Monday, September 29, 2008

Behind the Anti-Palin Hysteria

There is more to the vicious and emotional anti-Palin hysteria than the political challenge of her candidacy that is described below in the September 15 post entitled The Palin Threat, and K.R. finally has diagnosed what's behind it.

Ms. Palin, because of the clear contrast that she presents, is a living rebuke and threat to all of the nation's many sexually inadequate and envious women. Her obviously happy and mutually fulfilling relationship with her alpha male husband also focuses attention on the shortcomings of, and creates similar insecurities and angst among impotent and metro sexual males.

Members of both these androgynous groups populate the corrupt academic, media, and other elitist institutions and chichi enclaves from which the irrational rage against Ms. Palin emanates. It is not an accident that neither of two notably sexually adventurous Democrat leaders who share none of Ms. Palin's political views has participated in the vehement hate spewing personal attacks against her. Notwithstanding their other personal shortcomings and foibles, neither Bill Clinton nor Ted Kennedy appears to feel personally threatened or enraged by Ms. Palin's participation in the nation's public life and political process.

K.R.'s Letter to the Squeaker of the House

The Hon. Nancy Pelosi
House of Representatives
Washington, D.C. 20515

Dear Ms. Pelosi:

As a voter who is registered as, and actually is an independent, I have been appalled by the excessive partisanship you have displayed in what has been passing as leadership in what used to be "the peoples house."

Nonetheless, I was stunned by the ineptitude and dishonesty you exhibited in your statements attacking the Bush Administration prior to yesterday's vote on the Paulson financial system rescue plan.

Although I am neither a friend nor a supporter of the administration, your partisan effort to blame the current financial crisis on it seems to me to have been calculated to maximize Republican opposition to the bailout proposal. Furthermore, your argument, probably intentionally, ignored and seems to have been intended to divert attention from your party's major role in creating the crisis.

The Democrat record of supporting the excesses and corrupt practices of Fannie Mae and Freddie Mac is clear and well documented. Repeated efforts to reform those entities and warnings of the dangers they posed were ignored and even mocked by prominent members of your party such as Rep. Barney Frank and Sen. Christopher Dodd. They repeatedly claimed the operations and finances of the GSE's were sound as they and other members and supporters of your party profited handsomely from support of the status quo.

Your conduct makes clear that you are interested not in the well being of the country or the health of its economy but, instead, in power and power for its own sake.

Thursday, September 25, 2008

K.R.'s Conclusion on Bailout

It's a bad idea. A very bad idea.

The only argument for the bailout is fear of the consequences for failed governmental policies that the rest of us tolerated despite ample warnings of their likely result.

The consequences may be delayed but they are inevitable. They will be painful but they will be more painful and more protracted if they are delayed.

Decisions should not be made out of fear. Don't keep doubling losing bets. Don't throw good money after bad.

K.R. was not thinking clearly when last night completing the post that appears below under the title Time for Plain Truths, Serious Questions, and Careful Consideration. The only excuse is that it was about midnight and fatigue had set in.

It is true that there is no precedent for the financial meltdown we are facing and therefore there is considerable uncertainty about the most prudent thing to do. In such a situation, the best course is one recommended to K.R. by the very perceptive and wise lady who publishes the Gunslinger's Journal blog: Stick with First Principles -- Freedom and a Free Economy. A free economy always must include the freedom to fail and thus open the way for a new beginning.

These basic principles and the consequences of deviating from them are well set forth here.

Shoes Keep Dropping to Mark Trail of Corruption

It's getting to be like living in an apartment below one in which is centipede is getting ready to go to bed. To see the latest, look at this Wall Street Journal report.

After reading the report you might wonder who Jamie Gorelick is. She is a political insider who in the Clinton administration's Justice Department facilitated the 9/11 attacks by erecting the wall that prevented our intelligence and law enforcement agencies from sharing information with one another. She then was named to the 9/ll commission where she had a task similar to that performed by Sandy Burglar at the National Archives. Both acted to prevent any evidence of failures by them and the Clinton administration to take actions that might have prevented the catastrophic attacks of September 11, 2001.

Ms. Gorelick apparently was rewarded for these actions by the Fannie Mae job for which she received $26 million as well as the Countrywide v.i.p. loan detailed in the Wall Street Journal article.

Among other recipients of Countrywide v.i.p. loans detailed in the Journal article were Franklin Raines, former Clinton administration budget director, who received $50 million for serving as Fannie Mae's CEO, and James Johnson, another former Fannie Mae CEO who also was paid millions of dollars by it.

Creating a crisis obviously can be profitable as well as fun.

As stated previously, a self respecting citizenry would be gathering in Washington, D.C. with more than torches and pitchforks. They would be assembling gallows and carrying tar and feathers.

Funny Business As Usual on Capitol Hill

Notwithstanding the so-called financial crisis, the stalwart savants who hold sway in the big clown house atop Capitol Hill have not been deterred from conducting business -- fecklessly splurging our tax dollars -- as usual.

In the continuing resolution to continue governmental and military operations in the absence of a budget, the completion of which has been beyond their capabilities, our honorable representatives included a $25 billion bailout for Chrysler, Ford, and General Motors and $50 billion, more or less, in some 2,000 earmarks.

The money for the auto makers supposedly will be loaned to them to retool to produce the next generation of automobiles. This is a reward to the three stumbling companies for decades of producing poor quality, badly designed and engineered, over sized and inefficient vehicles that a decreasing number of consumers wanted. Any bets about whether the "loans" ever will be repaid? Even if it is, the loans will be cost free as they will be able to deduct any interest payments in computing their taxes.

In fact, the "loans" are just the latest addition to the subsidies the auto makers receive as part of the corporate welfare program in a socialism for the big and powerful and free enterprise for ordinary people economy.

As for the earmark appropriations, the lawmakers must be less than ordinarily proud of their actions. The legislation was published in a manner that makes it impossible to find its earmark contents through the use of any search engines.

Any self respecting citizenry would be gathering at the gates of the Capitol with more than pitchforks and torches. They also would be assembling gibbets and carrying ropes with nooses at one end as well as tar and feather.

Wise Words from a Wise Friend

"I hate to put a damper on the Democrat's day.... but this is interesting and important!

"Much is made of McCain's age, but has anyone noticed how active and sharp his 96 year-old mother is?

"Has anyone brought up the fact that Obama smokes . . . and that both of his parents died at an early age?

"Plus, Biden has had two brain aneurysms which could have killed him and make him much more susceptible to early death than McCain's additional years.

"If they both died while in office, that would leave Nancy Pelosi as President.

"I can't think of a better reason to vote for McCain & Palin . . . and a Republican House."

One Financial Advisor's Comments on Proposed Bailout

1. Why do they keep saying the U.S. taxpayer might make money on this deal? This is absurd. Taxpayers have absolutely no chance to see a profit off this. The Treasury is going to go into the market and buy distressed assets at discount prices. Perhaps, by some stretch of the imagination, the bond market's Fairy Godmother might come along, sprinkle a little pixie dust, and watch the bonds rise in price. But none of those gains are going to come back to the taxpayer.

Politicians will use the money to increase the size of other programs or to fund new entitlements. We'll never see a dime of it. The bailout plan increases the size of government. If the plan is profitable, then it increases government even more.

2. What's with the "this has to be done today" attitude?Just knowing there's some sort of plan on the table has stabilized the financial markets. We're not seeing runs on banks. And we're not seeing massive redemptions in money market funds. So why the constant call for urgency? It reminds me of when I was 18 years old and buying my first car. The salesman gave me a price and insisted, "This is only good for right now. If you get up and leave, then the deal leaves, too."

Unless you're getting out of the way of a hurricane, or running out of a burning building, few important decisions have to be made right away. Something doesn't smell right about this.

3. How come no one talks about Section 8 of the plan?Section 8 reads as follows...

Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.

Does it bother anyone else that the Treasury is asking for complete and total discretion to do whatever it wants with the U.S. economy?

Let's face it. The government will approve some form of bailout plan. Lawmakers will rush it through on the fear that we have to do something NOW. It's going to result in bigger government. And it's going to put more power in the hands of fewer people.

Above is from The Growth Stock Wire, which recommends buying gold.

Wednesday, September 24, 2008

Time for Plain Truths, Serious Questions, and Careful Consideration

In his address to the nation about its financial crisis, the President avoided mentioning that the crisis was created largely -- and probably primarily -- by the government itself.

That is important because the $700 billion plus bailout proposal is seriously and probably fatally flawed in that it would rely on the same entity that created the problem to solve it.

Those interested in the details of the governmental ineptitude and corruption that has led the nation to the brink of a real financial abyss can find pretty good and relatively brief accounts of the relevant policies and events here and at this other location. For present purposes though, one needs only to understand certain basic underlying facts:

* First, the Community Reinvestment Act, a creation of the Carter Administration, and its enforcement by financial regulators compelled financial institutions to make mortgage loans on terms that ignored sound bank practices developed over centuries, to make such loans to individuals who were not credit worth, and on properties that often were worth less or little more than the amounts of the loans they purportedly secured. The Clinton Administration subsequently increased the pressures on the financial institutions to conduct business in this way

* Second, the financial institutions acceded to these pressures because Fannie Mae and Freddie Mac could be counted on to take the resulting subprime loans off their books. Home ownership for everyone -- irrespective of whether they had the ability or responsibility to pay for them -- was the mission of these "government sponsored enterprises."

* Third, the unexpressed mission of Fannie and Freddie was to distribute large amounts of what has turned out to be taxpayer money to members of the nation's political elites and their favorite causes, friends, and supporters. The details of this largesse and of the millions of dollars that the political insiders who ran Fannie and Freddie got is a story for another day, but it explains why the many warnings of the unsound business and financial practices and the dangers that they posed were unheeded and swept under the political rug.

These, in a nutshell, turned the housing and mortgage businesses into a government sponsored Ponzi scheme. The inevitable bursting of the bubble has now occurred with devastating results. By now it also should be clear to all but the most ideologically committed statists that the crisis was created not by too little regulation by government but by its subversion of well established sound banking business practices.

The politicians are terrified that a financial collapse will lead to public focus on how and why they caused it. Therefore they are scurrying to use taxpayer dollars for a bailout that they say -- and perhaps even hope -- will "solve" the problem. It won't. At best it will do only what politicians always seek to do when a problem arises -- kick it down the road, into the future when they no longer will be held to account for it and another generation will have to figure out what to do.

Before we get stampeded into going along with this, we ought to insist on getting answers to a few serious questions:

1. From where is the money to fund the proposed bailout going to come? The government doesn't have it so its going to have to be either borrowed or just printed. Either course involves expenses that are going to increase the total bailout cost to something well in excess of a trillion dollars.

2. How are the bailout funds to be spent? The funds are to be used to buy the mortgage loans from financial institutions that are being dragged down by having the loans on their books. But at what price are these transactions to take place? The loans are not marketable so they have no ascertainable value. The prices are going to have to be determined arbitrarily in negotiations between the parties. One of the negotiators at each table will be the individual financial institution seeking the highest price it can get. The other negotiating party will be a government entity charged not with getting the lowest possible price but, instead, with propping up the financial institution. Nobody representing the taxpayers will be at the table.

3. If, as the foregoing suggests is likely to be the case, the government pays more for the loans than they would be worth in a transaction between ready, willing and able buyers, how do the government and the taxpayers come out whole in light of the costs of the whole thing -- the aggregate of the loan purchase prices, the costs mentioned in the foregoing paragraph, and the governmental entity's operating expenses that are not going to be insignificant?

The savings and loan debacle two decades ago should have taught us that any asset loses between 10% and 25% of its value when it comes into the hands of a financial institution through foreclosure, and up to 50% of if and when a governmental entity is involved. So the prospects of the government and the taxpayers coming out unscathed are pretty bleak no matter what proponents of the bailout are saying.

Recoveries from unhindered financial failures normally take place as quickly as the failures occur. When failures are artificially avoided, the troubled entities may be kept alive for extended periods but their lingering existences ultimately will reach nadirs equivalent to the failures, and recovery periods normally will be commensurately extended.

This time, however, the circumstances are not normal. The abyss is truly terrifying. It could economically devastate and impoverish the nation. I don't pretend to have an immediate answer or even a good suggestion as to how to proceed. Finding an answer will require careful thought . . . more than has been devoted to it by our "leaders" to date. We probably have very little time to reach and implement a decision . . . unless, of course, the decision is that doing nothing is the wisest course.

Friday, September 19, 2008

The Next Three Raids On/Bailouts by the U.S. Treasury

Already in progress is the request by General Motors, Ford, and Chrysler to have the taxpayers fund their tooling up for the next generation of their domestically named but largely overseas produced automobiles.

Beyond that it's a race to see who next will need rescuing with taxpayer dollars. The contestants getting to the starting line are the fat cat holders of (i) all the corporate leveraged buyout debts that cannot be serviced by the borrowers as cash flows shrink along with the economy, and (ii) the huge and swelling amount of unrecoverable consumer credit card debt.

Worry not. It'll happen.

Somehow the big corporations, banks, investment funds, and their ilk who dole out huge campaign contributions always are able to persuade the politicians who are recipients of their largesse that the public interest requires tapping the public treasury to keep them afloat.

If you have any doubts about it, remember that the same political donors were able to persuade Congress and the Administration to virtually eliminate the ability of ordinary people to discharge their debts through bankruptcy so they could make a new debt free start.

Socialism for the rich and free enterprise for the rest -- it's a wonderful system!

Don't Buy Into the Euphoria: Bailout Is More Proof That No Situation Is So Bad That It Cannot Be Made Worse By Politicians

First off, it is important to understand that the government created the mortgage mess that ruined the nation's financial institutions that cooperated in, and sought to profit from what the government was doing. How and why this occurred is being outlined on this blog in a series of posts entitled The Mortgage Debacle.

Had our 'leaders' been willing to let things take their course, the nation's financial system, would have melted down and died, succumbing finally to the underlying terminal rot of profligacy with which it (and the nation as a whole) has been afflicted for years. The process would have been painful but a new, vigorous, and healthy banking system would have emerged and done so quickly.

But no . . . this was not permitted to occur. Nature was not allowed to take its inevitable course. The guvmint, being run by politicians fearing the wrath of a public unaccustomed to any discomfort, is bailing out the whole kit and kaboodle in a scheme that is going to:

1. Cost an untold amount in excess of a trillion dollars, and

2. Delay the inevitable but for the time being keep the system limping along, still ill but afloat.

The government of course doesn't have the trillion dollars plus necessary to take the bad assets off the hands and financial statements of the failed financial institutions. But not to worry . . . they'll print and borrow the necessary greenbacks. Don't concern yourself about the fact that this will deflate the dollar, cheapening it at the expense of those who have been foolishly frugal and imprudent enough to actually accumulate any savings for the government to steal from them in this way.

Finally, as is indicated above, this will postpone but not avert the inevitable ultimate collapse. The longer that result is artificially delayed the more long lasting and painful it is going to be.

In the meantime, if you have any items that you don't want, things you wish you hadn't purchased because they turned out to be useless, worth less than you paid for them, or not up to your hopes and expectations, perhaps you can bundle them up and get the government to buy them from you If the government is willing to do this for the banks, why shouldn't it do the same thing for the rest of us?

Monday, September 15, 2008

Sarahcuda Warning

How the Sneaky and Dishonest BOM (Big Old Media) Tries to Push Obama on Us

Here is a verbatim excerpt from an AP report (supposedly) on a speech by Sarah Palin:

"Campaigning on her own, the Alaska governor also said Democratic presidential candidate Barack Obama "wants to raise income taxes and raise payroll taxes and raise investment income taxes and raise business taxes and raise the death tax.

" 'But John McCain and I know that's not the way you grow the economy,' she added.

"In fact, independent groups such as the Tax Policy Center have concluded that four out of five U.S. households would receive tax cuts under Obama's proposal, which include higher income and payroll taxes only for the wealthiest wage-earners."

As you may note, the final paragraph quoted above was not part of Ms. Palin's speech but an editorial add on by the Associated Press. The AP would defend the addition by claiming that it was necessary to put what Ms. Palin said into context. Why then didn't the AP also include information about the role of the wealthiest earners in creating and expanding businesses, the economy, and jobs, and on the extent to which Obama's tax proposals would provide a disincentive for them to continue and expand such activities?

Even Obama has recognized this, stating that he would delay seeking enactment of his proposal to increase taxes on high earners while the economy is sluggish. That, however, seems to be intentionally beyond the grasp of the BOM in general and the AP in particular.

The Palin Threat

By now everyone has become aware of the effort that ABC's snooty and supercilious Charles Gibson made to disparage Sarah Palin under the guise of conducting an interview of her. It clearly was not an interview as Mr. Gibson sought merely to ridicule her rather than to elicit any meaningful information from her.

Ms. Palin did just fine, thank you. On the other hand the ABC snot showed himself to be a haughty ignoranus (sic) further debasing -- if that is still possible -- the profession of journalism.

Why did the usually bland talking head attempt the hit on the estimable Ms. Palin?

The very intelligent and highly perceptive fellow blogger who publishes the Gunslingers Journal believes -- correctly, in my opinion -- that Mr. Gibson was trying to raise his professional standing and esteem with his BOM (Big Old Media) cohorts and those with whom they mingle and identify. And that, in turn, raises the larger question of why these smug, sanctimonious elitists harbor so much rage toward Ms. Palin.

To get and understand the answer, in my opinion, one need only look at the attitude that old line Tories exhibited toward Margaret Thatcher even as she led them to one victory after another and successive glorious successes in England. After all, they sniffed, she was "a shopkeeper's daughter." Ultimately, the upper crusters brought the Iron Lady down, preferring defeat to being led by a commoner, irrespective of how able and accomplished.

We in America also have among us those who consider themselves superior to, and entitled to rule their ordinary countrymen. Here the attitude goes even further. As was noted by the Benjamin Franklin character in the play 1776: "We've spawned a new race here -- rougher, simpler, more violent, more enterprising, and less refined."

The eltists among us are embarrassed by this. They identify with and seek to emulate European patricians -- to be gentler, more sophisticated, never violent no matter how great the provocation, certainly less enterprising, and of course more refined. They would transform our vibrant culture into one resembling the terminally lethargic one of modern Europe in which people believe in nothing other than their own comforts and are devoid of values worth defending.

Sarah Palin is a threat, and a potentially lethal one, to the un-American and often even anti American dominance over our institutions enjoyed by those who hold such attitudes. The effrontery, the temerity, the sheer gall of that woman to presume that she can participate in the country's governance . . . the very idea that commoners, ordinary people not members of the elite establishment can govern themselves.

No matter what the cost, she has to stopped and the idea she represents must be nipped in the bud. Both have to be not just defeated in the election but totally discredited . . . destroyed.

Saturday, September 13, 2008

Harbinger of Election Results

For a real world predictor that in all likelihood is better than the results of any poll as to how the presidential election s going to come out, look here.

Thursday, September 11, 2008

Good News for Republicans

Bill Clinton, today declared that "Senator Obama will win and win pretty handily" the election to the oval playpen in which the impeached and disbarred perjurer in chief formerly cavorted.

It Doesn't Get Any Better Than This

The Democratic chairman of the congressional committee that writes and is responsible for our tax laws admits owing back taxes on income that he for years has failed to report. He initially claimed he didn't know he had to report as income rent that he received from a beachfront villa in the Dominican Republic. Wouldn't it be a good idea to write tax laws simple enough to be understood even by a member of congress?

McCain First Unopposed Presidential Candidate Since George Washington

With what's his name, the Democrat nominee, obsessed with and focusing on Republican vice presidential nominee Sarah Palin, John McCain is getting a free pass to the White House. The Democrats are expending all their time, efforts and fire on Ms. Palin. The top of their ticket appears to have lowered his sights to winning the vice presidency.

The disappearance from public view of the Democrat vice presidential nominee is consistent with this. Their favorite plagiarist surfaced briefly only once in the past week to give further evidence of how truly assinine, insensitive, and phony a politician can be. In case you missed it, he called on a wheel chair bound handicapped man to stand up to be recognized.

What the Democrats are doing may reflect recognition that Ms. Palin is a great long term threat to their party. Her candidacy is a visible and continuing exposure of and rebuke to the hypocrisy and basic dishonest of the special interest identity politics that for years have been and continue to be the Democrats stock in trade. With nothing else to offer, the Democrats have to destroy the challenge that Ms. Palin poses and personifies.

Wednesday, September 10, 2008

Today's Final Political Diversion: Whu''d a Thunk It -- GOP Gathers Grit and Gumption to Fight Back

The efforts of the Democrat - Big Old Media Axis to smear Sarah Palin are proving to be counterproductive.

The public doesn't like what the slime merchants are attempting and their efforts are backfiring.

Furthermore, it has awakened and aroused the dander and the warrior spirit of the usually mild mannered John McCain. The mud throwers appear to have forgotten that with his background as an officer and a gentleman McCain will not stand idly by as a lady's character is unfairly impugned. Also -- surprise, surprise -- the usually somnolent Republican party has gathered the grit and gumption to fight back and is doing so rapidly with great effect.

Click here to see how this aspect of the campaign is being conducted.

Further Political Diversion: The Prattle Goes Marching On and On and On and On and . . . .

A Political Diversion: Frontier Woman Studying Up

Tuesday, September 9, 2008

The Mortgage Debacle -- Part III

After reading Parts I and II, posted below, view summary by clicking here. See especially the second half of the two part video.

The Mortgage Debacle -- Part II

More likely than not in the example cited below in Part I of this series of posts, Joe Consumer -- in all too many cases a.k.a. Joe Deadbeat -- never had anything to do with TTMCB. His dealings probably were with a mortgage broker, perhaps Honest Henry but more likely Shifty Sam.

These guys know what lenders like TTMCB and other entities higher up the financial food chain (which will be explained later) need to make a loan, and they fill out Joe's loan application and supporting documents accordingly. Even though mortgage brokers get paid by lenders such as TTMCB for originating loans, Honest Henry and others like him will not submit applications that do not meet a lender's criteria. Shifty Sam is . . . well . . . less punctilious so his largely fictional paperwork will meet the lender's requirements no matter what.

Remember, TTMCB is eager to put its funds to work. Loans it makes and has outstanding are earning assets for it. So it makes sure that the application and supporting documents and paperwork meet its lending guidelines. But they have little incentive to expend resources on ascertaining whether the real world facts comport to what is in their voluminous loan file.

TTMCB has little expectation that any particular loan will pose any risk of loss to it. Were TTMCB to retain ownership of the loan, it would need only a mail drop to receive Joe Consumer's monthly payments, Otherwise, having loaned out all its available cash, it could shut down its business.

That, however, is not what happens. TTMCB sells its Joe Consumer loan to a larger institution, probably as part of a package of similar loans. If it retains the "servicing" of the loan -- collecting the monthly payments to, and performing administrative tasks related to the loan for the new owner for a fee -- Joe Consumer may never be made aware of the fact that TTMCB no longer is the party that owns his obligation.

In any case TTMCB, having profited from the sale of Joe's obligation, now has something more than $1 million in cash and therefore is able to make additional loans.

The purchaser of Joe's loan also views the entire transaction as being without risk to it. If it retains the loan, it certainly has purchased it on a "recourse" basis, meaning that it has the right to compel TTMCB to repurchase the loan if it ever becomes "nonperforming." However, in all likelihood, the purchaser puts Joe's loan or the package in which it was included into a still larger package which it then sells to an even bigger financial institution.

And so it goes, higher and higher up the food chain to ever larger institutions.

A number of foreclosure actions have been brought to a halt because of the bizarre nature of this process. In these cases a court has required evidence that the foreclosing party actually owned the loan and therefore had the right to foreclose. The documentation of the successive sales transactions had become so lengthy and complex that it had become impossible or impractical to determine -- let alone prove -- the identity of the entity that actually owned a particular loan,

In any event, the huge loan packages ultimately end up either with Fannie Mae or Freddie Mack, which between them own or insure more than half of all U.S. residential mortgages, or with another giant financial institution. In the latter case, the institution may "securitize" the loans in its portfolio. Securitization simply means that it sells to pension and hedge funds, banks, insurance companies, and other big investors shares or portions of funds into which it has placed its loan portfolio packages.

No individual or entity in the entire chain of the above-described transactions perceives them as actually entailing any significant individual risk. Rube Goldberg -- for those old enough to remember him and his bizarre contraptions -- conceived any equally outlandish structure.

The Mortgage Debacle -- Part I

To understand the mortgage mess, one needs to have a rudimentary understanding of the economics and accounting of any business and of the mortgage business in particular. So this series of postings will begin with the following simplified outline of the essentials of that subject. (Those who already understand these basics can skip this post and pick up the more advanced aspects of the subject with the postings that will be forthcoming.)

To begin, let's assume that Ernie Entrepreneur want to go into the mortgage lending business. Let's further assume that Ernie and his investors put $200,000 into the business. That $200,000 is the capital of TTMCB (Teeny Tiny Mortagage Company or Bank). TTMCB then borrows another $800,000, giving it $1 million in cash and now it's ready to do business.

Along comes a Joe Consumer, who wants to buy a house for $1 million or more and needs to borrow $1 million to do so. TTMCB is eager to loan out its $1 million because it is paying interest on the $800,000 borrowed portion of that amount. So it loans the $1 million to Joe Consumer at a rate of interest higher than the interest rate on its $800,000 debt.

That's great so long as Joe Consumer can make the mortgage payments. These payments are enough to meet TTMCB's operating costs (including its debt payment obligations) and give it a little extra as an operating profit. And if Joe Consumer fails to pay, TTMCB always can foreclose on its mortgage, take the house, sell it, and thus come out whole.

That's fine if the house is worth enough more than $1 million to yield that amount to TTMCB after it pays the expenses incurred in and while it is going through the foreclosure and resale process. Remember, TTMCB has to service its obligations -- meaning meet its interest and principal payment -- on its borrowed $800,000 while all this is going on. And TTMCB's other operating costs (such as salary, rent, utilities, office supplies, legal and accounting fees, etc) also have to be met.

Now suppose Joe Consumer isn't the responsible borrower he or the mortgage broker who brought him to TTMCB claimed he was. He's really Joe Deadbeat, and he or his lawyer knows lots of ways to delay the foreclosure process. Meanwhile, it also turns out that the house isn't really worth $1 million. Also, Joe Deadbeat hasn't been taking care of it so it and its value have been deteriorating. And now that good old Joe knows he's going to lose the house anyway, he's not just letting it deteriorate. He's trashing it while he lives there debt free.

In an ideal world, the house would yield enough more than $800,000 to pay off TTMCB's debt, the interest accrued on it and TTMCB's operating costs. However, in the real world, the house yields substantially less than that, and in order to pay off its loan and meet its operating costs TTMCB has to dip into its own capital.

If at the end of the process the house yields less than $600,000, TTMCB will be wiped out and unable even to pay off the $800,000 it borrowed, let alone its interest and operating costs obligations.

The whole thing works only if (i) the borrower is an honest and responsible one, and (ii) the house is worth enough more than $1 million loan it secures to ensure that TTMCB will get back all of the funds it loaned together with all interest accrued on that loan plus its associated costs and expenses.

The current mortgage mess is due to the fact that millions of loans were made by thousands of huge and big time TTCMBs without regard to the template necessary to allow the system to work. Why and how this occurred and why and how the government not only allowed but also promoted the deviation from the template, and the consequences of those failures will be covered in future postings. Such postings also will explain why the government bailout only delays and will exacerbate the resulting pain.

Thursday, September 4, 2008

GE and NBC and MSNBC

K.R. has sent the following letter to GE's Chairman and CEO:

The corruption that GE may prefer to ignore but nonetheless houses has caused me to sell the shares of the company's stock that I previously have held personally and in trusts for which I am responsible.

I of course am referring to the blatant dishonesty that your broadcast and cable networks routinely display in their "news" reporting.

As a senior corporate business attorney and executive, I have learned that corruption cannot be confined. If tolerated anywhere in an organization it inevitably will spread throughout and ruin the entire enterprise. Accordingly, I think General Electric eventually will prove to be a poor investment -- a dismal outlook for investors like me who in the past have benefited handsomely from long term ownership of the company.

Sarah Palin




Monday, September 1, 2008

Another Repulsive Jimmy Carter Reprise: Too Despicable for Mere Contempt

The reptilian Jimmy Carter slithered into public view again during the past week, emerging from whatever dark hole he currently fouls with his presence, to lower the level of political discourse with a bit of poisonous venom.

In a gratuitous aspersion on the character of John McCain, the former president accused the Arizona senator who is running for the presidency of "milking" his military service record for political gain.

Insofar as I can recall, McCain hasn't ever even referred to his military record, let alone claimed that his widely admired heroism entitles him to any political reward. If public recognition of one's service constitutes "milking," the same charge could be leveled with equal validity against George Washington, James Monroe, Andrew Jackson, William Henry Harrison, Zachary Taylor, Franklin Pierce, James Buchanan, Ulysses S. Grant, Rutherford B. Hayes, James Garfield, Theodore Roosevelt, Harry Truman, Dwight D. Eisenhower, John F. Kennedy, Lyndon Johnson, Gerald Ford, Jimmy Carter. -- yes, himself too -- and George Bush, all of whom also served honorably.

In fact, of the recent military veterans who went on to become presidents, Mr. Carter is the only one I remember as having cited his service among his qualifications for election. So lets look back and remember what Mr. Carter's failed presidency did for us. Remember his policy of rewarding America's enemies and punishing its friends? Remember the way he pulled the rug out from under the friendly shah of Iran and brought the ayatollahs to power there? Remember how that brought us gas lines and brought and is continuing to give us high gas prices. Remember his economic policies and stagflation, a stagnant economy along with interest rates over 20%? Remember the Iranian mob storming our embassy in Tehran and taking the Americans there hostage and holding them while Mr. Carter endlessly dithered but did nothing about that overt act of war against the U.S.? Or his antisemitism and ongoing efforts to undermine Israel? Or his endless befriending of anti-American despots around the globe such as Yasser Arafat and Hugo Chavez (to mention just two examples) for which he was awarded the Nobel anti-American prize?

For a time after he left the presidency that was diminished by his tenure Mr. Carter engaged in admirable Habitat for Humanity endeavors. But his ego apparently requires periodic exposure to the public spotlight so he reappears more or less regularly to buddy up to, and try to legitimize some third world dictator or make some outlandish political pronouncement. And the press always follows and publicizes what he does and says, knowing that it will be sufficiently bizarre to garner a sizable audience of dummies.

Attesting to Mr. Carter's lack of stature is his having been kept under wraps at the just completed convention of his party in Denver. I'm not sure if he was even there but, if he was, he certainly was not assigned a role that a party that respected him and was proud of his presidency would have asked him to play.

The best appraisal of Mr. Carter was that of his mother, the late Lillian Carter, who cogently said:

“Sometimes when I look at all my children, I say to myself, "Lillian, you should have stayed a virgin."”