What are you doing? Is this a time of crisis or an opportunity?

I'm curious to know how you view the current economic situation. Do you see the market, now trading at a level around 40% off it's high of last year as an opportunity or do you believe it's too risky, implying that there are no companies worth owning at this point? Are you worried about keeping your job? Have you tried to get a loan and been denied?

For myself, I put a little money in the market last week, and of course it went down. I did not sell into the downfall. Last November and again in January I talked to my broker about selling since I started to feel uncomfortable with being in the market. He talked me out of selling and I paid no further attention to it.

I'm fortunate that I don't need the cash right now and as such, I just left it in. I put a little more from my last paycheck into the same funds last week feeling that I would start putting a little more in every paycheck. If it keeps going down I'll just continue to buy all the way down. Hell, I'm buying at levels I haven't been able to buy at in 10 years. I only wish I had more cash. In my opinion there are a number of good companies selling at once in a lifetime levels. And they may get cheaper!

The US Treasury and the Federal Reserve are at their wits end having pulled the trigger on a number of spending initiatives, loans, and rate cuts. Where were they in July when rate cuts might have kept the flow of credit open?

I'm not particularly worried about the business... yet. Many companies are continuing spending in essential initiatives. However, we're seeing all good companies begin to cut non essential spending including projects and headcount. It's not a good time to be a corporate ornament, a.k.a. dead weight. We're also seeing an increase in sales and marketing efforts. It will be interesting to see when marketing budgets get wiped out. I fully expect to continue to see massive layoffs through the remainder of the year in large and publicly traded companies. Small business usually don't operate with the same level of overhead, but we will all be taking haircuts.

I don't personally know anyone who's been foreclosed, but given the statistics I expect that many of you do. My aunt emailed me the other day saying that one of the kids had gotten a mortgage that was more than they could afford then complicated things by running up their credit cards. Before anyone could help them they had dug their hole too deep and they got foreclosed. It's unfortunate, but probably a lesson they needed to learn.

I do acknowledge that there are going to now be a lot of people swept up in this debacle who took on debt that they could afford when they assumed it but will have either lost their job or suffered setbacks in their income forcing them into situations where their debt burden is unsustainable. It's really all of our fear to be caught in this situation. Normally, financial institutions will work with their customers to keep from assuming the financed assets. It will be interesting to see how well this works in this new economy.

Today I heard of a physician friend who was having some difficulty acquiring a mortgage for a home, saying that the amount of down payment was 80%. I suspect he was exaggerating, but I believe that the money required for a down payment is much greater than it used to be.

I have 2 car payments and a home mortgage at the moment. Happily I've paid off my credit cards over the year and have minimal debt in that regard. My cars were financed at 0% and 3.9% respectively and I had a 30 year fixed mortgage at 5.65% as I never trusted adjustable rates or brokers and banks that were unknown to me. I don't have nearly enough cash should something happen to my business or job, so that concerns me and I have to remain optimistic but guarded that we will continue to prosper through the turmoil. As a result, I am focusing efforts on increasing sales on essential items and those that reduce cost or increase sales for our customers.

I'd love to hear your perspectives; what you're seeing; what you're experiencing at home and at work.

Spend baby spend

March 2008

The Federal Reserve issues a 28 day emergency loan to Bear Stearns only to have Stearns sell to JP Morgan 2 days later at a steep discount, $2/share when it had traded at $98/share only a month earlier. The Federal Reserve extends a $29 Billion non-recourse loan to JP Morgan and assumes responsibility for Morgan's "troubled" mortgaged based assets. According to the Federal Reserve website, JP Morgan assumed Bear Stearns financial obligations, but it's not clear to me if the original emergency loan was the same as the subsequently reported non-recourse loan to JP Morgan. No Congressional vote was required for this action.

Ben Bernanke is Chairman of the Federal Reserve.

September 2008

The Federal Reserve issued loans up to $85 billion to A.I.G. for a term of 24 months with the right to assume up to 79.9% equity in the financial and insurance giant. No Congressional vote was required for the loan.

September 2008

According to several news reports, a $25 billion loan package is tucked somewhere in H.R. 2638 intended to aid the auto industry. H.R.2638 is an appropriations act extending the US budget into 2009. Just try to find reasonable language that describes the terms of the loan. I can't. Congress passed this bill and President Bush signed it into law.

September 2008

The US Treasury take Fannie Mae and Freddie Mac into conservatorship. Loans of up to $100 million per GSE (Government Sponsored Enterprise) were extended to both GSEs with up to 79.9% equity positions acquired. A total of $200 Billion available. No Congressional vote required for these actions.

September 2008

Emergency Economic Stabilization. The Congress passed and President signed into law an act that commits up to $700 billion to be spent purchasing nearly anything the Assistant Secretary of the Treasury determines that will stabilize the stock markets and keep people in their homes. A combination of an additional $110 billion in tax credits and allocations were added to the original act in order to obtain the votes required to pass the bill.

Several new government offices and positions are created with this act. Secretary Paulson is given a great deal of authority to define the mechanisms and rules for exercising the intent of the act with several agencies acting in an oversight capacity. The cost for administering this program is not specified. There is no timeframe for recapturing the investments made by the Secretary. The act gives the Secretary complete discretion for which assets to buy from whom and under whatever terms he sees fit as long as the terms meet a liberally general set of guidelines. There are mechanisms to adjust individual mortgage interest rates as well as reduce pricipal in conjunction with a new program titled "Hope for Homeowners", announced by Senator Dodd in March of 2008, but included in this bill.

Until the most recent "economic bailout", the Federal Reserve and US Treasuring had been trading in loans and equity. Now that we have given the US Treasury a $700B line of credit, let's hope that Secretary Paulson has the good sense to invest it wisely.

Plight of the ignorant American public at the hands of an irresponsible government

After the "Emergency Economic Stabilization" act was passed today, someone that I consider to be fairly intelligent asked if it had been determined how much the plan would cost each taxpayer. I had heard earlier in the day that the "bailout" equated to something like $6000 per taxpayer. The math seems pretty close: $700 billion divided by about $136 million tax payers (although only about 100 million actually paid anything) comes to about $6K per filing adult. He then asked if I thought we'd have to pay it all in one year. I was dumbfounded. How many other people are thinking this way?

This law commits up to $700 billion to be used to purchase "troubled assets" and otherwise be spent as Secretary Paulson sees fit. Don't believe me?

“residential or commercial mortgages and any securities, obligations, or other instruments that are based on or related to such mortgages” determined by “the Secretary determines promotes financial market stability”

and

“any other financial instrument that the Secretary, after consultation with the Chairman of the Board of Governors of the Federal Reserve System, determines the purchase of which is necessary to promote financial market stability, but only upon transmittal of such determination, in writing, to the appropriate committees of Congress.”

It's a commitment of funds. It's basically the same retarded logic that led consumers to take on mortgages, auto loans, credit cards and other debt they didn't have income to support.

The real fun comes later for Congress. Where will the money come from to pay for the purchases made by the new "Office of Financial Stability" (does that sound Orwellian to you?)

Get it? Spend the money then figure out how to pay for it.

But here's something nobody has mentioned. Contained in this Law is an increase of the public debt limit to $11,315,000,000,000 from about $10.6 trillion. WHOOPIE! MAMMA NEEDS A NEW PAIR OF SHOES!

There is some convoluted verbiage in the law that discusses charging premiums to institutions that participate in the plan to cover the requests for coverage. This is unrealistic if not down right stupid. If these companies had the funds to cover their debt they wouldn't need their troubled assets purchased.

So, to my dear friend, and I do love him, no, you will not have to send a check to Uncle Sam for $6,000 next year with "Emergency Economic Stabilization" written in the memo. BUT, make no mistake about it, your taxes will rise. Maybe not tomorrow. Maybe not next year. But this law opened a big checkbook which will, without a doubt, be drawn upon. Having raised the ceiling for public debt Congress allowed this bubble to expand having doubled in size since 2000. This money will have to come from somewhere (foreign banks) and at some point we WILL have to repay it.

A plea to save our country...

I sent this to Obama and Judy Biggert before the sentate vote a couple of days ago. Durbin's contact form was broken, and his congressional email bounced, so I couldn't get to him, not that it made any difference. It turns out that all of my representation (Illinois) voted for this heap of dung. After the Senate approved the act I read it, well most of it... it's 451 pages of legal-speak. I quit making notes and comments as there were too many comments to be made. It is truly a bad plan benefiting people who default on their loans and those elite that made them. The rest of us are left swinging in the breeze. The "pork" was legal coercion to get the votes required to pass. We elected these people to represent us. We deserve better than we got.

The "Emergency Investment Act" is now law. Mark this date down. Remember what you did today. It's a date that "will live in infamy". Our government's relationship with all of us fundamentally changed today. Shame on all who voted for this act and those who stood by and allowed it to happen. I'll post more on why it will not help the economy and how it accelerated our country's slide into socialism later. Maybe that's what you want, but it's not what I want.

---------------------------------------------------------------------------------
x,

It is my earnest hope that these messages reach you. I am not in favor of the proposed "bailout" or "investment" plan for the following reasons:

1. Private sector must remain private. Risky credit policies have to run their course even if the consequences are painful. I realize that this is not going to resonate, so I have other concerns that follow.

2. If these financial firms are too risky to extend credit to how can they be any less of a risk with regard to stock or warrants?

3. Exactly which financial firms are going to be helped? What is the criteria for investment or credit?

4. How can we be assured that those people overseeing these programs are acting in the public's best interest and not in their own? It seems that nearly every official involved in setting past and present policy has ties to several of these failing firms.

5. How can we be assured that those responsible for acting irresponsibly not only do not profit from assistance, but are fairly punished for their recklessness? Clearly the bylaws, regulations and legislation in place for the GSE's and SEC were not effective. How can we be sure that this law won't be equally inert?

6. It appalls me to see the level of partisan posturing happening by both parties. I am embarrassed by it.

7. What I now see are provisions being included to solicit senate votes that do not directly address the issue at hand. I realize that this is how the system works, but it's distasteful to see given the current circumstances.

8. Nobody has adequately explained the alternative to a bailout. Much of the American public is sophisticated enough to follow logic when it's presented. Many of us do not appreciate generic doom and fear tactics. If someone were to clearly lay out the facts we would respond. Pandering to our fears has become a troublesome consistency by today's leadership.

9. The financial aid provided will not prevent foreclosures and repossession on bad debt. The only benefactor would seem to be the executives and shareholders of these companies. As for how the markets will be affected is a guess and a gamble at best. When credit is stretched beyond the population's ability to repay, prices are inflated, and subsequently taxes increased in part on those inflated prices isn't it a matter of time before something breaks? I wish our leaders would stop using job loss and foreclosure as a platform when no spending program can adequately address those two symptoms of a sick system.

If a plan is absolutely necessary, I would be in favor of a loan program that clearly identified where the money would go, had very strict guidelines for who qualified for loans, that eliminates companies who are too risky to repay the loans, that had an extreme transparency, that had a combination of private sector (non-invested) and public sector oversight and lastly that had provisions for investigation and remediation regarding the legislation and private practices that led to this situation.

Respectfully,

Something stinks. I showered this morning so it's not me.

It boggles my mind that any business entity believes it can rampantly extend credit to risky customers with no consequences. Home ownership, nor credit of any kind, should have never been a “community initiative”. If a fraction of the money and effort had been spent in creating jobs instead of creating opportunities for businesses and consumers to overextend themselves we would have built a free market foundation for those willing to work for what they have and can afford. Clearly we’d still have corruption and manipulation; it’s human nature.

There's a fundamental difference between charity and entitlement. Charity is personal and we have seen it work. Entitlement is contrived and although there are exceptions, rarely works.

It scares the hell out of me that one of the people (Obama), his hands as dirty as anyone, perhaps dirtier than most, has a very good chance of becoming President with a democratically controlled congress. It doesn’t calm my nerves that McCain has been in Congress since 1983 while this sore festered either.

Entitlement does not work. This mentality goes as far back as Franklin Roosevelt. Jimmy Carter apparently planted this time bomb that just went off. Each generation has built upon a house of cards. I hold every President and congress person who’s held office since 1977 culpable. We can choose to knock it down and start over or put some tape on it and hope it remains standing until we can move out and let our kids and grandchildren deal with it.

Complexity breeds corruption and manipulation. It’s time to get back to some common sense basics. People should get the credit they can afford. People who overextend themselves need to deal with the consequences. Companies that extend credit to risky customers need to deal with those consequences. Our government needs to protect the public from fraudulent and criminal behavior.

If you believe the “bailout” will solve anything, google “Henry Paulson”. Just who is getting bailed out here? How much of Paulson’s $700 million net worth is still tied up in Goldman Sachs, where he was CEO from 1999 to 2006. His network extends all across many of the ailing and now defunct financial institutions. People like Steve Wynn and Warren Buffet are putting forward ideas (and actions) that free up the credit market, hold the financial institutions accountable, and allow the market to sort out the garbage of overpriced assets.

There are already too many regulations that are not enforceable. The tax code is too complex, which by its nature encourages manipulation and corruption resulting in an unfair distribution of cost. There are too many programs that require a tax base that is becoming unbearable. The SEC is asleep at the wheel.

Our government is the 32 year old kid that hasn’t moved out of his parent’s house, throws wild parties, has loser friends that come and go at will, he’s stolen your credit cards, eats all of your food then trashes the furniture and won’t clean up after himself. Our society has become the parents that turn a blind eye, clean up the house, put more food in the refrigerator and makes the minimum payment on the credit card bill.

On the brink, but it's not what you think...

The political posturing of our public servants over recent days is despicable. Nobody can claim credit for anything right now. It's analogous to offering to give CPR to someone you just shot. The vast majority of us are not short sighted enough to lose the fact that it has been poor policy, over-legislation and under-management in our governments and big business over the last 20 years (at least) that has made making an honest living one of the most difficult things to achieve today. Nearly none of us would accept the excuses or self-centered behavior we've seen them demonstrate from our employees or children. Why do we accept it from our so-called leaders?

People with little or no credit should not get loans. If they do get credit and can't make their payments, they should lose their asset. Businesses that routinely extend credit to risky customers should go out of business. Our government should enforce legislation that protects us all from fraudulent and devious activities. Complexity in systems encourage manipulation and chaos. It's time to get back to some basics.

This said, now that we're on this slippery slope let's pray that our leaders put together an "investment" package that 1) clearly defines the rules for which businesses qualify for "investment" , 2) as with the airline packages in the recent past, loans, instead of investment, state a term for repayment at favorable but fair rates, 3) no special interest funding or earmarks and 4) investigation and accountability into the firms and the past legislation that allowed debt to accumulate and be traded at the magnitude we're seeing.

There are a lot of smart business people that can guide this wreck forward. Paulson isn't one of them. It would be interesting to know how much of Henry Paulson's estimated $700 million net worth is invested in interests that might be involved in this so-called bailout. For that matter, full disclosure would be more than interesting for those crafting these financial devices. After all the money is spent scooping up these assets, the bad debts will still exist, right? Do you really want the federal government deciding to foreclose on your house or reposess your car because they now own the loan you weren't qualified to get in the first place? Warrants, loans, or just gifts of money do not erase bad debt. Nobody in this equation is going to forgive missed payments.

It should make all of us sick that the executives of these "failed" companies have fleeced the system for billions of dollars while they ran their firms into the ground. These are the same companies that, through their financial might, have influenced our public servants and shaped favorable legislation that has built the culture of industrial irresponsibility that has created infamous names as Enron, Ty, MCI, and I predict Fannie Mae, Lehman, and Goldman Sachs will join them before this is over.