Contrasts noted - Health care, Wall St bailouts, CHIP, Buffet on Leverage and Bernanke

Health care for ALL Americans vs. Wall St bailouts vs Childrens Health Insurance Program
Health care reform will have a cost, in trillions, to be funded over many years in the future, debate will last months, for the millions of uninsured, less fortunate Americans, more and more debate causes delays, continues, in this country, to fellow Americans, ACTUAL human suffering and premature DEATH. YES DEATH! What's clear is this: Very few, if any members of Congress or the Obama administration have any friends or relatives who are actually suffering from lack of access to health care. And many trees will die too as result of the massive reams of paper said reform will printed on.

Wall St, AIG bailouts, same if not greater costs, written up on a 1 page document.
Each action was billed by the Chairman of the Federal Reserve and US Treasury Secretary, Mr Paulson as "extraordinary".
Approved when? INSTANTLY.
Taxpayer funds and guarantees issued when? IMMEDIATELY.
Certain few more fortunate Wall Streeters, do not endure any suffering or lose their jobs, in fact, continue to handsomely benefit at taxpayer expense. In the past few weeks, some got SALARY RAISES of up to 50%. We'll see how long that lasts.

US Congress, largely one and the same hall of representative government, last summer, voted AGAINST the Childrens Health Insurance Program (CHIP); cost estimate $1 Billion - not a typo.

Warren Buffett on "crazy" Wall St and bank leverage and Bernanke
Buffett quoted Bloomberg News with Betty Liu June 24, 2009 - leverage was the root cause of our financial crisis; to which Betty referenced the oft quoted 30 to 1 Wall St reports - Buffett retorts, "that's just the observable, what was going on off balance sheet was "CRAZY". And further stated "If you're smart you don't need leverage and if your dumb you shouldn't be using it, added that you can't go broke if you don't owe any money."
Then BL asked if Bernanke was the right man for the job and the sage says "unqualified YES".

We remind the sage, that Mr Bernanke, in a prepared speech to Morehouse University in April 2009, blamed the Wall St meltdown, taxpayer-funded bailout entirely on what? Mortgages. Guess he didn't know then and doesn't yet know now about certain banks' and brokers' proprietary trading; I repeat PROPRIETARY - that means for the house, not for the customer. Whether on balance sheet or off balance sheet. And oh yes, the little leverage problem; my guess is that Bernanke didn't want to go there - perhaps he really doesn't understand it; therefore did not want to have to explain it; because that could bring up what he (and Greenspan) did not know about how certain few banks and brokerage firms were generating record after record EPS - in a supposedly transparent market; ANSWER - was to be found in the opaque markets; off balance sheet, proprietary valuation models, hedge fund like activities at a few large financial institutions.

Alarming disinformation and misinformation in the highest echelons of American finance.

Evaluate BB and TG first as ordinary citizens not as regulators

What real estate properties did they personally own? Mortgage?
Did they stay put, trade up or refinance and or pull cash out?
The majority of Americans did NOT move, trade up, flip or go crazy, did BB or TG?

During 2000's did the value of homes in their very own neighborhoods go down, stay about the same or hockey stick? If so why?

Did the value of homes in their previous neighborhoods stay the same, decline or hockey stick? If so why?

Did the value of houses they grew up in stay the same, go down or hockey stick? If so why?

Did the value of the college housing they resided in stay the same, go down or hockey stick? If so why?

The above reference value are things that reasonable adults in general, stay apprised of; there was no shortage of BBQ or cocktail party chatter.

Did the landscape of flowers, bushes, trees and tulips grow so beautful and tall that they caused the above to hockey stick? If so why?

Or was it the massive Wall St. leverage growing so nicely and paying out those handsome hockey stick bonuses? If so why?

Maybe BB and TG don't know or watch hockey - so they have an excuse; like color blindness they don't know a hockey stick when they see one. Wonder if they know what a boomerang is?

Sportin' Headline 2006 - (not a typo):
And for real - in the media that is, when did BB learn enough about real estate when the Wall St Journal headline appeared: “Bernanke Suggests Sinking Housing Market Could Dampen Growth” WSJ, October 5th. TG reported to BB – connect the dots! What did they know and fail to act upon? Maybe I might have missed it; but I didn't notice if the chairman wrote an Op-Ed piece to reject the headline - did you?

For TG, did he not notice that certain few banks FDIC insured demand deposits swelled in the 2003 to 2007 time period - and it wasn't due to attractive interest rates paid to depositors. Did anyone investigate the source of same? Did anyone bother to see that same banks broker dealer affiliates long standing proprietary money market funds assets were dropping? Despite having better yields than the insured (affiliated) bank deposits. Was anyone connecting the dots? Or is that just a child''s play?

Another series of siesta (anyone know the plural of siesta?) on the taxpayers dime.

DEEP, Liquid and trusted US Treasury markets until...

Today on Bloomberg, reporter Steven Engle reported that Robert Zoellick, World Bank, said that China's move away from its concentrated dollar holdings is unlikely to occur very soon BECAUSE of the "Deep, trusted and liquid US Treasury market"- I like to be hopeful, optimistic and wave the flag too but for different reasons; Flag day is coming up on June 14.

Deep, trusted and liquid means full faith and credit. Full faith and credit means unlimited taxing authority. Taxpayers brace for a huge load - coming down on our backs - stand up and be the face of deep, liquid and trusted so that we can show the rest of the world we are responsible for paying down / off the debt.

When we have conquered this Everest - size pile of debt - catch your breath real quick; no problem because we will be fully fit to man handle the tiny burdens of what? The tax increases necessary to pay for Social Security and universal healthcare - estimated to be over $30 to 40 trillion. Good thing it does not come due all at once. Because when we've have tackled those behemoths someone with a memory will remind us that there are not chump change, to-be-funded promises made in corporate pensions and municipal contracts.

And a couple of minor realities: Even a fifth grader can do the math as long as she has accurate numbers to begin with; (is it any wonder why our kids grow up to be confused about the multiple sets of books that abound?)
US Inflation, therefore interest rates are unlikely to go down.
With more debt and increasingly higher interest upon both the interest and debt outstanding, MORE, not fewer questions, challenges will arise due to the realities facing the dollar.
Market demand for Treasuries, from all sources, net looks to trend down over time.

The inevitable - when not if conclusion for US Dollar denominated anything.
And the always "home court advantage" attendant to financial accounting rules, asset valuation rules, official statistics, though represented as "full disclosure" is somewhere south of "full" - such that everything the rest of the world receives in payment is coined in US dollars - and has regrettably been hastened by the actions of past and current US Treasury / Fed / NY Fed / Wall St / AIG / Counterparties. Especially the proprietary trading, few too big to fail aka too big to exist - thanks to Chairman Volker for that one.

Note to policy makers when it comes to traditional bank loans 10x leverage for the bank is traditional; to suggest that 25 x leverage (or only 4% of assets to debt for financial trading assets - you're kidding right?) Allowing that kind of leverage for anything - is SPECULATION. REPEAT SPECULATION. And repeats what's already been encored by the too big to fail - LONG TERM CAPITAL MANAGEMENT circa 1998. Recall what leverage, derivatives and off balance sheet encourages / causes? Everything is created, traded and valued where? IN DARKNESS.

Is there even one?
Is there even one prudent advisor who is pounding the table demanding maximum exposure to as many US dollar denominated assets as possible? Show me. And especially show me if I am incorrect or unsound.

This will make for interesting not here to fore seen bed mates er investors / creditors including Canada, China, India, Japan, the OPEC countries, the rest of Latin and South America and Europe versus the Dollar. What to do about the all these new Dollars floating around?

Better start the PR spin and minting those new Martian Intergalactic Oxygen and Water-backed Bonds; soon we may all need a drink and breath of fresh air.

Graphic Thinking

Mr Richard Shelby, US Senator, said today on Bloomberg TV, "banks which are in distress are not in a position to make loans", so these banks require restoration such that they can extend new loans, then (magically) "confidence will come back into "the system" and the economy will recover". Later today, Bloomberg reported that US consumers are effectively "broke" with a chart showing that mortgage debt is near equal to home values, up from about 50% in about 2006. To which I say regarding the dollars especially those with new ink still drying - "nature abhors a vacuum" a quote attributed to Spinoza, Descartes, even Aristotle. A link to the science of pressure inherent in vacuums is here http://science.howstuffworks.com/question200.htm

So what does it mean?
In a political context, the phrase refers to power vacuums -- if an important person or agency abandons their 'role', another soon takes it's place. http://cosmodemonic.com/2004/feb.htm In this case, certain, not all of Wall St entered the power vacuum created by the inaction, inability at the SEC, took supposedly legal information, and evaluation and valuation advantages thru use of hidden special purpose entities (SPE's), Structured Investment Vehicles (SIV's), off balance sheet entities, derivatives and credit default swaps - almost forgot the 2000%, 3000%, 4000%, 5000% leverage upon same and more intra-quarter during 2004 to 2007.


GRAPHIC THINKING
Hypothetically, if the number of prostitutes increases will it cause an increase in tricks? Yes. Will the prostitutes' revenue increase? Yes. Will the dollars paid increase the same as the increase in tricks? No. Why? Because as you increase the supply of anything the price of it will go down. And the more tricks provided to the customers the less and less and less the customers will return for services. In other words - they've had their fill. Satisfied themselves. Fully satiated.

The US and its elected public officials are foisting a similar artifice upon the taxpayers and creditors of US debt. Not only are there trillions more dollars (as above, worth increasingly less and less) but there is more and more debt. Get it? Inflation in and of the economy is the hoped for rescue; precisely a Goldilocks economy is the only thing that seems to offer any hope.


Consumer analysis - final demand measures.
You see, the US consumer is, as above near broke, done spending on non-essential items - what more is there left to want? For instance, how many new books, cd's, music, movies, shoes, handbags, Nike's, cars, trucks, perfume, make up, er skin care products, name any other product from Amazon.com and the like can we endlessly continue to order and devote the time necessary to consume or more important, find space in the closet. Fortunately, Congress has not figured out a way to increase the number of hours in a day yet; no doubt someone is thinking about this economic bonanza. Back to prostitution. Once, we have satisfied ourselves - what happens? Correct, we don't have the same urge anymore, hence the demand goes down.


Back to Mr Shelby, the US consumer - the overwhelming 800 pound guerrilla in the world's economy is fully satisfied after satisfying itself during the 2004 to 2007 time frame. And some, myself included, with a larger social economic world view, say over the past 30 years.

One last final observation on consumer spending.

Consumers' conversation with self.

"OH I just have to have that pair of shoes, new breasts, sports car". True.

I'll be sooooo excited, sooooo happy, soooo thrilled, so much more attractive, so popular, a new conversation piece. True.

Until tomorrow.

The let down comes, inevitable, inescapable.

It's not that they are not the perfect color or shape.

It's not that they don't look great.

It's this.

It's largely superficial, self packaging, external.

When the cause of the initial drive and desire comes from within, a conditioned-by-advertising perceived need, a seeming deficit, we are led to think some thing's missing within ourselves, yet this much is true. The answers lie inside.

Is it any wonder, (thanks David Bowie) that Beverly Hills has more psychotherapists per person than most if not all other cities in the US? Wealth, money, spending and consumption does not, can not and never will buy happiness.

Said another way, what is the half life of happiness from buying a new product?
And to close, John Lennon - "all we need is love" - to which I add "and not anymore stuff".

Finally - a truth about too big to fail - from John Bowman, the new director of the Office of Thrift Supervision (OTS)

Too Big To Fail.
One truth has been told by a government official FINALLY.
Today is June 3, 2009.

Here's the truth.
Mr Bowman, on Bloomberg TV today with Kathleen Hays, stated publicly and named Citigroup, Bank of America, Wachovia - "The too big to fail were Not allowed to fail" further he stated "absent government intervention [more plainly known as the taxpayers assistance] would have failed."

Let me repeat that - "Not allowed to fail" and only because of massive assistance, free lunch from the taxpayer would have failed.

I say and many others may agree - despite the money - the manner in which the money was basically handed out to the above and the financial accounting rules softened such that "new and improved fair value" with fabric softener was to be used upon those soiled off balance sheet bets, er excuse me assets to freshen them up for the new owners, US taxpayers.

Bloomberg ran a story Friday June 5, 2009 (re: the above "new and improved" accounting would have wiped out MORE than Citigroups first quarter profit of $16B - not a typo) http://www.bloomberg.com/apps/news?pid=20601109&sid=alC3LxSjomZ8&refer=exclusive.

The first George Bush, #41 coined a phrase that resonates "kinder and gentler". And further coined "a thousand points of light" as long as light does not apply to certain banks, brokers, insurance outfits, better described as credit default guarantors is yet again another manifestation of how the monied set can create its own more than unique perception of reality. Mary Karr, literature professor at Syracuse, offered an example from her new boy friend's family from Long Island's North Shore, the family has always had a dog named "Tiger" - yes correct Tiger #1, 2, 3, 4, 5, 6.

There is a reason - the hearings on the multi trillion bailouts ocurred after the elections - the elected public officials / politicians hope that come the next election cycle - bailouts will be a faded memory to which this writer says - Hope and denial is not an investment strategy - never was, never will be.

Assets compared to Liabilities.
Assets can go up or down in value, everyone knows this. Debt, US Treasury / Government Debt on the other hand have these unique qualities: a due date, interest rate and no, the amount owed does not change or go away, ever.

Consider the Urgent Fornicate for America Act.
Update JULY 28, 2010 - Bill Gross, in his famous Deficit spending is like flushing money down an economic toilet then added that declining birth rates do not help the current situation.
Maybe I should have pulled the trigger - back in the Fall of '08 to suggest, not totally facetiously, that Mr Obama should have proposed and pushed for enactment of the Urgent Fornicate for America Act (UFFAA). What with winter then setting upon us, temperatures outside dropping, tensions inside rising and more and more Americans home from work (layoffs, less hours and just plain old full unemployment) what better way to keep the NOT-entitled-to-a-bail-out-taxpayers happy? And such a deal - get $500 instant cash, better than a tax credit for every baby born in 2009 and 2010. But in order to actually get the cash, taxpayers must sign a confidentiality agreement - never disclose to the new babies, ever. Just so the game can go on; business / politics as usual.

- yet another preventable principal agent conflict of interest problem on the current and future taxpayers' dime.

The Brooklyn Bridge; its engineering and materials, a mirror for the future US financial system

David McCullough, in 2002, in speaking of his research for his book "The Great Bridge" artfully described the Brooklyn Bridge as this wonderful esthectic - the result of the combination of "old world" (European and Gothic stylized) masonry and "new world" structural steel. He went on to explain how the massive stone towers function best when under the force of its own weight causes compression and that steel; steel performs best under what? Tension.

To this day the bridge remains an enduring, beautiful and functional icon beacuse its components' limits were not stretched to the max; rather the nature of stone and steel coming together were what? Studied, analyzed, scrutinized, understood, calibrated and prudently designed; when? Before the bridge was built. Because through hard work, identifying, addressing and overcoming immense tragedies including too many lives lost, large and small unpredictable challenges even in its circa 1886 era it was then as it is today - knowable and doable, a testament, then as now to American ingenuity and the sacrifice of all (and their families) who played both large and small parts in the project; to quote Kevin Garnett, the champion Boston Celtic, "anything is possible!"

Before we react, before we rush to judgments, before we rush headlong into new financial regulations let us consider this.

Diversification, another ion-ending word, can be better and should be applied to our banking, insurance and financial systems in the service of and for the protection of our whole economy for whom? All current and future taxpayers a.k.a. ultimately the interests of current and future American citizens. Not just a select few; the type A's on steriods of financial, self-interested, self-inflated, end-justifies-the-means, greedy masters of the financial universe; you know who you are / were.

Fact: over 95% of FDIC regulated banks are NOT on the watchlist, why? Because their boards, shareholders, managers were more prudent, less greedy, more patient and knew their customers better back in the day. Said another way they practiced "safety and soundness" every day; a select few "too big to fail" apparently placed that mandate far down on the list of their priorities. Although as a student of CSPAN - I note that the Big 8 banks CEO's all proclaimed in front of the Senate Finance committee that the one and the same "safety and soundness" was now job #1...things that make you go hhhhhmmmmm.

Too big to fail is largely an industry, lobby self-invented term perpetrated as part of a threat to the US financial system, coined by and for the various outstretched hands / parties in interest in the financial services industry; rather too big is an admission of just that, too large, to big for its britches on a hot and humid day in DC, too unwieldy, concentrated, powerful and last and most important and OBVIOUS too difficult to manage, control, account for and report - all the things we don't need.

The real test is this - how did the customers make out? Take any bank - commercial or investment, broker or insurance company; take any merger, take these newly expanded girths (er, excuse me the industry prefers the term footprint) as a result of the size of the institution, whether it be the numbers of branch offices, employees, assets, size of managements' compensation or off balance sheet exposures - show me how the customers gained!

A select few "Too Big to Fail" banks, insurance companies and erstwhile investment banks / brokerage firms - remain a blot on the American economic landscape.

As was penned here in the early fall of 2008, and unfortunately been adopted by Mr Geithner with continued support from Mr Bernanke. With a financial services industry as concentrated as Paulson suggests we need to let that industry rise and fall on its own - as the players, (they all wear adult, big boy pants), have clamored for, pounded the table, kicked their heels, indeed demanded and lobbied for the past 25 years - and along the entire way, boards went along, audit committees went aong, shareholders and bondholders went along, credit ratings agencies went along, regulators went along, state, local and federal elected officials went along and the financial print, TV, radio and internet media went along dancing, making merry to the "music of the night" (the leverage hidden in off balance sheet entities and over the counter created, traded and valued securities and related credit default contracts marked to SEC sanctioned proprietary marks to mystery models) strummed by the managers / maestros of the financial services industry!

Mr Geithner, Mr Bernanke, despite Ms Bair's correct admonitions, continue to foster / misstate that the industry is too interconnected and requires a continued taxpayer-funded bailout fails to appreciate, fails to understand and fails to recognize the obvious.

First an intentional but noted digression then I'll tie it back to diversification.

This past week Mr Geithner correctly stated that he owes, in his current position "a fiduciary duty" [to the US taxpayer - we agree] however, this writer asks when was that duty known and applied during his tenure as NY Fed president?

The primary function is loyalty, an undivided loyalty; the agent to the principal, a prohibition against self dealing. The second most important expression of fiduciary duty, especially in the age of unequal access, understanding and ability to independently evaluate information (the assymetry of information) is disclosure. On this score, Mr Geithner hedged his comments several times in responding to an elected officials' inquiries - we ask why? The third most important element is the duty to be careful, to investigate, analyze, to use any special skills BEFORE taking action, and to be impartial with all the taxpayers (current and future generations - this last point receives no congressional, political or media attention) in dealing with assets, property in the sole interests of taxpayers; diversfication is required UNLESS, under the circumstances it is prudent not to do so.

Absent any plausible argument to the contrary to which we are all "ears and hearts too" DIVERSIFICATION, as in all other investment programs, businesses and the public policy surrounding financial intermediation and more importantly in all parts of the credit markets is one thing; PRUDENT. Look it up!

Stock, bond markets need asterisk for taxpayer assistance; better make that a hot pink bikini!

Baseball fans will long remember the asterisk next to Roger Maris' name after he eclipsed Babe Ruth's single season home run record; the asterisk indicated that Maris achieved his feat due to a longer season; I believe 12 extra games.

No doubt there are some investors who are baseball fans. The fantasy leagues may be a resource we can look to for some answers; with the intense collection of minutaie, analysis, heated debates and scrutiny, to facilitate a common, uniform, agreed basis of statistics for bragging rights or sometimes for gambling purposes. ESPN fantasy leagues, among several, provides us an example http://games.espn.go.com/frontpage/baseball.

When it comes to taxpayers' money - this writer asks which financial news organization will step up and construct, calculate and publish a reliable set of securities indices that reflect reality? At least in the US; the supposed bastion of transparency.

Securities markets should be quoted and reported EX-BAILOUT FUNDS (including any extraordinary measures of the Fed, FDIC and US Treasury).
Reduce market prices / levels by subtracting all taxpayer bailout related (US Treasury, FDIC or Federal Reserve) initiatives or guarantees? (Yes - I'm aware the the FDIC is a bank - funded deposit insurance scheme; the FDIC also has a line of credit from the US Treasury (that means taxpayer funded.) This is not without precedent; many may recall that the Technology index was oft quoted ex-IBM, the Utilities industry when telephone companies were that was ex-AT&T, and the Asia / Pacific region was ex-Japan; why to provide clarity when it was easily doable - so again this writer asks why not now; is the size of the ex-factor too large? Or is it the discomfort of the parties' whose franchises may be viewed in a different light?

Or should we just sit back, sip a cold one, "enjoy the game," the upcoming hot pink bikinis and resign ourselves to the fantasy league financial information put out by the Office of Bailouts and the teams of TV and print financial cheerleaders - excuse me - journalists?

Yet another principal agent conflict of interest problem, on the taxpayers' dime.