Truth about the Credit Crises

The economy is, by far, the most important issue of this election. The credit market is tight, housing market has lost nearly half its value, and the stock market is down 30%. Before you cast your vote, I urge you to understand what is fact, and what is myth.

Credit Crises

Banks - and other financial institutions - are the world's most profitable middle-man. They are a marketplace where people who have money can lend it to people who don't have money. When you deposit your money with a bank, they lend it to another customer and charge them a higher interest rate than they pay you.

Banking regulations require banks to keep 10% of their risk-adjusted asset values available in cash - this is known as the Capital Requirement. The capital requirement ensures banks have enough cash on hand so depositors can withdraw their own money. If a bank distributed 100% of its deposits to lenders, you could never withdraw from your account. Each night, banks who exceed their capital requirement lend their surplus of funds to banks who are below their capital requirement.

Loans are listed on a bank's books as an asset. When a loan defaults, banks remove the loan from their list of assets and replace it with the value of the house. When the housing market began to slump, and asset values plummeted, another bank regulation - Mark to Market Accounting - forced the banks to adjust downward the value of the asset on their books. This left most banks in a capital requirement deficit - and there were not enough banks left with a capital requirement surplus to lend money to the deficient banks. Concisely, the "credit crises" we are facing is illiquidity - meaning, banks don't have money to lend.

How did this happen?

Banks began deviating from their fundamental lending practices - assessing the risk of the borrower and conservatively valuing the asset. Banks knowingly lent money to individuals who did not have the capacity to pay it back. Banks also began creating very exotic lending packages - like, no payments, no interest for one year with a large balloon payment in year two. Deregulation enabled this.

Why would a bank take such a risk?

Two reasons:

1) The interest rates on these packages made them very profitable as long as borrowers made payments.

2) Community organizations, with major support from the Democratic party, would publicly accuse financial institutions of racism or other malfeasance if they did not lend money to low-income individuals who did not have the capacity to repay the loan.

Solutions

Every problem has several potential solutions each with varying degrees of efficacy, impact, and longevity. This situation is no different.

Capitalism-Based Solution: Government does nothing or minimally intervenes by providing low-interest loans to banks who need to cover their capital requirements. Banks that became too highly leveraged with risky loans fail. Banks with a smarter business model survive. This is painful but effective and insures only companies with solid business practices continue doing business.

Socialism-Based Solution: Government enacts a series of reforms and regulations that reduce or eliminate a financial institution's ability to assume risk. This minimizes the likelihood of a repeat of the crises, but also limits an institution's ability to differentiate from its competitors. Lack of differentiation means slow or no growth in the sector as banking services become a commodity.

Communism-Based Solution: Government assumes ownership and control of banking institutions. While likely to prevent any future collapse, it also eliminates choice in the marketplace and creates a government monopoly.


What scares me most about this crises, isn't the protracted recession I'm sure we're headed for. It isn't the 30% drop in my investment portfolio. It's not even that people I know could lose their jobs. All of those are temporary. What scares me most, is BOTH Republicans and Democrats have offered nothing but Socialist and Communist solutions to this crises.

If I were calling the shots, here is what I would do:

1) Make funds available to lending institutions so they can maintain their Capital Requirement.
2) Provide independent valuations of struggling banks and tax breaks on merger/acquisition related expenses. This would encourage strong banks to buy struggling banks.
3) Increase the FDIC insurance amount to $500,000. This encourages existing depositors to keep their money in their bank so we don't further stress the Capital Requirements.
4) Cut government spending so the US government is not in the business of borrowing money. We need all available funds in the private sector.
5) Initiate a nationwide savings campaign. Abolish the personal income tax on interest earned. Abolishing the tax on interest earned effectively adds 1-2% points to the effective rate and encourages people to save, reducing the impact Capital Requirement burden on banks.

Unfortunately, the train left the station on this one. We're already down the path of socialism at best, communism at worst. If this doesn't prove that the Republican party no longer believes in small government then you are blind to the truth.

I will always be a conservative (small government, personal choice/accountability, low taxes), but I no longer consider myself a Republican. The RNC is no longer conservative.

A poem for a geek

I’m sure that I will always be, a lonely number like root three
The three is all that’s good and right, why must my three keep out of sight

Beneath the vicious square root sign, I wish instead I were a nine
For nine could thwart this evil trick, with just some quick arithmetic

I know I’ll never see the sun, as 1.7321
Such is my reality, a sad irrationality

When hark! What is this I see, another square root of three
As quietly co-waltzing by, together now we multiply

To form a number we prefer, rejoicing as an integer
We break free from our mortal bonds, with the wave of magic wands

Our square root signs become unglued. Your love for me has been renewed

-David Feinberg

I have "Electile Dysfunction"

None of the candidates excite me.

I've been using this phrase since the start of the primaries. I could probably use it for every voting opportunity I've had in my lifetime.

In 2004, I voted against Bush. I saw him - and still do - as a jackass without an original thought in his minuscule mind. A profane example of cronyism and prodigal son gone awry. I wasn't a big fan of Kerry - I mean, he is a tax and spend Democrat, after all - but I didn't think I could take another 4 years of a man who viewed global warming and evolution as myths and wanted to teach Creationism - a religious doctrine; a philosophy - in science classes.

In 2000, I voted against Al Gore. Even then, I viewed GW as a mental midget - someone who would lose a game of chess to my dogs - and I had a very hard time casting a vote for an imbecile because I value intelligence so highly. My problem with Al Gore was that I saw him as the petulant child who felt he deserved the job because he was a veep and his father was a senator. I felt he would honestly believe he was the only person who could solve a problem and would not consult with anyone. My theory - which proved correct, initially - was that Bush knows he is a moron and would surround himself with smart people who would make decisions for him. When he appointed Meg Whitman, Tommy Thompson and Colin Powell, I sat back and gloated...until they began to quit. I couldn't blame them. I should have seen it coming. I can't work for a moron, either.

In 1996, I voted against Bob Dole. Bob Dole wasn't happy about that. Bob Dole thought he was a better man than Bill Clinton. Bob Dole was a respectable man with a respectable past. Bob Dole was dull, cranky, and referred to himself in the third person! Clinton wasn't a bad president. I just couldn't understand how a man with such power and charisma end up with such UGLY women! Come on! Jack Kennedy gets Marilyn Monroe and Clinton gets Monica Lewinsky? If his affair had been with Sharon Stone, or even Molly Ringwald, I would have CAMPAIGNED for the man. You can't trust a man with such horrible judgement to run a country...he was still better than Bob Dole.

2008? Well, let's see. On one hand, we have a Marxist, Fascist and gifted orator who has no record of accomplishing anything as a politician (almost sounds like Hitler). On the other hand, we have a cranky old troll who's ready to invade the first country who calls him a name behind his back...or remembers his own words better than he does. One side wants to take money from people who actually drive the economic engine of America and give it to people who procreate future criminals. The other side wants to let the wealthy keep their money so they can help fund wars against countries with natural assets that increase the profitability of their companies. We have a man who's ideas on wealth distribution are so egregious that he creates a disincentive to work, running against a man who selects a running mate better suited to hosting a Miss BassMasters competition than being Vice President of America.

When do I actually get to vote FOR someone? I'm having to choose between a person who I firmly and sincerely believe is the Manchurian candidate, and a person who's judgement is worse than a Los Angeles jury.

Is this really the best America has to offer? I'm praying this is like the NFL during a strike year. It isn't the highest quality, but at least it isn't painful to watch. Good luck to everyone, regardless of the outcome.

Week 6 Football

Maybe I'm getting lazy. Maybe I'm not doing well at picking individuals. Maybe I started believing that you can't look backwards. In any event, I'm not rehashing my individual picks for last week. You know how I did - won some, lost some.

Here is how I did on games: 4-5-5. I've never had that many ties before!

What I learned:

1) Seattle's defense is much worse than I ever thought.
2) San Diego needs Merriman much more than I ever thought.
3) The Colts are a bad team
4) Cardinals finally appear to be making it work
5) The Lions will never be winners as long as they are owned by the Fords.

So, here are my picks this week:

QB Likes - Frerotte, Brees, Favre, Cutler, Warner, McNabb, Rodgers, Eli Manning
QB Dislikes - Peyton Manning, Delhomme, Garcia, O'Sullivan, Rivers

RB Likes - Peterson (MN), Forte, Bush, Portis, Hightower, Gore, Grant, Jacobs
RB Dislikes - Turner, Addai, Jackson, Jones-Drew, Barber, Gore

WR Likes - Colston (if he plays), Fitzgerald, Reggie Brown, Jennings, Burress - Breaston is a sleeper alert
WR Dislikes - Roddie White, Marvin Harrison, Chad Johnson, Steve Smith, Randy Moss

Teams:

Carolina -1
Redskins -13.5
Bengals + 8.5
Saints -7
Houston -3
Bears -3
Lions +13
Ravens +4
Broncos -3.5
Eagles -4.5
Cardinals +5
Packers +1.5
Patriots +5
Giants -9

A new perspective

For years I gave my hard earned wages
To those so-called "financial sages"
Hoping that in my years of twilight
I would not toil through the night

But now I watch with great despair
My retirement vanishing in thin air
All those dollars tucked away
No longer there for rainy days

Social Security? Insecure.
My pension? It is gone for sure!
Instead of living on my 401k
"Welcome to WalMart" is what I say

Instead of growing old with friends
I now worry about meeting ends
And how my doctor will be paid
Without the help of MediCaid

Who's to blame for my predicament?
Where was all my money spent?
On things we wanted but did not need
On possessions that reveal our greed

We did not spend it on education
Or no longer being a debtor nation
We spent it on the things we wanted
And all the things our neighbors flaunted

At what point did we begin to prize,
Jealousy in others eyes?
We buy things we cannot afford
For what? So we can feel adored?

Flat screen TVs in every room
Anything we can consume
So we can stay inside and play
Growing fatter and duller each passing day

Have we forgotten that what matters most,
The things of which we can truly boast,
Are the relationships we have and share,
With all the people we know who care?

It wasn't Wall Street that caused this mess
It was our own, gluttonous excess
I'm glad we're in financial strife
It will force us to examine our life

This catastrophe is what we need
To help reset our priorities
To focus not on possessions and wealth
But instead on our families and health

Fantasy Football Week 5

First, a look back at how I did last week:

Players I was correct to like: Johnathan Stewart (TD), Lendale White (TD), Eddie Royal (102 rec yards)

Players I should not have liked: AZ Defense (6TD by Favre), Roddy White, Selvin Young, Chris Perry, Jamal Lewis, Matt Ryan, JT O'Sullivan, Torry Holt

Players I was correct to dislike: Adrian Peterson, Michael Turner

Players I should have liked: McNabb, Griese, Chad Johnson, TO, Jennings, Tampa Bay (DEF Score)

My game picks: 7-6

So, I guess the lesson is to pay attention to my Running Back picks, but not the others.

In any event, here are my week 5 picks:

QB I Like: Delhomme, Matt Ryan, Pennington, Rivers, Eli Manning, Cutler

QB I don't like: Kurt Warner will have several turn overs today

RB I like: Chris Brown, Larry Johnson, Johnathan Stewart, Ryan Grant. Look for Steve Slaton to have a huge game.

RB I don't like: Brandon Jacobs, Clinton Portis, Frank Gore

WR I like: Roy Williams will wakeup this week. Lance Moore against a week MIN pass DEF. Roddy White will take advantage of an injured GB secondary.

WR I don't like: Chad Ocho Cinco and TJ Houshmanzedah will struggle against Dallas. Don't look for Engram or Branch to have solid outings their first week back.

DEF I like: TEN, CAR, BUF, SF

DEF I don't like: BAL, PIT and TB

My game picks with odds at this writing:

Buffalo +1
Carolina -9.5
Chicago +3.5
Cincinatti -16.5
Denver +3
Green Bay NL
Indianapolis -3
Jacksonville -4
San Francisco +3
NY Giants -7
Washington +6
San Diego -6.5
Tennessee -3
New Orleans -3