Donovan said 45 percent of home sales in December were "distressed," meaning either sellers were facing foreclosure or the homes were already seized by the bank, driving down home prices further in an already-battered market.
"We've got to make clear, here, that a foreclosure hurts every American," he told CNN.
Apparently Mr. Donovan does not consider those careful enough to avoid the housing bubble and wait for the collapse to make a reasonably priced purchase American.
I needed to move to make room for my first child in 2004. For various reasons we rented and a year later my wife started pressing to purchase. I resisted based upon the cost of houses in my area (southern California) and the obvious fact that we simply couldn't afford a home with a standard loan despite paying $2,200 a month in rent. Being from New England must make me old fashioned so an Option ARM just wasn't something I was going to use and was horrified that others would consider it for a $700,000 when they earned under $100K a year, frequently well under.
Prices in my area have finally fallen although I feel they are still high - I live in San Diego and not north in Riverside County where prices have collapsed and have no desire to live there, not sure why anyone does to be honest. If t he government is going to step in and artificially prop up values they better put something on the table for me. I am pretty sure the home buyer credit won't apply as I still own a condo that is rented, probably a disqualificaiton.
I am the middle class that everyone claims to want to help - and I feel screwed again. I can't buy a home and I have to pay for everyone else's.
Thank you Washington D.C.
While on the topic of the Housing Secretary - I happened to catch his interview on CBS News. The term News clearly did not apply to what I saw. It sure appeared that the Secretary was being lobbed questions that he and his team had prepared and presented to CBS to ask. Where is the hard hitting reporting and seriuos questions one expects from a true reporter and News show?
Monday, February 23, 2009
Wednesday, February 18, 2009
Public Employee Unions
Should unions who represent public employees be allowed to donate time, money and their support to politicians?
I don't think so. When is the last time a non-public employee got to pick and choose their boss on a regular basis? It is no wonder that our government agencies are all on the verge of bankruptcy.
I don't give much weight to the obvious argument by the unions that this tramples on their rights of free speech. The individual members are still free to do, say, contribute and vote as they desire. Since Unions can't vote I am not sure how they qualify for unlimited free speech. We have already banned priests from participating in politics or their churches could lose their tax-exempt status. Sounds pretty close to me.
Don't forget that the last time a union had the power that public employee unions wield we ended up with the Teamsters and the current U.S. Automotive Industry.
I don't think so. When is the last time a non-public employee got to pick and choose their boss on a regular basis? It is no wonder that our government agencies are all on the verge of bankruptcy.
I don't give much weight to the obvious argument by the unions that this tramples on their rights of free speech. The individual members are still free to do, say, contribute and vote as they desire. Since Unions can't vote I am not sure how they qualify for unlimited free speech. We have already banned priests from participating in politics or their churches could lose their tax-exempt status. Sounds pretty close to me.
Don't forget that the last time a union had the power that public employee unions wield we ended up with the Teamsters and the current U.S. Automotive Industry.
Wednesday, February 11, 2009
The Federal Bailout/Stimulus
What if in 1637 European governments had decided that Tulip Bulbs really weren't overpriced and supported the market?
I don't believe there is any simple, painless answer to our current turmoils. My heart goes out to the unemployed as I wonder if I will be joining them as business contracts and my employer is rumored to be working on a 3rd round of layoffs for March. It is this fear of a layoff that is gripping the country and insuring that the economic malaise will continue. I still have my income yet I have cut spending and am putting off several major purchases including a new computer and a home. Why should I deplete my savings for a down payment when I could lose my income and not have an adequate safety cushion to fall back on? The stimulus package will not address this fear.
Assuming the stimulus is approved and money starts flowing just how fast will jobs be created and saved? Assuming they send the money out for construction projects and the projects have the material required to start and the idle construction firms bring back all that they laid off do you think the workers will spend their new income? I don't. They will be shell shocked and use the money to pay off existing bills providing no stimulus. Once caught up they will save to avoid a similar fate. Where is the stimulus?
The governments plan is nothing more then a decision that Tulip Bulbs are not overpriced and they should be propped up by the government. Over the course of generations policies and procedures were put in place to handle companies that went bankrupt. Banks have their own unique rules to protect depositors. The federal government has thrown these rules out the window with a claim of protecting the financial system. Wouldn't it be better to seize failing banks no matter the size, remove the questionable assets, recapitalize the remainder and sell the now healthy institution? For small banks selling to existing banks is fine, for larger banks the government could have an IPO. They could spread the IPO work out amongst many Wall Street firms and help them while creating the new healthy bank.
The questionable assets could be held by the government for as long as it is deemed wise. This may be until maturity or when market liquidity returns and prices appear reasonable, fire sales should be avoided to maximize the return to taxpayers.
One last note - living in Southern California, that $15,000 home purchase stimulus is pretty weak and I believe that would be true in other truly hard hit real estate markets. Average homes still sell for 300 to 500K in my area so their values could easily, and I suspect will, drop by well over 15K in the next 6 to 12 months.
We had a nice ride up the economic spiral, the slide back down is proving catastrophic.
I don't believe there is any simple, painless answer to our current turmoils. My heart goes out to the unemployed as I wonder if I will be joining them as business contracts and my employer is rumored to be working on a 3rd round of layoffs for March. It is this fear of a layoff that is gripping the country and insuring that the economic malaise will continue. I still have my income yet I have cut spending and am putting off several major purchases including a new computer and a home. Why should I deplete my savings for a down payment when I could lose my income and not have an adequate safety cushion to fall back on? The stimulus package will not address this fear.
Assuming the stimulus is approved and money starts flowing just how fast will jobs be created and saved? Assuming they send the money out for construction projects and the projects have the material required to start and the idle construction firms bring back all that they laid off do you think the workers will spend their new income? I don't. They will be shell shocked and use the money to pay off existing bills providing no stimulus. Once caught up they will save to avoid a similar fate. Where is the stimulus?
The governments plan is nothing more then a decision that Tulip Bulbs are not overpriced and they should be propped up by the government. Over the course of generations policies and procedures were put in place to handle companies that went bankrupt. Banks have their own unique rules to protect depositors. The federal government has thrown these rules out the window with a claim of protecting the financial system. Wouldn't it be better to seize failing banks no matter the size, remove the questionable assets, recapitalize the remainder and sell the now healthy institution? For small banks selling to existing banks is fine, for larger banks the government could have an IPO. They could spread the IPO work out amongst many Wall Street firms and help them while creating the new healthy bank.
The questionable assets could be held by the government for as long as it is deemed wise. This may be until maturity or when market liquidity returns and prices appear reasonable, fire sales should be avoided to maximize the return to taxpayers.
One last note - living in Southern California, that $15,000 home purchase stimulus is pretty weak and I believe that would be true in other truly hard hit real estate markets. Average homes still sell for 300 to 500K in my area so their values could easily, and I suspect will, drop by well over 15K in the next 6 to 12 months.
We had a nice ride up the economic spiral, the slide back down is proving catastrophic.
Monday, January 12, 2009
Keynesian Recovery
A quote from George Bush in today's news:
"I inherited a recession, I'm ending on a recession. In the meantime, there were 52 months of uninterrupted job growth," he said.
"And I defended tax cuts when I campaigned, I helped implement tax cuts when I was president, and I will defend them after my presidency as the right course of action."
Over the last couple of days I have seen a plethora of articles about Keynes and how the plan to save the American Economy is a resurgance of Keynesian Economic Principals and Theories. I haven't read them too closely or at all in most cases but if memory serves Keynes believed that governments should deficit spend to get economies out of slowdowns.
I think Keynes is rolling over in his grave right now. Pundits who cite Keynes are looking at a very narrow picture and completely ignoring the incontrovertible facts that our government has been engaged in Keynesian spending for the past 8 years (and longer) to no long term avail. George Bush's comments assist in pointing out this fact and supporting thier failure.
The government has been deficit spending for years while driving down interest rates and implementing policies that promoted deficit spending amongst the consumers as well. This resulted in the largest financial bubble in history and the politician's solution? Blow harder into the bubble and keep it inflated, blame everyone else.
Keynes believed during Good Times the government should reduce it's spending and save for a rainy day and then increase spending during slowdowns to smooth out economic cycles. I can't remember the last time a government agency said, "Things are going good so lets save some money for when they aren't." All I have ever heard is, "Spend, Spend, Spend, we got more money? Spend IT!!!!".
The United States is actually in a Keynesian Bubble that is imploding. Failure to recognize this and accept (deal with) the consequences in order to allow our economic ship to right itself will simply lead to greater and more costly consequences down the road.
Barack Obama is not the Change we needed nor that we can Count On. He is simply perpetuating the error of Washington's ways and condemning himself to a level of historical respect equivalent to that deserved by George W. Bush.
"I inherited a recession, I'm ending on a recession. In the meantime, there were 52 months of uninterrupted job growth," he said.
"And I defended tax cuts when I campaigned, I helped implement tax cuts when I was president, and I will defend them after my presidency as the right course of action."
Over the last couple of days I have seen a plethora of articles about Keynes and how the plan to save the American Economy is a resurgance of Keynesian Economic Principals and Theories. I haven't read them too closely or at all in most cases but if memory serves Keynes believed that governments should deficit spend to get economies out of slowdowns.
I think Keynes is rolling over in his grave right now. Pundits who cite Keynes are looking at a very narrow picture and completely ignoring the incontrovertible facts that our government has been engaged in Keynesian spending for the past 8 years (and longer) to no long term avail. George Bush's comments assist in pointing out this fact and supporting thier failure.
The government has been deficit spending for years while driving down interest rates and implementing policies that promoted deficit spending amongst the consumers as well. This resulted in the largest financial bubble in history and the politician's solution? Blow harder into the bubble and keep it inflated, blame everyone else.
Keynes believed during Good Times the government should reduce it's spending and save for a rainy day and then increase spending during slowdowns to smooth out economic cycles. I can't remember the last time a government agency said, "Things are going good so lets save some money for when they aren't." All I have ever heard is, "Spend, Spend, Spend, we got more money? Spend IT!!!!".
The United States is actually in a Keynesian Bubble that is imploding. Failure to recognize this and accept (deal with) the consequences in order to allow our economic ship to right itself will simply lead to greater and more costly consequences down the road.
Barack Obama is not the Change we needed nor that we can Count On. He is simply perpetuating the error of Washington's ways and condemning himself to a level of historical respect equivalent to that deserved by George W. Bush.
Friday, January 02, 2009
Gaza Strip Bombing
When is the media going to wake up and stop pushing their left wing, soft is good agenda on the public. Listening to the media outlets be they ABC, CBS, NBC, CNN or FOX among others one is regularly being told that Innocent Civilians and Children are being killed - the world is calling upon Israel to stop it's bombing and show compassion.
What I rarely if ever hear and then in a watered down barely legible tone is that Israel civilians are being subject to missile attacks from Gaza repeatedly and have been prior to Israel's attack. These same missiles kill Innocent Civilians and Children, they just don't have as advanced guidance systems so frequently miss to the chagrin of Hamas and those launching them.
What the World needs to make clear is that terrorists of any kind by acting as they do are making themselves and EVERYONE around them subject to immediate attack and possible death. If the person living with you or next door is a terrorist then you should know that the person is a target and you are subject to death by association and proximity. If weapons are being stored next to your home/business then you should know that the site is a target and you are subject to death by association and proximity.
Terrorists can only survive if they have supporters and neighbors who fail to report on the activities going on are supporting the terrorists. Imagine if everyone knew their lives and the lives of their family were subject to imminent death based upon the actions of a neighbor. That neighbors actions would be curtailed in one form or another - either authorities would be called in when possible, neighbors would band together to drive out the problem or areas would be vacated making their uses obvious for targeting and removal.
The World is soft and terrorists know this. The government of Sudan knows that no one will interfere in Darfur so they sit in their luxury homes selling oil to willing foreign governments and companies who make a show of complaining about the slaughter going on in the countryside. If they knew that their lives and those of their families were subject to immediate termination things would change - things would have never gotten to the state they are in now.
You will never convince me that the missile strikes on Khaddafi's home in Libya several years ago didn't assist in changing his attitude towards the outside world. He suddenly understood that his actions could result in the immediate death of any and all of his family members, not to mention himself. Yet at the time of the strike all you heard in the media was how one of his young daughters died, although even that part of the story was questionable. The Terrorists sending out suicide bombers aren't doing the bombing themselves for a reason, they don't wish to die no matter what they tell the bombers.
Pirates in Somalia wouldn't be making headlines. The press runs stories how when a ship is taken hostage the local villages all open up their shops and have an economic boom. Imagine if those same villages knew the pirates were subject to immediate retaliation where ever they may be. Suddenly the pirate booty would not look so good when measured against their and their families immediate death and destruction by association.
The terrorists and criminals know that the World and authorities are soft having to appease the media and their liberal leanings. For this reason they base their activities in civilian areas just so when they get brought to justice they can scream about the death of women and children. It is time for the World to stand up and deal with terrorists appropriately and not be led to it's continued slow torture by the media. Let the news shows know that they should be reporting the NEWS and not trying to direct public opinion unless they appropriately label it an editorial in which case they can espouse anything they desire.
What I rarely if ever hear and then in a watered down barely legible tone is that Israel civilians are being subject to missile attacks from Gaza repeatedly and have been prior to Israel's attack. These same missiles kill Innocent Civilians and Children, they just don't have as advanced guidance systems so frequently miss to the chagrin of Hamas and those launching them.
What the World needs to make clear is that terrorists of any kind by acting as they do are making themselves and EVERYONE around them subject to immediate attack and possible death. If the person living with you or next door is a terrorist then you should know that the person is a target and you are subject to death by association and proximity. If weapons are being stored next to your home/business then you should know that the site is a target and you are subject to death by association and proximity.
Terrorists can only survive if they have supporters and neighbors who fail to report on the activities going on are supporting the terrorists. Imagine if everyone knew their lives and the lives of their family were subject to imminent death based upon the actions of a neighbor. That neighbors actions would be curtailed in one form or another - either authorities would be called in when possible, neighbors would band together to drive out the problem or areas would be vacated making their uses obvious for targeting and removal.
The World is soft and terrorists know this. The government of Sudan knows that no one will interfere in Darfur so they sit in their luxury homes selling oil to willing foreign governments and companies who make a show of complaining about the slaughter going on in the countryside. If they knew that their lives and those of their families were subject to immediate termination things would change - things would have never gotten to the state they are in now.
You will never convince me that the missile strikes on Khaddafi's home in Libya several years ago didn't assist in changing his attitude towards the outside world. He suddenly understood that his actions could result in the immediate death of any and all of his family members, not to mention himself. Yet at the time of the strike all you heard in the media was how one of his young daughters died, although even that part of the story was questionable. The Terrorists sending out suicide bombers aren't doing the bombing themselves for a reason, they don't wish to die no matter what they tell the bombers.
Pirates in Somalia wouldn't be making headlines. The press runs stories how when a ship is taken hostage the local villages all open up their shops and have an economic boom. Imagine if those same villages knew the pirates were subject to immediate retaliation where ever they may be. Suddenly the pirate booty would not look so good when measured against their and their families immediate death and destruction by association.
The terrorists and criminals know that the World and authorities are soft having to appease the media and their liberal leanings. For this reason they base their activities in civilian areas just so when they get brought to justice they can scream about the death of women and children. It is time for the World to stand up and deal with terrorists appropriately and not be led to it's continued slow torture by the media. Let the news shows know that they should be reporting the NEWS and not trying to direct public opinion unless they appropriately label it an editorial in which case they can espouse anything they desire.
Friday, December 05, 2008
Home Buying Stimulus - Another Outrage
I read with great joy the governments idea to force down interest rates for mortgages used to purchase a home. Being in the market for a home I can not wait to take advantage of this plan and finally get a little bit of the gold being handed out by the Good King.
Despite my personal glee and anticipation of sticking it to all my fellow taxpayers by having them subsidize my new home I can't move beyond the idea that his entire plan is insanity as only Washington D.C. can do insanity.
The problem with the housing market now was rampant speculation and loose lending standards allowing folks to get into homes they couldn't afford. Now that no one is buying the prices are falling and folks find themselves owing more then they can sell the home for.
What happens with the government plan? With lower mortgage rates the theory is that people will be able to pay up yet still afford the mortgage. This is true but completely ignores the need for these borrowers to have a downpayment. If they pay up they need more cash to complete the transaction for the downpayment and increased loan fees based on loan amount. Based on this the only folks to benefit are those already sitting on cash out of proportion to what they can afford in a monthly mortgage payment, a nice problem to have and one I doubt it prevelant.
Now let's ignore this problem with the plan and assume I purchase a home under the plan. Since I have a low interest rate I was able to pay a higher purchase price then I would have. A year goes by, the low rate plan ends, everyone who could has bought their government subsidized home and I find that I need to sell for that new job I finally got after being laid off after closing on my new home. Surprise, the value of my home has just dropped because all potential buyers are now paying the higher interest rates so they have to offer less to make their monthly payments.
Let's review - If I do what the government wants and purchase a home that I can suddenly afford due to low interest rates I am handing the seller of the home a portion of my down payment as a gift because within a short period of time the home is going to be worth less.
If I plan on staying in my new home for a long time (5 years minimum I would guess, probably 10) none of this might matter which I am sure the politicians will argue but our world and lives are flexible so what if you think you will stay and you can't?
Have I adequately expressed my disdain for politicians in general? This is a plan to artificially puff up the value of homes just like the recent home valuation bubble that burst. Get folks to take on more debt then they really should by subsidizing the interest rate and then remove the subsidy bursting the new bubble.
And let's not forget that all the money the government is throwing around eventually comes out of our pockets via taxes either directly (income) or indirectly in the cost of goods and services.
I wonder how Gov. Palin's budget is doing with the price of oil blowing the bottom out of the barrel in it's rush to be cheaper then the air we breathe.
Despite my personal glee and anticipation of sticking it to all my fellow taxpayers by having them subsidize my new home I can't move beyond the idea that his entire plan is insanity as only Washington D.C. can do insanity.
The problem with the housing market now was rampant speculation and loose lending standards allowing folks to get into homes they couldn't afford. Now that no one is buying the prices are falling and folks find themselves owing more then they can sell the home for.
What happens with the government plan? With lower mortgage rates the theory is that people will be able to pay up yet still afford the mortgage. This is true but completely ignores the need for these borrowers to have a downpayment. If they pay up they need more cash to complete the transaction for the downpayment and increased loan fees based on loan amount. Based on this the only folks to benefit are those already sitting on cash out of proportion to what they can afford in a monthly mortgage payment, a nice problem to have and one I doubt it prevelant.
Now let's ignore this problem with the plan and assume I purchase a home under the plan. Since I have a low interest rate I was able to pay a higher purchase price then I would have. A year goes by, the low rate plan ends, everyone who could has bought their government subsidized home and I find that I need to sell for that new job I finally got after being laid off after closing on my new home. Surprise, the value of my home has just dropped because all potential buyers are now paying the higher interest rates so they have to offer less to make their monthly payments.
Let's review - If I do what the government wants and purchase a home that I can suddenly afford due to low interest rates I am handing the seller of the home a portion of my down payment as a gift because within a short period of time the home is going to be worth less.
If I plan on staying in my new home for a long time (5 years minimum I would guess, probably 10) none of this might matter which I am sure the politicians will argue but our world and lives are flexible so what if you think you will stay and you can't?
Have I adequately expressed my disdain for politicians in general? This is a plan to artificially puff up the value of homes just like the recent home valuation bubble that burst. Get folks to take on more debt then they really should by subsidizing the interest rate and then remove the subsidy bursting the new bubble.
And let's not forget that all the money the government is throwing around eventually comes out of our pockets via taxes either directly (income) or indirectly in the cost of goods and services.
I wonder how Gov. Palin's budget is doing with the price of oil blowing the bottom out of the barrel in it's rush to be cheaper then the air we breathe.
Tuesday, November 25, 2008
Govt Response to Crisis
How many of you are watching the US Govt spread money around the economy and wondering where this money is coming from? Then you realize it is coming from our pockets. Governments do not generate revenue, they tax their citizens.
Although I laud the attempts to prevent a complete financial meltdown in the end the taxpayers are going to pay for all this generosity. The problem I have with the recent attempts to 'fix' things is that the government thinks lending is the answer. How short sighted - that is what got us in this mess and the majority of folks who want to borrow money are the ones who can't pay it back now. How will lending them more money help?
I am also irritated with the mortgage alteration plans - I have a mortgage, it is small and paid on time but the rate is a bit higher then market rates today. When do I get my rate lowered?
Although I laud the attempts to prevent a complete financial meltdown in the end the taxpayers are going to pay for all this generosity. The problem I have with the recent attempts to 'fix' things is that the government thinks lending is the answer. How short sighted - that is what got us in this mess and the majority of folks who want to borrow money are the ones who can't pay it back now. How will lending them more money help?
I am also irritated with the mortgage alteration plans - I have a mortgage, it is small and paid on time but the rate is a bit higher then market rates today. When do I get my rate lowered?
US Tax Code Change - Interest Deductions
What I have been thinking about a lot in recent years and something that has taken a more cohesive form while watching the credit crisis unfold is how the tax system is used to subsidize the wealthy at the expense of the poor. More specifically, by giving deductions for mortgage interest the government is subsidizing the cost of owning a home to the detriment of those who don’t own a home. It is arguable that most families and individuals who don’t own homes can’t afford them thus those who can afford a home are being subsidized by those who can’t.
I believe that eliminating the mortgage interest deduction would be a bridge to far. A more tempered approach would be to allow the deduction for the original mortgage used to purchase a home but not for home equity lines, 2nd mortgages or refinancing. A cap on the maximum size of the loan should also be considered. I can already here the financial firms calling their lobbyists. This change would need to be phased in so that existing loans would be grandfathered or more families could find themselves in financial difficulty then already do. As a supported of this change I can’t wait to trot out sound bites such as, “Why should taxpayers be paying for someone’s Jet Ski”.
An even bigger change I suggest is to change the deductibility of interest payments for a corporation. If a company takes out a loan to finance expansion or normal operations the interest would be deductible as a cost of doing business. If debt is taken out to acquire a firm or to leverage up the balance sheet to distribute funds to shareholders then the interest should not be deductible. This law should be passed with generic intent language with the caveat that if a loan is questionable in its classification then it isn’t tax deductible.
Investment Banks, Hedge funds and buyout firms that are still in business have now redoubled their efforts to reach their lobbyists and probably started hiring a few more.
The benefits of this change are similar in nature to changing the mortgage deduction yet support within the electorate should be overwhelming. Why should individuals or firms be allowed to purchase companies employing hard-working Americans by loading them up with questionable levels of debt and then laying of workers to pay for it. Then as an additional slap in the face they drastically reduce their corporate taxes due to the interest on this debt. Currently the Anhueser Busch acquisition is a wonderful example although it does lack the LBO firm involvement. Various news services have speculated that part of the financial justification for the acquisition by InBev is the ability to pile debt onto the US firm and drastically reduce it’s annual tax bill to the tune of $800 million by some estimates.
Throw in a few examples of the LBO Chiefs accumulating personal wealth in the billions of dollars and state that it came out of the hide of the taxpayer and politicians wouldn’t be able to support the change fast enough.
I am sure that the impact of these changes would be widespread and that I have not considered a large number of them. In the short term it couldlead to a slow down in growth but given the current situation the impact might be fairly minimal. I would argue that much of our past growth wasn’t natural and only occurred as a result of debt juicing the system to the point where we are now so it is a cost we much bear.
I would see this change reducing the leverage of most companies providing for the cushion they require when times get tough like they are now. Many want to blame Wall Street and the Bankers for getting us into our current predicament, especially the politicians, I believe the government is largely to blame, their scapegoats simply used the system put in place by the politicians as any rational human being will try to do. If I had the ability to borrow a few billion dollars and take a firm private and then borrow even more to give myself a large dividend reducing my risk to zero I would do it in a heartbeat. I believe that option should still be available, I just don’t believe the US Taxpayer should be shouldering the cost as they do today.
I believe that eliminating the mortgage interest deduction would be a bridge to far. A more tempered approach would be to allow the deduction for the original mortgage used to purchase a home but not for home equity lines, 2nd mortgages or refinancing. A cap on the maximum size of the loan should also be considered. I can already here the financial firms calling their lobbyists. This change would need to be phased in so that existing loans would be grandfathered or more families could find themselves in financial difficulty then already do. As a supported of this change I can’t wait to trot out sound bites such as, “Why should taxpayers be paying for someone’s Jet Ski”.
An even bigger change I suggest is to change the deductibility of interest payments for a corporation. If a company takes out a loan to finance expansion or normal operations the interest would be deductible as a cost of doing business. If debt is taken out to acquire a firm or to leverage up the balance sheet to distribute funds to shareholders then the interest should not be deductible. This law should be passed with generic intent language with the caveat that if a loan is questionable in its classification then it isn’t tax deductible.
Investment Banks, Hedge funds and buyout firms that are still in business have now redoubled their efforts to reach their lobbyists and probably started hiring a few more.
The benefits of this change are similar in nature to changing the mortgage deduction yet support within the electorate should be overwhelming. Why should individuals or firms be allowed to purchase companies employing hard-working Americans by loading them up with questionable levels of debt and then laying of workers to pay for it. Then as an additional slap in the face they drastically reduce their corporate taxes due to the interest on this debt. Currently the Anhueser Busch acquisition is a wonderful example although it does lack the LBO firm involvement. Various news services have speculated that part of the financial justification for the acquisition by InBev is the ability to pile debt onto the US firm and drastically reduce it’s annual tax bill to the tune of $800 million by some estimates.
Throw in a few examples of the LBO Chiefs accumulating personal wealth in the billions of dollars and state that it came out of the hide of the taxpayer and politicians wouldn’t be able to support the change fast enough.
I am sure that the impact of these changes would be widespread and that I have not considered a large number of them. In the short term it couldlead to a slow down in growth but given the current situation the impact might be fairly minimal. I would argue that much of our past growth wasn’t natural and only occurred as a result of debt juicing the system to the point where we are now so it is a cost we much bear.
I would see this change reducing the leverage of most companies providing for the cushion they require when times get tough like they are now. Many want to blame Wall Street and the Bankers for getting us into our current predicament, especially the politicians, I believe the government is largely to blame, their scapegoats simply used the system put in place by the politicians as any rational human being will try to do. If I had the ability to borrow a few billion dollars and take a firm private and then borrow even more to give myself a large dividend reducing my risk to zero I would do it in a heartbeat. I believe that option should still be available, I just don’t believe the US Taxpayer should be shouldering the cost as they do today.
The World Economic Disaster - US Auto Industry
Imagine my surprise to see the WSJ publish editorials stating that the US Auto Manufacturers were bankrupt and should admit it. I have been stating that idea for a long time now while receiving indifference at best in return.
Fortunately the US Congress has recognized that simply throwing money at them is not the answer and has asked for a plan to show how additional investments will be used to return the firms to profitability. Since this is not possible it will be interesting to see what the politocos do next.
I have stated that Unions have a valuable place in our economy but like most other establishments they can exceed their usefulness and value. Auto workers unions have done this in conjunction with weak management and weaker politicians. The Unions last reduction in benefits is laughable and the entire auto industry needs to be rebuilt from the ground up which can only occur via bankruptcy.
Fortunately the US Congress has recognized that simply throwing money at them is not the answer and has asked for a plan to show how additional investments will be used to return the firms to profitability. Since this is not possible it will be interesting to see what the politocos do next.
I have stated that Unions have a valuable place in our economy but like most other establishments they can exceed their usefulness and value. Auto workers unions have done this in conjunction with weak management and weaker politicians. The Unions last reduction in benefits is laughable and the entire auto industry needs to be rebuilt from the ground up which can only occur via bankruptcy.
Thursday, April 12, 2007
Pollution and Packaging
There should be a tax on consumer packaging.
I don't know the specifics but my young daughter likes to get dolls and what not (way too many which is a whole different issue). The process of unpacking a doll is a science that all parents have to learn to master. So that the item stays displayed properly in the box with a clear plastic front for proper viewing and child enticements every component of the toy is attached to the back of the box.
The body is strapped on, the arms and legs are positioned in a welcoming manner and strapped down. The hair is spread out and stitched to the back. Accoutrements
I don't know the specifics but my young daughter likes to get dolls and what not (way too many which is a whole different issue). The process of unpacking a doll is a science that all parents have to learn to master. So that the item stays displayed properly in the box with a clear plastic front for proper viewing and child enticements every component of the toy is attached to the back of the box.
The body is strapped on, the arms and legs are positioned in a welcoming manner and strapped down. The hair is spread out and stitched to the back. Accoutrements
such as shoes, dresses, hair brushes, etc are all laid out for visual inspection and attached as well. To unpackage this item one has to undo twisty ties, cut tiny lines and extract the product from these bounds. In order to improve the image you may find small plastic tabs that the ties are fed through designed to keep the ties spread open instead of pulling tight as well reduce possible tearing of the cardboard box. Metal ties do not remove easily as they holes they are fed through are just right for the straight ties to be inserted into - post twisting they are anything but straight and are amazingly resistent to straightening.
Once you fight through all of this and have removed the product you are left with an amazing amount of packaging and associated materials which must be disposed of. Perhaps the tax should be in direct proportion to the volume of the product versus the volume of the packaging material. Milk cartons are fairly efficient, there isn't a lot of wasted material there so the tax would be low to non-existent. Bratz and other dolls should be charged $10/package.
Carbon Dioxide
Now that I am back why should I stop with foolish borrowers and lenders?
Many people believe that Global Warming is an issue and most believe it is being caused by Carbon Dioxide. I tend to believe and think that even if CO2 isn't causing global warming it sure isn't doing us any good. Like many others I don't personally want to have to suffer to reduce CO2 emmissions even though that is unrealistic so here are a few suggestions:
Ban any and all additional car registrations beyond those already on the books. If you want a new car you have to remove an old one from the rolls to make room for your new one. Sure this will further bury the car companies but they have made their fortunes by polluting the world and we will all have to give up something to make this work.
Emissions controls should be tightened at the same time.
How long would it take someone to come up with a CO2 free car after that law goes into effect? Electric Cars don't really count, that electricity requires power plants who produce CO2 as well so they don't slip by.
New power plants that produce CO2 should be banned along the same lines. You dismantle one you can build a new one that can produce up to some % of the old plant. If you can produce more electricity with 80% less emmissions then go right ahead.
The US can't influence other countries to improve their situations unless we share in the pain.
Many people believe that Global Warming is an issue and most believe it is being caused by Carbon Dioxide. I tend to believe and think that even if CO2 isn't causing global warming it sure isn't doing us any good. Like many others I don't personally want to have to suffer to reduce CO2 emmissions even though that is unrealistic so here are a few suggestions:
Ban any and all additional car registrations beyond those already on the books. If you want a new car you have to remove an old one from the rolls to make room for your new one. Sure this will further bury the car companies but they have made their fortunes by polluting the world and we will all have to give up something to make this work.
Emissions controls should be tightened at the same time.
How long would it take someone to come up with a CO2 free car after that law goes into effect? Electric Cars don't really count, that electricity requires power plants who produce CO2 as well so they don't slip by.
New power plants that produce CO2 should be banned along the same lines. You dismantle one you can build a new one that can produce up to some % of the old plant. If you can produce more electricity with 80% less emmissions then go right ahead.
The US can't influence other countries to improve their situations unless we share in the pain.
Mortgage Crisis?!
I have been quiet for a long time but the 'Mortgage Crisis' has finally prompted me to emerge.
The latest article I read was on Marketwatch.com today and went into great detail about how millions of families are on the verge of losing their homes because of the strict bankruptcy laws and how the laws should be relaxed to assist these poor folk.
Screw the poor folk (meaning ones approaching bankruptcy, not folks who generally don't have a lot of money) and I would prefer to express myself with much stronger language. There are some who end up in financial straights by no design of their own via means such as illness or unexpected job losses, I have no problem trying to assist this class of bankruptcies if someone could figure out how to neatly identify them.
The fools who took out the sub-prime mortgages with variable rates or interest only payments and every other variation designed to lower their payments so they could buy ever bigger houses and continue driving housing prices higher should lose everything. I don't feel they deserve any pity. If they deserve pity then I was a fool for not going whole hog and borrowing obscene amounts of money beyond what I could ever be forecast to afford just so the government could step in let me keep my oversized home and forgive a significant chunk of my mortgage so I can start making payments that I can truly afford.
The mortgage companies and those who borrowed from them should be made to pay the price for their decisions and actions. If anyone thinks the banks and mortgage companies are in it to help the borrower they are the fool - the lenders are in it to make money. For the past several years they just cared about approving more and more loans to generate the origination fees and income. Rising home values, fueled by their lending abandon, masked the issues as they would simply refinance at ever higher levels or the home would be sold and cover the debt with a profit for the borrower.
I look forward to millions of Americans losing their homes and declaring bankruptcy. I want to see housing prices fall dramatically (I live on the West Coast so a $500K house is a hovel) so that I can pull out my stellar credit record and buy a reasonable house at a reasonable price. A nice recession would put some reality back into peoples outlooks.
The latest article I read was on Marketwatch.com today and went into great detail about how millions of families are on the verge of losing their homes because of the strict bankruptcy laws and how the laws should be relaxed to assist these poor folk.
Screw the poor folk (meaning ones approaching bankruptcy, not folks who generally don't have a lot of money) and I would prefer to express myself with much stronger language. There are some who end up in financial straights by no design of their own via means such as illness or unexpected job losses, I have no problem trying to assist this class of bankruptcies if someone could figure out how to neatly identify them.
The fools who took out the sub-prime mortgages with variable rates or interest only payments and every other variation designed to lower their payments so they could buy ever bigger houses and continue driving housing prices higher should lose everything. I don't feel they deserve any pity. If they deserve pity then I was a fool for not going whole hog and borrowing obscene amounts of money beyond what I could ever be forecast to afford just so the government could step in let me keep my oversized home and forgive a significant chunk of my mortgage so I can start making payments that I can truly afford.
The mortgage companies and those who borrowed from them should be made to pay the price for their decisions and actions. If anyone thinks the banks and mortgage companies are in it to help the borrower they are the fool - the lenders are in it to make money. For the past several years they just cared about approving more and more loans to generate the origination fees and income. Rising home values, fueled by their lending abandon, masked the issues as they would simply refinance at ever higher levels or the home would be sold and cover the debt with a profit for the borrower.
I look forward to millions of Americans losing their homes and declaring bankruptcy. I want to see housing prices fall dramatically (I live on the West Coast so a $500K house is a hovel) so that I can pull out my stellar credit record and buy a reasonable house at a reasonable price. A nice recession would put some reality back into peoples outlooks.
Wednesday, December 20, 2006
Banning Trans Fat
New York City banned trans fat. Massachusetts is considering the same. Selling Cigarettes is still legal in both locations. Enough said?
Patents
Did I once cover this topic? I didn't look but if not what an oversight.
Recently I was catching up on my old Wall Street Journals, doesn't seem like I read much else, and found an article on patents. The article was discussing how many are challanged and thrown out these days. It went on to further discuss how the system has developed over the years and even stated one of the determining factors in if a patent is justified and should be granted. The article said something to the effect that the idea can't be something that somebody with a reasonable knowledge in the applicable field could readily build. This was like a lightening bolt to me.
My first interest in patents came about when a friend of a friend was saying he wanted to be an inventor but needed that one product to support him while he worked on more. He had a full time job and had actually patented a few ideas in the past. His 'big' patent seemed alright to me but he mentioned a friend who had patented a retractable jumper cable. I thought at the time that he was joking and that couldn't be enforceable. He said the guy had licensed it to some companies and made some money from it. After reading this article I think the guy got lucky. My mother's vacuum cleaner had a retractable cord on it when I was running around in diapers so I think a trained monkey could have put together retractable jumper cables.
Many patents on computer technology seem to fall into this category as well - when I say technology I mean more the software. Things like one-click checkout are really an idea and a good coder, not some breakthrough technology that warrants a patent. Right after reading the article I was in a hotel shower and noticed the shower curtain. It used some 'fancy' means of attaching to the shower rod and had a tag saying it was covered by 3 patents with more pending. The 'fancy' means was essentially a hard plastic circle with one side slit open so you could bend the plastic and slip it over the rod. Patentable? With 3 patents? It was a shower curtain, not a patentable item.
The US Patent system has some flaws, hopefully this will be corrected at some point to avoid the years of lawsuits we love to fling at each other.
Recently I was catching up on my old Wall Street Journals, doesn't seem like I read much else, and found an article on patents. The article was discussing how many are challanged and thrown out these days. It went on to further discuss how the system has developed over the years and even stated one of the determining factors in if a patent is justified and should be granted. The article said something to the effect that the idea can't be something that somebody with a reasonable knowledge in the applicable field could readily build. This was like a lightening bolt to me.
My first interest in patents came about when a friend of a friend was saying he wanted to be an inventor but needed that one product to support him while he worked on more. He had a full time job and had actually patented a few ideas in the past. His 'big' patent seemed alright to me but he mentioned a friend who had patented a retractable jumper cable. I thought at the time that he was joking and that couldn't be enforceable. He said the guy had licensed it to some companies and made some money from it. After reading this article I think the guy got lucky. My mother's vacuum cleaner had a retractable cord on it when I was running around in diapers so I think a trained monkey could have put together retractable jumper cables.
Many patents on computer technology seem to fall into this category as well - when I say technology I mean more the software. Things like one-click checkout are really an idea and a good coder, not some breakthrough technology that warrants a patent. Right after reading the article I was in a hotel shower and noticed the shower curtain. It used some 'fancy' means of attaching to the shower rod and had a tag saying it was covered by 3 patents with more pending. The 'fancy' means was essentially a hard plastic circle with one side slit open so you could bend the plastic and slip it over the rod. Patentable? With 3 patents? It was a shower curtain, not a patentable item.
The US Patent system has some flaws, hopefully this will be corrected at some point to avoid the years of lawsuits we love to fling at each other.
Thursday, October 05, 2006
Leveraged Buyouts - Criminal
I was considering the recent surge in Leveraged Buyouts and began to wonder why they occur, especially some of the recent ones where the firm goes private and then public again within a short time period, often after 1 to 2 years.
It is obvious to everyone who reads the business news that the private equity groups taking public companies private are making enormous profits. Based on this factor alone the current shareholders of a company for which an offer is made shouldn't be interested in selling as they are clearly leaving a significant amount of value on the table.
This leads to the question of why is there value left on the table? It would seem that the private equity firm has a different operating model in mind for the firm. Assuming the firm is run to maximize shareholder value (there are other considerations but I am not going there for simplicity and the private equity firms aren't going there either) then the current management team should be doing what the private equity firm wants to do. Given the number of transactions over the past few years it should be obvious to management what the new owners will do and they should do it immediately.
If Management is involved in the leveraged buyout the board of directors should immediately fire the entire team and initiate lawsuits seeking damages as the management team clearly has steps in mind to increase the value of the firm that they aren't initiating until they are the owners. They have stopped working in the shareholders interests.
Lawyers are quick to sue a firm whose stock price drops for that fact alone which costs the firm further reducing its value making the entire process suspect but when the shareholders are clearly being harmed why does no one sue?
Are investors so niave that they really believe a bid slightly over market is such a good deal? Clearly the buyers think it is a bargain or they wouldn't have made the bid.
One last observation, this would not apply to mergers between firms. When two firms merge, especially in the same industry, there are other economies of scale that can't be achieved by either firm independently such as combining back office operations and firing one of the home office staffs.
It is obvious to everyone who reads the business news that the private equity groups taking public companies private are making enormous profits. Based on this factor alone the current shareholders of a company for which an offer is made shouldn't be interested in selling as they are clearly leaving a significant amount of value on the table.
This leads to the question of why is there value left on the table? It would seem that the private equity firm has a different operating model in mind for the firm. Assuming the firm is run to maximize shareholder value (there are other considerations but I am not going there for simplicity and the private equity firms aren't going there either) then the current management team should be doing what the private equity firm wants to do. Given the number of transactions over the past few years it should be obvious to management what the new owners will do and they should do it immediately.
If Management is involved in the leveraged buyout the board of directors should immediately fire the entire team and initiate lawsuits seeking damages as the management team clearly has steps in mind to increase the value of the firm that they aren't initiating until they are the owners. They have stopped working in the shareholders interests.
Lawyers are quick to sue a firm whose stock price drops for that fact alone which costs the firm further reducing its value making the entire process suspect but when the shareholders are clearly being harmed why does no one sue?
Are investors so niave that they really believe a bid slightly over market is such a good deal? Clearly the buyers think it is a bargain or they wouldn't have made the bid.
One last observation, this would not apply to mergers between firms. When two firms merge, especially in the same industry, there are other economies of scale that can't be achieved by either firm independently such as combining back office operations and firing one of the home office staffs.
Wednesday, October 04, 2006
Saving the Turtle Farmers in LA
Today's Wall Street Journal has a front page article on the actions of Turtle Farmers in LA to have the FDA overturn it's ban on the selling of turtles with shells under 4 inches long. It just so happens that I have had an inexplicable lifelong attachment to turtles and tortoises. I currently have 9 of them as pets and when moving they warrant as much consideration as my child in regards to making sure we have room and what not for them to live adequately.
The history of the ban is that baby red eared sliders (size of a quarter) used to be sold or given away very cheaply at stores across the nation. It was once common practice to sell a small water bowl with a plastic palm tree on it with a free turtle. Ignoring the issues with this setup which would be illegal even if small turtles could be sold, the size of the turtles led to children putting them in their mouths. Since turtles can carry salmonella in their intestinal tracts children got salmonella poisoning. I believe there was one outbreak in particular where several children got sick that sparked the ban.
The turtle farmers want the ban lifted. The primary reason is financial. The price of turtles has collapsed over the past few years as China, a key buyer(they eat them), has developed it's own in country breeding programs and no longer needs US turtles. In support of their argument to remove the ban they claim with a few studies to back them that the salmonella risk is minimal if existent at all.
I don't know if they are correct in their claims. I have never gotten sick although I don't have any red eared sliders either.
I do believe that a ban should be maintained. Red Eared Sliders have been referred to as the Opuntia Cactus of the animal world. Opuntia Cactus was a local plant that when transported to other regions of the world readily adapted and can be seen in virtually all desert regions now. Red Eared Sliders are very sturdy and can survive wide climate variations as long as they have water. They have been found in waterways all over Europe and Asia where they are not naturally occurring. Within the US they have spread to every corner of the country and are standard in most ponds. All of this a result of owners getting tired of caring for them and dumping them in the nearest pond.
4 inch Red eared sliders are readily available at any pet store selling turtles and are the bane of turtle rescue groups. Visit Turtle Homes and they generally have 10's of Red Eared Sliders available and are alway looking for locations to send them. Making baby turtles legal and readily available will only aggravate both the release and the rescue issues.
A 4 inch turtle by it's size requires a certain setup to live including tanks and filters which easily cost a couple hundred dollars on the cheap side thus making folks think twice about buying a pet. A quarter sized turtle can suddenly fit in a fish bowl that you dump out once in a while and refill. Suddenly that quarter is a half dollar and then 4 inches. What do the owners do then? Dump it in a pond, call a rescue group or buy a big new setup?
The real world is brutal and the turtle farmers should have to find a different solution to their problem besides promising that thousands of turtles will be mistreated and otherwise abused.
The history of the ban is that baby red eared sliders (size of a quarter) used to be sold or given away very cheaply at stores across the nation. It was once common practice to sell a small water bowl with a plastic palm tree on it with a free turtle. Ignoring the issues with this setup which would be illegal even if small turtles could be sold, the size of the turtles led to children putting them in their mouths. Since turtles can carry salmonella in their intestinal tracts children got salmonella poisoning. I believe there was one outbreak in particular where several children got sick that sparked the ban.
The turtle farmers want the ban lifted. The primary reason is financial. The price of turtles has collapsed over the past few years as China, a key buyer(they eat them), has developed it's own in country breeding programs and no longer needs US turtles. In support of their argument to remove the ban they claim with a few studies to back them that the salmonella risk is minimal if existent at all.
I don't know if they are correct in their claims. I have never gotten sick although I don't have any red eared sliders either.
I do believe that a ban should be maintained. Red Eared Sliders have been referred to as the Opuntia Cactus of the animal world. Opuntia Cactus was a local plant that when transported to other regions of the world readily adapted and can be seen in virtually all desert regions now. Red Eared Sliders are very sturdy and can survive wide climate variations as long as they have water. They have been found in waterways all over Europe and Asia where they are not naturally occurring. Within the US they have spread to every corner of the country and are standard in most ponds. All of this a result of owners getting tired of caring for them and dumping them in the nearest pond.
4 inch Red eared sliders are readily available at any pet store selling turtles and are the bane of turtle rescue groups. Visit Turtle Homes and they generally have 10's of Red Eared Sliders available and are alway looking for locations to send them. Making baby turtles legal and readily available will only aggravate both the release and the rescue issues.
A 4 inch turtle by it's size requires a certain setup to live including tanks and filters which easily cost a couple hundred dollars on the cheap side thus making folks think twice about buying a pet. A quarter sized turtle can suddenly fit in a fish bowl that you dump out once in a while and refill. Suddenly that quarter is a half dollar and then 4 inches. What do the owners do then? Dump it in a pond, call a rescue group or buy a big new setup?
The real world is brutal and the turtle farmers should have to find a different solution to their problem besides promising that thousands of turtles will be mistreated and otherwise abused.
Thursday, September 14, 2006
Mr. Foley's Shooting
Steve Foley, the ex-Charger, who was shot by an off duty police officer has been charged with misdemeanor drunk driving, or as they call it now, under the influence. He might be guilty, he might not, the courts will decide.
The charges against his girlfriend should never have been filed, why add fuel to a fire when you can just let her go.
The off duty police officer that shot him, he should have already been fired. His actions in noticing the erratic driving and calling for backup were fine. His confronting Mr. Foley resulting in the off-duty officer in a civilian vehicle feeling trapped at the end of a cul-de-sac requiring him to shoot Mr. Foley shows at best sheer incompetence. He screwed up bad and needs to face the consequences or once again the public loses their faith in law enforcement.
I know nothing about this officer other then what the newspapers have reported and these are bare facts with nothing about his personality and goals in life. I will say that the situtation he finds himself in is the exactly the sort of situation I told my father an officer in his hometown was likely to end up in. That officer is very gung ho and willing to charge in and do anything. He manages to get mentioned in the papers for virtually every major police story in the town. Seems odd with something like 28 officers one is mentioned well over 50% of the time.
Police have a tough job that gets little recognition. Like many jobs they are expected to do it perfectly. Anything less is a failure and recognition is hard to come by since how do you surpass perfection? But within their ranks they have to watch out for those that are a bit too gung-ho and jeopardize the respect and admiration required for police to do their job effectively.
The charges against his girlfriend should never have been filed, why add fuel to a fire when you can just let her go.
The off duty police officer that shot him, he should have already been fired. His actions in noticing the erratic driving and calling for backup were fine. His confronting Mr. Foley resulting in the off-duty officer in a civilian vehicle feeling trapped at the end of a cul-de-sac requiring him to shoot Mr. Foley shows at best sheer incompetence. He screwed up bad and needs to face the consequences or once again the public loses their faith in law enforcement.
I know nothing about this officer other then what the newspapers have reported and these are bare facts with nothing about his personality and goals in life. I will say that the situtation he finds himself in is the exactly the sort of situation I told my father an officer in his hometown was likely to end up in. That officer is very gung ho and willing to charge in and do anything. He manages to get mentioned in the papers for virtually every major police story in the town. Seems odd with something like 28 officers one is mentioned well over 50% of the time.
Police have a tough job that gets little recognition. Like many jobs they are expected to do it perfectly. Anything less is a failure and recognition is hard to come by since how do you surpass perfection? But within their ranks they have to watch out for those that are a bit too gung-ho and jeopardize the respect and admiration required for police to do their job effectively.
Wednesday, September 06, 2006
Steve Irwin's Death
I feel very sorry for the family of Steve Irwin as I would for any family who suffers a loss such as theirs. My curiosity is aroused by the news media once again though. Why is his wife always described as American born?
Do the Australians consider that a mark of honor? A traitorous act? Is it the greedy Americans trying to take credit in some small way for Steve Irwin? Is that all she has going for her?
If some white guy were to die and the media started reporting that his black wife was flying home with the kids there would be rioting in the streets.
How fickle we are.
Do the Australians consider that a mark of honor? A traitorous act? Is it the greedy Americans trying to take credit in some small way for Steve Irwin? Is that all she has going for her?
If some white guy were to die and the media started reporting that his black wife was flying home with the kids there would be rioting in the streets.
How fickle we are.
Tuesday, August 29, 2006
Business News
I am on the road again for a few days so this morning I went to breakfast and read the Money section of USA Today. Top of the page story, 'Fliers board faster as fewer carry on bags'. This is news? If people have less stuff in their hands they move quicker, not only that, they aren't trying to wheel bags down the aisle that just don't fit. Being a semi-frequent traveller I have always been irritated by fellow flyers who carried on foot lockers and couldn't figure out why they didn't fit in the overhead storage. Don't worry, I shared the blame for this with the agents who allowed this bag onto the plane despite the 'cages' outside the gates saying anything larger then this needs to be checked. After watching 'Airline' a few times about Southwest Airlines reality I don't understand how it happens because those agents are real bastards and seem like they would question if a wallet in a rear pocket were too big.
Below this was the Cover Story about clothing manufacturers getting squeezed by the recent store mergers. Oh my goodness, fewer stores, less space, who would have guessed. I don't understand the Macy's/May's merger getting by regulators but that is life. Normally I think mergers are fine but this one combined the only two department stores I have ever really bought clothes at. The article mentions Kohl's as an option, I grew up in New England and don't know what Kohl's is but it took the old Bradlee's location (bankrupt) so it has inherited the Bradlee's image and I never bought clothes there. JCPenney, never really liked that place for some reason an their new 'image' hasn't won me over just yet. Not even sure I could find one of their stores. Mervyn's just doesn't cut it but if I had bought them out a year or two ago I would be pumping up the advertising and chasing all those like myself.
But what I really found interesting was how many 'labels' were owned by a small number of clothing manufacturers. The articles mentioned how they have opened outlet stores and so on. Based on the number of labels any one of them own they could open their department store, forget the outlets.
My favorite article was at the bottom, 'Mortgage lenders see stock prices sink'. I work in the investment industry and am always amazed at how things work. For mortgage lenders (and many others but this article is about them) when the market was screaming their stocks took off. Sound logical? Yes and No. Theoretically stock valuations are based upon future expectations of a firms prospects. During a boom time analysts and others all see roses and project that the party will last forever. They act surprised when something changes or goes wrong despite the knowledge that the industry was overheated and due for a slowdown or adjustment.
Knowing that the market was overheated and that a slowdown had to come should have been factored into the stock valuations all along. Some error based upon timing of when this would occur can be expected resulting in valuation adjustments but a 20% decline within 2006 is absurd. One would assume that either the stocks were overvalued to begin with or are undervalued now. Given how companies operate I would go with overvalued but wouldn't bet on undervalued now. Many of these firms have been taking on greater and greater risks as they add more options to the mortgages they offer and chase poor risk borrowers to try and juice their returns.
I propose that most of the mortgage lenders (not all, there are some more conservative then others), expecially those lending to risky borrowers have been overstating their income and prospects for several years based upon the real estate boom. When the market is climbing rapidly errors get masked as the person who is short cash sells the real estate and pays off the mortgage instead of defaulting. The companies then say that their default rate is miniscule and use this number to project future defaults despite the historical norm for defaults being much higher. They spin tales of how they have refined the review process and keep on top of the borrowers and act quickly to stem issues but that is all for the media and analysts. The market masked their errors. Soon there will be articles about lenders going bankrupt and they will say how the new 'paradigm' the firm operated in fell apart with the market. Well, there was and is no new paradigm, they capitalize on a short term market and fail in the long term due to the high risk they assumed without generating a comensurate return. Meanwhile senior managers walk away with millions and shareholders lose their shirts.
That was the business news today.
Below this was the Cover Story about clothing manufacturers getting squeezed by the recent store mergers. Oh my goodness, fewer stores, less space, who would have guessed. I don't understand the Macy's/May's merger getting by regulators but that is life. Normally I think mergers are fine but this one combined the only two department stores I have ever really bought clothes at. The article mentions Kohl's as an option, I grew up in New England and don't know what Kohl's is but it took the old Bradlee's location (bankrupt) so it has inherited the Bradlee's image and I never bought clothes there. JCPenney, never really liked that place for some reason an their new 'image' hasn't won me over just yet. Not even sure I could find one of their stores. Mervyn's just doesn't cut it but if I had bought them out a year or two ago I would be pumping up the advertising and chasing all those like myself.
But what I really found interesting was how many 'labels' were owned by a small number of clothing manufacturers. The articles mentioned how they have opened outlet stores and so on. Based on the number of labels any one of them own they could open their department store, forget the outlets.
My favorite article was at the bottom, 'Mortgage lenders see stock prices sink'. I work in the investment industry and am always amazed at how things work. For mortgage lenders (and many others but this article is about them) when the market was screaming their stocks took off. Sound logical? Yes and No. Theoretically stock valuations are based upon future expectations of a firms prospects. During a boom time analysts and others all see roses and project that the party will last forever. They act surprised when something changes or goes wrong despite the knowledge that the industry was overheated and due for a slowdown or adjustment.
Knowing that the market was overheated and that a slowdown had to come should have been factored into the stock valuations all along. Some error based upon timing of when this would occur can be expected resulting in valuation adjustments but a 20% decline within 2006 is absurd. One would assume that either the stocks were overvalued to begin with or are undervalued now. Given how companies operate I would go with overvalued but wouldn't bet on undervalued now. Many of these firms have been taking on greater and greater risks as they add more options to the mortgages they offer and chase poor risk borrowers to try and juice their returns.
I propose that most of the mortgage lenders (not all, there are some more conservative then others), expecially those lending to risky borrowers have been overstating their income and prospects for several years based upon the real estate boom. When the market is climbing rapidly errors get masked as the person who is short cash sells the real estate and pays off the mortgage instead of defaulting. The companies then say that their default rate is miniscule and use this number to project future defaults despite the historical norm for defaults being much higher. They spin tales of how they have refined the review process and keep on top of the borrowers and act quickly to stem issues but that is all for the media and analysts. The market masked their errors. Soon there will be articles about lenders going bankrupt and they will say how the new 'paradigm' the firm operated in fell apart with the market. Well, there was and is no new paradigm, they capitalize on a short term market and fail in the long term due to the high risk they assumed without generating a comensurate return. Meanwhile senior managers walk away with millions and shareholders lose their shirts.
That was the business news today.
Monday, August 21, 2006
First Amendment & The Press
When the media prints a story from unnamed sources and then refuse to divulge the names of the sources as this would cause sources to dry up I understand. This has to be tempered by the threat of made up sources and the media does a pretty good job of roasting it's own when such a violation is uncovered.
This weekend I was reading the WSJ opinions page from August 19 -20th, 2006. One of the areas I always look to is the upper right hand corner of the second page. Sometimes the opinion expressed in this area is of little to no interest. In this edition I found it interesting. Theodore J. Boutrous, Jr., a lawyer by trade, was expressing his opinion on a lawsuit regarding the use of a phone conversation originally acquired via illegal means. Mr. Boutrous represents Dow Jones, which is noted, so clearly his opinion will support that of the media and the WSJ.
Mr. Boutrous argues that although the taping of the phone conversation was illegal the reporters, and a congressmen who actually received the tape first and passed it on, had a right to publish it as the conversation was accurate and the reporters committed no crime. The argument is obviously one around the First Amendment and freedom of the press.
I disagree. If my TV is stolen and the thief gets on EBAY and sells it, I still expect my TV back. I don't expect the buyer to be arrested. If the Buyer knew the TV was stolen neither they nor anyone else would have purchased it I would like to think. Similar to a pawn store where they actively check for stolen merchandise before purchasing anything to avoid problems with the law and their business licenses.
It is illegal to tape phone conversations without the parties being aware of the taping. The conversation is now stolen property and is readily identifiable as so. A respectable news organization should make sure to return the property and not publish it.
A prosecutor in a court of law would not be able to use such a piece of evidence to convict someone so if it could taint a court proceeding why doesn't it taint a news organization?
This weekend I was reading the WSJ opinions page from August 19 -20th, 2006. One of the areas I always look to is the upper right hand corner of the second page. Sometimes the opinion expressed in this area is of little to no interest. In this edition I found it interesting. Theodore J. Boutrous, Jr., a lawyer by trade, was expressing his opinion on a lawsuit regarding the use of a phone conversation originally acquired via illegal means. Mr. Boutrous represents Dow Jones, which is noted, so clearly his opinion will support that of the media and the WSJ.
Mr. Boutrous argues that although the taping of the phone conversation was illegal the reporters, and a congressmen who actually received the tape first and passed it on, had a right to publish it as the conversation was accurate and the reporters committed no crime. The argument is obviously one around the First Amendment and freedom of the press.
I disagree. If my TV is stolen and the thief gets on EBAY and sells it, I still expect my TV back. I don't expect the buyer to be arrested. If the Buyer knew the TV was stolen neither they nor anyone else would have purchased it I would like to think. Similar to a pawn store where they actively check for stolen merchandise before purchasing anything to avoid problems with the law and their business licenses.
It is illegal to tape phone conversations without the parties being aware of the taping. The conversation is now stolen property and is readily identifiable as so. A respectable news organization should make sure to return the property and not publish it.
A prosecutor in a court of law would not be able to use such a piece of evidence to convict someone so if it could taint a court proceeding why doesn't it taint a news organization?
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