Presidential Elections are the most famous popularity contests in the world.
Famously, we like to think we are voting for an Angel, rather than settling for a Devil by the thought exercise, “which candidate would you rather have a beer with?” (Yes, like a good American grammarian I ended the survey question a preposition with.)
Except, we are in extraordinary circumstances:
Hundred Year Pandemic
Chronic Systemic Deferred Maintenance
Climate Change Proven beyond a Doubt
Reconciliation of Civil Rights a precipitous necessity
Worst Economic statistics since measurements began from The Great Depression
You can see how people might be willing to choose the best devil in such terrible circumstances, rather than the nicest angel. Whose Executive Administration will be able to handle the massive macroeconomic issues?
Almost makes you not even care if you even like the person, so long as you think they may help?
So, which Candidate would you rather get into a low speed fender bender with?
Thought Exercise
You are driving your crap auto called US, and the timing belt needs adjustment, tires are worn, and the brakes have been squealing for months, but like most Americans you don’t have an extra $400 to fix them.
As you approach an intersection at the speed limit, you anticipate a yellow light ahead and begin your squeaking brakes. As the light turns, you are a quarter mile from the stop line, and of the two cars ahead of you the car directly in front of you, a new silver Mercedes-Ferrari Electric Hybrid, has stopped about 500 feet away.
Your brakes engage, squeak as loud as you have ever heard, and for one reason or another you hit the $456,000 four door sedan that tops off at 155 MPH in 12 seconds. The bumper, replacement cost your annual salary, after installation, is broken. Don’t ask for details, it just needs $45,000 worth of work from a 15 MPH fender bender.
Out comes (A) either driver, Presidential Candidate (take the test again, and replace with either Major Political Party), and from the shotgun position (B) a Secret Service agent who will witness and back whatever Mr. A says, no matter how awful.
Two more facts: 1. They are self-insured, so they have no Insurance, if it is their fault; and 2. Mr. B pressed the emergency oil slick button as they drew to a halt at seven miles per hour—thus it is 100% their fault. Oil is everywhere, and the Intersection Camera clearly can show the before and after.
Which one of these two gentlemen would you then like to encounter in what, without the super tip-top-secret auto, (a) wouldn’t have been an accident, nor (b) be considered potentially your fault and liability?
That is a more accurate measure for where we are today.
Lest we should consider this the Junior High School election, remember that the Executive of the USA typically administers directly to a force of hundreds of thousands of people, lest the millions directly commanded. So, which group do you pick... go ahead take the thought exercise a third time, and remember to Vote!
I just wanted to be open and accountable to the public about where I am in my various writing projects:
Metaeconomics; took it off market for some re-diting, simplifications, expanded and comparative definitions, and reindexing with glossary. No set deadline.
Eventology Study; about 3/5ths done, but need to create more space for myself to complete the more poetical aspects. Hope to finish by next year's end.
Semi-autobiographical fiction about childhood; thought I was about 1/3 done, but still searching for the structural edits-- I think I may chop off a bunch of this second and first draft... feels years away still.
Crime novel; stuck in research is the simplest way to say that. Beyond which am amazed at our morally gray world, where truth is stranger than fiction. Always said this was gonna take four to six years at least... make it eight!
New historical fiction idea was crystallized for a vehicle and I have developed a very promising first draft outline. Wont be talking too much about this one for quite a while, but am excited to have finally found a vehicle for something I have been pondering... forever?
New economics book regarding "micro-economics," from about a 177 degree viewpoint of the meta-economics text. Should be eminently more readable and relevant... I hope!!
Anyways, just wanted to say thank you to those of my friends (dare I call them fans?) who have not only been reading my work, but been giving me feedback... and seriously amazed at the overall positive scope. That said, if anyone has indeed read my work, and was holding back comments for me that weren't entirely positive-- seriously, please (a) let me know you even have read the work, and (b) your true thoughts and responses. It's the only way I will get better as a writer and communicator!!!
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!
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).
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!
