Friday, October 31, 2008

Obama's tax cuts and George W.'s socialism

Joseph Hight has a pretty perceptive article in the DC Examiner today, Oct. 31, “Is Barack Obama a Socialist?”, link here.

Hight calls Obama’s tax cut policy, aimed at the middle and lower classes, just “tax policy”, not “socialism”. (See the Oct. 30 post and calculator widget.) But Hight is a bit critical, saying that soaking the rich could reduce incentives for entrepreneurialism and slow economic recovery. In other words, Hight may think that the next Donald Trump or Mark Zuckerberg (even working in pajamas from a dorm room or home) can do more to provide jobs for people and create new wealth than can putting more spending money in the bank accounts of middle class families. And it seems that McCain was more enthusiastic about directly helping at-risk homeowners than was Obama. (And the Examiner is a “conservative” news rag. It probably wouldn't adhere to absolute "market fundamentalism" however.)

Hight also calls the partial nationalization (of sorts) of so many banks (and the destruction of investment banks as we know them) as true socialism, as occurring under a Republican administration and promoted by a Republican Treasury secretary (himself a Wall Street person). Likewise, this could eventually harm long term recovery and job recreation, Hight thinks, if government intervenes too much. What’s scary to me is that the public will start running to regulation in other areas to root out all the boogey men that can pull off unpleasant surprises and confront us with perils that we had never thought of before. We’re learning that in all kinds of ways with the Internet.

I have had friends who brag about being “socialists.” It’s not such a big deal for someone who has lived enough decades.

Today's Examiner online also has an article called "Obama's Secret." (Look for it.) It's sounds as though Barack Obama is ready to appear on Smallville alongside Clark Kent, who really has a secret.

Thursday, October 30, 2008

"Tax Cut Facts" offers comparison calculator for Obama, McCain

You may want to try to “” calculator offered by the Obama-Biden campaign. For most people, it will indeed show a much more favorable tax result under an Obama presidency than McCain.

The Democratic Party's coordinated wesbite on tax policy is the "Tax Policy Center."

I suppose that seeing bloggers do this is the "nightmare" scenario that McCain-Feingold wanted to prevent. But the Democratic Party has proven it can raise money from corporate America as well as individuals. Here is the July 2008 NPR report by Don Gonyea on his rejection of public funds so he could raise more money. Oprah Winfrey and George Soros got it all started. (You do what Oprah says if you're a Democratic politician!)

Wednesday, October 29, 2008

Compare Obama, McCain health insurance reform plans

Today (Oct. 29), the Washington Post offers a “comparative government” analysis of the health care proposals by Barack Obama and John McCain on the front page.

The print version of the newspaper calls the analysis “How they would change health care” and both columns are authored by Amy Goldstein,

For Obama (on the left side) the article title is “Obama’s approach emulates Massachusetts except for mandate for covering all adults,” link here.

That is, Obama would cover all children, but leave the employer-based system in place for adults. That’s the rub, because so many adults need coverage.

Obama would provide a “guaranteed issue” concept to handle pre-existing conditions, and would create a national health insurance exchange with a government insurance option.

In Massachusetts, the mandatory insurance plan does not protect workers covered at the workplace who find their premiums are too high. They can wind up paying a fine with no coverage.

For McCain (the right article), the article is “McCain’s proposal for high-risk coverage is similar to a program in Minnesota,” with link here.

The state runs a last-resort catastrophic coverage pool, the MCHA, or Minnesota Comprehensive Health Association. I thought it interesting that Blue Cross and Blue Shield (in Eagan; I drove past I many times when I lived there) turned anyone down; I thought the Blues took everyone. The story gives many cases where catastrophic coverage was inadequate, even in a “blue” state like Minnesota (with a moderate Republican governor).

McCain says he would create a “guaranteed access plan” for those with high risk.

McCain has drawn controversy by saying that he would tax employees for the value of their employer’s contributions, but then turn around and offer tax-free money for individuals to buy insurance on their own. Presumably the tax exclusion would help the employee pay for his or her own contribution to employer coverage, so the net effect would be a wash, maybe.

McCain says his plan is budget neutral. Obama says his would cost $50 billion to $65 billion a year and would be paid for by rescinding Bush tax cuts on the wealthy or increasing taxes on those making over a certain amount ($250000 a year, maybe).

Neither story discussed eldercare.

The Washington Times today offers an op-ed by Robert Moffit, director of the Center for Health Policy Studies at the Heritage Foundation, on p A18, titled "Competing health-care remedies," link here. Moffit starts by admitting that about 47 million Americans lack health insurance coverage, and this is a big problem.

Also, The Lewin Group (I worked for its predecessor from 1988-1990) has offered a webcast of a comparison of Obama's and McCain's health care plans. One must register to listen to and watch the comparison. The report is called "McCain and Obama Health Policies: Costs and Coverage Compared: McCain and Obama Health Policies: An independent comparative analysis of the candidate's potential health care reform policies presented by John Sheils, Senior Vice President The Lewin Group", released Oct. 8, 2008. The link is here.

Peter J. Nelson does have an interesting piece in the Oct. 29, 2008 "MinnPost" (and circulated by the Center for the American Experience) backing up the McCain plan "Why employers won't cut and run when individuals own health insurance," link here.

Tuesday, October 28, 2008

Internet companies can lead the way to a green energy revolution

Miguel Helft has a detailed story on p B1 “Business Day” in The New York Times today, “Idealists and a Green Agenda: Environmental Investments Could Pay Off for Google”, link here.

I backtrack here. Oprah Winfrey has been one of the most powerful proponents of going green in the media, and, given how the election is going and her influence on the primaries last spring, “you do what Oprah says” (so said someone on Larry King Live recently). Google has been one of the most conspicuous companies with a variety of initiatives to invest in green energy sources in various ways, such as building server farms near renewable sources (like hydroelectric) and providing electric cars for employees to rent (a picture appears in the New York Times story). (That’s what Oprah, the media spearhead for the Democratic Party, says to do!)

More seriously, the details provided in the story seem to comport with suggestions by Thomas Friedman in his recent book “Hot Flat and Crowded” (my book review is here) where he argues that Internet technology needs to be combined with energy generation and distribution to help consumers save not only money but carbon emissions.

This brings up the obvious question of how much more oil companies will have to come around and become players in renewable energy technology (like ExxonMobil, previously discussed on this blog), and how public policy can be set up to encourage them to do so. (For example, here is XOM’s latest press release on Battery Separator Film Technology.

As for oil prices staying down because of the current recession, I don’t believe it. Remember CNN’s film “We Were Warned” about the coming oil crisis, should there be a major attack on the Saudi oil distribution facility or blockage of the Straits of Hormuz by Iran.

In the long run, the companies that get on the clean energy bandwagon will be the winners in the equity markets, but it will take a few years, at least, given the current recession. This really is the time to innovate, when many investors are distracted.

Monday, October 27, 2008

ING Direct appears on Yahoo!, says it has avoided the mortgage crisis by keeping control of its own mortgages

Today on Yahoo! the CEO of ING Direct (Arkadi Kuhlman), which started as an online bank 10 years ago, discussed its policies as a mortgage banker in this video. He says that ING Direct has had fewer than 100 foreclosures and does not securitize its mortgages or make loans to unqualified borrowers. The link is here.

The interviewer noted that most homeowners with subprime mortgages were actually paying off their notes, and that they had been severely damaged by the 6% or so who could not. Kuhlman, in giving the interview, noted that American business has become reckless in taking care of its customers’ welfare financially, in comparison to taking care of customers in other areas. He sees care in lending as a customer service and basic business ethics issue.

Arkadi Kuhlman and Bruce Philip have authored a book “The Orange Code: How ING Direct Succeeded By Being A Rebel With a Cause”, published by Wiley, available today, Oct. 27, 2008. This book is easy to look up on Amazon but looks a little pricey. ING Bank first set up shop in St. Cloud, MN, a small city about 70 miles NW of Minneapolis on I-94.

The stock of the parent company in the Netherlands, ING Groep, has been hammered recently, as has almost all banking and financial stocks in the US and Europe. This sounds like a case of “corporate reputation defense.”

Sunday, October 26, 2008

Newsweek article blasts libertarians for "causing" financial crisis

Jacob Weisberg has an article on p 45 of the Oct. 27, 2008 Newsweek, “Blame the Libertarians” in his “Big Idea” column. He refers to the Ayn Rand-like “heroic view of capitalism” that can self-destruct without some government supervision or regulation. The online version is called "The Libertarians' Lament."

He writes to libertarian non-management of financial markets “We have narrowly avoided a global depression and are mercifully pointed toward merely the worst recession in a long while.” There is a grim, vertical picture of Wall Street called “sliver of hope.”

He refers to Alan Greenspan as a self-defined libertarian, who has recently admitted he was wrong to assume that private markets could always self-regulate. He talks about libertarian obsession with logical deduction, and calls libertarians “intellectually immature.” He echoes George Soros’s criticism of “market fundamentalism.”

The magazine link for the article is here.

Well, it’s not libertarian for government to pressure banks to issue mortgages to unqualified buyers. It’s not libertarian to encourage financial institutions to invest in instruments that cannot be evaluated actuarially and use ordinary investor’s money behind their backs. It’s not even libertarian to sever any connection between borrower and lender.

Weisberg also accuses of libertarians of ranting about "personal responsibility", almost to the point of wanting to see a "free market cultural revolution" where former executives work in soup lines.

Picture: Crowd at Marine Corps Marathon; note the financial institutions as sponsors

Saturday, October 25, 2008

Cramer: we won't hit bottom on the markets until we get to the people who never sell! How low can it go?

Jim Cramer has indeed offered a somewhat pessimistic view of how close we are to the bottom.

He offers a cogent explanation of the end-of-session volatility recently, where the Dow can swing by 400 points, usually down. He says that hedge funds have to prepare for the next day’s redemptions in the last hour, resulting in destructive selling. He says that “fund-to-fund” managers who communicate between funds and regular investors, feel the pressure to demand margin calls that will pay them commissions.

He also says that another round of selling can come next week as people get their mutual fund statements (as in the last blog).

He says we only know what the bottom is when we work through all this and get to the people who “never sell” – often much younger people in for the very long haul. And antidote to this view is that younger people will start buying what they perceive as bargains to hold for years and get rich off the current depressed eccomony.

The story “Forced Selling Continues” appears on “Seeking Alpha” here.

Patti Domm gives a second opinion on this matter with a CNBC story “The Week Ahead: Hunt for the Bottom”. Call it the hunt for black October. How low can it go? (ING, which got a “booster shot” from the Netherlands government, is down to 8.90, a record low.) Here is her CNBC link.

Energy stocks have taken the dive because of slumping crude prices (a situation that will not last – remember CNN’s show “We Were Warned”). ExxonMobil (XOM) reports earnings on Thursday Oct. 30 at 11 AM EDT, link here.

Friday, October 24, 2008

Financial futures freeze; but market opening calms down: Volatitlity is a fact of life

By now, most people have heard that the market future hit “limit lows” this morning, of -550 for the Dow.

Asian markets plunged 8-10% last night, and European markets have plunged today, as the prospects of recession seem to be much worse than first expected overseas. Crude oil prices continue to fall even though OPEC cuts production. This last drop does not seem sustainable.

CNBC has several articles, one of them talking about markets moving from “panic” to “despair”, but there is also a more balances story on CNBC: “Today’s markets: What the experts are saying,” here.

A couple of observations come to mind. Much of the panic selling is driven by arcane redemptions in hedge funds and derivatives, which come very suddenly. We’ve all heard a lot recent, including yesterday from Alan Greenspan (oops – don’t confuse the former Fed Chairman with Silicon Valley entrepreneur Aaron Greenspan), about flaws in the system that now cause freeze-ups and asset price crashes.

Volatility is a bit like a weak tree swaying in a thunderstorm. The weakest branches break and get thrown to the ground. Investors who are overly leveraged are brought to their knees. But so are people on Main Street, who borrowed too much and who are not flexible enough in the workplace with their job skills, and perhaps who do not have good connectivity with other people.

That’s why you hear the adage – to have six-eight months of cash for long term problems. That may be even more true in the fall (many market crashes happen late in the year) and at year end. Volatility ruins people who have to sell quickly because they don’t have enough cash to survive in the short term. They have to start over with nothing (and depend on others in quasi-intimate situations not of their choosing). None of this is nice to say (on the broadcast media or online) but it's true. It sounds like social Darwinism, but that seems to be how the system works. On the other hand, people who sell early and prophylactically, sometimes have major tax losses. If they think they have enough cash, they may be better off staying home (rather than “evacuating”) and riding out the financial storm. People with enough cash to go through a moderate recession, including some recent retirees, may tend to sit on things, spend very little and not try that hard to work, a process that helps feed the recession.

In the long term, people who can dollar-cost-average and who can keep buying come out ahead. Recessions, even depressions always make some people rich. That’s one reason why we have gaps between the rich and poor. They’re particularly beneficial for younger people with low debt and stable jobs. It’s a fact of capitalism, and it may make some people angry. But it’s life.

One job of regulators is to encourage some degree of confidence, that individually responsible behavior will be rewarded in the long run, and even within relatively short time horizons. Average Americans need some confidence that markets can come back to some kind of order in, say, a six month period, so they don’t have to sell out all at once. Likewise, the rule of law and confidence in the law is necessary for individual freedom and capitalism as we understand it to work. As we’ve noted, these are tied to social and familial values, which have caused major perturbations in what people believe as fair and just when it comes down to looking at individual people.

I’ve been particularly concerned about mutual funds and their invisible exposure to swaps, but I found this third quarter statement from BlackRock. CEO Bob Doll talks on CNBC this morning and hinted that today could be a good day for bargains. Several other experts predicted continued wild volatility through the end of October.

I can think of one other media measure that could help. Orpah got this started yesterday by inviting three young entrepreneurs on her show. But let’s get some more big time media outlets (like ABC 20/20) to interview some business people, especially younger ones, in Silicon Valley and talk about how they do make money in this kind of environment. There was no negativity on Orpah yesterday, and I thought that was interesting. What needs to happen, as Thomas Friedman points out, is to take the same kind of innovation that led to the Internet companies, many of which have done fairly well during the financial crisis, relatively speaking (we’re speaking of the companies that weathered the dot-com bust and came out winners) and apply it to renewable energy, and create an “energy Internet”. To help people on main street, we need to create real wealth, and that has to start with green energy. Unfortunately, we’ve squandered a lot of our mathematical imagination on financial, rather than real, engineering, and seen the folly crash.

As I post this, at 9:55 AM, I see that the Dow has recovered over 200 points from the futures low. Now the CNBC headline is “Stock sellout fails to live up to hype.” All that in the time it takes to write a blog post.

Thursday, October 23, 2008

Corporate credit-rating agencies seen as having inherent conflict of interest in their business models

Media reports are now questioning the way corporate credit-rating companies are managed. Standard & Poor’s, Moody’s, and Fitch all underestimated the risks of the derivates and various other securities held by firms that they rated. The problem with their business model is that they are funded by the issuers of the securities that they regulate, and this is an inherent conflict of interest.

That would be comparable to a credit reporting company on individual consumers being paid by consumers (although applicants for mortgages do often have to pay for their own credit checks, as do applicants for apartments).

The Washington Post story is by Amit R. Paley and is titled “Credit-Rating Firms Grilled Over Conflicts; Risks Were Known, Documents Show,” on p A1 of the Oct. 23 Washington Post, link here.

Executives from the rating companies testified before Congress this week.

The threatened downgrade of AIG in mid-September after Lehman Brothers collapsed was a major pinwheel in the unfolding of the urgent financial crisis.

I’ve written a lot about “personal” conflict of interest, such as working for a company in such a way that you make underwriting decisions about clients against whom you publicly express a personal political bias.

Wednesday, October 22, 2008

Financial crisis jeopardizes green investment; is a total homeowner mortgage bailout practical?

Thomas L. Fiedman (“The World Is Flat” and “Hot, Flat and Crowded”) has an intriguing op-ed on p A29 of the Oct. 22, 2008 New York Times, “Bailout (and Buildup)”. (Somehow the article title reminds me of “Piddle, Twiddle and Resolve” or maybe even “Laugh a Little, Cry a Little.”) The obvious concern is that the push toward renewable and green energy will get sidetracked by the financial crisis, especially by temporarily lower crude oil prices. The link is here.

He wants the federal government to require every electric utility to produce 20% of its power from green sources by 2025. He wants utilities to price according to participation in energy savings programs, an Internet-like plan that he describes in his recent book. Third, he wants to write off taxes all investment in clean energy. And fourth, rather than on a conventional economic stimulus package like the one earlier this year, he wants a package targeted on clean energy development. All of this sounds sensible.

Then on p B1 of Business Day in the New York Times, David Leonhardt, in his “Economic Scene” column, writes a column “Life Preserver for Owners under Water.” Online, the article is called “The Trouble with a Homeowner Bailout.” , link here. We could have 19 million upsidedown mortgages by 2010. The trouble is that homeowners capable of continuing to pay might walk away from upsidedown mortgages anyway, as a preemptive measure. Bailing every upsidedown homeowner out could cost the taxpayers $4 trillion, or over $13000 per person in the country.

It has been widely written that in the United States defaulting homeowners can simply leave the keys and walk away, and that in other countries (especially Australia) homeowners are liable for deficiencies. That’s not quite true. In the early 1990s, after the S&L crisis, some defaulting homeowners were vigorously pursued for deficiencies with letter lawsuits. Sometimes default judgments were obtained and in some instances actual collection activities and garnishments happened. All of this is documented in gruesome detail in a relatively obscure orange paperback book James A. Wiedemer. "A Homeowner's Guide to Foreclosure: How to Protect your Home and your Rights." (Dearborn Financial Press, 1992). In some cases, original owners of unqualified assumptions were pursued (and the FHA stopped allowing these kinds of assumptions as a result). But the practice was uneven. This time around, it seems that the problem is so overwhelming quantitatively and mathematically that such tactics just aren’t practical anymore.

Remember the days when people saved up for 20% down payments? That seemed to be one of the best lender hedges against defaults. But that doesn’t work when you want to put someone who makes $50000 a year (probably a family with several kids and maybe part of the sandwich generation, face eldercare issues) in a $500000 house. The prices of homes really need to be reasonable and reflect what they are actually worth to consumers. And like it or not, this crash is forcing that to happen.

Monday, October 20, 2008

Number of male teachers continues to drop because of societal stereotypes and other pressures

ABC “Good Morning America” offered a story this morning (Oct. 20) by Annie Pleshette-Murphy, “Number of Male Teachers Shrinking Fast: Parent Bias, Fear of Abuse Allegations, and Low Pay Cited as Reasons for So Few Male Teachers”. The link is here.

I recall that in high school in the 1950s and early 60s, about a third of teachers were male. Among the best teachers I had was a young male 10th grade English teacher, and a middle aged World War II veteran (who as quite a political progressive and pushed the buttons on race in the classroom, causing controversy at the time) US history teacher, to whom I owe a lot my perspective on today’s activism. The story pointed out that in high school, boys often benefit from male teachers in humanities areas as well as math and science.

The story showed an African American male elementary school teacher hugging his students. In some cases, teaching, particularly in lower grades, involves a certain kind of intimacy that many men would not feel comfortable allowing. This may be more difficult for men who have not had satisfactory experience in young adulthood with their own relationships with other adults, or who have not had experience as parents or with responsibility for younger siblings or for childcare in some situation.

As I noted, short term substitute teachers can find themselves in situations where unwanted intimacy is expected, as with special education. I tried to manage this eventually by doing only high school. But even here there was a trap. The Arlington Career Center had a class in “child care” and it was impossible to know before an assignment that one could not wind up there.

Sunday, October 19, 2008

Dutch insurer ING reports first loss, accepts infusion from Netherlands government; indicates that Lehman Brothers was just a small piece of this

On Friday, October 17 2008, the stock of Dutch insurance giant “ING Groep” dropped about 40% when the enterprise announced a sneak-preview of its Nov. 12 financials for the third quarter, admitting a prediction of a $670 million loss in write-downs, much of it in real estate. Apparently this is the first quarterly loss ever for the global enterprise.

The American company “ING-USA” (headquartered near Atlanta) offers a Sept. 22, 2008 press release in which it notes that its exposure to Lehman brothers was “only” $100 million, when it has a capitalization of $30 billion.

Then on Friday the Netherlands press release detailed various write downs of about 1.6 billion Euros before tax, here. The point that strikes one here is that Lehman Brothers itself, on the global stage, while large, is still only a small portion of the bubble that exploded world wide and took down the whole financial system. Presumably ING’s experience is typical of most large financial institutions around the world (outside AIG and maybe Fortis). Hollywood-like conspiracy theories that short sellers and targeted CDS swap purchases targeted Lehman can hardly explain the size of this collapse, of a “bubble of bubbles.” (Hollywood examples include the Fox 2008 movie "Deception" and the NBC series "Knight Rider".)

On Sunday Oct. 19 ING issued another press release, now indicating the acceptance of an “injection” of 10 billion euros from the Dutch government, with all the technical details here.

Like all major global financial institutions, ING owns many subsidiaries, mainly banks and life insurance companies, in many countries. Insofar as employees and retirees (I am one, since 2001, from ING-ReliaStar, part of ING-USA, in Minneapolis) are involved, their concerns would focus on the operational profitability and viability of the constituent companies that actually employ (or employed) them. Generally, as with all insurance conglomerates, these are stable and operate according to the fundamentals of their own businesses and not the external issues of the holding companies. It is likely that individual units may be bought and sold and that, in general, insurance and banking will undergo more consolidation, involving ING and many other enterprises. The media covered this point in general terms when discussing the US bailout of AIG. International companies could spin-off US operations as separate companies for exchange trading (as conventional stocks rather than ADR’s) in some cases.

Having pondered all this stuff about debt bubbles (like James Grant’s musings (“The Confidence Game”) in the Weekend Wall Street Journal, I think back to a morning at a garden apartment in Dallas back in 1979 when a stray cat that had “adopted” me presented me with a bird carcass as “payment” for taking him in. Imagine that, a wild animal dealing with man with his idea of “fiat money”, barter perhaps, certainly cash and living within one’s means, Suze Orman style. (The domestic cat, or any cat, may be the only animal that can do this. It's interesting that ING's corporate trade dress contains a lion, as does the American movie studio MGM's).

Perhaps, a few hundred light years away (if one can dismiss the Goldilocks Theory) there is a league of civilizations on several planets, may even solar systems, with some “galactic” monetary system akin to ours. When you have to worry about the limitations of the speed of light, the notion of “present value” in actuarial formulas takes on whole new meaning. Perhaps in "dominions" (to refer to Clive Barker's work) the fiat currency is "souls" themselves. It's time to film "Imajica" (or perhaps a college student's "Profit Wars").

Update: Oct. 20

Ben Stein (the movie "Expelled") has an article on "How Not To Ruin Your Life: How to Ruin the US Economy" in which he traces the financial crisis to Democrat pressure on banks to make home ownership available to non-credit-worthy (translate loosely as low income) people. Then, the financial industry invented securities (derivatives and credit default swaps) to temporarily shield themselves from the risk and short sellers decided they could make money by shorting the holders of notes that could default, precipitating the crisis. A blog called "The Just Third Way: A Blog of the Global Justice Movement" comments here, and Stein's original article in on Yahoo! (there is also a video with numerous search references). Stein follows up with "Why I'm Still Buying" today here. As Stein explains, the politicians and Wall Street created a structure that sounded appealing (especially to salesmen who have to "always be closing") that was not sustainable; it could not survive the next period of softness in housing prices.

Stein suggests prospectively that if someone brought litigation in New York State, a judge might declare enforcement of credit default swaps contracted in the state (that's most of them) to be against "public policy" and that they be resolved by returning premiums. That could stabilize many companies.

Update: Oct. 22, 2008

Here is a discussion (by Gregory S. Davis) of ING's situation, "ING Capital Injection A Mere Booster Shot," link here. Davis writes in his "final thoughts": "The desperation that investors saw from firms like AIG (NYSE:AIG) for capital infusions was absent from ING's capital infusion from the Dutch government."

Update: Nov. 12, 2008

ING makes official third quarter report, "ING reports underlying net loss of EUR 585 million in 3Q", here.

Saturday, October 18, 2008

GM, other auto manufacturers make progress with electric and fuel cell vehicles despite recession

On Friday Oct. 17, the Auto Weekend section of The Washington Times ran an important technology story by David E. Zoia in “Ward’s Automotive Report”, “GM’s Volt may help pull plug on fuel cell,” link here.

Of course, the financial condition of General Motors, partly as a result of the financial crisis and partly its inertia in responding to the changes in energy use, have raised questions about its ability to tool the nation’s next generation of green-technology cars. It apparently stirred up the development of car battery technology when it announced it would have the Volt with dealers by 2010. That might have stopped the development of fuel cell vehicles, but apparently it has remained active with FCV, or fuel cell development with the Project Driveway progrsm. About 100 average people in the US are testing the FCV Chevrolet Equinox around the world.

Other manufacturers include Honda, with the Clarity, Toyota, and BMW.

GM says that it could have hydrogen fuel available to motorists every two miles in 100 cities for an investment of $1.2 billion.

On p. 5 of the same section, Eric Clanton has a story about ExxonMobil’s investment in battery technology. Exxonmobil published a similar story from BusinessWire, about its subsidiary Tonen Chemical, on its own corporate site here.

Phuong Le has an AP story Oct. 19 about the sparse plug-in stations for electric car drivers (focusing on Seattle and LA), meaning many have to make it back home. The link is here.

Don't forget, American manufacturers "killed" the electric car back in the 1990s. We've been here before!

Friday, October 17, 2008

Warren Buffett gives us a lecture in courage under fire

Warren E. Buffett has a hard-hitting column, “Buy American: I Am” on the opinion page of the Oct. 17 New York Times, today. The link is here.

With words that remind me of Barry Goldwater (“extremism in the defense of liberty is no vice” and “you don’t have to be straight to shoot straight”) Buffett writes:

“Be fearful when others are greedy, and be greedy when others are fearful.”

He gives examples from history, where the Dow hit its low (in 1932) some months before the economy bottomed during the Great Depression Even during early World War II, the Dow bottomed before Midway and the improvement of Allied actions.

He says people who sell to hold cash assets to feel comfortable shouldn’t. Of course, the problem is that some people are caught in squeezes, and have no choice (except at the end of life) but to start over.

Note, however, that today CNN is reporting an unprecedented (compared to other recessions and bear markets) outflow from equity mutual funds ($57 billion for the first half of October). My Blackrock funds seem to have deteriorated since the big drop a week ago Thursday much more than justified by the market, whereas before it had been relatively stable. Is this because of the Lehman settlement and the credit default swaps? See my posting Sunday Oct. 12.

The New York Times site has a lot of blog material ("high and low finance") by financial columnist Floyd Norris every day. A typical entry is "Banks Fail, and So Can Bailouts." It seems that so far, banks are holding on to the money that Unclde Sugar has injected. It's a bit like promycin on "The 4400."

Picture: some "strip mining" in the New Jersey Meadowlands, from an Amtrak train, Oct. 2004.

Thursday, October 16, 2008

Reader's Digest suggests pragmatic steps to control health care costs

Reader’s Digest has a practical essay on health care on p 124 of the November 2008 issue, “18 Big Ideas to Fix Health Care Now: This Won’t Hurt a Bit”, link here.

It starts by focusing attention on “the big five” (coronary artery disease, congestive heart failure, asthma, diabetes, depression), with preventive care. It moves on to suggest the use of walk-in clinics such as CVS’s “One Minute Clinics.” It claims that most childhood obesity could be eliminated with greatly fat-and-sugar-reduced public school meals. It talks about electronic medical records (under HIPAA). It is a surprisingly clumsy for physicians to get a new patient’s records from other locations. For example, I was never able to get all the medical information from my 1998 hip fracture in Minnesota brought back here in time to get a USPS job in 2004. That’s a system failure, and should not happen.

Another change is to stop unnecessary treatments. We all know that physicians order extra tests out of fear of malpractice. The dental area is important here. Dentists often talk their patients into spending much more money than is necessary. Not every chipped tooth needs a crown.

Medicare patients should have case and referral management by primary care physicians in a manner similar what is expected by employer group plans.

Use of university or teaching medical clinics could also be useful in cutting down costs.

All of this has to do with how medicine is delivered, more than how it is paid for.

Update: Oct. 18, 2008

Another important point, lost in all the debate: When people lose their jobs and health insurance and then exhaust COBRA in eighteen months, they are supposed to be eligible for health insurance regardless of pre-existing conditions for two years, according to HIPAA, the Health Insurance Portability and Accountability Act. This point was made on CNN this morning. Pre-existing conditions are a major issue in the health care policy debate. We'll track the details later.

The CDC's report on the influenza vaccine for 2008-2009 is here. The recommendations for vaccine recipients have expanded. There is some talk in the media that we are getting closer to some meaningful protection from H5N1 and I'll check more into this.

Wednesday, October 15, 2008

The markets re-price themselves for recession, but what about purification?

Once again, today, the Dow tanked over 700 points, giving back most of what was gained Columbus Day. Again, the last hour was brutal, with programmed selling driven by demands to make sell orders. To say the least, the whole system ought to change to soften this.

But as of the time that NBC’s Knight Rider runs, the futures are down 111 more. And CNBC offers various reports that hedge funds are throwing in not only their stocks but their bond funds. The market is repricing itself for hard times.

Steven Pearlstein writes this morning in The Washington Post, on p. 1, “Buckle Up: We Haven’t Reached Bottom Yet”. The link is here. Now its economic fundamentals. We know how recessions work. But it’s also personal. Americans have to cut their consumption by about 7% to stop living on debt, but they also have to cut about 3% more because of the demands by seniors living longer while (in many but not all cases) being unable to work and consuming health care and custodial services. This is the first time I’ve seen a major financial columnist connect the credit crisis and economy to demographics.

Tonight’s episode of NBC's Knight Rider explained to Michael (through the smart car’s voice) how short sellers can attack a whole economy pretty well. That’s odd, because the episode would have been written a few months ago, well before the collapse of Lehman. A lot more people saw this coming than we realize. "Knight Rider" even hints at a wholesale purification.

Tuesday, October 14, 2008

U.S. to partially nationalize 9 banks; is this European socialism? Would Soros approve?

So, are we part of Europe now? Have we reversed the American Revolution (the heritage of Colonial Williamsburg) and run back to the mercantilism of "mother country"? (Remember your U.S. History from high school?) Are we heading toward European style socialism? You would think so, with the announcement last night that the United States would follow suit behind European governments and buy stakes in nine major banks. The decline in capital for a few of the major banks, particularly Bank of America, compared to a year ago, is simply shocking. If the banks’ financial results improve, the government may be able to sell the shares back with a profit.

The government also announced other guarantees, such as unlimited FDIC coverage of non-interest bearing accounts for business operations, such as payroll.

George Soros (behind Barack Obama) will be pleased.

Here is the President’s statement from the Rose Garden, just moments ago.

Last night ABC Nightline described, in employee interviews, how executives and employees at Washington Mutual had been pressured to go out and sign up business (bad mortgages, and derivatives), paid only by commission, and threatened with firing for not making quota or speaking out. Similar stories have circulated about subsidiaries of Lehman Brothers. The systems of how bank and financial institution employees or associates are compensated would seem ripe for reform.

Ideology, anyone?

Monday, October 13, 2008

So, what happens when the bond markets reopen?

Sure, I’m glad that the DOW rose 900+ points today. But it’s sobering to think about what could happen when the bond markets open tomorrow. That is, could happen, but hopefully doesn’t happen.

Following up on yesterday’s post, readers might want to check out the Oct. 6, 2008 issue of Newsweek. On p. 46 there appears an article “The Monster that Ate Wall Street: How ‘credit default swaps’ – an insurance against bad loans – turned from a smart bet into a killer,” by Matthew Philips. The link is here. Credit default swaps became the financial WMD.

It seems as though Lehman Brothers wrote many of the swap contracts, but AIG really collected the premiums and was on the hook. So, although there are Internet stories (particularly in Business Week) suggesting that your mutual fund or employer’s pension fund could be on the hook too, I’m not sure how this could have been set up.

Nevertheless, Jim Cramer and others have suggested that short sellers purchased a lot of these swaps and could turn on companies at any time. The SEC and government (and perhaps Federal Reserve) would presumably have to be prepared to take more action to prevent “financial terrorism.” It’s not clear if this has any relation to the uptick rule, but it would be necessary to act very quickly to shore up institutions that could simply evaporate.

What seems morally wrong is that “ordinary investors” and retirees do not expect “ordinary” mutual funds and their own pension funds to take hidden reckless risks with their money in ways that are concealed and not discoverable with reasonable individual diligence. (It’s not clear how the Pension Benefit Guaranty Corporation would react with a pension fund that had been blown up this way.) Of course, this is part of the “asymmetry” issue, already known with the Internet, where small entities can have extraordinary influence on things with technological instruments that others do not yet understand.

Other commentators have noted that the mortgage mess alone should not have detonated the entire credit system, which magnified the mortgage problem by at least one sigiificant digit. So having the government renegotiate the upsidedown mortgages (even as John McCain wants), while helpful to individual people, may not make enough difference. The losses tripped an awareness to the recklessness of the entire credit market as a whole, and of our reliance on debt and on living beyond our means. That is, Suze Orman probably got it right. We placed too much emphasis on what we have and do, and not on what we are.

Sunday, October 12, 2008

Now bond funds are tanking along with stocks; are they no longer safe for "conservative portolios" during this crisis?

One of the most disturbing aspects of the current slide for retired investors is that corporate bond prices are sliding down right along with stocks. This contradicts previous advice that “conservative” portfolios for those in or close to retirement should emphasize bonds (other than junk bonds). We’re left with cash-like assets as the only investments that protect principal.

The story appears in the Weekend Wall Street Journal in the “Personal Finance: Money & Investing” page, B1, and is by Liz Rappaport. The title is “Corporate bonds slide along with stocks: Investor deleveraging hits junk, higher-grade debt: market points to recession”. The link is here.

Much of the problem seems to result from pressures on bond funds to come up with settlement cash, as with stocks.

What’s not clear is the effect of the Lehman Brothers auction. Creditors will demand 91% redemption from the default swaps. Will some of this money pay back the bond funds soon? Or are these funds further exposed? Blackrock Global Allocation MDLOX has holding classes like this “Swp: Gbp 4.855000 05/07/2010” even though the percentages of the total fund are small. Are these swaps that they have to pay, or swaps that they are owed, or unrelated? Can someone comment? (Go to Yahoo! go to the security symbol and look at “Holdings” for any such fund). PIMCO (“PTTCX”) bond funds, on the other hand, show a lot of Fannie Mae at 5.5% but I thought these were guaranteed by Federal seizure around Sept. 8. PIMCO has also deteriorated.

Blackrock Global's prospectus discusses credit default swaps on p 13, link here. It's not immediately clear if what shows in Yahoo! was "bought" by the fund (and therefore owed if there is a default) or "sold" (and therefore a liability). It would appear (from the language there) that the liability could affect the value of the fund outside the valuation given to any swaps themselves. I hope someone understands this.

I do appreciate comments from those who understand what is going on relative to what “average individual investors” are likely to have in programs like Merrill Lynch CMA. Blackrock seems like one of the leading companies, and was on the Treasury Department’s lists of possible contractors to manage the bailout.

Back in Feb. 2008, Lewis Braham wrote a Business Week article, "Credit Default Swaps: Is Your Fund at Risk?" link here. A more recent (and candid) assessment appears in Business Week Sept. 25, by Ben Levisohn, "Are You Exposed to Credit Default Swaps? They're likely in your portfolio. Here's what that means" link here.

SmartMoney has an explanation that tends so suggest that SEC rules would allow the entire bond fund value (exactly) to be at risk in a credit default swap arrangement. It says also "Disclosure about CDS is still an industry problem. Shareholders looking for clarity on a fund's derivative holdings won't find it in fund reports." The link is here.

Again, the immediate danger seems to be, in light of the Lehman Brothers liquidation, nobody knows if (or which of0 any major funds could be seriously impacted by calls on default swaps, even in the next few days.

Friday, October 10, 2008

Capitulation at 8000 -- maybe!

So, do we have capitulation, finally? Was 8000 the floor, after all?

Mike Hubert weighs in on this question ("Market timing converts) here.

As the markets opened, the Dow fell about 700 more points (below 8000) in the first 15 minutes, and then took a leopard’s bounce right back into positive territory briefly. It seemed encourage while Obama spoke and then tanked some as President Bush spoke. (Here is the White House copy of the president's statement. Then the Dow tanked through the noon hour.

Then came the news that the Lehman Brothers auction had settled, at 8.625%. That was less than the expected 11%, but it seems that having the cash from the auction cheered the markets. They almost got into positive territory before settling at -128 (8451), or about -1.5%. The Nasdaq actually finished up +4, or .27%, and the S&P 500 finished slightly below 900, at -1 %.

Lehman has another act. The AP reports (check Yahoo!) that sellers of insurance on bonds from Lehman will have to pay out at 91% (because of the remainder from the auction). That would be important to holders of mutual funds with major mixes bond components. If this money can be collected, those bond share values could improve again in the future.

ING rose 3%, but ExxonMobil fell another 8%. Oil prices will not stay low for long.

Tomorrow, the big boys from the G7 meet at the IMF in Washington, and there will be no “Battle in Seattle.”

Here’s a New York Times blog entry from Sept. 16 about a lawsuit against Fannie Mae brought by holders of preferred shares. Can the government just taketh away like that?

There is a lot of discussion today about short selling as beneficial to the market, in actually giving investors the money to buy other shares, ultimately helping prices. What about “shorting against the box”?

Thursday, October 09, 2008

What's the DOW's ultimate capitulation point? I say 6400.

Okay, the pattern continues. The stock market takes a little breakfast in the morning, maybe opens in the green, and during the last 45 minutes of trading throws up several times, like it has Norovirus. During the last fifteen minutes, in real time, one could see the Dow go up and down 150 points every ten minutes in a roller coaster.

Most days there is a wild selloff at the end because mutual fund managers have to meet their own sell orders. This sounds like an additional mechanism in the system that drives down the market. The lifting of the short selling ban probably had little to do with it.

I’m particularly disturbed that bond funds have been sinking, although not as quickly as stocks. Usually bonds provide some safety. Not in this market. I’ve never seen this kind of behavior before. With interest rate drops, I thought the bond prices would rise.

Well, the bonds have to be sold, too, by the end of the trading day. Furthermore, many of them come from companies in trouble, tied in to the mortgage mess.

So, what happened? For a few years executives took money, essentially in our IRA’s and 401Ks and pension funds, and made “investments” into securities based on mortgages that they probably knew would eventually fail. They knew they wouldn’t be repaid. They hired salespeople who were held to quotas, and earned commissions. And they knew they were bad. That’s criminal. That’s theft on a colossal scale.

After “retiring” at the end of 2001, I got calls for various sales jobs (one of them two days after 9/11) for things that I had no experience. I wondered why they were calling me. The business scenarios that they described did not make sense. They would say, “anybody worth his salt can make $200000 a year easy”. And I'm supposed to be a senior citizen role model who manipulates people into buying junk. Yes, I'm supposed to make quotas by selling junk, a legal Ponzi scheme that blows up in five years, in defiance of common sense. It's not sustainable. Forget critical thinking, objectivity. I said no. Yet, Wall Street executives signed off on all this.

What in the world has happened to us? Where has the sense of right and wrong gone?

Would you knowingly invest your own money in selling overpriced homes to people who don’t qualify, with no down payment and negative equity? But somebody else took your money and did that behind your back. The central player in encouraging all this is Fannie Mae, which took the mortgages and bundled them. And Fannie Mae, even before conservatorship, was sponsored by the US government. What did Harry Browne say, “government doesn’t work..”

What happened in the markets today between 3-4 PM EDT is not capitulation. It’s just the way the markets behave in out-of-range, extreme scenarios. It’s like an exponential function in a range where it increases rapidly.

I do find it bizarre that ExxonMobil and other oil stocks tanked by 10% in the last 40 minutes for no reason. (Because of GM? Please. Because crude oil dropped $2? Please!) True, gas prices have come down and airlines are starting to offer specials again. But, China and India oil demand will regroup and grow rapidly. The idea that worldwide demand for oil will tank, in an environment where two months ago we were reviewing books and movies about peak oil (“The End of Suburbia”) does not make sense. XOM’s PE is just 8 now.

In the meantime, we stop drilling, and we slow down investment in renewable energy that we badly need now.

Even so, investors are glum about future profits because a lot of the profits in the past couple of years have been phony, and we're not showing we can create more real wealth right now without living off the backs of the rest of the world.

How low can it go? I say the capitulation point is a Dow at 6400, sustained for a couple weeks. That’s 60% off the highs. If you must time the market to recoup your losses, start buying then.

Wednesday, October 08, 2008

Suze Orman predicts a Dow bottom of 8000, so investors should believe it!

Okay, Suze Orman predicts a DOW bottom of 8000 (on Anderson Cooper's 360 on CNN). Jim Cramer has been saying pretty much the same thing. I guess that if “God” says it, then it’s true. If Suze says it and Oprah picks the president (Obama) and Suze is on her show, I guess it’s true. You read this on the Internet.

The patient, Suze told Anderson Cooper tonight, is in intensive care, after a kind of fiscal coronary bypass surgery (heart-lung machine included). There’s still some surgical bleeding to stop. That’s six months, then six months in a hospital, then six months in a skilled nursing facility for rebab, and then home. The economy is going to be sick for several years (it, like David Letterman, already joined the zipper club), not just for a few weeks. That’s what psychiatrists told me to expect when I started “treatment” after my freshman college expulsion (for admitting homosexuality) in 1961. Nothing to be ashamed of, they say.

Anderson teased Suze as to whether there would be bread lines. Well, Suze said, she gets calls from people living in cars.

Seriously, retired people feel pressure to sell all stocks right now, to preserve cash. So do the unemployed at middle age. All of this is bound to put more pressure on selling, and create a vicious deflationary cycle. Pure demographics will force the major indices down more, perhaps another 10%. Younger people who remain employed should keep buying stocks in their 401K's to take advantage of dollar-cost averaging. Bear markets are great for young people with good jobs.

Seriously, I think cautious investors could start getting back in at about 8000-8500. For stocks in basic necessities with good PE ratios, maybe at 9000. Food companies, utilities, oil, etc. may be relatively stable. It might be time to start buying them soon. High tech companies seem to have much higher PE’s and may have paradigm problems, and unstable business models. We’ve seen the ISP business get healthier since the 2001 shakeout by consolidation into fewer companies, but still with decent competition. What I fear is that the next shakeout will corrode that service for consumers and free-entry speakers.

Remember, the Nasdaq tech bubble popped in 2001 and we got over that, but the Nasdaq never got back to where it was. The PE’s just never made sense.

You read this advice on the Internet, so you can believe it.

Anderson Cooper is starting a series “Culprits of the Crisis” and said he will “name names.” That phrase comes from Randy Shilts.

Tuesday, October 07, 2008

McCain on health care: please clarify

Let’s get real about one thing: McCain’s plan for health care. I hope that it is simply a matter of his not explaining it well enough.

It’s OK to privatize the health plans, and for a number of companies (including Blue Cross and Blue Shield plans) to compete for customers. And it’s a good idea to remove the responsibility for health insurance from employers and let individuals purchase with pre-tax dollars. McCain wants to transfer the pre-tax benefit from employers back to individuals. Without paying for health care, employers may be able to compete better internationally and may be able to hire more people.

But first of all, there have to be enough pre-tax dollars available to each individual for health insurance. That’s likely to be about $8000 per family, not $5000. That could mean a grant to low income people.

And there should be some reward for finding less expensive plans and letting companies offer them. That could mean that an emphasis on catastrophic care, letting consumers use pre-tax money for preventive care, and letting consumers keep the difference.

Then, there is the paradox. People with pre-existing conditions have to be protected. Regulations, said to say, or state pools, need to provide for their being able to purchase acceptable insurance within the allotments. Even Donald Trump, who says he is a Republican, says that it is unconscionable (and stupid) not to take care of the sick, and says he would do something about it if he ever ran for office. The premiums for the public as a whole, purchased individually, have to be set up as group premiums rather than individual, and the same discounts with health care providers need to be offered through insurance companies.

And protecting people with pre-existing conditions, while disturbing to the idea of moral hazard, perhaps, just makes economic sense. Otherwise we wind up treating them in emergency rooms, and everyone pays.

McCain and Palin, please explain this again.

Update: Oct. 8

Robert Laszewski has an analysis on John McCain's health care plan on "The Health Care Blog" here.

The same writer discusses Barack Obama's plan on the same blog, here here. An important feature is a National Health Insurance Exhcange and government vetting of providers for individuals. Timothy Johnson covered this on ABC "Good Morning America" this morning. I'll come back to all of this in more detail soon.

Monday, October 06, 2008

Investors fear Bailout will not work; "virus" spreads to Europe

Joshua Rosner of Graham, Fisher & Co is calling current bailout situation “the bubble of bubbles,” as he explains in an interesting video available on Yahoo! Tech-Ticker. The story is “Paulson’s ‘Bottomless Pit’: Beware Law of Unintended Consequences” by Aaron Task here.

Rosner believes that the problem is that buyers control the wealth rather than sellers, and that entities who won the gamble (like pension funds) are being vilified to defend the banking industry, which he sees as a “dinosaur.” He disagrees with the government’s reverse auction, and believes that the government should bring buyers together in conventional auctions.

Roubini writes “’Much More Radical Action’ Needed as Bailout Fails to Lift Confidence,” link here. Roubini believes that there needs to be unlimited deposit insurance (to protect institutional deposts) and a formal “triage” on the banks now

The Dow opened down moderately this morning but then plunged below 10000, falling as much as 550 points before bouncing slightly to -450. Various media reports point to a rapidly growing crisis in European banks, and the difficulty of European governments in figuring out a consistent policy for assistance of an American style “bailout.”

The real problem is that we spent money building people more house than they could afford, often with “bad karma”. Instead, we should have been building more modest housing, made it affordable and secure, and emphasized spending on things like local renewable energy and other infrastructure.

Post script: Evening:

The Dow was down by 800 points in the early afternoon before regaining over 400 of the points, but still closing before 10000. Still, some normally stable stocks were hardly affected.

Jim Cramer, who has become very influential, has a piece on "The Street" called "Preventing Great Depression II", link here. He feels that a "Depression" is unavoidable. He talks about keeping the Dow floor at 8400 (instead of 5000). His recipe is very complicated (just try to follow the details). He is rumored to have said today that people should get out of stocks if they need their money in the next five years (he made an alarming comment on the NBC Today show), but now it's apparent he just said don't be too deep in stock -- make sure you protect the money you need for the next five years separately. His remarks may have alarmed traders today in the short term. Cramer usually aims his remarks at investors, in a manner similar to Suze Orman for consumers.

Sunday, October 05, 2008

Is there a valid case for (late) teenage marriages?

The Washington Times “Sunday Read” (Oct. 5, 2008) magazine has an interesting pair of columns on p 19 that put a favorable light on teen marriage. This topic has come up in conjunction with one of Republican vice presidential nominee Sarah Palin’s kids.

An article by Cheryl Wetzstein “Making the Case for Teen Marriages” appears here. She makes several arguments, but one of the most important is that the children of biologically younger (to a point) parents (especially mothers) may live longer and be stronger physically. She says that first-borns tend to live longer partly because their parents are younger.

The idea needs to be tempered by the idea that we now know that the teen or young adult brain is not fully mature biologically (especially in assessing consequences of actions) until about age 25. The main reason that young people delay marriage is educational and economic.

She also points out that if both members of a couple do not cohabit first and preferably are virgins, they are less likely to divorce. With older couples, the likelihood of that ideal situation is less.

She mentions Mormon marriages, which often occur in the late teens, as stressing emotional unselfishness and a willingness to ask for help when needed.

She also mentions the idea that younger couples are more likely to watch grandchildren grow up.

The web link includes a video link discussing the idea of bringing back mutual consent divorce, with exceptions only in cases of abuse.

The print version includes a chart “Young Marriage = Young Grandparents”.

The observation about “selfishness” has two sides. The idea formed the central these of a recent Christian film, “Fireproof”, about a struggling marriage. Yet, young adults often avoid marriage (and children) altogether because they do not want to be locked in to a transformative emotional commitment. Do they owe society a willingness to make one?

There is also a column by Roland C. Warren, “Teen fathers offer more than money,” relating his experience of fatherhood at 20. Warren can be reached at “”.

What comes to mind is the 1961 film "Splendor in the Grass" -- and its ending.

Friday, October 03, 2008

Bailout passes House by about 3 to 2 margin

The House has passed the Emergency Economic Stabilization Act 263-171. Upon Democrats it carried 172-63. Among Republicans it lost 108-91. That is, President Bush and candidate John McCain still could not carry their own party.

The vote started shortly after 1 PM and C-Span presented the vote in real time from House computers on a simple table. I guess today C-Span was more important today than soap opera (these are "Days of our Lives"). C-Span refers to Thomas (Library of Congress) for the final bill HR 1424 here.

The vote was preceded by several hours of debate, with only a few negative speeches (such as Ron Paul’s) totally ideological. Nancy Pelosi gave a “kinder, gentler” speech to call. Moran (D-VA) made a particularly technical comment about credit markets. Barney Frank was given a lot of "credit" for the "intellect" that it took to craft the bill. The revised version received 58 more votes than did the bill on Monday.

The vote took place in two phases: a 15-minute vote on the Senate amendments to HR 3997, and then a 5 minute, unanimous adoption of HR 1424 (pork included). During the 15 minute portion, many of the Republican Nay votes came toward the end, after passage was guaranteed – understandably.

The crisis has been described as a fiscal heart attack, and the Bailout as like an angioplasty. Next would be a coronary bypass!

Markets were up only slightly immediately after the vote. Markets have been very concerned about high unemployment numbers and many other fundamental problems. Later Friday, the Dow was down about 160 because of fundamentals.

Carol Loomis interviews Warren Buffett at Berkshire Hathaway. He says that only the federal government can stem the tide of de-leveraging because it has unlimited borrowing ability. He recommends that the Treasury by the toxic assets at market prices, and claims that it will eventually make money. CNN Money video link is here.

I recommend visitors read a detailed narrative of how the crisis exploded in the New York Times Oct 2, by Joe Nocera, Andrew Ross Sorkin, Diana B. Henriques, and Edmund L. Andrews. The title is "The Reckoning: As Credit Crisis Spiraled, Alarm Led to Action," link here. It's interesting how the house of cards crumbled so quickly. The artificially propped up mortgage market simply consumed all the credit that there were, and it ran out.

Thursday, October 02, 2008

DC School System will fire ineffective teachers even when tenured, despite teacher's union

WJLA-TV (ABC affiliated station) in Washington DC is now reporting that District of Columbia school system chancellor Michelle Rhee and Mayor Adrian Fenty are simply bypassing teachers’ unions and announcing a plan to remove ineffective teachers, even those with tenure, sometimes. The WJLA story (“Fenty, Rhee to Move Ahead with Aggressive Plan”) is here. The link has a video of Rhee’s speaking and making the announcement. She also denied earlier stories that a large portion of classes in DC are being taught by long-term substitute teachers, after earlier firings of teachers without enough licensure.

It’s surprising that the school system could go over a union this way. Can someone explain this?

The Washington Post has a similar story today at noon by Bill Turque, “DC Schools Chief Shores Up Power to Fire Teachers,” link here. This is her “Plan B.”

Seniority could be considered, but only as one factor, in comparison to others, especially student performance on tests. There would be probationary warning periods for ineffective teachers facing dismissal. Earlier, Rhee has proposed “voluntary” two-tiered plans allowing teachers not depending on tenure to earn more based on student performance. Rhee said that the needs of “the children” are her first priority.

The irony is that earlier today, on p A01 in print, The Washington Post had a story “Needy Students Closing Test Gap Under No Child” (Left Behind), about District of Columbia schools, by Maria Glod and Daniel de Vise, link here. NCLB has indeed forced much teaching time to be spent on drilling the basics. At the same time, in high school teachers and administrators are insufficiently aware of big time issues that can affect students, such as all the issues over home Internet safety and online reputation.

Wednesday, October 01, 2008

Senate passes the Bailout with a rout, But...

OK, The Senate passed the Bailout 74-25 (sounds like an overwhelming football rout) and it looks like Congress is in the game of adding unrelated riders to try to shove this thing through. For one thing, Congress is apparently adding about $100 billion in extra “benefits,” going into the whole even more. That’s what the failed vote on Monday means.

The add-ons are of varied relevance. Sure, it makes sense to up the FDIC limit, and to rework the mark-to-market accounting rules that some say force the crisis so suddenly. It makes sense to help owners of foreclosure-exposed homes. It’s a little bit worrisome, though, to add other less related tax breaks, including a property tax deduction for homeowners who don’t itemize deductions, reducing the threat of the alternative minimum tax, playing with some very distant health insurance rules and even retirement issues. These might be desirable individually, but they should be addressed on their own merit. It’s odd that the bill is a rider to the 1974 ERISA act and even a genetic non-discrimination bill.

Other add-ons, according to media reports, include federal deductions for sales taxes in states without state income tax, extending sunset tax cuts, renewable energy credits, tax breaks for teachers who buy their own classroom supplies, incentives for domestic research and development, opening new restaurants, doing business in the District of Columbia, paying rural counties hit by logging business declines, and even covering mental illness in health insurance.

What’s worrisome is the temptation to get into other areas where there appears to some people to be a need for more “regulation,” or to trade off special interests. When does this stop? You never know who could get bit.

It sounds like European governments are going through similar deliberations. That may help soften the effect on the dollar, if Europe has to follow suit with bailouts.

The real problem, though, is that Americans (and many other westerners) have been living beyond their means in terms of real wealth. You can’t deplete oil to the tipping point and not drill more, then pour more CO2 into the atmosphere without more renewable energy, and continue depending on cheap labor overseas that you can’t do yourself forever. It’s not sustainable.

Warren Buffett calls the current crisis an "economic Pearl Harbor" (or a "financial 9/11").

On Thursday morning, Steven Pearstein, in the Washington Post (business), reminded readers of some facts of life. Increasing deposit insurance limits could entice weaker banks to take more risks again; mark-to-market rule changes should be accompanied by multiple alternative disclosures to investors; bailing out imprudent homeowners still bails out reckless Wall Street investors, and recapitalization of banks would cost a lot more than $700 billion. There are no easy fixes. The link ("No Silver Bullets Here", Oct. 2, Business, p D1, is here.)

The Oct 2 Wall Street Journal offers, on p A19, a constructive plan by R. Glenn Hubbard (Columbia University) and Chris Mayer, “First, Let’s Stabilize Home Prices,” in which the government allows all primary residences to be refinanced at 5.25% 30 years fixed. They give some complicated details, setting up a GSE Homeowner’s Loan Corporation to handle upside-down mortgages. They claim this would save the government over $300 billion of the $700 billion (plus, now) bailout. The link is here.

Oct. 2: 7 PM

The votes still aren't there yet!