You know that credit has really dried up when stores like Sears are again offering layaway plans!
Ask your children if they know what layaway means.
Thursday, November 13, 2008
Hilarious Motley Fool Column
This is a great spoof on the Paulson about-face, from the Motley Fool.
Just one quote pulled here, but read the whole thing because it is worth it:
"Paulson acknowledged that there had been criticism of the TARP's actual strategy, which quickly became one of injecting capital directly into banks, though without demanding control in the form of board representation, or cuts in dividends, or any of the other limitations used in successful bank bailout schemes in countries such as Finland and Sweden. But he said there was good reason for handing out money with no strings attached.
"America is not Finland, and it is not Sweden," Paulson explained. "I don't see any of you eating lutefisk or swatting your sweaty bodies with a birch switch."
The assembled journalists laughed, looked at one another, and admitted that America certainly isn't Finland or Sweden. "That is silly," said Barney Field of the New York Examiner/Picayune."
Just one quote pulled here, but read the whole thing because it is worth it:
"Paulson acknowledged that there had been criticism of the TARP's actual strategy, which quickly became one of injecting capital directly into banks, though without demanding control in the form of board representation, or cuts in dividends, or any of the other limitations used in successful bank bailout schemes in countries such as Finland and Sweden. But he said there was good reason for handing out money with no strings attached.
"America is not Finland, and it is not Sweden," Paulson explained. "I don't see any of you eating lutefisk or swatting your sweaty bodies with a birch switch."
The assembled journalists laughed, looked at one another, and admitted that America certainly isn't Finland or Sweden. "That is silly," said Barney Field of the New York Examiner/Picayune."
Wednesday, November 12, 2008
YouTube Institutes Google-Like Ad Auctions
YouTube is finding new ways to generate revenue off its site. The last time I visited, I was surprised at how "pure" the experience was, surprising for a company that was bought for billions.
The new revenue model uses auctions like Google's search-word mechanism. When a YouTube user types in a search phrase, sponsored links appear. As in Google, the highest placed link is from the advertiser who bid the most for that phrase. The second highest link bid the second highest amount, and so on. And I am assuming it is a "second-price" auction, with the amount that the high bidder wins being the second highest bid, and so on.
Now I wonder what they will do to make sure that there is no copyrighted material being illegally displayed by any of the advertisers. That will create a revenue link that I think would weaken Google's defense in its copyright infringement case with Viacom.
The new revenue model uses auctions like Google's search-word mechanism. When a YouTube user types in a search phrase, sponsored links appear. As in Google, the highest placed link is from the advertiser who bid the most for that phrase. The second highest link bid the second highest amount, and so on. And I am assuming it is a "second-price" auction, with the amount that the high bidder wins being the second highest bid, and so on.
Now I wonder what they will do to make sure that there is no copyrighted material being illegally displayed by any of the advertisers. That will create a revenue link that I think would weaken Google's defense in its copyright infringement case with Viacom.
Bye, Bye TARP
Has Hank Paulson lost all or merely most of his credibility?
Quotes from his statement today:
"Over these past weeks we have continued to examine the relative benefits of purchasing illiquid mortgage-related assets. Our assessment at this time is that this is not the most effective way to use TARP funds, but we will continue to examine whether targeted forms of asset purchase can play a useful role, relative to other potential uses of TARP resources, in helping to strengthen our financial system and support lending. But other strategies I will outline will help to alleviate the pressure of illiquid assets."
OK, so TARP is not going to work out as planned, in the form of buying the mortgage-backed securities that were at the heart of the initial problem. I am on record as saying that success of this program would be measured by how much MBS they had bought 3-4 weeks into the program. As the answer, up until the AIG purchase announced this week, was ZERO, we can assess the program as pretty much of a failure. But fine. Lots of people thought it was going to be hard to figure out ways to effectively buy those MBS.
But, Paulson and Treasury have been standing by TARP for the last few weeks. Saying they were still moving forward, just taking time to work out the plans. All of a sudden...Change of plans.
Come on, at least a little more explanation than saying it "is not the most effective way to use TARP funds..." would be nice. Congress signed a bill for $700 billion of expenditure on the basis of a plan that is now not going to be implemented, and that is all the explanation we get????
But Paulson and Treasury still have $700 billion -- no, wait, $700 b. less what they have spent becoming owners of some banks and AIG -- and that spare change is obviously burning a hole in their pocket. Plus Nancy Pelosi has her sights on Michigan and the auto industry, so she is putting some pressure on them as well (TARP obviously applies to all troubled assets, and if the auto industry does not have troubled assets, who does?).
So another quote by Paulson:
"Second, we are examining strategies to support consumer access to credit outside the banking system. To date, Fed, FDIC and Treasury programs have been targeted at our banking system, and the non-bank consumer finance sector continues to face difficult funding issues. Specifically, the asset-backed securitization market has played a critical role for many years in lowering the cost and increasing the availability of consumer finance. This market is currently in distress, costs of funding have skyrocketed and new issue activity has come to a halt. Today, the illiquidity in this sector is raising the cost and reducing the availability of car loans, student loans and credit cards. This is creating a heavy burden on the American people and reducing the number of jobs in our economy. With the Federal Reserve we are exploring the development of a potential liquidity facility for highly-rated AAA asset-backed securities."
Ah. Illiquidity in the credit card receivables market is beckoning for government intervention. Because, if consumers can't borrow, obviously they can't buy anything and the economy will tank.
TARP is slipping rapidly from a program aimed at preventing systemic financial system failure as evidenced by the failure or near failure of major financial institutions to an almost Keynesian-like stimulation of the economy. Surely Paulson sees a difference between the failure of Lehman Bros., and the threat of runs on banks and near-banks like money market funds; versus "raising the cost and reducing the availability of car loans, student loans and credit cards." When the US financial system appeared to be on the brink of ceasing to function in most important ways, that was a time for major and innovative intervention, such as TARP and, maybe most important, the support by Treasury and the Fed of the commercial paper market (which money market funds rely on). But are we now just shifting to supporting credit cards and car loans so that we don't reduce the number of jobs in the economy?
Is anyone surprised that the market fell over 400 points today?
Quotes from his statement today:
"Over these past weeks we have continued to examine the relative benefits of purchasing illiquid mortgage-related assets. Our assessment at this time is that this is not the most effective way to use TARP funds, but we will continue to examine whether targeted forms of asset purchase can play a useful role, relative to other potential uses of TARP resources, in helping to strengthen our financial system and support lending. But other strategies I will outline will help to alleviate the pressure of illiquid assets."
OK, so TARP is not going to work out as planned, in the form of buying the mortgage-backed securities that were at the heart of the initial problem. I am on record as saying that success of this program would be measured by how much MBS they had bought 3-4 weeks into the program. As the answer, up until the AIG purchase announced this week, was ZERO, we can assess the program as pretty much of a failure. But fine. Lots of people thought it was going to be hard to figure out ways to effectively buy those MBS.
But, Paulson and Treasury have been standing by TARP for the last few weeks. Saying they were still moving forward, just taking time to work out the plans. All of a sudden...Change of plans.
Come on, at least a little more explanation than saying it "is not the most effective way to use TARP funds..." would be nice. Congress signed a bill for $700 billion of expenditure on the basis of a plan that is now not going to be implemented, and that is all the explanation we get????
But Paulson and Treasury still have $700 billion -- no, wait, $700 b. less what they have spent becoming owners of some banks and AIG -- and that spare change is obviously burning a hole in their pocket. Plus Nancy Pelosi has her sights on Michigan and the auto industry, so she is putting some pressure on them as well (TARP obviously applies to all troubled assets, and if the auto industry does not have troubled assets, who does?).
So another quote by Paulson:
"Second, we are examining strategies to support consumer access to credit outside the banking system. To date, Fed, FDIC and Treasury programs have been targeted at our banking system, and the non-bank consumer finance sector continues to face difficult funding issues. Specifically, the asset-backed securitization market has played a critical role for many years in lowering the cost and increasing the availability of consumer finance. This market is currently in distress, costs of funding have skyrocketed and new issue activity has come to a halt. Today, the illiquidity in this sector is raising the cost and reducing the availability of car loans, student loans and credit cards. This is creating a heavy burden on the American people and reducing the number of jobs in our economy. With the Federal Reserve we are exploring the development of a potential liquidity facility for highly-rated AAA asset-backed securities."
Ah. Illiquidity in the credit card receivables market is beckoning for government intervention. Because, if consumers can't borrow, obviously they can't buy anything and the economy will tank.
TARP is slipping rapidly from a program aimed at preventing systemic financial system failure as evidenced by the failure or near failure of major financial institutions to an almost Keynesian-like stimulation of the economy. Surely Paulson sees a difference between the failure of Lehman Bros., and the threat of runs on banks and near-banks like money market funds; versus "raising the cost and reducing the availability of car loans, student loans and credit cards." When the US financial system appeared to be on the brink of ceasing to function in most important ways, that was a time for major and innovative intervention, such as TARP and, maybe most important, the support by Treasury and the Fed of the commercial paper market (which money market funds rely on). But are we now just shifting to supporting credit cards and car loans so that we don't reduce the number of jobs in the economy?
Is anyone surprised that the market fell over 400 points today?
Monday, November 10, 2008
American Express Becomes a Bank
AMEX, issuer of my favorite credit card, has been approved by the Fed to become a bank holding company. AMEX follows Morgan Stanley and Goldman Sachs on this road -- supposedly the road to a lower cost and more stabele source of funding.
I have heard several people say that one of the causes of the current crisis was the repeal of the Glass Steagall Act that prohibited commercial and investment banking being done in the same firm.
So let's see: Bear Stearns, Merrill, and Lehman, the three firms that fell, were pure investment banks (no commercial bank status). Citigroup and JP Morgan (Chase) are firms that combined investment and commercial banking and did not fail.
And now we have two of the remaining investment banks taking advantage of an open window to becoming banks, and even AMEX doing the same. They seem to think that stability comes from combining both activities.
Hmmm.....
I have heard several people say that one of the causes of the current crisis was the repeal of the Glass Steagall Act that prohibited commercial and investment banking being done in the same firm.
So let's see: Bear Stearns, Merrill, and Lehman, the three firms that fell, were pure investment banks (no commercial bank status). Citigroup and JP Morgan (Chase) are firms that combined investment and commercial banking and did not fail.
And now we have two of the remaining investment banks taking advantage of an open window to becoming banks, and even AMEX doing the same. They seem to think that stability comes from combining both activities.
Hmmm.....
Where Does Obama Stand on Vouchers?
The Obama family is checking out private schools in Washington, DC for their children. Most of us who could afford to send our children to private schools would do the same. The Clintons did so. Probably the vast bulk of Congress' kids who live in the DC area go to private schools.
The problem is that many of those same politicians will not support voucher programs that would allow middle- and lower-income families to take advantage of the better private schools. If you want to empower people, what could be stronger than letting them decide where to send their kids to school (without having to pay twice that is, once in state and local taxes and once in tuition).
Where does Obama stand on this? At one point, he seemed to be more open than the typical Democrat. Later reports suggest that the Democratic NEA establishment has gotten to him. Too bad. This would be a great chance to show some real change.
The problem is that many of those same politicians will not support voucher programs that would allow middle- and lower-income families to take advantage of the better private schools. If you want to empower people, what could be stronger than letting them decide where to send their kids to school (without having to pay twice that is, once in state and local taxes and once in tuition).
Where does Obama stand on this? At one point, he seemed to be more open than the typical Democrat. Later reports suggest that the Democratic NEA establishment has gotten to him. Too bad. This would be a great chance to show some real change.
Wednesday, November 05, 2008
Another Cause for Celebration
Massachusetts decriminalized marijuana possession! Finally some comon sense prevails. How about legalization, with a nice alcohol/tobacco type tax? Think of the revenues, and the stimulus to agriculture in states like California and Washington!
Congratulations Obama! (And the Dartmouth Reaction)
Well, it is indeed an historic moment. The passing of an administration that has been in charge for 8 years, a whole new agenda coming in, and of course the first African American President. One cannot help but be somewhat amazed and certainly excited.
I think for young people the election of Obama is really meaningful. Here is a story I heard this morning that really makes me reflect on the great side of this election.
At around 1230 am this morning, a Hanover resident heard a loud roar coming from town. He got on his bike (!) and rode in, to find several hundred Dartmouth students outside President Wright's house, celebrating. President Wright came out and gave an impromptu few words. The students went on to the Green, where they continued their joyous celebration by singing the national anthem.
That story should inspire anyone!
Obama has a great opportunity. He has great leadership capability, and he has a pretty strong mandate for change, winning more than 50% of the vote. With any luck at all, we are at the bottom of the financial crisis and while unemployment will be creeping up for some time to come, the economy should turn around well before the midpoint of Obama's first term. The US should be able to exit Iraq, with honor and leaving a country that has good economic and political prospects.
I only hope that he and his advisors take advantage of these events to make the country stronger, economically, socially and politically. I would love to see a major revision of the tax code, especially a fix to the AMT. I suspect someone should take a hard look at military expenditures and especially our intelligence services. How about some sense to the nation's drug laws? Energy policy could certainly be improved, but let's not do it by economic engineering, e.g., having folks in Washington decide which alternative energy sources should get subsidies.
I think for young people the election of Obama is really meaningful. Here is a story I heard this morning that really makes me reflect on the great side of this election.
At around 1230 am this morning, a Hanover resident heard a loud roar coming from town. He got on his bike (!) and rode in, to find several hundred Dartmouth students outside President Wright's house, celebrating. President Wright came out and gave an impromptu few words. The students went on to the Green, where they continued their joyous celebration by singing the national anthem.
That story should inspire anyone!
Obama has a great opportunity. He has great leadership capability, and he has a pretty strong mandate for change, winning more than 50% of the vote. With any luck at all, we are at the bottom of the financial crisis and while unemployment will be creeping up for some time to come, the economy should turn around well before the midpoint of Obama's first term. The US should be able to exit Iraq, with honor and leaving a country that has good economic and political prospects.
I only hope that he and his advisors take advantage of these events to make the country stronger, economically, socially and politically. I would love to see a major revision of the tax code, especially a fix to the AMT. I suspect someone should take a hard look at military expenditures and especially our intelligence services. How about some sense to the nation's drug laws? Energy policy could certainly be improved, but let's not do it by economic engineering, e.g., having folks in Washington decide which alternative energy sources should get subsidies.
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