get the beginning of the end of a failed Prohibition and a failed social "drug" war mentality.

Peace.

THANK YOU.

Go out and Vote today November 2nd, 2010.

Please vote YES on 19!

The 10% (of GDP) Solution

[UPDATED (09/25/09)]

We approach one year since the Government of George W. Bush came to the rescue of Profiteers on Wall Street to create systemic reward for failure in our market driven economy.


Yesterday, Rachael Maddow interviewed Paul Krugman, and

Visit msnbc.com for Breaking News, World News, and News about the Economy

In minute five he begins describing the remedies for the current situation and I will be discussing the statements he concludes by about minute six, and among the other interesting points he made he mentioned that in order to get out of the Great Depression we had WWII which required government fiscal input of ~40% of GDP.


He went on to state that the current stimulus is only about 2.5% of GDP.


Now I am not going to spend time checking to see how accurate those numbers are this morning, and I dont agree with everything Krugman says. That disclaimer out of the way, I will say hes probably pretty accurate on those facts, and it is clear (as he also went on to say) that the political fortitude for such a stimulus plan is weak at best (mirroring the point in the one minute clip I could find above).


SO lets take those facts as a rule of thumb. Lets say the economy is twice as efficient now as it was sixty or seventy years ago; Let grant that this Severe Recession isnt exactly the same as the Great Depression (lets say for simplicity its half as bad adding the broader networking of International markets, exchanges, and trade); and we would need about ten percent of GDP in stimulus to really soar past our current problems!


Now lets assume the government has screwed the pooch with Paulson-Cheney's rescue, and that Obama's versions are still too early to call. All that, according to Krugman yesterday is about 4% of GDP (including cash for clunkers, et. al.).


[Lets apply about 1.5% of GDP for Infrastructure improvements, as my memory from first post to this update was off by 1.5%, so that means] we have about another 6% of GDP yet to spend: So thats about $858BB we can still spend.



1. Thats about the estimated cost for the full Health Reform Bill without any efficiency savings



2. My top ten wish list (inclusive of increased infrastructure and health care inclusive of efficiency savings)


or


3. A Citizens Stimulus



Here's the idea: Instead of giving more money to the moneyed interests, give to the citizens! Let's say there are about 200,000,000 individual and family tax payers; There is about $850BB to give for completion of stimulus which is about 1/4th as strong as how we escaped the Great Depression; then we have about $4250 Credit Amount per individual.



A. Order of the Allthing. In Icelandic and Nordic cultures there was the All Thing which basically reconciled all debts every year-- including debt forgiveness. So here would be the thing which I prescribe;


i. First, subtract Federal back taxes and penalties forgiven up to the Credit Amount
ii. Then from that remainder, subtract State back taxes and penalties forgiven up to the Total Credit Amount (This money goes to the States!)
iii. Next from that remainder, subtract local (real estate) tax liens and penalties forgiven up to the Total Credit Amount (This goes to the local governments!!)
iv. Finally, assuming anything is left over, any outstanding judgements, child support, or other unpaid levies would be forgiven up to that Total Credit Amount



B. The way TARP should have been applied.


i. Citizen give government the right to examine credit records (they ostensibly have this data just from Fannie-Freddie)
ii. Government confirms real outstanding balances from an official capacity via subpoena powers (thereby any institution being usurious or illegal would be committing fraud at a Federal level)
iii. Citizen has time to dispute final balances
iv. Creditor has right to re-validate claim(s)
v. Citizen may elect to have any remainder from Allthing process (above) to be applied to some or all participating Creditors to discharge debts in a class manner



C. Citizen may simply bypass this class bailout/credit restoration process and collect remainder form Allthing process.


SO think about this practically! Lets say 33% have something left over and want to participate in this settling of debts. Lets imagine who the money is owed to? In its current configuration (post-bailouts and mergers) something like 90% of all consumer debts are carried by 5 major institutions.


IF we imagine that Citibank (for instance) then recovers something to the tune of 10% of its consumer debt, doesnt that serve the same purpose of stimulus? It also relieves the consumer, and technically allows Citibank to make new loans!


FInally, if all those bailout moneys had been so applied the amount being discussed would be closer to $10K per person, and if we added the idea that mortgages could be included as direct or indirect beneficiaries to the class settlements or the use of funds by individuals who elected to bypass the settlement process some of the foreclosure and real estate market issues would have been rounded out.


You may say I am a dreamer, but I hope someday you will join me...!

Excerpt #1

The book should be available very soon, but in any event I wanted to blog some excerpts as a teaser, and/or to clarify this work of which I am proud.

First excerpt from the Foreword of Metaeconomics: Market Evolution Intuited from Practical Lessons of the Past and Present; A Treatise on the Philosophy of Economics / J. W. Kilvington – 1st ed. Copyright 2009 Kilvington Enterprises All Rights Reserved (contact book@kilv.com for permissions):

By September 17th, everything I thought I knew about Economics was destroyed, and yet made almost clear—as if all the gloss and polymer that never quite made sense about Economics had suddenly gotten out of my way from obstructing a view to truth.

The rabid free-marketeers were gladly going on the government dole like the much decried “welfare mother’s”; the red meat capitalists approximated red flag communists in their approach to problem solving; and in my entire lifetime it had been repeatedly explained that because an individual is responsible for their station in life as we are a meritocracy, the poor are the poor for a reason, and don’t deserve any of that precious tax money from the government.

All these now proven to be argumentum ad nauseam.

To say a thing over and over is not to have necessarily to have proved beyond a shadow of a doubt its truth and validity.

Nixonian cum Reaganomic cum Bushian trickle down theory to dismantle the state edifice of Keynesian New Deal and Great Society systems had officially and irrevocably failed.

The poor were always poor. Carter attempted to swim upstream, and got stagflation. Clinton made a nice presentation piece of the trickle down theories, and did improve the social netting—repairing holes in which people were falling through. But by also opening up new loopholes that added to our current state of affairs the rich kept getting richer.

I have harbored doubts about the circular logic of the trickle down system, its shortcomings, and now its bright line failures—more nationalization of private assets in 2008 USA than 1917 Russia its outcome!

What was the difference between Communist Russia and the obscene display of cowardice by the financial elites last year? Russia privatized means of production, as Marx and the other German Communists prescribed, but the Republicans under Paulson-Bush-Cheney privatized failure!

The lack of judgment, foresight, ability, competence, skill, expertise, ethics, integrity, and any notion or public sense of the higher good was underwritten to the tune of over $3,400,000,000,000 in the waning days of Bush II, a.k.a. “W,” and their cronyistic, nepotistic, and ceaselessly corrupt sense of self service.

That stain shall make irreparable the old ways of the supposed free-marketeer, which we can now see clearly tolerating such massive and self-serving corporations in your market and country is the same as harboring a Pirate in among your shores and counting their loot as part of the regular (taxable) economy—when in fact foul ways are clearly a disruption to the economy for those abiding the rules!

So from my supremely under educated vantage, yet speaking from patient practical experience, I shall attempt to describe my observations of what truly needs to happen to create economic systems wherein: I.) Humen are ensured Life, Liberty and the Pursuit of Happiness; II.) Free Markets can exist; and III.) Anyone can play and succeed in Business upon their efforts, merits and good behavior.

I pray this my work can continue the dialogue necessary in this nation and our world to provide Peace and Prosperity to all who would ask for it.

Update

So I haven't been anywhere in Cyberspace for well over a month... I barely had time and energy to make that little quip about Cheney.

Reason why: I have completed the first draft and first edit of a two hundred (or so) page book on Macro Economics.

The book is meant to be readable and modestly entertaining, but in fact is an exposition in Philosophical thought on economics which allows the reader to follow an argument I have been thinking for over twenty years now, but had allowed myself to be convinced by the "trickle-downers" that theirs was a system that worked.

Well that horse has left the barn, and the fly in the ointment is a obvious as the emperors new clothes. Sorry, had to puke out a couple of over used cliches, which I tried to avoid in the book, with the exception of two, for which I directly apologize to the reader having (in less than one months writing) only come up with those relatively apt descriptions to hasten the readability.

I would have loved to spend ten years instead writing some needlessly complex book which makes obscure and practical example of the thought so espoused in this work, but morally I felt the compuncture to instead make an effort to shift the dialogue we are presently trapped in with our current economic state of affairs.

All that said, I am hanging in there, wish you all the best, and hope to publish the book as a final draft by March.

Why the Republicans are "Communists"

Lets start off by defining communism via copying from Wikipedia;

"Communism is a socioeconomic structure and political ideology that promotes the establishment of an egalitarian, classless, stateless society based on common ownership and control of the means of production and property in general."

That very good sentence is not what I mean by referring to the "W" administration as Communist.

Lets shade things in a little:

When I was growing up you were a Pinko, Commie, or as Wally George would say, "Looney Liberal" if you disagreed with trickle down economics.



Aside from Appeal to the Masses approach of name calling, why would I conclude that the label of Communist, as the many Republicanistas I have known over the many decades, would call someone, group, or argument which believed in any hint of the socialist concept of nationalization of wealth, be an appropriate adjective for the Republicans?

Lets construct the argument from the Republicans and their Administration.

(1) Paulson hands in a three page proposal to solicit $750BB by using an Appeal to Fear.

(2) The congress, after some questioning, submits to this request without examining the construct of mechanisms of oversight, re-regulation, or sufficient scientific or public input by certifying the Appeal to Fear and also using an Appeal to Consequences.

(3) Paulson in turn has "bailed out" only the richest and most influential corporations without any calculation towards restoring the credit markets. In doing this he acting as proxy for the "W" Administration has nationalized more dollar for dollar (adjusted) private wealth than did Lenin in the 1917 Russian Revolution.

The main difference between the almost 90 years and two continents? Lenin nationalized means of production, and Paulson/Bush have nationalized private failures.

As sickening as that statement is alone, it in my opinion gets worse.

(4) Now it also turns out that the execs and other elite do not have to take any pay cut for their failures.

The primary argument from all the trickle downers was that through facilitating the elites, you create more jobs, and thus have a social hierarchy which is a form of meritocracy. Often the arguments from those same trickle downers was that to have a state mechanism which takes care of less fortunate, say war veterans or people with disabilities, would reward failure, incompetence, or lacksadaisy. Can you see where I am going on this one?

The beneficiaries of the decades of pro-corporation, deregulatory, and trickle down thinking has been turned on its head by those very same people who would have argued (in the face of say a $700BB package to allow individuals who earn less than $50K per annum to write down their losses [not pay taxes], be reimbursed for incompetence, and be availed of debts incurred from their poor decisions by the US government) against such a blatant avoidance of capitalist consequences.

Those who would argue that somehow the Clinton years were not in this bag of hammers are dead wrong. Clinton worked with the Knut Gingrich congress to get those lazy welfare mothers back to work, for instance. Only Jimmy Carter tried to oppose the Nixonian economic dismantling of the Great Society and the New Deal-- and he was absolutely punished (for not doing a very good job of trying to swim against the current).

So, was Paulson's appeal true or false? Probably a little of both. Yes, the sky was falling, but not in the way anyone could comprehend-- or at least anyone who truly comprehended this did not say. (On a separate note, how convenient is it of the anti-government Republicans to not only have built the largest American bureaucracy in history, but to have also spared us poor innocent citizens from the awful and complex truth involved in the facts {thus a defacto Nanny State mentality, to boot}?)

So, was Congress reasonable or irrational to take such drastic action? Probably a bit of both. On the one hand to it was fairly unpopular (especially at first blush), but to have gone into lame duck session without action could have been political poison for reelection.

So will the companies chosen to be bailed out be a good or poor move by the collective US Government? Probably a bit of both, again: On the one hand if we are truly getting preferred stock interest, corporate bonds, and other repayment guarantees, then there is a real probability (say 30 ~ 55% chance) that the US government (and hence the taxpayer) will come out ahead in dollar for dollar inflation adjusted numbers at the end of two or three decades. On the other hand it is in my estimation also a fair probability that dollar for dollar we could come out behind.

Effectively the US Government will have to now manage a portfolio. On the other hand, it will control certain of these groups (like Fannie-Freddie). All the while being the regulator for these corporations! This is a Corporatist Socialism model which in large part has been the fantasy of many of the Pro-Business "Libertarians" I have read.

They showed Soylent Green on TV yesterday, and that is taking the overreach and complicit conspiracy between corporation and government to a natural and far reaching (if not simplistic) conclusion.



My recommendations for the new administration:

(a) Re-enforce various merit based pay systems/anti-golden parachute provisions for these loans, or they will become due. The Republicans (and many Dems) are fond these days of talking about mortgages and other legal devices as if these are mutable documents. The basis of law is the immutable nature of such binding agreements in writing and witnessed. If there is going to be any flexibility in interpreting legal agreements lets start with the fact that the intention of the parties was NO GOLDEN PARACHUTES!

(b) Envigorate and expand regulatory mechanisms. Further this by making public oversight commissions to review this triangle between the US Government as Stock/Bond holder, US Government as regulator and enforcer of laws, and as shepherd of tax dollars thus invested. (Think Customer, Regulator, and Broker-- of which US Govt is now all three.)

(c) Create new rules for this new use of tax dollars to further discourage cronyism, quid pro quo, and other unsavory action which could clearly emerge over time from this unholy trinity by creating trust fund and anti-collusion rules for the US Government as Broker.

(d) Create timelines (not in terms of time, rather in terms of event mile markers) which delineate the divestment of these holdings (as Customer).

(e) Enforce the bloody rules that are on the books! And simplify them so that even the company Receptionist could theoretically blow the whistle upon detecting malfeasance or felonious behaviour!!

So now I am going back in time, to 1987, Reagan is President, and I am going to visit Wally George and be on the lame-ass Hot Seat show to say, "We need to infuse business with $700BB in order to allow them to avoid losses, keep their jobs, and 'stimulate the economy.' I believe the government should become three times bigger than it is today. I think it will be good for us to avoid confusing our consumers, I mean citizens, with any real information or data germane to the decision making processes, because politicians know best. And then I believe as regulator, primary stock holder, and investor the US Government shouldn't be burdened by little details like accounting for how those funds are used by the corporations we deign to be worthy of state investments!"

Commie!

Mortgage Madness

You gotta love the old commercials from the local (appliance, auto, carpet) guy where he says, "I'm going crazy."



Pitch lines then vary for instance, "until Sunday at Noon;" or "with prices like these...;" or "always and forever, so stop in anytime and I will make you a heckuva deal."

The point was (as I havent seen "that guy" for a long while) that the owner was irrationally trying to reduce stocks or inventory, and/or needed to pay for his divorce, expansion, or next years order.

Thats capitalism.

Crazy Guy, then either procured enough customers with enough profit margin and cost recoupment to justify another year in business, or he went out of business. Simple enough, which was why Crazy Guy would occasionally (or in the case of a really poor business model, regularly) reach out to his local TV Market and plead for assistance in the form of mutual benefit-- he took a loss so you could help him keep his lease (or whatever).

So where is this commercial:

At ABC Mortgage, our Sales manager has absolutely gone apeshit with this Financial crisis, and, not to talk out of school, but on top of all that his wife and his girlfriend are suing him-- right when the Federal government has specified NO MORE GOLDEN PARACHUTES!

His loss is your gain, we are renegotiating all of our current mortgages, and selling up to meet volume for the first two hundred customers (limit one mortgage per customer, some customers will not qualify).

But hurry, his divorce finalizes next Friday, and if we dont firm up our balance sheets to meet Sarbanes-Oxley-- he's fired!

So, come on down to ABC Mortgage and get you a 5% mortgage amortized over 40 years! Who said you couldn't afford that house?



And there you are. No CITI or AIG bailouts... pure capitalism. Oh, wait, I am dreaming again... sorry.

First problem is that brokers only arrange mortgages for banks/lenders, who then sell mortgages to servicing agencies, and once those are seasoned (paid on regularly for 30 ~ 120 days) they are then packaged and sold to the "Secondary Market," which means Fannie-Freddie (whom by now you have all met, and now as taxpayers own). Lets stop there, even though there were then from those secondary mortgage packages a variety of collateralized debt obligations which hypothecated the real (or implied) values of those packages.

Next problem is that Crazy guy from ABC Mortgage, aside from only being an arranger (still remember that guy in So Cal, "The Loan Arranger" for auto finance) 99% of the time, has no more inventory. There is a credit freeze like, literally, no one's business.

Finally, ABC Mortgage, probably did go out of business, and not the Servicing company or Lender (such to say that Countrywide the #1 mortgage company was bought by B of A for a song, and hence still exists).

So, before I complain about how Republicans are Communists (as I expect to do so in a future blog), lets just cut to the number one simplest and most effective way to sort the mortgage mess in short order (as I had promised to write this solution a while ago):

Extend amortization.

Before I go into the maths, let me just state that for the borrower the principal stays the same and it will take longer to pay off the mortgage; for the servicer no long term loss (possibly even more profit over time); the Lender must keep the liability on the books longer, reduce cash flow; and for the secondary market only reduction in cash flow operations. There would only be minor modification of existing contracts (as opposed to major overhauls on a case by case basis). And as for our friends in the "tertiary" markets, the CDO's and derivatives, principal is maintained, defaults mitigated, and only cash flows reduced. Everyone loses just a little bit, but everyone also wins: Borrower gets lower payment and keeps house; Servicer makes more money over time; Lender keeps principal in tact; and so do the secondary and tertiary markets.

The eloquence of this solution is best revealed exactly as it relates to the derivatives. A simple "pick-a-workout" could be sent to all Borrowers in any one CDO class. The post card size item, or letter, would simply show four options including payment adjustments:

1. Keep your mortgage as-is (including disclosures and updates in adjustment estimates as average or worst case)

2. Re-Amortize to 30 years (in other words if you have been paying for x years on a mortgage you extend the mortgage by x years)

3. Re-Amortize to 40 years

4. Re-Amortize for 50 years

NO PRODUCT CHANGES, No messy paperwork, no complex negotiations, and none of this victim stuff. What I mean by that last comment is (a) the people who barely pay on time and can hardly afford the mortgages are much of the focus of the attention {this is why they called it the "sub-prime" crisis, but this has always been the 'secondary market situation'}, but (b) the other 92% of mortgages in the class being paid on time are not benefiting nor being assisted or relieved. The message = Dont pay your mortgage, lose your job, and plead hardship to get a 4% loan.

This current predicament of one-at-a-timing it, then freezes the Secondary market (existing packages are totally kaddywampus right now) and disallows the resale to derivative products.

However if the class (anyone with a mortgage that has been bundled in any particular derivative) is generally offered an amortization extension OPT-IN to be selected by some certain date (say 90 days plus 30 days grace), then that class of mortgages in the CDO (for instance) will be harmonized, not considered "toxic," and that same amount of liquidity would re-enter the Secondary Market by virtue of that Tertiary market buying that package of value (in four months to complete the example).

Thus under my "Class Reset" theory we could be out of this mess in six to nine months.

Here is a simplification of what the offer would look like to a homeowner in year two of a 3 year adjustable $365,000 mortgage LIBOR+3.25% (subprime):

(A) No Change (your payment will adjust in a year... other information)

(B) Your monthly payment will be: $2,188.36

(C) Your monthly payment will be: $2,008.28

(D) Your monthly payment will be: $1,921.38

****

And what if after all of this someone in hardship picks (D), and still cant keep up with the mortgage or refinance? Well ideally the borrower can THEN call the Lender to work out extraordinary arrangements or a forebearance. If after all efforts have been exhausted in earnest and good faith efforts, then in capitalism the property is foreclosed... No risk, no reward. And (Sorry, but I have to throw this one in here) to those punters at the borses who have whinged so endlessly as to become communists-- Dont place the bet if you cant afford to lose!

But we are not capitalists anymore, are we?

Bretton Woods 3 and #44

Great article in the New Republic which breaks down the global financial mess in plain speak.

Most of my whinging has been about our Domestic Policy: Reduce the IRS to a minor agency by simplifying tax code; Return the Fed to its role as a clearinghouse between banks, and close the "window" to the big businesses who keep talking "poor mouth;" and modify laws to being Plain English so that there can exist bright lines that enable transparency, enforcement, and whistle-blowing (self-regulation).

What of Foreign Policy?

Well, sir, as Isolationist as my instinct are, the reality is that the actual value of the average fiat currency dollar in your pocket whizzes around the world once a day or more.

Therefore it begs definition that there really are no "Isolationists," anymore, and further no major power in the post-industrial economy could afford to be.

As in the article great minds, and Gordon Brown (who I admire, has a great mind, but is the Prime Minister-- so you have to have a cup of salt around for anything he will say, in spite of the fact that he was after all the Chancellor {Finance Minister} for Blair), are calling for a new Unification of the monetary system-- they refer to it as Bretton-Woods III.

I mentioned before that there needs to be a swords to plowshares mentality in the world for there to be avoided some great depression, and the penchant to harmonize and unify is a deep instinct among we human beings. That said, let us examine that there really hasn't been a "Free Market" in currency in modern times.

One good reason is that if you look at the aftermath of The Great War (WWI), The German Mark was deeply punished by the victors and was only brought out of depression by making ready for WWII-- Bretton Woods "I" aside. Currency and collusion between allies against a smaller nation can be a form of War.

On the other hand creating a Universal Fiat would essentially strip many powers of nations to regulate their economic and financial policy decisions... which is the consequence of losing a War, so is essentially a non-starter.

Therefore, as I mentioned before, Trade Zones and the trading parties should have the ability to create Defensive alliances (as in the creation of "Greece"), and conversely current Defensive Alliances (NATO, et. al.) should have the ability to create currency agreements in order to buy and sell at discount, prop up weaker economies in the alliance, and "attack" other economies.

If you remove the warfare from currency, then you will create a greater warfare (most probably, goes my thinking), so you must allow for regulated and controlled violence of the market that can be appropriately contained.

Simultaneous to these exceptions (for instance if NATO agrees it is a dollar denominated Alliance, then all decisions are made in dollars by that Alliance, even though some of those allies might rule in Euros, Pounds, etc.) should be bright line rules of the game for a semi-free form currency market which allows for nations to set policy (such a false rate of Yuan or Yen) towards their own betterment, yet somehow hold them to account. If for instance the Chinese insist in undervaluing their currency to increase exports, the deficits can not enjoy a knock on by the false values. This doesnt mean the Importing nation can not enjoy the discount on goods or services, but it does mean that the reconciliation of Real-versus-Declared value would suffer. (Hence those NATO Allies in that theoretical dollar denominated Defense would still be subjected to the Real Weight of the Dollar according to the rules, and thus affect the larger Commercial Economy.)

I threw out a lot of complex ideas which may not entirely make sense to even studied economists, because I am using my knowledge-- and a lot of it I didnt just get from reading books.

As for what a new Administration can do, well like others, I await the breath of fresh air (as did the G-20 last weekend).

Memo from the Peanut Gallery to President Elect Obama's Economic Team

There are a multitude of complex issues to grapple with which separate and as a whole are unprecedented.

Great minds and scholars have been hard pressed for solid answers amidst the crisis.

So the few relevant words from a man who has barely cobbled a career from giving advice on real estate, mortgages, and finance is probably pretty low on any priority list, let alone item on the agenda.

Yet here in my own fantasy world known as my blog, I first have to point out this item from June 26th, which clearly defines some of the precipitous issues as it relates to market speculation and its forthcoming consequences as warned in other articles.

Next I would like to point out this article/commentary from 2007 which illustrates clearly the point of view of a humble and honest broker well before the Fannie-Freddy debacle.

And as this is my first commentary on economics and policy since the events of September 15th (a day which will live in infamy), please let me first make plain my assessment of the outgoing W administration, and secondarily the up shot of the Republican's as leadership:

1. The Soviet Union was founded upon less of a Nationalization of private wealth than as what has occurred in the "bailout" package.

2. Unlike the Soviets overtaking means for Production, this is similar to the mulligan that Enron took (Bankruptcy protection) after siphoning off billions of dollars from consumers and state purchasers (notably California).

3. If I was to make the argument that the solution(s) posited by the W administration's Paulson to Republican/Conservative people any time in my life starting in 1970 through to the "Bail out package," I would be considered a 'Commie,' 'Pinko,' or at best 'Looney Liberal.' Luckily I dont believe this is the best solution, although a necessary minimum of confidence was restored to the capital markets.

4. Although anti-free marketers are quick to assert this is proof that its a failure of free market concepts, unfortunately its not quite that simple. True free market principles would then suggest that we allow Wall Street to shatter into a million pieces, and allow the Phoenix of the Invisible Hand to rise from those ashes. The risk of Anarchy, Revolution, and War should not be a hinderance to those stoutest in defense of these principlea.

Rather what has happened is that the curtain has been unveiled upon the Wizard of Oz. Or more accurately Wizards: Power Elite; Ultra Rich; Super Rich; and their operatives... and as Gomer Pyle would say, "Sooprize sooprize," the W administration fits neatly into that last category (if not others).



The doctrine known as "free market," and, often as not, ascribed to as "trickle down," has been a fallacy waiting to happen since I took Economics in 1986 from my perspective. The fallacy is that the pitch (or soccer field to define the metaphor more readily) is absolutely not level (a lack of transparency of markets, trades, and companies-- let alone parity amongst status of trading parties), everyone knows this, but the referees (power elite) assure us that indeed the market is trading at a free clip, and they are doing their best to weed out the inept and destructive government (singular as in government is bad) in order to get back to those players to whom that unfair pitch advantage works against.

It is, like many convincing fallacies, a perfect ecosystem of utter nonsense.

What was revealed when the Wizard came out from behind the curtain?

The rules of the road were designed to insulate power elites from those market forces that every small business owner (not suckling directly from the teat of one or more of the power elite) faces yearly, monthly, daily, hourly, and even at a moment by moment level, wherein one bad decision can have the whole house of cards tumble down on them, their employees, and their families.

Perfect capitalism for 96% of the business owners in America, and pure communism for the ~4% that retain ~92% of the wealth and direction of capital.

The main difference here? That fallacy of "perfect" and "free" markets has been unmasked. For me it doenst make me less of a Keynesian or Miltonian (of which I am only some part in either case), rather confirms the sound logic of truth found within the mathematical models.

For all practical reasons, it wasnt the theories that were flawed, rather the implementation of those theories. You dont go golfing with Tiger Woods, and on holes 3, 7, and 12 receive a "0" on your score (an impossibility), then go on to say you bested Tiger Woods at Augusta for the Championship!

For lack of a simpler explanation that is what Corporate America has been doing for decades!

My Miltonian Tax suggestion of reducing tax paperwork to the size of a postcard, is premised on the fact that massive corporations with armies of lawyers can end up getting paid by the government, whereas the business owner will typically pay between 12 and 44% of GROSS EARNINGS in a profitable year to the Government!

LEVEL THE PLAYING FIELD, PLEASE!!!

So, what are my suggestions?

A. Simple, Fair, and Flat Tax for individuals, businesses, and everyone and everything in between. I think if you make annually inflation adjusted exemption provisions for the first $22K individually, $38K jointly, $6K per child, and $40K for business plus $6K per employee, then a 13% flat across the board on first moneys and profits tax should suffice to amply maintain the Federal treasury. Double tax only counts in certain specific cases, but honestly the concept of a "double tax" is in itself a product of the Labyrinthine tax laws themselves. Simple, plain, and honest: You earn money, invest it and make more... you are taxed on the money you earn. So called "death" tax is a myth, and any exemption should be put onto a matrix which allows for inflation and number of legatees, but otherwise massive fortunes do need to have the same 13% (a lowering of current complex statues) flat tax after expemptions upon transfer of estate.

B. All regulation needs to be put into Plain English. There needs to be a rule book for all people that everyone who speaks a 7th grade level of English can understand, but moreover, each field of employ and oversight needs a smaller and comprehensive annual rule book for the relevant profession(s). If you are a Stock Broker, for instance, the SEC needs to publish a Plain English Guide to all relevant laws (including definitions of crime and punishment) which is the basis for testing and licensure. How do we expect companies to follow laws their people couldnt understand without a law degree? This will facilitate whistleblowing, self governance, and enforcement. (On that note free markets if given clear straight, and bright lines do have the ability to self govern.)

C. International Harmonization. Its well time to beat our swords into plowshares. NATO can also be an economic body which assists in (a la Bretton-Woods) harmonizing economic functions. Why limit it to NATO? Trade Areas can work, and do work. However, just as we need to (for lack of a better word) admit that NATO is also an economic force, we also need to create Fair Standards in order to proceed honestly with our Trading Partners-- applying that standard basket of goods (environment, civil rights, and labor standards) as a preset disposition for negotiations. If any free trading regions partners can all agree to certain basic workers rights, then there is no price advantage to using slave or child labor in order to queer the productivity quotients and balances. This esoteric set of ideas (which I have simply called Fair Standards) is the nutshell of why we have lost so many jobs over seas-- not just "tax advantages" as certain groups would have you believe.

D. Mortgage Relief. I will be writing a more defined explanation of this soon, but here it is in the nutshell version. There are many of the steps necessary to implement a comprehensive relief in place under the current "bailout" plans passed, but my addition would be EVERYONE NEEDS TO FEEL SOME OF THE PAIN. Borrowers should still be on the hook for the full amount of the mortgage when enjoying payment reduction, Lenders should be on the hook to not get their money back in time, and all the middlemen, servicing agencies, and investors need to accept such bi-lateral intervention (as negotiated in mathematical formulation by the FFT [Fannie-Freddy-Treasury] guidelines and agents) regardless of how much money they stand to lose-- BECAUSE THEY ARE JUST MIDDLEMEN! Investors, sorry, but tough turkeys, you put money on those bets, were told the money was at risk, otherwise the SEC and FBI can arrest the brokers for non-disclosure... that said I think most licensees put investment disclosures on their business cards (a financial industry joke). The Government should tread very lightly in using its power to "renegotiate" existing agreements, and that said it is the Lenders right to refuse a renegotiation and foreclose... otherwise we strip Rule of Law (and contracts).

E. Stimulus. See my article on what we can do with the money we save by ending the War. more... more....

Just my two cents.... you can pay me later.

Punting

Punt: A kick in which the ball is dropped from the hands and kicked before it touches the ground. What the Fed did this week.

Punt: Chiefly British Slang. To gamble. What has been happening to Oil and Gas futures.

Strong criticism today;

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/06/27/cnbarclays127.xml

Echoing the RBS warning;

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/06/18/cnrbs118.xml

Right or wrong there was no way the Fed would win. There has been a systematic abuse of the available market levers by the Fed (http://www.marketoracle.co.uk/Article1429.html), aside from searching for and getting (http://www.mutualofamerica.com/articles/CapMan/March08/econperspec308.asp) more smoke or mirrors, they are attempting to get a couple of other tools; http://www.forbes.com/afxnewslimited/feeds/afx/2008/06/19/afx5133293.html

If the Fed is a farmer, then it has water (interest rates) and fertilizer (government bonds). If the weather doesn't cooperate, then it is possible to have a bad crop. Expanding the metaphor, somewhere along the way people got confused and thought the central bank could control the weather.

Amidst all the other doom and gloom... We are officially in Lemming Tortoise Mode.

Allow me to elaborate. In markets, there is a herd mentality. Markets are in part or whole psychological, for instance, it is estimated the supply-demand quotient for a barrel of oil is actually about 70 ~ 75 $/bbl, as opposed to its market value of 140 ~ 150 $/bbl, or about 50%. In other words half the cost of oil is market psychology.

To get into some finer points, many would argue that only some of this psychological half is pure panic, fear, or irrationality, and they come up with ideas like "risk premium," as a fancy way of saying that the Nigerians and Venezuelans may stuff up the supply demand balance-- still fear to me, just slightly more fact based fear. Watch the Secretary General of OPEC deny the supply issue;



And just to assuage the markets the Saudis agreed (http://rawstory.com/news/2008/Minister_Saudi_Arabia_can_increase_oil_0622.html) to yet again increase the supply of oil (no mind that USA refineries are at capacity). So what the hell is going on here?

One mans humble opinion (my speculation to the speculators) dont be the last batch of lemmings off the cliff. Speculators are driving the dark market for oil futures, creating scarcity of PAPER NOT OIL! Those last batch(es) of paper-buyers, whomever they may be or become, and this event may be gradual, or sudden, and may take a week, or a year, will be left covering the short on all those futures. The real price of oil has already pooled massive amounts of money to the big corporations for years and years.

Tortoise and the Hare.

Big money, real money, old money, and their followers who tend to also have large pools of money have long ago retreated from many segments of the market. Like lemmings they buy when the market is up, and sell when the market is down... When one goes they mostly all go, hence lemmings... and in spite of government adjusted numbers the smart money understands we are already in a technical recession;

http://www.shadowstats.com/alternate_data

The market is down, and most of the liquidity is Safely tucked away in secure issues with minimal risk... in one version of Tortoise Mode, or another.

In Tortoise Mode the banking families go into their wheel house and invest in banking, the real estate families start land banking, and the oil companies... (hate to paint individuals with the following broad and unsavory brush) well lets just say their presidency is coming to an un-sanctimonious end. This means for a limited time only, there is an opportunity to (a) get "no-bid" contracts from the government in Iraq (http://www.nytimes.com/2008/06/19/world/middleeast/19iraq.html?hp); (b) run up the price for gas on the claim that gas prices are contingent upon oil prices, supply is tight for oil, and demand exceeds supply for gas; (c) not having to parry market forces, and this is evidenced by their well known and publicly traded record profits (and to any who would call themselves a true free-market capitalist I defy you to explain why the oil companies collectively haven't had to absorb the "production costs" of inflated prices for oil like any other producer in the open market [and by the way where is the competition {you know the gas company that charges less for lower quality gas, etc.}]); and (d) I speculate that there is a re-infusion of some of this massive capital into these dark oil markets that are unregulated, and will be until something is done to turn the light on in the kitchen and watch the cockroaches scurry: http://money.cnn.com/2008/06/24/news/economy/oil_legislation/?postversion=2008062413

On this last point, it may take a month, but, probably, like the disappointing Supreme Court ruling against Exxon (where there was almost no punitive damages for the systemic criminal negligence in the Valdez spill), more like a decade or two to fully gather the facts and complete the prosecution of those traders and the speculators who are most probably buying a long call position, and then using some of their anticipated profits to pump up the market price... for the rest of those lemmings.

O, yes, real people, buying real options, in real markets, are making real money here because of this play (or series of plays). And I am totally in the dark from this humble vantage to guess as if this is just a perfect storm, coincidence, or any magnitude of conspiracy. And it doesn't matter. The laws are out of kilter, and I suggest we are witnessing the last act of a corrupt and powerful lobby that has had an administrations ear, which opened with the effusion of billions and billions of dollars from the California Economy in 2001 with the ENRON scandal.

Make your money while you can boys, because if you are the one holding those last call contracts for any penny over the real value of oil even one day after the market begins to correct itself (pending sanity, legislation, and possibly requisite a new administration).... well lets just say thats definitely something to worry about!

Open Letter to the Senate Banking Committee

To Whom It May Concern:

I find the gestures by the Senate a touch misguided, or even potentially disingenuous.

That being said, I would hope that in this inquisitive and exploratory stage, a person who is held up in public as a qualified expert on the subject of mortgages would be able to put in his tax free two cents.

It is not my personal opinion that I am an expert, rather that by the definition of California laws that for the health and longevity of my career that I take the actions necessary to meet the definition of "an expert" by operation of CA law.

This is true for the Salesperson who is required three college level classes, five tests, and an FBI level backround check. Moreso, for the people, like myself, allowed to hold themselves out as Real Estate Broker, where it becomes eight classes, eleven tests, and the same check.

In CA, we do have another type of Mortgage License, available to Corporations, and regulated by our Department of Corporations. Although they are regulated in a different manner, materially they are beholden to most of the same practices we on the Real Estate side are-- with the notable exception of not having to make disclosure on the MLDS of rebates received from an in-house banking resource. Hereafter I shall only be referring to our Real Estate side of the equation.

Unlike other states, whose laws I am unfamiliar, I can only speak from the point of view as a Real Estate Broker doing business in primarily CA. In our state, the common and legal practice is for the person signing the bottom of any mortgage application to be a real estate licensee.

In our standard regulations it has always been our agency practice, and my understanding that our practices are more or less standard to the state and federal laws, to have delivered (or attempted delivery) of a loan application no more than three working days from an origination. Most Lenders, such as Countrywide, et. al., require upon submission a signed initial application before conducting Underwriting.

Any subsequent change at any point in the complex negotiation process between agent on behalf of client and lender requires us to verbally disclose such changes to client, and materially deliver evidence of those changes in a reasonably timely manner on a revised application.

Contrary to assertions in some of the testimony by certain of the consumer advocates, the client of a good Broker will have had many chances to review the mortgage application as it is processed, and not meet that document for the first time at the signing table three or four days before funding-- and often when the luxury of saying "no" to a set of loan documents (the legal instrument of the mortgage) has moved on for the client.

A broker is the person who brings the massive corporate money to the householders. Our job then requires us to walk both worlds. That of the consumer advocate, and that of translator.

The loan process asks us to translate our clients situation to the Lender in a standard format whereby a credit decision can be made.

In that process, we are required to be reasonable within the purview of law and ethics. In the most unreasonable possibilities, operation of section 32, as we call it, will prevent any agent or Lender from approaching, in most instances, and avoiding always, the definition of usury.

Regulations D, Z, et. al., have provided additional training for the average consumer to think in terms of "RATE."

What is confusing is that the rates which they typically identify on TV, Radio, Billboards, Newspapers, etc. are APR, not note rates. Moreover, there is an "apples and oranges" phenomenon. What I mean is that in the ten to twenty factors which can define the Terms of any loan are typically unseen, unknown, and undisclosed except at the signing table.

Unlike certain implications and assertions at the hearing yesterday, this is not from unethical dealers (in most instances). In the case of the so-called "exotic mortgages," this is really a function of most licensees not having the time, energy, or in some cases skill or capacity to even begin to master the subtleties of such products.

As one who has done that for quite some time, the Lenders make subtle changes over time, changing the thresholds and requirements, and often creating confusion in their broker liasons and thus by default providing agents with less than perfect information to provide in good faith to the clients.

In many instances the Lenders are able to make exceptions, allowing a client who has met guidelines on an application submitted in a prior month to be funded at those qualifications in a subsequent month wherein the guidelines had been moved. Lets say for instance the DTI requirement was revised by the actuaries to 45% from a previously published 50%.

As a emipthetic witness to their efforts and good faith, although this example may allow certain parties the opportunity to characterise a Lender as creating a risky situation for the consumer, most Lenders want to keep faith with the consumer. The motivation of most sub-prime Lenders is not to "churn and burn" the consumer, whereby they are required to run like a hamster on a wheel of refinances year after year.

Consumers are at the end of the day required to take actions necessary to make an informed decision. Caveat emptor (buyer beware). I could regale endless examples and stories of clients hearing what they want to hear, but my fiduciary obligation prevents me.

I found that my training as a teacher of children for four years was very handy in the educational process I was required to subject most listening clients to. That said, not everyone can be expected to get straight A's. Most clients are working full-time jobs to pay their mortgages and consumer debts... they don't need to become fully trained loan officers just to refinance.

Actually, that brings me to the my characterization of the Senate being disingenous. Consumer spending habits, debt addictions, and fiscal disciplines are fed by a steady diet of junk food.

Advertisers and even government officials asking the American citizenry to spend money on non-necessities distract from family budgets.

Credit card offers sent to new homebuyers in a volume which would allow them to wallpaper their new home in a year are no help to the young couple starting out.

Easy credit for furnishing, autos, and other consumer goods to fill that new house blindside even the most studious and well intentioned family when start rates and no payment clauses expire.

No, its not the Mortgage Lenders to blame, nor the Brokers.

To be sure, there are some bad apples. And people like Mrs. Haliburton and the Advocates she contacted must continue to pursue their efforts to weed out bad practices and shady practicianers.

Here are my suggestions;


1. Expand consumer protections.

For now, the only thing an advertiser must publish is an "APR," which I defy every senator to be able to calculate accurately from three scenarios without the aid of a computer. I would be surprised if ten members could even do that with the aid of a standard calculator. Suffice to say it is a complex formula.

Consumers are by instinct led to beleive that "RATE" is the most important feature to a loan, and the expansion of the "exotic mortgage," a term which I find offensive, market bloomed when a loop hole in calculating the APR by use of start rates and MOST IMPORTANTLY START INDEXES was perceived by the Lenders.

Right now I find the APR requirement (although an important indicator) to be asking consumers to fly a plane with only a wind speed guage.

I have to add, please streamline the overall process, because making things more complicated and layered will only create more opportunities for well intentioned fiduciaries to make mistakes due to subtlety and complexity of law.


2. Expand consumer protections (on other forms of credit).

If the credit card industry was required to follow the regulations of a mortgage application conducted by operation of real estate law in the state of CA, then America would be a healthier fiscal society. Imagine "sitting at the table" with the disclosures on what amounts to a virtual negative amortization variable product.... 28% APR? Actually, true potnetial APR for many credit cards is far greater than any present requirements in published rates!

In fact, most disclosures are in the form of a non-signed, opt-in, 6-point font format. The paper is often smaller than your hand, and the legalese is intracable. If the mortgage industry was able to get away with the legalized mafioso practices of the Credit Card industry America would be Bankrupt.

If the poor, dumb, ignorant householder (yes, I am being sardonic) uses most forms of consumer credit say 96% of the time for 14% of their total debt, and the other 4% of their time they are concerned with that catagory of credit known as mortgage, the other 86% in this example, then the culprit in creating poor habits in that "consumer" is the vigorous consumer credit industry.

The reason I find it so incredible to blame the Mortgage industry for American spending woes is because in the case of laws, such as the Patriot Act, the citizen is told "ignorance of the law is no excuse."

Not equivocating corporate creditors with government, but its a bit overstated to point out the "sub-prime" mortgage market as the source for the consumer savings and debt crisis. Most brokers and Lenders are "taking the order" of the American consumer.

Again, I could cite many instances of my educated opinions falling on deaf ears only to fiduciarily effect an outcome which would be second or third on my list of best possible options for that households particular financial long-term health. The fiduciary obligation cuts both ways.


3. Clamp down on the Credit Card Industry.

Consumer credit is one thing, but Credit cards are an entirely different bag of hammers.

There are no ethical guidelines for workers at a credit card company to follow. In taking your application (assuming you even talk to anyone), processing, servicing, or collection practices the guidelines must be so thin as to avoid notice altogether.

Yes, there are certain standards, but there is a deep seated chaos in the granting of easy credit on the one end and punitive fee practices on the other end of that spectrum.

What message are lawmakers allowing these companies to send to consumers. How does this make for an educated, aware, and responsible society?

I can understand how certain members of your constituencies (some of my former neighbors, and possibly some of my present ones) can bring themselves to characterize credit cards as "the devil."

I am not of that ilk, and beleive with strong reform there is a place at the table of the American Economy for a healthy, honest, fair, and ethical consumer credit industry.


4. Expand Education.

Schools need to teach practical maths from ages 6 through 16.

Schools need their funding.

Schools need so much help and reform, I just wont go any further here.


5. Harmonize state law requirements.

I understand there are states wherein virtually anyone can originate a mortgage.

On the other hand some states (like Texas) make so many prohibitive laws so as to reduce the marketplace to exposure, thus competition, and thus most consumer choice.

Although education may not make agents, who are after all people, ethical, it can help in making them competent. Fingerprinting may discourage a certain bandwidth of potential bad apples, but at the end of the day... money seems to make people do weird things.


CONCLUSION;

I am of the belief however, that it is not "money," or whatever the thing is, that "makes" anyone do anything.

Rather we are a society of Rights and Responsibilities.

As citizens we are granted certain Rights, and it is the Congresses job to protect and steward those bundle of rights for all citizens-- and by impication in more noble times we could add "and all people of the world."

However, we are also responsible to one another. That is what motivated me to speak out in this blog after enduring C-Span for an hour or two on a subject in which it is my obligation to monitor.

Each person is responsible for his or her actions, and ethics and fair dealing is no exception.

Money is not the root of all evil, rather poor decisions and misguided intentions.

Let us pray for the good decisions and well-researched intentions of our lawmakers.