To Bail or not to Bail

That is the question,
Whether it is nobler to bail out a once great,
Or whether it is nobler to let it fallow,
To wither, to die to plunder and take the working class with it.

Here is my dilemma, and the one that faces not only our lawmakers, but the future president elect Obama. What to do about the big three, and the failing of the auto giants. GM is floundering, and may not make it out alive. Their shares are at a 60 year low, and Ford is right behind them both on the order of a few dollars per share. It is something that I am completely torn about, as I see arguments on both sides of the isle, and I understand what the difference in both. Unfortunately, as usual, politics is the one thing defining whether the industry will survive or not, and it will play out front and center stage.

Here is the crux of the issue. . .GM is floundering. They are floundering because of a myriad of problems, the most recent was getting financial loans to cover their day to day operations. They have around 16Billion in liquid assets, but they are burning through $2Billion/month with nothing coming in. They will be bankrupt in less than a year and it will mean over 2 million people without jobs, and another 3 million people without retirement benefits. This is something that needs to be scrutinized with a fine toothed comb, and shouldn't be jumped into as the last stimulus package.

As I wrote previously, we pump liquidity into the markets to fix the credit freeze, and to stop the freefall. What we are going through right now is a deleveraging of the economy, and overall it is a good thing, but there is going to be a blood bath in the fallout. Circuit City is dead, others will follow, and the big three are in the mix. The posing question to our president elect is can we allow GM to fail? They either first hand or second hand employ upwards of 2 million people, the vast majority being of the manufacturing sector with no real world skills. The republican argument is that they deserve to fail, because they managed their company badly, and the democrat position is that they can not fail because of the stress and strain it would put on the economy as a whole.

As of right now, I am leaning towards a "restructuring" of GM, and the other auto manufactures. America needs to work it's way out of this bubble burst based on irrational exuberance. It may be looking towards more efficient hybrids, or towards an alternating economy based on hydrogen instead of carbon based fuel sources. It will serve two purposes, first pumping money into the economy, second, saving a failing industry. It could be a master stroke of the pen and legislation which would governmentalize the auto industry much as we have done with the banking industry.

It is actually quite ironic when you think about it, the downfall of a pure capitalistic system is socialism, and the downfall of a pure socialist system is capitalism. We let the market run free of rules, and it failed miserably. The recourse is to socialize the segments of the market which are failing, the antithesis of capitalism. I really wonder what Milton Friedman would say watching his theories go up in smoke.

I still have not made my mind up on this decision, as I still need to understand how a bailout would help, and how it would make sure we are just not pumping money into a failed business plan. I do believe Obama and his cabinet will be smart enough to discern the difference, he will set up a plan for the American taxpayer to be protected, and it will work. The future is uncertain for sure, but here are my predictions based on observations. . .

The dow will continue to be in a bear market until around May of next year, and it will challenge the 7000 barrier, and max even break it. We are going to be in a recession for at least 3 more quarters (we have arguably been in one since January minus the summer anomoly). We are going to see unemployment above 8% for the first time since the Reagan Era. Consumer spending will grind to a halt, and savings will start to climb as we all start to re-establish ourselves without free credit. The bankruptcy laws are going to be re-written, and the bad debt will be written off. Housing prices will continue to fall, as the available credit is shortened at a time when we need credit to pump the system up. People's credits are getting ruined when we need credit to move in and make the economy jump start. We are witnessing a deleveraging on Wall Street, as well as Main Street. This is just like a giant margin call, and everyone is in the game.

It is an amazing time to witness what is going on right now, and to see what is happening to our economy and our country. It is a testament to how much faith others have in America, because the dollar has soared in recent months due to foreign capital looking for a safe place to hide. That safe place is in the dollar, and the dollar has thus soared when considering how weak it was just three months ago. I am just having fun learning all I can about the markets right now, so I will be better prepared to take advantage of the system when it bottoms out. Just think, 10 years from now, we will be amazed that we could have had intel for $14, or Ford for under $1. AIG is around $2, and it is another one that could make great gains.

Look at it this way, if you invest $1000 in AIG at $2 and it goes say, to $20, you would have $10K on your $1K investment, not a bad rate of return, and with the government stake in the company, I think it would be a very wise investment. It is interesting to say the least, but lets see how this plays out before jumping in, I still think it is going down for a while longer, and we will reach %50 of the peak 14K. That is when I am planning on getting in, as I am predicting that for a bottom. I am usually good at timing bottoms of the market (I bought in a 30 year fixed at 4.75% in 03) so hopefully my gut check hits me well this time.

Peace out,
Michael

The Fourth American Republic

I ran across an interesting article about our country, and it is something that I would absolutely love to say I thought up of myself, but I read it on salon first. They posted this article called The Fourth American Republic, and I do believe the author, Michael Lind, hit the nail on the head. What he does is lay out the foundation between the struggles of the two views for what our country should be, and they have battled back and fourth over the past cycling every 72 years. It is something that I believe could be written in a book, and something that I believe has great merit in predicting the future of our democracy, where we will be heading, and reasons why we will be heading.

I was always a fan of Isaac Assimov, and his Foundation series is something that really shaped my world view in life. The main character, Hari Seldon, was a mathematician as well as a historian, and predicted the fall of society based on what he deemed elements of "psychohistory". He was considered a "psychohistorian", but was more of a fortune teller, who studied both mathematics, history, sociology, and melded all three together. I have always thought by studying everything together, certain patterns can come out of societal evolution, and the future can be predicted based on human knowledge. John Maudlin is a predictor of the future in economic terms, as that is his forte. Malcolm Gladwell, often writes about people who know stuff before they happen based on his experience, and he wrote a book on it. Well, I myself love to read, study and try to come to an understanding of the world around us. . .and in some what of the same breath, I like to find people who have predicted the future based on observations.

This past election has fallen into a trap of unintended consequences, but the cycles predicted this would happen. The article I linked talks about the transformation of government, and the cyclical nature of our society. Much of it is still the battle our founding fathers fought over how our government should govern the people, and it has swayed like a pendulum to and fro in roughly 72 year segments. In the first 36 year segment, the author argues about Hamiltonian nation building, and the second 36 year segment is highlighted by Jeffersonian backlash. He is correct, when you look at the history of our country, it works out almost exactly like this. Let me go a little deeper in the analysis.

In the first 36 years of our country, we were based on the modern liberal ideas of George Washington and Alexander Hamilton. In this era, we strengthen the powers of the federal government and promote economic modernization. In other words, they promote regulating the markets, while using this regulation to steer America in a direction of a new technology which will fundamentally shape the country over the next few decades. About half way through this era, there is a Jeffersonain backlash where the electorate is in favor of a smaller government, less regulation on industry, and a want to return society to previous morals and social situations.

In the First Republic, we were defined by Federalist Party, George Washington and Alexander Hamilton's beliefs. This is where the government was a central role in peoples lives, and it worked on infrastructure and industrialization. Ironically, Jefferson and his small party allies controlled the government for a lot of this time period, but they were decidedly against their beliefs as laid out in the Federalist Papers. For example, Jefferson brought about the Louisiana Purchase, and supported large tariffs on imports. The first Jeffersonian backlash came under Andrew Jackson in 1824 exactly 36 years after 1788 or the beginning of our country. During this time period Jackson was instrumental in decentralizing the national bank of America, he supported a directive to eradicate the Indians from American soil, and he also denounced the "wealthy elite" in the North East, and was instrumental in starting the basis for the civil was with his rhetoric, and utter disdain for people who didn't agree with him (sound similar ?) The first republic ended in 1860 with Lincoln becoming president, the secession of the Southern States and the onset of the Civil War.

The second period was from 1860 until 1932, exactly 72 years. Under Lincoln, in 1860, the US destroyed the South, freed the slaves, started reconstruction of the south, recentralized the national banking system, set up the beginnings of the industrial revolution, increased tariffs to pay for education. This period lasted for 36 years until 1896 and it was defined by Cleveland and Teddy Roosevelt view of a free market economy, and decentralized banking. This went until the abysmal presidency of Herbert Hoover which ended the second Republic per the market crash and the great depression.

The third republic was founded by FDR and the New Deal Democrats. This era brought about large government programs meant to both stabilize, and grow the economy. We invested in large infrastructure projects such as the Hoover Dam, the building of American Parks, as well as the advent of Social Security. This period lasted until 1968 which marked the Jeffersonian backlash against the system that started with Richard Nixon. This period again started the deregulation of banking, lower taxes, and more financial freedom with less government intervention. This period ended in 2004 (the year 2004 marked the end of the period even though Bush was renominated president).

Here are some facts regarding the four republics, and what is the same in each of them. All of the leaders in the first era of the republic are looked at as transformational figures, and the top presidents in our countries history. Washington, Lincoln and FDR are on everyone's top 5 presidents of all time. They president who is last in the republic era, is always considered one of the worst in our nations history. Buchanan, Hoover and Bush II are three of the people who will historically be on the last of everyone's list. In each era, banking, taxes and tariffs are the main mixture where one side regulates and taxes, the other deregulates and decreases taxes/tariffs. Barrak Obama is the first president in a transformational era, and by all accounts, he will fall into the Washington/Lincoln/FDR role and he is going to create massive federal projects which will shape our country over the next few decades.

As I mentioned before, there is something to be said for what will come based on what happened in the past. Will Obama succeed as the others have? I believe so, and 40 years from now, people will be looking for Obama as one of the greats. In any event, read the Salon article, as that is where I got the idea and a lot of the facts.

Peace Out,
Michael

The CDS Market, Regulations and a Realist POV

I read this great article from the Economist on the CDS markets, what their unraveling is doing to the market, and the call out for government regulations in a market lacking oversight. I have blogged about the horrific market that Credit Default Swaps are, and I have come to abhor them. They strike a steak through the heart into anyone that thinks the "free market" can govern itself, it can't. Heck, I am a free market person myself, and I abhor regulations, BUT there is a great difference between regulation and oversight. My free market definition is different than others, in that I believe in oversight because I understand the sociological impact money has on man. Others in the market don't believe in oversight with the argument that the market will fix itself. This is not true, and we are watching it right now, if their theory were true, the government would not have had to step in with over a trillion dollars in relief money.

Take for example the Glass Spiegal act which was abolished in 1999. I do agree with the principal of deregulation and this bill allowed businesses to put their hands in many different arenas. On the outset, I think at the time, it was the correct move to deregulate the banking market, and allow companies to move into different aspects of banking. AIG, an insurance broker, was allowed for instance, to get into investment banking. It allowed the big players to delve into new markets and open up different revenue streams. On the outside, this is a very good thing, and the deregulation of the market may actually have saved the fallout it created. It allowed several institutions which were going well to buy up failing business due to the MBS (mortgage backed securities) fiasco. It allowed Bears and Stearns to be bought out when it was failing. It allowed WaMu to be bought out rather then allowing it to fail and destroying the entire market. The issues isn't the removal of the act, but what happened AFTER the removal.

You see, in my opinion, I think a business should be allowed to operate free of regulations, but NOT free of oversight. There should be laws in place which protect the consumer, the stock owner and others from illogical and illegal investments. There should be oversight to insure a banking institution, or another business is not operating outside the standard business practices. The removal of oversight is how Enron failed. It is how the rest of these companies failed, and it has nothing to do with deregulation, just the removal of oversight. It is in the language that people use which makes everyone confused, but there is a difference between the two. Passing of the Glass Speigal act was deregulation, removing and rewriting the accounting laws is removing oversight. You need oversight to function correctly, and to insure everyone is on an even playing field.

The CDS market is a perfect example of what removing oversight can do to the entire financial system. As of right now, the CDS market is around $55Trillion dollars, or four times the GDP of our country. If the market crashes, everything in our country crashes, and I mean everything. It was why the government stepped in and gave AIG an $85Billion bridge loan for an 80% stake in the company. They had to do it, because if AIG failed, the CDS market would have failed, and the house of cards comes tumbling down. The reason everything could fail is because there was no oversight into the market. Companies could sell CDS to other companies without the thought of repayment, of the ability to repay everyone if the market collapsed. In reality, they lacked all oversight for future payments, and the market didn't care.

Here is the problem with a completely "free" market, there is too much greed inherent in humans. You have the futures market in oil which was controlled by hedge funds and it drove up the cost of oil with no real reason to do so. Oil went from $60 a barrel to $150 a barrel based solely on a few hedge fund managers who were making billions for their clients. They did not care what it was doing to the average American person, or the gas prices, they were only concerned about their bottom line, and the profit of their investors. They drove the price of oil up to $4/gallon with no real economic driving force behind it. It was the ultimate ponzi scheme, and without governmental oversight, greed was allowed to destroy the actual market. You see, the market is based on supply and demand, there was not an outrageous demand for oil, yet the price sky rocketed because of the futures market. It is not free market economics at play, it is in fact an non over sighted market at play and it was out of whack. It caused a massive amount of stress on the American consumer while making about 100 Americans rich beyond their imagination. This is not what the free market is about, this is Dooh Nibor economics, robbing from the poor to pay the rich. It is not what the free market is about, and it needs to be fixed.

Well, since the collapse of the futures market due to outside forces, the price of oil is back to $63/barrel. It is back to where it should be, and for the past 6 years we have been paying higher than market priced due to lack of oversight. We need to place this oversight back onto the market, and start to get everything balanced again. It is going to be a long, hard and tumultuous trip back to normalcy, but it is finally going to get done. We are finally going to get back on the right track, and start to show some normalcy in the market.

In the mean time, read the article I linked, it is a great read and it explains the CDS market way better than I ever could.

peace
Michael

Barak Obama, and Growth as a Person

As i am sitting here tonight, before bed with Seinfeld on in the background (a great one by the way, the bubble boy episode) thoughts creep into my head about people, growing, and coming to the realization about stuff in your life. I came to think about this because I was reading this article on Barak Obama in Men's Health.

His first lesson was this: Learn from your father even if he wasn't a good one.

Growing up in the early years of my life, I never knew my real father. For those that do not know the real story, I will go through it here. He left my mother pregnant with me in California. My mother moved out to LA, and he was supposed to come out two weeks later, and she was to pick out an apartment and get set up. He never showed, and I have never heard from this man in my entire life. Well, my mother remarried when I was 4 and I have had an incredible father for my entire life. I have never bothered to find out about him in my life, because I never thought that he meant anything to me. I was nothing like him, I would never do something like that in life, and I had a LOT of positive male role models in my life when I was younger. I never understood what it meant to me in my life, how it effected my belief system and growth as a man.

Barak Obama's father left when he was 2 years old, and here is a quote of him from the interview.

"Somebody once said that every man is either trying to live up to his dad's expectations or make up for his dad's mistakes. And I'm sure I was doing a little bit of both. But I feel that somewhere in my late 20s or early 30s I sort of figured out what his absence had meant.


It is something which made me look back at my own situation and relate where different parts of my personality came from. I have started things before, and never finished them to completion. For example, when I built my shed, it came out amazing, better than I ever thought I could build, but I never 100% completed it. I left the last few rows of shingles to be completed, hidden in the back so nobody could see it, but still not completed. It was my way of showing the world that I wasn't worthy enough for him to talk to me, or to get to know me, even though I was proud of my own accomplishments.

Another point about my personality is that I will put up with absolutely too much from women in relationships and try to make them work when there really is no hope. This is me showing the world that I am not like him at all, and would never give up on something, even though I know it wont work. It is me trying to make up for his misgivings as a man. Knowing this, I can now continue to grow as a man, and come to the understanding of yet another part of who I am, and why I am who I am.

This is what growing is all about. You continue to grow as a person even though you stop growing physically. It is why the founding fathers put in the constitution that 35 is the minimum age for president. It is why Barak Obama is going to be great for this country, and what it means to have someone like him as a role model. He is transformational, he makes me want to be a better person, and a better man for my country. He is absolutely inspirational in every sense of the word, and one of the people in life I could only hope to emulate. Just reading what he has to say has already made me realize things about myself. It is yet one reason we will once again return to greatness as a country, we have a leader who gets "it" in life, and knows what life is all about.

The Dream Came True

Witnessing history is something none of us can truly understand when we are going through it, and only upon a reflection of the events, can we truly come to appreciate what these events mean in life. This election was the culmination of a dream, one in which a black man could be president of this great nation. One where the intolerance and hatred that was once a part of our culture, part of our soul was purged like the votes of a homeless person from the roles of rural Ohio's canvasing board. . .OK, maybe I should have used a better analogy when writing about equality and freedom, but I digress :p

In any event, I wanted to take this time to recognize Dr. Martin Luther King, his I Have a Dream Speech, and how his dream came to fruition 40 years and 6 months to the day of his assassination. If there is a heaven, he is looking down on our great nation with not only a smile in his face, but a tear in his eye for all the struggles people like him have gone through to make this period possible.

So without further ado, here is his I Have a Dream speech given on August 23, 1963 on the steps of the Lincoln Memorial. This is one day to be proud to be an American, proud of our heritage, and to show the entire world that people can and do grow as a society and a nation.



Here are the excerpts from his speech, and the end especially. I get goosebumps listening to it, and teary eyed as I read it. Today is here because of you Dr. King, you are what this great country is all about, today is your day.


I am not unmindful that some of you have come here out of great trials and tribulations. Some of you have come fresh from narrow jail cells. And some of you have come from areas where your quest -- quest for freedom left you battered by the storms of persecution and staggered by the winds of police brutality. You have been the veterans of creative suffering. Continue to work with the faith that unearned suffering is redemptive. Go back to Mississippi, go back to Alabama, go back to South Carolina, go back to Georgia, go back to Louisiana, go back to the slums and ghettos of our northern cities, knowing that somehow this situation can and will be changed.

Let us not wallow in the valley of despair, I say to you today, my friends.

And so even though we face the difficulties of today and tomorrow, I still have a dream. It is a dream deeply rooted in the American dream.

I have a dream that one day this nation will rise up and live out the true meaning of its creed: "We hold these truths to be self-evident, that all men are created equal."

I have a dream that one day on the red hills of Georgia, the sons of former slaves and the sons of former slave owners will be able to sit down together at the table of brotherhood.

I have a dream that one day even the state of Mississippi, a state sweltering with the heat of injustice, sweltering with the heat of oppression, will be transformed into an oasis of freedom and justice.

I have a dream that my four little children will one day live in a nation where they will not be judged by the color of their skin but by the content of their character.

I have a dream today!

I have a dream that one day, down in Alabama, with its vicious racists, with its governor having his lips dripping with the words of "interposition" and "nullification" -- one day right there in Alabama little black boys and black girls will be able to join hands with little white boys and white girls as sisters and brothers.

I have a dream today!

I have a dream that one day every valley shall be exalted, and every hill and mountain shall be made low, the rough places will be made plain, and the crooked places will be made straight; "and the glory of the Lord shall be revealed and all flesh shall see it together."²

This is our hope, and this is the faith that I go back to the South with.

With this faith, we will be able to hew out of the mountain of despair a stone of hope. With this faith, we will be able to transform the jangling discords of our nation into a beautiful symphony of brotherhood. With this faith, we will be able to work together, to pray together, to struggle together, to go to jail together, to stand up for freedom together, knowing that we will be free one day.

And this will be the day -- this will be the day when all of God's children will be able to sing with new meaning:

My country 'tis of thee, sweet land of liberty, of thee I sing.

Land where my fathers died, land of the Pilgrim's pride,

From every mountainside, let freedom ring!

And if America is to be a great nation, this must become true.

And so let freedom ring from the prodigious hilltops of New Hampshire.

Let freedom ring from the mighty mountains of New York.

Let freedom ring from the heightening Alleghenies of Pennsylvania.

Let freedom ring from the snow-capped Rockies of Colorado.

Let freedom ring from the curvaceous slopes of California.

But not only that:

Let freedom ring from Stone Mountain of Georgia.

Let freedom ring from Lookout Mountain of Tennessee.

Let freedom ring from every hill and molehill of Mississippi.

From every mountainside, let freedom ring.

And when this happens, when we allow freedom ring, when we let it ring from every village and every hamlet, from every state and every city, we will be able to speed up that day when all of God's children, black men and white men, Jews and Gentiles, Protestants and Catholics, will be able to join hands and sing in the words of the old Negro spiritual:

Free at last! Free at last!

Thank God Almighty, we are free at last!³

And he did it!!!!

Barak Obama is going to be the next president of this country HORRAY!!!!!!! Yes, I am calling it right now. Looking at the polling data in Indiana, the 2004 election results, and what he needs to do, EVERYTHING is pointing towards a strong Obama win!!!

To which I say THANK YOU THANK YOU THANK YOU!!!!!! This was the most important election in our lifetime, and we finally came through! After all of the trouble and turmoil that we have been through, we can FINALLY see the light. There is hope for us after all, and we can all collectively breathe a LARGE sigh of relief! Tonight I am going to party like a rockstar and celebrate the victory of Obama. I could not be more thrilled with the way it is coming out, and I am extatic to say the least. Through everything that I have been through this year, all the turmoil, the heart ache, the scary future, I now finally have hope. My faith in our country has been restored, and I couldn't be happier.

As for those of you who ask "how the heck can you call this for Obama right now", I called the election for George Bush at around 9:30 pm in 04 because of the precincts reporting on the voting. For example, in Indiana at 7:39pm McCain has a 3% point lead in the election. Bush carried the state 60% to 39% but Kerry carried four counties. They were around Indianapolis, and the Chi-town burbs. Those areas, which were heavily democratic, have not reported a single vote. In other words, in all of the red counties, the ones where Bush beat Kerry by a lot, Obama has held ground against McCain. In fact, he has held ground so good, that the heavily democratic areas may just put him over the top in that state.

Virginia is the same thing, and it looks like it is going to be a blue state romp. I am excited to say the least, and we are going to be witnessing history tonight. I couldn't be prouder to be an American today, and I love everything that is currently happening.

The time to heal has come, we are on the path of recovery as a nation and I couldn't be happier.

Peace out!
Michael

Family Guy and the Iraq War

Well, I figure I will post a few blogs today as I am going to be at the computer most of the day watching the election unfold. So for all of my three readers, you get the special privilege of seeing my abject prose defacing the interwebs for the day :p

Sometimes comedy is the best cure for sorrow, and the most honest form of knowledge. From John Stewart, to Peter Colbert, to the Simpsons, sometimes there is a truth seen in comedy not seen in reality. Here, Peter Griffin sums up in 30 seconds the Iraq war, and thinking of the GOP.



Giggity Giggity :D:D

It's Election Day

Well, it is the first Tuesday in a fourth year in November, so that means it is election day. I am confident of an Obama victory, and all polls show him winning the nomination. It has been a horrible 8 years for our country, and it has driven everyone to the blue side for help. We have suffered through the following. . .9-11 attacks, the use of 9-11 to garner support for a war with Iraq, a war that has cost $500 Billion dollars and 4000+ brave soldiers lives, Abu Ghriab, Katrina, the market crash, Terri Schaivo, Ken Lay, Mark Foley, and countless other embarrassments for our country.

I think it is time to purge the horror show that is the GOP, and to finally get in some people who can actually govern this country for a while. I like to think Obama is a visionary, one who will transform politics, and he is needed at a time like this. I have already cast my vote, and I can not wait to watch the election unfold tonight. It will be a refreshing sign to say the least, and hopefully for me, the best thing to happen in a year that has tested my mettle as a man and a good person. This is what our country needs, and it is at a time when we are desperate.

For those who are trashing Obama, think of this, I ask you this . . . why? What has he done or said that makes him unworthy? Meanwhile his opponent, and supporters have called him a Muslim, a terrorist, not American, and everything else possible. He stayed above the fray, and did it right. He is the future for our country at a time we need to be heading in a new direction. I will once again be proud of my country for their accomplishments, instead of being ashamed for things like eliminating habeas corpus, Abu Ghriab, Katrina and Iraq. . . and that is a very good thing :)

Ben Does Keith

From SNL Last night, a great rendition of Keith Olbermann. . .