We are surrounded by color this time of year in Colorado. Mostly yellows, but some orange and red with enough green hangers-on from summer to make things interesting. People think aspen leaves turn from green to yellow in the fall. Actually, as the sun's angle changes, leaves lose their green color, leaving only the yellow behind. So it’s a case of “becoming” yellow rather than “turning.” I know, that's being picky, but I’d rather think in terms of becoming.
We become a year older. We become smarter (or dumber, if we still have money in the stock market). Children become grownup. We become grandparents or great-grandparents. You get the picture.
I call autumn nature’s hesitation. We go from the warm days of summer to a time of watching and waiting for winter. The leaves become yellow and tell us cold weather is right around the corner. Yet it’s still warm. We walk the hills, basking in the sunlight as though it belonged to us. It would be easy to think this could last forever. Soon, though, winter will be upon us. The leaves will fall, leaving behind bare trunks and naked limbs to face whatever the icy winds will bring.
But winter has charm too. There’s nothing so spectacular as a full moon on new snow. To quote from the poem, such splendor gives the “luster of midday to objects below.” I remember once, several years ago, catching up with a car driving without headlights. Before I could say “Dumb drunk!” I realized the driver was following other cars without their lights on. Then I realized none of us needed lights — the moon reflecting off the snow provided all the illumination we needed!
I too turned my lights off and reflected on the fact that here were several drivers who didn’t have a clue who the others were, yet we were united in silence as we convoyed down the highway together. It was quite a moment.
We’re alive and well, the trees are still beautiful and the mountains haven’t changed in, oh, a million years or so. Life goes on as it always has and so will we in one way or another.
Tuesday, October 7, 2008
Friday, October 3, 2008
Dare we call it what it is?
By this time all of America is familiar with the financial crisis supposedly involving (take your pick) Wall Street financiers, corrupt politicians, greedy banks and predatory loan agencies.
We're told by President Bush, the Fed chairman, Treasury secretary and a handful of (mostly Democratic) Congressmen that taxpayers are the only ones who can bail us out.
It occurs to me that if crooks are robbing banks, we don't arrest the person who got robbed; we arrest the crooks first and work outward from there.
Regardless of your political affiliation, I want you to watch the YouTube videos below and come to your own conclusion who the crooks are.
Don't make a judgment until you've watched them through to the end. Then see if what you've seen isn't what police call an ongoing criminal enterprise.
Are we talking about violations of the federal Racketeer Influenced and Corrupt Organizations Act, commonly referred to as the RICO Act? It would seem so, but let's take a look and see what the statute says.
The RICO statute provides for extended penalties for criminal acts performed as part of an ongoing criminal organization. It also provides a civil cause of action for those injured by violations of the act.
So let's break this down. Have there been criminal acts? Is there an ongoing criminal organization? Have people been injured as a result of such acts and are other people civilly liable? There's been enough smoke around this financial fire to make me believe so.
That is, unless lawyers have figured out ways to keep the dots from being connected.
There's certainly been a loose organization involving men and women in Congress, lobbyists, and Fannie Mae and Freddie Mac, the government-sponsored but privately-owned guarantors of home loans.
This organization has perpetuated what seems to be a complex, albeit intentional, scheme aimed at defrauding taxpayers under the guise of providing loans to low-income homeowners. The question is whether the people involved knew or suspected their house of cards would fall.
For a crime to take place there must be an actus rea (criminal act) and mens rea (criminal intent). Generally speaking, there must also be one or more victims.
There certainly have been acts. We also have intent if you believe, as I do, that people at the top of these pyramid schemes knew the difference between right or wrong.
That's what we must prove then: whether the people involved knew or reasonably believed at the time these acts were being perpetrated that what they were doing was wrong and likely to result in people losing much if not all of their life's savings.
So before I go further, copy and paste the videos in your browser and watch them. See the accusations being made and make a mental note of who made them.
Also watch who denied the accusations and see if they aren't some of the same people standing in front of cameras today denying knowledge of any wrongdoing. Then come back to this post and let's chat further.
http://www.youtube.com/watch?v=NU6fuFrdCJY
http://www.youtube.com/watch?v=_MGT_cSi7Rs
Now that you've seen and heard what was said, some on the right will say kill the bastards. Some on the left will say the accusations were taken out of context. Maybe. That's why a special prosecutor should be appointed NOW to determine who knew what and when.
And that includes George W. Bush and members of Congress.
Let the chips fall where they may. Let wrongdoers be sent to jail for a looooong time. And let's all hope that never again will the American people allow greedy financiers to con them out of their money.
In the meantime, life goes on here in Pikes Peak country. Let's hope the markets eventually recover and that people who lost will recover enough to see them through their retirements.
That's it from this corner of beautiful Colorado. Happy autumn everyone.
We're told by President Bush, the Fed chairman, Treasury secretary and a handful of (mostly Democratic) Congressmen that taxpayers are the only ones who can bail us out.
It occurs to me that if crooks are robbing banks, we don't arrest the person who got robbed; we arrest the crooks first and work outward from there.
Regardless of your political affiliation, I want you to watch the YouTube videos below and come to your own conclusion who the crooks are.
Don't make a judgment until you've watched them through to the end. Then see if what you've seen isn't what police call an ongoing criminal enterprise.
Are we talking about violations of the federal Racketeer Influenced and Corrupt Organizations Act, commonly referred to as the RICO Act? It would seem so, but let's take a look and see what the statute says.
The RICO statute provides for extended penalties for criminal acts performed as part of an ongoing criminal organization. It also provides a civil cause of action for those injured by violations of the act.
So let's break this down. Have there been criminal acts? Is there an ongoing criminal organization? Have people been injured as a result of such acts and are other people civilly liable? There's been enough smoke around this financial fire to make me believe so.
That is, unless lawyers have figured out ways to keep the dots from being connected.
There's certainly been a loose organization involving men and women in Congress, lobbyists, and Fannie Mae and Freddie Mac, the government-sponsored but privately-owned guarantors of home loans.
This organization has perpetuated what seems to be a complex, albeit intentional, scheme aimed at defrauding taxpayers under the guise of providing loans to low-income homeowners. The question is whether the people involved knew or suspected their house of cards would fall.
For a crime to take place there must be an actus rea (criminal act) and mens rea (criminal intent). Generally speaking, there must also be one or more victims.
There certainly have been acts. We also have intent if you believe, as I do, that people at the top of these pyramid schemes knew the difference between right or wrong.
That's what we must prove then: whether the people involved knew or reasonably believed at the time these acts were being perpetrated that what they were doing was wrong and likely to result in people losing much if not all of their life's savings.
So before I go further, copy and paste the videos in your browser and watch them. See the accusations being made and make a mental note of who made them.
Also watch who denied the accusations and see if they aren't some of the same people standing in front of cameras today denying knowledge of any wrongdoing. Then come back to this post and let's chat further.
http://www.youtube.com/watch?v=NU6fuFrdCJY
http://www.youtube.com/watch?v=_MGT_cSi7Rs
Now that you've seen and heard what was said, some on the right will say kill the bastards. Some on the left will say the accusations were taken out of context. Maybe. That's why a special prosecutor should be appointed NOW to determine who knew what and when.
And that includes George W. Bush and members of Congress.
Let the chips fall where they may. Let wrongdoers be sent to jail for a looooong time. And let's all hope that never again will the American people allow greedy financiers to con them out of their money.
In the meantime, life goes on here in Pikes Peak country. Let's hope the markets eventually recover and that people who lost will recover enough to see them through their retirements.
That's it from this corner of beautiful Colorado. Happy autumn everyone.
Saturday, September 27, 2008
It's all about credit, folks
The following e-newsletter by John Mauldin explains the current financial crisis better than anything I’ve seen. Something does need to be done, and soon. I know it sounds harsh, but I hope banks never again finance homes and cars when people can’t afford to pay for them.
Jake Jabs of American Furniture Warehouse, with stores throughout central Colorado, has the best story I know of when it comes to buying on credit. He began small (selling guitars yet!) and reinvested profits in his business. In other words, Jake didn’t spend what money he made on cars or toys -- he bought more guitars to sell.
Jake borrowed money from a bank only once, just long enough to see the bank threaten to foreclose when times got hard. That taught him a lesson he never forgot and from then on out he's paid cash for everything.
When possible, Jake also does things himself instead of paying others to do it for him. Advertising is a good example. Everyone in Colorado has seen his weekly full-page furniture store ads in cities where his stores are located. They've also seen his TV ads, usually with a "wild" animal crawling around on the furniture. Jake doesn’t hire an advertising agency to build those ads. He designs them himself, saving tens of thousands of dollars that go back into buying more advertising. He figured early on he could take a tiger cub or two and do his own talking instead of paying an ad agency to write text and hire a professional pitchman.
What could have cost him $50,000 instead cost Jake about $250 for studio time!
Jake knows the value of the adage "when business is good you should advertise; when business is bad you must advertise." His philosophy is also on target: offer good products at low prices and people will flock to buy 'em. He’s never tried to make a killing by buying low and selling high. Instead, he buys wisely (and in quantity) and sells low on the theory that people will buy from him if they understand his business philosophy.
Jake originally bought a near-broke Denver furniture store using money he made selling guitars. The rest is history. Although not Jewish himself, Jake competed against a number of Jewish furniture store owners, prominent merchants who had been in business for years and were well thought of socially. Many of them are still in business, of course, but Jake is the dominant force.
While Jabs didn’t use credit to build his empire, that isn’t the way the American economy operates. Credit is the lifeblood of this country. A person might have good credit but it’s not worth a dime if the bank he does business with doesn’t have money to loan. Where a car dealer might need a credit line of, say, $5,000,000, in order to buy new cars to sell, he’s out of business if the bank can't lend him the money.
The dealer can’t buy cars and he can't sell cars. The consumer can’t get a car to drive to work, assuming he still has a job). First thing you know, the recession turns into a depression and there goes the economy -- all because of no credit.
Anyway, Mauldin says the current crisis is more about restoring a bank’s confidence in other banks, and in consumers’ confidence in banks they do business with, than it is a bailout of Wall Street brokerage firms. I believe him. I also believe it's a fixable problem. Herewith, his article:
Who's Afraid of a Big, Bad Bailout?
by John Mauldin
September 26, 2008
Flying last Tuesday, overnight from Cape Town in South Africa to London, I read in the Financial Times that Republican Congressman Joe Barton of Texas was quoted as saying (this is from memory, so it is not exact) that he had difficulty voting for a bailout plan when none of his constituents could understand the need to bail out Wall Street, didn't understand the problem, and were against spending $700 billion of taxpayer money to solve a crisis for a bunch of (rich) people who took a lot of risk and created the crisis. That is a sentiment that many of the Republican members of the House share.
As it happens, I know Joe. My office is in his congressional district. I sat on the Executive Committee for the Texas Republican Party representing much of the same district for eight years. This week, Thoughts from the Frontline will be an open letter to Joe, and through him to Congress, telling him what the real financial problem is and how it affects his district, helping explain the problem to his constituents , and explaining why he has to hold his nose with one hand and vote for a bailout with the other.
Just for the record, Joe has been in Congress for 24 years. He is the ranking Republican on the Energy and Commerce Committee, which is one of the three most important committees and is usually considered in the top five of Republican House leadership. He is quite conservative and has been a very good and effective congressman. I have known Joe for a long time and consider him a friend. He has been my Congressman at times, depending on where they draw the line. I called his senior aide and asked him how the phone calls were going. It is at least ten to one against supporting this bill, and that is probably typical of the phones all across this country. People are angry, and with real justification. And watching the debates, it reminds us that one should never look at how sausages and laws are made. It is a very messy process.
I think what follows is as good a way as any to explain the crisis we are facing this weekend. This letter will print out a little longer, because there are a lot of charts, but the word length is about the same. Let's jump right in.
It's the End of the World As We Know It
Dear Joe,
I understand your reluctance to vote for a bill that 90% of the people who voted for you are against. That is generally not good politics. They don't understand why taxpayers should spend $700 billion to bail out rich guys on Wall Street who are now in trouble. And if I only got my information from local papers and news sources, I would probably agree. But the media (apart from CNBC) has simply not gotten this story right. It is not just a crisis on Wall Street. Left unchecked, this will morph within a few weeks to a crisis on Main Street. What I want to do is describe the nature of the crisis, how this problem will come home to your district, and what has to be done to avert a true, full-blown depression, where the ultimate cost will be far higher to the taxpayers than $700 billion. And let me say that my mail is not running at 10 to 1 against, but it is really high. I am probably going to make a lot of my regular readers mad, but they need to hear what is really happening on the front lines of the financial world.
First, let's stop calling this a bailout plan. It is not. It is an economic stabilization plan. Run properly, it might even make the taxpayers some money. If it is not enacted very soon (Monday would be fine), the losses to businesses and investors and homeowners all over the US (and the world) will be enormous. Unemployment will jump to rates approaching 10%, at a minimum. How did all this come to pass? Why is it so dire? Let's rewind the tape a bit.
We all know about the subprime crisis. That's part of the problem, as banks and institutions are now having to write off a lot of bad loans. The second part of the problem is a little more complex. Because we were running a huge trade deficit, countries all over the world were selling us goods and taking our dollars. They in turn invested those excess dollars in US bonds, helping to drive down interest rates. It became easy to borrow money at low rates. Banks, and what Paul McCulley properly called the Shadow Banking System, used that ability to borrow and dramatically leverage up those bad loans (when everyone thought they were good), as it seemed like easy money. They created off-balance-sheet vehicles called Structured Investment Vehicles (SIVs) and put loans and other debt into them. They then borrowed money on the short-term commercial paper market to fund the SIVs and made as profit the difference between the low short-term rates of commercial paper and the higher long-term rates on the loans in the SIV. And if a little leverage was good, why not use a lot of leverage and make even more money? Everyone knew these were AAA-rated securities.
And then the music stopped. It became evident that some of these SIVs contained subprime debt and other risky loans. Investors stopped buying the commercial paper of these SIVs. Large banks were basically forced to take the loans and other debt in the SIVs back onto their balance sheets last summer as the credit crisis started. Because of a new accounting rule (called FASB 157), banks had to mark their illiquid investments to the most recent market price of a similar security that actually had a trade. Over $500 billion has been written off so far, with credible estimates that there might be another $500 billion to go. That means these large banks have to get more capital, and it also means they have less to lend. (More on the nature of these investments in a few paragraphs.)
Banks can lend to consumers and investors about 12 times their capital base. If they have to write off 20% of their capital because of losses, that means they either have to sell more equity or reduce their loan portfolios. As an example, for every $1,000 of capital, a bank can loan $12,000 (more or less). If they have to write off 20% ($200), they either have to sell stock to raise their capital back to $1,000 or reduce their loan portfolio by $2,400. Add some zeroes to that number and it gets to be huge.
And that is what is happening. At first, banks were able to raise new capital. But now, many banks are finding it very difficult to raise money, and that means they have to reduce their loan portfolios. We'll come back to this later. But now, let's look at what is happening today. Basically, the credit markets have stopped functioning. Because banks and investors and institutions are having to deleverage, that means they need to sell assets at whatever prices they can get in order to create capital to keep their loan-to-capital ratios within the regulatory limits.
Remember, part of this started when banks and investors and funds used leverage (borrowed money) to buy more assets. Now, the opposite is happening. They are having to sell assets into a market that does not have the ability to borrow money to buy them. And because the regulators require them to sell whatever they can, the prices for some of these assets are ridiculously low. Let me offer a few examples.
Today, there are many municipal bonds that were originally sold to expire 10-15 years from now. But projects finished early and the issuers wanted to pay them off. However, the bonds often have a minimum time before they can be called. So, issuers simply buy US Treasuries and put them into the bond, to be used when the bond can be called. Now, for all intents and purposes this is a US government bond which has the added value of being tax-free. I had a friend, John Woolway, send me some of the bid and ask prices for these type of bonds. One is paying two times what a normal US Treasury would pay. Another is paying 291% of a normal US Treasury. And it is tax-free! Why would anyone sell what is essentially a US treasury bond for a discount? Because they are being forced to sell, and no one is buying! The credit markets are frozen.
Last week, I wrote about a formerly AAA-rated residential mortgage-backed security (RMBS) composed of Alt-A loans, better than subprime but less than prime. About 5% of the loans were delinquent, and there are no high-risk option ARMs in the security. It is offered at 70 cents on the dollar. If you bought that security, you would be making well over 12% on your money, and 76% of the loans in the portfolio of that security would have to default and lose over 50% of their value before you would risk even one penny. Yet the bank which is being forced to sell that loan has had to write down its value. As I wrote then, that is pricing in financial Armageddon. (You can read the full details here.)
Let's look at the following graph. It is an index of AAA-rated mortgage bonds, created by www.markit.com. It is composed of RMBSs similar to the one I described above. Institutions buy and sell this index as a way to hedge their portfolios. It is also a convenient way for an accounting firm to get a price for a mortgage-backed security in a client bank's portfolio. With the introduction of the new FASB 157 accounting rule, accountants are very aggressive about making banks mark their debt down, as they do not want to be sued if there is a problem. Notice this index shows that bonds that were initially AAA are now trading at 53 cents on the dollar, which is up from 42.5 cents two months ago.
Accountants might look at the bond I described above, look at this index, and decide to tell their clients to mark the bonds down to $.53 on the dollar. The bank is offering the bond at $.70 because it knows there is quality in the security. They are being forced to sell. And guess what? There are no buyers. An almost slam-dunk 12% total-return security with loss-coverage provisions that suggest 40% of the loans could default and lose 50% before your interest rate yields even suffered, let alone risk to your principal – and it can't find a buyer.
One of the real reasons these and thousands of other good bonds are not selling now is that there is real panic in the markets. The oldest money market fund "broke the buck" last week, because they had exposure to Lehman Brothers bonds. We are seeing massive flights of capital from money market funds, including by large institutions concerned about their capital. What are they buying? Short-term Treasury bills. Three-month Treasury bills are down to 0.84%.
It gets worse. Last week one-month Treasury bills were paying a negative 1%!!! That means some buyers were so panicked that they were willing to buy a bond for $1 that promised to pay them back only $.99 in just one month. The rate is at 0.16% today. If something is not done this weekend, it could go a lot lower over the next few days. That is panic, Joe.
I don't want to name names, as this letter goes to about 1.5 million people and I don't want to make problems for some fine banking names; but there is a silent bank run going on. There are no lines in the street, but it is a run nevertheless. It is large investment funds and corporations quietly pulling their money from some of the best banks in the country. They can do this simply by pushing a button. We are watching deposit bases fall. It does not take long. Lehman saw $400 billion go in just a few months this summer. Think about that number. Any whiff of a problem and an institution that is otherwise sound could be brought low in a matter of weeks. And the FDIC could end up with a large loss that seemed to have come from out of nowhere.
The TED Spread Flashes Trouble
There is something called the TED spread, which is the difference between three-month LIBOR (the London Inter Bank Offered Rate which is in euro dollars, also called The Euro Dollar Spread, thus TED) and three-month US Treasury bills. Three-month LIBOR is basically what banks charge each other to borrow money. Many mortgages and investments are based on various periods of LIBOR. Look at the chart below. Typically the TED spread is 50 basis points (0.50%) or less. When it spikes up, it is evidence of distress in the financial markets. The last time the TED spread was as high as it is now was right before the market crash of 1987. This is a weekly chart, which does not capture tonight's (Friday) change, which would make it look even worse. Quite literally, the TED spread is screaming panic.
The Fed has lowered rates to 2%. Typically, three-month LIBOR tracks pretty close to whatever the Fed funds rate is. Starting with the credit crisis last year, that began to change. Look at the chart below.
Remember, LIBOR is what banks charge to each other to make loans. Lower rates are supposed to help banks improve their capital and their ability to make loans at lower interest rates to businesses and consumers. Look at what has happened in the past few weeks, in the chart above. The spread between three-month LIBOR and the Fed funds rate is almost 200 basis points, or 2%! That is something that defies imagination to market observers. On the chart above, it looks like it has not moved that much, but in the trading desks of banks all over the world it is a heart-pounding, scare-you-to-death move. The chart below reflects what traders have seen in the past two weeks, and it moved up more today.
Now let's look at the next chart. This is the amount of Tier 1 commercial paper issued. This is the life blood of the business world. This is how many large and medium-sized businesses finance their day-to-day operations. The total amount of commercial paper issued is down about 15% from a year ago, with half of that drop coming in the last few weeks. Quite literally, the economic body is hemorrhaging. Unless something is done, businesses all over the US are going to wake up in a few weeks and find they simply cannot transact business as usual. This is going to put a real crimp in all sorts of business we think of as being very far from Wall Street.
I could go on. Credit spreads on high-yield bonds that many of our best high-growth businesses use to finance their growth are blowing out to levels which make it impossible for the companies to come to the market for new funds. And that is even if they could find investors in this market! There are lots of other examples (solid corporate loans selling at big discounts, asset-backed securities at discounts, etc.), but you get the idea. Suffice it to say that the current climate in the financial market is the worst since the 1930s. But how does a crisis in the financial markets affect businesses and families in Arlington, Texas, where my office and half of your district is?
The Transmission Mechanism
The transmission in a car takes energy from the engine and transfers it to the wheels. Let's talk about how the transmission mechanism of the economy works.
Let's start with our friend Dave Moritz down the street. He needs financing to be able to sell an automobile. To get those loans at good prices, an auto maker has to be able to borrow money and make the loans to Dave's customers. But if something does not stop the bleeding, it is going to get very expensive for GM to get money to make loans. That will make his cars more expensive to consumers. Cheap loans with small down payments are the life blood of the auto selling business. That is going to change dramatically unless something is done to stabilize the markets.
Credit card debt is typically packaged and sold to investors like pension funds and insurance companies. But in today's environment, that credit card debt is going to have to pay a much higher price in order to find a buyer. That means higher interest rates. Further, because most of the large issuers of credit cards are struggling with their leverage, they are reducing the amount of credit card debt they will give their card holders. If they continue to have to write down mortgages on their books because of mark-to-market rules which price assets at the last fire-sale price, it will mean even more shrinkage in available credit.
Try and sell a home above the loan limits of Fannie and Freddie today with a nonconforming jumbo loan. Try and find one that does not have very high rates, because many lenders who normally do them simply cannot afford to keep them on their balance sheets. And a subprime mortgage? Forget about it. This is going to get even worse if the financial markets melt down.
We are in a recession. Unemployment is going to rise to well over 6%. Consumer spending is going to slow. This is an environment which normally means it is tougher for small businesses and consumers to get financing in any event. Congress or the Fed cannot repeal the business cycle. There are always going to be recessions. And we always get through them, because we have a dynamic economy that figures out how to get things moving again.
Recessions are part of the normal business cycle. But it takes a major policy mistake by Congress or the Fed to create a depression. Allowing the credit markets to freeze would count as a major policy mistake.
I have been on record for some time that the economy will go through a normal recession and a slow recovery, what I call a Muddle Through Economy. This week I met with executives of one of the larger hedge funds in the world. They challenged me on my Muddle Through stance. And I had to admit that my Muddle Through scenario is at risk if Congress does not act to stabilize the credit markets.
Let's Make a Deal
Why do we need this Stabilization Plan? Why can't the regular capital markets handle it? The reason is that the problem is simply too big for the market to deal with. It requires massive amounts of patient, long-term money to solve the problem. And the only source for that would be the US government.
There is no reason for the taxpayer to lose money. Warren Buffett, Bill Gross of PIMCO, and my friend Andy Kessler have all said this could be done without the taxpayer losing money, and perhaps could even make a profit. As noted above, these bonds could be bought at market prices that would actually make a long-term buyer a profit. Put someone like Bill Gross in charge and let him make sure the taxpayers are buying value. This would re-liquefy the banks and help get their capital ratios back in line.
Why are banks not lending to each other? Because they don't know what kind of assets are on each other's books. There is simply no trust. The Fed has had to step in and loan out hundreds of billions of dollars in order to keep the financial markets from collapsing. If you allow the banks to sell their impaired assets at a market-clearing fair price (not at the original price), then once the landscape is cleared, banks will decide they can start trusting each other. The commercial paper market will come back. Credit spreads will come down. Banks will be able to stabilize their loan portfolios and start lending again.
Again, the US government is the only entity with enough size and patience to act. We do not have to bail out Wall Street. They will still take large losses on their securities, just not as large a loss as they are now facing in a credit market that is frozen. As noted above, there are many securities that are being marked down and sold far below a rational price.
If we act now, we will start to see securitization of mortgages, credit cards, auto loans, and business loans so that the economy can begin to function properly.
What happens if we walk away? Within a few weeks at most, financial markets will freeze even more. We will see electronic runs on major banks, and the FDIC will have more problems than you can possibly imagine. The TED spread and LIBOR will get much worse. Businesses which use the short-term commercial paper markets will start having problems rolling over their paper, forcing them to make difficult cuts in spending and employment. Larger businesses will find it more difficult to get loans and credit. That will have effects on down the economic food chain. Jim Cramer estimated today that without a plan of some type, we could see the Dow drop to 8300. That is as good a guess as any. It could be worse. Home valuations and sales will drop even further.
The average voter? They will see stock market investments off another 25% at the least. Home prices will go down even more. Consumer spending will drop. What should be a run-of-the-mill recession becomes a deep recession or soft depression. Yes, that may be worst-case scenario. But that is the risk I think we take with inaction.
A properly constructed Stabilization Plan hopefully avoids the worst-case scenario. It should ultimately not cost the taxpayer much, and maybe even return a profit. The AIG rescue that Paulson arranged is an example of how to do it right. My bet is that the taxpayer is going to make a real profit on this deal. We got 80% of AIG, with what is now a loan paying the taxpayer over 12%, plus almost $2 billion in upfront fees for doing the loan. That is not a bailout. That is a business deal that sounds like it was done by Mack the Knife.
This deal needs to be done by Monday. Every day we wait will see more and more money fly out the doors of the banks, putting the FDIC at ever greater risk. Panic will start to set in, moving to ever smaller banks. Frankly, we are at the point where we need to consider raising the FDIC limits for all deposits for a period of time, until the Stabilization Plan quells the panic.
I understand that this is a really, really bad idea according classical free-market economic theory. You know me; I am as free market as it comes. But I also know that without immediate action a lot of people are really going to be hurt. Unemployment is not a good thing. Losses on your home and investments hurt. It is all nice and well to talk about theories and contend the market should be allowed to sort itself out; and if we have a deep recession, then that is what is needed. But the risk we take is not a deep recession but a soft depression. The consequences of inaction are simply unthinkable.
Joe, I am telling you that the markets are screaming panic. Yes, Senator Richard Shelby has his 200 economists saying this is a bad deal. But they are ivory tower kibitzers who have never sat at a trading desk. They have never tried to put a loan deal together or had to worry about commercial paper markets collapsing. I am talking daily with the people on the desks who are seeing what is really happening. Shelby's economists are armchair generals far from the front lines. I am talking to the foot soldiers who are on the front lines.
Every sign of potential disaster is there. You and the rest of the House have to act. It has to be bipartisan. This should not be about politics (even though Barney Frank keeps talking bipartisan and then taking partisan shots, but I guess he just can't help himself). It should be about doing the right thing for our country and the world. I know it will not be fun coming back to the district. Talking about TED spreads and LIBOR will not do much to assuage voters who are angry. But it is the right thing to do. And I will be glad to come to the town hall meeting with you and help if you like.
With your help, we will get through this. In a few years, things will be back to normal and we can all have stories to tell to our grandkids about how we lived through interesting times. But right now we have to act.
Colorado, California, London, and Sweden
It is time to hit the send button. This was personally a great week. For whatever reason, I did not suffer jet lag flying to South Africa for just two days, then overnight to London, and back the next day. It was a good trip. I will report more about South Africa in a later letter, but this e-letter is already a little long.
I leave Sunday for a quick trip to Longmont, Colorado (near Boulder) to look at a very interesting technology company (InPhase) that makes holographic memory disks, with good friend Dr. Bart Stuck of Signal Lake Partners.
I will be in San Diego and Orange County the 16th and 17th of October for back-to-back speeches, then I leave Sunday for London for two days and then on to Sweden for a conference and speeches there, a quick trip to Malta, and then back home, where I will be chained to my desk by daughter Tiffani as we do interviews and write a book.
I do enjoy traveling from time to time, seeing the rest of the world. One of my secret pleasures is reading International Living and thinking about what it would be like to have another home somewhere. Cheap thrills. You can subscribe if you like by following this link.
Have a great week. I fully believe (OK, deeply hope) that Congress will act. We can all breathe a collective sigh when they do.
Your still believing in Muddle Through analyst,
John Mauldin
John@FrontLineThoughts.com
Copyright 2008 John Mauldin. All Rights Reserved
Jake Jabs of American Furniture Warehouse, with stores throughout central Colorado, has the best story I know of when it comes to buying on credit. He began small (selling guitars yet!) and reinvested profits in his business. In other words, Jake didn’t spend what money he made on cars or toys -- he bought more guitars to sell.
Jake borrowed money from a bank only once, just long enough to see the bank threaten to foreclose when times got hard. That taught him a lesson he never forgot and from then on out he's paid cash for everything.
When possible, Jake also does things himself instead of paying others to do it for him. Advertising is a good example. Everyone in Colorado has seen his weekly full-page furniture store ads in cities where his stores are located. They've also seen his TV ads, usually with a "wild" animal crawling around on the furniture. Jake doesn’t hire an advertising agency to build those ads. He designs them himself, saving tens of thousands of dollars that go back into buying more advertising. He figured early on he could take a tiger cub or two and do his own talking instead of paying an ad agency to write text and hire a professional pitchman.
What could have cost him $50,000 instead cost Jake about $250 for studio time!
Jake knows the value of the adage "when business is good you should advertise; when business is bad you must advertise." His philosophy is also on target: offer good products at low prices and people will flock to buy 'em. He’s never tried to make a killing by buying low and selling high. Instead, he buys wisely (and in quantity) and sells low on the theory that people will buy from him if they understand his business philosophy.
Jake originally bought a near-broke Denver furniture store using money he made selling guitars. The rest is history. Although not Jewish himself, Jake competed against a number of Jewish furniture store owners, prominent merchants who had been in business for years and were well thought of socially. Many of them are still in business, of course, but Jake is the dominant force.
While Jabs didn’t use credit to build his empire, that isn’t the way the American economy operates. Credit is the lifeblood of this country. A person might have good credit but it’s not worth a dime if the bank he does business with doesn’t have money to loan. Where a car dealer might need a credit line of, say, $5,000,000, in order to buy new cars to sell, he’s out of business if the bank can't lend him the money.
The dealer can’t buy cars and he can't sell cars. The consumer can’t get a car to drive to work, assuming he still has a job). First thing you know, the recession turns into a depression and there goes the economy -- all because of no credit.
Anyway, Mauldin says the current crisis is more about restoring a bank’s confidence in other banks, and in consumers’ confidence in banks they do business with, than it is a bailout of Wall Street brokerage firms. I believe him. I also believe it's a fixable problem. Herewith, his article:
Who's Afraid of a Big, Bad Bailout?
by John Mauldin
September 26, 2008
Flying last Tuesday, overnight from Cape Town in South Africa to London, I read in the Financial Times that Republican Congressman Joe Barton of Texas was quoted as saying (this is from memory, so it is not exact) that he had difficulty voting for a bailout plan when none of his constituents could understand the need to bail out Wall Street, didn't understand the problem, and were against spending $700 billion of taxpayer money to solve a crisis for a bunch of (rich) people who took a lot of risk and created the crisis. That is a sentiment that many of the Republican members of the House share.
As it happens, I know Joe. My office is in his congressional district. I sat on the Executive Committee for the Texas Republican Party representing much of the same district for eight years. This week, Thoughts from the Frontline will be an open letter to Joe, and through him to Congress, telling him what the real financial problem is and how it affects his district, helping explain the problem to his constituents , and explaining why he has to hold his nose with one hand and vote for a bailout with the other.
Just for the record, Joe has been in Congress for 24 years. He is the ranking Republican on the Energy and Commerce Committee, which is one of the three most important committees and is usually considered in the top five of Republican House leadership. He is quite conservative and has been a very good and effective congressman. I have known Joe for a long time and consider him a friend. He has been my Congressman at times, depending on where they draw the line. I called his senior aide and asked him how the phone calls were going. It is at least ten to one against supporting this bill, and that is probably typical of the phones all across this country. People are angry, and with real justification. And watching the debates, it reminds us that one should never look at how sausages and laws are made. It is a very messy process.
I think what follows is as good a way as any to explain the crisis we are facing this weekend. This letter will print out a little longer, because there are a lot of charts, but the word length is about the same. Let's jump right in.
It's the End of the World As We Know It
Dear Joe,
I understand your reluctance to vote for a bill that 90% of the people who voted for you are against. That is generally not good politics. They don't understand why taxpayers should spend $700 billion to bail out rich guys on Wall Street who are now in trouble. And if I only got my information from local papers and news sources, I would probably agree. But the media (apart from CNBC) has simply not gotten this story right. It is not just a crisis on Wall Street. Left unchecked, this will morph within a few weeks to a crisis on Main Street. What I want to do is describe the nature of the crisis, how this problem will come home to your district, and what has to be done to avert a true, full-blown depression, where the ultimate cost will be far higher to the taxpayers than $700 billion. And let me say that my mail is not running at 10 to 1 against, but it is really high. I am probably going to make a lot of my regular readers mad, but they need to hear what is really happening on the front lines of the financial world.
First, let's stop calling this a bailout plan. It is not. It is an economic stabilization plan. Run properly, it might even make the taxpayers some money. If it is not enacted very soon (Monday would be fine), the losses to businesses and investors and homeowners all over the US (and the world) will be enormous. Unemployment will jump to rates approaching 10%, at a minimum. How did all this come to pass? Why is it so dire? Let's rewind the tape a bit.
We all know about the subprime crisis. That's part of the problem, as banks and institutions are now having to write off a lot of bad loans. The second part of the problem is a little more complex. Because we were running a huge trade deficit, countries all over the world were selling us goods and taking our dollars. They in turn invested those excess dollars in US bonds, helping to drive down interest rates. It became easy to borrow money at low rates. Banks, and what Paul McCulley properly called the Shadow Banking System, used that ability to borrow and dramatically leverage up those bad loans (when everyone thought they were good), as it seemed like easy money. They created off-balance-sheet vehicles called Structured Investment Vehicles (SIVs) and put loans and other debt into them. They then borrowed money on the short-term commercial paper market to fund the SIVs and made as profit the difference between the low short-term rates of commercial paper and the higher long-term rates on the loans in the SIV. And if a little leverage was good, why not use a lot of leverage and make even more money? Everyone knew these were AAA-rated securities.
And then the music stopped. It became evident that some of these SIVs contained subprime debt and other risky loans. Investors stopped buying the commercial paper of these SIVs. Large banks were basically forced to take the loans and other debt in the SIVs back onto their balance sheets last summer as the credit crisis started. Because of a new accounting rule (called FASB 157), banks had to mark their illiquid investments to the most recent market price of a similar security that actually had a trade. Over $500 billion has been written off so far, with credible estimates that there might be another $500 billion to go. That means these large banks have to get more capital, and it also means they have less to lend. (More on the nature of these investments in a few paragraphs.)
Banks can lend to consumers and investors about 12 times their capital base. If they have to write off 20% of their capital because of losses, that means they either have to sell more equity or reduce their loan portfolios. As an example, for every $1,000 of capital, a bank can loan $12,000 (more or less). If they have to write off 20% ($200), they either have to sell stock to raise their capital back to $1,000 or reduce their loan portfolio by $2,400. Add some zeroes to that number and it gets to be huge.
And that is what is happening. At first, banks were able to raise new capital. But now, many banks are finding it very difficult to raise money, and that means they have to reduce their loan portfolios. We'll come back to this later. But now, let's look at what is happening today. Basically, the credit markets have stopped functioning. Because banks and investors and institutions are having to deleverage, that means they need to sell assets at whatever prices they can get in order to create capital to keep their loan-to-capital ratios within the regulatory limits.
Remember, part of this started when banks and investors and funds used leverage (borrowed money) to buy more assets. Now, the opposite is happening. They are having to sell assets into a market that does not have the ability to borrow money to buy them. And because the regulators require them to sell whatever they can, the prices for some of these assets are ridiculously low. Let me offer a few examples.
Today, there are many municipal bonds that were originally sold to expire 10-15 years from now. But projects finished early and the issuers wanted to pay them off. However, the bonds often have a minimum time before they can be called. So, issuers simply buy US Treasuries and put them into the bond, to be used when the bond can be called. Now, for all intents and purposes this is a US government bond which has the added value of being tax-free. I had a friend, John Woolway, send me some of the bid and ask prices for these type of bonds. One is paying two times what a normal US Treasury would pay. Another is paying 291% of a normal US Treasury. And it is tax-free! Why would anyone sell what is essentially a US treasury bond for a discount? Because they are being forced to sell, and no one is buying! The credit markets are frozen.
Last week, I wrote about a formerly AAA-rated residential mortgage-backed security (RMBS) composed of Alt-A loans, better than subprime but less than prime. About 5% of the loans were delinquent, and there are no high-risk option ARMs in the security. It is offered at 70 cents on the dollar. If you bought that security, you would be making well over 12% on your money, and 76% of the loans in the portfolio of that security would have to default and lose over 50% of their value before you would risk even one penny. Yet the bank which is being forced to sell that loan has had to write down its value. As I wrote then, that is pricing in financial Armageddon. (You can read the full details here.)
Let's look at the following graph. It is an index of AAA-rated mortgage bonds, created by www.markit.com. It is composed of RMBSs similar to the one I described above. Institutions buy and sell this index as a way to hedge their portfolios. It is also a convenient way for an accounting firm to get a price for a mortgage-backed security in a client bank's portfolio. With the introduction of the new FASB 157 accounting rule, accountants are very aggressive about making banks mark their debt down, as they do not want to be sued if there is a problem. Notice this index shows that bonds that were initially AAA are now trading at 53 cents on the dollar, which is up from 42.5 cents two months ago.
Accountants might look at the bond I described above, look at this index, and decide to tell their clients to mark the bonds down to $.53 on the dollar. The bank is offering the bond at $.70 because it knows there is quality in the security. They are being forced to sell. And guess what? There are no buyers. An almost slam-dunk 12% total-return security with loss-coverage provisions that suggest 40% of the loans could default and lose 50% before your interest rate yields even suffered, let alone risk to your principal – and it can't find a buyer.
One of the real reasons these and thousands of other good bonds are not selling now is that there is real panic in the markets. The oldest money market fund "broke the buck" last week, because they had exposure to Lehman Brothers bonds. We are seeing massive flights of capital from money market funds, including by large institutions concerned about their capital. What are they buying? Short-term Treasury bills. Three-month Treasury bills are down to 0.84%.
It gets worse. Last week one-month Treasury bills were paying a negative 1%!!! That means some buyers were so panicked that they were willing to buy a bond for $1 that promised to pay them back only $.99 in just one month. The rate is at 0.16% today. If something is not done this weekend, it could go a lot lower over the next few days. That is panic, Joe.
I don't want to name names, as this letter goes to about 1.5 million people and I don't want to make problems for some fine banking names; but there is a silent bank run going on. There are no lines in the street, but it is a run nevertheless. It is large investment funds and corporations quietly pulling their money from some of the best banks in the country. They can do this simply by pushing a button. We are watching deposit bases fall. It does not take long. Lehman saw $400 billion go in just a few months this summer. Think about that number. Any whiff of a problem and an institution that is otherwise sound could be brought low in a matter of weeks. And the FDIC could end up with a large loss that seemed to have come from out of nowhere.
The TED Spread Flashes Trouble
There is something called the TED spread, which is the difference between three-month LIBOR (the London Inter Bank Offered Rate which is in euro dollars, also called The Euro Dollar Spread, thus TED) and three-month US Treasury bills. Three-month LIBOR is basically what banks charge each other to borrow money. Many mortgages and investments are based on various periods of LIBOR. Look at the chart below. Typically the TED spread is 50 basis points (0.50%) or less. When it spikes up, it is evidence of distress in the financial markets. The last time the TED spread was as high as it is now was right before the market crash of 1987. This is a weekly chart, which does not capture tonight's (Friday) change, which would make it look even worse. Quite literally, the TED spread is screaming panic.
The Fed has lowered rates to 2%. Typically, three-month LIBOR tracks pretty close to whatever the Fed funds rate is. Starting with the credit crisis last year, that began to change. Look at the chart below.
Remember, LIBOR is what banks charge to each other to make loans. Lower rates are supposed to help banks improve their capital and their ability to make loans at lower interest rates to businesses and consumers. Look at what has happened in the past few weeks, in the chart above. The spread between three-month LIBOR and the Fed funds rate is almost 200 basis points, or 2%! That is something that defies imagination to market observers. On the chart above, it looks like it has not moved that much, but in the trading desks of banks all over the world it is a heart-pounding, scare-you-to-death move. The chart below reflects what traders have seen in the past two weeks, and it moved up more today.
Now let's look at the next chart. This is the amount of Tier 1 commercial paper issued. This is the life blood of the business world. This is how many large and medium-sized businesses finance their day-to-day operations. The total amount of commercial paper issued is down about 15% from a year ago, with half of that drop coming in the last few weeks. Quite literally, the economic body is hemorrhaging. Unless something is done, businesses all over the US are going to wake up in a few weeks and find they simply cannot transact business as usual. This is going to put a real crimp in all sorts of business we think of as being very far from Wall Street.
I could go on. Credit spreads on high-yield bonds that many of our best high-growth businesses use to finance their growth are blowing out to levels which make it impossible for the companies to come to the market for new funds. And that is even if they could find investors in this market! There are lots of other examples (solid corporate loans selling at big discounts, asset-backed securities at discounts, etc.), but you get the idea. Suffice it to say that the current climate in the financial market is the worst since the 1930s. But how does a crisis in the financial markets affect businesses and families in Arlington, Texas, where my office and half of your district is?
The Transmission Mechanism
The transmission in a car takes energy from the engine and transfers it to the wheels. Let's talk about how the transmission mechanism of the economy works.
Let's start with our friend Dave Moritz down the street. He needs financing to be able to sell an automobile. To get those loans at good prices, an auto maker has to be able to borrow money and make the loans to Dave's customers. But if something does not stop the bleeding, it is going to get very expensive for GM to get money to make loans. That will make his cars more expensive to consumers. Cheap loans with small down payments are the life blood of the auto selling business. That is going to change dramatically unless something is done to stabilize the markets.
Credit card debt is typically packaged and sold to investors like pension funds and insurance companies. But in today's environment, that credit card debt is going to have to pay a much higher price in order to find a buyer. That means higher interest rates. Further, because most of the large issuers of credit cards are struggling with their leverage, they are reducing the amount of credit card debt they will give their card holders. If they continue to have to write down mortgages on their books because of mark-to-market rules which price assets at the last fire-sale price, it will mean even more shrinkage in available credit.
Try and sell a home above the loan limits of Fannie and Freddie today with a nonconforming jumbo loan. Try and find one that does not have very high rates, because many lenders who normally do them simply cannot afford to keep them on their balance sheets. And a subprime mortgage? Forget about it. This is going to get even worse if the financial markets melt down.
We are in a recession. Unemployment is going to rise to well over 6%. Consumer spending is going to slow. This is an environment which normally means it is tougher for small businesses and consumers to get financing in any event. Congress or the Fed cannot repeal the business cycle. There are always going to be recessions. And we always get through them, because we have a dynamic economy that figures out how to get things moving again.
Recessions are part of the normal business cycle. But it takes a major policy mistake by Congress or the Fed to create a depression. Allowing the credit markets to freeze would count as a major policy mistake.
I have been on record for some time that the economy will go through a normal recession and a slow recovery, what I call a Muddle Through Economy. This week I met with executives of one of the larger hedge funds in the world. They challenged me on my Muddle Through stance. And I had to admit that my Muddle Through scenario is at risk if Congress does not act to stabilize the credit markets.
Let's Make a Deal
Why do we need this Stabilization Plan? Why can't the regular capital markets handle it? The reason is that the problem is simply too big for the market to deal with. It requires massive amounts of patient, long-term money to solve the problem. And the only source for that would be the US government.
There is no reason for the taxpayer to lose money. Warren Buffett, Bill Gross of PIMCO, and my friend Andy Kessler have all said this could be done without the taxpayer losing money, and perhaps could even make a profit. As noted above, these bonds could be bought at market prices that would actually make a long-term buyer a profit. Put someone like Bill Gross in charge and let him make sure the taxpayers are buying value. This would re-liquefy the banks and help get their capital ratios back in line.
Why are banks not lending to each other? Because they don't know what kind of assets are on each other's books. There is simply no trust. The Fed has had to step in and loan out hundreds of billions of dollars in order to keep the financial markets from collapsing. If you allow the banks to sell their impaired assets at a market-clearing fair price (not at the original price), then once the landscape is cleared, banks will decide they can start trusting each other. The commercial paper market will come back. Credit spreads will come down. Banks will be able to stabilize their loan portfolios and start lending again.
Again, the US government is the only entity with enough size and patience to act. We do not have to bail out Wall Street. They will still take large losses on their securities, just not as large a loss as they are now facing in a credit market that is frozen. As noted above, there are many securities that are being marked down and sold far below a rational price.
If we act now, we will start to see securitization of mortgages, credit cards, auto loans, and business loans so that the economy can begin to function properly.
What happens if we walk away? Within a few weeks at most, financial markets will freeze even more. We will see electronic runs on major banks, and the FDIC will have more problems than you can possibly imagine. The TED spread and LIBOR will get much worse. Businesses which use the short-term commercial paper markets will start having problems rolling over their paper, forcing them to make difficult cuts in spending and employment. Larger businesses will find it more difficult to get loans and credit. That will have effects on down the economic food chain. Jim Cramer estimated today that without a plan of some type, we could see the Dow drop to 8300. That is as good a guess as any. It could be worse. Home valuations and sales will drop even further.
The average voter? They will see stock market investments off another 25% at the least. Home prices will go down even more. Consumer spending will drop. What should be a run-of-the-mill recession becomes a deep recession or soft depression. Yes, that may be worst-case scenario. But that is the risk I think we take with inaction.
A properly constructed Stabilization Plan hopefully avoids the worst-case scenario. It should ultimately not cost the taxpayer much, and maybe even return a profit. The AIG rescue that Paulson arranged is an example of how to do it right. My bet is that the taxpayer is going to make a real profit on this deal. We got 80% of AIG, with what is now a loan paying the taxpayer over 12%, plus almost $2 billion in upfront fees for doing the loan. That is not a bailout. That is a business deal that sounds like it was done by Mack the Knife.
This deal needs to be done by Monday. Every day we wait will see more and more money fly out the doors of the banks, putting the FDIC at ever greater risk. Panic will start to set in, moving to ever smaller banks. Frankly, we are at the point where we need to consider raising the FDIC limits for all deposits for a period of time, until the Stabilization Plan quells the panic.
I understand that this is a really, really bad idea according classical free-market economic theory. You know me; I am as free market as it comes. But I also know that without immediate action a lot of people are really going to be hurt. Unemployment is not a good thing. Losses on your home and investments hurt. It is all nice and well to talk about theories and contend the market should be allowed to sort itself out; and if we have a deep recession, then that is what is needed. But the risk we take is not a deep recession but a soft depression. The consequences of inaction are simply unthinkable.
Joe, I am telling you that the markets are screaming panic. Yes, Senator Richard Shelby has his 200 economists saying this is a bad deal. But they are ivory tower kibitzers who have never sat at a trading desk. They have never tried to put a loan deal together or had to worry about commercial paper markets collapsing. I am talking daily with the people on the desks who are seeing what is really happening. Shelby's economists are armchair generals far from the front lines. I am talking to the foot soldiers who are on the front lines.
Every sign of potential disaster is there. You and the rest of the House have to act. It has to be bipartisan. This should not be about politics (even though Barney Frank keeps talking bipartisan and then taking partisan shots, but I guess he just can't help himself). It should be about doing the right thing for our country and the world. I know it will not be fun coming back to the district. Talking about TED spreads and LIBOR will not do much to assuage voters who are angry. But it is the right thing to do. And I will be glad to come to the town hall meeting with you and help if you like.
With your help, we will get through this. In a few years, things will be back to normal and we can all have stories to tell to our grandkids about how we lived through interesting times. But right now we have to act.
Colorado, California, London, and Sweden
It is time to hit the send button. This was personally a great week. For whatever reason, I did not suffer jet lag flying to South Africa for just two days, then overnight to London, and back the next day. It was a good trip. I will report more about South Africa in a later letter, but this e-letter is already a little long.
I leave Sunday for a quick trip to Longmont, Colorado (near Boulder) to look at a very interesting technology company (InPhase) that makes holographic memory disks, with good friend Dr. Bart Stuck of Signal Lake Partners.
I will be in San Diego and Orange County the 16th and 17th of October for back-to-back speeches, then I leave Sunday for London for two days and then on to Sweden for a conference and speeches there, a quick trip to Malta, and then back home, where I will be chained to my desk by daughter Tiffani as we do interviews and write a book.
I do enjoy traveling from time to time, seeing the rest of the world. One of my secret pleasures is reading International Living and thinking about what it would be like to have another home somewhere. Cheap thrills. You can subscribe if you like by following this link.
Have a great week. I fully believe (OK, deeply hope) that Congress will act. We can all breathe a collective sigh when they do.
Your still believing in Muddle Through analyst,
John Mauldin
John@FrontLineThoughts.com
Copyright 2008 John Mauldin. All Rights Reserved
Saturday, September 20, 2008
Autumn
Leaf by leaf, branch by branch, Colorado’s aspen trees are turning. Before we know it, entire forests will be ablaze in yellow, orange and red. Then, suddenly, this annual symphony of color will be over. Like Carl Sandburg’s fog, autumn comes on little cat feet. It sits on silent haunches, then moves on. Winter will be with us again and we will wait for whatever it has to offer.
I often think that life is like that, a series of seasons lit with brightness and light while others are dark and silent. I am reminded of the Latin phrase, “mutantur omnia nos et mutamur in illis.” All things change and we change with them. The time will come when we no longer are willing to change. Then it will be time for us too to move on.
In the meantime, of course, we smile as we consider the beauty of God's creation. We will not wonder, since hearts are tough, whether a lifetime is long enough.
I often think that life is like that, a series of seasons lit with brightness and light while others are dark and silent. I am reminded of the Latin phrase, “mutantur omnia nos et mutamur in illis.” All things change and we change with them. The time will come when we no longer are willing to change. Then it will be time for us too to move on.
In the meantime, of course, we smile as we consider the beauty of God's creation. We will not wonder, since hearts are tough, whether a lifetime is long enough.
Friday, September 12, 2008
Is Obama the savior?
Until the last generation or two this was a country of producers. We were farmers, mechanics, restaurant owners, engineers, scientists and people working in industry. We produced things until we grew too old, at which time we relied on younger producers to support us until we passed on.
Everyone but the elderly and offspring still in school worked and produced. True, there were doctors, lawyers and government workers, but they supported the nation's workers and kept them and America’s infrastructure safe.
Obama is proposing a society comprised primarily of users -- government workers supported by taxpayer dollars. But guess what? The more people working for government, the fewer people left to produce what society needs.
It’s clear there won’t be enough money available to pay these new workers, so guess where the money will come from? Higher taxes on fewer people remaining in the work force.
This is simplistic, but today we’ve gone from being a nation of producers to what’s called an “information” or, as some would suggest, service society. Information societies produce ideas -- computers and things. Service societies are more people serving fewer people who produce things. And so it goes.
People working the fields have been replaced by machines. Small farms are bought up by mega-corporations. Industries that employed thousands of workers moved overseas when they no longer could afford to pay wages forced on them by unions. Along comes Obama who, instead of addressing the problems, wants to add more millions of people to the taxpayer load.
I’m not saying the McCain/Palin ticket is the answer -- after all, it was corruption among congressional Republicans, and Bush's management of the economy and the Iraq war, that gave us Barack Obama and a Democratic majority in Congress.
I am saying Obama is not the answer. Not only is he not the answer, he would hasten the time when this country becomes a mini-China, a nation of people ruled by an exclusive elite who belong to the ruling party.
Is Obama a communist after the manner of officials in N. Korea, China and Russia? Maybe not officially, but his writings, and those of his wife Michelle, tell all who care to read it that he is a socialist, which all communists claim to be. Moreover, both Obamas see the world — and especially the United States — as a struggle between classes of people.
There are workers (the oppressed) and the capitalists (the oppressors). Everything is a struggle between diametrically opposed forces and there can be no peace until the latter has been subjugated in favor of the former.
Lenin must be smiling.
Everyone but the elderly and offspring still in school worked and produced. True, there were doctors, lawyers and government workers, but they supported the nation's workers and kept them and America’s infrastructure safe.
Obama is proposing a society comprised primarily of users -- government workers supported by taxpayer dollars. But guess what? The more people working for government, the fewer people left to produce what society needs.
It’s clear there won’t be enough money available to pay these new workers, so guess where the money will come from? Higher taxes on fewer people remaining in the work force.
This is simplistic, but today we’ve gone from being a nation of producers to what’s called an “information” or, as some would suggest, service society. Information societies produce ideas -- computers and things. Service societies are more people serving fewer people who produce things. And so it goes.
People working the fields have been replaced by machines. Small farms are bought up by mega-corporations. Industries that employed thousands of workers moved overseas when they no longer could afford to pay wages forced on them by unions. Along comes Obama who, instead of addressing the problems, wants to add more millions of people to the taxpayer load.
I’m not saying the McCain/Palin ticket is the answer -- after all, it was corruption among congressional Republicans, and Bush's management of the economy and the Iraq war, that gave us Barack Obama and a Democratic majority in Congress.
I am saying Obama is not the answer. Not only is he not the answer, he would hasten the time when this country becomes a mini-China, a nation of people ruled by an exclusive elite who belong to the ruling party.
Is Obama a communist after the manner of officials in N. Korea, China and Russia? Maybe not officially, but his writings, and those of his wife Michelle, tell all who care to read it that he is a socialist, which all communists claim to be. Moreover, both Obamas see the world — and especially the United States — as a struggle between classes of people.
There are workers (the oppressed) and the capitalists (the oppressors). Everything is a struggle between diametrically opposed forces and there can be no peace until the latter has been subjugated in favor of the former.
Lenin must be smiling.
Wednesday, July 2, 2008
Someone's trying to get our attention
I’ve wondered recently if someone isn’t trying to get our attention. Mudslides and fires in California have displaced dozens of people. Polluted air is everywhere.
Floods and tornadoes in the Midwest have created havoc. Other parts of the nation are experiencing droughts. Fields can’t be planted and crops die from too much water.
Tsunamis in the Far East have killed thousands. Outbreaks of salmonella in this country and other diseases have sickened hundreds. Honey bees have disappeared and fire ants are making their way northward out of Mexico.
For me, at least, it’s clear that humans can’t cope with the forces of nature. But where should we turn?
Science? Scientific explanations are not solutions.
Each other? What can my neighbor do that I couldn’t?
Government? Democrats might believe government is the solution, but history teaches us differently.
Money can’t buy relief from an approaching storm.
Good health can’t keep a forest fire from burning down a home.
What’s next? Swarms of locusts devastating the land?
I don’t think God is wreaking torment on us — although that’s possible. I think he is taking a hands-off attitude and letting nature take its course. If believe God wants us to turn to him for help. He wants us to realize we need him.
Several years ago a steady downpour forced cancellation of the annual July 5 Symphony Above the Clouds in Woodland Park. However, the Symphony Guild, of which my wife is president, had to pay the orchestra whether it played or not. That essentially broke the Guild.
The next year concert donations would be required to make up the shortfall. My wife was in desperate straits. She'd spent hundreds of hours working on the event, which is free to the people, and another disaster would wipe them out. Once again, storm clouds formed. I prayed fervently that if God took the rain away I would give him the credit.
I looked at the computer’s weather radar. Inexplicably, the storms stopped their eastward movement. Instead, they began moving westward, away from the concert site. How many times have Colorado rainstorms moved west? It was as though something was blowing them back where they came from. That’s all I needed to know. God indeed answers prayers. If he would do this for one person, how much more would he do if many people prayed?
I think that’s what’s going on in the world today. God wants us to turn to him for help.
I have a brother-in-law who is a physicist. He says believing in God would take the randomness out of science. I just shake my head because he’s placing science ahead of everything else. Doesn’t he know there are things even science can’t answer?
Setting aside the seven days, today's scientific explanation of how the universe was formed (Big Bang, etc.) follows precisely the way it’s described in the book of Genesis. Coincidence? I don’t think so. Science and religion used to be on the same page. They will be again some day.
That's it from my corner of Colorado. Happy 4th of July!
Floods and tornadoes in the Midwest have created havoc. Other parts of the nation are experiencing droughts. Fields can’t be planted and crops die from too much water.
Tsunamis in the Far East have killed thousands. Outbreaks of salmonella in this country and other diseases have sickened hundreds. Honey bees have disappeared and fire ants are making their way northward out of Mexico.
For me, at least, it’s clear that humans can’t cope with the forces of nature. But where should we turn?
Science? Scientific explanations are not solutions.
Each other? What can my neighbor do that I couldn’t?
Government? Democrats might believe government is the solution, but history teaches us differently.
Money can’t buy relief from an approaching storm.
Good health can’t keep a forest fire from burning down a home.
What’s next? Swarms of locusts devastating the land?
I don’t think God is wreaking torment on us — although that’s possible. I think he is taking a hands-off attitude and letting nature take its course. If believe God wants us to turn to him for help. He wants us to realize we need him.
Several years ago a steady downpour forced cancellation of the annual July 5 Symphony Above the Clouds in Woodland Park. However, the Symphony Guild, of which my wife is president, had to pay the orchestra whether it played or not. That essentially broke the Guild.
The next year concert donations would be required to make up the shortfall. My wife was in desperate straits. She'd spent hundreds of hours working on the event, which is free to the people, and another disaster would wipe them out. Once again, storm clouds formed. I prayed fervently that if God took the rain away I would give him the credit.
I looked at the computer’s weather radar. Inexplicably, the storms stopped their eastward movement. Instead, they began moving westward, away from the concert site. How many times have Colorado rainstorms moved west? It was as though something was blowing them back where they came from. That’s all I needed to know. God indeed answers prayers. If he would do this for one person, how much more would he do if many people prayed?
I think that’s what’s going on in the world today. God wants us to turn to him for help.
I have a brother-in-law who is a physicist. He says believing in God would take the randomness out of science. I just shake my head because he’s placing science ahead of everything else. Doesn’t he know there are things even science can’t answer?
Setting aside the seven days, today's scientific explanation of how the universe was formed (Big Bang, etc.) follows precisely the way it’s described in the book of Genesis. Coincidence? I don’t think so. Science and religion used to be on the same page. They will be again some day.
That's it from my corner of Colorado. Happy 4th of July!
Tuesday, June 24, 2008
Imus, you're outta here
Months ago I listened to radio talk show host Don Imus flap refer to a female college basketball team as a bunch of “nappy-headed ho’s." Imus said he was only using language popularized by black rappers. Maybe so, but it was a stupid thing to say. Imus was castigated nationwide for his offense, humiliated publicly in New York, and ultimately fired from his job. In an attempt to rehabilitate himself, he apologized personally to the team (which included a white student) and even made an appearance on the air with black talk show host Al Sharpton.
You’d think Imus would have learned when to keep his mouth shut, but apparently not. Rehired a couple of months later at another station, he asked a co-host day before yesterday the skin color of a Dallas Cowboy football player who had been arrested numerous times. When the co-host answered “African-American,” Imus remarked, “There you go, that says it.”
While some people might think this is funny, others won’t because of what Imus said previously. Looked at in context, he clearly meant that black football players are more likely to get in trouble than white ones. That might be true but it’s not true across the board and to suggest that it is not only smears black players who stay out of trouble, it excuses white players who don’t.
Imus entered rocky territory when he asked about the football player’s color. He set himself up no matter what the other broadcaster said. Athletes of all colors get in trouble mainly because they are young, rich and irresponsible. They have more money than they can spend, generally have an attitude, and think they can get away with anything.
Imus falls into this category too. He’s not young but he is rich and a media star with an attitude. And while it’s true a ranch he owns rehabilitates youth, he apparently thinks he can say anything on the radio and get away with it. He doesn’t understand that words are like arrows — once they leave the bow they can’t be brought back.
Imus is now saying he meant that police pick on black people. As a retired cop myself, I find that statement troubling. Imus shot his mouth off again because he was playing to his audience and trying to be funny. Funny is one thing, but stupid statements are another. Imus deserves the axe one more time, only this time it should keep him off the air permanently.
You’d think Imus would have learned when to keep his mouth shut, but apparently not. Rehired a couple of months later at another station, he asked a co-host day before yesterday the skin color of a Dallas Cowboy football player who had been arrested numerous times. When the co-host answered “African-American,” Imus remarked, “There you go, that says it.”
While some people might think this is funny, others won’t because of what Imus said previously. Looked at in context, he clearly meant that black football players are more likely to get in trouble than white ones. That might be true but it’s not true across the board and to suggest that it is not only smears black players who stay out of trouble, it excuses white players who don’t.
Imus entered rocky territory when he asked about the football player’s color. He set himself up no matter what the other broadcaster said. Athletes of all colors get in trouble mainly because they are young, rich and irresponsible. They have more money than they can spend, generally have an attitude, and think they can get away with anything.
Imus falls into this category too. He’s not young but he is rich and a media star with an attitude. And while it’s true a ranch he owns rehabilitates youth, he apparently thinks he can say anything on the radio and get away with it. He doesn’t understand that words are like arrows — once they leave the bow they can’t be brought back.
Imus is now saying he meant that police pick on black people. As a retired cop myself, I find that statement troubling. Imus shot his mouth off again because he was playing to his audience and trying to be funny. Funny is one thing, but stupid statements are another. Imus deserves the axe one more time, only this time it should keep him off the air permanently.
Monday, June 23, 2008
Watch your step, America
Finally, someone is offering energy solutions instead of more talk, incentives instead of regulation. Here are a few paragraphs from today’s Mike Allen’s Politico Playbook:
--New this morning -- McCain's CLEAN CAR CHALLENGE and BATTERY PRIZE - from remarks prepared for delivery at Fresno (Calif.) State University today: 'My administration will issue a Clean Car Challenge to the automakers of America, in the form of a single and substantial tax credit based on the reduction of carbon emissions. For every automaker who can sell a zero-emissions car, we will commit a 5,000-dollar tax credit for each and every customer who buys that car. For other vehicles, whatever type they may be, the lower the carbon emissions, the higher the tax credit.
'I further propose we inspire the ingenuity and resolve of the American people by offering a $300 million prize for the development of a battery package that has the size, capacity, cost and power to leapfrog the commercially available plug-in hybrids or electric cars. This is one dollar for every man, woman and child in the U.S. - a small price to pay for helping to break the back of our oil dependency - and should deliver a power source at 30 percent of the current costs.
Newsweek's Howard Fineman, on NBC's 'Today': McCain's 'essentially going to say we can't beg or sue our way out of our situation with energy, which is a direct shot at Obama's emphasis on going after speculators. McCain talks about it in terms of energy security. He wants to link that to the commander-in-chief role. That's the strategy that the McCain people are pursuing.'
--AFP, 'Obama unveils clampdown on oil speculators': 'Obama attacked energy speculators Sunday, outlining new regulatory proposals that his campaign said would slash record-high oil prices and help hard-pressed consumers. The Democrat attacked the so-called Enron loophole, a 2000 deregulation of oversight by the Commodity Futures Trading Commission that critics say opened the way to a speculative free-for-all in the oil markets. ... McCain's campaign said the Republican had already backed legislative action against speculative trading, which had failed to get through the Senate.'
I couldn’t help but notice the last line: “McCain had already backed legislative action against speculative trading, which had failed to get through the (Democratically-controlled) Senate.” If that’s the case, how can Obama say he’d clamp down on oil speculators when his Senate brothers and sisters have already blocked such an action? I am reminded of a story from the LBJ era. It seems that Mr. Johnson was campaigning through western Oklahoma’s rural Indian villages and promising them the moon if they voted for him. Every time Johnson made a promise the Indians would clap wildly and shout “Oooooooom-PAH!”
On the way back to the campaign caravan, Mr. Johnson asked one of his aides what the Indians meant by "oooooooom-pah." Before the aide could answer, another aide rushed over and said, “Watch your step, Mr. Johnson, and don’t step in any of the buffalo oooom-pah.
--New this morning -- McCain's CLEAN CAR CHALLENGE and BATTERY PRIZE - from remarks prepared for delivery at Fresno (Calif.) State University today: 'My administration will issue a Clean Car Challenge to the automakers of America, in the form of a single and substantial tax credit based on the reduction of carbon emissions. For every automaker who can sell a zero-emissions car, we will commit a 5,000-dollar tax credit for each and every customer who buys that car. For other vehicles, whatever type they may be, the lower the carbon emissions, the higher the tax credit.
'I further propose we inspire the ingenuity and resolve of the American people by offering a $300 million prize for the development of a battery package that has the size, capacity, cost and power to leapfrog the commercially available plug-in hybrids or electric cars. This is one dollar for every man, woman and child in the U.S. - a small price to pay for helping to break the back of our oil dependency - and should deliver a power source at 30 percent of the current costs.
Newsweek's Howard Fineman, on NBC's 'Today': McCain's 'essentially going to say we can't beg or sue our way out of our situation with energy, which is a direct shot at Obama's emphasis on going after speculators. McCain talks about it in terms of energy security. He wants to link that to the commander-in-chief role. That's the strategy that the McCain people are pursuing.'
--AFP, 'Obama unveils clampdown on oil speculators': 'Obama attacked energy speculators Sunday, outlining new regulatory proposals that his campaign said would slash record-high oil prices and help hard-pressed consumers. The Democrat attacked the so-called Enron loophole, a 2000 deregulation of oversight by the Commodity Futures Trading Commission that critics say opened the way to a speculative free-for-all in the oil markets. ... McCain's campaign said the Republican had already backed legislative action against speculative trading, which had failed to get through the Senate.'
I couldn’t help but notice the last line: “McCain had already backed legislative action against speculative trading, which had failed to get through the (Democratically-controlled) Senate.” If that’s the case, how can Obama say he’d clamp down on oil speculators when his Senate brothers and sisters have already blocked such an action? I am reminded of a story from the LBJ era. It seems that Mr. Johnson was campaigning through western Oklahoma’s rural Indian villages and promising them the moon if they voted for him. Every time Johnson made a promise the Indians would clap wildly and shout “Oooooooom-PAH!”
On the way back to the campaign caravan, Mr. Johnson asked one of his aides what the Indians meant by "oooooooom-pah." Before the aide could answer, another aide rushed over and said, “Watch your step, Mr. Johnson, and don’t step in any of the buffalo oooom-pah.
Thursday, June 19, 2008
Bush and Congress fiddle while America burns
It is as I suspected: President Bush’s drill bit is dull. I’ve been quick to blame Congressional Democrats for $4 (or $5 or $10) gasoline, but Bush and the Republicans deserve skewering too.
Today’s Wall Street Journal features an editorial that has Bush telling Congress that if it eliminates its prohibition against drilling in the Outer Continental Shelf, he will remove prohibitions put in place by the executive branch. This is schoolboy stuff – you show me yours and I’ll show you mine.
Bush and Congress are playing games while America hurts. By not leading, Bush and the Republicans have lost the moral high ground which is now there for the taking by Obama and the Democrats.
The WSJ editorial also points out something I suggested in a prior column, which is that oil companies are reluctant to spend money on exploration when they’re making billions of dollars the way things are.
The companies also know they will make even more money if the price of oil goes to $200 or $300 or more per barrel. Could it be that leftists are correct in saying capitalism is all about greed?
But that’s stuff for another column. Herewith, the WSJ editorial:
Bush's Drill Bit
June 19, 2008; Page A14
Even some of Washington's fiercest opponents of oil drilling are thinking anew, and the politics of domestic energy production seem to be shifting. This isn't surprising with gas prices as a top-tier campaign issue. More confounding was President Bush's timidity yesterday as he tried to prod Congress into movement.
Mr. Bush argued that leaving most of America's immense offshore oil-and-gas resources off-limits was "outdated and counterproductive," and he called on Congress to end its quarter-century ban. Fair enough. But the ban actually has two components, one of which is a 1990 executive order; like launching a warhead, both keys must be turned. Mr. Bush said he would only turn his after Congress did.
The Administration has botched a prime political opportunity. Lifting the Presidential ban would have been symbolic for now, because Congress's ban would still apply. But it would have put the spotlight on Congress as the last political obstacle to exploiting domestic reserves, just as public support for more drilling is rising.
Anticarbon Democrats are on the defensive for once. Their default position – doing nothing – doesn't have the best resonance amid $4 gas. They've been reduced to arguing that more exploration would merely make a difference over the long term. The GOP plan, in other words, is too pragmatic.
Democrats also claim that land already leased is "sitting idle," and should be used before any new exploration begins. As put by Maurice Hinchey, a senior member of the House Resources Committee, Big Oil is "trying to take control of as much land now during the oil-friendly Bush Administration years, but are holding off on drilling until the price of oil soars to $200 or $300 a barrel so they can make even greater profits."
Conspiracy theories aside, it is true that only 0.46% of the Outer Continental Shelf is producing oil (though only 2.3% is under lease). But because of the exploration ban, oil companies go in more or less blind, not knowing the extent of the available resources. Millions of acres lack oil or gas, which is why it's called "exploration." Federal law stipulates that an oil company must sink a producing well within 10 years or lose the lease; it often takes nearly a decade to navigate the geography, not to mention the long process of environmental and regulatory review. Or coping with multiple lawsuits from the green lobby.
If it isn't already obvious, Democrats seem intent on proving that they do not understand the oil business – and Mr. Bush would have done better to ramp up the pressure. The White House says it wants to work out a compromise with Congress, which isn't likely unless Republicans start playing their strongest hand.
Today’s Wall Street Journal features an editorial that has Bush telling Congress that if it eliminates its prohibition against drilling in the Outer Continental Shelf, he will remove prohibitions put in place by the executive branch. This is schoolboy stuff – you show me yours and I’ll show you mine.
Bush and Congress are playing games while America hurts. By not leading, Bush and the Republicans have lost the moral high ground which is now there for the taking by Obama and the Democrats.
The WSJ editorial also points out something I suggested in a prior column, which is that oil companies are reluctant to spend money on exploration when they’re making billions of dollars the way things are.
The companies also know they will make even more money if the price of oil goes to $200 or $300 or more per barrel. Could it be that leftists are correct in saying capitalism is all about greed?
But that’s stuff for another column. Herewith, the WSJ editorial:
Bush's Drill Bit
June 19, 2008; Page A14
Even some of Washington's fiercest opponents of oil drilling are thinking anew, and the politics of domestic energy production seem to be shifting. This isn't surprising with gas prices as a top-tier campaign issue. More confounding was President Bush's timidity yesterday as he tried to prod Congress into movement.
Mr. Bush argued that leaving most of America's immense offshore oil-and-gas resources off-limits was "outdated and counterproductive," and he called on Congress to end its quarter-century ban. Fair enough. But the ban actually has two components, one of which is a 1990 executive order; like launching a warhead, both keys must be turned. Mr. Bush said he would only turn his after Congress did.
The Administration has botched a prime political opportunity. Lifting the Presidential ban would have been symbolic for now, because Congress's ban would still apply. But it would have put the spotlight on Congress as the last political obstacle to exploiting domestic reserves, just as public support for more drilling is rising.
Anticarbon Democrats are on the defensive for once. Their default position – doing nothing – doesn't have the best resonance amid $4 gas. They've been reduced to arguing that more exploration would merely make a difference over the long term. The GOP plan, in other words, is too pragmatic.
Democrats also claim that land already leased is "sitting idle," and should be used before any new exploration begins. As put by Maurice Hinchey, a senior member of the House Resources Committee, Big Oil is "trying to take control of as much land now during the oil-friendly Bush Administration years, but are holding off on drilling until the price of oil soars to $200 or $300 a barrel so they can make even greater profits."
Conspiracy theories aside, it is true that only 0.46% of the Outer Continental Shelf is producing oil (though only 2.3% is under lease). But because of the exploration ban, oil companies go in more or less blind, not knowing the extent of the available resources. Millions of acres lack oil or gas, which is why it's called "exploration." Federal law stipulates that an oil company must sink a producing well within 10 years or lose the lease; it often takes nearly a decade to navigate the geography, not to mention the long process of environmental and regulatory review. Or coping with multiple lawsuits from the green lobby.
If it isn't already obvious, Democrats seem intent on proving that they do not understand the oil business – and Mr. Bush would have done better to ramp up the pressure. The White House says it wants to work out a compromise with Congress, which isn't likely unless Republicans start playing their strongest hand.
Wednesday, June 18, 2008
Congressional Democrats following Karl Marx
I have always felt that Dick Morris was a slime ball. No matter how much a person hates his boss (in Morris’ case, former president Bill Clinton and wife Hillary), you don’t stab them in the back after you move on to other things. That said, Morris apparently has moved on from the Clintons and turned his talents, whatever they are, to addressing the oil crisis.
Morris' story in today’s Newsmax magazine provokes two questions: Are we looking at another bust after the manner of the S & Ls, sub-prime lending practices and the housing market? And secondly, how much influence do oil speculators have on this Congress or the next as it tries to address America’s needs?
For instance, if Obama becomes president and former Clinton administration treasury secretary Robert Rubin (currently on the board of Goldman Sachs) is brought back into the cabinet, do we really think he would “do what’s right?” Or would he protect fellow investors from losing their shirts and blouses?
Would whoever advises a McCain presidency do the right thing? We can only hope and wonder where Ronald Reagan is when we need him.
For those who don’t have time to read Morris' column, the oil crisis is a combination of:
It doesn’t take a Rhodes Scholar to figure out where the problem is. It isn’t with oil companies or entrepreneurs who would jump at the chance to make a buck. The fault lies with Congressional Democrats (as opposed to Democrat voters who may not have a clue who pulls their leaders’ strings) and their leftist supporters who envision an America totally dependant on government for everything.
Then, and only then, would income be distributed equally. Then, and only then, would the needs of the masses be met.
Karl Marx couldn’t have said it better.
I’m Jere Joiner and I digress. Here is Morris’ column:
Gas prices are the first important issue in the 2008 elections. But both parties have been pathetic in their solutions and, one suspects, in their understanding of what is going on.
Democrats call for windfall profits taxes. Bad idea. How can you get oil companies to explore and drill if you tax away their profits? Republicans focus on a gas tax “holiday," an 18 cent palliative to gas prices that now top $4.50.
Fadel Gheit, managing director of oil and gas research for Oppenheimer and Co. and Jim Norman, author of the book "The Oil Card," coming out next month, say that speculation is responsible for a huge part of the run-up in prices.
The growing demand for oil by India and China and the instability of oil supplies certainly account for much of the increase. But the recent spike, they say, is equally due to the weakness of the dollar and massive speculation.
They argue that oil prices are, indeed, determined by supply and demand — not only the supply and demand for oil, but also the supply and demand for oil futures. (Oil futures are a commitment to buy 1,000 barrels of oil at a certain date at a certain price.)
Formerly, most of the investments in oil futures came from energy companies. The federal Commodities Futures Trading Commission (CFTC) sharply limited investments by those outside the business, to prevent precisely the kind of speculation now gripping the market.
But when the stock market slowed down in 2000–2002, outside investors decided to speculate in oil futures. The new players were institutional investors like corporate and government pension funds, sovereign wealth funds, university endowments and other investors, guided by brokerage firms like Morgan, Stanley, and Goldman, Sachs.
To avoid the CFTC caps, these investors moved their operations to London, setting up the International Commodities Exchange (ICE). Now, they can buy all the oil futures they want.
Michael W. Masters, of Masters Capital Management, told Congress that the volume of investment in commodities futures soared from $13 billion at the end of 2003 to $260 billion in March of 2008.
After a while, the CFTC rescinded its limits on how much speculators could buy as long as they went through special “swap” desks at the major brokerage houses.
You can buy oil futures for only 5 percent down on margin, a bargain considering the 50 percent margin requirement for stock market equity investments. Because the margin requirement on oil futures rises as the due date approaches, few investors actually end up buying the oil, they just roll over their investments.
So the willingness of sellers to unload their oil futures and buyers to acquire them sets up its own market of supply and demand which has more to do with determining the actual price of oil than even the global demand and supply for the product itself.
Masters told Congress, on May 20 of this year: “commodities futures prices are the benchmark for the prices of actual physical commodities, so when index speculators drive futures prices higher, the effects are felt immediately in spot prices and the real economy. So there is a direct link between commodities futures prices and the prices your constituents are paying for essential goods.”
Gheit and Norman suggest that the CFTC regulate the domestic oil futures market (NYMEX) and the participation of U.S. companies in the ICE, restoring the caps on the amount of oil futures speculators can buy. Gheit also urges raising margin requirements for them.
Both worry that the oil futures bubble is going to burst and cost a lot of investors — particularly pension funds who channel their investments through the swap desks of the brokerage houses. We don’t need another subprime or S&L crisis on our hands right now.
The Senate recently tried to force CFTC regulation of all commodities speculators but the bill was loaded down with a windfall profits tax so the Republicans killed it.
McCain needs to get with this program. In his town hall meeting in New York City last Thursday night, he attacked speculators for driving up oil prices but didn’t propose remedies or really explain the problem. Americans will pay close attention if he does. For McCain this is the issue and now is the time to use it.
Morris' story in today’s Newsmax magazine provokes two questions: Are we looking at another bust after the manner of the S & Ls, sub-prime lending practices and the housing market? And secondly, how much influence do oil speculators have on this Congress or the next as it tries to address America’s needs?
For instance, if Obama becomes president and former Clinton administration treasury secretary Robert Rubin (currently on the board of Goldman Sachs) is brought back into the cabinet, do we really think he would “do what’s right?” Or would he protect fellow investors from losing their shirts and blouses?
Would whoever advises a McCain presidency do the right thing? We can only hope and wonder where Ronald Reagan is when we need him.
For those who don’t have time to read Morris' column, the oil crisis is a combination of:
- the real supply and demand, which is current world reserves v. demand for oil by the U.S., China and India
- two artificial supply and demand situations, they being the amount of oil OPEC makes available and the demand created by Wall Street speculators
- failure on the part of this country to develop its own oil reserves and the associated refining capacity to turn oil into gasoline. This is primarily the fault of Congress, which put much of America’s oil reserves off limits to oil companies, thus creating a situation where it cheaper for them to buy oil than fight through prohibitions in this country
- complacency on the part of oil companies to do much beyond “keeping on keeping on.” They are making billions of dollars already. Why spend more when there are so many obstacles in the way?
- failure on the part of Congress to authorize development of alternative energy resources — primarily nuclear power plants that generate electricity. This effort alone would signal America’s willingness to address its own needs. It would also prompt OPEC to realize the folly of holding this country hostage to Middle Eastern oil
It doesn’t take a Rhodes Scholar to figure out where the problem is. It isn’t with oil companies or entrepreneurs who would jump at the chance to make a buck. The fault lies with Congressional Democrats (as opposed to Democrat voters who may not have a clue who pulls their leaders’ strings) and their leftist supporters who envision an America totally dependant on government for everything.
Then, and only then, would income be distributed equally. Then, and only then, would the needs of the masses be met.
Karl Marx couldn’t have said it better.
I’m Jere Joiner and I digress. Here is Morris’ column:
Gas prices are the first important issue in the 2008 elections. But both parties have been pathetic in their solutions and, one suspects, in their understanding of what is going on.
Democrats call for windfall profits taxes. Bad idea. How can you get oil companies to explore and drill if you tax away their profits? Republicans focus on a gas tax “holiday," an 18 cent palliative to gas prices that now top $4.50.
Fadel Gheit, managing director of oil and gas research for Oppenheimer and Co. and Jim Norman, author of the book "The Oil Card," coming out next month, say that speculation is responsible for a huge part of the run-up in prices.
The growing demand for oil by India and China and the instability of oil supplies certainly account for much of the increase. But the recent spike, they say, is equally due to the weakness of the dollar and massive speculation.
They argue that oil prices are, indeed, determined by supply and demand — not only the supply and demand for oil, but also the supply and demand for oil futures. (Oil futures are a commitment to buy 1,000 barrels of oil at a certain date at a certain price.)
Formerly, most of the investments in oil futures came from energy companies. The federal Commodities Futures Trading Commission (CFTC) sharply limited investments by those outside the business, to prevent precisely the kind of speculation now gripping the market.
But when the stock market slowed down in 2000–2002, outside investors decided to speculate in oil futures. The new players were institutional investors like corporate and government pension funds, sovereign wealth funds, university endowments and other investors, guided by brokerage firms like Morgan, Stanley, and Goldman, Sachs.
To avoid the CFTC caps, these investors moved their operations to London, setting up the International Commodities Exchange (ICE). Now, they can buy all the oil futures they want.
Michael W. Masters, of Masters Capital Management, told Congress that the volume of investment in commodities futures soared from $13 billion at the end of 2003 to $260 billion in March of 2008.
After a while, the CFTC rescinded its limits on how much speculators could buy as long as they went through special “swap” desks at the major brokerage houses.
You can buy oil futures for only 5 percent down on margin, a bargain considering the 50 percent margin requirement for stock market equity investments. Because the margin requirement on oil futures rises as the due date approaches, few investors actually end up buying the oil, they just roll over their investments.
So the willingness of sellers to unload their oil futures and buyers to acquire them sets up its own market of supply and demand which has more to do with determining the actual price of oil than even the global demand and supply for the product itself.
Masters told Congress, on May 20 of this year: “commodities futures prices are the benchmark for the prices of actual physical commodities, so when index speculators drive futures prices higher, the effects are felt immediately in spot prices and the real economy. So there is a direct link between commodities futures prices and the prices your constituents are paying for essential goods.”
Gheit and Norman suggest that the CFTC regulate the domestic oil futures market (NYMEX) and the participation of U.S. companies in the ICE, restoring the caps on the amount of oil futures speculators can buy. Gheit also urges raising margin requirements for them.
Both worry that the oil futures bubble is going to burst and cost a lot of investors — particularly pension funds who channel their investments through the swap desks of the brokerage houses. We don’t need another subprime or S&L crisis on our hands right now.
The Senate recently tried to force CFTC regulation of all commodities speculators but the bill was loaded down with a windfall profits tax so the Republicans killed it.
McCain needs to get with this program. In his town hall meeting in New York City last Thursday night, he attacked speculators for driving up oil prices but didn’t propose remedies or really explain the problem. Americans will pay close attention if he does. For McCain this is the issue and now is the time to use it.
Tuesday, June 10, 2008
Senate Democrats just don't get it
So Senate Democrats want to impose a “windfall profits” tax on oil companies for making too much money. That’s like punishing a heart surgeon because insurance companies are willing pay big bucks for coronary bypasses. Doesn’t Congress know U.S. companies control only 10 percent of the world’s oil supply? When worldwide supply and demand is the problem, increasing the supply at home is the only solution.
OPEC could increase the oil supply but they are not inclined to do so when we’re not willing to do anything about our own situation. Besides, some OPEC members enjoy seeing the U.S. squirm in our present credit and economic predicament. Then, too, commodity markets bear some responsibility for price increases. However, the major problem is worldwide demand, mostly in the U.S., China and India.
Alternative energy sources like nuclear power plants, Anwar, the Canadian tar sands, our own vast oil shale and coal deposits, biofuel, ethanol, and wind and solar technology will play a role in future energy needs. However, these resources will not be readily available in the near future; because high oil prices likely are here to stay, action at home is needed to turn things around.
We must open access to lands presently off limits to development. Alaska, both coasts and federal lands in the west have conventional oil and natural gas resources that could be developed to make a significant contribution to our energy needs. We are not moving fast enough in these areas and this is the fault of Congress where California, Florida and upper East Coast “greenies” exercise far too much influence.
Pundits have suggested that capped wells are being held in reserve. Capped wells don't exist; if they did oil would have begun flowing when prices hit $120 a barrel. Some low-producing wells that went off-line for economic reasons could be brought back on profitably with $120-$130 oil. Technology such as horizontal drilling is being developed to help increase the percentage of original oil reservoirs, but that’s not new oil. What’s needed to turn this country around is a unified effort to locate new oil reserves. Unfortunately, Congress just doesn’t get it.
Jere Joiner
Divide, Colo.
OPEC could increase the oil supply but they are not inclined to do so when we’re not willing to do anything about our own situation. Besides, some OPEC members enjoy seeing the U.S. squirm in our present credit and economic predicament. Then, too, commodity markets bear some responsibility for price increases. However, the major problem is worldwide demand, mostly in the U.S., China and India.
Alternative energy sources like nuclear power plants, Anwar, the Canadian tar sands, our own vast oil shale and coal deposits, biofuel, ethanol, and wind and solar technology will play a role in future energy needs. However, these resources will not be readily available in the near future; because high oil prices likely are here to stay, action at home is needed to turn things around.
We must open access to lands presently off limits to development. Alaska, both coasts and federal lands in the west have conventional oil and natural gas resources that could be developed to make a significant contribution to our energy needs. We are not moving fast enough in these areas and this is the fault of Congress where California, Florida and upper East Coast “greenies” exercise far too much influence.
Pundits have suggested that capped wells are being held in reserve. Capped wells don't exist; if they did oil would have begun flowing when prices hit $120 a barrel. Some low-producing wells that went off-line for economic reasons could be brought back on profitably with $120-$130 oil. Technology such as horizontal drilling is being developed to help increase the percentage of original oil reservoirs, but that’s not new oil. What’s needed to turn this country around is a unified effort to locate new oil reserves. Unfortunately, Congress just doesn’t get it.
Jere Joiner
Divide, Colo.
Wednesday, January 16, 2008
ACLU declares soliciting sex in restrooms a protected activity
.
The ACLU's position stems from the arrest of Idaho Sen. Larry Craig who got caught in a police sting operation at the Minneapolis airport. Craig is asking the Minnesota Court of Appeals to let him withdraw a guilty plea to disorderly conduct and plead not guilty to the police charges.
Without commenting on the Craig incident, one side of me says that sex between consenting adults should be permitted as long as it is private and doesn't impact people who have their own expectation of privacy. The key is where the sexual activity takes place.
Consider the restroom stall, which certainly is a private space but one specifically designed for activities that have nothing to do with sex.
The ACLU argues that even if Craig did invite the undercover officer to have sex, his actions wouldn't be illegal. What about the right of the other person who wants privacy? Shouldn't this person reasonably expect to find a public restroom being used for its intended purpose? If the space were designed for sex it surely would be called something other than a restroom.
Fortunately, the ACLU brief is likely to go nowhere. What it does, however, is show how far the organization will go in support of people wanting to engage in this behavior anywhere and everywhere.
I say good for the ACLU! The more they do this the more we will see the organization for what it really is -- an enemy of all that's right in a country too often ridiculed for its immorality.
The ACLU's position stems from the arrest of Idaho Sen. Larry Craig who got caught in a police sting operation at the Minneapolis airport. Craig is asking the Minnesota Court of Appeals to let him withdraw a guilty plea to disorderly conduct and plead not guilty to the police charges.
Without commenting on the Craig incident, one side of me says that sex between consenting adults should be permitted as long as it is private and doesn't impact people who have their own expectation of privacy. The key is where the sexual activity takes place.
Consider the restroom stall, which certainly is a private space but one specifically designed for activities that have nothing to do with sex.
The ACLU argues that even if Craig did invite the undercover officer to have sex, his actions wouldn't be illegal. What about the right of the other person who wants privacy? Shouldn't this person reasonably expect to find a public restroom being used for its intended purpose? If the space were designed for sex it surely would be called something other than a restroom.
Fortunately, the ACLU brief is likely to go nowhere. What it does, however, is show how far the organization will go in support of people wanting to engage in this behavior anywhere and everywhere.
I say good for the ACLU! The more they do this the more we will see the organization for what it really is -- an enemy of all that's right in a country too often ridiculed for its immorality.
Tuesday, January 15, 2008
Chicken Man says Woodland Park's sign law a turkey
Will Woodland Park’s proposed sign ordinance become the city council’s tar baby? It would seem so if what was reported in last Friday’s Gazette (“Our View,” Jan. 11) comes to pass. There certainly is more to the controversy than meets the eye.
Woodland Park City Manager David Buttery is not an enemy of Lisa Branden, who owns the Wild Wings ‘n Things franchise buried deep in the town’s Safeway shopping center. Neither is he an enemy of Branden’s yellow-clad Chicken Man, a walking (but not talking) human advertisement who stands beside U.S. Highway 24 waving an American flag.
Branden says the Chicken Man is necessary for her business to survive. Buttery and city planners want to restrict the advertisement to 90 days per year, a regulation Branden says would force her out of business. City officials fear allowing the Chicken Man to remain longer than that would somehow pollute the town’s image. What is being proposed by the city might work in the People’s Republic of Boulder, but not in Woodland Park. Besides, it's unconstitutional.
Buttery, a retired U.S. Army officer, is a foot soldier caught between basic rights of business owners and a planning bureaucrat’s idea of what a small mountain town should look like. While Buttery may have gone out on a limb to support whoever wrote the ordinance, by allowing the issue to boil over in the press he is exposing how far in the wrong direction one aspect of city government has drifted.
The question people should be asking is who wrote the restrictive (not to mention unconstitutional) ordinance? Where was the city attorney when it made its way through the planning process? Whoever let this one get by should be sent back to law school. Harrumphs aside, it should not be hard to get to the bottom of this.
That's because someone had to write -- and presumably someone else approved -- that whatever is not specifically allowed in Woodland Park is specifically prohibited. If Buttery, the mayor or members of the council did not approve these words, how did they end up in the proposed ordinance? I'm guessing they were put there by someone who wants total control over what signs are allowed. If that's the case, government in Woodland Park is out of control.
Aesthetics and maintaining mountain grandeur are laudable pursuits, but not when they conflict with the U.S Constitution. As long as a business conducts itself in a manner consistent with public safety and standardized health regulations, self-expression and the right of people to make a living without government interference is sacrosanct. The answer to the problem lies in the city’s planning philosophy, which is a council function.
Restrictive planning philosophies don’t develop overnight. Like a fungus, they and the regulations they spawn grow over time until they strangle the lifeblood of free enterprise.
New regulations aren’t needed. What is needed are fewer regulations and a different planning philosophy. Given direction by the council, Buttery will implement these changes. He certainly can ride herd on planners who have been breathing too much ozone.
Woodland Park’s restrictive ordinances are no secret to small businesses that have known for years the city fathers care more about big box stores. But small businesses are important too. (Try getting your clothes cleaned at Wal-Mart.) Image is one thing, but trampling on the right of freedom of expression, or the right of a small business to advertise effectively, is another.
A store like Wal-Mart can afford to spend millions on an advertising program. A small business like Wild Wings ‘n Things cannot. What city planners forget is that a destination town needs both.
It took a Chicken Man and the threat of a federal lawsuit to expose Woodland Park’s proposed ordinance for the turkey it is. What is being proposed now is not the fault of Buttery, mayor or the current council. But it’s a cinch the regulations will become their tar baby if they are implemented.
At a minimum the council should change the planning philosophy that allowed these goofy ordinances to see the light of day. While they’re at it they might even tell whoever wrote them that Woodland Park won’t ever be a Boulder, Colorado.
Woodland Park City Manager David Buttery is not an enemy of Lisa Branden, who owns the Wild Wings ‘n Things franchise buried deep in the town’s Safeway shopping center. Neither is he an enemy of Branden’s yellow-clad Chicken Man, a walking (but not talking) human advertisement who stands beside U.S. Highway 24 waving an American flag.
Branden says the Chicken Man is necessary for her business to survive. Buttery and city planners want to restrict the advertisement to 90 days per year, a regulation Branden says would force her out of business. City officials fear allowing the Chicken Man to remain longer than that would somehow pollute the town’s image. What is being proposed by the city might work in the People’s Republic of Boulder, but not in Woodland Park. Besides, it's unconstitutional.
Buttery, a retired U.S. Army officer, is a foot soldier caught between basic rights of business owners and a planning bureaucrat’s idea of what a small mountain town should look like. While Buttery may have gone out on a limb to support whoever wrote the ordinance, by allowing the issue to boil over in the press he is exposing how far in the wrong direction one aspect of city government has drifted.
The question people should be asking is who wrote the restrictive (not to mention unconstitutional) ordinance? Where was the city attorney when it made its way through the planning process? Whoever let this one get by should be sent back to law school. Harrumphs aside, it should not be hard to get to the bottom of this.
That's because someone had to write -- and presumably someone else approved -- that whatever is not specifically allowed in Woodland Park is specifically prohibited. If Buttery, the mayor or members of the council did not approve these words, how did they end up in the proposed ordinance? I'm guessing they were put there by someone who wants total control over what signs are allowed. If that's the case, government in Woodland Park is out of control.
Aesthetics and maintaining mountain grandeur are laudable pursuits, but not when they conflict with the U.S Constitution. As long as a business conducts itself in a manner consistent with public safety and standardized health regulations, self-expression and the right of people to make a living without government interference is sacrosanct. The answer to the problem lies in the city’s planning philosophy, which is a council function.
Restrictive planning philosophies don’t develop overnight. Like a fungus, they and the regulations they spawn grow over time until they strangle the lifeblood of free enterprise.
New regulations aren’t needed. What is needed are fewer regulations and a different planning philosophy. Given direction by the council, Buttery will implement these changes. He certainly can ride herd on planners who have been breathing too much ozone.
Woodland Park’s restrictive ordinances are no secret to small businesses that have known for years the city fathers care more about big box stores. But small businesses are important too. (Try getting your clothes cleaned at Wal-Mart.) Image is one thing, but trampling on the right of freedom of expression, or the right of a small business to advertise effectively, is another.
A store like Wal-Mart can afford to spend millions on an advertising program. A small business like Wild Wings ‘n Things cannot. What city planners forget is that a destination town needs both.
It took a Chicken Man and the threat of a federal lawsuit to expose Woodland Park’s proposed ordinance for the turkey it is. What is being proposed now is not the fault of Buttery, mayor or the current council. But it’s a cinch the regulations will become their tar baby if they are implemented.
At a minimum the council should change the planning philosophy that allowed these goofy ordinances to see the light of day. While they’re at it they might even tell whoever wrote them that Woodland Park won’t ever be a Boulder, Colorado.
Subscribe to:
Posts (Atom)
