Archive | Economy & Finance

To Hell and Back

Posted on 22 September 2008 by Ed Z

I know I’ve been MIA for a while, but it took me weekend of solitude to
recover from the mayhem that was the stock market last week.  In the short
12 years I’ve been in this business I’ve never seen anything like what happened
Wednesday through Friday.

When you’re in the middle of the fray, it’s sometimes hard to see the
magnitude of the battle.  I haven’t had a chance to think about the
ramification of the bail out.  However, I am aware of the blame game that’s
in full effect.  So while popular belief will blame Bush for all our woes
take this into account from an article today by Kevin
Hassett of Bloomberg
.

The clear gravity of the
situation pushed the legislation forward. Some might say the
current mess couldn’t be foreseen, yet in 2005 Alan Greenspan told
Congress how urgent it was for it to act in the clearest possible
terms: If Fannie and Freddie “continue to grow, continue to have
the low capital that they have, continue to engage in the dynamic
hedging of their portfolios, which they need to do for interest
rate risk aversion, they potentially create ever-growing potential
systemic risk down the road,” he said. “We are placing the total
financial system of the future at a substantial risk.”

What happened next was
extraordinary. For the first time in history, a serious Fannie and
Freddie reform bill was passed by the Senate Banking Committee.
The bill gave a regulator power to crack down, and would have
required the companies to eliminate their investments in risky
assets.

Different World

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. Without their checkbooks keeping the market liquid
and buying up excess supply, the market would likely have not
existed.

But the bill didn’t become
law, for a simple reason: Democrats opposed it on a party-line
vote in the committee, signaling that this would be a partisan
issue. Republicans, tied in knots by the tight Democratic
opposition, couldn’t even get the Senate to vote on the matter.

That such a reckless
political stand could have been taken by the Democrats was obscene
even then. Wallison wrote at the time: “It is a classic case of
socializing the risk while privatizing the profit. The Democrats
and the few Republicans who oppose portfolio limitations could not
possibly do so if their constituents understood what they were
doing.”

Mounds of Materials

Now that the collapse has
occurred, the roadblock built by Senate Democrats in 2005 is
unforgivable. Many who opposed the bill doubtlessly did so for
honorable reasons. Fannie and Freddie provided mounds of materials
defending their practices. Perhaps some found their propaganda
convincing.

But we now know that many of
the senators who protected Fannie and Freddie, including Barack
Obama, Hillary Clinton and Christopher Dodd, have received
mind-boggling levels of financial support from them over the
years.

Throughout his political
career, Obama has gotten more than $125,000 in campaign
contributions from employees and political action committees of
Fannie Mae and Freddie Mac, second only to Dodd, the Senate
Banking Committee chairman, who received more than $165,000.

Clinton, the 12th-ranked
recipient of Fannie and Freddie PAC and employee contributions,
has received more than $75,000 from the two enterprises and their
employees. The private profit found its way back to the senators
who killed the fix.

There has been a lot of talk
about who is to blame for this crisis. A look back at the story of
2005 makes the answer pretty clear.

Oh, and there is one little
footnote to the story that’s worth keeping in mind while Democrats
point fingers between now and Nov. 4: Senator John McCain was one
of the three cosponsors of S.190, the bill that would have averted
this mess.

 

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Food Stamps in the Headlines

Posted on 04 April 2008 by Ed Z

Drudge
ran two different headlines about food stamps
in the last few weeks. 
One on March 24 read "OHIO:
Nearly one in 10 now receives food stamps; highest number in state’s history…
"
and another on March 31, "NUMBERS
OF AMERICANS ON FOOD STAMPS HITS RECORD…
".

On April 1, British paper The Independent declared "USA
2008:  The Great Depression
".  The opening line stated,
"Food stamps are the symbol of poverty in the US. In the era of the
credit crunch, a record 28 million Americans are now relying on them to survive
".

So that’s it then?  Food stamps on the rise, we’re all going to be
living in cardboard boxes and the sky is falling.  Maybe.

Richard Rector of the New York
Sun
examines the numbers behind the increase in food stamp use and puts the
situation into context.  The impression most media want to impose is that
if a record number of Americans are using food stamps then by default that same
number must be in poverty.  However, as Mr. Rector points out, this is not
true.

The recent Food Stamp
stories also feed off the idea that most of the 36 million
Americans who the government defines as "poor" face
ongoing, serious material deprivation.

The facts show otherwise.
According to the government’s own data, nearly two-thirds of
"poor" households have satellite or cable television.
Nine out of 10 have microwave ovens and 80% have air conditioning.
Nearly three-quarters own a car and almost a third own two or more
cars. For decades government data have shown that more than 40% of
the poor own their own homes, typically a three bedroom house with
one-and-a-half baths.

On average, poor children
have the same high levels of protein, vitamin, and mineral
consumption as upper middle class kids. Only 1.5% of the poor
report they "often" did not have enough food to eat
during the last four months, although another 6% state this
"sometimes" happened.

He lists three reasons for the food stamp activity which are all
logical; the increase in in American population, the food stamp operation being cyclical
allowing spikes in economic slowdown, and aggressive campaigns with relaxed
standards.

Does it come as a surprise that people (and many who may not
need the help) would take advantage of government handouts, especially when it
is made easier for them to get it?

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You Think You Got it Bad?

Posted on 24 January 2008 by Ed Z

Check
this out…

The French bank Société
Générale stunned financial markets today by revealing that it
had been the victim of one of the largest frauds by a rogue trader
— losing four times as much as Nick Leeson, the man who sank
Barings.

The second-biggest French
bank said that it had lost €4.9 billion (£3.7 billion) as a
result of the rogue trades by a Paris-based trader who concealed
his positions through "a scheme of elaborate fictitious
transactions".

SocGen was forced today into
an emergency €5.5 billion capital-raising to shore up its
ravaged balance sheet.

Suddenly I don’t feel so bad about my current portfolio.

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Thought of the Day

Posted on 27 September 2007 by Ed Z

You know a product is peaking when you see homeless people are wearing Crocs.

 

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Senate Blocks Minimum Wage Hike?

Posted on 24 January 2007 by Ed Z

I’m hearing that the Senate has blocked the minimum wage increase. More when
I get it.

**Update** Confirmed:

On a 54-43 vote, liberals
lost an effort to advance a House-passed bill that would lift the
pay floor from $5.15 to $7.25 an hour without any accompanying tax
cut. Opponents of the tax cut needed 60 votes to prevail.

 

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The Age of Entitlement

Posted on 26 November 2006 by Ed Z

Fellow blogger, prying1,
has a great post on the possible increase in minimum wage and the effects
thereof. I have always been fascinated by people who believe raising minimum
wage can solve economic problems. Somehow the money just appears.

Raise minimum wages and it gives the
unions the right to demand more. I understand that many unions have their wage
structures tied in with the minimum wage. Hmmm. And the Dems love the unions…

Every time there is a raise in the minimum
wages many people getting paid more than minimum wage find they’re closer to the
bottom and do not get increases themselves…

Democrats will continue to foster the age of entitlement as Folk
Marxism
marches on.

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Voting Your Wallet

Posted on 18 October 2006 by Ed Z

The economy is doing well; wages are up, unemployment down, gas and oil
prices are down to the point that OPEC has decided to cut production. The DOW
broke 12,000 in intra-day trading today and consumer confidence is high.

Newsbusters points out that
you’re unlikely to hear about this in the MSM leading up to the elections.

There is one factor Republicans have going for them in spite of the media’s
efforts; people vote their wallets.

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YouTube’s $1.65 Billion Price Tag

Posted on 09 October 2006 by Ed Z

Google to buy YouTube
for $1.6 billion.

Google, the Internet’s
leading search engine, announced Monday that it is buying popular
online video site YouTube for $1.65 billion in stock.

YouTube, which was founded
in February 2005, has quickly become the most well-known of
several online video sites. More than 100 million videos, many of
which are short videos created by the site’s users, are downloaded
a day on the site.

Source: http://biz.yahoo.com/cnnm/061009/100906_googleyoutube_deal.html?.v=1

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