Friday, February 27, 2009

But Will It Scratch My Ass?

Sorry for the vulgarity, sports fans, but bear with me. So often I've been accused of being a "typical paranoid right winger" when I try to explain to folks the obvious fact that the hard left, in America and elsewhere, wants to control every aspect of our lives. They want to do this, of course, because they are far, far smarter than we. Take, for example, the matter of bathroom hygiene, upon which such experts as Cheryl Crowe have expounded in the past. Here's the latest diktat from our friends in Greenpeace via the always reliably Marxist Guardian in the UK:
The tenderness of the delicate American buttock is causing more environmental devastation than the country's love of gas-guzzling cars, fast food or McMansions, according to green campaigners. At fault, they say, is the US public's insistence on extra-soft, quilted and multi-ply products when they use the bathroom.

"This is a product that we use for less than three seconds and the ecological consequences of manufacturing it from trees is enormous," said Allen Hershkowitz, a senior scientist at the Natural Resources Defence Council.

"Future generations are going to look at the way we make toilet paper as one of the greatest excesses of our age. Making toilet paper from virgin wood is a lot worse than driving Hummers in terms of global warming pollution." Making toilet paper has a significant impact because of chemicals used in pulp manufacture and cutting down forests.

A campaign by Greenpeace seeks to raise consciousness among Americans about the environmental costs of their toilet habits and counter an aggressive new push by the paper industry giants to market so-called luxury brands.

Gee, we should be using, maybe, sandpaper or corncobs? What if we should be unfortunate enough to be suffering from hemorrhoids? Will we need a dispensation from the Federal government to get a prescription for the soft stuff?

Hey, I couldn't possibly make this stuff up.

I rest my case.

No FDR Here

Ultimately, all recessions and depressions resolve themselves into crises of confidence. The instant, global, 24/7 communications of today make them ever more so. President Obama, in his pursuit of liberal big-government spending, has totally neglected the role of the president of the United States in reversing global panic. To the contrary, his every remark and the constant preoccupation of his Cabinet is to heighten the sense of crisis and to escalate the predictions of doom if we do not do as they tell us and raise spending now and taxes later...Instead of being a firewall, reassuring Main Street even as Wall Street crashed, he has become a conduit of panic, spreading the mood of desperation from the stock exchange floor to kitchen tables across the world....It's Obama Spreading Panic, Dick Morris, 3/27/2009, The Hill

Maybe it started thirty years ago when parents began to see satanic elements in children's fairy tales and replaced them with the print version of reality TV. Kids no longer got the good stuff, such as the writer's favorite about Chicken Little.

Last fall, that fairy tale seemed to be playing in the media, a widescreen, 5-channel, Dolby version of Chicken Little played out for months before the national election. Every hour, panicky commentators and politicians shrieked about the financial sky falling. The effect in politics was to completely derail any plans for rational discussion of issues in the Presidential race. Instead, we had a lot of shouting and posturing about the financial sky is falling, the financial sky is falling....

Six months later, in the second month of the Obama Administration, in office in no small thanks to that highly orchestrated, widescreen, 5-channel, Dolby version of Chicken Little, the President and his band of advisors from Citibank and other "distressed" institutions are still shouting the same message, as Dick Morris notes with considerable disgust in his article. Is the financial sky falling?

The federal government may be getting ready to nationalize one or more of America's major banks...Are our banks really in such dire shape? You might be surprised to discover that the answer is no...Roughly 90% of America's banks are in decent shape...Overall lending at U.S. commercial banks was up 5.7% in January from last year to $9.85 trillion, a record. Since 1990, average annualized monthly lending growth has been 7.3%...just below normal...Commercial and industrial loans...were up 8.4% in January — though down from the roaring 20%-plus growth rate of early last year. Consumer loans rose 10.1%...In short, bank lending is at record levels. That's a data-based fact...So why all the talk of nationalization?...The U.S. banking system's five regulatory agencies — the U.S. Treasury, the Federal Deposit Insurance Corp., the Comptroller of the Currency, the Office of Thrift Supervision and the Federal Reserve — had this to say after they met on Monday....Down at the bottom of the regulators' release came this revealing statement: "Currently, the major banking institutions have capital in excess of the amounts required to be considered well-capitalized.",Don't Nationalize Our Banks, Investor's Business Daily, Editorial, 2/24/2009

What? Better read that again. Overall lending is up, both private and commercial, and capitalization is adequate. What? Better read that again. And further...

One reason we're in better shape than we thought is that last year the Federal Reserve moved quickly to make sure banks had enough liquidity, injecting hundreds of billions of dollars into the system and cutting interest rates to stimulate loan demand...Yes, banks have become more selective. But people feel that things are worse than they are because they judge the current strict lending environment against the excessively lax one of just a few years ago....It might be argued that banks are now doing what they should have been doing all along. So why all the panic?...(Don't Nationalize Our Banks, IBD, cont'd)

Of course there are some bad banks, but who is benefiting by bailing out such a catastrophically managed dinosaurs like Citicorp? It sure as hell isn't Americans not employed by Citibank.

The use of panic is, of course, nothing new in American politics. The senior historian Richard Hofstadter had a phrase for it, "the paranoid style in American politics" in a famous Harper's essay of 1964 (read at your leisure). He knew of what he spoke. A good example had occurred not long before the essay was written.

In 1960, Massachusetts Senator John Kennedy's major media message had to do with "the missile gap." We were, this message said, in such danger from the excess of missiles in the Soviet Union that, unless we elected Sen. Kennedy and his party (Democrats) to fix the problem, America would have to either surrender without conditions, or endure a catastrophic, world-ending war. Well, it turned out that the Russians had about six working ICBMs and a few hundred bombers that the then robust US Air Force could have shot down without much more than an interruption in their lunch breaks. President Eisenhower's administration, in the previous five years, had fielded several hundred Minuteman I's and Atlases, all of them deadly, hydrogen-bomb-carrying ICBMs. In a nuclear war, then, or in the Cuban Missile "crisis" two yeras later, Russia would have been burned to a crisp. The "missile gap" was a "sky is falling" shriek by a weak candidate who, but for thousands of Chicago voters whose registration addresses were in cemetaries, would never have been elected.

Deja vu, anyone?


Stimulating Lies

The new Wreak-America Bill will throw billions of dollars more into global warming research, a field in which data cooking has become an open scandal. Once again, the data is being adjusted to confirm the establishment theory: humans are responsible for global warming. In actual fact, satellite observations show that the Earth is now cooling, and has been cooling for about 10 years. This confirms the anti-establishment theory that the Earth warmed prior to the late 1990s due to the then-increasing number of sunspots, and is now cooling due to the now decreasing number of sunspots. The Wreak-America bill contains funds to “adjust” those pesky satellite observations, so that the data will confirm what powerful politicians wish to be true., Stimulating Scientists into 'Proving' Global Warming, Frank J. Tipler, Professor of Mathematical Physics, Tulane University, Pajamas Media, 3/27/09

As with the "Fairness Doctrine" and freedom of speech, this kind of political skewing of scientific research, familiar to any student of Josef Stalin (see Arthur Koestler's Midwife Toad), has nothing to do with science. It has everything to do with taking your money and using it to subsidize the dominant political party's lies. Tipler puts it very well.

The great classical liberal economist Milton Friedman pointed out that, “Einstein didn’t construct his theory on order from a bureaucrat.” If this Wreak-America Bill becomes law, the only theories created will be those created on order from a bureaucrat. And the theories will be wrong. Scientific truth cannot be established by government degree...(Stimulating Scientists....,Tipler, cont'd)

Now, you know what the change was about.


Rocky Mountain News: RIP

Yep, you read that right. Denver's Rocky Mountain News is finished, its last edition to be published today. If you haven't been following current events, anyone working for a newspaper these days is more likely to get laid off than dudes in the building trades and the automotive industry. Ask folks at the Philly Inquirer, which filed for bankruptcy this week.

In addition to casualties and cutbacks last year, including implosive conditions at the hard-left Minneapolis Star-Tribune (aka the "Strib"), severe publishing cutbacks for Detroit's papers, and the bankruptcy filing of the Chicago Tribune (which organization also includes the LA Times and the Baltimore Sun), we're now hearing that the venerable San Francisco Chronicle is at death's door; that the Gannett chain (aka USA Today and others), headquartered here in my backyard in Tysons Corner, VA is forcing all personnel to take a one week "furlough" in Q1 09; and that the New York Times, the world's most overrated rag, has cut its dividend, with its stock now residing firmly in the low single digits.

Full of themselves and oblivious to the corrosive power of the Internet on their traditional business, America's big newspapers fancied themselves bigwigs and kingmakers, and indeed arguably did power the propaganda machine that crowned as President this January a man with less political experience than Alaska Governor Sarah Palin who the press slandered, maligned, and dismissed. Meanwhile, the dailies' want ads headed to Craigslist, their real estate ads disappeared as online listings took hold at realtors' websites, and younger readers, used to obtaining their info on the web failed to subscribe in sufficient numbers to maintain traditional profit margins.

With department stores, grocery stores, discount stores, and drug emporiums withdrawing advertising as well, along with beleaguered arts organizations whose donations are shrinking at an alarming rate, and pretty soon you have no revenue at all. Not if you want to stay in business during Great Depression II which is now upon us no matter what anyone says.

Those dailies who established an online service early on in this debacle may have a chance, although we don't know of a single one that is actually generating profitability via its website alone.

Essentially, we're dealing with arrogant dinosaurs which, after years of serving as condescending gatekeepers of the news (conservatives and American patriots need not apply) now wonder where all their readers and advertisers have gone. Serves 'em right.

My schadenfreude here is tempered by the fact that I still write for a dead-tree newspaper, so my days as an ink- or electron-stained wretch are probably limited at this point. But still, when leftist editors and writers demean their profession by claiming the propaganda they write for a single political party is "objective reporting," they lack credibility to say the least. And when you damage the quality of your product, no matter what it is, people will always go somewhere else. And the advertisers will follow.

The print media has sneered at America's middle class--the bulk of its readership--for years. They're now being rewarded for it as their product becomes easily expendible in a severe economic crunch. It's the end of an era. And I'll mourn it when it's gone. I delivered the damn papers when I was a kid, and have written for them as an adult.

But I'll tell you what. I won't shed a single tear for the hypocritical clowns who destroyed the news media. Freedom of information--accurate information--has been what's always made America different, no, better than other countries and certainly freer. Marxist editors and faux Marxist millionaire media owners, basking and preening in the admiration of their peers, forgot their audience, forgot their mission, forgot their country, and forgot their place in the pecking order--news REPORTERS not news makers. So now, they are finding they have no place at all. It's the well-deserved fate of useful idiots.

Wednesday, February 25, 2009

When the Pictures Don't Fit

Here are a couple of stories for you.

A. A country, hugely in debt, is pouring money, like gasoline on a fire, onto energy suppliers who have national, or at least organizational, objectives to destroy the United States, or the entire western world. This debt-crazed country of our story has sufficient reserves of the materials needed to supply it at current levels of usage for five hundred years. What does it do?
1) It denies entrepreneurs the opportunity to develop those resources, thus forcing the country to continue its dangerous imports.
2) It invests in technologies that are, at best, likely to provide the equivalent of 5-10% of the need.
3) It penalizes people through taxes and fees for their use of this material, claiming that a higher claim than national survival is the danger of climate change.
4) The government justifies its policies in the same of an ideologically driven pseudo-science, "global warming," justifying its scorn for a common-sense solution to a dangerous risk in the country's current accounts balance, and in, as well, in its geopolitical stances. The latter are perverted almost unimaginably by dependency on foreign sources, forcing the country to back tyrannical regimes, engage in fabulously expensive wars, and to act as the world's most pompous hypocrite.

Yep, the subject is oil, coal, gas, and nuclear power. America -- that's us -- has enough in shale, offshore, Arctic, coal, nuclear and gas to power our system for half a millennium -- far longer than most societies have existed. The Roman Empire, for instance, had just about had it after 350 years.

Why would our elected representatives, including our latest President, make such strange choices regarding energy production? Or justify them with such fabulous lies?

Let's wait on that for the second story.

B. A country, deeply enamoured of home ownership, looked the other way when its government decided to force the financial system to absorb mortgages issued to a large group of people who could not afford the payments, a dramatic violation of market principles. Even so, the ultimate costs could have been avoided by consulting with Congress on taxing authority to pay for what was transparently a political program. This taxing authority was not sought. It is this writer's opinion that either Clinton or Bush could have gotten that authority -- who doesn't love home ownership for everybody? They chose not to risk political capital, preferring to risk the entire capitalist system instead.

However, by one of those tulip market miracles, the financial system absorbed this worthless paper, and grew at an extravagant rate. Then, as we all know now, and with very little warning (at least from the popular press), defaults on these subprime mortgages exploded. This disaster created a far graver risk, still largely unreported in the United States, though easy to find out about in, say, The Asia Times. That risk was much bigger, on the order of several magnitudes, than the original value of the subprime mortgages. Why? Because part of the financial system's fabulous growth has been powered by securitizing those mortgages (both the good with the bad), and then creating a variation of financial instruments called derivatives. This variation, called a credit default swap, was a form of insurance. What these young geniuses were doing is known on the street as "laying off the bet," a familiar tactic for bookies.

They rationalized a potentially fabulous risk by firmly believing that, based on the evidence, housing prices never go down. As such,the large apparent risk (that payoff on these swaps would be ten to fifty times greater than the value of the subprime market) was actually negligible. The market in credit default swaps became substantially greater than the value of all of the housing stock in the United States. About that payoff effect on widespread defaults: because there is a market in derivatives of credit default swaps, themselves a form of derivative, the risk of payoff goes up exponentially. With defaults on, say, a million mortgages, it's as though there had been ten million defaults. Multiply for effect on your own. Hint: Start with 12 zeros. The government reacts by:

1) Lowering interest rates
2) Offering to pay off the subprime mortgages
3) Forcing banks to reduce the value of the subprime mortgage's principal or to reduce interest payments.
4) Throwing a trillion dollars at the banking system with almost no strings attached.

Of course, what this amounts to is a vast, new intervention in a once free market. Value is no longer possible to determine. Chaos enters in. This latest political intervention is the worst so far, but what started it was a benign policy from the 1970s, greatly extended under both Clinton and Bush, of giving a break to people who couldn't afford mortgages. The policy essentially expected the market to subsidize otherwise untenable risks. This "political market" in mortgages exploded in value from a few billion to trillions by 2001. Hey, there's never any shortage of constituents for either party. Worse, as the years went by, these trillions became based on housing prices that were, frankly, a speculator's fiction. You know what happened next, or found out when you tried to sell your own house.

In the last two years, as housing values began to reflect actual demand instead of speculative hopes, they rapidly declined. Valuations began to go below the value of the principal on the mortgages held on them. The banks were totally screwed. Even though much of that was self-inflicted, blame is really out of court. With the whole system at risk, blame has to come after the fix, requiring people who caused the problem to fix it. Let them serve prison terms later. Unintended consequences of often good intentions, if only for good profits, had spun the economy out of control. Accusations are a waste of time and money. Why the urgency?

Banks and other mortgage brokers no longer had a basis, required by federal regulation, for determining how much money they could lend. Under federal rules, banks have a capital ratio requirement. Nowadays (see below) it's set at a dollar in assets for each thirty dollars in credit extended. If a bank a) doesn't meet that standard, or b) has no idea of what its ratio is, bank management must stop lending money. What happened with the collapse of the subprime mortgage market was both a)and b). Defaults took many institutions below the standard; and dramatic uncertainty in the housing market made it impossible to assess the value of collateral, thus making credit nearly impossible to extend. To do so would have violated federal regulations of the banks.

Credit crunch! And the apparent absurdity of government reactions to it. Why are they absurd? If a whole class of people becomes entitled to violate a given market's principles, then the entire market will be held in contempt. A vast intervention in any market makes any value in that market suspect. Who knows what a house is worth today? Or a Citibank share?

And, it wasn't just mortgage holders and lenders, neither of whom would ever have been in that condition without Washington's political intervention in the supposedly intervention-free housing market. It was also young, smart bankers who invented financial instruments that a) were so complex that nobody could understand them, and b) would bankrupt the system if the primary assumption underlying them was not true.

It was also drastic alteration of the capital ratio, which had been 10/1 (10 dollars of credit for every dollar in assets). That historical, and historically successful ratio, was overturned by the Bush's administration, which raised it to 30/1, a perilous ratio that made transgressing it far worse for the banks. Instead of finding themselves at the brink of the expert slope at Aspen, bankers found themselves staring down at an abyss.

It was also a breathtaking Las Vegas atmosphere among buyers, who used houses and condominiums, previously regarded as the principal asset of a family, a lifetime purchase, as poker chips in a table game that has, for example, left the state of Florida with a quarter of a million new condominiums that have never been occupied. Last persons to hold the mortgages did not win.

And lastly, the political intervention itself was motivated by that same fundamental idea, i.e., even if poor mortgage holders couldn't pay off mortgages, the banks (or Fannie Mae or Freddie Mac) would profit by the increased value of the collateral at foreclosure.

However, the primary assumption for the game house rules in the mortgage market, and for Washington's political intervention, that housing prices would forever increase, turned out to be -- you guessed it -- false! Bang! went the markets! Boom! went the banks. Blooey! went your 401(k). Kapow! went your IRA. Kerplop! went your job future.

One can only stand in the light of absurdity so long before certain thoughts come to mind. Let's look at a couple of ideas.

About "representative government":
1) Representatives in Congress tend to look after the needs of those constituents who help them offset the expense of running for office. We have known for a very long time about direct investment in political campaigns in the United States by the Chinese, by the Saudis, by France, by England, and by many others, most of whom are on the list of America's largest creditors. It is no surprise either that the new President's principal economic advisors come straight out of the same "system" that's falling apart. The system put him in office.
2) In such a world, votes don't mean much except to confirm a group's wisdom in investing in a US Representative or a US Senator. Don't think that's true? The vast majority of voters want domestic development of energy. Who represents their interests in government?

About debt purchased by other countries
1) The Chinese and the Japanese hold over $1 trillion in United States government debt, and far more than that in US mortgage debt, including collateralized debt obligations. Oil producing countries hold an equivalent pile of US debt as well.
2) It is foolish to assume that holders of such enormous interests in the US government, and in US private property, will stand aside and passively observe while issues of U.S. government policy are decided. No, not their government policy -- our government policy, policy that's supposed to represent us, the voters, the official constituency of Congress and the White House.

If you want a conspiracy theory, here's one that actually seems plausible for story A, the oil story, and story B, the mortgage story:

1) The government of the United States, in its policy formulations, is essentially held hostage by China, Japan, oil-producers, and other major overseas bondholders. Don't believe it? When you use your charge card to buy gasoline, who lends the money to you? Yep, the Saudis, or some other oil producer, does. Think that won't have an effect in Riyadh or Mexico City when talk turns to trade and other niceties of international life? When you buy a 62-inch screen, who lends you the money? Yep, China does. Think they don't remember in Beijing?
2) Essentially, the ban on fossil fuel development in the United States from Congress and the White House represents the interests of foreign oil-producing countries. Let's say that again. American policy regarding fossil fuel development in our own country represents the interests of oil-producing countries overseas. You can't get around that. The last thing Saudi Arabia, Russia, Mexico, Canada or Venezuela want is a United States that's not dependent on oil imports. It has nothing to do with "green"; "global warming" is only an underpinning mythology whose primary function is to motivate a radically different policy. See Chapter 15 in Decline and Fall of the Roman Empire. No, Pope Alphonse, it's not "Green," it's just greenbacks.
3) The financial system in the United States is held hostage by a) bad debt issued in the name of social policy, a political mandate issued the White House and affirmed by Congress and b) bad debt issued by over-clever bankers to insure the very same bad social policy. The reason that mortgages held by people who should never have had them are being paid for by the United States government (i.e., you, sucker) is because if the subprime market goes into total default, the cost in the collateralized debt obligation and derivatives market will bankrupt the entire world. This is not an exaggeration.

So, forget about the President or Congress "doing good" with regard to those poor victims of evil bankers, the poor people who couldn't afford mortgages. The bankers were required to give those bad mortgages out by a President unwilling to ask the people to pay for what might well have been a popular social program. Congress and the White House are picking up the tab for nonpaying mortgage holders because a) they weren't willing to ask for tax authority to pay for their political policy of essentially giving homes to the poor (somebody has to pay the damn bill), and b) if the financial system goes down completely, all the political power in Washington won't help Republicans or Democrats.

Forget about the evil entrepreneurs who want to spoil the Rocky mountains by processing rock for shale oil. Congress is denying American entrepreneurs the right to develop our own energy resources because Representatives and Senators are, like the President, under the sway of the Chinese, the Russians, the Saudis, the Mexicans, the Canadians, and other oil-producing countries.

As P.J. O'Rourke memorably put it, Congress is a parliament of whores.

In this vast, no-wing conspiracy, stupidity begets stupidity. In the real world, this is generally the story of any conspiracy. And, as in the real world, Ponzi schemes usually end in bankruptcy and prison.

When the picture doesn't fit, in other words, you might try reframing it.

A good place to start would be to stop blaming the poor folks who bought houses they couldn't afford. We have no choice but to buy those houses for them, or from them. Otherwise, we will all be living in tents.

Another good place to continue would be to end the political intervention in the housing market and replace it with something Howard Samuels tried to do with the fake rental market in New York thirty years ago. The NYC rental market was also subject to a massive intervention in its free trade by rent regulations, dating to the 1940s, that strictly controlled rents for one class of people, and strictly controlled rent increases for another (the difference between rent control, now largely vanished, and rent stabilization, still in effect for a million apartments in NYC. As costs rose, throughout the 70s especially, a time of very high inflation nationwide, the margin between costs and rent declined radically. In fact, by the late 1970s, during New York's biggest financial crisis to that date, landlords were abandoning profitless buildings in the tens of thousands. Worse, to get something out of a building, they were often setting their properties on fire for insurance money. Arson was not a minority-driven quiet riot; it was property owners trying to get any return on otherwise worthless property. It was a grave emergency. Those old enough to remember the 1978 World Series may recall Joe Garagiola's running commentary on horizon-to-horizon fires in the Bronx, visible over the facade of the old Yankee Stadium.

Samuels, running for governor at the time, proposed that the state set a reasonable level of housing expenses to be 25% of gross income (seems fabulously low today). Based solely on income tax returns, and net income per renter, the state would rebate the difference between the deregulated, market rent and what the individual renter could afford to pay under Samuels' 25% formula. (This proposal was somewhat erroneously described as incomes policy, a complex program tried in Great Britain with not much success.) Samuels' objective was to allow the rental regulations in New York to expire, and to offset the dramatic impact on housing costs for many by a statewide tax program. His reason was uncomplicated. Nobody could afford to build if they weren't allowed to charge market rents. As time went on, the plan assumed that rising incomes would sharply reduce the number of renters qualifying for a subsidy. The legislature laughed the proposal away: "have to protect our constituents." The housing crisis went from bad to worse; recovery took another twenty years, and even then occurred only in luxury housing. We badly need something like this if the White House and Congress intend to extend the Community Redevelopment Act, and Fannie Mae and Freddie Mac continue to be encouraged to take on subprime mortgage risk.

Another, painfully obvious, choice is to tax consumption instead of income. America needs to stop borrowing money from China and Japan to buy their goods. And China and Japan need to start spending their own money on themselves. A value-added-tax, combined with a flat federal tax, would go a long way toward addressing the current, fantasy-induced chaos that puts both producer and consumer in the position of bankrupting each other. The VAT restricts consumption. Too bad. Americans need to save more money. This would provide a good incentive to do so.

Lastly, drill, goddamnit, before the only drilling in America is being done by our enemies. It may make you feel good to have clean hands, but nobody goes out of this world without getting a little dirty. Part of that is providing for your own energy requirements, if you can. The United States can.



Monday, February 23, 2009

More Obamanations

From "Riehl World View":
It's impossible to watch Obama maneuver since taking the WH without characterizing his behavior as divisive and dishonest. Unfortunately, taking it all in, it's clear that one of two things must be true. The Obama administration along with key Democrat players in Congress are either incompetent, or willing to risk a genuine Depression for political gain.
Well said. The stock market--in which we all have a miserable part via our incredible shrinking 401(k)s--is doing the niftiest disappearing act since the 1930s. A far faster swan dive than it took during the much trashed Bush administration's waning days. They derided the Bushies for their approach to the current economic disaster. But so far, the Obamanation has done even worse. Don't get us wrong. Things are so desperate now that we really hope Obama succeeds. But he won't succeed if he keeps pushing Nancy Pelosi's socialist revenge while the country collapses beneath us all.

It's increasingly apparent that the Democrats' "new ideas" include plunging the country more deeply into now what is indeed a second Great Depression. By destroying jobs and livelihoods, it'll make it easier for a demoralized population to accept New Deal II: complete socialism for the US. Note how even already, the Obama administration is pushing tax increases and socialized medicine even as the system that would support both collapses around them. Wrong focus dudes. But why should I preach when no one is listening?

I told people all last year that the Democrats, as a party, were fundamentally unserious, and now we're seeing the results. They've elected a figurehead as president, with the help of a cheerleading media, and now they've got what they want. Nancy Pelosi and the far left govern the country. Pretty soon we won't even recognize the scorched landscape this crowd leaves in their wake.

Don't miss the next chilling episode. I could say "I told you so," but for the first time in my life, I've begun to experience schadenfreude without the joy part.

Tuesday, February 17, 2009

The Danger of Negativity

Well, the Wonker portfolio took it in the ear again today, like most portfolios, but the hit was not horrendous. We are at approximately the Dow and S&P levels we were at during the previous bottom back in November of 2008, and the Wonker portfolio, while still horrendously down from our start date of approximately August 1 2008, is about $25,000 higher that at the November bottom. This is cold comfort of course, but we're buoyed due to the fact that we've been taking some income out of this mess or the total might have been even higher.

Problem here is that a good deal of the underlying liquidity issues are loosening up and we COULD be on a very slow upcurve. Which, actually isn't the problem. The problem is the overwhelming negativity coming at us from the folks on the left side of the aisle and their minions in the MSM.

Scare headlines, of course, sell what newspapers and magazines are still standing. But they add to the gloomy mood perpetrated by the financial press, the short sellers (who love to rumor stocks down and find it easy in this environment), and, of course, the Democrats who, by convincing the public that they're helpless to do anything about their impending fiscal doom, figure they can enlarge government control still further to "save" the average taxpayer by enticing him into a socialist system.

This is pretty easy to do when you scare people to death. Just like the Dems do to older folks whenever someone talks about reforming the Ponzi scheme known as Social Security.

Even normally sunny President Obama got into the act with pronouncements of doom last week. This, of course, was for political effect, to muster voter pressure for passage of the Pelosi-Reid "Stimulus (aka 'Porkulus') Bill." But this kind of piling on illustrates that the Dems will do anything to accomplish their socialist objectives of state control over our financial institutions and our lives.

Problem is, folks out in the hinterlands are genuinely freaked out. This isn't a game. Money is going back into the mattresses, a la the 1930s. If the desire is for Americans to help us spend our way out of the mess we spent our way into, badmouthing the current situation is simply going to scare more of them into doing precisely the opposite.

Presidents--from the sainted FDR thru Ronald Reagan (at the peak of the Carter hyperinflation) to George W. Bush (right after 9/11)--had positive things to say to the American people. Each asserted they'd help us help ourselves to get out of the current mess, explaining that after all, we're all "can do" Americans who are accustomed to taking action to solve their own problems.

The current cadre is violating the positivism of their chief god, proving that they no longer have any connection with our history and our traditions.

Badmouthing the economy for political and fiscal ends--whether by stupid politicians, editorializing reporters, or nefarious short sellers--is about at the point where it's fatally poisoning the recovery process. A little bit more of this and we reall WILL have the 1930s redux.

The Dems could be real heroes here by getting positive, encouraging the economy, adopting a can do attitude towards saving the banks and getting the automakers on a more realistic world footing. But, wilfully ignorant of history and adept at demagoguery, fear-mongering, and negativity, they are relentlessly scaring Americans to death.

The good thing is that, since this won't work in the end, it'll eventually result in chastened Repubs taking back the reins of power. The bad thing is that by the time this happens, there won't be any toys left for any of us to play with.

Sunday, February 08, 2009

So What Happened to Wonker?

The previous entries provide some context for the microeconomics that encompass Mr. and Mrs. Wonker's collective portfolios.

As a seasoned investor and former registered rep, I don't mind telling you that we're not the only ones whose portfolios got hosed in 2008. After leaving our places of employment in the summer, we got control of our own retirement accounts (several actually), put them with a discount broker, and, from nearly total cash positions, began investing in conservative, dividend and interest bearing investments so we could actually begin to retire. And finally find the time to write some good stuff we'd always wanted to write without having to regard on 9-5 and companies that consistently refused to pay any attention to our generally good advice.

Suspecting that something like this would happen anyway, we'd also been investing in specific kinds of real estate, hoping to use the cash flow to supplement the income we'd get from our market investments.

You may find it surprising to note that, as of today, out of our 6 investment properties, all have continued to increase in value, while only one of them has a negative cash flow, but for generally supportable reasons (like extra parcels of land that generate no current income).

The disaster in our collective portfolio has been solely confined to the stock and bond markets where every move we've made until the last 6 weeks has been an unmitigated disaster. The collective portfolio was down roughly 21% year-to-year as of close of business, 2008.

Ironically, this perfectly awful return makes Wonker, Inc., an incredibly effective investment empire, since, for example, the revered Warren Buffet is supposed to have lost roughly 39% last year, at least in terms of his Berkshire Hathaway investment vehicle.

Nonetheless, even a paltry 21% loss is pretty awful, and we'll guarantee you, the Wonker portfolio is a LOT smaller than that of the Sage of Omaha.

Yet we've begun to claw back. By detecting a theoretical maximum reasonable dividend return figure (up to 12% used to be at least moderately ok and safe, but now it's more like 9-10% max), we're up nearly 5% dating from January 1, 2009 thru Friday, Feb. 6, 2009. This week will probably bring some more roller coaster rides on the averages as the Obama Administration plays peek-a-boo with banking reform and its so-called stimulus package (in reality the Reid-Pelosi Public Employee Union Payoff Package).

Nonetheless, just enough fear has at least temporarily exited from the markets that you can place a few bets again.

But as you've probably read in many places, the time-honored "buy-and-hold" strategy of investing is DOA at least for now. This is disconcerting to a fairly conservative investor like myself, but it will remain present reality until the new SEC people decide to do something about the uptick rule (aforementioned) along with the asinine and predatory "ultrashort" Exchange Traded Funds (ETFs) that are actually institutionalizing Bear Raids and making individual stocks more treacherous than they were in 1929.

So we're committing funds again to higher grade junk bonds, undervalued muni bonds, high-yielding stocks that probably have their dividends covered, and (at least for now) resource plays that are responding to China's apparent reflation project abroad.

American industry remains, as a whole, moribund, and we'd be careful in most other sectors.

In short, before the Wonkers can breathe easier, we still have a lotta ground to make up. But at least the real estate is still above water and cash-positive. And the stocks have gained a little since the first of the year.

We can do this. But not overnite.

We'll keep ya posted.

What Caused the Depression of 2007?

Simple, but not easy to describe.

After the disastrous Presidential candidacy of George McGovern in 1972, the Democrats were completely taken over by their socialist wing. (NOTE: these politicians and their supporters prefer to use the scoundrel term "Progressive" to paper over their socialistic beliefs, but they are socialists nonetheless.)

After using their academic and journalistic connections to bring down President Nixon (whose furtiveness didn't help his own cause one whit), both the socialists and the media became enormously full of themselves and decided to use this advantage to bring the New Deal to its logical conclusion: Euro-style socialism for the United States. This meant, primarily, two things:

  • Socialize health care.
  • Gradually bend the banking system into a Federally-supported subsidy program that would enable ALL Americans to own their own home, courtesy of confiscatory taxes on "wealthy" individuals and businesses, whomever the Democrats deemed them to be.

Although they're trying again, it will be hard to socialize medicine in this country, given socialized medicine's near-total failure to deliver the goods in the rest of the world. (Though our lefty friends are damn-well going to try.)

But the housing situation? There's the sticky wicket.

The disastrous Carter Administration set the table for today's current disaster by beginning a push for the banking system to loosen home loan standards to enable less-qualified individuals to purchase homes, enabling such substandard loans to be supported by mortgage insurance premiums as well as by encouraging/forcing quasi-Federal companies Fannie Mae and Freddie Mac to make a market in these substandard loans, thereby theoretically reducing the risk to lenders.

The Carter-caused hyperinflation of the late 1970s and early 1980s minimized the early damage from this policy since virtually NO ONE could purchase housing during this period when mortgage rates went into the stratosphere. It's the closest we've gotten, BTW, in modern times, to hyperinflation.

Things settled down and began to recover in the Reagan years, whacked briefly, by the S&L debacle in the late 1980s-early 1990s and the near-concurrent Crash of 1987. Both left the financial system wobbly enough to result in the defeat of George HW Bush in 1992 (the incumbent always gets blamed, rightly or wrongly, for this stuff).

The Clinton Administration, as beneficiary of the recovery that started late in the administration of Bush I, increased social spending by squeezing the military and intelligence agency budgets to death (the so-called "peace dividend"). Once having done so, they resumed the old Carter push to force banks and lending institutions to kick subprime mortage lending up a considerable notch, again by putting minions into Fannie Mae and Freddie Mac to make easy money available for these loans by agreeing to make a market in them.

By the time we were in Bush II, first term, both the dot.bomb (actually a Clinton-watch disaster) and 9/11 forced the Fed into an easier money stance to stave off an earlier threat of deflation. This worked magnificently, but too much so since, while the reflation was going on, Fannie and Freddie continued to goose the irrational growth of asinine mortgage vehicles, including loans where, in effect, you didn't even have to document your income.

To their credit, the Bushies spotted this excess early and tried to get legislation passed to slow it down, most notably in 2005. But out of control pols in both parties shouted this down, and the megahits to our economy that resulted began to become evident as early as 2005-2006.

But with the defeat (well-deserved) of Republicans in both houses in 2006, any reform of the easy-housing-vote-buying game instituted by the Dems over a 30 year period became a dead issue. When New Century Financial's CFO declared, in late 2006, that he actually didn't have a clue as to whether the company's reporting of its last 2-3 quarters was accurate, the warning shot was fired. New Century folded a few months later in the spring of 2007 and the dominoes began to fall fast and hard.

The problem was spinning out of control. It was nearly entirely a Democrat-caused problem, but they and their media pals blamed and continue to blame the hapless Bushies, who'd at least tried to slow the beast the Dems had built. But with previous Fed Chair Greenspan failing to put the brakes on his post 9/11 low-interest policy, coupled with Bush-appointed SEC Chair Christopher Cox's fatally flawed decision to kill the uptick rule (which prevented short sellers in the stock market from attacking and destroying stock prices in general and bank stock prices in particular), the stage was set for the initial 2007 market volatility that marked the beginning of this Depression.

The almost overnight tanking of all stocks in two phases in the Fall of 2008 pretty much sealed the doom of our current banking system, not to mention our jobs, our home equity, and the Republican Party. The hapless Stupid Party (the Dems are the Evil Party) got blamed for the whole mess even though its collective guilt was confined to a preternaturally stupid SEC Chair whose blanket laissez-faire attitude blinded him to the repeated, destructive Bear Raids that continue to frighten people from the market and from nearly any manner of investment.

Add to that the moronic investment credit rating agencies which, of late, have been downgrading stocks and bonds AFTER (not before) ALL THE BAD NEWS IS OUT--and you have waterfalling markets and nonexistent confidence and transparency in investments.

The result. Those with any money left are hiding it and using it to pay down debt. They won't be buying new stuff in any quantity anytime soon. They'll be loathe to trust the government, the banks, Wall Street, and pretty much anyone, for the better part of the next decade.

And this, my friends, is what makes for a real Depression. As in 1929, most citizens have now lost faith in "the system." They no longer believe. And when they don't believe, they don't spend on goods and they don't commit capital to building new businesses and products.

As we are beginning to see, the Democrats have the opportunity of a lifetime here. Their profligacy, coupled with the lending institution's spectacular greed and opportunism, have laid fertile ground for the selling of a socialist economy. A little demagoguery here, a little payoff to the public employees' unions there, and we'll be well on our way to Euro-rot.

And that's where we are today. And why. Kind of depressing.

Like a Depression.

Personal Notes on the Great Depression II

A number of months ago as our readers, hopefully, will remember, both Mr. and Mrs. Wonker were, as the Brits say, "made redundant" by our respective companies for various reasons. So we joined the ranks of the unemployed late last summer along with an increasing amount of our fellow citizens over the past several months.

Reporting from this front has been scarce, although I'd planned more. But I'd like to catch you up in a couple of posts here, as, having been among the early terminees, it's getting a little easier for us to see where this mess came from and where it's likely to end up.

In the first place, after assessing this economic mess over the last several months, I've come to some determinations, some neither surprising nor original, others, perhaps somewhat novel. Here we go:

  • This is not, and never has been a recession. It is a Depression, the second one we've had in the last 100 years or so. Or the third if you want to include the Panic of 1907. I'm not saying this because I've personally been whacked by it and simply "feel" that way. I'm saying it because it's essentially true, but neither the government nor the pundits dare say the word "Depression." They know that's what this is, but they also know that if they start using the word, it will in all probability make things worse in and of itself.
  • It's a Depression--the Depression of 2007--because a variety of calamitous events have either deflated commodities and real estate or have come damn well close to doing so. That's precisely what happened in 1929-1933. Work, product sales, etc. have, statistically, come to a halt. People are hoarding cash, food, and goods. Banks and insurance companies are now almost totally distrusted as depositories for money. And commodities are tanking because no one, effectively, is buying products that use these commodities. (Anyone buy a car lately? Even a Toyota?)
  • And Deflation is a far greater destroyer of value than inflation, or at least inflation of the garden variety. It destroys asset classes, and shuts down massive numbers of otherwise perfectly viable businesses which overnight become useless since absolutely no one will buy their products.
  • Our economy is now in a place where, at least to little people and small businesses, the megabanks will not lend; insurance companies are less likely to insure, at least at reasonable rates; and personal property--read real estate--is now often worth a LOT LESS than what you paid for it, destroying your equity (personal wealth) as well as the evaluation of that asset on your lending instution's books (or wherever it lives these days).
The good news, if there is any? The Federal Reserve, once it figured all this out (about 6 months late, unfortunately), has been doing what wasn't done in the Hoover administration: pumping vast amounts of speed-printed $$$ into the system. (Note: Hoover actually did do some of this stuff, contrary to popular, Democrat-fed legend, but it was way too little and way too late.)

Asset deflation has been so rapid and so all-encompassing that, for once, there's really no danger of inflation here at all. But, of course, there could be such a threat sometime in the future if the Fed is just as tardy in putting on the brakes as it was in goosing the system.

Now, of course, these macro-economic observations are all good and well for the big guys, the wealthy East Coast elites, the overpaid Feds, and the impervious policy makers. But what does it mean for you and me? Well, it'll take a couple more entries to deal with that.

Returning Again

Well, I been gone a long time again. The usual issues. Geez, what a 2008 we had, with 2009 looking to be just as frustrating.

Anyhow, lots to discuss these days, including the government's upcoming porkfest Stimulus package, the increasing push for reviving the so-called "Fairness Doctrine" in media, the onrushing Death of the American Newspaper, etc. So I guess I had better get back in action and give the intrepid Luther a hand!