Bringing Home "Credit Default Swaps"

During the past several days of government hearings and committee sessions on Capitol Hill, Americans are hearing a new term, "credit-default swaps." With a little research, anyone can understand this new term.

First think of buying lottery tickets once a week for $10. A year ago, your money was flush leaving you about $200 a month in disposable income. Purchasing your weekly lotto ticket was not a financial burden. Six months ago, your adjustable rate mortgage "adjusted" and your house payment went up $1000 a month, putting your home budget in an $800 a month deficit. No problem. You have a credit card with a $15,000 credit line. Every month you get a credit card advance for $1000. You use $800 for your mortgage and $200 for your disposable income because you wouldn't want your lifestyle or spending habits effected by a little thing like your mortgage adjustment.

So, for the past 6 months you have been buying your lottery tickets with borrowed money. You know you can't win the lotto if you don't play, so you keep gambling your $10 a week. If you win, you'll win big. If you don't win, you just keep borrowing money to gamble because you know "tomorrow" you will be your winning day.

Twelve months later, your credit card is maxed out. Your home mortgage is in default and foreclosure is looming. You take the last $10 and buy a lottery ticket knowing this ticket is your only way out. You have to win this week or you risk losing everything. Holding your last lotto ticket in your hand, you tune your television to watch the weekly lotto draw. The lottery numbers are drawn and, unfortunately, you did not win the big one.

You now have $780 of borrowed money at 12% interest invested in the lotto. Your stack of worthless lotto tickets have become "credit default securities." If you can package up your stack of worthless lotto tickets to make them look brand new - kind of perfuming the pig so to speak - and find someone to purchase these "securities," you have created your very own, "credit default lotto swap."

Send Treasury Secretary Henry Paulson an email telling him you have a stack of "credit default securities" you wish to sell. Maybe he'll bail you out.

Fed Up With Bailouts

Bear Stearns ($30,000,000,000), Fannie Mae & Freddie Mac ($200,000,000,000), AIG ($85,000,000,000) - and now, $700,000,000,000 to bail out the U.S. financial markets. Where does it end?

"This turmoil would directly and negatively impact household wealth: from family budgets, to home values, to savings for college and retirement. A failure would affect the ability of Americans to get home loans, auto loans and other consumer credit and business finance. And a failure would be harmful to economic growth and job creation." Henry Paulson, Treasury Secretary.

Although it might be easy to assume Mr. Paulson made this statement Tuesday morning during his appearance concerning the $700,000,000,000 bailout at the Senate Banking Committee hearing, he didn't. He made this statement on September 7 after the Feds brought Fannie Mae & Freddie Mac under their wing and placed them into conservatorship.

Ben Bernanke, Federal Reserve Chairman, and Paulson continue to use the housing market (crisis) as the reason for the decline in Wall Street. Ultimately it was the unregulated, bad business decision-making on Wall Street which caused this failure in our financial markets. $700,000,000 is throwing bad money after bad business. A relatively small group of people and businesses speculated in financial markets with borrowed money, taking extreme risks for a very wealthy return. Unregulated, they gambled and bargained in "credit-swaps" - a seemingly undefinable term. They made big money.

Then their gambling caught up with them and the bottom fell out. Inflated markets and housing prices will always, at some point, correct themselves. As this correction in markets and pricing continues, Wall Street has been left with their proverbial "fanny" hanging out in the wind. Now the American people are being asked, once again, to bailout their unregulated speculation and bad business decisions. The average American taxpayer can ill-afford to continually bailout financial markets and institutions. We need many things - healthcare, affordable education and infrastructure. We do not need to bail out those who have - despite many warnings - continued to make bad financial decisions.

Tuesday, during the Senate Banking Committee hearing on the $700,000,000,000 bailout of the financial markets, Senator Richard Shelby (R-Alabama) stated the previous attempts -Bear Stearns, Fannie Mae, Freddie Mac, AIG - show limitations in the ability to fix the financial markets.

"You can't assure us this will work because you thought the other plans would work," Shelby said.

Senator Elizabeth Dole, (R-North Carolina) railed against the bailout. "I have very strong concerns that this 'rescue' proposal will unfairly hold taxpayers responsible for the costly and reckless decisions of investment bankers on Wall Street. I, like the North Carolinians I am hearing from, am very skeptical of this proposal and frankly, I’m extremely frustrated that we find ourselves in this position."

Senator Jim Bunning (R-Kentucky) said he was against the proposal.
"It will not help struggling homeowners pay their mortgages. It will not bring a halt to the slide in home prices. This massive bailout is not a solution. It's financial socialism and it's un-American," stated Bunning.

Finances, whether a family budget, small business, Main Street bank, or Wall Street financial institution, must run on sound, reasonable, prudent financial principles. The concept is pretty basic, you cannot afford to spend or borrow more than you make or could afford to pay back. Speculation on Wall Street has become casino-like. Making a decision to borrow $700,000,000,000 to bail out our markets is only making another bad financial decision the likes of which caused the financial crisis Wall Street is now experiencing. The financial markets and housing markets will evenutally correct themselves and our $700,000,000,000 will be lost in this gamble.

$700,000,000,000

One of this morning's news shows wrote out "$700,000,000,000" instead of using the normally viewed "$700b" to describe the financial market bailout amount currently being considered in Congress. I must tell you, I was more than a little shocked when I saw the number of zeros attached to the $700b number I have grown accustomed to seeing. All of those zeros really put this number into perspective. Add inflation, government mismanagement and the addition of a few groups (foreign banks doing business in the U.S. and investment banks now becoming "banking" banks) and the real number will likely exceed $1,000,000,000,000. That's one trillion dollars. Trillion. I don't even remember learning numbers as large as trillions. It's simply a massive amount of money to be funded by the American taxpayers. I'm scared and angry. We should all be scared and angry.

The Wall Street Journal quotes Treasury Secretary Henry Paulson as saying, "If the bailout doesn't pass, then heaven help us all." Sorry Mr. Paulson, but this is not a new revelation. Many, many Americans are already praying for heaven's help. They already need divine intervention to feed their children, keep their homes out of foreclosure or pay their rent. Thousands of Americans are already living paycheck to paycheck, trying to survive with no paycheck at all, or using credit to survive. I doubt very, very few of these Americans care whether Wall Street survives or not.

The American economy has been in a downward spiral. The fall of the financial markets will make our current economic situation worse. Government deregulation and corruption on Wall Street have created their own mess, while the players in this drama were awarded bonuses, incentives and golden parachutes. In 1887, John Acton wrote, "Power tends to corrupt and absolute power corrupts absolutely." Unfortunately this is playing out in our financial markets today.

The American taxpayer should not be burdened with this excessive bill. We need job growth, health care, improvements in education and infrastructure. We cannot afford to bailout the misdeeds and mismanagement of those wealthier than the majority of American citizens.

When the economy hits bottom, the position many Americans have already found, we will build a new economy again. Heaven help us to be wiser and more prudent.

View the full Wall Street Journal article here: http://online.wsj.com/article/SB122186563104158747.html

Important Info: The Financial Meltdown & Politics

As I have written earlier, writing about politics, political matters or the election is NOT my favorite topic. However, as an American I can't ignore what has happened with our financial markets in the past week.

I am an average, middle-class American. (If there still is a middle-class in America!) I spent more than 25 years working for two of - what used to be - the Big 3 American Auto Companies. Since September of last year, I have been self-employed as a free-lance writer. I have dabbled a bit in the stock market. My 401k has lost a little better than 50% of its value during the past 12 months or so. I also have an IRA which has lost 25% of its value during the same period. Since I am not a political or market expert, when our financial markets went south, I wanted to know HOW this could happen? Historically, I knew that after the stock market crash of 1929 and the depression that followed this crash, laws and regulations were passed to put checks and balances into our marketing system to prevent a similar disaster in the future. So, what happened?

I started surfing the news show pundits while doing my own research on the Internet. I found lots of information and "finger-pointing" as to who and what caused our current crisis. Democrats are blaming Republicans. Republicans are blaming Democrats. CEOs are leaving their bankrupt companies with millions of dollars in separation packages. Taxpayers are bailing out AIG to the tune of $85 billion. Gas is above $4 a gallon. Millions of regular citizens are in financial crisis. Millions more are barely getting by from paycheck to paycheck. Home foreclosures are at an all time high.

All of this did not happen overnight. Although there are many people and circumstances to blame for our financial markets failing, in my research I found one recurring reason - the deregulation of our financial markets.

In December of 2000, Congress passed the Commodity Futures Modernization Act. Senator Phil Gramm (R) of Texas was able to attach this act to a $384 billion spending bill. Most in Congress never read this 262-page document.
David Corn, Mother Jones' Washington DC Bureau Chief, wrote:
"It's not exactly like Gramm hid his handiwork—far from it. The balding and bespectacled Texan strode onto the Senate floor to hail the act's inclusion into the must-pass budget package. But only an expert, or a lobbyist, could have followed what Gramm was saying. The act, he declared, would ensure that neither the SEC nor the Commodity Futures Trading Commission (CFTC) got into the business of regulating new fangled financial products called swaps—and would thus 'protect financial institutions from overregulation" and "position our financial services industries to be world leaders into the new century.'"

Did you read that right? The act "would ensure neither the SEC nor the CFTC got into the business of regulating new-fangled financial products called swaps - and thus would 'protect financial institutions from over regulation.'" With this act, Congress approved deregulation put in place after the crash of the stock market in 1929. This act was the start of the road to the financial disaster we are seeing now.

Yesterday, Andy Serwer and Allan Sloan, posted a great, easily understandable article, "How Financial Madness Overtook Wall Street", for Time.com.
"In normal times, problems in the economy cause problems in the financial markets because hard-pressed consumers and businesses have trouble repaying their loans. But this time — for the first time since the Great Depression — problems in the financial markets are slowing the economy rather than the other way around. . . Fear is so pervasive today because for years the financial markets — and many borrowers — showed no fear at all. Wall Streeters didn't have to worry about regulation, which was in disrepute, and they didn't worry about risk, which had supposedly been magically whisked away by all sorts of spiffy nouveau products — derivatives like credit-default swaps."

Oh wait, there's that same word again, "swaps." The act passed by Congress in December of 2000 took away the regulation of "new fangled financial products" and the Times article states "Wall Streeters didn't have to worry about regulation . . . they didn't worry about risk which had supposedly been magically been whisked away by all sorts of spiffy nouveau products."

Don't understand derivatives like credit-default swaps? It's okay. Apparently no one on Wall Street did either. When borrowing was easy and the return was good, companies could borrow many times over their actual worth. If their investments showed any return, they made big money. But, as the market went south, the return fell also, and credit tightened, meaning these big companies, like Lehman, had to put up more collateral, which because of surviving on borrowed money (ie. high risk mortgages) they didn't have. No one was watching as these companies' liabilities started to far exceed their worth. The Feds and the SEC didn't have the power to regulate what was going on with these companies. Hence, the mess we are in today.

On May 27, 2008, Jonathan Larsen with Keith Olbermann of MSNBC wrote:
"Some economists fault Gramm’s deregulatory successes, as well as lax enforcement of remaining oversight powers, not just for the subprime mortgage crisis, but for its spread to other sectors of finance. Even Treasury Secretary Henry Paulson has expressed interest in toughening regulations."

In the midst of this political campaign, this situation gets much worse. In 2002, Gramm became Vice-President of Swiss Bank UBS and in 2004 he registered as a lobbyist for UBS to specifically lobby for legislation dealing with our mortgage crisis. In April of this year, UBS removed him as a registered lobbyist. He remains Vice-President. Until July of this year, Gramm was the lead financial advisor to Senator John McCain. McCain, in the Wall Street Journal, referred to Phil Gramm as his "financial guru."

In February of this year, an article on CNN.money said:
"McCain's chief economic adviser - and perhaps his closest political friend - is the ultimate pure play in free market faith, former Texas Senator Phil Gramm."

McCain and Gramm promote less government and free trade. Conceptually both sound like good ideas, but our economy is too big and far too important to be unregulated. Gramm's legislation was the beginning of the end for our financial markets by deregulating them. To add insult to injury, our Congress passed this legislation.

In July of this year, Gramm resigned from the McCain campaign. On July 18, 2008 FoxNews.com wrote:
"Former U.S. Sen. Phil Gramm, a top adviser to John McCain, resigned Friday from McCain’s presidential campaign after he was criticized recently for describing America as a 'nation of whiners' and as suffering from a 'mental recession.' . . . Gramm, a Texan who now is the No. 2 at the Swiss bank UBS, told The Washington Times last week the United States has benefited from globalization but most Americans are misguided by constant reports that the economy is at its worst in 30 years."

Did he say "Americans are misguided?" Look at where we are today, two months later. Is there any wonder why John McCain thinks the fundamentals of our economy are still strong? I don't want to point fingers - nor do I wish to make this a partisan blog. I don't like to write about government or politics. I can only hope McCain is no longer taking financial advice about the U.S. economy from Phil Gramm and that his current fiscal plans for this country were not written by Phil Gramm.

Below are the links to all of my quotes and sources in the order they were referenced. There is some really good information here - but, don't take my word for it, or theirs, do your own research and make your own decisions.

Read the entire "Explanation for the Current Financial Crisis" article David Corn here: http://www.supertopo.com/climbing/thread.html?topic_id=678164&tn=0

Read the entire September 8, 2008 Time.com article, "How Financial Madness Overtook Wall Street" by Andy Serwer and Allan Sloan here: http://www.time.com/time/business/article/0,8599,1842123-1,00.html

Read the entire May 27, 2008, MSNBC article, "McCain Economic Policy Shaped by Lobbyist" by Jonathan Larsen with Keith Olbermann here: http://www.msnbc.msn.com/id/24844889/

Read the entire February 19, 2008 CNN.Money article, "McCain's Econ Brain" by Shaun Tully here: http://money.cnn.com/2008/02/18/news/newsmakers/tully_gramm.fortune/index.htm?postversion=2008021917

Read the entire July 18, 2008 FoxNews.com article, "Gramm Leaves McCain Campaign Over 'Whiners' Comments" by FOXNews here: http://elections.foxnews.com/2008/07/18/gramm-leaves-mccain-campaign-over-whiners-comments/

Still Laughing - The SNL Palin/Clinton Video

This clip has to be the funniest, most clever bit of political comedy I have ever seen. Tina Fey does an unbelievable impersonation of Governor Palin.

In my younger years, I was a real fan of Saturday Night Live. More recently, I have watched when I was up or when they had a specific guest host. I watched and Tivo'd SNL this past Saturday night because Michael Phelps was hosting the season opener. I am afraid to say Phelps was completely overshadowed by this opening clip.

This clip is simply hilarious. It really doesn't matter who you support or which party affiliation you have, there's no way you can watch this without getting a laugh!

Here's the link to the SNL clip: http://www.nbc.com/Saturday_Night_Live/video/clips/palin-hillary-open/656281/

Election Media Frenzy

During this presidential campaign, television news networks and programming seem to be trying harder than ever to "one up" each other. Networks seem to be pushing their own slogans even more during this pre-Presidential Election. A couple of these immediately come to mind, "Fair and Balanced" and "No Bias No Bull." Even some "news" - and I use that term very loosely - shows seem to be a little more conscious of pushing their slogans for their own shows or segments, "No Spin Zone," "Keeping Them Honest."

While speaking to Mrs. Pebbles about the upcoming election, she said, "It doesn't matter who wins. With all of the promises both sides are making, we're gonna have it made no matter who wins." The reality is, based on the news coverage of both parties, her statement is true. Unfortunately, we have become a nation of political campaign promises which rarely come to fruition.

According to at least two news sources, I am one of those voters who will decide this election. An Independent. I arrived at this place quite honestly. My Dad's a Democrat. My Mom's a Republican. I am much more conservative on some issues than the left, and much more liberal on some issues than the right.

One issue which hasn't been addressed by any of the news media concerns the possibility of a new hunting Vice-President in office. Governor Palin has been an avid hunter since she was young. (CNN reported she shot her first rabbit when she was just 10-years-old.) If the McCain-Palin ticket wins, you can be assured one thing - it would be very unlikely a woman VP who hunts moose in Alaska would accidentally shoot one of her own hunting party.

September 11, 2001

Almost every American remembers what they were doing and where they were on September 11, 2001. So many innocent lives lost. So many valiant heroes lost. These losses - by human understanding - seemingly too much to bear.

A couple of days later, I watched our President George W. Bush stand at Ground Zero utilizing a megaphone to give an extemporaneous speech. I remember thinking he should fire his speechwriters because he was a much better speaker without them. He promised all Americans that he would assuredly avenge our unspeakable losses and punish those criminals responsible for these atrocious crimes.

I believed him. I knew those responsible would pay for their evil deeds. You would have never convinced me then that seven years later, as we are paying our respects to those who lost their lives on that dreadful day, the leader of those criminals would not be captured.

In the past seven years, America has invaded a sovereign nation, dismantled their dictatorship and assisted in the capture, trial, conviction and execution of their dictator. Then we assisted this country in forming a democracy. Quite an accomplishment until you look at the number of more American heroes lost. Once again, losses too much to bear.

And yet, we cannot capture or find the leader of the criminals responsible for the worst attack on Americans in the history of our great nation.

We are Americans. We will never forget. We are still waiting . . .

Populations . . . Election Data

Since I cannot avoid the election hoopla and I really don't trust many of our media sources, I decided to find out the population of several states, cities and counties.

The population numbers below are based on 2006 estimates:

Cities
Walterboro SC, population 5,545
Morehead, KY, population 5,914
Wasilla AK, population 9,780 (in 2004, 5,470)
Kingsport TN, population 44,435
Modesto CA, population 203,955
San Francisco CA, population 764,976

Counties
Rowan KY, population 22, 226
Colleton SC, population 39,605
Sullivan TN, population 153,048
Charleston SC, population 332,000
Stanislaus CA, population 512,138

States
Alaska, population 670,053
Kentucky, population 4,206,074
South Carolina, population 4,321,249
Tennessee, population 6,038,803
California, population 36,457,549

Just trying to keep things in perspective. . .