Today, financially responsible folks who work and save see the value of their investments fall every day. Now they are expected to “spread the wealth around”, not those who signed mortgages that “they just didn’t understand”, not those who bought houses they thought they were entitled to, but couldn’t afford. Today, workers and investors are expected to carry the slackers.
And going forward, the federal government will throw money at the mortgage problem until the country is so in debt that the interest it owes will bury our children. Bury them in obligations they had nothing to do with.
The recent history of our government and its people is to push fiscal responsibility on to those who are responsible and on to future generations. This has to stop; it’s irresponsible and immoral.
Thursday, October 23, 2008
Friday, October 17, 2008
My take on the stock market – October 17, 2008
As I write, the stock market has suffered a year of moderate decline followed by two weeks of steep declines. This is a consequence of the incredible lending practices of the past five years. People now think that their investments are going to be worthless and they should retreat from the market while they can. Depending on your circumstances, this could be a mistake. If you do not need to sell your stock market investments any time soon, you should either “stay the course” as John Bogle advises or buy as Warren Buffet is doing.
Friday, September 26, 2008
Tuesday, September 23, 2008
Washington must heed fiscal alarm bell
Dave Walker's Op-Ed in the Financial Times
Published: September 22 2008
Dave Walker is president and chief executive of the Peter G Peterson Foundation and former Comptroller General of the United States
What do AIG, Bear Stearns, Fannie Mae, Freddie Mac, Lehman Brothers and Merrill Lynch have in common? Some thought that these companies were too big to fail. They were wrong: all of these companies have either filed for bankruptcy, been "bailed out" by the government, or, owing to the sub-prime crisis, have been acquired. Over the weekend, the US government went one step further, with its proposals for an estimated $700bn (€493bn, £391bn) bail-out to ease the credit crisis.
The US government truly is too big to fail. However, there are disturbing parallels between the factors that led to the sub-prime crisis and the deteriorating financial condition and fiscal foundation of our federal government. These similarities ought to ring an alarm bell for Congress and the presidential candidates. The question is, will they hear it and wake up?
The first parallel relates to the dangerous disconnect between the parties who benefit from various imprudent practices and those who bear the related risk and ultimately pay the price. In the housing crisis, some originators of unwise mortgages have not paid a price for their actions. In the case of our federal government, politicians have increased spending, expanded government entitlement programs, and agreed tax cuts without considering their long-term costs.
Second, a lack of transparency facilitated the crisis. Banks and other financial institutions created off-the-books entities so that regulators would find it hard to track the risks to their health. The US federal budget does not reflect the government's huge off-balance sheet and unfunded promises, commitments and contingencies that stood at over $40,000bn at September 30, 2007.
Another similarity has been the role of credit rating agencies, which blithely rated securitized mortgage packages without looking at the weaknesses of underlying mortgages. In similar fashion, purchasers of American debt issued by Fannie Mae and Freddie Mac assumed that it was guaranteed by the US government. The resulting expectation gap among foreign investors resulted in their demand that the government make explicit what until then had been only an implicit guarantee. The result is that the US taxpayer now stands behind more than $5,000bn in mortgages. It is too soon to say what the ultimate cost will be to taxpayers.
Finally, while there were private sector and executive branch failures, Congress also bears responsibility. It writes the laws and is charged with oversight of these formerly quasi-governmental entities and regulatory agencies. The sad but simple truth is that our country has strayed a long way from the principles and values that made this nation great. Washington has grown increasingly out of touch and out of control. Personal responsibility and stewardship for our collective future are largely absent in too many government areas. This must change.
Are there lessons from the sub-prime crisis? The answer is yes. The recent actions had to be taken because the government failed to establish an effective regulatory structure in connection with mortgages, derivatives and other securities. Greed was rampant. Fannie Mae and Freddie Mac strayed from their original mission, becoming too focused on profit and personal gain rather than their public purpose. Lax oversight was facilitated by powerful Wall Street lobbies and the lobbying of Fannie Mae and Freddie Mac.
Beyond the turmoil for banks and homeowners, however, there is a super-sub-prime crisis brewing in Washington. Our fiscal policies have created a disconnect between today's citizens and future taxpayers. Today's taxpayers benefit from high government spending and low taxes, while future generations are expected to pay the bill. Our real challenge is where we are headed on our do-nothing fiscal path.
Washington has charged everything to the nation's credit card - engaging in tax cuts and spending increases without paying for them. Washington's imprudent, unethical and even immoral behaviour is facilitated by a lack of transparency. For example, as of September 30, 2007 the federal government was in a $53,000bn dollar fiscal hole, equal to $455,000 per household and $175,000 per person. This burden is rising every year by $6,600-$9,900 per American. Medicare represents $34,000bn of this deficit and the related Medicare trust fund is set to run dry within 10 years. The Social Security programme is projected to have negative cash flow within about 10 years.
What needs to be done? First, we need leadership from the presidential candidates and members of Congress. We need to re-impose tough budget controls, constrain federal spending, decide which Bush tax cuts will stay, and engage in comprehensive reform of our entitlement, healthcare and tax systems. A bipartisan commission that would make recommendations for an up-or-down vote by Congress would be a positive step to making this a reality.
While the US government is too big to fail, continuing on our current path will have adverse implications for our economy and international standing. The sooner Washington acts, the better. Our country, children and grandchildren deserve no less. In the interim, the government needs to decide how to account for its radical actions in the financial statements for the year to September 30. The Treasury has a responsibility to disclose and account for these costs adequately and the Government Accountability Office has a duty to insist the Treasury does so.
Copyright The Financial Times Limited 2008
Published: September 22 2008
Dave Walker is president and chief executive of the Peter G Peterson Foundation and former Comptroller General of the United States
What do AIG, Bear Stearns, Fannie Mae, Freddie Mac, Lehman Brothers and Merrill Lynch have in common? Some thought that these companies were too big to fail. They were wrong: all of these companies have either filed for bankruptcy, been "bailed out" by the government, or, owing to the sub-prime crisis, have been acquired. Over the weekend, the US government went one step further, with its proposals for an estimated $700bn (€493bn, £391bn) bail-out to ease the credit crisis.
The US government truly is too big to fail. However, there are disturbing parallels between the factors that led to the sub-prime crisis and the deteriorating financial condition and fiscal foundation of our federal government. These similarities ought to ring an alarm bell for Congress and the presidential candidates. The question is, will they hear it and wake up?
The first parallel relates to the dangerous disconnect between the parties who benefit from various imprudent practices and those who bear the related risk and ultimately pay the price. In the housing crisis, some originators of unwise mortgages have not paid a price for their actions. In the case of our federal government, politicians have increased spending, expanded government entitlement programs, and agreed tax cuts without considering their long-term costs.
Second, a lack of transparency facilitated the crisis. Banks and other financial institutions created off-the-books entities so that regulators would find it hard to track the risks to their health. The US federal budget does not reflect the government's huge off-balance sheet and unfunded promises, commitments and contingencies that stood at over $40,000bn at September 30, 2007.
Another similarity has been the role of credit rating agencies, which blithely rated securitized mortgage packages without looking at the weaknesses of underlying mortgages. In similar fashion, purchasers of American debt issued by Fannie Mae and Freddie Mac assumed that it was guaranteed by the US government. The resulting expectation gap among foreign investors resulted in their demand that the government make explicit what until then had been only an implicit guarantee. The result is that the US taxpayer now stands behind more than $5,000bn in mortgages. It is too soon to say what the ultimate cost will be to taxpayers.
Finally, while there were private sector and executive branch failures, Congress also bears responsibility. It writes the laws and is charged with oversight of these formerly quasi-governmental entities and regulatory agencies. The sad but simple truth is that our country has strayed a long way from the principles and values that made this nation great. Washington has grown increasingly out of touch and out of control. Personal responsibility and stewardship for our collective future are largely absent in too many government areas. This must change.
Are there lessons from the sub-prime crisis? The answer is yes. The recent actions had to be taken because the government failed to establish an effective regulatory structure in connection with mortgages, derivatives and other securities. Greed was rampant. Fannie Mae and Freddie Mac strayed from their original mission, becoming too focused on profit and personal gain rather than their public purpose. Lax oversight was facilitated by powerful Wall Street lobbies and the lobbying of Fannie Mae and Freddie Mac.
Beyond the turmoil for banks and homeowners, however, there is a super-sub-prime crisis brewing in Washington. Our fiscal policies have created a disconnect between today's citizens and future taxpayers. Today's taxpayers benefit from high government spending and low taxes, while future generations are expected to pay the bill. Our real challenge is where we are headed on our do-nothing fiscal path.
Washington has charged everything to the nation's credit card - engaging in tax cuts and spending increases without paying for them. Washington's imprudent, unethical and even immoral behaviour is facilitated by a lack of transparency. For example, as of September 30, 2007 the federal government was in a $53,000bn dollar fiscal hole, equal to $455,000 per household and $175,000 per person. This burden is rising every year by $6,600-$9,900 per American. Medicare represents $34,000bn of this deficit and the related Medicare trust fund is set to run dry within 10 years. The Social Security programme is projected to have negative cash flow within about 10 years.
What needs to be done? First, we need leadership from the presidential candidates and members of Congress. We need to re-impose tough budget controls, constrain federal spending, decide which Bush tax cuts will stay, and engage in comprehensive reform of our entitlement, healthcare and tax systems. A bipartisan commission that would make recommendations for an up-or-down vote by Congress would be a positive step to making this a reality.
While the US government is too big to fail, continuing on our current path will have adverse implications for our economy and international standing. The sooner Washington acts, the better. Our country, children and grandchildren deserve no less. In the interim, the government needs to decide how to account for its radical actions in the financial statements for the year to September 30. The Treasury has a responsibility to disclose and account for these costs adequately and the Government Accountability Office has a duty to insist the Treasury does so.
Copyright The Financial Times Limited 2008
Tuesday, September 9, 2008
Does Experience Matter In Government?
Both Barack Obama and Sarah Palin are considered unfit to govern because of their lack of experience. He was a community organizer; she was a small town mayor. So what has the Washington crowd done lately with their experience?
Sunday, August 31, 2008
Our new home in Old Niskayuna
I have been reading up on slate roofs lately. I don’t know if buying a 65-year-old house in Old Niskayuna, NY with a slate roof with a 75-year-old life expectancy is going to be a very, very expensive can of worms. I kind of think it will be. We’ll see for sure after the first of November.
Saturday, August 16, 2008
President Bush is our Batman
Brian Popkin of Denville, NJ wrote a letter to the Daily Record editor that I found interesting. Here it is.
President Bush is our Batman - August 16, 2008
While I appreciate the public for making the great "Dark Knight" movie so successful, I feel many are missing the movie's point.
Batman's campaign had made the streets of Gotham safer at the night. This environment allowed for an aggressive district attorney like Harvey Dent to rise to power. Because of Batman, ordinary people like Dent were taking on dangerous crooks. He was a handsome, ambitious, young reformer. He was aided by a friendly press focused on his good side. They were not looking at skeletons in his closet. Dent reminds me of John Edwards and even Barack Obama.
People wanted to replace Batman with Dent. Batman's methods, which were allowed for years, were now considered beyond the pale. They wanted Batman locked up and prosecuted. The more the Joker's crime spree escalated, the more they wanted to acquiesce to him. The irony was that Batman was the only one who could stop the Joker.
This reminds me of our current situation. The whole world wants Obama for president. He will reverse Bush's "failed policies." These are the same policies that have created the success following the surge by U.S. troops in Iraq. These policies have foiled every terrorist attack on our soil since Sept. 11. The thinking is, now that the troop surge has made Iraq safer, we can leave. Now that people are concerned about Bennigan's [a local bankrupt restaurant] closing more than foreign policy, we can afford a president with no foreign policy experience. We can stop fighting terrorism and stop listening to terrorist phone calls. We can close Guantánamo and free the prisoners. Lock up the Batman.
The only problem is once you get rid of Batman; all you can do is hope the Joker doesn't return.
BRIAN POPKIN
Denville
President Bush is our Batman - August 16, 2008
While I appreciate the public for making the great "Dark Knight" movie so successful, I feel many are missing the movie's point.
Batman's campaign had made the streets of Gotham safer at the night. This environment allowed for an aggressive district attorney like Harvey Dent to rise to power. Because of Batman, ordinary people like Dent were taking on dangerous crooks. He was a handsome, ambitious, young reformer. He was aided by a friendly press focused on his good side. They were not looking at skeletons in his closet. Dent reminds me of John Edwards and even Barack Obama.
People wanted to replace Batman with Dent. Batman's methods, which were allowed for years, were now considered beyond the pale. They wanted Batman locked up and prosecuted. The more the Joker's crime spree escalated, the more they wanted to acquiesce to him. The irony was that Batman was the only one who could stop the Joker.
This reminds me of our current situation. The whole world wants Obama for president. He will reverse Bush's "failed policies." These are the same policies that have created the success following the surge by U.S. troops in Iraq. These policies have foiled every terrorist attack on our soil since Sept. 11. The thinking is, now that the troop surge has made Iraq safer, we can leave. Now that people are concerned about Bennigan's [a local bankrupt restaurant] closing more than foreign policy, we can afford a president with no foreign policy experience. We can stop fighting terrorism and stop listening to terrorist phone calls. We can close Guantánamo and free the prisoners. Lock up the Batman.
The only problem is once you get rid of Batman; all you can do is hope the Joker doesn't return.
BRIAN POPKIN
Denville
Subscribe to:
Posts (Atom)