In a few days we will elect the most powerful man in the world – the president of the United States of America. The power vested in the presidency is immense, but it is limited. The president does not control the events he will have to face. The range of issues a president faces is vast and daunting. No president – no person, for that matter – has the experience to cover the wide range of issues he will face during his presidency. The president will rely on his advisors, polls, party and political contributors for advice. In the end, these influences plus the president’s own philosophy will shape his judgment that will form the basis for his actions. What do we know about Senator Obama’s judgment?
Tax Philosophy – The conversation with Joe the Plumber finally crystallized Senator Obama’s political view on taxes. Obama told Joe he wanted to use the tax system to “spread the wealth”. Just weeks earlier, Obama stated that he would raise the capital gains tax rate, despite the fact that such a change would generate less tax revenue, because it was “fair”. Senator Obama does not view taxes as a means to fund the government; rather they are an instrument to impose economic fairness. That means he will decide who to take taxes from and who to give them to. This is a radical economic philosophy. In fact, income redistribution (spreading the wealth) is the central tenet of socialism. What kind of judgment does that show?
Iraq – Senator Obama began his campaign based on his opposition to the war in Iraq. At the time President Bush initiated the war, Obama was merely a state senator in Illinois. He had no access to any intelligence reports. Based on these reports, however, Senator Joe Biden, Obama’s own running mate, and Hillary Clinton and many other Democrats supported the war. State Senator Obama merely went with his gut and gave a speech opposing the war. Now let's fast forward to last year and the surge. Obama was then a U.S. senator and had access to foreign intelligence reports. He knew that the choice was to admit defeat and withdraw from Iraq or support an unpopular surge and give victory one last chance. At that point, when equipped with all the facts available, he chose to accept defeat and oppose the surge. The surge has been a remarkable success, and a lasting peace is possible in Iraq. Had Obama succeeded, our troops might be home, but Islamic radicals would control Iraq and America would have suffered its most profound military and political defeat in our entire history. What kind of judgment does that show?
Reverend Wright – Barack Obama attended Reverend Wright’s church for over 20 years. How could Senator Obama sit in the pew of a pastor who preached radical black-liberation theology, a radical social-economic worldview, and not be influenced? He claims to be unaware of these radical statements and beliefs. What kind of judgment does this show?
Questionable Associates – How can a senator start his campaign, endorse the book of, and accept money from an unrepentant domestic terrorist? Of course, Obama was only a child when William Ayers bombed the Pentagon, but Senator Obama was in his thirties when he befriended the radical William Ayers. Can you imagine the media’s reaction if McCain had a similar relationship with an unrepentant abortion clinic bomber? This could be excused if there were not so many other questionable associations: ACORN, Rashid Khalidi and Tony Rezko. Who will surround him in the Oval Office? What kind of judgment does this show?
Bipartisanship – Senator Obama claims to be “post partisan”. He knows the majority of the electorate wants a less confrontational approach to solving our problems. I wonder what will change. Barack Obama is the most loyal and liberal Democrat in the senate. He voted the Democratic Party line 97% of the time. Not once did he step outside his party’s boundaries to build a bipartisan coalition to solve a meaningful problem. His talk makes for good politics, but his actions are empty. What kind of judgment does that show?
His Sincerity – There is no doubt Senator Obama may be the most gifted orator in modern history. His prepared speeches are works of art. His oratory skills and rhetoric are inspiring. However, when the teleprompter is off and he is talking to his core supporters, he derides the middle class when he states that “they cling to their guns or their religion.” What does he really believe? What kind of judgment does that show?
We are not electing the national spokesperson. If we were, given his demeanor and oratory skills I would vote for Senator Obama. No, we are voting for the president who will face unknown and seemingly impossible challenges. He will have to reach deep into his soul and make decisions that will affect all of us. While we all hope for change, how sure are you of the changes Mr. Obama has in mind?
Thursday, November 13, 2008
What is going on in the Finacial Markets? LDN Oct 2008
When I am not playing the intrepid columnist for the LaGrange Daily News, I am the chief financial officer for a consulting company. I only say that because during the day I get a lot of questions from friends and co-workers on what I think about the economy and the Wall Street mess. I am by no means an expert but I do spend considerable time reading and monitoring the situation. I have tried to explain it to many of my colleagues. It doesn’t take long until my soliloquy leads to confusion and that blank stare which means that I have failed again to convey the scope of the problems in simple terms.
A few days ago, a colleague and I were discussing the bailout. He hung in there a little longer than most but like the others before him, he cried “no mas”. However he was not finished. His college-aged children wanted to know what was going on. He then wrote this response. I think it is a pretty good primer on what the meltdown is all about
How did we get here?
The current ‘crisis’ has its roots in bad mortgage loans (a loan made to somebody that wants to buy some property, like a house – where the property is the collateral – which means that if the borrower does not pay back the loan, the lender gets the property) made over the last 8-10 years, primarily for 2 reasons:
1. Loans that never should have been made to people with no chance of paying. Probably the best of intents – but as far back as the late 90’s the Clinton administration put profound pressure on Fannie Mae and Freddie Mac to ease the rules on loans low income borrowers. Probably noble – share the American Dream and all that.
2. Loans made for absurdly inflated values. The ‘bet’ was that property values would continue to escalate, thereby catching up with the inflated loan values.
BIG POINT – These mortgages were packaged up and sold as investments to other financial corporations and brokerage houses (i.e. Merrill Lynch, AIG, Lehman Bros, Wachovia and others). The original underwriter got paid and transferred the risk of payment to someone else.
So, where are we?
Now, fast forward to the last few months. Housing slows down. Property values stop increasing to the point of actually decreasing. Builders and other borrowers can no longer justify their inflated loans vs. the falling value of the actual property and they default (stop paying) on the loan. The investment houses (named above) that ‘bought’ these loans as investments, are now holding the collateral, or foreclosed property, which is worth a FRACTION of the value of the loan assets, so they have had to take what is called a write-down. In other words, their assets (stuff they own) are worth far less today than they were a year ago. That is assuming any other institution will even buy them.
Now it gets interesting. Since these financial companies are worth less, their credit ratings have fallen. With falling credit ratings, they legally have to have more cash. Cash???? Did somebody say cash??? You mean with all these high-falutin’ financial terms and fancy words, somebody actually has to have some cash to pay for this?? Darn right. So, these financial institutions are caught having to raise cash, and we get to:
The last straw:
Because the banks have had to tighten down, there is no credit/cash flowing through our financial system. The banks are simply not loaning any money to each other, or to any borrowers – which is a fundamental pillar of our financial system. Liquidity or the flow of cash from institution to institution to individual is what drives everything in our economy. All the fancy words in the world – but at the end of the day, somebody has to have cash to pay. And it all started with loans that were never going to get paid.
The net/net is that we are Americans and we will get through this. It is time for all of us to ‘bow up’, stop panicking, believe in our system and act a little less selfishly (buy only what we can afford). At some point intelligence will reclaim the market from raw emotion and investors, analysts and the press will realize that companies like Microsoft and GE and many, many more are fundamentally the same sound, solvent and growing enterprises they were 6 months ago. They are simply not worth half today of what they were – and the market will recover. The economy WILL recover.
Net/net – there are some other factors which I have not discussed (to avoid the glazed over eye syndrome) – but at its most basic form, this is a NORMAL AND NATURAL economic cycle, that has been grossly exacerbated by the fact that we artificially kept the ‘boom’ cycle alive for too long.
A few days ago, a colleague and I were discussing the bailout. He hung in there a little longer than most but like the others before him, he cried “no mas”. However he was not finished. His college-aged children wanted to know what was going on. He then wrote this response. I think it is a pretty good primer on what the meltdown is all about
How did we get here?
The current ‘crisis’ has its roots in bad mortgage loans (a loan made to somebody that wants to buy some property, like a house – where the property is the collateral – which means that if the borrower does not pay back the loan, the lender gets the property) made over the last 8-10 years, primarily for 2 reasons:
1. Loans that never should have been made to people with no chance of paying. Probably the best of intents – but as far back as the late 90’s the Clinton administration put profound pressure on Fannie Mae and Freddie Mac to ease the rules on loans low income borrowers. Probably noble – share the American Dream and all that.
2. Loans made for absurdly inflated values. The ‘bet’ was that property values would continue to escalate, thereby catching up with the inflated loan values.
BIG POINT – These mortgages were packaged up and sold as investments to other financial corporations and brokerage houses (i.e. Merrill Lynch, AIG, Lehman Bros, Wachovia and others). The original underwriter got paid and transferred the risk of payment to someone else.
So, where are we?
Now, fast forward to the last few months. Housing slows down. Property values stop increasing to the point of actually decreasing. Builders and other borrowers can no longer justify their inflated loans vs. the falling value of the actual property and they default (stop paying) on the loan. The investment houses (named above) that ‘bought’ these loans as investments, are now holding the collateral, or foreclosed property, which is worth a FRACTION of the value of the loan assets, so they have had to take what is called a write-down. In other words, their assets (stuff they own) are worth far less today than they were a year ago. That is assuming any other institution will even buy them.
Now it gets interesting. Since these financial companies are worth less, their credit ratings have fallen. With falling credit ratings, they legally have to have more cash. Cash???? Did somebody say cash??? You mean with all these high-falutin’ financial terms and fancy words, somebody actually has to have some cash to pay for this?? Darn right. So, these financial institutions are caught having to raise cash, and we get to:
The last straw:
Because the banks have had to tighten down, there is no credit/cash flowing through our financial system. The banks are simply not loaning any money to each other, or to any borrowers – which is a fundamental pillar of our financial system. Liquidity or the flow of cash from institution to institution to individual is what drives everything in our economy. All the fancy words in the world – but at the end of the day, somebody has to have cash to pay. And it all started with loans that were never going to get paid.
The net/net is that we are Americans and we will get through this. It is time for all of us to ‘bow up’, stop panicking, believe in our system and act a little less selfishly (buy only what we can afford). At some point intelligence will reclaim the market from raw emotion and investors, analysts and the press will realize that companies like Microsoft and GE and many, many more are fundamentally the same sound, solvent and growing enterprises they were 6 months ago. They are simply not worth half today of what they were – and the market will recover. The economy WILL recover.
Net/net – there are some other factors which I have not discussed (to avoid the glazed over eye syndrome) – but at its most basic form, this is a NORMAL AND NATURAL economic cycle, that has been grossly exacerbated by the fact that we artificially kept the ‘boom’ cycle alive for too long.
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