General Motors (GM): Founded 9/16/1908 as a holding company for Buick and over the next 2 years took on Oldsmobile, Cadillac, Pontiac and began GMC Trucks. Ironically William Durant lost ownership control after the collapse of new vehicle sales, regained control after starting Chevrolet, however, ultimately lost it for good after another slump in sales.
Chrysler (C): Founded 6/6/1925 from the ashes of the "Maxwell-Chalmers" company. In 1928 Plymouth was introduced along with DeSoto. By 1930 Dodge had been acquired. The last major name picked up by Chrysler was Jeep in 1987. In 1979 a 1.5 billion dollar loan was guaranteed to avoid bankruptcy. They sold off parts of the company that were profitable but not part of their core industry. In a few years they paid back the loan plus 300 million in interest to the U.S. government.
Ford (F): Founded 6/13/03 by Henry Ford with $28,000 and twelve investors. For a large chunk of Ford's existence it was a family owned business and is believed to be the most sound of the 3 auto makers.
All of the automakers have their own finance companies to help customers buy their product; they all also own auto parts retail outlets and have partnerships in all of the major countries around the world. Their size and depth in not only the U.S.,but the world economy, is very impressive. The effects of their bankruptcys are not limited to just the auto workers. Between these 3 some 20 millionvehicles are sold yearly and the market could not handle this shortfall.
This would create a shortage and thus increase the profits of those still making vehicles and what will probably happen is the Japanese and Chinese auto companies would buy up the best sellers of the American auto makers. They will not move them overseas as the costs still justify U.S. based manufactures, however, the unions will be weaker and those that have been on retirement plans will have to find other sources of income.
If that is the ultimate outcome, why not just do it now. By allowing them to dump the union contract, drop some model lines and probably combine Chrysler into some of Ford and GM the government can assure that automakers based in the U.S. still exist, just in case we need them for national security issues in the future. A temporary loan to allow this process to occur is justified and needed. Those Senators who voted against a plan just because Nissan has plants in their state are too short sighted in their thinking. That thinking would allow a no vote on aid to flood victims in the mid-west, or earthquakes in the west, hurricanes in the south, or terrorist acts in the north-east. We are still the "United States" and should act like it.
© WithComment.com 2008
Tuesday, December 23, 2008
Monday, December 8, 2008
The Economy of the United States of America
I designed this page with the idea to vent. As a conservative and registered Republican, I had become increasingly frustrated with the lack of leadership in D.C. and so had most of you. That is why in November 2006, the Democratic Party regained control of both the House and Senate of Congress. However, that was not a good solution because they choose to do nothing for the last 2 years and allowed, along with Bush, for the economy to fail.
Let me state here that deregulation itself is not bad, but deregulation along with bad policy is deadly. The Republicans use to be for deregulation of industry to allow the free flow of information and product markets. This is fine as long as the areas that need regulation, such as financial markets have good regulations. However, this was not the case.
Let me take a moment and talk history. The last leg of the civil rights movement was, and is home ownership. Democrats applied pressure to banks and financial organizations like Fannie Mae and Freddie Mac, to facilitate that loaning of money to groups who had in the past been denied home ownership based on race and not financial capacity. Republicans want home ownership and see it as a cornerstone to a solid economy. The recipe for disaster is allowing people to believe they can afford something they truly can’t or to buy more then they need.
The other situation putting this collapse into motion was to bundle up these mortgages and sell securities based on them to the world. It all works as long as people have faith in the system and value of the underline mortgages are stable.
The collapse came quickly because fuel prices rose, interest rates went up and the economy slowed. The rise in interest rates forced many to refinance their adjustable rate mortgages or get out of them, creating a price bubble and collapse of home values. This forced banks and other financial institution to down grade their investments, forcing insurance companies (covering these mortgages) to have a greater need for cash and AIG fails.
Credit Default Swaps (CDS) are unregulated insurance policies to off set possible failures of mortgage investments and now serious money was needed to cover their exposures.
Enter the U.S. government and the Federal Reserve.
700 billion is not enough. 7.4 trillion might be! The ripples of this much cash infusion is still unknown and probably unknowable until we are there. Many believe the USA is on the decline and according to a Russian analyst a breakup.
The reason I have not written on this more is because of my natural optimistic view of the world and our financial institutions. Lately, I have become concerned to very concerned about the economy as a whole. I see massive inflation with all this cash infusions into the financial institutions which will be used to pay off these CDS obligations. Then when they have paid that off will they return to the business of lending out money, however, if the dollar has no value, what will they loan?
Germany in the 20’s and 30’s had hyper inflation and it took a barrel of money to buy food. What was Germany’s solution? Hitler. The rest of the world was also in a depression and what did we get? Mussolini in Italy, Stalin in Russia, Mao in China, a military government in Japan, but a Roosevelt in the U.S. and in a more limited sense, Churchill in the U.K. Churchill was only Prime Minister from 1940 to 1945 or just WWII and had little to do with the depression on the post war recovery.
All of those countries had similar domestic policies in that public works projects were funded but were not enough. The “new deal” was not what gave us a recovery; it was a post WWII economy that had at its focus the rebuilding of Europe and Japan. Only when the private sector was fully deployed to furnish the U.S. economy and the world economy with goods from money borrowed from us by the Europeans and Asians, did the great depression finally go away, some 16 years after it began.
There is going to be no solution that won’t hurt much, if not all of the world’s economy. I know that an incoming administration wants to ease the pain but they also see opportunities to change government and the economy and that is even more scary.
What I believe is the best solution for the world and the U.S. is to make sure money is available to financial institutions and monitor those institution to make sure they are lending it out, and to create an “infrastructure” package to fix bridges and roads, lay new optical cables and ready this country for the upturn in the economy which will only happen when private business start hiring again. As for people power, we can make financing colleges easier for those wanting to receive degrees we need like engineering and the sciences.
Let me repeat, it is not the government that will get us out of this recession (potential depression) but the private sector and its free trade with other countries in the world. What we need from the President-Elect is a policy to create and environment where that trade can grow and prosper.
© WithComment.com 2008
Let me state here that deregulation itself is not bad, but deregulation along with bad policy is deadly. The Republicans use to be for deregulation of industry to allow the free flow of information and product markets. This is fine as long as the areas that need regulation, such as financial markets have good regulations. However, this was not the case.
Let me take a moment and talk history. The last leg of the civil rights movement was, and is home ownership. Democrats applied pressure to banks and financial organizations like Fannie Mae and Freddie Mac, to facilitate that loaning of money to groups who had in the past been denied home ownership based on race and not financial capacity. Republicans want home ownership and see it as a cornerstone to a solid economy. The recipe for disaster is allowing people to believe they can afford something they truly can’t or to buy more then they need.
The other situation putting this collapse into motion was to bundle up these mortgages and sell securities based on them to the world. It all works as long as people have faith in the system and value of the underline mortgages are stable.
The collapse came quickly because fuel prices rose, interest rates went up and the economy slowed. The rise in interest rates forced many to refinance their adjustable rate mortgages or get out of them, creating a price bubble and collapse of home values. This forced banks and other financial institution to down grade their investments, forcing insurance companies (covering these mortgages) to have a greater need for cash and AIG fails.
Credit Default Swaps (CDS) are unregulated insurance policies to off set possible failures of mortgage investments and now serious money was needed to cover their exposures.
Enter the U.S. government and the Federal Reserve.
700 billion is not enough. 7.4 trillion might be! The ripples of this much cash infusion is still unknown and probably unknowable until we are there. Many believe the USA is on the decline and according to a Russian analyst a breakup.
The reason I have not written on this more is because of my natural optimistic view of the world and our financial institutions. Lately, I have become concerned to very concerned about the economy as a whole. I see massive inflation with all this cash infusions into the financial institutions which will be used to pay off these CDS obligations. Then when they have paid that off will they return to the business of lending out money, however, if the dollar has no value, what will they loan?
Germany in the 20’s and 30’s had hyper inflation and it took a barrel of money to buy food. What was Germany’s solution? Hitler. The rest of the world was also in a depression and what did we get? Mussolini in Italy, Stalin in Russia, Mao in China, a military government in Japan, but a Roosevelt in the U.S. and in a more limited sense, Churchill in the U.K. Churchill was only Prime Minister from 1940 to 1945 or just WWII and had little to do with the depression on the post war recovery.
All of those countries had similar domestic policies in that public works projects were funded but were not enough. The “new deal” was not what gave us a recovery; it was a post WWII economy that had at its focus the rebuilding of Europe and Japan. Only when the private sector was fully deployed to furnish the U.S. economy and the world economy with goods from money borrowed from us by the Europeans and Asians, did the great depression finally go away, some 16 years after it began.
There is going to be no solution that won’t hurt much, if not all of the world’s economy. I know that an incoming administration wants to ease the pain but they also see opportunities to change government and the economy and that is even more scary.
What I believe is the best solution for the world and the U.S. is to make sure money is available to financial institutions and monitor those institution to make sure they are lending it out, and to create an “infrastructure” package to fix bridges and roads, lay new optical cables and ready this country for the upturn in the economy which will only happen when private business start hiring again. As for people power, we can make financing colleges easier for those wanting to receive degrees we need like engineering and the sciences.
Let me repeat, it is not the government that will get us out of this recession (potential depression) but the private sector and its free trade with other countries in the world. What we need from the President-Elect is a policy to create and environment where that trade can grow and prosper.
© WithComment.com 2008
Tuesday, November 18, 2008
I want a successful President
I know some found my endorsement of Pres. Elect Obama to be less then honest, but it is actually how I feel. I want him to be successful and thus end the rift that still lives in the dark corners of this country. However, I still have my doubts. The chief of staff he has picked is a partisian politician. It's okay, just don't act like you are a bipartisian guy, then surround yourself with partisians.
I want the new administration to be successful internationally and have economic success at home, unlike many Democrats who believe what is bad for America is good for their party, I want America to be strong and successful first and then my politics second. However, I don't want peace by weakening our power and influence internationally. I don't believe that many of the campaign's issues will be successful in a weakened economy. I also don't believe their economic plan will do anything to improve our economy and only natural forces will revive it.
Chris Mendelsohn
© WithComment.com 2008
I want the new administration to be successful internationally and have economic success at home, unlike many Democrats who believe what is bad for America is good for their party, I want America to be strong and successful first and then my politics second. However, I don't want peace by weakening our power and influence internationally. I don't believe that many of the campaign's issues will be successful in a weakened economy. I also don't believe their economic plan will do anything to improve our economy and only natural forces will revive it.
Chris Mendelsohn
© WithComment.com 2008
Friday, November 7, 2008
I want a successful President Obama
I know some found my endorsement of Pres. Elect Obama to be less then honest, but it is actually how I feel. I want him to be successful and thus end the rift that still lives in the dark corners of this country. However, I still have my doubts. The chief of staff he has picked is a partisian politician. It's okay, just don't act like you are a bipartisian guy, then surround yourself with partisians.
I want the new administration to be successful internationally and have economic success at home, unlike many Democrats who believe what is bad for America is good for their party, I want America to be strong and successful first and then my politics second. However, I don't want peace by weakening our power and influence internationally. I don't believe that many of the campaign's issues will be successful in a weakened economy. I also don't believe their economic plan will do anything to improve our economy and only natural forces will revive it.
© WithComment.com 2008
I want the new administration to be successful internationally and have economic success at home, unlike many Democrats who believe what is bad for America is good for their party, I want America to be strong and successful first and then my politics second. However, I don't want peace by weakening our power and influence internationally. I don't believe that many of the campaign's issues will be successful in a weakened economy. I also don't believe their economic plan will do anything to improve our economy and only natural forces will revive it.
© WithComment.com 2008
Monday, November 3, 2008
McCain uses the "S" Word to discribe Obama and commits Hypocracy
"The American people continue to learn more about Barack Obama. Now we know that the slogans 'change you can believe in' and 'change we need' are code words for Barack Obama's ultimate goal: 'redistributive change.' In a previously uncovered interview from September 6, 2001, Barack Obama expressed his regret that the Supreme Court hadn't been more 'radical' and described as a 'tragedy' the Court's refusal to take up 'the issues of redistribution of wealth.' - McCain
WC - I believe McCain is correct that Sen. Obama has socialist dreams, however, McCain is no better. As the news unfolds on the Senator's comments in 2001 on the courts and that they should have ruled for redistribution of income along with civil rights, he has also told us that he befriended a variety of people in college including Marxist, John McCain is out telling us how he wants to use 300 billion of the 700 billion "Rescue" package to help stabilize those bad mortgages. Isn't that "Socialism" too? Or at least "spreading the wealth" as Sen. Obama has famously said to "Joe the Plumber".
Sen. Obama is at least an egalitarian in that he does want political, social and civil rights to be equal for all but the added economic equality is what sets him apart from most Americans. Economic equality is the bases of socialism, but unlike a strict definition which would be to have a central government own and administrate the means of production, the American socialist movement is more about redistribution of income via the tax code. However, the last 6 weeks has showed us that people will accept, more likely not understand, that the preferred stocks the U.S.. government is receiving in exchange for cash is ownership.
Socialism over the next 4 years will increase under either administration, what we have to too out for is a permanent infiltration of the government into the private sector for the purpose of economic equality.
UPDATE: The congressional record shows that Sen. Obama wants an egalitarian society for even immigrants! (Opinion) (Congressional Record)
WC - I believe McCain is correct that Sen. Obama has socialist dreams, however, McCain is no better. As the news unfolds on the Senator's comments in 2001 on the courts and that they should have ruled for redistribution of income along with civil rights, he has also told us that he befriended a variety of people in college including Marxist, John McCain is out telling us how he wants to use 300 billion of the 700 billion "Rescue" package to help stabilize those bad mortgages. Isn't that "Socialism" too? Or at least "spreading the wealth" as Sen. Obama has famously said to "Joe the Plumber".
Sen. Obama is at least an egalitarian in that he does want political, social and civil rights to be equal for all but the added economic equality is what sets him apart from most Americans. Economic equality is the bases of socialism, but unlike a strict definition which would be to have a central government own and administrate the means of production, the American socialist movement is more about redistribution of income via the tax code. However, the last 6 weeks has showed us that people will accept, more likely not understand, that the preferred stocks the U.S.. government is receiving in exchange for cash is ownership.
Socialism over the next 4 years will increase under either administration, what we have to too out for is a permanent infiltration of the government into the private sector for the purpose of economic equality.
UPDATE: The congressional record shows that Sen. Obama wants an egalitarian society for even immigrants! (Opinion) (Congressional Record)
Friday, October 31, 2008
Paying for the future
Both John McCain and Barack Obama voted for the 700B “rescue” package that now will mostly be used to support banks and get liquidity into the markets. This solution which many are saying we followed the British on was actually talked about on day one of this crisis. People like Jim Cramer (CNBC’s “Mad Money”) had it right since August 2007!
So what have we done? What have we allowed our representatives to do? We have mortgaged our children and doomed those of us who make some money to higher tax rates. It will be impossible to “grow” our way out of this without true cuts in the governments spending. I am not just talking about the Federal government, but every state and every county and city. They all must learn to stop growing government and their source of power. There will be no more money to squeeze out of the citizens other then the Federal government getting the Fed to print cash.
As I asked over a week ago, I ask again. When will we pull out of this “Financial Surge” into the banking and Wall St. markets? What Senator Obama said about the war in Iraq can also be said of this “bailout/rescue” package, "…require a U.S. occupation (of the market) of undetermined length, at undermined cost, with undetermined consequences." His belief has been to not enter a war without an exit strategy. This belief works here too.
I recommend a freeze in all government budgets for 2 years and begin means testing of every line item, cutting or eliminating unnecessary spending. The true nature of government is to create an environment that promotes our “unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.” and any thing else is outside the scope of government.
© WithComment.com 2008
So what have we done? What have we allowed our representatives to do? We have mortgaged our children and doomed those of us who make some money to higher tax rates. It will be impossible to “grow” our way out of this without true cuts in the governments spending. I am not just talking about the Federal government, but every state and every county and city. They all must learn to stop growing government and their source of power. There will be no more money to squeeze out of the citizens other then the Federal government getting the Fed to print cash.
As I asked over a week ago, I ask again. When will we pull out of this “Financial Surge” into the banking and Wall St. markets? What Senator Obama said about the war in Iraq can also be said of this “bailout/rescue” package, "…require a U.S. occupation (of the market) of undetermined length, at undermined cost, with undetermined consequences." His belief has been to not enter a war without an exit strategy. This belief works here too.
I recommend a freeze in all government budgets for 2 years and begin means testing of every line item, cutting or eliminating unnecessary spending. The true nature of government is to create an environment that promotes our “unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.” and any thing else is outside the scope of government.
© WithComment.com 2008
Tuesday, October 7, 2008
Speak nothing
If Senator Obama wins in November it will because he followed the advice of Pres. Lincoln who said, “Better to remain silent and be thought a fool than to speak out and remove all doubt.” The Senator has followed this well. He has said very little about what is needed to help the financial markets and only comments on what others are or are not doing. Sen. McCain stepped in to it with his comment, “The fundamentals of the economy are strong.” And Obama decided to say nothing.
This charismatic man tells us what is wrong with the past like some Monday morning QB, but his future plans sound more like newspeak from some Orwellian alternate universe. “…we can take care of one another and build strong communities grounded in faith and family; that repairing the world is a task that each of us takes up every day. That is how we are going to meet the challenges we face." It sounds great but what does he want to do for us to become this community.
Senator Obama is looking smart without saying a thing, which makes me both frustrated and envious.
© WithComment.com 2008
This charismatic man tells us what is wrong with the past like some Monday morning QB, but his future plans sound more like newspeak from some Orwellian alternate universe. “…we can take care of one another and build strong communities grounded in faith and family; that repairing the world is a task that each of us takes up every day. That is how we are going to meet the challenges we face." It sounds great but what does he want to do for us to become this community.
Senator Obama is looking smart without saying a thing, which makes me both frustrated and envious.
© WithComment.com 2008
Monday, October 6, 2008
The McCain 29 day plan
I have put together some simple but much needed ideas for the McCain campaign to focus on for the next five weeks. I have sent this to the McCain campaign and I hope they take them up.
My inspiration was the 1994 “Contract with America”. Simple ideas everyone can understand. The problem with the current wall street/main street situation is that it is very complicated and most people, including half the people talking on TV, don’t have a good understanding of the problem or the solution.
I suggest 3 to 5 main ideas of reform, prosperity and peace that the McCain campaign needs to push. Push it in to campaigns, one lead by the Senator, and the other by the more conservative Governor. Allow her to run a shadow presidential campaign that allows her to be her and not feel constrained. In the last few interviews she looks like she is answering like someone else wants her to answer instead of herself.
Hammer only the ideas you decide on and don’t loose that focus of one month!
Some Ideas:
Reform:
Investment regulations and stronger oversight.
Mortgage industry reform through Fannie Mae and Freddie Mac.
Immigration.
Prosperity:
Freeze Budget for 2 years (exception for natural or national disasters)
Means testing for all budget items
8 year plan to reduce imported oil
8 year plan to rebuild the U.S. infrastructure
Roads
Bridges
Communication
Utilities
Peace:
Commitment to Iraq drawdown
Not a time frame but based on the battlefield.
© WithComment.com 2008
My inspiration was the 1994 “Contract with America”. Simple ideas everyone can understand. The problem with the current wall street/main street situation is that it is very complicated and most people, including half the people talking on TV, don’t have a good understanding of the problem or the solution.
I suggest 3 to 5 main ideas of reform, prosperity and peace that the McCain campaign needs to push. Push it in to campaigns, one lead by the Senator, and the other by the more conservative Governor. Allow her to run a shadow presidential campaign that allows her to be her and not feel constrained. In the last few interviews she looks like she is answering like someone else wants her to answer instead of herself.
Hammer only the ideas you decide on and don’t loose that focus of one month!
Some Ideas:
Reform:
Investment regulations and stronger oversight.
Mortgage industry reform through Fannie Mae and Freddie Mac.
Immigration.
Prosperity:
Freeze Budget for 2 years (exception for natural or national disasters)
Means testing for all budget items
8 year plan to reduce imported oil
8 year plan to rebuild the U.S. infrastructure
Roads
Bridges
Communication
Utilities
Peace:
Commitment to Iraq drawdown
Not a time frame but based on the battlefield.
© WithComment.com 2008
Tuesday, September 23, 2008
Now the truth can be told:
"If that bill had become law, then the world today would be different. In 2005, 2006 and 2007, a blizzard of terrible mortgage paper fluttered out of the Fannie and Freddie clouds, burying many of our oldest and most venerable institutions." (Article)
WC - Fannie Mae and Freddie Mac gathered 388 billion in AAA rated mortgages either by owning or guaranteed. The securities being backed by these mortgages were doing fine as long as real estate appreciated. When they failed, the house came down.
If there wasn’t a Fannie Mae or Freddie Mac or if they had been better regulated, there would be no market for these low rated mortgages and therefore none would have been made.
In 2004 these two organizations had an accounting scandal. Legislation was created (co-sponsored by John McCain) to create regulation that would have forced them to diversify out of these mortgages, yet the Democrats tied it up on committee and it was never voted on in the Senate.
The Democrats had very close ties to the lobby groups representing Freddie and Fannie so much that 3 of the biggest recipients of their money were Chris Dodd (1st), Barack Obama (2nd) and Hillary Clinton (12th) and Sen. Obama has only been in the Senate for 3 years!
“Socializing risk, while privatizing profit.” – Peter Wallison
WC - Fannie Mae and Freddie Mac gathered 388 billion in AAA rated mortgages either by owning or guaranteed. The securities being backed by these mortgages were doing fine as long as real estate appreciated. When they failed, the house came down.
If there wasn’t a Fannie Mae or Freddie Mac or if they had been better regulated, there would be no market for these low rated mortgages and therefore none would have been made.
In 2004 these two organizations had an accounting scandal. Legislation was created (co-sponsored by John McCain) to create regulation that would have forced them to diversify out of these mortgages, yet the Democrats tied it up on committee and it was never voted on in the Senate.
The Democrats had very close ties to the lobby groups representing Freddie and Fannie so much that 3 of the biggest recipients of their money were Chris Dodd (1st), Barack Obama (2nd) and Hillary Clinton (12th) and Sen. Obama has only been in the Senate for 3 years!
“Socializing risk, while privatizing profit.” – Peter Wallison
Saturday, September 20, 2008
Is Sen. Obama the “ACORN Candidate”?
Cutting your teeth in Chicago politics is tough. Luckily the young lawyer had help. According to some (Blog) the Senator was introduced to ACORN by a person named Madeleine Talbot who still works for them. Sen. Obama was not only council but a trainer for the organization that has been linked to voter registration fraud. (Article)
Later the Senator served on the board of the Woods Fund of Chicago which gave grants to ACORN. This of course is not unusual except that this organization continues to be the center of investigations that they file bogus voter registration cards for people like Dick Tracy! Although they are “non-partisan” he has stated they were key to his 2004 primary race for Senator.
With many states tightening up ACORN could be the difference for the Senator.
© WithComment.com
Later the Senator served on the board of the Woods Fund of Chicago which gave grants to ACORN. This of course is not unusual except that this organization continues to be the center of investigations that they file bogus voter registration cards for people like Dick Tracy! Although they are “non-partisan” he has stated they were key to his 2004 primary race for Senator.
With many states tightening up ACORN could be the difference for the Senator.
© WithComment.com
Thursday, September 18, 2008
Cash is King!
The recent problems with Lehman Brothers and A.I.G. insurance is a liquidity problems and not a solvency problem. It is estimated that A.I.G. has a trillion dollars in assets and needs 75 billion in cash to weather this financial storm. To put this in perspective, if you have a house worth $100,000 dollars and you would need $7,500 to keep it. This is confusing isn’t it? The reason they can’t get a loan is the same as Lehman Brothers and that is sub prime loans.
Sub prime loans are loans to less qualified individuals and companies, but let’s go back and look at the industry of mortgages.
In the 1980’s a security was developed that was backed by mortgages through Fannie Mae and Freddie Mac corporations. Until recently the U.S. Gov. had said it would back these securities and that was enough.
In the last few years a larger percent of mortgages created were sub prime and also adjustable mortgages. This allowed people to get into homes for no money down and a low interest rate. These rates went up within a few years to a point were these marginal customers couldn’t cover the loan and default. It is estimated that 13.1% of mortgages are sub prime and account for 55% of foreclosures.
Last week the government had to go in and purchase preferred stock of Fannie Mae and Freddie Mac to show foreign investors that they are backed by the government. Lehman Bros. showed a 7 billion dollar write off from its residential and commercial real estate leading to its cash crunch and no buyers.
Now A.I.G. which insured those mortgages against failure is being downgraded on its credit rating which is forcing them to cover $14.5 billion in obligations and potentially another $5.4 billion in terminated contracts because of the downgrade.
They and others have enough assets and are not insolvent but just have no cash and further more these are accounting losses not real losses. They have not sold these and taken a real loss, however, regulations force them to reflect real value and this is the loss being shown.
© WithComment.com
Sub prime loans are loans to less qualified individuals and companies, but let’s go back and look at the industry of mortgages.
In the 1980’s a security was developed that was backed by mortgages through Fannie Mae and Freddie Mac corporations. Until recently the U.S. Gov. had said it would back these securities and that was enough.
In the last few years a larger percent of mortgages created were sub prime and also adjustable mortgages. This allowed people to get into homes for no money down and a low interest rate. These rates went up within a few years to a point were these marginal customers couldn’t cover the loan and default. It is estimated that 13.1% of mortgages are sub prime and account for 55% of foreclosures.
Last week the government had to go in and purchase preferred stock of Fannie Mae and Freddie Mac to show foreign investors that they are backed by the government. Lehman Bros. showed a 7 billion dollar write off from its residential and commercial real estate leading to its cash crunch and no buyers.
Now A.I.G. which insured those mortgages against failure is being downgraded on its credit rating which is forcing them to cover $14.5 billion in obligations and potentially another $5.4 billion in terminated contracts because of the downgrade.
They and others have enough assets and are not insolvent but just have no cash and further more these are accounting losses not real losses. They have not sold these and taken a real loss, however, regulations force them to reflect real value and this is the loss being shown.
© WithComment.com
Thursday, July 24, 2008
A brief history of the economy
The cyclical nature of the economy has always existed, although we have many people still alive that remember the last great depression over the next 20 years there will be very few that have a good memory of what a real economic disaster is and I fear people will always believe they are living in the worst of times.
I hope you already know some of this but I have to make sure we are on the same page. There are two major areas in economics being macro and micro. Macro is the study of the larger picture on a country or world scale, micro is the study at the transaction level or between people. This paper will focus on the macro economy.
At any given point in time there is a local, regional, national and world economy. They interact but are not always in the same condition as far as growth, retraction, inflation or deflation. If you live in a farming community and have a massive flood your town could be devastated for years. If a major employer closes in a smaller town, it may destroy that town forever. However, that doesn’t mean that even the state you are in is suffering the same. Even if all of these areas are in a recession that does not mean the whole country is in one, and the federal government or Federal Reserve should not act as such. The last “recession” was 8 months long from March to November 2001, however, because of the sluggishness of the economy it did not fully recover until 1st quarter 2003.
This is why no single solution will solve everyone’s problems and why others will use this to their political advantage by saying leaders don’t feel their pain or act as if one thing can fix all. So what is a President or Congressional body to do?
First you create an atmosphere of equal opportunity, I stress here opportunity not equity, no one has figured that one out yet. You do this by creating a consistent educational system for the citizens, a tax code that is both family and business friendly, and an infrastructure of roads, sewage, electricity and now broadband internet services that promote business and freedom of movement. In larger cities freedom of movement include mass transit and in small communities this is a well maintained freeway and street system.
Second, you have laws that protect individual rights, ensure that there is equal opportunity to resources giving no group an advantage over another through political, religious or racial differences. These laws would have to be written by officials elected by the population of the area or country and a court system that is willing to strike down laws that are inconsistent with the constitution but not create or see new rights that are not either laid out in the constitution or by legislation.
Finally, you need a sound monetary system that keeps inflation in check. Inflation rips away at the value of products and services. In a longer period wages can catch up with inflation, however, during the time of turmoil, wealth is destroyed and creates unstable social and thus political atmosphere that can lead to rash decisions or allow groups like the Nazi’s or Communists to come to power.
Specifically:
The Feds will reduce the interest rate on money in order to stimulate borrowing for business and since the “Great Depression” the government will increase its spending to make sure that someone is moving the economy along.
The current economic troubles are similar to the 1970’s in that we have a spike in fuel prices. In the 1970’s it was OPEC flexing its muscles buy reducing its output of oil. However, the killer was Pres. Nixon’s freeze on wages and prices! Yes, there was a federal freeze on pricing and thus the market reacted the way it always does to a limit on prices, there will be a limit on quantity supplied. This created the long gas lines.
Under Pres. Carter it happened again (I remember the lines for this one) and we had the double whammy of inflation and higher then normal unemployment and price controls leading to the recession of 1980. The raising of rates by the Feds broke inflation and has been policy ever since.
However, because we are having another spike in oil prices an increase in Fed rates would have the opposite effect and close down the economy. The rate raise would tighten money and even small increases of a few years ago lead to the “sub-prime” mortgage situation of today. Some Banks may fail or get bought out. S&L’s of the 1980’s were completely wiped out. Credit card companies will have massive right offs, killing their stock and reduce taxable income, thus taxes either paid by them or through dividends paid out.
What to do?
We don’t have to go much farther then the constitution which states that its purpose is to “establish justice, insure domestic tranquility, provide for the common defence, promote the general welfare and secure the blessings of liberty…” Tranquility & Welfare gives the federal government control over commerce, Justice and Defence is our boarders and Welfare also means health (of the economy), and the family unit.
First, much like the cover of, “The Hitchhikers’ guide to the galaxy”, “don’t panic.” Second, don’t have the federal government spend anymore, just change were it is spending. Along with giving money out through extended unemployment benefits or expanded welfare programs, the government should expand college education. By having more people enter the college ranks it will delay their need for work and in a couple of years they will be ready for a better job with a higher education. The flip side is to expand vocational schools.
We still need money available to borrowers by having lower Fed Rates, and I would exempt the first $10,000.00 of interest and dividends earned from the tax return. This would help seniors on fixed incomes and give investments with lower interest rates a leg up on its effective tax rate and keep money in banks to lend out.
Through the tax code I would give bonus deductions on expansion of business equipment and other improvements that include job growth. Increase credits for lower income filers who put money into their retirement plans. Expansion of child tax credits for higher income people, currently limits begin at 100K, I would increase to 200K.
Make transfer of wealth from parents to children much easier by raising limits on yearly amounts and erasing the death tax. Families need to take care of each other. Ease the ability of parents to keep children on their health insurance to 25 even if they are not in college.
Security of the boarder between the U.S. and Mexico to limit drugs and crossing of people shrinking the work force available and have more jobs available for our citizens. A better migrant work program needs to happen. Then during times of strong growth and a need for workers we can increase the number that can come in for short periods of time. This needs a double edge with increased ability to check Id’s and a more standard Id system for none citizens.
Much like your home you want secure doors, the ability to take care of your children, and save without it costing you in the long run.
I hope you already know some of this but I have to make sure we are on the same page. There are two major areas in economics being macro and micro. Macro is the study of the larger picture on a country or world scale, micro is the study at the transaction level or between people. This paper will focus on the macro economy.
At any given point in time there is a local, regional, national and world economy. They interact but are not always in the same condition as far as growth, retraction, inflation or deflation. If you live in a farming community and have a massive flood your town could be devastated for years. If a major employer closes in a smaller town, it may destroy that town forever. However, that doesn’t mean that even the state you are in is suffering the same. Even if all of these areas are in a recession that does not mean the whole country is in one, and the federal government or Federal Reserve should not act as such. The last “recession” was 8 months long from March to November 2001, however, because of the sluggishness of the economy it did not fully recover until 1st quarter 2003.
This is why no single solution will solve everyone’s problems and why others will use this to their political advantage by saying leaders don’t feel their pain or act as if one thing can fix all. So what is a President or Congressional body to do?
First you create an atmosphere of equal opportunity, I stress here opportunity not equity, no one has figured that one out yet. You do this by creating a consistent educational system for the citizens, a tax code that is both family and business friendly, and an infrastructure of roads, sewage, electricity and now broadband internet services that promote business and freedom of movement. In larger cities freedom of movement include mass transit and in small communities this is a well maintained freeway and street system.
Second, you have laws that protect individual rights, ensure that there is equal opportunity to resources giving no group an advantage over another through political, religious or racial differences. These laws would have to be written by officials elected by the population of the area or country and a court system that is willing to strike down laws that are inconsistent with the constitution but not create or see new rights that are not either laid out in the constitution or by legislation.
Finally, you need a sound monetary system that keeps inflation in check. Inflation rips away at the value of products and services. In a longer period wages can catch up with inflation, however, during the time of turmoil, wealth is destroyed and creates unstable social and thus political atmosphere that can lead to rash decisions or allow groups like the Nazi’s or Communists to come to power.
Specifically:
The Feds will reduce the interest rate on money in order to stimulate borrowing for business and since the “Great Depression” the government will increase its spending to make sure that someone is moving the economy along.
The current economic troubles are similar to the 1970’s in that we have a spike in fuel prices. In the 1970’s it was OPEC flexing its muscles buy reducing its output of oil. However, the killer was Pres. Nixon’s freeze on wages and prices! Yes, there was a federal freeze on pricing and thus the market reacted the way it always does to a limit on prices, there will be a limit on quantity supplied. This created the long gas lines.
Under Pres. Carter it happened again (I remember the lines for this one) and we had the double whammy of inflation and higher then normal unemployment and price controls leading to the recession of 1980. The raising of rates by the Feds broke inflation and has been policy ever since.
However, because we are having another spike in oil prices an increase in Fed rates would have the opposite effect and close down the economy. The rate raise would tighten money and even small increases of a few years ago lead to the “sub-prime” mortgage situation of today. Some Banks may fail or get bought out. S&L’s of the 1980’s were completely wiped out. Credit card companies will have massive right offs, killing their stock and reduce taxable income, thus taxes either paid by them or through dividends paid out.
What to do?
We don’t have to go much farther then the constitution which states that its purpose is to “establish justice, insure domestic tranquility, provide for the common defence, promote the general welfare and secure the blessings of liberty…” Tranquility & Welfare gives the federal government control over commerce, Justice and Defence is our boarders and Welfare also means health (of the economy), and the family unit.
First, much like the cover of, “The Hitchhikers’ guide to the galaxy”, “don’t panic.” Second, don’t have the federal government spend anymore, just change were it is spending. Along with giving money out through extended unemployment benefits or expanded welfare programs, the government should expand college education. By having more people enter the college ranks it will delay their need for work and in a couple of years they will be ready for a better job with a higher education. The flip side is to expand vocational schools.
We still need money available to borrowers by having lower Fed Rates, and I would exempt the first $10,000.00 of interest and dividends earned from the tax return. This would help seniors on fixed incomes and give investments with lower interest rates a leg up on its effective tax rate and keep money in banks to lend out.
Through the tax code I would give bonus deductions on expansion of business equipment and other improvements that include job growth. Increase credits for lower income filers who put money into their retirement plans. Expansion of child tax credits for higher income people, currently limits begin at 100K, I would increase to 200K.
Make transfer of wealth from parents to children much easier by raising limits on yearly amounts and erasing the death tax. Families need to take care of each other. Ease the ability of parents to keep children on their health insurance to 25 even if they are not in college.
Security of the boarder between the U.S. and Mexico to limit drugs and crossing of people shrinking the work force available and have more jobs available for our citizens. A better migrant work program needs to happen. Then during times of strong growth and a need for workers we can increase the number that can come in for short periods of time. This needs a double edge with increased ability to check Id’s and a more standard Id system for none citizens.
Much like your home you want secure doors, the ability to take care of your children, and save without it costing you in the long run.
Saturday, February 23, 2008
If I have plagairized you.....
If I have plagairized you I am sorry, every word I have written has been written before. No two words can I put together that someone eles hasn't done already. I doubt I have had an origianl thought, with 6 billion people on Earth, most Ideas have been worked out. If I say, "The sky is blue" do I have to credit "theskyisblue.co.uk" website? Or do I hae to give credit to Bruce Willis in "The Last Boy Scout" because he said,"The sky is blue, water is wet, women have secrets." Or the writer of the script?
It is very confusing to know what has been said and what hasen't. No candidate speaks without a writer so it is they who need to reference source materials and not the candidate. Obama, may have said the words, but it is one of his writers who stole the phrasing.
- C. Mendelsohn
It is very confusing to know what has been said and what hasen't. No candidate speaks without a writer so it is they who need to reference source materials and not the candidate. Obama, may have said the words, but it is one of his writers who stole the phrasing.
- C. Mendelsohn
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