Short Retort

Newsbuster.com coverage of the debates is terrific and includes the following:

• I have a Bracelet, too - Obama couldn't initially remember the name on his bracelet and I guess he can't remember that on a public radio interview, the father of the fallen soldier has asked Obama to not wear his son's bracelet. And yet Obama continues to wear it against the families wishes.
• Kissinger - Old Henry is quite mad at Obama for twisting his words and has now stated for the record that he believes that McCain is right and Obama is wrong.
• Al Queda Blunder - Much was made when McCain stumbled on a name but no one in the media has yet to discuss Obama's incorrect statement that "there was no Al-Queda" before 2003. Wrong...
• AOL Poll - The media seems to have a blind spot when it comes to a recent AOL straw poll of hundreds of thousands of readers which showed McCain - 63% vs. Obama - 37%

Carter, Clinton and Liberal Congress to Blame

When the financial problems surfaced my first reaction was to place a big portion of the blame on Jimmy Carter and the liberal Congress who passed the first CRA law. I then read an article that explained why I was wrong and silly me, I believed it. Since then I have read too many other reports that indicate that my initial gut response was, in fact, right. CRA is to blame for a big part of the housing and mortgage problem.

What is CRA? During Jimmy Carter’s presidency, Congress created the Community Reinvestment Act to ensure that banks met the credit needs of lower income areas. I was in banking then and remember when a close friend of mine was initially put in charge of implementing the CRA requirements for my bank. I even helped her with the demographics and maps outlining where the low income areas were and showing the number and types of loans we had in those areas.

Within a year we needed to have an entire department full of people, including a lawyer, to not just make these loans but to show the government that we were in compliance with the new laws. This is because we soon realized that this law had teeth. If a bank was found to be out of compliance then the government could stop it from opening branches, merging with other banks, or even give then a Cease and Desist order! I worked for a large bank which had the manpower and expertise to not only meet the new laws but to then prove we did meet them. But for smaller banks, both making the loans and the accompanying CRA paperwork was (and still is) a huge burden.

I am assuming this but it would make sense that over the next 10-15 years the banks found and made loans to the “best” consumers and businessess in low income areas. Yet they still had to show growth and continuous new lending but there was no one left who qualified.

In 1995, when Clinton was president, there was a revision to the CRA and one of the changes was to allow the securitization of new CRA loans with subprime mortgages. I have heard but have not yet been able to prove that these changes also allowed banks to use unemployment checks as income for applying for a loan. Regardless of the exact method, the result was to offer mortgages to people who would not qualify for a loan if they lived in my neighborhood or your neighborhood. Yet they were now moving down the street and raising the prices of our houses, all thanks to CRA. And gee, guess what one of the roles of a community organizer is?

Basically, CRA is affirmative action imposed on banks. But, affirmative action to lower the requirements to get into college is one thing, lowering the requirements to make a loan is an entirely different prospect. If a person flunks out of college, no harm is done but if a person can no longer pay their mortgage, well, we now see what happens. Then again, what else should we expect when liberal congressmen, most of whom have never worked in the real world their entire lives, tell businessmen how to do business?

I hate being right. But my gut instinct to blame CRA is correct. And yet, even as I write this, banks are still being examined to see if they are compliant to CRA regulations. This makes no sense. We must reign in the CRA requirements or else we will find ourselves back in the same mess, regardless of any new proposals by Congress to resolve this issue. As the saying goes, it would simply be throwing good money after bad.

Is Your Bank Safe?

Did you know that Wachovia is showing a $9 billion loss as of June? Is your bank losing money? How can you find out? You could find some financial statements on the annual report but there is an even better place to check out your bank.

Let’s say you want to know how Bank of America is doing. The following website has detailed financial statements for all bank holding companies and provides comparisons of your bank versus other banks of the same size: http://www.ffiec.gov/reports.htm.

Once in this website I will go to Performance and click on Bank Holding Company Performance. This will take me to a form where I enter in the name of my bank (Bank of America) and the city and state where the holding company is located. At the bottom select the Holding Company option. After you submit your bank's name you might get a list of banks with similar names and you need to find yours. Once you have correctly selected your bank you will next see another form. Under the first option for Bank Holding Company select the date of the reports and then select Create Reports.

You now have a report filled with financial information. To find out if your bank is profitable go to page 2 for the Income Statement - Revenue and Expenses. At the bottom of the page is Net Income, which is the profit and over in the far right is the percentage change in the past year and 5 years. In my example, Bank of America, this bank's profit has dropped 58% in the past year. Ouch! But at least it is still showing a profit.

Back on page 1, Summary Ratios, the first paragraph again shows Net Income but this is the bank's Net Income as a percent of assets. The higher the number, the better. For Bank of America, their Net Income is .53 which wouldn't really mean much to me until I see in the next column that it's peer bank's have a Net Income of .47. So I feel a bit better knowing my bank is outperforming its peers. Although everybody is much lower than a year ago.

Congress is currently working on a bill to buy bad loans from banks. Does your bank carry a lot of bad loans? The second grouping in the Summary Ratios report is for Losses and its first line shows your bank's loan losses as a percentage of all of your bank's loans. Obviously you want to have a very low percentage. Bank of America's loan losses are 1.40% of its loans which are almost twice as high as the 0.79% for its peers. The scary part is that a year ago only 0.77% of loans were bad for this bank.

This report is filled with financial data and you could spend hours looking at it all. But just by reviewing a few things anyone with money in Bank of America should feel somewhat better. Not like customers at Wachovia, but then again, I would not know it lost over $9.5 billion unless I checked the bank out here. I highly recommend that you review your bank's financial statement. The more informed you are, the better financial decisions you can make to protect your money.

Power Play

If elected Barack Obama will be a very weak and indecisive president. How did I arrive at this conclusion? By watching the current power play over the past week in which Obama abdicated his leadership role to the Democrat leaders of Congress. It is not often that the public can see such a ruthless play for power but that is exactly what is happening over the financial bailout.

First, House Speaker Nancy Pelosi and Senate Majority leader, Harry Reid, said they had come up with a plan. Only after getting maximum press coverage, where they looked like the heroes of the hour, was it revealed that they had not vetted it with anyone else. Then when anyone (such as the House Republicans or a good part of the nation) disagreed with their idea the dissenters were portrayed as deal breakers when in fact there never had been a deal satisfactory to enough people to pass a vote.

When McCain said he and Obama should be there to work on a bailout rather than getting ready for a debate, these Democrat leaders said that this issue was not a place for “presidential politics”. Excuse me? Since one of these men will be responsible for this country in just a few months and tasked with implementing the solution then they should definitely have a role in this. As for “politics” few people are more political than Pelosi and Reid. Their entire role seems to be less in finding a workable solution and more in claiming they were the ones who had a solution and blaming McCain for derailing their “deal”. However, even setting aside “presidential politics” Obama and McCain are Senators who should be there in that role.

This week Obama showed his inexperience and weakness by abdicating his leadership to Pelosi and Reid. Instead of asserting his role as the next potential president he bowed to their wishes and initially stayed away from Washington. Perhaps this is also a reflection of Obama’s history of avoiding making decisions by either not being there or by avoiding either a nay or aye vote. Whatever his reasons, by staying away he turned over his leadership role to Pelosi and Reid. Only a call from Bush finally got Obama back to Washington.

As I write this on Friday morning, Reid has just had another press conference. Again he said that “outsiders should stay out of it” which is a swipe at McCain and yes, even Obama. He also insinuated that a deal would have been reached if McCain had stayed away. You could see that Reid was clearly angry that his deal was shot down by the House Republicans. How dare anyone go against him! Reid even admitted that he is getting angry calls from his constituents but that Congress knows best and even though people are unhappy with it, the deal is good for Wall Street and Main Street. What hubris!

I don’t know how this whole financial mess will ultimately be resolved. What I do know is that Pelosi and Reid are already trying to flex their political muscles. This past week Obama has already set precedence by not only letting Pelosi and Reid tell him what to do but even worse by then doing their bidding. Instead of acting “presidential” he showed he was weak and could easily be controlled by Pelosi and Reid. This bodes a difficult presidency for Obama and an even worse four years for the rest of the country. For if Obama wins then Pelosi and Reid just might end up as the real leaders

Presidents Right, Left and Center

Did you see the President last night?. He looked awful. I know the presidency ages people but President Bush is not only grey haired now, he also looked grey all over. He appeared tired and drawn and as if he has lost some weight. It also looked as if they tried to hide it with not just coverup but also a touch of rouge on his sallow cheeks. Then there was that noise. Did you hear it? Throughout his speech there was this very low background noise. I might be wrong but it sounded as if it was his stomach. And who could blame him? My stomach would be churning and roiling, too, if I had the entire economy of the United States on my conscience.

Will his speech help? I don't know. People agree something is needed but $700 billion is a lot of money. After the speech a pundit explained what Bush should have. The $700 billion is the max amount and they came up with that number based on the government buying up to 5% of all the bad loans. The President also didn't mention that not all of the loans will go bad. Some of it will be repaid as folks pay off these loans otherwise Uncle Sam will own a lot of houses. I wish President Bush had told the public this as it makes it a bit more palatable to swallow.

Right now though, conservatives are not happy with the idea of government getting involved. In fact this would create one of the largest, if not the largest new government department. On the other hand, liberals aren't happy because, well, I guess because it is Bush's idea. They also want to add in a lot more things to try to further protect the consumer although if the consumers had paid off their loans we might not be in this mess.

Then there is the McCain - Obama power struggle over the whole thing. Was McCain correct in suspending his campaign and trying to call off the debate on Friday? Or is he simply grandstanding or worse, jumping to a quick decision without thinking it through? At first I thought he backed himself against the wall for he could end up looking weak and Obama looking like the leader. But now I think McCain just might be the one looking like a future president.

Obama is looking like the man who said "present" in past votes and avoided making the tough decisions when he said that he would return to Washington if he was needed. Excuse me? He is first and foremost a Senator and this is the most important issue in years to hit Congress and yet he was once again going AWOL rather than actually make a vote.

And one more President has jumped into the fray when Bill Clinton defended John McCain! Clinton appeared on Good Morning America this morning and in discussing McCain's suspension of his campaign said "I presume he did that in good faith since I know he wanted -- I remember he asked for more debates to go all around the country and so I don't think we ought to overly parse that." For a man who is supposed to be campaigning for Obama he sure is going about it in a strange way. On top of his latest defense of McCain, on Monday Clinton defended Sarah Palin. Ironically, the extremely liberal Huffington Post had an article quoting Clinton discussing Palin's appeal and said "I get this," Clinton said. "My view is ... why say, ever, anything bad about a person? Why don't we like them and celebrate them and be happy for her elevation to the ticket? And just say that she was a good choice for him and we disagree with them?"

Back to the economy, you would think that with all these Presidents and wanna be presidents that they might come up with an idea that will help people and Wall Street. For if there was a time to forego politics, now is that time. Meanwhile, there isn't much the American people can do but watch and wait and pray that for once the politicians do the right thing, not the politically expedient thing to do.

Panic of '08 - Part 3

Financial experts, Congress, the President and other advisors are all running around trying to figure out what happened and how to fix it. They talk of $700 billion plans to buy bad mortgages from banks to free them up to make more profitable loans. But before they throw good money after bad everyone needs to take a step back. Since so many people say this is the worst financial crisis since the Great Depression then that is where we need to start.

A major component of the Great Depression was bank failures. Simply put, bank failures were partly due to bank’s using their customer’s deposits to buy and sell stocks and risky securities, in other words to act as investment banks. To prevent this from happening Congress passed The Banking Act of 1933 which included the Glass-Steagall Act. This act said that the only deposit accounts banks could offer were Checking, CDs or Savings accounts. The government even regulated what interest rates a bank could offer on CDs and Savings. As for buying or selling stocks or securities you had to go to an investment back. Overall, these laws clearly defined a distinct line separating commercial banks from investment banks.

In the early 1980’s investment banks were the first to cross the Glass-Steagall line when they started to offer Money Market Accounts. Even though investment bank’s Money Market Accounts were not insured, as were bank deposit accounts, they offered very high interest rates. People were moving their money from commercial banks to investment banks and so to remain competitive, Congress began to deregulate banks and overturn The Banking Act of 1933.

The Depository Institutions Deregulation and Monetary Control Act of 1980 paved the way for banks to offer checking with interest and eliminate the interest cap on CDs and Savings. This was followed by more deregulation which allowed banks to merge in their state and granted new powers to Savings and Loans.

The law that impacted Savings and Loans the most was the Garn-St Germain Act of 1982. This act allowed S&L’s to have up to 50% of assets in commercial real estate. This meant that Saving’s and Loans went on a binge of making loans with little regard if the person or business could pay them back. Within a few years Savings and Loans were failing throughout the country. In 1989 the government created the Resolution Trust Corporation (RTC) which was to oversee the S&L failures and funded it with $50 billion. Over the next few years another $50 billion was given to the RTC. In 1980 there were 4,000 S&L’s and today there are only 1,250.

Congress continued to deregulate banks and the last of the Glass Steagall Act from 1933 which separated commercial banks from investment banks was abolished with the Gramm-Leach Bliley Act of 1999. Commercial banks could now do everything an investment bank could do such as underwrite and sell insurance and securities.

The financial world looks much different today than it did before the deregulation of the 1980’s. Savings and Loans are few and far between and now investment banks are gone, too. For the most part, that leaves just commercial banks to handle all of our daily transactions, savings, mortgages, consumer and commercial loans and now even our retirement funds. And with the deregulation of interstate banking, the number of commercial banks has dropped tremendously.

While everyone discusses the $700 bailout of investment banks somebody better be keeping an eye on the remaining banks. If they go then we have no where else to go. Our best hope for the future lies not in the huge conglomerates but in the small local banks. They might not be sophisticated but they still believe in serving their customers and in an old fashioned fiscal conservatism. And maybe the big financial institutions and Congress can learn from them.

Panic of '08 - Part 2

Everything began to unravel with the increase in prime rate. In June 2003 it was 4.00% and it nearly doubled to 7.25% by December 2007. Mortgage rates shot up correspondingly. People with subprime and ARMs (adjustable rate mortgages) who could barely afford their new homes when they purchased them suddenly had their monthly mortgage payments skyrocket. These customers could no longer afford their homes and defaulted on their payments.

The higher rates discouraged potential new buyers. People who needed to sell their houses were forced to lower their sales price. This trend is continuing to spiral down resulting in a collapse of the housing market and devaluation of home prices. Today we have people who had once paid 4% on a $275,000 loan for a $300,000 house who are now paying 7% on their $275,000 loan for a house which is now valued at $225,000. In other words their loan is more than the value of the house. They’ve lost what they initially put into the house and can’t afford to make their house payments with the higher interest rates. So they are simply walking away, leading to the highest foreclosure rates in decades.

If all this wasn’t bad enough, add in Wall Street. Investors recognized the problems that financial institutions were in and began to sell their stocks short. Basically, buying short means you determine the sales price today even though you don’t own the stock yet. Let’s say stock for Company A is $50. You agree to sell it to somebody for $50 in one week. A week later the stock is $40 and so you buy it at $40 having already agreed to sell it at $50 and you made $10. Of course if the stock is higher then you would lose money. But Wall Street helped insure that their shorts would be profitable by simply buying short. Much of Wall Street is psychological. If other investors see that people are buying a company short then they figure those people know something you don’t. So they start selling their stock now before it goes down thus almost guaranteeing that the stock will fall in price.

The last piece of the puzzle is that happened after Wall Street began to sell short. Other people and companies watched and listened and began to lose confidence in a company. Then the domino affect begins. One by one companies began to withdraw their funds from an investment firm and worse, refuse to loan it any money. For example, look at the demise of Bear Stern. There were rumors that the firm didn’t have the cash to keep going. In the next 10 days Bear Stern shares dropped 40%. After Wall Street started to sell it short, companies such as Goldman Sachs stopped doing business with them and others followed. More rumors abounded in Wall Street about the potential collapse of Bear Stern in spite of the firm’s efforts to counter them. But it became hopeless and towards the end in one half hour period their stock dropped 40%. That was it for Bear Stern.

Bear Stern is just the tip of the iceberg. In the past week we’ve seen a number of other major companies who we never would have thought vulnerable suddenly disappear. If they were lucky, like Merrill Lynch who were bought by Bank of America. Other investment firms started to fall into bankruptcy with no last minute buyers. And then came the US Government which bought AIG rather than let it go bankrupt and lose all of its customer’s money.

So that is a (somewhat) brief overview of the Panic of ’08. This isn’t the first and won’t be the last financial crisis we go through. Yes it is serious but it isn’t fatal. And 100 years from now people may not even remember it. For example, do you recall the Panic of ’07? According to Wekipedia, “The Panic of 1907, also known as the 1907 Bankers' Panic, was a financial crisis in the United States. The stock market fell nearly 50% from its peak in 1906, the economy was in recession, and there were numerous runs on banks and trust companies.” Sound familiar?

Panic of '08 - Part 1

Someday the financial problems we face today will be called the Panic of 2008. The first question is why? What happened to create this panic? The second question is how can the government turn this around? And the final question is how can we prevent this from happening again? This posting is going to look at the first half of why this happened with the rest to be tackled in later posts.

For years now, banks have had difficulties being profitable. They normally make a lot of money from the margin: the difference in the rates they get from loans minus the rates they pay out on CDs, Money Markets and Checking with Interest. Basically they need to have high rates on loans and low rates on what they pay on deposit accounts. However, the extremely low prime rates over the past decade have hurt bank’s ability to be profitable.

If the profit from a loan is much less than in the 90’s and 80’s then one solution is to make more and more loans. Very simply, let’s say you use to make $5,000 profit on a loan and today you only make $1,000 profit. In order to maintain your profit then you need to make 5 loans. And that is what these financial institutions did. They ended up giving loans to people who barely qualified and to accommodate customers who didn’t qualify they gave them adjustable rate and subprime rate mortgages. Another means of showing higher profit was to put aside less money to cover potential bad loans. Think of it as putting away money for any emergencies then raiding that fund to pay for a vacation. Six months later when you are fired your emergency funds are gone. This is what happened with financial institutions. At the same time they are making riskier and riskier loans they have less and less in their funds to cover bad loans.

In addition to making loans, financial institutions could also invest their money. Desperate to make up for the low rates on their loans, they began to invest in things like derivatives and other high risk investments. The big institutions thought they knew what they were doing while the smaller ones simply blindly followed the big firms. Both were wrong and ended up with bad investments. Next: Part 2 - How it all came apart at once...

Parody Time

Times are very tough right now. The financial world is spinning out of control, the stock market is plummeting, mainstream media continues their biased coverage of the election, the devastation is unending in TX, Brady’s injury has ruined many football pools and things all over appear to be in trouble. So it seems to me that everybody (or at least conservatives) could use a few chuckles.….

A friend of mine recently asked me if I knew about the Capital Steps, a group that sings political parodies. Not only was I aware of them but I made sure that I saw their show the last time I was in DC. Plus what my friend could not have known is that for the past thirty years, before I had even heard of the Capital Steps, I was writing funny parodies to popular songs and poems to commemorate family occasions.

This summer I tried my hand at writing my first political parody. One of my inspirations was the fact that I’ve always thought that Barack’s name sounds like what a chicken says. Barahck Barahck. Silly, I know. As I wasn’t sure how that would go over I just tucked my song away. But thanks to my friend, and the need for a bit of silliness to offset all the bad news I decided to actually print it. So, this one is dedicated to you, Jim and I hope everyone enjoys it.

Since I can’t sing, you will have to hum to yourself as you read my parody to Bad Bad Leroy Brown. (To see the words to the original song click here: (http://www.stlyrics.com/lyrics/homealone3/badbadleroybrown.htm). With deepest apologies to Jim Croce here is my parody to Bad Bad Leroy Brown

Barahck Barahck Barahck Hussein

ln the South side of Chicago
Is the elitist guy I know
Yes he’s a Harvard man
With a really dark tan
Barahck Obama is that bro

Now Barahck runs from trouble
You see he stands against our war
All the blue state liberals call him "Détente Lover"
All the red states call him girl

And it's Barahck Barahck Barahck Hussein
The wimpiest man in the USA
Wimpier than old Al Gore
And scarier than Michael Moore.

Now Barahck he a chicken
‘Cause he vows to leave Iraq
And he likes to wave a big white flag
In front of Islamic attacks
Though he acts so presidential
He got no experience at all
He’s got the media in his pocket, for sure
But we’ll still vote McCain this fall

For its Barahck Barahck Barahck Hussein
The wimpiest man in the USA
Wimpier than old Al Gore
And scarier than Michael Moore.

The primary bout a month ago
Barack lookin’ fine
When from the edge of our country
Came a girl named Sarah
And oo that girl did shine
Well he cast his eyes upon her
And the troubles soon began
Cause Obama learned a heapin’
Bout keepin’ all the votes of the common man.

And it's Barahck Barahck Barahck Hussein
The wimpiest man in the USA
Wimpier than old Al Gore
And scarier than Michael Moore.

~

Let me know if you like this parody by either leaving a comment or email me at PCFugitive@aol.com. If enough people like it then I might start doing more Parody Times in the future. Thanks!

Short Retort

The Drudge Report had a link to one of the nicest articles I have ever read about Sarah Palin. It even described Gov. Palin's hairdo as being "much admired"! At first I thought it was from an Alaskan newspaper since it was so very favorable about this candidate for Vice President. Wrong. It was from a British newspaper, The Sun. Well, no wonder they were so nice to her! If you would like a fun reprieve from the harsh, unfair, untrue criticism heaped onto Sarah Palin by American newspapers than click on this link and enjoy! http://www.thesun.co.uk/sol/homepage/news/the_real_american_idol/article1687959.ece