Southern Sojourner

Powell Endorsement Coming?

Politico is reporting that Colin Powell may be making a public endorsement for Barack Obama this Sunday on Meet the Press. It is said that Powell wanted to wait until he saw all three debates before making a decision.  Apparently, Powell saw what most all of us saw.  An incredibly gifted intellect with a calm, presidential demenaor.  This has to hurt McCain the most, but Powell like most of us are tired of the bemeaning, sacrastic, antagonistic politics that have marked the Republican reign and have proven to utlimately undermined the McCain/Palin ticket. 

Thank you again, General Poweell, for serving your country proudly.

Perhaps the best film you will see all year

The following is based on true events:


Bobby Lowder's Office!

A Simplified Guide to a Financial Apocalypse

In an effort to distract me from my card play, someone at our home poker game asked me what I thought about the "bailout" that passed last week.  After the 2nd sentence of explanation, it was obvious that they either didn't really care or just enjoyed taking my chips while I tried to explain how we got here and why I felt something, "bailout" or something else had to be done.  It was also obvious to me that I don't have an easy answer that connects.  So for those interested in why it seems all hell has broken loose economically, I will try to give the old college try.

Everything starts  during the real estate bubble.  Remember that?  Real estate was suppose to be where the money was to be made.  You turn on a cable channel and watch, "Flip my house" or "What's my house worth?"  That these shows were even green lighted, much less popular should have been symptom number one that something was going awry.  When you watch a "realtor" show a house for entertainment, there is a problem..

The fact is everyone wanted part of the action.  After all, you would hear of people making eye popping profits and with interest rates low, real estate going up (after all they don't make any more of it, you know), people of all financial levels were catching the American dream. 

With so many people buying houses they really couldn't afford and the mortgage business being an extremely profitable venture, there was fierce competition to originate loans despite the ability of the borrower to be able to repay.  That coupled with the fact that most mortgages could be sold off, there was little reason to be concerned about the risk because the agent could get his fat commission, sell the loan off for someone else to worry about.  These loans were then bundled together with other loans in instruments called CMO (Collaterialized Mortgage Obligations) or CDO (Collaterized Debt Obligations).  The higher the average risk of the loan in those instrument the higher the yield.  Which leads us to what should have been a second harbinger of things to come.  When you are getting 10-12% returns on securites that are considered "fixed income" you should know something isn't right. You don't buy fixed income securities for "return" but rather for security and income, not growth.

Okay, back to the borrower.  Here is what a conversation may have sounded like in a typical mortgage office.

AGENT-  "How can I help you?"

BORROWER- "Um,  I want to move into a house with a better school for my kids (notice we always justify our greed with our kids."

AGENT- "Great! How's your credit?"

BORROWER- "Well, that's the thing, it isn't that great, but I think this home will be a great investment and, you know, my kids can go to this great school.  I may even sell this home to fund my retirement.  Can you help people with crappy credit?"

AGENT-  "Oh sure, that's why we are here, to help people...."

BORROWER-  "Well, I make....

AGENT-  "No, no, no, don't worry about that, we can get a loan that you can afford.  How much a month could you pay?"

BORROWER- "Uhhh, I don't know, maybe $800 per month, but my credit.....

AGENT- "Hey, like I said, don't worry about. I am here for you.  Here's what you do.  We will put you in an Adjustable Rate Mortgage, you will only pay like 4% interest for 2 years.  That will keep you monthly payment at $800.  By paying it, you will improve your credit, and with this great investment going up, you will be able to use the equity to refinance into a fixed rate loan and get a good interest rate because your credit will be all fixed."

BORROWER- "Wow! That's sounds great, but you said something about 2 years, what happen when...."

AGENT- "You come back to me and we will refinance! It's a win-win for everyone."

BORROWER-  "Oh, thank you, thank you.  This is a dream come true."

The agent gets a huge commission, the borrower get's his kid into THE school system, and some investment bank gets another mortgage to bundle up to sell to pensions, institutions, and individual investors.  All is good.

The poor insurance industry however was missing out on this orgy of money, so they decided to get in on the action.  They recognized that many of these bundled securities are being sold to people who like safety.  So they decided to sell an insurance equivalent on those securities.  The idea being that they would insure these investments should they blow up.  They called these "credit default swaps."  Notice the name.  They will swap the risk should the credit represented in those loans default.  These proved to be extremely popular (and profitable).  It has been estimated that there were about 62 trillion in credit default swaps issued.  That is trillion!   

You will also notice that I said estimated, because no one really knows.  Why? Because, notice that credit default swaps are not called what they are, insurance.  Insurance in not in the name.  Why?  Because insurance is regulated by the states and we know that regulation is ultimate evil. If you deregulate, the free markets can rule and we do love the free market (as if it really existed).

So what you have is billions if not trillions of dollars in risky loans made with the belief that real estate would increase forever, insurance on those loan, predicated on the fact they would never have to pay a claim. 

Then the bubble burst.  Real Estate values fell, that home equity the borrower was planning on using to refinance was nowhere to be found.  His mortgage payments went up after two years and all of a sudden his home was facing foreclosure.  Again and again this happened.  Which means all those CMOs and CDOs were blowing up, which meant that all those credit default swaps were being called to pay out.  Since the insurance companies weren't regulated, there weren't required to keep any capital liquid to payout on the claims. Instead those used those huge profits to pay extraordinary bonuses and commissions to executives.

Hence, what we know as a credit crunch.  That simply means that institutions no longer trusted other institutions to lend them money because they didn't know if they would be able to pay back those loans.  Why no trust?  Because no one could determine how much bad investments, or bad swaps a company held.  All of sudden risk mattered again and the pipeline of credit ceased. No credit, meant that businesses couldn't continue their business, which meant, a collapse.  

Hence the so called "bailout."  Which essentially is the government, using taxpayer money, to buy these endangered investments, to get them off their book, so that banks and institutions will feel better about lending them money again.  The idea is that this will free up the offering of credit and business can continue. 

If it doesn't work, or if nothing was done, the mom and pop store on main street wouldn't be able to keep their inventory up to date, couldn't make their payroll, couldn't pay their bills.  That would lead to layoffs, and layoffs would lead to rapid decrease in consumer spending which makes up 2/3rds of the the American economy.  That my friends would  be a depression, not a recession.  It is a perfect financial storm.  And that is as simply as I know how to put it. 

My New Approach to Life: Lower Expectations

Exactly what I thought would happen took place tonight in the V.P. debate and it has opened a whole new way of viewing the world.  I have always been personally haunted by high expectations.  It has often caused me to lack confidence, and be socially awkward and too often defensive. But Sarah Palin has shown me, now on two occasions that you can if you keep expectations low, it is very easy to feel successful.  So I am seriously considering lowering my expectations on everything so that I will always feel happy, surprised and accomplished. 

I congratulate Governor Palin for taking the extraordinarily (and deserving) low expectations both at the Republican Convention and tonight in the debate for proving how easy it is to succeed.  Avoid questions, stick to your talking points, say "darn it," "heck," "drill" or "say it ain't so."  If you have to answer a question say, "yes," "no," or "I do" or "I do not" and then revert back to the script. It is obvious that if you are pretty, that too, can give your credibility without any substance.  Governor Palin, you have inspired me.  No longer will I succumb to the possibility of failure.  I will triumph under this new enlightenment.

So from now on I am going to take a new path and never expect anything other than mediocrity. 

• Instead of acknowledging I need to lose 60 pounds, my new goal is 1/2 lb.  I will be slim, trim, happy, and healthy.
• I no longer expect to be successful in my business, just aspire to stay solvent.
• I will no longer hope that Christians actually follow Christ because just going to church is much easier.
• I will expect my daughter to be a C student, score 17 on the ACT test and go to a community college.
• I will only demand of local officials that they stay out of jail (that may be too high).
• I will cheer that Alabama go 6-7 or 7-6 each year.
• I will try from now on to be the second person to hit the rail at poker instead of first, making it to the final two of my home game takes too long and is way too stressful.
• I will hope to live to age 50, and financially prepare to live to 55 in case I over achieve.
• I will ask my wife to not cheat on me more that 2 times.
• I will read one book before I die.
• I will expect my president to lie to me, invade foreign countries, pass policies that benefit his/her friends, allow our infrastructure to crumble, illegally wire tap, disrespect the dignity of foreigners, fire attorneys that don't tow the line, piss off our allies, antagonize our enemies, fail us during natural disasters, scare the hell of me with "Red" security levels, run our economy into the ground, deregulate everything so that corporate greed can walk over all those who are not fortunate enough to be in the one percentile of American's, torture our enemies, question the character of anyone that disagrees with him/her, and have potential successors be willing to shoot their best friends in the face. 

I am already feeling better now that the country and myself are making progress.

Readem' All

I have to teach a class tonight but will be rushing home to catch some of the vice presidential debate.  I must say that I may have been too harsh on Governor Palin.  Having a love for reading but rarely matching my passion with time, I am now in awe of the Governor.  Not only does she like to read, SHE READs "all of umm."  Crap, woman, at least name the Juneau Empire or the Anchorage Daily News.