'Market' operation and coverage nonsense.

Reading, watching or listening to business news one often hears things like, “instant markets,” “baked in,” or, “already reflected in ‘the market’…” This is an indication of the depth to which the mythology of ‘the market’ is ‘baked in’ to the mind set of those who are involved in the day to day coverage and operation of the business environment in the USA.

The studies revealed that the recession started in December of 2007 and was reflected in the stock market dive of September 2008; some instant market. The market is reactive, with darn slow reflexes, not proactive.

The mythology also suggests that the current mortgage crisis has core causes that are everywhere, except in ‘the market.’ The current crisis is centered on mortgage manipulation, same as (only worse than) the financial crisis of the 1980s: lots of cheap and easy credit made available while regulators napped.

Both financial catastrophes were created by ‘the markets’ insistence on demonstrated short term profit gains, and business growth (the Wall Street Two Step). Mortgages are very long term investments (15 and 30 years primarily) that introduce large quantities of money into ‘the market’ with each individual transaction; especially as ‘affordable’ housing is discouraged. ‘The market’ created a variety of kinds of “mortgaged backed” ‘investment instruments’ to attempt to pretend short term profits while allowing continued, unrestrained growth.

The Resolution Trust Corporation (RTC) cleaned up the mess of the 1980s without addressing, actually complete avoidance of, the aforementioned underlying causes. Now the US Treasury Secretary is attempting to prop up ‘the market’ with hundreds of billions of taxpayer dollars without increased regulation, and without establishing responsibility, of ‘the market’ players that are involved in the recurring financial crises.

Those who deny history feel free to repeat it.

GM is not too big to fail!

There is an effort to say that the U.S. government must save the American automakers from themselves; socialize failure, without consequences.

Nonsense!

In the 1970s the price of gas was going up, and the American consumer needed to get a car from Japan for fuel efficiency. They discovered that the imported cars didn't start to fall apart after the 3 year or 60,000 mile barriers that KO'd cars from the 'big three (GM, Ford and Chrysler).' This was the first indication that there was a systemic problem at the 'big three.'

The market, and government, had their first opportunity to restructure GM via the bankruptcy system in 1989/90, and didn't; about five years after the taxpayers had underwritten the restructuring of Chrysler.

Here we are again facing the fact that GM, Chrysler and Ford, like Wall Street, can't find their own backsides with both hands; even while sitting on those very same hands.

Yes, it will be painful to allow GM, Chrysler or Ford to fail, but throwing money at these companies has not been successful, let alone painless.

Solving Wall Street: Step One.

A great many companies in the financial services sector (a.k.a.: Wall Street, the market) are in trouble, because the credit worthiness of their ‘mortgaged backed’ paper, collateralized debt obligations (cdo) and credit default swaps (cds) are being downgraded arbitrarily in a panicked flurry of activity. This devaluation frenzy needs to stop. The aforementioned ‘investment grade’ paper was given an initial rating of AAA by the agencies responsible for said ratings, and those need be frozen as is temporarily.

Pause, to catch a breath, then go back and (figure out?) follow the paper trail.

These investment instruments were created (by geeks hired specifically for that purpose) and sold, with an arbitrary initial debt rating of AAA, to generate immediate cash from long term investments: mortgages. They were very successful, so the call went out for more. The next generation was also very successful, so the market decayed into the irrational exuberance that accompanies any trend, that is successful long enough, on Wall Street.

Time needs to be taken to find all that paper and determine what’s still AAA, what’s junk and what’s somewhere in between. This is not being done because once the paper trail is straightened out it will be obvious that Wall Street caused its own problem.

The market has never accepted any responsibility for failure, and is of no mind to start now.

Can you feel the winds of change?

We, taxpayers, paid for a bail out of the trouble caused by the financial entity charged with making home loans (the Savings and Loan businesses) without solving the underlying problems: too much easy credit, not enough regulatory effort. That was 1987 and the Reagan administration did not want to expose the underlying problems, because it would expose the sordid underbelly of 'trickle down.'

So, here we are, again, bailing out the culprits with a concerted effort to avoid the root causes of the problem.

The difference this time is that people's wallets have been affected too often by the detrimental nonsense that is 'trickle down;' leave the richest folks with the least responsibility for, and no oversight for their activity in, the environment that allowed them to earn such wealth in the first place.

There's an election, early voting starts in the next few days, this year and the winds of change are in the air!

Government's role in the economy...

During economic down cycles the government needs to check where regulation, or lack thereof, might have contributed to the problem and change what is found wanting. The appropriate executive agencies need to investigate to see if criminal activity contributed to the down turn, and prosecute as needed. The government also needs to invest where the market will not, so that services will be available to assist in the economic turn around that has, so far, always followed a down turn.

Texas has very few (grandfathered) municipal telecommunications networks, because they are illegal. This must change because telecommuting, distance learning and official/legal/emergency communication will play a large part in the future of Texas. The rural nature of the vast majority of the state of Texas means that there will never be sufficient customer base to provide a profitable return on investment (ROI) for private telecommunications companies; the government must provide this service.

Sunshine and wind are something that are well known to almost every Texan, but the best places for mass harvesting of said attributes are in rural areas. There is no private company that will take on the investment needed to provide the large, intelligent, power distribution network that could bring this power from where it is generated to where it is needed; a constant, huge drain on profit.

There is no private company that will invest in the roads needed to interconnect Texas, because profitable toll rates are more than most are willing to pay; the Camino Columbia Toll Road is an example.

There is no private company willing to invest in rail connections across Texas or within the metropolitan areas, because (once again) common carriage is incapable, at an affordable cost to the user, of generating sufficient profitability.

You've noticed a pattern by now: that common carriage infrastructure (especially in a huge, largely rural, state; like Texas) is not something in which a privately or publicly held company, most interested in generating a profit, will invest. The municipal, county, state and federal governments must do this investing or it will not get done properly, if at all.

Simple Solution Update...

A new Wall Street bailout bill is headed our way, loaded with even more federal debt inducing ‘goodies.’ The newer version of the bailout bill still fails to address the underlying problems; reminders of the symptom changing, problem avoidance of the Resolution Trust Corporation (RTC) some twenty years ago.

The RTC cleaned up bad debt accrued by the Savings and Loan Industry (home loan providers), at a cost of $375 - $500 billion (in taxpayer’s money), while it was forbidden from investigating (or turning over to investigating agencies) any evidence of criminal activity.

Similarly, this bill fails to recognize that the ‘mortgage backed’ derivatives (somehow buying into mortgages without buying mortgages) were a steaming pile of fecal matter from their inception, and actually asking taxpayers to buy huge quantities of them instead. I think not.

It does not give the bankruptcy court system the authority (it should always have had) to restructure debt secured by one’s home or property.

This bill does not include an updated version of the Glass-Steagull Act, which includes the regulating of Hedge Funds and Private Equity.

The new bill is a larger, debt inducing, dysfunctional thing that requires rejection; just like the first bad bailout bill.

A Simple Solution To The Mortgage Based Economic Chaos...

As to Treasury Secretary Paulson’s request for a $700 billion dollar blank check from the taxpayers: Absolutely NOT!!!

Yes, to a bankruptcy court’s ability to restructure debt secured by one’s home or property.

Property’s owner: keeps their property, if they are deemed fiscally qualified to pay the restructured loan.

Mortgage Holder: makes some money, less than they’d preferred, on the note.

Investors in risky ‘mortgaged-backed’ paper: get what modest return, or lack thereof, that one should expect from a risky investment.

Simple, straightforward and it costs the taxpayer, who wasn’t previously involved in any way shape or form, very little.