Back to the 70s: First, Attack Your Allies

He hasn't called anyone an "evildoer" or denounced an "axis of evil." But make no mistake: President Obama is putting together an enemies list...Obama's search for an enemy: The President beating the class warfare drum, Michael Goodwin, NY Daily News, 3/8/2009

That list grew by one from an urban-standard liberal tabloid with this column.

Strangely, though, those on it are not terrorists or foreign dictators. They are mostly Americans lucky enough to have succeeded through capitalism and democracy...(Obama's search for an enemy...(cont'd))

It's a funny thing about a political enemies list. When the enemies are also enemies of the United States, it's a normal activity to maintain such a file; indeed, for the President it's a constitutional mandate. When the enemies are personal, however, one thinks back to Lyndon Johnson and Richard Nixon, whose exercise of the paranoid style in politics still makes this writer cringe.

Obama has expressed little interest in prosecuting those who cooked the books to make billions and undermined the financial system. Nor is he interested in rebuking Congress, including leading members of his own party, who fostered destructive lending and borrowing policies. He seems comfortable with his aides, including those who saw nothing amiss in their former roles as Wall Street players and regulators...Obama's class-war language...looks like selective anger, calculated to stoke public emotion to build support for his expansive agenda...which revolves around a dramatic increase in Washington power, relies on tax hikes on the same successful businesses and individuals he denounces...First he demonizes them, then he taxes them...(Obama's search for an enemy...(cont'd))

One hopes that being on an enemies list is still as fashionable in New York City as it was thirty-five years ago. If Goodwin has invited himself in, one suspects that more will follow into the club.

Luther

AIG: Owner Rage

The bonuses AIG wants to pay its employees are a pittance compared with the $170 billion it has received in government bailouts, a trifling .097 percent. But nothing so angers the gods of populism as the word “bonus” (surely some genius is formulating a suitable euphemism even as we speak). Pres. Barack Obama wants to try to block the bonuses, and other administration officials talk of making AIG pay back the government for the amount of the bonuses. Fine, but where do we go to get the other $169.835 billion back?...AIG Shame, Rich Lowry, 3/17/2009

In Parkinson's Law, a wonderful satire written by C. Northcote Parkinson in 1955, one law is that "the time spent on an agenda item is inversely proportional to the amount of money involved." As Rich Lowry makes vividly clear in this sane article about an insane policy, there have been few better examples than the populist hysteria about bonuses that AIG just happens to be contracted to pay.

Contract law doesn't stipulate that bonuses included in a contract must reflect good performance. If that were true, half the overpaid ballplayers in major league baseball would be earning about 40% of their current salaries. Contract, however, once agreed upon and signed, is a lawful arrangement between consenting parties, and held as being as strong as a law passed by Congress. Scorn for a contract is no different than scorn for a law. Doing so yields economic, political and cultural chaos.

Would that the Obamastration would pay attention to restructuring the law surrounding credit default swaps, an outlandish financial instrument (see other entries below) that is currently neither regulated by any agency, nor comprehensible to buyers or brokers. Exposure to these instruments, made vastly worse by the bizarre mark-to-market rules that force daily valuation of assets which may be unsaleable at a given time, while still generating income, is what sank AIG (indirectly) and may yet sink Citibank. $167 million in bonuses for officers and employees who've wrecked a company is a scandal, but this mess is about hundreds of billions of American taxpayers' money, not ill-gotten gains in the millions. And we've been lied to about those.

AIG has been the bailout from hell, dysfunctional and opaque. The government has had to restructure its rescue over and over, throwing billions more into its maw. Only now have we learned the identity of the true recipients of the bailout, the so-called counterparties to AIG’s credit default swaps, financial firms strewn around Wall Street and the globe, from Goldman Sachs to Deutsche Bank and France’s Société Générale...(AIG Shame, cont'd)

That's right. The "bailout" of AIG is about paying holders of credit default swaps, themselves a barely legal and totally unregulated instrument. There is virtually no bottom to this mess; these securities are measured in the tens of trillions! AIG wants another hundred billion for the same purpose. And the asset sale promised by new CEO Edward Liddy back in October of 2008 has been a complete bust.

American International Group Inc may scrap a plan to repay a $60 billion US government loan by selling businesses, after failing to find enough promising bidders, Bloomberg said, citing people with knowledge of the matter...AIG Chief Executive Edward Liddy, who took charge in September and unveiled the strategy the following month, has concluded it will not work...AIG May Abandon Asset Sales Plan, Reuters, 2/25/2009

You want reason for outrage. There are two. It's bad enough to give these losers bonuses, but that's not even a crime compared to putting the entire United States, and world, economy at risk to make some 25-year-old MBAs a few million bucks.

As to why these credit default swaps were invented, they were designed to help ease the risk of the trash mortgages forced upon Fannie Mae, Freddie Mac and most of the other mortgage brokers by the expansion of the Community Reinvestment Act -- a political intervention in what used to be a free market in mortgages.

The list of people who should be arrested and jailed for this robbery of the American taxpayer goes right to the top slot in AIG, to the economic advisors in the White House (Robert Rubin, Larry Summers, who promoted credit default swaps), to the Secretary of the Treasury, Tim Geithner, who arranged (with Ben Bernanke) the original bailout of AIG.

The further the country dives into this abyss, the more it seems that these columns should be written in French.

Luther

Socialism by Any Other Name...

When Rep. Barney Frank was looking to aid a Boston-based lender last fall, the Massachusetts Democrat urged Maxine Waters..."stay out of it."...The reason: Ms. Waters, a longtime congresswoman from California, had close ties to the minority-owned institution, OneUnited Bank...Ms. Waters and her husband have both held financial stakes in the bank. Until recently, her husband was a director. At the same time, Ms. Waters has publicly boosted OneUnited's executives and criticized its government regulators during congressional hearings. Last fall, she helped secure the bank a meeting with Treasury officials...Such potential conflicts of interest are more serious as the banking system's crisis has led the government to take an increasingly active role in overseeing financial institutions, including OneUnited. The financial-services committee on which Ms. Waters sits oversees banking issues, and the lawmaker is a potential future chairman....Waters Helps Bank Whose Stock She Once Owned, Susan Schmidt, The Wall Street Journal, 3/12/2009

WSJ reporter Schmidt doesn't specify charges in this interesting article on corporate/government socialism, but she doesn't have to. OneUnited Bank, from its inception, has been driven by a political purpose as being a "minority-owned" bank. A free market's only political purpose is to create opportunities, including jobs, products and services, and profits for investors. When you serve political ends as a so-called private company, trouble is just around the corner.

The bank received "outstanding" Community Reinvestment Act ratings for lending in Los Angeles...In January, Ms. Waters acknowledged she made a call to the Treasury on OneUnited's behalf. The bank's capital, which was heavily invested in shares of Fannie Mae and Freddie Mac, was all but wiped out with the federal takeover of the two mortgage giants, and the bank was seeking help from regulators....OneUnited eventually secured bailout funds under the government's $700 billion Troubled Asset Relief Program, which was set up later that month....(Waters Helped Bank...Schmidt, WSJ, cont'd)

Too big to fail?

Luther

Back to the 70s: More than One Road to Socialism

Congress is considering legislation aimed at making our food supply safer, but for small farmers and ranchers, one such bill looks like another example of big business and big government teaming up to get the little guy out of the way....Livestock Tracing Bill Could be End of Family Farms, Ranches, Timothy P. Carney, DCExaminer.com, 3/13/09

For those of you too young to remember some of the aftermath of the expensive accident at 3-Mile Island, one of the more startling revelations was that a number of American coal companies were leading sponsors of anti-atomic-power organizations. It's a standard tactic by dominant organizations. Use any means to fight the competition. Disciples of any crusade really need to take care when confronted by some new cause, whether the terror of the cleanest power generation ever devised, or of global warming.

In the matter written about by Timothy P. Carney, this has been going on for decades. In New York City, City Council flurries about the cleanliness of local coffee shops and inexpensive family restaurants is often followed by a) health violation citations, b) closings, and c) the arrival of McDonald's, Burger King, and Dunkin' Donuts. You don't have to ask whose attorneys brought the City Council's attention to the health conditions in family-operated coffee shops. And if they can't get away with that, they'll sponsor a consumer organization to make the case for them.

Writ large, this is how American socialism has come to pass. Despite evidence that suggests large corporate enterprises foster mediocre products (see Detroit's auto industry), high level and expensive corruption, now, as in the 1970s, the exact opposite of what the market is dictating is being advocated, and acted upon, as official policy. The market suggests, for instance, that a super-sized bank like CitiBank is grossly inefficient, approximately useless to investors, a danger to depositors, underwriters and insurers, and populated by a management more suited to a government agency than to a private business (i.e., more into turf protection than profit-making). What's policy under the new administration? Throw a hundred billion at Citibank, on the advice of a White House team populated by many ex-senior managers from -- gasp! -- Citibank. Why does this happen?

Corporations, at a certain size, are virtually indistinguishable from socialist departments of government. In the ancient days of the 1970's, a popular saying was "Senior corporate officers and the members of the Politburo of the USSR belong to the same union." For students of films by Sidney Lumet, this was illuminated, to a magnificent extreme, in a scene in "Network" when Ned Beatty instructed his network's new prophet on the realities of corporate and communist life. Corporations, as anyone in small competing businesses knows, abhor competition almost as much as the communist party does. And, if they can't beat it, they buy it. Look at Microsoft's gobbling up of small software companies, and its ongoing efforts to make Windows the only alternative. In this, the software giant is only emulating its precedessor IBM's behavior. (IBM's idea of customer service was first to blame the user -- should sound familiar.)

When you dominate a market, quality of product is far less important than turf protection. One of the reasons General Motors is in such sorry shape is that its management, after twenty-five years of getting whomped by the Japanese (Toyota is now the largest auto company), still seems unaware that there are other games in town. Assuming that sheer size can overwhelm such issues as the likelihood that gasoline prices will skyrocket as the economy recovers, they still try to peddle vehicles that get 20 miles per gallon only at an EPA laboratory. On the road last summer, those "efficient" Escalades, Expeditions and the like gobbled up their owners' wallets at a rate of 60-100 dollars a tank.

When you dominate, the behavior you're emulating is that of the state itself which, as Hobbes (or Mao) put it, has not only economic power but possession of most of the means of violence. Even in America, for every psychopath that shoots a dozen people in a schoolyard, there are a dozen bombers and a thousand missiles that can kill a billion people in an hour. As with apes, every bully prefers to associate with the dominant individual. It's no different with senior management at the Fortune 500.

As such, human creativity is choked, as it was throughout the 1970s, in such an environment. So much the better for the dominant. When General Motors was truly the strongest auto company on the earth, they could sell a product that had matured technologically in the 1940s. In the mid-1970s, the only difference between a Cadillac built then and one built in 1953 was the shape of the body and the presence of safety equipment mandated by the federal government. The latter was also a perfect excuse for continuing price increases for an increasingly mediocre product. The advent of Japanese competition in the 1980s was Detroit's Pearl Harbor. Their first response wasn't to build better products but to lobby the federal government for trade protection! Were you surprised? How long after that did you hear consumer groups howling about small cars being too dangerous for the American road? And could we hazard a guess as to who footed the bill for those groups?

Politicians, claiming to safeguard the people and spurred by self-proclaimed consumer-protection groups, advance regulation favored by industry giants who understand that the regulations’ burden may crush smaller competitors...(Animal Tracing...Tracey Carney, cont'd)

Americans are too smart to be fooled by a totally Red agenda. And, surprisingly enough, American political and corporate elites know very well that the state isn't capable of running the entire economy. So, what they join up to do is to divide the economy into segments they feel competent to run. With the stock market down 50%, even with the current rally, the credit market in tatters, the government with a trillion and a half fiscal deficit, welfarism on the rise again, and some of America's largest companies on the rocks, corporate and government self-esteem looks more narcissistic than real.

That rarely troubles socialists. To them, narcissism is an affect of anyone trying to break into their game.

Luther

Update: Wonker Weathers the Depression, cont'd.

WARNING: Long entry, but if you like detail, it's here, by subject head.

I suddenly realized last night that--as I busily try to survive a paid of Wonker family layoffs, the destruction of our 401(k) portfolios, and the threat of the erosion of value vis-a-vis our real estate holdings--I hadn't updated our legion of avid fans on the progress (or lack thereof) we've made in dealing with this Depression on a personal level. (Yes, Depression, let's tell the truth here.)

So let me catch you up as quickly as possible, without throwing Germanic sentences at you. Like the first one above.

After battling our portfolios back to about -20% since the carnage began in earnest late last summer, the second wave of stock average crunching attacked us again in February and, thus far, through much of this month. We're probably down about 30% now.

That said, if I don't worry about the actual value of our various holdings and focus on the yields I've been buying, portfolio 1--the only one we have that's not in various retirement vehicles--is now generating roughly 9% per annum in yield. The portfolio is a mix of equities and bonds or bond-like instruments, and the yields are probably, by and large, safe and protected, although you always have to qualify such statements in this market.

I'm going to give you some details now, but please observe the usual common sense, informal disclaimer here. I was once a registered representative-financial advisor but am not currently one. But in any event, if you have any sense, please realize that nothing here should be construed as a recommendation to buy or sell, that if you do what I do you could lose all your money (as I could mine), etc., etc. In other words, use your noggin and understand that no one, including myself, is infallible in a mess like this. (If I were infallible, I'd be UP 30%.)

As indicated, portfolio 1 is generating roughly 9% per annum in yield. I've gradually gotten more conservative in here regarding what I buy or sell. I haven't hedged with options, as the options for many of these vehicles either don't exist or don't have enough premium value to warrant the hedging. So this stuff is what it is.

First and foremost, I've switched to a higher percentage of fixed income type stuff. It's been badly underpriced in my estimation, and as a result, may eventually provide stock-like capital gains when eventually sold or maturing.

BONDS (Corporate)

National City: Bond holdings include one sort of leftover of my late Dad's old bank, National City. The bank has now been swallowed by PNC, due to its inability to get TARP money from the Feds, but its bonds still live on under its name. I bought some early-maturing bonds at a deep discount, with an annual yield (coupon) of 6.25% but at a price that gives me a yield-to-maturity of about 10%. To my surprise and delight, the bonds bounced up to par value (1000 per bond, full value at redemption) right after the company's takeover by PNC, so I'm now sporting a 20% capital gain here. Best yet, I figure I'll just hold 'em to maturity and collect the remaining interest until they mature in 2010. And they're likely to, since the Fed gave plenty of TARP money to PNC to effect the takeover.

BONDS (Municipal)

Ohio Tobacco Bonds: Remaining two straight bond holdings are rather odd: Ohio tobacco revenue bonds with long maturities--i.e., probably maturing after my inevitable death. Bought 'em at a deep discount, but they've sunk about 20% apiece. But I can afford to be patient. The coupon yields are 6 and 6.25% respectively. The yields to maturity (if they ever mature) are in the 11% neighborhood. And these suckers are TAX FREE. Like the tobacco revenue bonds of many states, the Ohio bonds were issued so the greedy legislatures could pre-fund their tobacco graft revenue from the multi-state tobacco extorion settlement and start spending it right away.

Problem with tobacco bonds is, however, that the states are now happily raising tobacco taxes to finance their shortfalls, and Obamanation is making nasty noises about raising Federal tobacco taxes as well. Both idiotic actions could kill the Golden Goose by causing further erosion in tobacco product purchases.

However, Ohio and at least one other state realized this would more than likely happen--that the tobacco revenue actually funding the bonds might erode faster than they thought, making the bonds difficult to repay. So they incorporated a sinking fund, and will actually start redeeming these guys at par value, on a random basis, starting circa 2017. So in spite of their lousy BBB rating, these tobacco bonds are safer than most.

And oh, yeah, here's the best part. That big 6-6.25% coupon is FEDERAL TAX FREE! So I figure I can afford to sit in my negative position in these bonds indefinitely and am not terribly worried they'll default.

Muni Bond Closed-End Mutual Fund. We have another "set" of bonds as well, but they're in a different type of investment, a Blackstone Municipal Bond Closed-End Mutual Fund. Blackstone has a huge number of these funds, some general munis, some keyed to specific states' bonds. The advantage of owning muni bonds of your own state is that they are both Federal tax free and STATE TAX FREE. So while my Ohio bonds above escape Fed tax, my home state of VA gets to tax the yield. But the Blackstone Virginia Bond Closed-End Mutual Fund I own invests in a collection of Virginia bonds that's double tax free. Current yield (which fluctuates a bit, since this is a fund) is roughly 6.45% TOTALLY TAX FREE. Gotta love it.

STOCKS

Oil and Gas Revenue. A bond-like investment I hold in this account is a Kinder Morgan "Trust," actually a sort of REIT (Real Estate Investment Trust) that must disburse most of its income to shareholders ("partners") each year to retain a tax advantaged status. (I won't get into the details of this stuff, but the yield I get IS taxable.) Yield on this, which can fluctuate, is currently roughly 10% due to a massive recent price drop. But I continue to hold as I think the yield is stable. While natural gas prices have tanked, oil is firming, and revenue should be stable for the coming year.

Telephone Company, aka Telco. An investment I picked up some time ago, which took a brutal downturn not long after, is the common stock of rural telephone carrier Century Telephone (CTL). Its dividend yield is nearly 12% and should be safe for at least another year as its earnings are stable. The reason for the surprisingly huge initial price drop last year, right after I bought, was Century's pending purchase of semi-rival rural carrier Embarq. Century intends to maintain the dividend after the merger completes (allegedly the end of this month) and the stock price should stabilize after that while the value, of course, will be greater.

The large price drop was largely due to the actions of arbitrageurs (check the link, complicated to explain) who drove Embarq up and CTL down. Oddly enough, I traded Embarq at the same time for a nice gain, but had no clue traders would smack CTL so badly in the meantime. Acquirers, in fact, usually go down at least a bit after they announce a takeover (while the target company goes up), but this move was unexpectedly volatile.

Anyhow, I choke when I see the paper loss, but delight every time I get a dividend. And dividends an interest out of this account are paying at least a portion of the Wonker family expenses.

Preferred Stocks: What's left? Preferred shares of JP Morgan (JPM-I) and Public Storage of America (PSA-M), the former yielding nearly 15% taxable and the latter yielding nearly 12% taxable. Both are senior to the common stock in the event of economic destruction, but I expect they're safe even though the JPM took a real beating last week due to more bad news on the banks.

Reason I figure JPM is safe in the end, even from nationalization, is that they've remained strong and have, frankly, played serious patty-cake with the Fed and Treasury to suck in bad assets and players to help solve the current financial mess. Although this entirely Socialist Democrat-led government can turn on you (most Wall Streeters idiotically contributed to Obama rather than McCain to make sure they kept getting invited to the best parties--and have paid dearly for it already), the govies are so deep into it with JPM that I think they and their wily leader, Jamie Dimon, are probably going to be okay. BTW, common dividends are getting cut, but prefereds should be safe and level as they are senior to the common.

PSA should likewise be okay. They are actually a REIT controlling a huge number of storage facilities both in the US and abroad. Now, if you think about it, as millions of families are thrown out of their homes, where will they go? To apartments, smaller homes, etc., with the lowest rents possible as they try to recover. They will have excess stuff they need to store somewhere. Where? PSA facilities, that's where. It seems a little unsettling to bet on this company. It provides a useful service in the best of times as people move up or relocate. But it's clearly a downside play as well for the most part. So why not?

Closed-End Stock Fund. Final holding is the Zweig Total Return Fund (ZTR) which is another closed-end fund whose goal is income and preservation of capital. It's not very highly rated for total return and I'm a bit down in it. But the shares are cheap, the yield historically has been a stable 10% taxable, and like the Blackstone fund above, the income arrives monthly, not quarterly (as in most stocks) or semi-annually, as in most bonds. So I can pull some of this every month to support my currently subdued spending habits.

******

That's it for now. This is not the totality of the shrinking Wonker family empire. But it's the unsheltered part--which, oddly, is partly sheltered anyway by the munis.

If you want to take a shot at any of these, be my guest, although I'm not making recommendations, since your situation is undoubtedly different from mine. But BTW, you can currently pick up CTL and JPM-I a hell of a lot cheaper than I did right now, FWIW.

I'll provide additional updates. But right now the market is opening, and I need to get back involved in the horror show before the shorts and the hedgies help themselves to more of my dwindling, but not entirely ineffective, capital holdings. Or, come to think of it, before the Obama administration does.

Obamanation: March 7, 2009

I could blather on in my usual fashion about how the smart set hid the facts during last fall's campaign and cluelessly bestowed upon us an avowed socialist as President. But it's taken just a few weeks for Wall Street and American business to get the picture.

Obama's budget is actively hostile to the defense industry, the military, the pharmaceutical and healthcare business, tobacco (of course), coal miners, and--for that matter--the entire American populace which will have to bear the increased costs of his unbelievably stupid and wrongheaded (but highly fashionable) "cap and trade" carbon scam. Hey, who knew?

But why get going on this when cartoonist Michael Ramirez nails it all in one colorful doodle:

One picture is indeed worth 1000 words.

The Democrats' Economic Stimulus Plan: How It Will Work

Over on the Knox News blog, the commentator denounces several Republicans, including Tennessee's own Senator Lamar Alexander, for refusing to follow John McCain's amendment and voting for the Democrats' pork barrel spending plans.

One commentator takes the cake for his keen insight, proving that the rubes are actually hip to DC flimflam. Let's turn it over to him:

How the New Stimulus Plan Will Work

Three contractors are bidding to fix a broken fence at the White House. One is from Chicago , another is from Tennessee, and the third is from Minnesota.

All three go with a White House official to examine the fence. The Minnesota contractor takes out a tape measure and does some measuring, then works some figures with a pencil. "Well," he says, "I figure the job will run about $900: $400 for materials, $400 for my crew and $100 profit for me."

The Tennessee contractor also does some measuring and figuring, then says, "I can do this job for $700: $300 for materials, $300 for my crew and $100 profit for me."

The Chicago contractor doesn't measure or figure, but leans over to the White House official and whispers, "$2,700."

The official, incredulous, says, "You didn't even measure like the other guys! How did you come up with such a high figure?"

The Chicago contractor whispers back, "$1000 for me, $1000 for you, and we hire the guy from Tennessee to fix the fence."

"Done!" replies the government official.

And that, my friends, is how the new stimulus plan will work.

Condescension Central and Rush Limbaugh

And many of us are hoping that all those in power fail, because those in power have a grating habit of being annoyingly self-righteous, hopelessly corrupt, resolutely incompetent and completely apathetic about the freedoms that they have sworn to protect.

--David Harsanyi, ReasonOnline

Great quote above, hat tip to Instapundit for the ref. We've been preaching this, more or less, for years, particularly when it involves self-righteous demagogues like Al Gore, whose idiotic blatherings will indirectly wreck our already weakened economy yet.

The rest of Harsanyi's piece, however, is devoted to the focused Obamanation attack on Rush Limbaugh who wants Obama and his radical socialist agenda to fail. Well, after 8 years of 24/7 the Democrat and media slander that almost entirely disabled the second Bush II term, it's interesting to see the Dems flinch at the first sign of principled opposition out there. Somehow, the attitude of this administration is already beginning to resemble that of Castro's undesignated heir-apparent, Hugo Chavez.

Stay tuned.

Slumdog America

I was taken by a short piece written by Jim Cramer and posted today on TheStreet.com, his financial website portal. Jim, for those who don't know about him, is the notoriously manic host of "Mad Money" on CNBC, a show where he puts both his entertainment skills and his not inconsiderable skills as a former hedge fund manager to use in order to teach investors about what's going on in this confusing stock market environment. That he also uses the show to shamelessly pitch his books and products doesn't bother me because he provides a lot of useful information, contrary to his detractors.

The piece I cite is an interesting, short retrospective on the serious second thoughts the New York cognoscenti are having about "their" new President, Barack Obama--a phenomenon echoed in a Wall Street Journal op ed this past weekend. (Subscription content, can't provide a link.) Let Jim tell it in this excerpt:

I felt it when someone whispered in my ear before the Van Morrison concert that I was right and we elected a Leninist. I felt it at brunch on Sunday, and I felt it as I watched Slumdog Millionaire Sunday afternoon. I felt it when I tried to go to sleep on Sunday night.

I felt the prices, the screen, the action, the sense of a vortex down that can't be stopped, of stocks going worthless, of savings being tattered, of equities without bottom, but this time in slow motion, not like 1987, when Karen Cramer [Cramer's wife] predicted a crash and we were all in cash at my hedge fund.

No, I felt the total lack of control that we are all feeling now, the "It is out of my hands," the "Where is the authority?" the "Wow, it is amateur hour at our darkest moment."

Cramer (who almost certainly voted for Obama, BTW), almost inadvertently touches on a couple of major points here, even though he's actually focused on the fear factor. It's this secondary info that caught my eye.

First of all, the observation that "we" elected a "Leninist." First of all, "we" did not. At least I didn't. I knew Obama was a Leninist at heart, or at least a Gramscian because of the company he kept. Like patrons Bill "The Patriot" Ayers and his spouse, Bernadine "Let's Blow Up the US Capitol" Dohrn. And because of his main line of work prior to getting into politics--he was a "community activist." Which is Marxist slight-of-hand for "communist organizer." Anyone who read what little unbiased biographical material there was on Obama could have known this.

But the folks in New York City and Cal-ee-for-ni-a were to focused on "making history" to notice this. A little dumpster-diving, a la Sarah Palin would have helped bring this to light. But that would have impaired the feelgood drive to "make history" so the NYCentric media never bothered to bring it to light.

Second observation: "It is amateur hour at our darkest moment." Once again, well, YEAH. All we heard during the 2008 campaign was how utterly inexperienced Alaska Governor Sarah Palin was, and how dangerous it would be to have such an amateur playing backup to the obviously aging John McCain were we to elect him as president. I pointed out to anyone who would listen that Obama had LESS experience, and zero executive experience--unlike Governor Palin--and yet they were comfortable having him in the TOP SLOT. All I got was blank stares. (Logic has never been the strong suit of folks who vote for Democrats.)

The new President is now making my point for me.

Don't get me wrong. We are currently in such economic trouble that I actually wish Obama every success. Somebody needs to get serious and take decisive action here. Unfortunately, thus far, the amateur who actually became president is not showing signs of promise. First of all, as I genuinely feared, he hasn't been in DC long enough to have the political clout to control the clowns that now run the House and Senate, particularly Speaker of the House Nancy Pelosi, the wealthy San Francisco Dem with a chip on her shoulder who wants to tax America to death and redistribute everyone's income except hers.

But making matters worse, Obama, in spite of exuding the charm and charisma which has the Ivy League types swooning in the aisles a la Adlai Stevenson, has just put out a budget that places socialism front and center even as the economy is failing. Yep, loads of new taxes, punishment for energy companies, utilities, pharmaceutical companies, and indeed, anyone who makes money, or at least used to. And oh, yeah, "cap and trade," guaranteed to put us all in the poor house and already repudiated in Europe as too expensive although the press never reports this either.

And more global warming crap, even as DC digs out of an early March blizzard, generated by a much colder than usual winter pattern here. This is the equivalent of the Republicans laying the Smoot-Hawley tariff bill on an already staggering post-1929 American economy, effectively finishing it off. But the Dems are clueless. Nothing, including a crashing economy, is going to prevent them from taxing and spending and subordinating all of us to their socialist ideology.

Of course, all these idiots could care less, as their disastrous steps will, predictably, increase clamoring for MORE government control of everything which is precisely what these leftists want anyway. It's a sad state of affairs.

But like I said at the beginning, I didn't vote for Obama. So I'm going to sit back and watch the fun for now--fun at least except for my fast-fading retirement portfolio which the Dems are happily trashing along with everyone else's.

At any rate, none of this stuff is my fault because I wasn't ever persuaded by the anti-Bush propaganda to switch sides. I knew the dangerous game the Dems were playing--discredit the sitting president by slandering him at every opportunity the better to make their own guy look like the Messiah.

But the Messiah has thus far flopped rather spectacularly. The market averages are now down to mid 1990s levels and falling fast. It's not an exaggeration to say that all the Boomer retirement money made since then has, in the last few months and particularly in February, been completely vaporized.

And so NOW the cognoscenti in New York are wringing their hands about Obama and the Dems. Well, this is what they SAID they wanted--to make history. And now they are. The guy they donated a ton of money to so he'd win the election is now going to tax the rest of their money away and ruin the financial institutions to boot by pushing the confiscatory policies of Nancy Pelosi. And THEY were the ones who elected Obamanation. Not me.

Who the hell did they think they were electing, Ronald Reagan? They voted for a guy who chums around with the Weathermen, America's original terrorists, and the corrupt machine politicians of Chicago. Why are the cognoscenti now wide-eyed with wonder at what they got for their "history making" votes?

The schadenfreude I'm indulging in here would be far more delicious, alas, were my life savings not going up in almost literal smoke even as I type this entry. It's a fine mess we've got ourselves in now.

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?

Luther

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.

Luther

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.

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.

QED


Luther

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.

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.

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!