King For A Day

Yes, I've once again put back on my CEO hat for a few days.  I must keep the empire rolling.  OK....I've gotta sit here and wait for the phone to ring.  Don't laugh.  The waiting can be intense.

This month my sister-in-law is having a certain momentous birthday (50), so my bro is surprising her with a trip to a resort in Mexico.  Her family and a few close friends are also going.

Let's review.  It's August.  Yesterday it was 104 in Dallas, and today it's expected to be 108.  And bro is taking a vacation, traveling even CLOSER to the equator.

See, even their logo shows a cactus, a blazing sun, and some little native guy burned to a crisp.

I thought I taught him better than that. *shaking head*

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I see in today's news that there is growing momentum in Washington to wind down Fannie Mae and Freddie Mac, the two home financing institutions taken over by the Feds back in 2008 when the housing market collapsed.  In the pre-2008 days private financiers made 60% of all mortgage loans, with Fannie, Freddie, and FHA making the other 40%.  More recently the latter have been making 87% of all mortgage loans.

President O'bama recently echoed Congress when he said, "I believe that our housing system should operate where there's limited government role and private lending should be the backbone of the housing market...."  

Good....the "free market" is back!  The banks say they are ready to resume their role as the nation's primary source of home mortgages.

In other news, it was announced today that the Justice Department is suing Bank of America, accusing them of defrauding investors by vastly overestimating the quality of some $850 million worth of mortgage-backed securities.  

B of A now joins Goldman Sachs, Citi, JP Morgan Chase, Wells Fargo, Barclays, HSBC Holdings, and Credit Suisse, among others, who have/are being sued for similar mortgage securities fraud.

Ummm.....

(What's that definition of insanity?...."Doing the same thing over and over again, expecting a different result.")

S

Rain, rain...NO! Please DON'T go away

I don't think I've ever seen such screwy weather.  Three-quarters of the country is experiencing drought conditions, while in parts of south/coastal Texas they've had flooding.  High winds are flattening the plains states, while much of Colorado and the southwest have burned up.  Ya think this is one of those "end of time" events?


For us in north Texas our weather has been pretty normal.  Of course it's miserably hot, but rains earlier in the year topped off our lakes, and I'm hopeful we can get through the rest of the year without any water shortages.  In fact, I looked out my apartment window a few minutes ago and saw this:

Normally we don't get these kinds of clouds build up until the heat of the afternoon.  Maybe the rains currently one county west will slide this way.  I'm ready for a rainy day.  I think much of the country is ready for a rainy day/week.

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I saw on the bidness news that Sandy Weill, the man who assembled all the parts that made Citi into the first megabank, now agrees with me that our big banks need to be broken up.  (He obviously reads my blog.  ;)  He says "our banking system has been hijacked", and that banks that take deposits should be separated from those that take huge speculative risks.  Amen Brother Sandy!  But since he probably doesn't have any Congressmen in his back pocket like the banks do, I don't think it will ever happen.  At least not until after the next worldwide economic catastrophe.  (Ahem....back to that "end of time" theme?)

S

Bidness History 101

Not that I expect anyone to actually read this....


Here's how our economy went over the cliff:  Historically banking was a fairly mundane business.  Banks paid depositors a small percentage interest, charged borrowers a higher rate of interest, and the gap in the middle was their profit.  They matched up those who had an excess of money (depositors) with those who needed money (borrowers).  It was called 3-6-3 banking...they paid depositors 3%, charged borrowers 6%, and were on the golf course by 3pm.  Every small town had their own bank and everyone knew the banker and the banker knew all the townspeople.  They knew who was a good credit risk and who wasn't.  They thought long term, hopeing to help you start and grow a business and become your banker for life.  Banking was NOT a "get rich quick" profession.


Occasionally they strayed and began bankrolling speculators in exchange for higher returns for themselves, but things usually ended badly.  (Think:  The Great Depression)  After that fiasco the government passed all kinds of new laws hopeing to prevent a recurrence, the big one being the Glass-Steagall Act.  It said commercial banks (the ones where you put your paycheck) were given FDIC protection, but were limited to the very mundane types of banking ONLY (see above).  Investment banks such as Goldman Sachs, Bear Stearns, etc were NOT given FDIC protection, but were allowed to gamble with their "investors" money with the hope of hitting a home run....higher risks, higher returns.  Brokerage firms could buy and sell securities, but could not do what commercial or investment banks could.  These firewalls kept our financial system out of serious trouble for the next 50 years.


With the wave of deregulation begun by Jimmy Carter and Ronald Reagan these various types of financial service companies began eyeing and envying the others.  The firewalls began to spring leaks.  Commercial banks wanted to be able to gamble like the investment banks hopeing for a home run for themselves.  The investment banks thought if they had the HUGE piles of depositor's money to play with like the commercial banks did they could before long own the world.  With individual investors, mutual funds, and pension funds, etc, seeing the potential for nice returns on Wall Street, the volume of stocks traded went from a few million to eventually several billion a day.  And remember, brokerages are paid by the number of shares traded, NOT whether the market goes up or down.  The banks wanted some of that, too.


Little by little they were allowed to stray a bit farther from their roots.  The small town banks were largely bought up by the regional "downtown" banks, who were in turn absorbed by the "money center" banks such as Citi and Bank of America.  Their power became enormous and they learned how to exchange "campaign contributions" for Washington favor.  Finally, in 1999, Congress passed the Gramm-Leach-Bliley Act which killed off Glass-Steagall.  The firewalls were removed.  Banking became a highly desirable "get-rich-quick" profession.  Banks became less focused on helping their neighbors establish and grow businesses and more focused on devising new products to sell (such as "derivatives") which could generate almost unimaginable profits for their stockholders and immense commissions for themselves.  There was little reason to make "prudent" loans (well, they had to look prudent at least long enough to sell them) as the risk was passed on to those who eventually bought these new financial products.  


Greed ruled.  And then the wheels came off.  Some other time I'll explain what happened next.


S


NOTE:  I would welcome any feedback correcting this post if I have gotten something wrong.  Factual constructive criticism would be appreciated.

Do we dare hope?

I'm almost scared to say this out loud...er...put this in writing, but it looks like maybe our economy has turned the corner.  Job creations have been getting much better lately, unemployment is inching down, even state budgets are on more solid ground.  I realize a lot can still blow up in our face, but I'm genuinely feeling optimistic.  I read this morning that lowly Michigan...basket case Michigan!...has a $450M state budget surplus.  Texas has a $1.6B surplus, plus still has $7.3B is its Rainy Day Fund.  Par-tay!


So where's mine?  I read this morning that a settlement is near between state Attorneys Generals and the Axis of Evil II...that would be Bank of America, JP Morgan Chase, Wells Fargo, Citi, and Ally Financial.  It's gonna cost them $26B to settle mortgage abuse claims against them.  Some $$$ will go to the "victims", but who's looking out for those who kept their payments current and then saw their property values (their life savings?) fall through the floor?  Actually I'm not due anything as I saw this coming and bailed before it hit the fan.  I just feel better knowing the bastards (A of E II) got hit where it hurts, and not just a few measly million bucks, either.  Twenty Six BILLION dollars.  Shame it couldn't be a hundred and twenty six billion dollars.


I'm working from home today (if you call this work), waiting for it to rain.  It's been cloudy for several days now here in Dallas.  I'm almost feeling like a Seattlite.  So does that make me an astronaut?  (And here comes the big hook  :)


S