Plan “B”

Markets are looking ugly around the globe. Investors are voting on the bailout plan with their feet. The crisis is now accelerating.

This is a speech I’d like to hear either one of the candidates give. The man who expresses these views (or something close to it) gets my vote:


My fellow countrymen:

These are indeed extraordinary times. The country is in an economic crisis, housing has been in freefall, we are clearly in a recession, and now credit freeze is  worsening. We are living through what future historians will call The Great Financial Crisis of 2008.

Times such as these call for extraordinary leadership. Unfortunately, such leadership has been in precious short supply in Washington D.C. Our government has been reacting to events, rather than pro-acting. Its been all crisis management — putting out fires rather than preventing them. We have been on our heels, playing defense. That is not leadership; that is not considering possible events, and planning accordingly.

It is time for this leadership vacuum to be filled.

We have made some positive steps: A $700 billion-dollar bailout plan was passed by Congress last week, and while flawed, it is a first step. It is the biggest bailout bill in America’s history. But now is not the time to sit back and wait for results. We need to consider the next steps that must take place as a follow-on to this rescue plan, as well as contingency plan in case things do not go as we hope. Pray for the best, but be prepared for the worst.

We need a "Plan B."

I propose the following: As of this morning, I have sent invitations to our nation’s brightest financial and economic thinkers. It doesn’t matter if they are in academia, or the private sector, or in government. It matters not to me if they are a Democrat or a Republican or Independent. Your country needs you, and I hope you will answer the call.

It is time for us to get on the offense.

What is needed now is for the intellectual capital in this country to be put to good use. We have many of the world’s finest universities, we have unparalleled genius amongst our populace. Rather than merely rely on a hastily crafted on-the-fly  plan, improvised in response to the eruption of crisis, its time we used our brains. We need to be both optimistic, and at the same time, we must always have a contingency plan. A great nation such as ours deserves at least that much.

What we need is our generation’s economic equivalent of the Manhattan
project. That’s what helped the United States and her allies develop
the A-bomb and to win WWII.

For the past 8 years, we have ignored our greatest strengths. We have disdained reason and science. We have lived in an imaginary fairytale land, where home prices never went down, where inflation and unemployment were low, and economic growth was strong.

That turned out to be a phantom dream, based upon an illusion.

We now know that much of the growth of the past few years was based on these faulty premises: That we could borrow our way to a better lifestyle, that our financial institutions could speculate their way to profits, that we could deficit spend our way to prosperity. My friends, that is not how you achieve economic greatness. We need to strengthen the economic engine of the United States in every way we can. To do that, the president of the United States needs to take counsel from the wisest men and women in the land.

I invite my opponent to participate in this, to sit side by side with me, and receive counsel from these experts together with me. Whichever one of us win this election next month, he will need to hit the ground running. This crisis is bigger than the election, it’s more important than either one of us. It’s of great significance to the country, indeed, to the world. (Far greater importance than you would have guessed from the response from the present White House).

In the absence of leadership from the White House, it is incumbent upon the two men seeking that office to show the economic leadership that has been missing.

We are challenged to rise to this occasion. When presented with great challenges, America has always responded with greatness of our own — and this is one of those times. We are being tested, and we must succeed — not with just a barely passing grade, but with flying colors and honors appropriate for a great nation.

Given the extent of the financial crisis, and the extraordinary amount of resources that we must bring to bear upon this, in order to prevent this recession from spiraling into something far, far worse, we must leave no stone unturned, no idea unexplored, no action unconsidered.

As a nation, we have weathered terrible crises before: The Depression in 1929, World War 2, Recessions and economic disruption, the attacks of 9/11. The United States has been tested, many times in her past, and has always risen to the occasion every time. The Great Financial Crisis of 2008 is merely another one of those tests that allows the country to demonstrate what its people are capable of — what we are made of — what makes us Americans.

This will not be easy. Sacrifices will have to be made. For a period of time, we must put aside our our own self-interest and work together as one nation. There is no room for partisanship. There is no time like the present to embrace our future. And there is no country like the United States of America.

God bless you, and God bless America.

Category: Bailouts, Credit, Politics, Taxes and Policy

Plan “B”

“Plan B”

Some people seem to have forgotten that an ounce of prevention is worth a pound of cure.

Category: Bailouts, Credit, Politics, Taxes and Policy

S&P 500 Review

Category: Index/ETFs, Markets, Quantitative, Short Selling, Technical Analysis

Stephan Roach: Huge Setback for US-style Capitalism

Part I

click for videos


Part II


Part III


Category: Bailouts, Credit, Currency, Video

For Most Cities, Recession Has Arrived

Nice depiction of where the pain is being felt most: click for ginormous version This is obviously having a political effect: click for ginormous version       Sources: For Most Cities, Recession Has Arrived BILL MARSH NYT,  October 4, 2008 Economic Unrest Shifts Electoral Battlegrounds ADAM NAGOURNEY and JEFF ZELENY NYT, October 4,…Read More

Category: Economy, Politics

Fannie Mae and the Financial Crisis

The Sunday New York Times has a very interesting article on Fannie Mae and the current financial crisis. They do a decent job at delving into the complexities of the GSEs, and the many factors that went into the decision making at the senior level of the company. This includes pressure from clients such as Coutrywide CEO Angelo Mozilo, pressure from Congress, and the demands from investors for the company to be more aggressive. Most of all, it looks at the ongoing competitive demands of the market place that Fanny was in.

The key to understanding the GSE story is grasping their role within the bigger picture of the economy and housing sector. While there are some pundits who prefer talking points over reality (Charlies Gasparino, Lawrence Kudlow, James Pethoukoukis, and Jeff Saut all toed the GOP line) I prefer to keep all of my analyses based on the data and facts. Rather than creating historical revisions for partisan reasons, I prefer to keep it reality based. (I’m an independant, and that’s how I roll).

The current housing and credit crises has many, many underlying sources. Its my opinion there were two primary causes leading to the boom and bust in Housing: A nonfeasant Fed, that ignored lending standards, and ultra-low rates.

This nonfeasance under Greenspan allowed banks, thrifts, and mortgage originators to engage in all manner of lending standard abrogations. We have detailed many times the I/O, 2/28, Piggy back, and Ninja type loans here. These never should have been permitted to proliferate the way they did.

The most significant element were the 2/28 APRs, and their put back provision. Just about all of these gave the securitizer/repackager the right to return the loans within 6 (or 12) months if they went into default. Hence, our proposition that the 2002-07 period was unique in the history of finance. If any of these mortgages went bad within 6 months, the undewriter was on the hook.


In a rising price environment, 99% of the mortgages were not returned by the securitizers to the originator. From 2001 to 2005, the mortgage firms thrived. However, once prices peaked and reversed, things changed. From 2006-08, Wal Street began putting back mortgages to originators in greater numbers. This led to nearly 300 mortgage firms imploding.

We can blame the lenders, the securitizers, the borrowers, and Fannie/Freddie, but it doesn’t matter much. By the time Fannie and Freddie began changing their mortgage buying rules, the Housing boom was already in full gear, and the crash was all but inevitable.

Some people (especially the political hacks) are focusing their energies in the wrong places. According to a recent investigation by Barron’s, Fannie’s biggest problem was not the subprime mortgages they bought  — it was the better quality Alt A mortgages that caused their demise:

“As Freddie Mac Chairman and CEO Richard Syron recently put it, the GSEs have been hit by a “100-year storm” in the housing market, accentuated by some higher-risk mortgages that they were forced to buy to meet government affordable-housing targets.

The latter contention is more than disingenuous. A substantial portion of Fannie’s and Freddie’s credit losses comes from $337 billion and $237 billion, respectively, of Alt-A mortgages that the agencies imprudently bought or guaranteed in recent years to boost their market share. These are mortgages for which little or no attempt was made to verify the borrowers’ income or net worth. The principal balances were much higher than those of mortgages typically made to low-income borrowers.

In short, Alt-A mortgages were a hallmark of real-estate speculation in the ex-urbs of Las Vegas or Los Angeles, not predatory lending to low-income folks in the inner cities.

Only pure partisans take as gospel the statements of an embattled CEO whose own words are belied by the firm’s balance sheet and P&L statements.

What about the ultra low rates? Consider that the Greenspan Fed maintained a 1.75% Fed fund for 33 months (December 2001 to September 2004), a 1.25% for 21 months (November 2002 to August 2004), and lastly, a 1% Fed funds rate for 12+ months, (June 2003 to June 2004). That was fuel for the fire, and fed the boom even more, sending prices skyward.

And not just here . . . As the central bank for the largest economy in the world, the Fed’s rate action had repercussions in Housing markets everywhere. Rate cuts here richocheted around the world, sending home prices upwards globally.

Read More

Category: Bailouts, Federal Reserve, Real Estate, Short Selling, Taxes and Policy

Did JPM Cash Call Bring Down Lehman ?

Winston Munn

Category: Bailouts, Credit, Finance

Graphic Depiction of Finance Crisis

Nice collection of charts and graphics over at the BBC.  These two are my favorite: > ~~~   > > Source: Finance crisis: in graphics BBC, Friday, 3 October 2008

Category: Bailouts, Financial Press

Bird and Fortune – How the markets really work, Subprime Crisis

How the markets really work (2007) Here’s a more intriguing version — Bird & Fortune audio over economic and market data as visuals

Category: Digital Media, Markets

Saturday Night Open Thread

Category: Weblogs