21 November 2008

I found the clip of the debate between Pat Buchanan and Steven Pearlstein. Check it out...

Defying Logic in Action

I was just looking at Morning Joe and there was a discussion between Pat Buchanan and Steven Pearlstein of the wall street journal and Mr. Buchanan was asking questions on the line of does it make sense to bail out the banks and not the automakers and the discussion went to another level of the reality light getting turned on. Mr. Buchanan started talking about how all the manufacturing jobs are going over seas and the auto workers who are out of a job are now working for Wal-Mart and not making nearly as much as they were and Mr. Pearlstein came back with the lamest response about how services going to be the job base and auto workers are considered unskilled workers blah, blah, blah and he never answered the underlying question which concerns income that is lost. He had absolutely no coherent logical response nothing but that grin on his face because he was being asked the questions that they (those like Mr. Pearlstein) don't want to face and answer. I hope a clip of that comes available today because I will surely post it. It was a classic light bulb comes on moment and reality kicking in.

19 November 2008

Defying Logic

It has been one year and few months since the credit crisis started and we find ourselves in the same economic conundrum with no sight of light at the end of the tunnel and none yet to be found. And I have said it before and I will say it again until something is done at the consumer level we will continue to wonder in the wilderness of this economic no man’s land. I cannot see the logic of giving the $700 billion Wall Street bailout to banks who are still not lending to anyone. The reason they are not lending is because when they make the loan they may have to write down the value because of the prospect the loan will not get paid back.

So if you know you are skeptical to lend because the loan may default due to the inability of the debtor to pay back then what is the logical conclusion in these economic times? Their conclusion is not to lend because of fear of the loan defaulting. But when the banks do not lend they will not make any money and thus you have what happened today the stock market takes a dive with the financial sector leading the way (notwithstanding other factors that contribute to the nose dive).

This is why I continue to say that everything that is being done, i.e. aiding the financial institutions, defies logic. And every day they continue to defy logic the market and our economy will continue to be subject to deep sea diving. Think about it, simple or not, the banks should be taken out of the equation at this point. And if our elected officials are serious about rectifying the situation they need to start thinking outside of the box and outside of the normal monetary flow because after all we are living in abnormal times. Stop defying logic and get to the root of solving the problem which starts with the consumer and not the banks. And once this is rectified the economic wheels should begin to turn.

Lastly, job creation is good but what good is a job if the wage is lacking? And I wonder how many jobs can actually be created? Have we not just about exhausted all possible job generating industries? I keep hearing infrastructure but is there truly enough new infrastructure projects to keep us from going over the economic edge? And can these jobs be created expeditiously and in a timely fashion to help kick start the economy before a collapse? Just some logical questions I think are logically in order to be asked

02 November 2008

You're just 6 kilometres away from the Centre of Europe!

Open letter to any senator on the financial services committee

Dear Senator:

Let me first thank you for allowing the privilege and opportunity to write to you to express my concern on the pressing issue of the day that is the economy.

Since this historic economic event started in August 2007 when BNP Paribas froze one of its money funds to prevent investors from making a run for their money I have just been amazed at the antidotes that have been conjured up to fix the gaping bottomless hole that has been left by this financial crisis and are threatening the country and our standing in the world.

I am sure you are already aware that continually printing more money to bail out this one and to bail out that one (not John McCain’s that one) is making the dollar more worthless everyday because at the end of the day when it is all said and done that is all that is happening is the printing of money to help rescue banks and that will eventually lead to a devalued currency. And printing more money for business and corporations appears to be like putting money in a bag with holes.

This is not a letter to criticize the efforts but a letter of concern and to say there is I believe an alternative. Looking at it from a macro economic perspective, two thirds of the economic make up of the country is consumption via the consumer, and it is that two thirds that drive the economy. The one third that the Treasury and the Federal Reserve feel is so necessary to rescue depend on the two thirds as we have noted the effect the inability of the consumer to keep up with mortgage payments is having on the banks.

Shoring up the base, the two thirds, would go a lot further than shoring up the one third that threw out the debt ratio rule when lending money for home mortgages. I propose this as an antidote: The portion of the 700 billion that has not been used plus some additional monies be injected like a shot in the arm to businesses directly for payroll purposes and mandate an increase in the minimum wage to at least 10.00/hr, since the U.S. Government would be the guarantor.

Additionally if the banks must have a rescue at the taxpayer’s expense place a deposit of equal size into the account of every American citizen that has a checking account or savings account and pays income taxes, mandate a portion of their deposit be held in reserve at their bank for a period of time, like a 401k, which at maturity they can earn some type of interest which could be very helpful in encouraging the citizenry to save especially if they know they can earn a little bit of extra money by keeping it in savings. Offer incentives maybe such as the longer you keep your money in the bank the more interest you can earn. And let the portion of the amount that is held in reserve be the same amount say, that would prevent a bank from insolvency. In other words, if a bank needs 10,000 dollars to prevent insolvency, and the bank has 2 depositors, then inject say, 12,000 dollars or two deposits 6,000 dollars each for the depositors of that bank, hold 5,000 dollars in reserves and pay 3% interest on the 5,000 dollars at 1 year maturity.

By doing this, the banks could have money in reserves and sort of like start from the beginning without any market disruptions. Also by raising the minimum wage instead of a one shot stimulus check you have a more long term effect and it avoids the socialism stigma, because you have to work for your wage.

Lastly and not least, there should be an across the board interest rate cut to homeowners. Maybe take all the interest rate ranges that are currently on these mortgages and average them out and let that be the rate the homeowner pays for his mortgage or add the highest rate and the lowest rate and let the resulting average be the across the board rate that every homeowner pays for their mortgage. The banks are no longer in the driver seat on this so this can serve as punitive

Any mortgage that is in arrears, mandate across the board that those mortgages be brought current without penalty with a quick fix of adding the delinquent payments to the end of the term of the loan. (Which reminds me when my father had a mortgage on his home with First Union bank every now and then throughout the year they would send him a letter saying you deserve a break you can waive paying your mortgage this month to pay another bill…hint). The benefit for the banks is they don’t skip a beat in their transactions, they are still making money and receiving money on a monthly basis and eventually they can go back to adjusting interest rates on their mortgage products to their liking that would benefit their bottom line and investors can go back to being happy and fighting with each other on Wall Street and CNBC

I know what I am suggesting may be over simplifying the matter but it just makes sense to shore up the economy by helping the two thirds of the macro economic equation that actually drive the economy. And as an American citizen I believe in this country and every thing this country was founded on. I put my country first by taking the time to write down my ideas about what I think would help because I do not want to see America loose her standing in the world due to a bad economy and due to poor diplomacy. Allies came to our aid on 9-11-2001. This time around they might not be so merciful. From the top down and from the bottom up we need to all do what we can to help each other on the inside of the country so we can be strong to the outside world.