As the economy continues to shift into a slow period of growth, jobs continue to be slashed in every sector from tech, international construction, shift in choices for spending on alternative energy, and a defening need for the regular consumer, for credit and banking services continues their downturn. It can be disenhartening to know that in California we are a whole 1%+ unemployment as the National Average is 6%+, and California is 7%+. California has a 20% gap in budget capital needed for the upcoming year, #2 next to Arizona, worse than Florida & Nevada. And as this talk of credit not available for the regular consumer, even small business owners, continues to deepen, I can't help but wonder if we'll ever see the days of easy credit, and booming retailers; especially, with the holidays just around the corner. Even after we are able to climb out of the global crisis, and domestic levelling of worries lessens, there are much needed regulatory changes in the financial services arena, inflation may very well become "out of the box", and let's see if ol' monetary policy and control of interest rates will serve it's purpose.
To be completely honest with you, I'm not sure how the U.S. economy will be poised for the future. Free capital markets and U.S. liberty envies countries all over the world, and we must be flexible to the changes, without feeling like someone is putting shoving cold stones up my dairiair (did I spell that right?). Don't know which one would hurt the worst as either way you put it, you're *%$#!!!
What we need to focus on is not only our competitiveness, but position in the global economy. As job continue their stinging losses, taking time off to hone the best skills out there, to truly separate you from the competition should be the goal on every small business owners mind. We have to look at if our competetiveness maintains an ever increasing edge on others as we continue to work with the global economy.
Folks I don't believe there's anyway that we can look but to look foward and to face reality right in the face.
Tuesday, October 21, 2008
Saturday, October 18, 2008
Bush Announces Meeting with Interntional Leaders
I think on the way out President Bush is trying desperately to exit on some what of a positive note. At least it seems to me, that way. Today he announced in his weekly address to meet with international leaders to speak about the changes across the globe that needs to be addressed. He's trying to stress that fact that the bailout measures were an emergency necessity and not one that he would implement or agree to at all, given normal circumstances. It's a good thing that he says that, because, loosing our edge as a free market capitalist economy would be a dreary thought. In most other forms of economic systems globally, the U.S. economy for all it's free trade and competition is not easily implemented in other socialist, protectionism economies. Although others wouldn't admit it, Japan, China, Europe, or at least, the people of those countries might not admit, every G7 country needs to implement the checks and balances of a capitalist economy.
As this crisis has unfolded it has been evident the effects of technology, global systems integration, has had on other nations. It's a evidence of creative destruction; the battle of the old with the new, and the requirement that investors, systems, economies, have to commit to a newer globally managed financial economy due to the 21st century reality, that as we advance in age and technology, everyone must change or die. This crisis is an example of that. Young active managers/ Wall Street; technolly savy managers and OTC trading of asset backed securities.
China in it's current economic state needs to adhere and respect to global investment opportunities, and domestic currency practices to promote integrity. What is China's current stance on this crisis? That they will watch what they invest; as far as American securities in the future. This is the same type of attitude they have shown in the late 90's in not taking the same measures as the U.S. during the Savings & Loans crisis, in creating the RTC, but forcing their banks to continue to work with their citizens to payoff their loans. I can see the crash that China may experience during the 21st century which is a clash between current economic practices and the requirment for China to commit to broader measures of economic integrity.
I feel that it's imperative that measures be taken globally to stem a future flashback of current globalism. I'm not completely certain on more regulatory actions in this country as that could also hinder our ability to get out of this mess. With the Presidential candidacy winding down it's imperative that we have a White House committed to cutting wasteful spending. It's certainly not a free ride anymore; as the Bush administration has done so well. We need tactful measures to come from the White House to cut spending, curb existing mandates, to commit to reducing the national debt, and to commit to pushing global economies to acknowledge free market capitalism as a necessity to overall financial strength as a globe and to increase the standard of living, not only in the U.S. but globally.
As this crisis has unfolded it has been evident the effects of technology, global systems integration, has had on other nations. It's a evidence of creative destruction; the battle of the old with the new, and the requirement that investors, systems, economies, have to commit to a newer globally managed financial economy due to the 21st century reality, that as we advance in age and technology, everyone must change or die. This crisis is an example of that. Young active managers/ Wall Street; technolly savy managers and OTC trading of asset backed securities.
China in it's current economic state needs to adhere and respect to global investment opportunities, and domestic currency practices to promote integrity. What is China's current stance on this crisis? That they will watch what they invest; as far as American securities in the future. This is the same type of attitude they have shown in the late 90's in not taking the same measures as the U.S. during the Savings & Loans crisis, in creating the RTC, but forcing their banks to continue to work with their citizens to payoff their loans. I can see the crash that China may experience during the 21st century which is a clash between current economic practices and the requirment for China to commit to broader measures of economic integrity.
I feel that it's imperative that measures be taken globally to stem a future flashback of current globalism. I'm not completely certain on more regulatory actions in this country as that could also hinder our ability to get out of this mess. With the Presidential candidacy winding down it's imperative that we have a White House committed to cutting wasteful spending. It's certainly not a free ride anymore; as the Bush administration has done so well. We need tactful measures to come from the White House to cut spending, curb existing mandates, to commit to reducing the national debt, and to commit to pushing global economies to acknowledge free market capitalism as a necessity to overall financial strength as a globe and to increase the standard of living, not only in the U.S. but globally.
Thursday, October 2, 2008
My Type of Rescue Package
I have yet to fully understand the complete falling of the U.S. economy; however, sensical evaluations can determine what has really occurred. Much of the naysayers would have chosen to blame the default on the housing crisis, and that may have been a cause of the economic upheaval, but if looked into further, one would see that much of the blame surrounds structured financial products, credit derivatives, & credit default swaps. Wall Street has intermediated the design of credit derivatives which is protection against a "credit event", much of the basic necessity evolved into traded credit default options. It is a tool to separate the inherrent risk on a set of Asset Backed Securities (ABS) such as Collateralized Debt Obligations, specifically, Collateralized Mortgage Obligations (CMO) which are a pool of mortgage loans securitized and sold. Credit protection was added to these securities to protect against a credit risk, such as bankruptcy, or foreclosure. It would seem to me that as the issuance of this type of protection increased, so did the risk increase.
The idea of loan syndication is the spreading of the risk amongst several investors. It was widely believed that with the spreading out of risk, would've meant safer investing for buyers of these securities, including the global arena. However, much of that risk was layered with more risk. With the increase in loan origination in the real estate market, the more prices grew. And as prices increased, even insomuch that area median income was more than doubled to be able to afford these homes, exotic products such as no income, no doc loans developed. I remember Arnold Swartznegger referring to them as "NINJA" loans, "No Income No Jobs or Assets" loans. In the mortgage industry they were widely known as "NINA" loans, "No Income No Asset" loans. It meant the same thing. You could write up an application, ask the applicant for their net income, and in many cases lenders would allow you to increase that up by say 10%-25%. And now, when these NINA loans are set to adjust, there comes no ability to do so, because the loan products in the past few years are no longer available, credit scores are higher, full documentation on all loans is now required, and assets are required. Some mortgage originators may feel stiffed.
The fact of the matter is that subprime loans amounted to $1 Trillion dollars of mortgages, compared to between $10 Trillion & $11 Trillion in junk bonds issued. With the advent of junk bonds into the market, it had created a risk into the system at increasing numbers from 2003-2007.
With all this talk about off balance sheet capital requirements, it should be noted that a credit derivative is an instrument issued off balance sheet. And when it is issued, it has a term of 1 year and 1 day in some cases which allows the collateral to remain as a "contingent asset". The risk that is associated with that credit derivative is written on balance sheets, and therefore allows a commercial bank to issue more debt. One of the loopholes that monoliners whom issued these protections knew is that there is no requirement to set aside capital loss reserves equal to the risk. They knew this and that's why credit default derivatives were issued so much.
It's as if the monoliners or issuers of these derivatives just issued the protection with no provisions. After all, with the Triple A rated security and protection, why should there need to be capital loss reserves? To that end I say TO PROTECT INVESTORS who bought these securities against loss. What were they thinking?
Now with this economic rescue package, the federal reserve will be able to setup an auction facility to purchase these bad assets to enable various banks to survive and to be able to infuse more capital to be able to make more loans to keep the economy going, employment, etc. These facilities will be able to assist in "Price Discovery" of these bad securities. Why? Because no one knows what they are worth, what their price is......
So what does that mean for the regular consumer? To be equally as fair to the homeowners as the banks, I would say to allow them the same abilities to "price discover" their homes. Buyup all the bad houses on the market sitting in inventory so some of us can refinance our mortgages with better terms. Better yet, please start in Sacramento, then work through the Bay Area. I mean afterall, don't you think that's fair for us? Helping out Wall Street is a necessity just as much as helping Main Street with our inability to price homes effectively.
The idea of loan syndication is the spreading of the risk amongst several investors. It was widely believed that with the spreading out of risk, would've meant safer investing for buyers of these securities, including the global arena. However, much of that risk was layered with more risk. With the increase in loan origination in the real estate market, the more prices grew. And as prices increased, even insomuch that area median income was more than doubled to be able to afford these homes, exotic products such as no income, no doc loans developed. I remember Arnold Swartznegger referring to them as "NINJA" loans, "No Income No Jobs or Assets" loans. In the mortgage industry they were widely known as "NINA" loans, "No Income No Asset" loans. It meant the same thing. You could write up an application, ask the applicant for their net income, and in many cases lenders would allow you to increase that up by say 10%-25%. And now, when these NINA loans are set to adjust, there comes no ability to do so, because the loan products in the past few years are no longer available, credit scores are higher, full documentation on all loans is now required, and assets are required. Some mortgage originators may feel stiffed.
The fact of the matter is that subprime loans amounted to $1 Trillion dollars of mortgages, compared to between $10 Trillion & $11 Trillion in junk bonds issued. With the advent of junk bonds into the market, it had created a risk into the system at increasing numbers from 2003-2007.
With all this talk about off balance sheet capital requirements, it should be noted that a credit derivative is an instrument issued off balance sheet. And when it is issued, it has a term of 1 year and 1 day in some cases which allows the collateral to remain as a "contingent asset". The risk that is associated with that credit derivative is written on balance sheets, and therefore allows a commercial bank to issue more debt. One of the loopholes that monoliners whom issued these protections knew is that there is no requirement to set aside capital loss reserves equal to the risk. They knew this and that's why credit default derivatives were issued so much.
It's as if the monoliners or issuers of these derivatives just issued the protection with no provisions. After all, with the Triple A rated security and protection, why should there need to be capital loss reserves? To that end I say TO PROTECT INVESTORS who bought these securities against loss. What were they thinking?
Now with this economic rescue package, the federal reserve will be able to setup an auction facility to purchase these bad assets to enable various banks to survive and to be able to infuse more capital to be able to make more loans to keep the economy going, employment, etc. These facilities will be able to assist in "Price Discovery" of these bad securities. Why? Because no one knows what they are worth, what their price is......
So what does that mean for the regular consumer? To be equally as fair to the homeowners as the banks, I would say to allow them the same abilities to "price discover" their homes. Buyup all the bad houses on the market sitting in inventory so some of us can refinance our mortgages with better terms. Better yet, please start in Sacramento, then work through the Bay Area. I mean afterall, don't you think that's fair for us? Helping out Wall Street is a necessity just as much as helping Main Street with our inability to price homes effectively.
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