The Financial Crisis of 2007-2009 started and ended largely as a result of the actions of a small group of men known as the FASB (Financial Accounting Standards Board). This is WAY under-reported by the media, but I learned about it from Bill Isaac on Fox News Channel during the financial crisis.
To be brief, in 2007 the FASB introduced accounting rule FAS 157 aka the "Mark to Market" accounting rule. That required financial institutions to raise more and more capital to meet reserve and margin requirements as their illiquid asset values plummeted. In other words, they had to sell more and more assets as the value of those assets declined. This created a self-perpetuating and accelerating financial vortex for some very large institutions from which they could only be saved by the Federal Government.
Under great political pressure, Congress passed the "Emergency Economic Stabilization Act of 2008", which authorized the SEC to review the FASB rules. By March 16, 2009 FASB finally relented on the worst provisions of the rule and the market instantly turned positive. This rule has also been attributed with increasing bank profits in the recovery (and thus executive bonuses) by exaggerating the increase in asset values after they were artificially depressed by the collapse.
I'm not really complaining about FAS 157 (as modified) since it brought the financial world back to reality from its euphoric bubble. But as with any good regulatory body, they abused their power. Thank God they finally came down off their pedestals before financial Armageddon, which was within days of becoming reality in 2009. "Vogons" exist in the FASB...
I suppose the point of bringing this up now is this: the financial meltdown and its meteoric resurrection was a bunch of bureaucratic nonsense. But the political reaction to it, and the resulting massive public debt are very real. Unwinding that will be painful if even possible.
Tuesday, August 30, 2011
Saturday, August 27, 2011
Economic Warfare on the High-Speed Battleground
Most US politicians and economists don't get it. The economic problems faced by the USA today are not just related to economic boom-bust cycles and poor management of economies (though these are real problems). This is Economic Warfare being fought on a new battleground called the High-Speed Internet.
In this war, the USA employs a strategy it calls "free trade", which equates to unilateral economic disarmament. We fear threats from our economic foes so we constantly surrender favorable trade deals, off-shoring jobs, capital flight, etc.
The guerilla tactics of our economic foes are unrecognized and their targets are rarely defended by the US. They appear at our electronic gates and negotiate deals with the captains of business, while the generals lay additional regulations and taxes on us, like useless equipment and rules of engagement that leave us powerless to fight.
Old ideas are hard to change. Liberal colleges still teach economic theories developed centuries ago. Politicians still use policies based on teachings of Karl Marx, John Maynard Keynes, Milton Friedman, etc. The fact is, the battleground has changed, the tactics have changed, and the US needs to wake up and fight with 21st century tactics before the battle is lost and our sovereignty is lost with it.
Throwing more money at the problem (whether tax cuts for the rich or stimulus checks for the poor) won’t work anymore. The money will be tucked under a mattress or put to work overseas. Fixing the economy will require policies that change the direction, not the speed of business.
The first order of business is to find anything the government is doing now to make things worse, and stop doing it. All the health care policies developed in this century need to be reversed, to start with. We need to stop using taxes and regulations to make employers act like social services. It is way too easy to get unregulated, cheap foreign labor on the Internet.
The only reason the jobs situation hasn’t gotten even worse is that many small business people still care for their employees. Community organizers and career politicians don’t have a clue about how businesses work and won’t find the answer from people who run mega-cap corporations that routinely send US jobs overseas.
Small businesses won’t last in a weak economy, when they are competing against multi-nationals and cheap foreign labor. They will be acquired or put out of business. This trend will not only continue but accelerate if it is not addressed.
Changing the direction will require time and pain, but it’s better to start now before we go deeper in debt and further into the mud. Probably the first step will be early 2012 when we can start to get fresh blood in the primary process. The primary elections are our best chance to make a change in leadership; both parties need people who at least recognize the new economic battle we face.
In this war, the USA employs a strategy it calls "free trade", which equates to unilateral economic disarmament. We fear threats from our economic foes so we constantly surrender favorable trade deals, off-shoring jobs, capital flight, etc.
The guerilla tactics of our economic foes are unrecognized and their targets are rarely defended by the US. They appear at our electronic gates and negotiate deals with the captains of business, while the generals lay additional regulations and taxes on us, like useless equipment and rules of engagement that leave us powerless to fight.
Old ideas are hard to change. Liberal colleges still teach economic theories developed centuries ago. Politicians still use policies based on teachings of Karl Marx, John Maynard Keynes, Milton Friedman, etc. The fact is, the battleground has changed, the tactics have changed, and the US needs to wake up and fight with 21st century tactics before the battle is lost and our sovereignty is lost with it.
Throwing more money at the problem (whether tax cuts for the rich or stimulus checks for the poor) won’t work anymore. The money will be tucked under a mattress or put to work overseas. Fixing the economy will require policies that change the direction, not the speed of business.
The first order of business is to find anything the government is doing now to make things worse, and stop doing it. All the health care policies developed in this century need to be reversed, to start with. We need to stop using taxes and regulations to make employers act like social services. It is way too easy to get unregulated, cheap foreign labor on the Internet.
The only reason the jobs situation hasn’t gotten even worse is that many small business people still care for their employees. Community organizers and career politicians don’t have a clue about how businesses work and won’t find the answer from people who run mega-cap corporations that routinely send US jobs overseas.
Small businesses won’t last in a weak economy, when they are competing against multi-nationals and cheap foreign labor. They will be acquired or put out of business. This trend will not only continue but accelerate if it is not addressed.
Changing the direction will require time and pain, but it’s better to start now before we go deeper in debt and further into the mud. Probably the first step will be early 2012 when we can start to get fresh blood in the primary process. The primary elections are our best chance to make a change in leadership; both parties need people who at least recognize the new economic battle we face.
Friday, August 26, 2011
World's Worst Investment
The US Dollar may be the worst investment in the World. Think of a Dollar as a stock certificate (for those old enough to remember what they look like). It signifies that you own a very small piece of the USA.
The problem is that the CFO (Ben Bernanke) can issue new shares any time he thinks the corporation needs extra cash. For shareholders (you people with cash) that is DILUTION. That means your shares are constantly declining.
The worst of the worst investments are those "Convertibles" (Treasuries) that pay a puny 2% taxable income and convert back to "USA Common Stock" in 10-30 years, when the stock is guaranteed to be worth 50-80% less than it is today.
Shareholders of the USA don't really appreciate their ownership, and they can't seem to make up their mind about management. Management continues to add more and more people to the payroll, in spite of declining sales per employee. And all the different divisions can do is talk about whether to lay off people (the Republican approach) or borrow more and give everybody a raise (the Democrat approach). Thus the corporation and the value of its shares continues to decline.
The company needs new management, some visionaries that understand we need a better strategy to motivate employees and stimulate sales. Until this happens, the shares are a SELL.
The problem is that the CFO (Ben Bernanke) can issue new shares any time he thinks the corporation needs extra cash. For shareholders (you people with cash) that is DILUTION. That means your shares are constantly declining.
The worst of the worst investments are those "Convertibles" (Treasuries) that pay a puny 2% taxable income and convert back to "USA Common Stock" in 10-30 years, when the stock is guaranteed to be worth 50-80% less than it is today.
Shareholders of the USA don't really appreciate their ownership, and they can't seem to make up their mind about management. Management continues to add more and more people to the payroll, in spite of declining sales per employee. And all the different divisions can do is talk about whether to lay off people (the Republican approach) or borrow more and give everybody a raise (the Democrat approach). Thus the corporation and the value of its shares continues to decline.
The company needs new management, some visionaries that understand we need a better strategy to motivate employees and stimulate sales. Until this happens, the shares are a SELL.
Tuesday, August 23, 2011
Did You Get Scared Into US Treasuries?
I hope you didn't buy US Treasuries in the last few weeks. If you did, good luck getting out when you have Uncle Sam's protuberant posterior and Ben Bernanke's bulging bum jammed in the door in front of you.
Now there will be a host of bond index funds stuck with these guaranteed money-losers for the next 10-30 years. The day the Fed-engineered bond bubble bursts will be the biggest "giant sucking sound" since Ross Perot invented the term to describe "free trade".
Oh, I forgot one other big player stuck in the room holding Treasuries - the Social Security trust fund. That thing is going to have to start selling Treasuries too, just to keep the money flowing to all the baby boom geezers. We're going to need a massive tube of Preparation-H to get all those Treasuries on the market at the same time; watch out!
Now there will be a host of bond index funds stuck with these guaranteed money-losers for the next 10-30 years. The day the Fed-engineered bond bubble bursts will be the biggest "giant sucking sound" since Ross Perot invented the term to describe "free trade".
Oh, I forgot one other big player stuck in the room holding Treasuries - the Social Security trust fund. That thing is going to have to start selling Treasuries too, just to keep the money flowing to all the baby boom geezers. We're going to need a massive tube of Preparation-H to get all those Treasuries on the market at the same time; watch out!
Saturday, August 20, 2011
Some Really Good Stuff
I've been seeing some pretty good stuff on the financial news lately. I love David Stockman - see these news posts today:
David Stockman: GOP Candidates "Checked Out of Reality"
http://finance.yahoo.com/blogs/daily-ticker/david-stockman-gop-candidates-checked-reality-125336801.html
“Obama Doesn’t Get It”: More Stimulus Won’t Help, Stockman Says – And We Can’t Afford It
http://finance.yahoo.com/blogs/daily-ticker/obama-doesn-t-more-stimulus-won-t-help-181952721.html
Congress, not Fed, must do more for economy: Fisher
http://finance.yahoo.com/news/Congress-not-Fed-must-do-more-rb-1795827576.html
This last article has been echoed a lot this week - the Federal Government got us into this mess and we can't expect the Federal Reserve to get us out.
I find it a bit ironic that David Stockman says this has been going on for 30 years, since that dates back to the Reagan administration when he was Chief Economic Council to the President. Basically the elected government under Reagan and the Democrat Congress abdicated its control of the economy so the Federal Reserve could take the heat for killing inflation (and the economy). They never got the guts to balance the budget again. Of course, who can blame them, we keep electing them. Finally...
Congress Needs to 'Cowboy Up' to Fix the Economy
http://finance.yahoo.com/news/Congress-Needs-to-Cowboy-Up-cnbc-2912894222.html
Somebody needs to advocate for tough, strong policies for America and stop all the namby-pamby coddling of the electorate. I think the right person could pull this off, but I don't know about the two parties we have today. I think there is more hope on the Republican side if they could wean themselves off big-money and possibly foreign interests that are corrupting their trade and tax policies.
I'll end with a quote from a famous (oops) Democrat:
"Ask not what your country can do for you, ask what you can do for your country!"
That means all of us, not just the rich or the entitlement class...
David Stockman: GOP Candidates "Checked Out of Reality"
http://finance.yahoo.com/blogs/daily-ticker/david-stockman-gop-candidates-checked-reality-125336801.html
“Obama Doesn’t Get It”: More Stimulus Won’t Help, Stockman Says – And We Can’t Afford It
http://finance.yahoo.com/blogs/daily-ticker/obama-doesn-t-more-stimulus-won-t-help-181952721.html
Congress, not Fed, must do more for economy: Fisher
http://finance.yahoo.com/news/Congress-not-Fed-must-do-more-rb-1795827576.html
This last article has been echoed a lot this week - the Federal Government got us into this mess and we can't expect the Federal Reserve to get us out.
I find it a bit ironic that David Stockman says this has been going on for 30 years, since that dates back to the Reagan administration when he was Chief Economic Council to the President. Basically the elected government under Reagan and the Democrat Congress abdicated its control of the economy so the Federal Reserve could take the heat for killing inflation (and the economy). They never got the guts to balance the budget again. Of course, who can blame them, we keep electing them. Finally...
Congress Needs to 'Cowboy Up' to Fix the Economy
http://finance.yahoo.com/news/Congress-Needs-to-Cowboy-Up-cnbc-2912894222.html
Somebody needs to advocate for tough, strong policies for America and stop all the namby-pamby coddling of the electorate. I think the right person could pull this off, but I don't know about the two parties we have today. I think there is more hope on the Republican side if they could wean themselves off big-money and possibly foreign interests that are corrupting their trade and tax policies.
I'll end with a quote from a famous (oops) Democrat:
"Ask not what your country can do for you, ask what you can do for your country!"
That means all of us, not just the rich or the entitlement class...
Tuesday, August 16, 2011
Reforming Republicans
Part of what I hope to accomplish with this little blog is to convince a few Republicans to act and vote more responsibly. I tried reforming Democrats and found them hopelessly lost in another world-view.
I believe the Federal government has a limited purpose as defined by the US Constitution. That means the Feds have no business providing things like retirement income and medical care for people (among many other items on the Progressive agenda.) Retirement is a personal and family responsibility, as is health care except in cases where charitable organizations may fill the gaps. The sooner we can get the Federal government out of our personal health and finances the better.
So if what I just said outrages you, you are welcome to stop reading because we obviously disagree about the fundamental purpose of government.
There are two things wrong with the Republican agenda that I want to change - the "party line" on tax policy, and "free trade". I could write a book about either subject and get exactly ZERO readers. Books need to be written by people with credentials. Blogs are for people like me.
Taxes
I've been outraged about deficits since the early days of the Reagan administration. I thought maybe the Tea Party movement would finally do something about this. But instead of bargaining with Democrats about spending cuts in exchange for "revenue increases", they drove us to the brink and got exactly NOTHING. I can't think of anything good to say about that. Neither party wants to talk about sacrifice unless the other party does the same - I know how that works and they should too. If you want to bargain by not compromising, you will obtain this result every time, guaranteed.
Free Trade
I think that both parties share the blame, but I expect Republicans to stand up for US interests. Thus I am constantly disappointed and frustrated with our trade policies. I can only explain it by either stupidity or corruption, plain and simple. We simply cannot let the world roll over us any more. Peter Morici says it better than I; search for this article if you can't find it here:
http://www.cnbc.com/id/43493708/Morici_Federal_Reserve_Ending_QE2_Much_Ado_about_Nothing
I sent him an email asking which presidential candidate would stand up for the US against Chinese currency manipulation. His reply: Only Trump. The Donald that is. Sad for me, he isn't running right now.
I believe the Federal government has a limited purpose as defined by the US Constitution. That means the Feds have no business providing things like retirement income and medical care for people (among many other items on the Progressive agenda.) Retirement is a personal and family responsibility, as is health care except in cases where charitable organizations may fill the gaps. The sooner we can get the Federal government out of our personal health and finances the better.
So if what I just said outrages you, you are welcome to stop reading because we obviously disagree about the fundamental purpose of government.
There are two things wrong with the Republican agenda that I want to change - the "party line" on tax policy, and "free trade". I could write a book about either subject and get exactly ZERO readers. Books need to be written by people with credentials. Blogs are for people like me.
Taxes
I've been outraged about deficits since the early days of the Reagan administration. I thought maybe the Tea Party movement would finally do something about this. But instead of bargaining with Democrats about spending cuts in exchange for "revenue increases", they drove us to the brink and got exactly NOTHING. I can't think of anything good to say about that. Neither party wants to talk about sacrifice unless the other party does the same - I know how that works and they should too. If you want to bargain by not compromising, you will obtain this result every time, guaranteed.
Free Trade
I think that both parties share the blame, but I expect Republicans to stand up for US interests. Thus I am constantly disappointed and frustrated with our trade policies. I can only explain it by either stupidity or corruption, plain and simple. We simply cannot let the world roll over us any more. Peter Morici says it better than I; search for this article if you can't find it here:
http://www.cnbc.com/id/43493708/Morici_Federal_Reserve_Ending_QE2_Much_Ado_about_Nothing
I sent him an email asking which presidential candidate would stand up for the US against Chinese currency manipulation. His reply: Only Trump. The Donald that is. Sad for me, he isn't running right now.
Thursday, August 4, 2011
Is the Stock Market About to Bottom Out?
I posted this today in response to this article:
http://finance.yahoo.com/banking-budgeting/article/113250/stocks-pricing-new-recession-marketwatch
The article claims the stock market could start to rise again later this year, as it did in March 2009...
http://finance.yahoo.com/banking-budgeting/article/113250/stocks-pricing-new-recession-marketwatch
The article claims the stock market could start to rise again later this year, as it did in March 2009...
The bottom in March 2009 was directly related to FASB relenting on Mark-to-Market accounting rules, which allowed the banks to stop writing down assets and approaching artificial insolvency.
What is happening now is anything but artificial. The only way to stop it is to remove the current policy makers (read - executive branch) because it is regulatory policy that is scaring businesses and discouraging investment and job creation. Based on the recent "women's health care" mandates they are clearly completely out of touch with reality.
Maybe the markets will discount a new administration early next year when it is clear there is a CHANGE coming in the right direction (I hope). Then confidence would be restored and the market could rise from the ash heap again.
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