Monday, February 1, 2010

Glass House

It is easy to focus on what is not working. The mistakes, the miscalculations and the unacceptable compromises of his first year in office. We should be blatantly critical of policies that did not work, promises that were not kept and mistakes that continue to get swept under the rug. But rather than bickering, we should work to find solutions at some level, if we are going to criticize at every level. Even among disastrous carnage, miracles can be found. Haiti is giving us examples of this, every day. Health care "reform" is not happening in one swelled swoop, but when the bill passes, parts of the health care system will be reformed, some of it is being improved and hopefully a policy or two will emerge from this effort that reveals itself to be profound in the years and decades to come.

The financial crisis, fraud, enabled greed and regulatory irresponsibility is the biggest socio/economic problem we have faced in this country. We made some adjustments to stop the bleeding but government clearly did not complete the surgery to repair the damage. We didn’t even change the dressing on the wound so we could aid in our own recovery, not even in a small way. That is inexcusable. It’s the most perplexing thing I have witnessed as an American adult. I never expected the villains to be punished, I hardly expected them to be revealed but I did expect them to get a pat on the derrier and told “You got away with this once. Continue to enjoy your wealth, keep the riches you stole from the American people but don't expect to step back in the ring and begin stealing again in the same flagrant and pillaging way”. The lack of new significant regulation on 1/24/2010, is unconscionable to me. More than one year after the bail out of AIG and others, 1000’s of foreclosures, millions of jobs lost. I am dumbfounded. It has left me with a chronic distrust in the American system of commerce leading to individual or community prosperity. I distrust government. I distrust capitalism. I am convinced that if you have achieved financial wealth you have stolen it. There is no win-win. I hate and will resist that definition of my character, until the day I die. I likely, will die poor.

Americans want to prosper; some of us are even willing to work for it. We want to be positive, but we tend to hover on the negativity, the scandal, the failure. I guess it is a human survival trait to place blame, as the first natural recourse to anything that goes wrong. To divert the attention away from ourselves, allows us to face our mistakes less often. By placing blame we give ourselves a sense, usually false, that none of this is our fault. Many of us are far less at fault than others, for sure, but we do have a responsibility to live within our means and be self reliant. We also should want to treat our fellow Americans with respect. We should not want to ruin and defeat each other. I am not suggesting that Obama gather us around and take us through a self realization exercise, but I did expect, I do expect him to lead with a more forceful, singularly focused and transparent hand. I do expect him to call a spade a spade, and I expect our president to be someone with whom you don't mess !

I disagree with Krugman that he should continue to point people to the past as the place to lay blame, although politically that is the right move to make, it does little to propel forward momentum.

I expect Obama to pick a problem and make it less of a problem. He doesn’t need to fix Health Care 100%; he just needs to set a path toward managing it - better. His administration needs to properly set expectations among the American people, while the democratic process sets a new direction. A fresh foundation with a goal to stabilize and correct. I expect him to stand up in front of us and remind us how we got here, explain where we are, and then deliver a course of action accompanied by pros and cons, that has a reasonable chance to succeed. Unfortunately, people want a complete fix. An eradication of the dysfunction, but they want it without understanding what it would take to achieve it, and they want it only if the solution allows them to go on living in the same irresponsible way. That's two faced. Its shallow and it is amateurish. All of this leads to a sense of failure and frustration. When all we need is a little win, to give us the confidence to tackle the next problem.

The biggest miscalculation, I believe, of the Obama team to date, is their distraction, even for a millisecond, from job creation. This problem needs 24/7 focus and abounding creativity. Health care, house loans, business loans, wars in faraway lands, are insignificant and irrelevant to me if, I am starving and have no hope of eating. Everything stems from unemployment and the perpetuating sense of hopelessness. Rather than financial bail outs of institutions, couldn’t the government have paid for solar panels for every home in America, and employed the unemployed to install them. Instead of bailing out GM, couldn’t the government have paid for the reconfiguration of automobile factories to factories capable of producing different goods, and force the American corporations like Nike to move a % of their production facilities to America, subsidizing the wages and putting Americans back to work, making American products. In 1967, 68% of products consumed by Americans, were produced in America. Today that number is 5%. Export and import ratios should be proportionately balanced, based on financial principals, not political agendas. With some of the bail-out funds, couldn't the government have subsidized the overcrowded public schools to build more classrooms, employ more teachers, buy more books/musical instruments, computers - and teach kids? Instead of using financial contributions from the Insurance and Pharmaceutical industries to guarantee favorable legislation couldn’t the government put those contributions toward funding better health care policies, fair access, then train and employ Americans to provide it.

I guess not...I guess I'm crazy...I want to understand, I recognize that these issues are extremely complex. I am willing to do the work to understand, but frankly, at this point, I don't know who I would trust to teach me ... If that is not a case for self reliance, I don't know what is....

Thursday, July 2, 2009

Imagine ...

Warning … This will not be as profound as John Lennon’s melodic journey, but it may be worthy enough to encourage us to clear the cob webs, vigorously sigh, and think about “our” democracy, “our” capitalism, “our” American style of strength as survivors and innovators. Although some of us may have privately faced seemingly insurmountable challenges in our personal lives, as Americans, we have not faced, before, the combined challenges we are currently staring down. If you add up the articles in a single day on “individual issues”, about which we are concerned enough to write, it would be frightening .. Perhaps paralyzing. I suggest you don’t do this. I have done it. There is no productive reason to share the number. Less productive, to express the profound stakes at risk. We all know, what we’ve got goin’ on. Surface generalities are all, most of us can handle. Trust me. I include myself in gravitating to this veil of umbrella level knowledge. All of us sharing in our concern, our hope, but for the most part, offering no real solutions.

But … relative to the financial crisis that ensues, allow me to dip my toe, briefly. If for no other reason than to exercise my right as a fortunate American, to free speech, free thought, and free press.

Imagine your government fulfilling a different role, than the one we have cobbled together out of desperation, fear, political rhetoric and good intentions. Imagine your government becoming a facilitator Vs a participant. Aiding Vs directing. Balancing Vs pushing. Watching to prevent catastrophe Vs over regulating to thwart innovation. Imagine your government standing up on the 8th count fully conscious, clear headed, driven, angry - not only willing to stay in the fight, but solely determined to win the fight. Imagine your government, standing up, suddenly, while listening to the count, 9 then 10, with a full acknowledgment of our opponent, along with a thorough and cunning understanding of our own vulnerability.

The only way to defeat the opponent is to transform our vulnerability into strength through perseverance. Use the anger we have toward our opponent, to fuel our transformation and eradicate our vulnerability. In essence, concentrate on strengthening our weakness, until it disappears - rendering our opponent, defeated and inconsequential.

The opponent is the greed driven American financial markets, failing to “self regulate” and act responsibly. The resulting vulnerability is delusion and unemployment : The number of unemployed, in May 2009 increased by 787,000. Bringing the total to 14.5 million, an unemployment rate of 9.4%. Since the beginning of the recession in December, 2007 - the number of unemployed persons has risen by 7.0 million and the rate of unemployment has grown by 4.5 percentage points.

This is staggering.

Unemployment is the problem, people. TARP, PPIP, government influence on salaries/bonuses, government management of private enterprise, and buyouts that are forced by our government to avoid failure, consumer panic and market melt down - has not and will not solve the problem. These tools may not have created the current and rising jobless rate, but they do absolutely nothing to stem its growth.

Paulsen did not want the financial collapse to occur entirely on his watch, so he prolonged the inevitable failure, until he left his post. Paulsen gave us TARP. Bernanke will escape the negative legacy as well. He will either be re-appointed by Obama, which will give him the opportunity in terms of time, alone, to be the guy in the room when the problem was finally solved, or he will be replaced, before the crucial fall actually occurs. He supports TARP. Bernanke has been generally non creative in his thinking about financial reform and undisciplined in his guidance on financial behavior. Timothy Geithner and Sheila Bair need to “do something” in their current roles as Treasury Secretary and FDIC Chairman. They give us PPIP (Public-Private Investment Program). PPIP is designed to fortify private investors’ willingness to buy toxic assets due to robust government guarantees against loss, to mitigate risk. Turns out private investors do not want to deal with the government, nor can they figure out how to ever pull an asset out of the over flowing hat of bad loans, default swaps and failed derivatives.

PPIP is failing. Private investors are not buying these assets. The toxic assets continue to be debilitating liabilities.

Toxic Asset. This is such an obvious oxymoron. We can’t even call them what they are … worthless.

In order to win, we need to first understand why we are loosing. Credit needs to flow, consumers’ need to feel confident enough to pursue prosperity. When we believe we can succeed, we will spend, take risks, grow capital, and move swiftly with forward momentum instead of stopping in the midst of stagnated fear.

We need jobs ! Without work we can’t feed our family. We can’t see a doctor. We can’t buy a car, and we can’t pay our mortgage. Get it. Without a job, we have no confidence. We have no forward momentum. We stop. Businesses fail because no one is coming through the door.

What would we do differently now, if we could emerge unembarrassed and unscathed by what we have done in the past. Rather than let TARP funds continue to sit in the safe at banks … I suggest the following :

1. Pull back TARP and PPIP funds from the financial institutions. Any government issued $ that have not, to date, been used to fund loans … should be pulled back.
2. Create an American Restoration Fund, for citizens and growth businesses. Place TARP $ in this fund.
3. To the banks, issue a directive/regulation/law – call it what you will, as long as it is enforceable … For every .5 % point reduction in the unemployment rate, banks must activate X % in new loans to consumers and businesses.
4. To the consumers, use TARP funds to bridge income more generously. Retrain the displaced worker in new fields, giving them relevant and marketable skills for current jobs in growing business categories.
5. Rather than enable government to be an active participant in the growth or failure of private enterprise, use government only to create an environment that facilitates growth, steward fair, prudent and lawful financial principals and productively assist the citizen base.

If TARP funds are redirected this way, we will begin to turn the corner. The current financial problem seems to be that, the balance sheets of banks are still heavily weighted to a loss. All of the taxpayer aid has not shifted the asset/liability weight on the balance sheet to a reasonable level. The liability of bad loans continues to negatively skew the health of the bank. If banks are forced to make more loans, concurrent to the reduction in unemployment, then over time, the liabilities of the past will become a smaller % of the overall loan activity, which will then reclassify the bank as “solvent” or able to pass the proverbial “stress test”. Government is encouraged to focus its resources in creating jobs. If they are successful in doing that, then banks will have to respond by supporting businesses and consumers with approved and fair credit. Risk will be balanced at the appropriate level .. More jobs, less defaults, more responsible spending, higher numbers of profitable businesses. Force banks to do what they know how to do, responsibly.

6. Let private enterprise innovate, take risks, succeed, grow.
7. Create opportunity and stability for citizens.
8. Keep the government out of private enterprise. Give it back to the people.

Imagine …

Thursday, March 26, 2009

Failure is Contagious...Wash your hands, Clear your mind, Start over

I appreciate as much as anyone else all of the rage associated with bonus payments paid to Sr. management within taxpayer subsidized companies. AIG is providing us with the current outrage. Each and every financial institution and auto manufacturer that has received TARP funding, has dispersed bonus payments after taking the funds. I have a record. It is true. The outrage is warranted and should have been anticipated by all of these companies who used to only have to answer to their board and shareholders, but now have a slightly larger, aggravated, wounded and unwilling group to address.

Rewarding far reaching failure is distasteful, and if you stay with me on this you’ll see that it is material to our correction and our recovery.

Some of the people who work for these “bailed out” firms who have received bonuses are not responsible for their company’s failure let alone the failure of our financial system, but unfortunately for them, they were in the wrong place at the wrong time. They should not expect bonuses at the expense of the taxpayer. They should be thankful to retain their jobs, and work toward doing them better.

One of the reasons why we are so outraged, beyond the obvious, is that in all of our national efforts to stem further financial decline, to correct and to avoid collapse, none of these public forums or gov’t appointed financial “fix it” people have addressed our resentment. The grief, worry, and resentment felt by the American people has generally been dealt with privately. AIG Bonuses opened the curtains a little, but I fear the windows of our private frustrations are about to burst open and shatter. Yes, we have heard Obama say that he understands our frustration and anger. He warns us that we will not make significant progress if our governance is strictly reactive and guided by our anger Vs proactive and guided by our drive to succeed and rebuild. His words are comprehensible. You can hardly argue with their logic and correctness, but they just are not all that instructive or reassuring.

It would have helped me tremendously if someone within a failed financial institution, “voluntarily” stood up at the public pulpit, acknowledged the widespread pain, and owned up to the failure. I would have listened to Liddy if he had bought 60 minutes of airtime to address the public. All I needed to hear in layman’s terms was this:

1. This is the business model of AIG
2. This is how we add value to our customer base
3. This is how we make money
4. This is how many businesses/consumers we touch
5. This is our size - $ value and market penetration

That should take 15 minutes…no debate or discussion warranted, simple statements of fact regarding their business.

The next 45 minutes would be more painful, but instructive and potentially calming to the general public. In the next 45 minutes he could have broadly chronicled the failure to help us understand :

1. What happened
2. How it happened
3. How to fix it. At lease how to attempt to fix it
4. How to adjust business practices, regulation, oversight, markets - so that it can never happen again

Don’t role your eyes. This financial collapse is widespread and complex but it can be traced. In his statements, I would not have expected Liddy to chronicle every detail, I am just interested in the predominant infractions that allowed the house of cards to be built, and subsequently to fall. I don’t even need him to shoulder all of the blame, I just needed him to acknowledge the risk, miscalculation and resulting massive failure .

And I will say this. I would rather have heard this explanation from a private citizen, active and scholarly regarded in the business world, than from a career government official. Through all of this, I have come to believe that George Soros is right, and has been all along, Alan Greenspan is naive and probably complicit, and Henry Paulson is a greedy, narcissistic thief.

Obviously there is plenty of blame to go around. Government contributed to this mess, so it should be leaned on to help clean it up. The problem is that the only support government has access to, is taxpayer support….and this financial mess has destroyed governments’ tax base…. All of this we know, too well…what I didn’t understand fully before this week is that there are 3 primary financial instruments and/or structures that are largely credited with our global financial demise:

CDS – Credit Default Swaps
Hedge Funds & the practice of shorting as an investment tool
Sub prime mortgages

All of these are 1. Largely unregulated, 2. Risky 3. Propelled through loss vs gain.

You are probably ahead of me on this, but I have just recently sifted though all of the divergent and widespread financial carnage to arrive at this, the core of the problem. Profoundly interesting to me is that each of these financial principals relies on failure of companies, industries, and/or markets to be profitable. We have been betting on failure. We have engaged ourselves in predicting failure and have been rewarded for failure. Not unlike the bonus activity that has so enraged us.

This is dangerous when you consider that the stock market, the cornerstone of wealth accumulation in a capitalistic society is based on the future prosperity and profits of public companies. Prosperity we can all take part in and gain from as we participate in the stock market, buying and selling shares of public companies. If we, as a majority, place bets on failure of companies, and get rewarded financially when they fail, we are creating a self fulfilling prophecy. When we short a company, we effectively loan that company money at what we believe to be an inflated share value….when the value falls to its appropriate market value, the company has to payback the difference to those that shorted it . This propels failure. Credit Default Swaps, a big business for AIG require that buyer and seller “swap” degrees of failure. If they fail less than the buyer predicts, they make money. If they fail more than predicted, money is lost. Companies that have Credit default values on their books have to maintain a certain amount of cash to back them up. If they unload some of the credit default holdings, via “CDS”, they can operate with less cash….

Are you with me here….

Everything is risky, we ignored a reasonable risk ratio, took on too much debt, miscalculated. Money was lost. The loss started to spiral, cash reserves were depleted….and here we are….Comforting isn’t it !

Surprisingly, it is somewhat comforting for me, to merely understand the journey to the fall. If we don’t understand or acknowledge how we fail, we are doomed to failure. We have got to face it, analyze it, get angry at it , and then fix it….Obama is on point in his forward, corrective persistence. His team needs to keep their heads down, their minds open and do their diligent best to fix this mess. You as an individual need to do the work to face it, try to understand it and find a way to be productive while you are uncertain and fearful.

Remember the crash has already happened. Now we are looking for some level of reassurance that this mess can actually be fixed before we all go broke. Part of our resentment is rooted in our disbelief in how it could get this bad, part of it is appropriately directed to our disgust in the greed, and the rest represents our fear. If we are honest with ourselves…and here I will speak strictly for myself, I am scared…I am hopeful but I am also afraid.

Afraid, yes. Desperate, no. I will figure out how to survive and prosper. My financial situation may change drastically, but my perspective on prosperity will stretch beyond the narrow boundary of financial security to a broad landscape of interrelationships, depth of character and just plain pleasure derived from a number of different sources, many of which will be free.

Sunday, March 15, 2009


Regardless of your view on any war, regardless of the side you demonstratively or passively take ... the story in the above link is profound. Not only in its sobriety but in its inescapable truth.

There are millions of families, throughout the world who are at war. Suffering. There are millions who are watching, learning and developing opinions and beliefs from the side lines. Millions more don't care. To send your son or daughter into war must be gut-wrenchingly difficult. The feeling of despair and hope mingle inside you. You have got to find and cling to the hope, otherwise the despair will kill you. Yes many of these millions are fighting with conviction. But the depth and strength of your belief system, relative to war, varies. Each has an individual tolerance. Entering a war zone is a brutal and cruel passage.

In time of war, the psychology of victory is worth understanding. If you think about war, merely as a conflict it becomes a comprehensive and multidimensional term. Conflicts vary in terms of scale and importance, as does the significance of a victory. Winning is obviously preferred and in many cases worth pursuit. However, taking the time at a "less emotional and critical" stage of a conflict to define the "win" is often neglected. Here is where we as a worldly people and a collection of nations, make a grave mistake when the conflict escalates into war. The kind of conflict that takes human lives gratuitously and violently. We make this mistake continually. In many modern and current wars the win is undefined, ambiguous and therefore out of reach. Perhaps the soldiers carry with them into the battlefield everyday, a clear vision of victory, but it is probably not the same as the overarching political vision, for which they are supposed to be fighting. Their victory on a day to day basis is to stay alive. Politically the vision of victory is often unclear, but the need to fight, as we search for the win is tolerated, accepted even.

So why, is there not a congressional mandate to define the win, before declaring war. We can't demand this of other nations, but America represents freedom, prosperity and civility. We should be leading with intellect, power and compassion, not aggravated and wounded emotions. If we wage war with the intention to win something, or eradicate something, we should be damn clear on what that something is. We should at the very least be able to recognize the win, if and when we accomplish it.

Some may fail to see the pragmatism of this kind of approach. Its importance gets lost on people, because they are angry or afraid. It seems unrealistic and naive, certainly unnatural, to think that there should or could be any other reaction but to fight, after the Japanese attack on Pearl Harbor. Facilitating freedom and democracy was enough of a reason for Americans to die in Vietnam. Retaliation for a brutal and surprise attack on American soil on 9/11/2001 of course must involve more human combat, waging of war, defending our freedom. In this situation we leaped to attack, without completely understanding who our enemy was, or where they lived. We acted on our first, highly emotional and aggravated reaction. Something you should never do when making a profound decision of any kind.

In the modern case of 9/11, would we have put ourselves into considerably more danger, if we demanded a more thorough understanding of the attack, the attackers and the strategy to defend, before we waged war? Could we have launched a "better" defense of our national security and freedoms if we had clearly identified "the win" for America? If we had done that, might "the win" have been expressed as "creating an in-penetratable boundary of sovereign nations, enabling us to protect our freedoms and our people from irrational, unpredictable attacks" Could we have accomplished this with the deployment of advanced technology to facilitate satellite protections, while funding deeper intelligence strategies to help us understand and reveal radical threats to our way of life. Could our "win" have been expressed as an internal victory. One in which America retains its greatness and might by virtue of protecting ourselves, while understanding others, instead of an external show of power that was erratic, inhumane, unproductive and ultimately senseless. What did we gain by acting irrationally? I believe that if we had just identified the win, even if we never had accomplished it, we would be in a far better and more peaceful place today, than we were on 9/11/2001.

This may feel like an oversimplification, but I submit that if the Israelis were strictly focused on their "win" to create a safe and sovereign nation for themselves, they might be more successful in attaining it. In fact many Arab nations want the same thing. Their willingness, all of them, to go to war, continually, with each other has caused a severe distraction from achieving their goals. The fight is getting in the way of their dream. The war is making safety impossible. the war is destroying their nation, both its land and its people. It is dividing their own communities. The "win" if remembered seems so out of reach that the fight has become desperate, rendering the win meaningless. That is profoundly sad. Mostly because it could be different.

History will usually teach us the value or waste of war. History will recount the battles, the territorial situations, the principles for which people were fighting, the freedoms they were defending. I wonder, if the soldiers on the field realize what history teaches us about them. The impact of the outcome. The victory, the loss is clearly defined in history. Wars are necessary, sometimes inevitable, even "good" but it is extremely uncomfortable for me to realize these virtues only after the brutal decades of suffering. As an American, I am eternally grateful for the outcome of World War II. Indebted to the leadership, soldiers, and families participating in that war. Their suffering led to my fortune. We owe the victims and heroes in current conflicts around the world a clear picture of "the win", while they are fighting for it. We should be ashamed of ourselves if we rely entirely on history to define it.

Individuals and nations are accountable. Your character is defined by what you do today. i would encourage all of us to think about how our actions impact the people around us. Be selfish in your endeavor, but compassionate in your methods, and humanitarian in your actions. Identify the win, collectively. Coexist peacefully. Pursue the dream not the fight.

Friday, March 6, 2009

A message for the GOP

Given the current temperature of the GOP, and public perception pointing to Rush Limbaugh as the leading voice, even scarier, the most influential voice of the Republican party … I just have to say this.

“You people need to calm yourselves down”!
To fuel the fire, Michael Steele called Limbaugh a mere "entertainer" who is sometimes "incendiary" and "ugly," I felt relief, The new leader of the RNC, got it right… comments for which Steele later apologized. But only fleetingly…

I do understand that you are reeling from an inarguable KO, and a complete breakdown of communication and connection with the American people, but to rally toward a guy like Rush, makes me think that you are suffering from some kind of depilatory mental disease. Bush was painful, yes, but was he and his group of cronies so despicable to drive you to a state of denial about the tremendous harm, destruction, and embarrassment he caused this country on a local, global and personal level ? The answer for me is an unequivocal yes. He is despicable. He was dishonest. He was destructive. Evil, even. But he is not, nor was he ever my guy. For me to deny he did this is ignorant, for you, the Republican party, to deny he did this is ignorant and self destructive.

Come on GOP….we democrats want to win fair and square, and we are fit to fight…we are poised to win, and to keep on winning. But the last thing we want is a forfeit…

Rush is hoping for failure. He is gaining enthusiasm among all of you, to support failure. News flash … you have failed and you brought the whole country down with you. Don’t advocate failure moving forward just because you feel somewhat comfortable in it now. Even though I am a democrat, trust me on this one … it is no good to perpetuate failure. It will be hard, perhaps impossible for this country to prosper while we are failing.

Your strategy is transparent. GOP will dissect Obama’s stimulus and corrective packages to highlight all of the failures as they occur. And there will be failures. You will attack the concepts, the theories and the plan to stimulate recovery of our dire financial state. You will focus on the flawed executions of the “stimulus” and “bail out” programs. You will equate “regulation” to nationalization or even socialism. You will point to the short term struggle as negative with no regard for the resulting long term corrections. You will accuse the democrats of instituting “bad government” while advocating for “bad people and destructive decisions within government”

If you insist on looking backward, gravitating exclusively to “free market” and “deregulation” you will be increasingly alone. Because, before the stimulus packages can visibly impact the market in a positive way, many more members of the GOP will be crossing the line, undercover, asking for government assistance. Republicans have lost their jobs, too, and if you are still working, your bonus was probably not as gratuitous as it was last year. If you are going to file for unemployment, at least do it in the open and admit that without this kind of government assistance you would be SOL. Admit that deregulation was a stimulus of a different kind, one that led to our financial melt down, and that the new, positive and necessary stimulus package, while paying you, should also reinstate some level of regulatory guidelines on businesses to act ethically, legally and prudently. Admit that deregulating lead to predatory lending, debt swapping and over weight risk ratios, within our financial institutions. Admit that deregulation did not discriminate between democrats or republicans, it allowed businesses to play a high risk, non partisan game with your money. You are less rich than you were before. Admit therefore, that deregulation failed.

C’mon republicans…Admit this.

Admit that regulation is needed. Admit that it is appropriate. Admit, even that it is good.

I am confused when I detect fear associated with regulation. This fear is real, but unfounded. It therefore needs to be addressed and taken seriously.
Lawful regulation of private sector business is synonymous to lawful regulation of communities – counties – cities – states – countries. In America, we do not live in lawless communities. We willingly abide by laws and rules of coexistence. We acknowledge and respect human rights. We do not steal, inflict harm, or swindle. Those that commit these crimes, face correction and attempted rehabilitation. Lawless communities conjure up images of Iraq, Israel, Darfur, Pakistan. Chaos, brutality, unworthy and misguided leadership emerge in lawless communities. Communities can thrive in a regulated environment that supports creativity and innovation while demanding fair treatment of its constituency. Why shouldn't public and private sector industries thrive this way as well? The answer is that they have and they will. GOP, thinkthenleap….regulation will work !

In case you have forgotten, as it may have been a long time…It is much more gratifying to win when you play a fair game. It feels completely different and much more profound than stealing a win because you were willing to cheat.

Saturday, February 21, 2009

Obama's Housing Plan .. Some things to think about ..

The Homeowner Affordability and Stability Plan represents a solid step or two in the right direction, but it stops short of providing a majority solution in the short term and produces no real solution for the long term. Additionally I think the objective of the plan is too narrow. It is necessary, essential even, to stop the bleeding and stabilize the current chaotic atmosphere, but the financial instruments and aid, need to be administered around a new "declined" base line of real estate values. There is no mention of this in the HASP. Home values and interest rates need to be addressed in this correction. If we merely adjust interest rates to bring monthly payments down, that helps the homeowner more than it does the bank, which is a good thing, but unless the inflated principal is adjusted downward, it does potentially nothing as a long term solution that will enable home owners to regain equity or pay off their mortgage over time. Unless a mortgage can be retired at some point that is reasonable for the homeowner, and profitable for the bank, we will have a circular, recurring problem.

It is reasonable to regulate % of income devoted to mortgage payment. This should be a no brainer and nonnegotiable. Deregulation disjointed these two factors. This contributed significantly to the current housing crisis. Obama's plan to force the banks to restructure loans to represent 38% of income, and then subsidize to 31% of income is a solid idea. An additional incentive to the banks on loans that do not require that subsidy would go along way to stabilizing loan risk ratios. It will be difficult and expensive to do this in the current climate due to the large number of loans that exceed these payment to income perimeters. Three factors are going to bog this down: overexposed original loans, increased loss of income and decreased home valuations. Nonetheless this should be done, across the board. It is a good use of taxpayer moneys. This correction has long term benefits and will facilitate stable mortgages in the long run.

Also...and this could be really positive, if banks were regulated to write mortgages at no more than 31% of annual income, there would be a host of home builders who would find a way to build affordable housing for low, middle and high income HH's. In the current system, home builders can inflate the value of all the homes they build and be successful in selling them, because banks could and would approve the sale of expensive homes with high mortgages to low and middle income HH's. Builders will only build product they can sell. If this income to loan ratio is enforced, home builders will find a way to build homes to accommodate a wide range of income levels.

I like the concept of refining bankruptcy law to allow judges to adjust mortgages. I would imagine that the largest debt an individual carries is a mortgage..and if they are facing bankruptcy, the ability to refine that debt should in many cases mitigate the need for a bankruptcy filing...all very positive. Banks will want to keep this power out of the courts, so the mere adjustment in the law should make the banking system, relative to mortgages, work much more efficiently while making the bank/customer partnership more consumer friendly. The down side to this, in our current climate, is that this adjustment, may cause a run on bankruptcy filings...which is obviously not good.

Dean Baker's idea on "renting" over a 10 year period does not solve the problem in my opinion. Yes, it keeps people in their homes, but it postpones the inevitability of a default....potentially. Several blogs back I floated a concept of "rent to own"...which would allow an "at risk" homeowner to stay in their home after the mortgage and principal had been modified to accommodate current home value and income. This would be negotiated with the mortgage holder. Monthly payment would include both interest and principal, so at no time is the homeowner forced into an interest only payment scenario. In exchange for these modifications, the consumer would accumulate a small secondary debt on the mortgage that if paid at specific points throughout the life of the loan, would move them into a pure home ownership status, Vs a rent to own status. Perhaps a requirement to make 13 payments per year Vs 12, for 5 years, to regain pure ownership status. This solution, I think, is a way to keep a person in their home, gives them an avenue to actually "own" their home as they eventually retire the loan, and repays the bank some of their loss through the additional payment plan.

Generally speaking....although long winded, my humble opinion on this mortgage problem is that the solution should be heavily but responsibly weighted to the consumer while mitigating the loss to the bank. This is accomplished by enforcing responsible lending regulation, with an income to payment ceiling, and reducing the profit margins banks make on mortgages today. This will bring interest rates down and keep them reasonable. It will also go a long way in balancing risk ratios for mortgage holders. Principal home values must be corrected, so people can eventually pay off their homes. For a long while, banks enjoyed huge profit margins and revenue gains on the inflated home market, they will now need to adjust to lower principal home values, and act just like every other responsible business as it adjusts to cost of goods and market shifts. If they act constructively, and are appropriately, but not over regulated, banks will continue to make solid and consistent margins on mortgages. It is significantly less expensive to adjust a mortgage payment, and maintain it, than it is to loose a mortgage entirely, and carry the loss.

Obama's plan protects the banks first while suggesting solid and pragmatic aid to the consumer. But neither Dean Baker nor the HASP puts forth a foundation to help current homeowners pay off a mortgage. The ideas merely suggest ways to avoid neglect and/or abandonment of a mortgage. We have absolutely no solution at all if the solution does not facilitate a 60 year old person, who carries a mortgage to retire it. Without that, taxpayers will be paying for senior living facilities, which will drain our tax base further. Not to mention the drain on dignity and increase of stress a 60 year old is forced to deal with, as he/she struggles to make a house payment after 35-40 years of tirelessly working to care for his/her family and keep a roof over their heads. Government programs need to specifically address the needs of citizens, regardless of age, before they pander to the private institutions who are supposed to serve us, but often rob us...

Finally, the HASP still does nothing for the "Responsible, never missed a mortgage payment no matter how hard the struggle" citizen. It seems more than obvious to me that if meaningful, monetary incentives were created to reward the consumer with the "excellent credit rating" we would have less default and a lot less resentment. More importantly we would feel less like a "chump". Something feels dangerously wrong to me as I sit here month after month, paying my bills, on time, wondering if in the long run I would be better off defaulting on my mortgage. Personally I would struggle with that decision, and ultimately not be able to ignore my responsibilities, but I am fairly convinced, given the tone of the stimulus, and bail out philosophies, that I will, once again, be in the group that missed the wave of wealth creation, because I didn't participate in or understand the fictitious principles of debt swapping....

Saturday, February 14, 2009


Recently at the "Energy and Resources Institute climate conference in New Delhi, Tom Friedman heard ..“Hey, Mr. Friedman,” “would you like to take a little spin around New Delhi in our car?”

Oh, I say, I’ve heard that line before. Ah, they say, but you haven’t seen this car before. It’s a plug-in electric car that is also powered by rooftop solar panels — and the two young women, recent Yale grads, had just driven it all over India in a “climate caravan” to highlight the solutions to global warming being developed by Indian companies, communities, campuses and innovators, as well as to inspire others to take action.

Regardless of how you feel about Friedman, be keenly aware of protectionism. We will gravitate to it in times like these, but it is the last thing we need to do. Consider this ... per the above situation.. we have educated these "non-Americans" and anxiously sent them back to their homeland to develop technologies in emerging markets that we will someday be forced to buy. We need to understand inclusion...from a business perspective. If a valuable market emerges, regardless of who uncovers it, we need to harness it. America needs to once again create a business environment that supports innovation. If a Dubai born scholar discovers the path to a scalable solar automobile business, then we need to create and open the conditions in America to produce those automobiles. The "invented here" bias needs to be universal and inclusive. In times like these, even if it feels counter intuitive, we must protect capitalism. America must be the "go to" place to develop new markets, new technologies, new - scalable businesses...we need to found them and we need to grow them...It is dangerous and narrow to dwarf or stagnate competition. Especially if we do it to protect the American worker. this in the long run will make us weaker, not stronger. We cannot lead if we do not innovate. And when I say innovate, I mean anyone who innovates on American soil regardless of their place of origin. The only requirement is that peace prevail.