ferguson

Market Death Spiral Continues

Know nothing is at least honest in choosing a moniker. The problems in the U.S. economy go back 60 years, when post WWII consumerism was unleashed as the dominant force in our economy, eclipsing work and productivity. As long as the middle class was able to hold its own in that economy, we were able to survive many challenges because we had broad based wealth and broad based purchasing power.

Globalism and trickle down economics have pulled the rug out from underneath the masses who are now seen as nothing more than a source of sales for the pools of capital that serve the still wealthy.

Obama is rightfully seeking to reverse this slide toward national poverty. The nation will be much better off when the national wealth is shared more fairly and the masses have sufficient purchasing power to maintain a decent standard of living. Even the wealthy will be better off, because it was the mistaken trajectory under Reagan, Bush, Clinton and Bush which has taken us over this economic cliff.

Will Obama Be Re-elected?

Intelligent discussion would be greatly enhanced by accurate information. I am no expert on the Obama plan vis a vis the deductibility of mortgage interest, but my understanding is that is not proposing to eliminate deductibility, only to place limits on deductibility for those in the highest tax brackets.

In other words, the proposal is designed at least partly to prevent the very wealthy from getting a tax break that they neither need nor deserve by building an overly large and overly expensive house and to be subsidized in that action by the American taxpayer.

This is good policy, not bad policy.

The Origin of Financial Crises

Cautious investor makes a critical point that is too often overlooked. If the rating agencies had performed their fiduciary duties in evaluating these new investment vehicles (MBS, CDO, CDS et al) they would have rated them much lower which would have stopped the spread of the fraud in its tracks. In fact, since the rating agencies had no historical experience with such vehicles, they should have declined to give them any rating which would have had the same effect.

It may be assumed that the business world will have a certain fraction of employees and policy makers who will "push the envelope" in order to create profit. Occasionally that expands into the kind of fraud of which we have seen more than a little in the last decade.

The average investor relies on the rating agencies to use experience to evaluate risk. In this case they had no experience, but proceeded to provide the highest ratings. They failed very badly in their essential responsibility and may be both civilly and criminally responsible.

The regulatory agencies (including both the SEC and the Federal Reserve) are only slightly less culpapable. The performance of the SEC under Christoper Cox parrallels the performance of FEMA under whatsisname Brown (of you're doing a great job, Brownie, fame). Bottom line, we all lined up for the free lunch and, when the credit fueled cornucopia was revealed to be a fraud, we wonder how it could have happened. Same old story. There is no free lunch. Never has been. Never will be.

It's Not a Recession, It's the New Reality

"Reality" is a many headed hydra. The "reality" of human life is that the future is not known with any degree of certainty because we have gained the capacity to change it. The technological revolution of the past 250 years has altered "reality" dramatically, including both extraordinary benefits and extraordinary dangers. The technological revolution of the next 100 is likely to do the same.

The real questions are: 1. whether we have the personal and political courage to act responsibly in dealing with the dangers; 2. whether we have the vision and leadership necessary to create (not just accept) a sustainable "reality;" 3. Whether we have the wisdom and restraint necessary to invest wisely and in the long term interest of life on earth rather than in pursuit of immediate self aggrandizement.

It is of interest that piracy has flowered on the high seas at the same time that it has flowered on Wall Street. I am not speaking particularly about the bankers and financial engineers who have responsible for the housing mortgage fraud, but about the whole culture that has allowed boards of directors, executives and employees to hijack corporate America and divert its productivity from owners (shareholders) to their own benefit.

The question is not whether we spent too much money or borrowed too much. The question is what we borrowed for and what we spent it on. If we had borrowed and spent it on energy efficiency, education and infrastructure, we would be in great shape. Instead we spent it on fat cats, 20,000 square foot houses, $50,000 weddings and $100,000 vacations.

The "new reality" should include a new definition of "The Wealth of Nations."

How Obama's Budget Will Affect Commodities

Excellent article. Rich in facts. Avoids bombast.

The Reagan Counterrevolution

When Reagan was president he could not distinguish between the history of real events and the history of movies he had played in. Peter Schiff is equally delusional, seeing salvation in the credit default swaps created by the unfettered free market and armageddon in responsible regulation. I applaud Peter Schiff's threat to emigrate. I am sure he can find some tax haven where he can live the good life unburdened by the challenges and responsibilities that Reagan and Bush et al have left behind.

Welcome to 'Ermflation'

The whole story of the Bush administration is the story of Brownie at FEMA. Yes, they all did a great job, but the result is catastrophe. Obama brings a pragmatic outlook and intelligence to the job. If he doesn't do a better job than Bush, none of us will have enough money in eight years to buy lunch.

Obama Summarizes Economic Policies, Misses Several Key Points

College student thinks Peter Schiff should be president. I agree he should be president of something. Just like George Bush, he should be the permanent president of his college fraternity where the power of the president to do damage to the nation and the world is suitably contained.

Obama's Housing Plan - What Will It Really Accomplish?

Gem Hudson's comment is in line with the absurd arguments advanced by Republicans over the past 8 years to justify mind boggling incompetence and pillaging of the commonweal to line the pockets of the rich. Obama has been president for less than a month and is attempting to cope with a mountain of problems left behind by Bush who ran the U.S. in the same manner that he ran his fraternity at Yale. Unfortunate for the whole world that he didn't stay in New Haven.

Peak Oil's Bell Is Ringing

The New York Times lead editorial this morning (11/16/2008) calls for a military restructuring and buildup to deal with a different but still dangerous world. As we look at the real world around us, the editorial has a lot merit.

On the other hand, even if all of the advocated steps are taken and we are able to battle the forces of evil to a draw, the result will still be disastrous for the simple reason that war has now become a distraction from the real problems facing the world which include global warming, environmental degredation, food and water shortages, population growth and (last but not least) peak oil.

War and the preparation for war is one of the least (perhaps the very least) productive uses of time and energy on the planet. The world as a whole (and we have to think in these terms) simply cannot afford a future where a large percentage of resources are spent on national defense, war and the aftermath of war.

The clear interests of the entire world and its inhabitants are in finding a way to move beyond war. As the world's mightiest war machine, the U.S. should take the lead in this direction.

FASB Watch: Who Should Make the Economic Calls?

I am not an accountant, but my suspicion is that the problem here is more a matter of hysteria than substance. As Jeff Miller reports, we haven't yet heard from FASB as to what the revised standards might be.

The only guidance I have heard is that the revised standards might allow the use of "income generated" as a measure of value in addition to "current sale prices."

This would seem to raise a common sense comparison in a world where hysteria reigns. In the real estate world, appraisals of the value of commercial property may be based on 1. comparable sales; 2. replacement cost; or 3; income generated. I am not a real estate appraiser either, so any correction will be appreciated.

That suggests that there just might be reasonable measures of value othere than current sales prices which, if there is no market, are judged to be close to zero.

Of course assessing "income generated" involves the hard work of actually looking at these collections of "toxic assets," adding up the income they are generating and can be reasonably expected to continue to generate. But that would mean substituting hard work for hysteria which is a lot less fun and doesn't sell well in on Bleeker Street or in Hollywood.

An aversion to substituting hard work for hysteria is perhaps inevitable in the entirely fraudulent financial landscape which has allowed so many of the opportunistic but marginally qualified shell game operators to make millions and spend it on Palm Beach and Oyster Bay lifestyles.

The evidence is in. Arthur Laffer was wrong. "Trickle down" doesn't work. The true wealth of nations lies in providing opportunity, education and health care to the population as a whole.

Watch This Sector During the Upcoming Bear Market Rally

Altering the mark to market rule should be a subject for accountants, mathematicians and policy makers. Since I am none of the above, I have complete license to make a fool of myself by suggesting a direction.

Here it is. Adjust the basic principle to read something like this.

"The value of an asset on the books which is difficult to assess as a result of infrequent trades shall be no higher than the sum of the original value on the books of the owner and the most recent traded price divided by two."

All better informed pundits can now explain why this is a stupid idea and would not work.

Banks' Glass Half Empty with Red Ink

Thanks for an objective look at the bank situation which seems to have the whole world in a panic. Unfortunately, the 2% of banks that are in trouble are the biggest banks with international operations, so the dangers from failures are way out of proportion to the percentages and the ability of national entities to contain those dangers. And of course the entire problem is greatly magnified by the rightfully infamous derivative securities which made a lot of money for a bunch of clever people while the party lasted. . A lot of money was used to purchase goods and securities that are not worth what was paid for them. So, we have panic as people search for a way to avoid taking the losses that are rightfully theirs.

Team Obama vs. Team Reagan

My vote is for Zeus. Reagan acted the part of a good president. In fact, by his own comments Reagan made it clear that he could not differentiate between his life and the parts he had acted. I will say this for Reagan. He was a better president than W which is not saying much.

Obama faces enormous challenges, including all those created or left behind by Reagan, Bush 1, Clinton and Bush 11. My bet is that, when he is done, Obama will have done more for the country than any president since Franklin Roosevelt.

Rough Economic Seas Toss Many Boats, Including Oil Price

Greed is the essential problem. Stock options are just a way of disguising greed and implementing it. Perhaps even more egregious than stock options for executives are stock options for corporation directors, who come to meetings 4-10 times a year, get paid six figures and have stock options to boot, obliterating all obligations to protect stockholder interests. Management proposes stock options for the board, the board approves stock options for management and the result is not greatly different from insider theft from ordinary stockholders and a complete fracture of the relationship between compensation and the value of work.

People will invent all sorts of schemes to satisfy greed. That is the original, fundamental bubble. JK is right.