Thursday, September 25, 2008

Why mortgages are killing the economy...

I've been wondering why mortgages have been such a contributor to our market weariness...  and I think I finally figured it out.

We've had regional and even larger foreclosure crises before... plenty of market drops and the like... but why do we suddenly have to buy mortgage houses now?

Insurance... or the lack thereof.

From my basic research... banks long ago determined that they could take bigger risks if their loan investments were covered by insurance.  They created a marketplace to buy and sell this insurance, and they guaranteed payouts in the event of a loss.  That financial insurance instrument is called a credit-default swap.

But a credit-default swap(CDS) is NOT insurance, it is only an instrument.  It's not regulated, nor is it required to be backed with liquid assets of any real amount.

On the books though - a CDS looks pretty good.  And if you want too... you can even trade them like stock called derivatives.  They were one-way bets on banks that mortgages would fail (thus they were seen as stable and creditworthy because mortgages shouldn't EVER fail... right)  - so banks started selling LOTS of them.

To the tune of 62 Trillion dollars in derivatives market value.   Yes Houston - nearly 9x the US national debt of 9.3 Trillion.

Now's about the time it all clicked for me.  See - suddenly any bad debt could be papered over with CDS.  Never mind that CDS was nothing other than a pie-crust promise that mortgages would always pay.  Never mind that banks then further fueled the insanity by trading them like real money.

If you had potentially toxic loans - it would be covered with a CDS...  You were effectively spreading the risk of failure to all the schlubs you bought a CDS from.

Aha... so that's why Goldman Sachs and Morgan Stanley "suddenly" want to be real commercial banks.  They must to bring in real cash to cover their CDS obligations or risk an AIG death dance.

Because there really is no protection when it's not regulated.  AIG was loosing billions on CDS contracts back in February... they had written over 500 Billion in CDS contracts and were still growing.  Papering over bad debt became a drug habit response in the investment industry and now the real cost was suddenly rising rapidly to the point where insuring 10 million could cost 2.5 million up front!

And so when real foreclosure numbers started ramping up over the past two quarters... well lets just say it was going to be a slaughter.

Friday, September 19, 2008

As I format my cluster storage....

I read that McCain disagrees with the bailouts the Fed has been dropping on a regular basis, and wants to fire the current SEC chairman.

I'm all for canning the SEC chairman... in fact I think we need a total SEC overhaul.  I can't tell you the number of times I've yelled about fraud on the market.  Yes - it's a human institution that's bound to make mistakes... but one of the big reasons we're bailing out these giant companies is because of the SEC (and the FTC) has allowed these same companies to merge.

Speaking as a architect in IT... it's like putting the entire internet on 4 servers.  If one of those servers goes slow or dies... then you loose 1/4 of the internet.  But chances are also greater that one of the other 3 will also go down - because the load has increased from 25% to 33% (at best).  You can guess, that if 3 goes down - that 2 will certainly follow on quickly, and so on until you reach a complete collapse.

So what's the solution???  Diversity, redundancy, and backup.  Diversity is achieved by having functionality broken down into separate areas.  In business speak - that means going back to walling off investment & commercial banks.  Redundancy means having more than 2-3 major players in a market segment... Fannie, Freddie, and Ginnie should be broken up and sold to investment groups.

And finally, we get to backup.  And that means the Fed in this case.

Frankly, the Fed is doing exactly what it should be doing.  The main problem is that it wouldn't be this bad in the first place if Diversity and Redundancy in the market were alive and well.

What lead to the great depression of 1929?  
-- Stupidity and greed.

What made the depression last 10 years?? 
--No customers.  Plain and simple.  Call it underconsumption, lack of credit, gold standard lockin... whatever.

The fed has no choice here....  they've got to bail out these scumbags to keep consumption up.  People don't feel like consuming when they're bank is on fire.  They take their leftover money, stuff it in the mattress and start waiting around for the apocalypse.

Let's just hope they don't go bailing out Airlines and dogfood factories.  Even if they deserve it more than our banking mafia.

The good news is that the Fed now has these scumbags by the necktie.  If they had a pair - now's the time to start implementing the golden rules of market stability....  diversity, redundancy, and backup.

Anyway.. back to my SAN.

Friday, September 12, 2008

Blogging from 1881...

My family has a penchant for collecting history.  My grandmother passed down her grandparents' diaries before passing away.  I've skimmed them a bit - but never did much with them for 10 years now.

So anyway... now I've decided to digitize and "digitize" it for future posterity... aka my kids.

The Loughborough Diaries, with scans.  Hopefully I can put a few up every week or so.

Tuesday, September 09, 2008

End of world rescheduled for sometime late November...

LHC (Large Hadron Collider for those of us living under two rocks) is set to perform a beam test tomorrow - which in plain terms means they're going to send some particles onto the two main loops.

All this hubbub about the world being destroyed is flakey nonsense because:
  1. There won't be any collision tomorrow
  2. It's running at ~7% speed (which we've been doing for over 20 years now)
  3. The first collision is whispered to be in November.
I'm looking forward to something spectacularly WRONG to happen myself.  And I don't mean that in a malicious way - I just don't think that we're going to fund the Higgs boson (the mysterious particle as it's known).

So what will they find?  Well what I'd like to find is a graviton... Now THAT would rock.  Totally unlikely... but I can always hope!

 

Friday, September 05, 2008

Salute the 6th Grader!

Composite Percentile: 97
Stanine Reading: 9
Stanine Language: 8
Stanine Math: 9

The books we received today are just luscious! Oh, this was such a great decision!

Thursday, September 04, 2008

McCain-Palin: 2 Gun Salute

I was finally able to watch Sarah Palin's RNC speech tonight.

At the very end, when McCain came on stage, the reason this ticket can work struck me:

"I KNOW you, America!"

Beyond all other politics, this is the most important message this ticket sends.

It will work because the Democratic elitism has been on blatant display since McCain announced Palin as his VP pick.

In no particular order, unfounded assumptions have been made regarding Palin and conservationists.

MEDIA MISTAKE
Trig is not Sarah's baby. He's Bristol's. Palin is doing the old grandma--> mama switcheroo.

AMERICAN REALITY
A woman doesn't have to be huge in her 7th month. Many indulge in that wonderful, "I'm pregnant! Pamper me!" idea with the first baby. Not so much in later pregnancies. More often than not, there's a tremendous desire to stay in better shape, if only because you don't have time to indulge yourself!

MEDIA MISTAKE
Social conservatives will be APPALLED!! SHOCKED!! EMBARRASSED!!! to learn Bristol is, in fact, 5 moths pregnant! Sarah will be shamed out of the VP nomination!!

AMERICAN REALITY
There's an old joke: If you're not a liberal in your 20s... If you're not conservative by your 30s... something's wrong with you!

Very, very few people have become conservationists just 'cause Mama & Daddy said to be.

Very, very few even vote straight party tickets anymore.

More often than not, most people see the entire spectrum first hand and come to their own political/religious decisions as a result of understanding that what they grew up with is not necessarily worth preserving, but conserving. This is a very important difference. To be sure, CD and I are not doing things the exact same way our parents did. Truth is, however, that we respect their EFFORTS, recognizing their efforts as the rooting force they were.

So, to the point. Sarah & Todd Palin's 17 year old is pregnant. So are 2 of my friend's 17 year old daughters. What matters is not what has happened, but what is presently happening. These girls didn't run away from home out of fear or shame! They talked to their parents. Their parents still love them. You bet the parents are getting to know the boyfriends better. While they are doing that, they are helping set up nurseries.

This is one side of social conservattionism that people seem too busy to notice! Thanks to McCain-Palin for shedding some light on the subject! Damn, y'all... haven't you noticed there are a lot more Juno families in this country than "kick 'em out on their butts!" families????

MEDIA MISTAKE
Sarah has a special needs child How will she be able to care for him if she's VP?

AMERICAN REALITY
Haven't you been watching the family play "pass the sweet baby?" Even Trig's youngest sister knows how to hold and care for the boy! This is how families work when they work best. Everyone pitches in. Everyone cares. Everyone loves. Never perfect, to be sure, but it can work out beautifully when people let it. And who's going to care for Obama's girls when Mama & Daddy are busy? I bet Washington has some *excellent nannies* if necessary. Why the myopia? What a slap in the face to every working woman in America who's had to entrust their precious children to someone else's care! What a real slap to the families who have both Mom & Dad working multiple jobs to ensure funding for the next surgery their "special needs" child requires!

MEDIA MISTAKE
If Sarah had had better pre-natal care, Trig would not be a Down's Syndrome baby.

AMERICAN REALITY
Not only is this false, it is cruel. Read the news. They knew Trig was going to have Down's Syndrome very early in the pregnancy. They chose to keep him alive and thriving in Sarah's womb. Look at that sweet face! Look at this family! Do you see regrets? Do you see a lack of love?

MEDIA MISTAKE
Oh, ho ho! Look at this! Todd Palin isn't even a Republican! He's a Democrat! Sheeeeee's outta here!

AMERICAN REALITY
There are too many "mixed marriages" in this country to count! I wouldn't go there!

End game is this. McCain, whether politically profitable or not, has chosen for VP someone who represents a lot of parents, as well as grandparents and adult children. With the choice of Palin, he's effectively said, "'Compassionate Conservatism' might have been a sound byte for Bush. Here's my understanding of the true meaning."

It has completely changed my opinion of McCain. He gets it. He really gets it. He has managed, in one brilliant stroke, to capture a snapshot of an often overlooked section of the great American fabric. People look at Palin and say, "Gosh, she looks like she could be my neighbor." Quite a coup because, religiosity aside, most of America believes, "Love neighbor as you love yourself."

I can't wait for the rest. I really can't! Because here is the reality:

The more the media & Democratic elites slam Palin, the more they are rattling the pitbull cage they don't seem to know exists. The more they assume they know how conservationists think/act/feel, the more they are shown to be ignorant. Most importantly, by slamming Palin, they are unwittingly slamming a million mothers who believe Obama will help them. Shame on them!

Maybe we'll finally see what CD calls, "Darwin in action," work! That would be a phenomenon worthy of a history book.

Wednesday, September 03, 2008

OMG

A cousin inspired me to write what, I believe, might just actually, really, truly be my first QUALITY Polidori work.

Or second, depending on how that poem about my Dad dying set with you.

In any case, I will be able to declaim for sure!!

Tuesday, September 02, 2008

Awaiting Test Results

B. took the CAT placement exam last week.

We are still waiting for the scores, but she must have done quite well.

24.7 lbs of 6th grade books shipped out to us today.