ELECTION - AT LAST

In just a week this election will be over! I have my personal choices, but most of them are no longer in the hunt!

I do know one thing for sure, we will soon be rid of the worst president in our history, and if our country can survive the unbelievable mess he has left us, we will be fortunate and blessed. I, personally think Senator Obama is our best hope, mostly because he in intellectually the best bet, and his running mate is capable, if needed. I can live with either party, just as long as we can remove this fool we now have, and the people he has burdened us with. It seem that most of them have long since jumped ship, as well they should have.

I never dreamed I would vote for a black man for President of the United States. Guess it just shows, if you live long enough, you might see everything. I have a close and wonderful friend, a former Kansas Senator, and has had many other accomplishments, including getting me to become a pilot! We often talk, and several weeks ago, prior to the Democrat convention, I asked what he thought about what was happening with politics, of course meaning, what did he think of Obama. I said, “Remember, he is half white.” He said, “I know, but he looks like me!” What a world! He was wonderfully right!

No matter who wins, we will try to survive, and do our best to become the best in the world, again. It will be a long and difficult journey, but there will be a way-there always has been.

God bless all, which He surely has.

EC

Oversight and regulation at its worst

In the business section of the Phoenix newspaper was a small article about a BIG problem facing American small business.

After over thirty years, a family business that developed property and built houses, announced that they were closing their doors and ceasing operations, laying off all 60 employees. Customers who were in the process of buying one of their homes would not be allowed to close. The builder has deposits from these customers and is promising to refund the buyers deposits, but can’t complete the sales, as his bank, which he didn’t want to name, will keep all those homes as collateral! I find my self mad as hell!

I don’t know the bank involved or do I know the builder. I do know a lot about what is going on, and why, at least I think I do. What a shameful thing when an honest business man with a good reputation for thirty years is caught in this web of over-regulation.

Earlier this year, the bank re-appraised the builders land and housing assets, probably at the direction of bank regulators, either the FDIC, the state banking authority, or the Controller of the Currency. Naturally, the values have dropped because of the current mortgage mess. This happened to thousands of banks and their builder customers. The regulators have, as they have so many times before, panicked and demanded that the bank “write down” these loans to their re-appraised values, put them on a “Problem Loan List” and refused to permit any kind of reasonable work out with the borrowers, many of whom have just thrown up their hands and told the banks that they couldn’t meet these new, sometimes unreasonable demands.

All this has nothing to do with the sub-prime mess. The banks that are involved in that deserve to be penalized, and watched carefully. Instead the regulators have stomped on the legitimate builders, and the banks they depended on for financing. At the same time the government has come to the “Rescue” of the large lenders and creators of the sub-prime mortgage mess, by giving them the bail-out trillion bucks, and are trying to encourage the Wall Street investment bankers to start lending more money, but so far have not turned a tap to the smaller and mid-sized banks who can’t take care of their customers. Where in hell is the justice?

Sure, many banks went too far in financing developments and houses, and their concentrations of these types of loans need to be slowed down, but to penalize an entire industry for something that can be worked out is worse than awful. How about outrageous?

In the case above, it would seem to me that it might border on being litigous. If the builder can’t pay his sub contractors, his other bills for materials, and the bank is taking all of his assets, and 60 employees have lost their jobs, and no one has done any thing wrong, where is the justice-if any?

My own opinion for many years has been that government always achieves the opposite of what it sets out to do. Think about it.

Later…

Almost Over

Many years ago, Johnny Cash recorded a song named, “The 20th Century is Almost Over, and although it was never big hit, it was one of my favorites of the era. Some of the words still are in my head. “What ever happened to linolium floors, petroleum jelly and two world wars? Well, everybody is waitin’ for something to happen, hope it don’t happen to you.”

Well. in just nine days from this posting, we all are going to find out what is going to happen to all of us who care deeply about this country of ours. We just went broke, but none of us know what is going to happen, but I hope it don’t happen to you-or me.

I got an email from an widowed friend of mine, who has some short term memory problems which has caused her to quit her favorite pastime, playing bridge. She knew she wanted to vote early, so went to the county elections office, and was amazed that there was such a large crowd, but she got her ballot, and told me she had voted for Sarah Palin, because she was with God, somehow. Couldn’t remember about any of the other candidates, but thought she had done her best. Made me think of the song.

Most of the decided voters have cast their ballots early, voting for their favorites, with almost all of the interest in the presidential race. My friend wasn’t sure who was running with Ms. Palin, but she had her reason for her choice. The more I thought about it, the more it made sense because she didn’t hate any candidates, she just wanted to be on what she thought was God’s side. Better reasoning than some of the hate mail I’ve been seeing.

One of my extremely conservative friends sent me a long post with thundering background music warning that all the problems we are now facing have been caused by every democrat that ever held office. The sub prime mess was caused by Clinton when he suggested Fannie and Freddy might look into ways to get home loans for those who couldn’t qualify under the strict credit guidelines in effect at the time. It didn’t ever go anywhere at that time. As I remember, we had a Republican Congress at the time, and no one wanted to push the deal, including President Clinton.

Most of the current problems facing the banking industry started with the removal of the Glass-Steegal Act, which was a product of the Ronald Regan era, and the pressure of Wall Street investment brokers insisting that they be allowed to be in the banking business, with sharply reduced regulation. Well. it happened, and it happened to you -and me.

Then the bailout money came from you and me, and they want and need a lot more! This morning, I saw that the large life insurance companies now want the same bail out, so their policy holders wont be frightened. Ridiculous! Who has a plan–NO ONE, SO FAR!

“Everybody is waitiing for something to happen, hope it don’t happen to you!” But I think it already has!

Keep the faith.

Election approacheth

My mail ballot went to the Election Commissioner’s office last week, so it is too late to change.  Like most of you, I’ve received more emails them I ever wanted.  Now, the senders are using scare tactics of every kind, most of them outrageous and not remotely connected to the truth.

I think it would be fun to send all of the hate mail from one side to the other, and let them know other points of view are certainly out there.  One thing I truly believe is that we need a new administration, (a new congress would be nice, too).

I’ve often wondered if the American public would be well served in this time of crisis by turning the government over to the brightest minds available.  How about Warren Buffett, Jack Weltch, Bill Gates, taking over for a couple of years, and use their brains to get us back into some semblance of order.  It couldn’t be worse than it is.  The people leading our government have failed us all too long, and no matter who sits in the President’s office wont be able to fix it.  In fact, I doubt either one of them could even serve on a committee to advise.

We just gave away almost a trillion dollars of taxpayer’s money to the same people who created the mess, and this morning they were warning that they must have more! The guy who runs Bank of America was on 60 minutes last night, and he would be a good addition to “The Group.”  Did not participate in the sub-prime mortgage mess, and acquired Merrill-Lynch without missing a beat, or the use of the bail out money!  Somehow, I think we will still be on the short end, but at least we are being hosed by capable people.

Later

Subprime made simple

One of the biggest problems is that the public doesn’t understand the current economic situation, and consequently we tend not to be concerned about things that we don’t understand, and think about other matters which don’t tax our brain much.

I’m going to give you the simplest explanation possible about sub prime mortgages and the securities that are created by the wall street bunch, and sold to banks, insurance companies, pension funds, and a never ending list of buyers who have been ripped off by those who have benefited from the creation, sale and resale of these sham mortgage -backed securities.

photo credit: TheTruthAbout…

Bear in mind, that this farce was created by the various Wall Street investment houses (I refuse to call them banks), which, in the long run were driven to bankruptcy and failure, and we, the citizens gave the same people the money, 770 Billion, (just a down payment, I suspect) to rescue these thieves. No one can even guess what will happen next, but I can assure you that the old banker’s adage, “You can’t borrow your way out of debt,” will still be valid.

Secretary of Treasury, Hank Paulson, and friends even gave the investment houses and banks and other failed institutions back to the promoters who ran them before, (or their underlings) and financed the losses they created along with all the FDIC money, the Federal Reserve Bank, and the U.S. Government Treasury Department itself! It WILL get worse, as the rest of our citizens realize what happened to them!

Way back, I promised a simple explanation of Sub prime actually are. Leaving out most of the complicated and hard to understand issues, here is the scoop.

Remember just a few months ago, the radio and TV commercials were jammed with commercials promising low cost financing to nearly ANYONE, regardless of their credit score, a new low interest rate home loan or refinance at low interest rates? It seemed that every mortgage broker had a deal you couldn’t pass! If fact, many of them weren’t even licensed brokers. These new loans were often made without appraisals, credit reports, or verification of income. Soon, people with little or no real credit were using leveraged home equity lines of credit, (HELOC) to buy another house, a new luxury car, a vacation home, and anything else they couldn’t afford.

These mortgages were then sold to investment firms with the expertise to bundle them up, sometimes with a few good credits, and sell the resulting instrument to investors all over the world, including your local bank(s), large mega banks, and wealthy individuals. I’m talking about the most simple of the so called MBS, (Mortgage Backed Securities). There are many different derivitives, but for our purpose we’ll stay with the basic MBS.

A huge secondary market followed, with brokerage houses buying and selling the same securities many times. There is nothing wrong with the secondary market with most securities, as they provide a market for the quick sale and settlement of a large market that were in this business,they employ sales people who are expert at high pressure double talk and woe be unto the investor who cannot understand what he is being told (or sold.)

Once again, it was a huge, world wide market, including almost every financial house and bank the world over. Greed was overpowering.

Then one day, not long ago, it all collapsed, and panic ensued. Mostly caused by buyers who could not afford to make payments of what they had bought, tried to sell them. There were suddenly so many houses on the market that the real estate sales dried up, and large and small builders were stuck with inventory PLUS the sales contracts that buyers had to walk away from, even though some had made substantial down payments. The real estate business went in the tank as did new home construction.

The next step was the banks, large and small that were furnishing the construction loans for the large anticipated market were forced to draw in their commitments and the builders began to go broke or stop business. So we have no buyers, no financing for construction, few stable builders. a zillion or more houses for sale with no buyers. People couldn’t sell their homes for legitimate reasons, ie, moving for employment, upgrading their living standard, and the existing home market tanked.

In the meantime, the afore mentioned MBS securities were almost worthless, and we all found ourselves handing out nearly a TRILLION dollars to try to unravel the mess!

Now, that you know what happened, how will we get out of the situation?

More on that later.

Banks Today

The last three weeks have made it difficult to get current information to write anything that will be accurate by the time you read it. The stock markets and the bond markets change daily and sometimes even faster that daily.

Just yesterday, the Dow was up nearly 1000 points, and will not doubt change in foreign markets during the night. Even Iceland seems to be somehow important and the Icelandic government has apparently taken over the banks there , I suppose because of the economic crisis which has spread over the free world, and maybe some of the rest of it, although I don’t read much about Russia or North Korea, or even China.

Obviously, things aren’t too tough in the oil rich countries in the Middle East, but I can assure you that the US banks are up to their necks in problems, and the only banks receiving any help in this mess are the mega banks, such as Chase, BOA, Wells Fargo, and a dozen or so others that have been deemed “Too big to fail.” Two weeks ago, I would have included Wachovia, but they were saved by Wells Fargo, with a large helping hand from Uncle Sam.

Why are they too big to fail? There are many valid reasons, but politics payed too heavily in the decisions. Some of these financial institutions should not have been bailed out by the taxpayers.

It started with the failure of IndyBank, which was never a bank, but the news broadcastes kept calling them banks, and the public does not understand the difference. Washington Mutual was not a bank, A.I.G. was not a bank, and then came some of the large brokerage houses, who our always kindly government rescued, merged with others, or sold them and their assets at bargain prices.

Here in our part of the world, a large regional bank was taken over by Mutual of Omaha, who is somehow in the banking business in a BIG way. Everyone in the local financial world, including builders and their suppliers knew these blunder head bankers were going down. They had no idea what they were doing, had originated so many bad loans, and had even tried to pass them on to some smaller banks, who wanted in on the action, but didn’t have the staff or expertise to get in on their own.

Once again our government is trying to solve banking and credit problems, by either approving the sale of marginal banks to just about anyone, or having the Federal Government buy them out. Either way, they are managed by the same people who took them down, or by management who may or may not have any experience in taking care of other people’s money. None of this has much to do with sub prime housing loans. We’ll get to that later.

My frustration with this knows no bounds!

Economy Report - Early October, 2008

We are in a wild world these days. An election of a new president, and the many changes in leadership it will bring, the election of a new House, one third of the senate, the retirement of a now unpopular president, and the worst financial crisis of our time, not to mention a war on two fronts. It is sometimes difficult to see why anyone in their right mind would want to take on all these problems, but there seems to be no shortage of those who want to be the leader.

photo credit: mriggen

Is there a solution, or will we just have our election process, and finally see regular programming on our TV, and let time solve the problems we are facing? Most of us have long since decided who will receive our vote, so who cares about what anyone says or promises to do to get us through this mess? My heart tells me that this one is different, and it makes me sad for our country.

Although it no longer makes much news, we are killing and maiming too many of our fine young people, and like Viet Nam, no one will remember why. I have a young friend who was a Ranger in our army for six years, a former first Sargent, who served multiple tours of Afghanistan and Iraq, was severely wounded by an RPG in Iraq. After long treatment at army hospitals, he was released, but has to wear a colostomy bag, and has to be treated frequently at a VA hospital, just to stay alive! He is fluent in middle eastern languages, wants back in the armed services, and is told there is no place for him. He is a checker at a super market. He is one of the most intelligent people I have known, and this is the best we can do for him? He has no car, and lives in a one room apartment in a small Missouri city.

Our economic problems are beyond belief, and possibly without a solution we can imagine. Already people who have not done anything wrong are suffering with the loss of employment, lack of medical treatment, loss of a roof over their heads, and we don’t know what to do.

I’m saddened by the fact that those who caused this terrible depression are still flying their private jets, going to their many homes in places most of us have never seen, and not even paying income tax on the millions they have made. Just this week, it was announced that executives of AIG, one of the biggest feeders at the public trough are going to be treated to a taxpayer financed retreat at some ritzy spa, and no one seem to have the power to shout “No”!

I’m saddened by the gulf between the rich and those who are truly needy. My heart is heavy when I see homeless children with parents who can’t do anything about it. Winter is upon the land.

Somehow, some way, we can and must do better. The VA can do better. Where is the justice?

Promise to be more upbeat next time.

What is a bank?

I spent most of my working life working for a bank-a real bank, not an S& L, not a credit union, and certainly not as a Wall Street investment banker, all of whom the media calls “Bankers.”

We financed business customers for accounts receivable, inventory,credit lines, and any other financing to keep our local manufactures, retailers, wholesalers, and all sorts of other enterprises going. We were “Community Bankers” in the truest sense. We financed church buildings, and even our local college with a line of credit when they needed it, usually just before tuition time. We financed the purchase and construction of homes, with tight controls of the builders. The money came from local depositors , both personal and business. We operated on the spread between the cost of funds, including expenses. Pretty simple.

Now we’ll make it a little bit more complicated. Most bankers kept a large amount of their deposits in reserves, (Liquidity) in cash equivalents in correspondent banks, and in required reserves in the Federal Reserve Bank(FED). For liquidity, they could borrow from these same sources, usually overnight only. Borrowing from the FED was the most difficult, and it became known as, “The bank of last resort,” and the overnight loans had to be secured, mostly by U.S. Government bonds…Most bankers would far rather be a lender than a borrower, or using another common term, we would rather sell fed funds, than to buy fed funds, but both sources were readily available to almost every bank. There were always a few incompetents running banks, but they were generally weeded out by good competition and the regulators.

Some money had to be left over for the “Bond account” which was generally composed of U.S. government and government agency bonds along with some municipal bonds, which represented investment in city, county, school districts, sewer districts, higher education facilities, and a long list of what were considered “Munis.” The interest on these bonds was generally free from taxes. helped the issuers provide for public need, and were considered a good investment for banks, although the bank purchaser was expected to check the credit of muni borrowers.

The system worked pretty well until all sorts of promoters, hustlers, and many without morals or reputation figured out how to get in the business, and even were able, through lobbyists, get the government to help them get to where the money was-in banks!

They started out like the famous small bank in Oklahoma City that loaned millions to oil promoters, drillers, and hustlers, and broke the bank! Before the bank was closed, it had become famous and legions of promoters either started, or bought up banks by the hundreds, which they promptly used to take unheard of risks, especially loans to their cohorts.

Next, the Savings and Loans, a previously well contained and well regulated business, were sought out for purchase by the same thieves, with the cooperation of the Federal government and congress who allowed abuses of the public trust almost beyond belief.

They were actually allowed to invest depositors money in their personal deals. They were allowed to issue, to their customers, debt securities on their own enterprises, and lead their investors to believe that they were protected by FDIC!

In the 80’s the whole thing blew up, and the public spent over 92 billion to straighten the mess out, and made a lot of unsavory people rich with the bargains they bought from the Resolution Trust Company (RTC) at few cents on the dollar, held them and sold them for enormous profit!

And the press called them bankers! These people were a lot of things, but they weren’t bankers.