A true story..
Years ago, when I was doing my student teaching stint at a local Middle School, I had just bought a new car, my first ever new car, and I was proud of it. The Assistant Principal had also just bough a new care, and we were busy giving each other some good natured grif about our cars. When asked what I was driving, I pointed to my new car and said, "Mine's the dark brown Ford with the wire rims." Not to be outdone, he told me his was "the shiney new Chevy, with the custom top and wide tires." Meanwhile, a young student named Elizabeth, who we both knew, came up to us and stood listening to our bragging. To be nice and to include her in our canversation, the Assistant Principal asked her, "And which is your ride, Liz?" Without pausing or thinking, she pointed out across the parking lot and replied, "Mine is the big yellow one with the cool black lines, and a driver."
Tuesday, December 20, 2011
The American Banking "Crisis"
as i see it...The American Baking "Crisis" is an unitended consequence of people being loving and generally "Nice". Begining back in the 1940's "We The People" understood that rewarding the millions of GI's who fought WWII (and before)with a GI Bill that helped them go to college and buy a home, was not only a nice thing for the soldiers involved, but it also generated jobs for construction and other industries. We, their children took this a step further, again because we are nice, promoting the idea that everyone in America should own their own home. THE AMERICAN DREAM
The result of this ideal was that Congress (you know, those people WE hired) created a banking sytem that went out to find people to loan to who were trying to buy homes. Once these brokers made the loan, they took their comission out, bundled the loan with other loans, negotiated the value of the bundle, and sold it to a higher level broker, who bundled them with others larger bundles, et cetera. As each level of broker sold larger bundles of loans up the line, every one made money, and everything was great.And more people actually had loans and bought houses.
But eventually the predictable happened. The people who were never qualified to have home loans began defaulting. Those loans, in a "bundle," and then in a really big "bundle" brought up the logical question "What is the bundle of loans worth?" And which loans in the "Bundle" are bad? And how do we separate them from the bundle? If you or I were negotiating the purchase of an item and we didnt know its worth, it's true value, would we do it? I think not. Like a wrench in a set of gears, these loans, or more accurately the unknown value of the bundles, froze the machinery of the banking industry. And what did the Government do? They poured $millions/trillions into the banking sytem. And not knowing what to do(or not being willing to do what they they knew they should) to cure the real problem, they gave bonuses to their top people. Now the $ millions/trillions are gone, and the problem persists. The gears are still stuck.
So what should we do? One way to handle the problem (and what it looks like is happening) is to move slowly, to do next to nothing, and "HOPE" that inflation will go up slowly, devaluing the percieved possible loss on the "bad" loans, and over a long long time, negotiations will happen on the remaining value of the bundles, and loans will flow again. That will be slow, and it will be PAINFUL, but it could work. Another argument in favor of this course is that, since to solve the jobs problem, the current congress, the administration, and the FED have poured in so much money ($ multiple trillions)trying to stimulate the economy before the elections in 2012, and since massive inflation is the predictable effect (for incumbents hopefully after the election), though scary for the rest of us, this jammed-up bank situation has the benifit of acting like a BRAKE, slowing the economy down..for a while.
The practicle problem is that, like with your car, if you pour in gas to rev the engine up, and yet hold the brake on, things go crazy when you release the brake. And the original problem of historically high unemployement, the reason for the stimulous, has not been fixed. In fact, some people who should know better are actually calling for MORE STIMULUS...Really??
I have an idea...First, let's face the two real problems, Unemployment and a Jammed-up Banking sytem. Second, instead of billions/trillions of $'s in stimulous spending, the treasury should pay off all personal first mortgages over the life of the loans, leaving ownership in the hands of the homeowner. This would have the effect of 1. No "Bad" loan bundles. No wrenches in the gears. And the banks would be flush with loanable cash, driving down interest rates.2. The homeowners would have a major asset to use as they wish, including taking out loans to buy things and generate demand..and jobs.
One problem with this course is that of inflation. There would be more money chasing too few goods in the short run. However, this should be lessened by the fact that the loans would be paid off over the 10-15-30 year term of the loans. Instead of the Banks being the recipiant of the money, it would be "We the people".
The result of this ideal was that Congress (you know, those people WE hired) created a banking sytem that went out to find people to loan to who were trying to buy homes. Once these brokers made the loan, they took their comission out, bundled the loan with other loans, negotiated the value of the bundle, and sold it to a higher level broker, who bundled them with others larger bundles, et cetera. As each level of broker sold larger bundles of loans up the line, every one made money, and everything was great.And more people actually had loans and bought houses.
But eventually the predictable happened. The people who were never qualified to have home loans began defaulting. Those loans, in a "bundle," and then in a really big "bundle" brought up the logical question "What is the bundle of loans worth?" And which loans in the "Bundle" are bad? And how do we separate them from the bundle? If you or I were negotiating the purchase of an item and we didnt know its worth, it's true value, would we do it? I think not. Like a wrench in a set of gears, these loans, or more accurately the unknown value of the bundles, froze the machinery of the banking industry. And what did the Government do? They poured $millions/trillions into the banking sytem. And not knowing what to do(or not being willing to do what they they knew they should) to cure the real problem, they gave bonuses to their top people. Now the $ millions/trillions are gone, and the problem persists. The gears are still stuck.
So what should we do? One way to handle the problem (and what it looks like is happening) is to move slowly, to do next to nothing, and "HOPE" that inflation will go up slowly, devaluing the percieved possible loss on the "bad" loans, and over a long long time, negotiations will happen on the remaining value of the bundles, and loans will flow again. That will be slow, and it will be PAINFUL, but it could work. Another argument in favor of this course is that, since to solve the jobs problem, the current congress, the administration, and the FED have poured in so much money ($ multiple trillions)trying to stimulate the economy before the elections in 2012, and since massive inflation is the predictable effect (for incumbents hopefully after the election), though scary for the rest of us, this jammed-up bank situation has the benifit of acting like a BRAKE, slowing the economy down..for a while.
The practicle problem is that, like with your car, if you pour in gas to rev the engine up, and yet hold the brake on, things go crazy when you release the brake. And the original problem of historically high unemployement, the reason for the stimulous, has not been fixed. In fact, some people who should know better are actually calling for MORE STIMULUS...Really??
I have an idea...First, let's face the two real problems, Unemployment and a Jammed-up Banking sytem. Second, instead of billions/trillions of $'s in stimulous spending, the treasury should pay off all personal first mortgages over the life of the loans, leaving ownership in the hands of the homeowner. This would have the effect of 1. No "Bad" loan bundles. No wrenches in the gears. And the banks would be flush with loanable cash, driving down interest rates.2. The homeowners would have a major asset to use as they wish, including taking out loans to buy things and generate demand..and jobs.
One problem with this course is that of inflation. There would be more money chasing too few goods in the short run. However, this should be lessened by the fact that the loans would be paid off over the 10-15-30 year term of the loans. Instead of the Banks being the recipiant of the money, it would be "We the people".
Sunday, December 18, 2011
The "Occupy" Movement
as i see it...As a rebelious former "Long Haired" Hippy, now a Boomer, little makes me prouder than a good protest, where people voice their opinions under the Right of FREE Speach. And I do love the idea of the "Arab Spring", where people who live under regimes that give them little or no power, rise up and demand change that improves their lives and the lives of their children. And I do love the idea that it is happening in places as diverse as Northern Africa, the Middle East, and even Mother Russia!! These people are risking their lives, facing bullets and in some places like Syria, facing tanks, for the freedoms we enjoy here in the United States.
But that's where the difference lies...
We in America are not "powerless". We have enormous power, both political and economic, to change things...(drum roll please)..if we get off our overly comfortable bottoms, educate ourselves as to how our system of economics and politics really works, and then make the system that our forefathers (and especially our foremothers) gave us, work for us.
1. Economically - If a company doesn't behave as you want, dont buy their stuff!! If a bank doesn't behave, move your money out. There are millions of us. We have millions of $ of disposable income. They will listen.
2. Politically - Watch your representative. He/She works for you. Dont bellyache "they never listen,,my vote doesnt count". If you had a business and an employee didn't do what you wanted, you would fire them. Wouldn't you?
STOP whining!! Stop giving yourself reasons for inaction! YOU AND I HAVE TO TAKE RESPONCIBILITY!!
In future posts, I'll talk about the "Banking Crisis" the "Housing Crisis," and other topics, concerning how we got into trouble and how they can be repaired. But for my first post, I want to SCREAM..We created the mess, and WE can fix it. And my plea to my readers, is simply this: Dont believe platitudes (let alone mindlessly repeat them). You/We have beautiful brains, and we need to use them. Dont believe the prattle about it being the fault of some nebulouse "BOOGY MAN" like the so-called "One Percent". People..Americans all, America is OUR BUSINESS.
But that's where the difference lies...
We in America are not "powerless". We have enormous power, both political and economic, to change things...(drum roll please)..if we get off our overly comfortable bottoms, educate ourselves as to how our system of economics and politics really works, and then make the system that our forefathers (and especially our foremothers) gave us, work for us.
1. Economically - If a company doesn't behave as you want, dont buy their stuff!! If a bank doesn't behave, move your money out. There are millions of us. We have millions of $ of disposable income. They will listen.
2. Politically - Watch your representative. He/She works for you. Dont bellyache "they never listen,,my vote doesnt count". If you had a business and an employee didn't do what you wanted, you would fire them. Wouldn't you?
STOP whining!! Stop giving yourself reasons for inaction! YOU AND I HAVE TO TAKE RESPONCIBILITY!!
In future posts, I'll talk about the "Banking Crisis" the "Housing Crisis," and other topics, concerning how we got into trouble and how they can be repaired. But for my first post, I want to SCREAM..We created the mess, and WE can fix it. And my plea to my readers, is simply this: Dont believe platitudes (let alone mindlessly repeat them). You/We have beautiful brains, and we need to use them. Dont believe the prattle about it being the fault of some nebulouse "BOOGY MAN" like the so-called "One Percent". People..Americans all, America is OUR BUSINESS.
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