Oct 31, 2007

Ron Paul: "I don't want to run your lives"

My campaign is this: I don't want to run your lives. I don't intend to run the economy. I don't want to run the world.

~ Congressman Ron Paul, 2008 campaign for Republican nomination for U.S. president, "Paul Draws Disillusioned Republicans to Presidential Campaign," Bloomberg.com, October 31, 2007

John Bennett: Bearish on China and the Baltic states

It's gone daft. Chinese stocks are in a bubble and the Baltic economies are overheating. They'll end up collapsing under their own weight.

The Fed keeps going back to easy money as a solution,'' Bennett said. ``It's indicative of what's going on around the world. The Fed sets the tone and the last thing these countries need is a looser monetary policy.

~ John Bennett, 44, oversees GAM's $1.1 billion European Equity Hedge Fund, "'Overheating' Emerging Markets Change Bennett Into Baltic Bear," Bloomberg.com, October 30, 2007

Barton Biggs: Bullish on U.S. stocks

Barton Biggs of Traxis Partners joined the "Fast Money" crew to share his take on the markets. Biggs thinks the Fed did what it should have done and the market is being set up for a big surge higher. He also mentioned that he is hearing from the prime brokers that hedge funds are at their lowest levels of being net long in 4 years. He expects a stampede into year end in big cap big multinationals, tech, Asia and emerging markets.

Biggs feels China right now is just like U.S. tech stocks in early 1999. He thinks the investment banks are signaling they will perform well into year end.

~ TheStreet.com, "Fast Money Recap; Rate Cut Reaction," October 31, 2007

Andrew Fletcher on complacency about government

There is not perhaps in human affairs anything so unaccountable as the indignity and cruelty with which the far greater part of mankind suffer themselves to be used under pretence of government. For some men falsely persuading themselves that bad governments are advantageous to them, as most conducing to gratify their ambition, avarice, and luxury, set themselves with the utmost art and violence to procure their establishment: and by such men almost the whole world has been trampled underfoot, and subjected to tyranny, for want of understanding by what means and methods they were enslaved. For though mankind take great care and pains to instruct themselves in other arts and sciences, yet very few apply themselves to consider the nature of government, an enquiry so useful and necessary both to magistrate and people. Nay, in most countries the arts of state being altogether directed either to enslave the people, or to keep them under slavery; it is become almost everywhere a crime to reason about matters of government. But if men would bestow a small part of the time and application which they throw away upon curious but useless studies, or endless gaming, in perusing those excellent rules and examples of government which the ancients have left us, they would soon be enabled to discover all such abuses and corruptions as tend to the ruin of public societies. It is therefore very strange that they should think study and knowledge necessary in everything they go about, except in the noblest and most useful of all applications, the art of government.

~ Andrew Fletcher, A Discourse of Government With Relation to Militias (1698)

Jon Markman on the container shipping industry

Globalization is responsible for a lot of great things: Higher incomes for fast-growing middle classes in Asia, cheaper consumer electronics in the United States, markets for energy in the Middle East, a shorter workweek in Europe and Kentucky Fried Chicken outlets in Kuwait.

But what is responsible for globalization? Is it an improvement in entrepreneurs' ability to finance emerging markets' factories? The liberalization of command-driven economies in formerly despotic countries? A stroke of luck?

I would suggest a lot of the credit can be given to the standardized shipping container -- those 40-foot-long boxes you see on the decks of oceangoing ships, rail-car flatbeds and truck trailers. Without agreement among the world's manufacturing and freight-forwarding giants on the size and shape of a common box, getting iPods and chairs and auto parts from Shanghai to Seattle and Scotland would be crazy-expensive, not to mention a huge hassle.

~ Jon Markman, "Time to Load Up on Container Ship Stocks," MSN Money, May 17, 2007

Chinese farmer on corruption

If we have the ability to send a satellite to the moon, why is it so difficult to send all corrupt officials to prison?

~ Wu Mingfa, a farmer from Xichang, China, where the nation's first orbiter launched on Oct. 24, as reported in Time, November 5, 2007

Oct 30, 2007

Curt Schilling on not being able to sign Roger Clemens

We don't need him.

~ Curt Schilling, Boston Red Sox pitcher, about Roger Clemens, the seven-time Cy Young Award winner who will leave retirement to pitch (for $4.5 million a month) for the New York Yankees (Boston had also courted Clemens), as reported in Time, May 21, 2007

(The Red Sox went on to win the World Series in a sweep of the Colorado Rockies. The Yankees lost in the first round of the playoffs to the Cleveland Indians.)

John Edwards on socialized medicine

I, like all of you, have evolved. It is not enough to do small things.

~ John Edwards, Democratic candidate for President in the 2008 election, on why he would raise taxes to provide health care coverage for all low-income families, as reported in Time, February 19, 2007

Bernanke on dealing with entitlements

The right time to start is about 10 years ago.

~ Ben Bernanke, Federal Reserve Chairman, warning lawmakers that a failure to deal with the budgetary strains posed by an aging U.S. population could lead to serious economic harm, as reported in Time, February 5, 2007

Helen Vetter on North Dakota's law banning cohabitation

Boy, I'd like to see the state come and try and split us up.

~ Helen Vetter, 82, who lives out of wedlock with Don Polries, 87, in violation of North Dakota law (six other states ban cohabitation), as reported in Time, March 19, 2007

Markus Amman on Swiss soldiers wandering into his country

It's not like they stormed over here with attack helicopters or something.

~ Markus Amman, Liechtenstein government spokesman, after 170 Swiss soldiers accidentally wandered into his tiny country, as reported in Time, March 19, 2007

Condoleeza Rice on the Iraq War

I would ask the American people to be patient. We have invested a lot. It is worth the sacrifice.

~ Condoleeza Rice, Secretary of State, on the fourth anniversary of the war in Iraq, as reported in Time, April 2, 2007

Justin Fox on study that spurred minority lending under Clinton

As director of research at the Federal Reserve Bank of Boston, [Boston College management professor Alicia] Munnell co-authored a bombshell 1992 study that concluded that mortgage lenders systematically discriminated against blacks and Hispanics--even when one adjusted for income and creditworthiness.

Munnell's work propelled her into a big job in the Clinton Administration and led to new legislation and regulations aimed at pressuring banks to increase their presence in poor and minority neighborhoods. These new laws had the desired effect: home ownership among minorities, and Americans in general, began to rise steadily--the first such sustained increase since the 1950s. In 1998, 57% of black mortgage applicants were turned down; by 2004 the figure had dropped to 26.8%. For low-income applicants, mortgage denials went from 44.3% in 1998 to a low of 19.8% in 2003.

That was one remarkable result of the surge in subprime mortgage loans to borrowers with iffy credit records. The other remarkable result is that it is ending really badly--in a wave of foreclosures that could, at worst, cost billions, throw millions of people out of their homes and cause a recession.

Federal regulators stood by while this went on, but don't blame Munnell's study or the desire to encourage lending to minorities. "The point of that study was never to say, 'Let's go out and lend to people who aren't going to be able to carry the debt,'" Munnell argues. Sure enough, federally supervised banks and S&Ls and mortgage buyers Fannie Mae and Freddie Mac seem to have avoided big hits.

~ Justin Fox, "Subprime's Silver Lining," Time, April 2, 2007

Angelina Jolie invited to join CFR

Look out, Henry Kissinger, someone else may be hogging all the wattage at the next Council on Foreign Relations meeting. The prestigious foreign-policy organization, with members like Dick Cheney, Condoleezza Rice and Alan Greenspan, has nominated globetrotting actress and tabloid fixation ANGELINA JOLIE for membership. Selection of members is based on their demonstrated interest in world affairs. Jolie, who spent Oscar weekend visiting refugees in Chad for the United Nations and who has adopted a son from Cambodia and a daughter from Ethiopia, clearly fills that bill. Frankly, we can't imagine anyone better to disarm a rogue state.

~ Time, "World's Sexiest Policy Wonk," March 12, 2007

Justin Fox on past prophets of doom

We have heard such pronouncements of impending doom before, of course. Howard Ruff's How to Prosper During the Coming Bad Years was a top seller in 1979. Ravi Batra's The Great Depression of 1990 hit No. 1 in 1987. Ruff's book did in fact ring in several very bad years, and there was a recession in 1990. But doom was averted, the economy came roaring back both times, and the lesson learned was that betting against the continued prosperity of the U.S. was a losing strategy.

~ Justin Fox, "The Armageddon Gang," Time, April 9, 2007

Investors: "Wise men" vs. "wise guys"

Wise men:
Wise guys:
Hall of Fame:
Enigmatic:
Authors of Notable and Quotable:

Money: "The case for stocks remains strong"

So will the Dow break more records this year? No one really knows. Besides, market timing is a sucker's game. As long as you have a well-diversified portfolio, there's no reason to run from this bull.

~ Money, "Is This Bull Ready to Leave? Despite the signs of a slowing economy, the case for stocks remains strong," July 1, 2007, by Stephen Gandel

Richard Bookstaber on crisis and financial regulation

The natural tendency is to come in after a [financial] incident and regulate. But all that does is increase the complexity of the system and push it more toward the edge.

~ Richard Bookstaber, "Unstable System," Money, July 1, 2007

Oct 29, 2007

Ben Stein: "Subprime mortgage market is a tiny blip"

When the markets go nuts and traders sell short and trigger sell programs, they don't ever just say, "Hey, we're doing this to make a fast buck and profit from fear." They always have some supposedly legitimate, "statesmanlike" reason.

Today, the reason is supposedly terror in the subprime mortgage market. To put this as frankly as possible, this is just nonsense.

Even if subprime delinquencies and defaults are up, they're a tiny portion of total mortgages. Suppose 13 percent of subprime mortgages are in default. Subprime itself is less than 15 percent of total mortgage debt, so that means that roughly 2 percent of mortgage debt is delinquent or in default.

Yes, that's more than it used to be, and is a disaster for the subprime mortgage companies.
But when a mortgage defaults, the lender takes back the house or condo, sells it, and usually recovers about 75 percent of the loan value or more. That means the real loss would be about 25 percent of 2 percent, or 1/2 of 1 percent.

In the context of a market as huge as the nation's mortgage market, that's not a lot. A few companies will go bankrupt, and someone will make a killing buying their bonds and portfolios at a huge discount as they turn out to be worth a lot more than people thought in March 2007. But it won't mean a lot to a roughly $14 trillion economy, of which the subprime mortgage market is a tiny blip.

~ Ben Stein, "The Long and the Short of Down-Market Investing," Yahoo! Finance, March 16, 2007

Ben Stein: Subprime "tiny in the context of the economy"

I'm not at all worried about the stock market despite the recurrent panic about subprime mortgage problems and resistance to some loans by lenders in private equity deals (which used to be called, appropriately, leveraged buyouts, or LBOs).

Subprime is a small sector of the mortgage market, as I've said before. It might be 15 percent at most. The defaults and delinquencies in this sector might be roughly 15 percent, which makes for a total problem rate of about 2.25 percent of the whole mortgage market.

If all this goes into foreclosure (which is unlikely), it will realize about 60 percent upon liquidation at the very least. That means the real loss might be about .9 percent, or less than 1 percent. That's a large number, but tiny in the context of the economy.

~ Ben Stein, "A View of the Economy from Abroad," Yahoo! Finance, July 5, 2007

Ben Stein: Housing fears overblown

Yes, the housing market has slowed from a spectacular bubble level to a simply pretty good level. Housing sales and starts are now about what they were in 2002, and no one thought we were in a housing depression then.

In any event, housing is only about 5 percent of the economy. If it falls by 15 percent, that would represent a fall-off of about .75 percent. That's not trivial, but it's also not the stuff of which recessions are made.

The fact is that there is no recession. The economy is suffering from a labor shortage, not a surplus of unemployment. The Fed is worried about excess demand, not slack demand.
Corporate profits set new records every day. Whatever's happening in residential sales and building is simply not slowing down the economy. Why should a Boeing or a Merck or a Pfizer have any reaction to housing at all? Because the speculators sell everything they can when nervousness sets in -- and for no other reason.

~ Ben Stein, "How Speculators Exploit Market Fears," Yahoo! Finance, August 2, 2007

Ben Stein: "This is a good time to buy stocks"

To put this as plainly as possible, this is a good time to buy stocks. The evidence is overwhelming and consistent that if you buy when stocks' P/E is below its 15-year moving average, you'll make far more money than you would if you bought at the economic peak, when P/E's are high. So, unless you're out of money to buy with during the recession, you buy. You don't go on margin to buy, and you don't re-mortgage your home to buy. But if you're employed and have money to invest, you buy.

Recessions in the post-World War II world are generally short; they end after about two quarters. Within about 15 months, stocks have moved from their last peak to their next peak. This is an average -- each case varies, but in every case the very long-term investor is better off if he or she keeps on buying through the recession.

~ Ben Stein, "Recession-Proof Your Investment Strategy," Yahoo! Finance, September 13, 2007

David Vaughn on re-inventing the wheel

We're trying to re-invent the wheel here, and it's not coming out round.

~ David Vaughn, engineer

Ben Stein: "Now is the time to buy"

As I write this, the markets are in turmoil. Stocks have fallen considerably since their recent highs. There's growing gloom on Wall Street, and the newspapers are filled with scare stories. The upshot: Now is the time to buy. Not for tomorrow, not for next month, maybe not for next year. But for the long term, it's absolutely time to buy.

I don't see a recession brewing. Or, if one is brewing, it doesn't strike me as a long, strong one.

Given that, if the market is pricing stocks as if there'll be a major recession, and pricing financials as if there'll be a collapse in New York, you might do well to buy broad indexes of stocks and indexes of financials.

The road ahead will be bumpy. Fine -- "mama, that's where the fun is," as Bruce Springsteen sang long ago. But if times are better than Wall Street is betting, you may want to bet against Wall Street. They're in it for a day or an hour -- you're in it for life. And you have an immense advantage: You can take advantage of their panic.

They take plenty of advantage of you, so now it's your turn. Buy and hold.

~ Ben Stein, "No Nightmare on Wall Street," Yahoo! Finance, October 29, 2007

Bettina Greaves on free trade and world peace

To minimize conflicts in the future we should aim to create a world in which people are free to buy what they want, live and work where they choose, and invest and produce where conditions seem most propitious. There should be unlimited freedom for individuals to trade within and across national borders, widespread international division of labor, and worldwide economic interdependence. Would-be traders should encounter no restrictions or barriers to trade, enacted out of a misguided belief in economic nationalism and the supposed advantages of economic self-sufficiency. Friendships among individuals living in different parts of the world would then be reinforced daily through the benefits they reap from buying and selling with one another. Thus a sound basis for peaceful international relations would be encouraged.

~ Bettina Bien Greaves, The Freeman, September 1979

George Orwell on truth

During times of universal deceit, telling the truth becomes a revolutionary act.

~ George Orwell

Satyajit Das: Credit crisis "still in the middle of the national anthem"

Recently, Michael Panzner interviewed Satyajit Das, a gentleman with 30 years experience in developing and marketing derivatives who has written a 4,200-page reference work on these exotic instruments. Here, Panzner asks Das about the recent credit crisis and where we are in the process of things getting "back to normal:"

"I started by asking the Calcutta-born Australian whether the credit crisis was in what Americans would call the 'third inning'. This is pretty amusing, it seemed, judging from the laughter. So I tried again. 'Second inning?' More laughter. 'First?'

Still too optimistic. Das, who knows as much about global money flows as anyone in the world, stopped chuckling long enough to suggest that we're actually still in the middle of the national anthem before the game destined to go into extra innings."

~ Doug Wakefield, President, Best Minds Inc., "TV Reruns or Real Manias," October 8, 2007

Oct 28, 2007

T. Rowe Price: Record 3rd quarter results

The firm's investment advisory results relative to our peers remain strong, with 64% of the T. Rowe Price funds across their share classes surpassing their comparable Lipper averages on a total return basis for the one-year period ending September 30, 2007, at least 73% of the funds surpassing their comparable Lipper averages for the three- and five-year periods ending on the same date, and 81% for the ten-year period. In addition, 82 of the T. Rowe Price stock and bond funds across their share classes, which account for almost 69% of stock and bond fund assets under management, ended the third quarter with an overall rating of four or five stars from Morningstar. These four- and five-star-rated investments represent 67.2% of our rated funds and share classes, compared with 32.5% for the overall industry. We continue to receive strong net cash inflows from our clients, reflecting our favorable portfolio performance.

Looking ahead, despite the recent market turmoil, we remain optimistic about the prospects for stocks over the longer term. We believe that the global economy will continue to grow at a reasonable rate and that the weakness in U.S. housing will continue to work its way through the system. Companies producing stable earnings growth will be afforded higher prices. In our view, this environment should favor our focus on selecting stocks with sound fundamentals and attractive valuations.

T. Rowe Price's strong capital position gives us substantial financial flexibility. In the third quarter, we used our strong cash position to repurchase 2.9 million shares of our common stock. Through the first nine months of the year, we now have expended $256 million to repurchase nearly 5.1 million common shares. T. Rowe Price Group remains debt free and we have cash and corporate investments of $1.7 billion at September 30, 2007.

~ James A.C. Kennedy, Chief Executive Officer and President, T. Rowe Price (TROW), "T. Rowe Price Group Reports Record Quarterly Results," October 23, 2007

Herbert Spencer on freedom

Every man has freedom to do all that he wills, provided he infringes not the equal freedom of any other man.

~ Herbert Spencer, Social Statics (1851)

Prechter: Investors beware government subsidies

A home may seem to have some investment advantages, but all of them are artificial, having been created by government: (1) you get a tax break, and (2) prices tend to rise through inflation. But any purchase or investment that the government supports artificially will eventually hurt the intended beneficiaries. Thanks to government subsidies and inflation, the housing market grew disproportionately, and now too many people are stuck in homes they cannot afford. Thanks to government subsidies, too many people own gas-guzzing SUVs weighing over 6000 pounds, the size above which the government offered tax breaks, and now they are stuck with exorbitant gasoline costs. Thanks to government subsidies, some people are now investing in corn to make ethanol. Do you think that gambit will end any better?

~ Robert Prechter, The Elliott Wave Theorist, August 26, 2007

Prechter: "A home is not an investment"

Many people say the "invest" in their homes. But a home is not an investment. It is an item that loses value through deterioration even if no one lives in it. A home is expensive to finance, expensive to maintain and expensive to buy or sell. Ironically, it is also very costly to realize the loss of value on a home. How can it be? Well there are two costs that few consider:

(1) Did you know that if you sell your home at a loss and the bank agrees to cancel your mortgage for less than you owe, your taxes will rise? It's true. The IRS considers forgiven mortgage debt to be a payment to the homeowner, and it's not considered a capital gain but rather is taxed at the ordinary-income rate. But wait; it gets worse. Suppose your income that year was $30,000, so you were in the 15% federal tax bracket. If your bank forgives $70,000 worth of mortgage debt, your "income" suddenly jumps to $100,000, pushing you up into the 28% tax bracket, which for most taxpayers is effectively the 32-35% bracket inclusive of federal and state income taxes. Your average tax rate would be 30% or more, taking into account the Social Security taxes on your labor income. So taxes would consume every last penny of your gross job income.

(2) But wait. Your forgiving bank is hit just as hard. According to The Boston Globe (8/24/07), "Foreclosing on a house and selling it in an auction costs $50,000 on average, in New England, and that amount is on top of the funds the lender needs to pay off the loan itself."

Think about these costs. While you are paying extra taxes on the forgiven loan, the bank must pay all the fees required to dispose of the house on top of taking a loss on its value. These costs combined could amount to a significant portion of the value of the sale! Under such circumstances, can anyone say with a straight face that you owned an "investment?" Even a desired home costs money, but an unwanted home is nothing less than a giant albatross of decay and expense.

~ Robert Prechter, The Elliott Wave Theorist, August 26, 2007

Doug Kass: Half of year-to-date runup in Nasdaq 100 due to Apple, Google, and RIMM

In support of his forebodings, [Doug Kass, the redoubtable bear who runs Seabreeze Partners] cites the Nasdaq 100's spectacular performance so far this year -- last we checked, it had shot up a cool 25%, or some 448 points -- as a startling illustration of how a few exceptionally strong stocks can give the impression of a big bull move. Of that roughly 25%, or nearly 450 points, gained by the Nasdaq 100, a whopping 230 points, or over half the index's rise, has come from just three issues: Apple (135 points), Research In Motion (60 points) and Google (35 points).

No accident that each of that triumphant trio is part of the big, amorphous sector dubbed "tech". For according to that perceptive observer referred to a few paragraphs above, the torrent of dough exiting the financial shares, which for so many years ruled the investment roost but lately have been feeling the effects of the credit chill, has flowed in gobs into techs, which have been largely out of favor for quite a spell.

~ Alan Abelson, "Schizo Market," Barron's, October 29, 2007

Abelson: Heads will roll at Merrill Lynch

What inspires these reflections, tinged as they are with awe, wonder and, of course, envy, is the gathering fuss over Merrill Lynch, precipitated by the fact that the giant brokerage firm-investment bank-whatever, wrote down something like $8 billion worth of CDOs (those pesky collateralized debt obligations that were all the rage when mortgage-securitizing madness reached fever pitch), a heap of subprime paper and dubious leveraged loans.

Even these days when astronomic numbers are the norm, $8 billion is not chopped liver and the disclosure dealt a heavy blow to Merrill's pride (incalculable) and its results (a $2.3 billion loss in the third quarter). What magnified the impact on its shares -- they fell to 61 and change from around 75 at start of the month -- was that a scant few weeks ago, the official word was that the write-down would be mere a $5 billion. Guess they ran out of fingers to count on; it happens, especially when you're totting shrinkages in values carried on your books.

Inevitably, the blame has fallen on Merrill's CEO, Stan O'Neal. Mr. O'Neal has been running the company for five years, and a lot of that time he seemed to be auditioning for the role of Mack the Knife. Any number of heads did roll during his regime, which didn't make him very popular, especially among the brass he cut loose.

However, as it emerges, his real problem was not managing people but rather managing risk. Mr. O'Neal was very aggressive at taking risk, but, alas, proved less than agile at recognizing it. Mesmerized by the vast returns he envisioned for risk, he never took the time to appreciate why it's so widely considered a four-letter word.

At this writing, anyway, Mr. O'Neal is still hanging in there. Whatever happens, we're happy to say, he won't need to pass the cup: He has been, remember, boss of a goliath Wall Street firm, so by definition, has been adequately -- one might even venture, lavishly -- compensated. Last year, he took home a tidy $48 million.

~ Alan Abelson, "Schizo Market," Barron's, October 29, 2007

Barron's: MGIC, Radian Offer a High-Wire Act

[A]t this point, Radian looks like the better bet than MGIC. For one thing Radian has two business lines rather than one. Moreover, MGIC's dollar-loss per claim is going up faster than Radian's. That's because Radian shrewdly capped its loss exposure on its Alt-A mortgages to just 14% of the unpaid principal, while MGIC is paying out on over 27% of Alt-A mortgage losses. What makes that category so lethal is the fact that the size of these generally "no documentation" mortgages is so much larger than subprime mortgages.

~ Barron's, "MGIC, Radian Offer a High-Wire Act," October 29, 2007, by Jonathan R. Laing

Mises on government

Government is essentially the negation of liberty.

~ Ludwig von Mises

BW SmallBiz: Startup capital grows scarce

With lenders spooked by late summer's credit crunch and the housing market continuing its slide, many entrepreneurs, particularly startups, are finding capital harder to come by. Banks have tightened the spigots, and even Small Business Administration 7(a) loans, which often are easier to obtain than other bank loans, may be tougher to land. Declining home values in many parts of the country are limiting the amount of equity that business owners can use as collateral for loans, as well as the amount of credit available to them.

~ BW SmallBiz, "Hungry for Cash: Startup capital grows scarce," October/November 2007

Sam Stovall: Economy averts recession

So there you have it. Even though, in our opinion, the housing slump and sharp rise in oil prices have increased the odds of a recession, S&P Economics believes we will avert economic disaster primarily because of the aggressiveness of the Federal Reserve, with its expected continuing rate-cutting and liquidity infusion efforts. We also believe the weakness in the U.S. dollar will aid U.S. exporters, and the restatement of August's employment data, as well as strength in September's results, will help consumers feel less anxious about their jobs and lessen the effect on consumer confidence.

~ Sam Stovall, chief strategist, Standard & Poor's Equity Research, "How Hard a Hit from Housing?," BusinessWeek, October 23, 2007

Kevin Duffy on welfare

As Washington said, "Government is not reason; it is not eloquence; it is force." With that in mind, government provided "charity" takes on new meaning:

#1 - To help me, you must first pick someone else's pocket.

#2 - It is easy to be compassionate with other peoples' money.

#3 - Those who willingly participate in this theft can not possibly be trusted.

As H.L. Mencken said, "An election is nothing more than the advanced auction of stolen goods."

~ Kevin Duffy

BusinessWeek: Has the mortgage crisis finally peaked?

A significant rise in jumbo loan rates resulting in a high number of postponed or cancelled sales was a particularly strong disruption to August home sales, according to NAR senior economist Lawrence Yun. On Aug. 15 the 30-year fixed jumbo mortgage rate hit 7.43%, according to data from Bankrate.com.

But now those "temporary" mortgage problems may have subsided. As of today, Bankrate.com reports that the jumbo mortgage rate is down to 6.59%. "Mortgage problems were peaking back in August when many September closings were being negotiated, and that slowed sales notably in higher-priced areas that rely more on jumbo loans," said Yun in a release. "The good news is that mortgage availability has markedly improved in recent weeks with interest rates on jumbo loans falling, and more people are applying for safer and conforming FHA mortgage products."

~ BusinessWeek, "Has the Mortgage Crisis Finally Peaked?," October 24, 2007, by Maya Roney

Oct 27, 2007

Rob Bradley on the key to energy sustainability

Capitalist institutions are the key to "energy sustainability." Energy capitalism - not the alarmist, statist notions of "energy security," "energy independence," or "climate stabilization" - should be the North Star of U.S. and world energy policy.

~ Robert L. Bradley, Jr., president, Institute for Energy Research, "2007 Activity Update," August 2007

Kevin Duffy on the government printing press

The lure of easy money begins with the government printing press. First, the central banker buys an asset – typically a government debt instrument – writes a check on itself and deposits it into the banking system. Since the bank never "redeems" the check, this is equivalent to creating money out of thin air. The banker, happy to receive fresh "reserves," loans out all but a sliver. This new money ends up back with the banks, is counted again as reserves, mostly lent out, and so on and so on. Through this process of fractional reserve banking, credit is expanded at a multiple of the initial central bank deposit. Through such a system, the creation of money and credit (the promise to pay money) looks like an upside-down pyramid – essentially a pyramid scheme on top of a counterfeiting operation.

As James Grant has counseled, the inflation process gives a finite pool of capital the illusion of an endless sea of liquidity, in effect "turning all the traffic lights green."

Such a scheme is a concoction of government privilege (or mercantilism), not laissez faire. The so-called "capitalists" are no longer efficient allocators of capital to its most productive uses, but beneficiaries of and cheerleaders for a monetary fraud in which capital is debased, taken for granted, and abused. As long as they remain chummy with their friendly liquidity provider of last resort, they can act recklessly without fear of igniting an economic forest fire – or if they do, without fear of having to bear the costs. And as long as the value of their collateral is constantly inflated, they never feel the need to worry about default.

Liberated from the gold standard straightjacket, the system has few restraints. For starters, the counterfeiter has an incentive not to draw attention to his racket. But the effectiveness of his ongoing propaganda campaign has weakened this deterrent. The real inflationary action, however, is in credit expansion. For example, in the last 6 years, the Federal Reserve has grown its balance sheet less than $300 billion while the nation’s money supply has expanded by $4.3 trillion, or 14 times as much. In other words, the central banker can bait the hook, but lenders and borrowers still have to take the bait.

This new money is never evenly distributed, but instead gets funneled into whatever narrow area happens to capture the public’s fascination. As prices and valuations soar, greater doses of credit are required to keep the game going. Either more marginal borrowers are drawn in at ever more precarious levels or greater leverage must be applied to existing borrowers. This is what ultimately doomed the housing bubble. In the end, nearly anyone who could fog a mirror was getting an invitation to join the party.

The trouble with pyramid schemes is that they’re not designed to go in reverse. Eventually, the number of willing dupes is exhausted. The same people who panicked late to get into the game are just as likely to panic when the music stops. The longer the music plays, the more leveraged and unstable the inverted credit pyramid becomes. As the late economist Hyman Minsky observed, "stability is unstable."

~ Kevin Duffy, Bearing Asset Management, "It's a Mad, Mad, Mad, Mad World," May 22, 2007

Washington on government

Government is not reason; it is not eloquence; it is force. Like fire, it is a dangerous servant and a fearful master.

~ George Washington

John Swinton on a free press

There is no such thing, at this date of the world's history, in America, as an independent press. You know it and I know it. There is not one of you who dares to write you honest opinions, and if you did, you know before hand that it would never appear in print. I am paid weekly for keeping my honest opinion out of the paper I am connected with. Others of you are paid similar salaries for similar things, and any of you who would be so foolish to write honest opinions would be out on the streets looking for another job. If I allowed my honest opinions to appear in one issue of my paper, before twenty-four hours my occupation would be gone. The business of the journalist is to destroy the truth; to lie outright; to pervert; to vilify; to fawn at the feet of mammon, and to sell his country and his race for his daily bread. You know it and I know it and what folly is this toasting and independent press! We are the tools and vassals of rich men behind the scenes. We are the jumping jacks, they pull the strings and we dance. Our talents, our possibilities and our lives are all the property of other men. We are intelligent prostitutes.

~ John Swinton, former Chief of Staff of The New York Times, while giving a toast before the New York Press Club in 1953

Robert E. Lee on the centralization of power

I consider [the maintenance of the rights and authority reserved to the states and to the people] as the chief source of stability to our political system, whereas the consolidation of the states into one vast republic, sure to be aggressive abroad and despotic at home, will be the certain precursor of that ruin which has overwhelmed all those that have preceded it. I need not refer one so well acquainted as you are with American history, to the State papers of Washington and Jefferson, the representatives of the federal and democratic parties, denouncing consolidation and centralization of power, as tending to the subversion of State Governments, and to despotism.

But I will not weary you with this unprofitable discussion. Unprofitable because the judgment of reason has been displaced by the arbitrament of war, waged for the purpose as avowed of maintaining the union of the states.

~ Robert E. Lee, letter to Lord Acton, December 15, 1866

Lord Acton on the Civil War

Without presuming to decide the purely legal question, on which it seems evident to me from Madison's and Hamilton's papers that the Fathers of the Constitution were not agreed, I saw in State Rights the only availing check upon the absolutism of the sovereign will, and secession filled me with hope, not as the destruction but as the redemption of Democracy. The institutions of your Republic have not exercised on the old world the salutary and liberating influence which ought to have belonged to them, by reason of those defects and abuses of principle which the Confederate Constitution was expressly and wisely calculated to remedy. I believed that the example of that great Reform would have blessed all the races of mankind by establishing true freedom purged of the native dangers and disorders of Republics. Therefore I deemed that you were fighting the battles of our liberty, our progress, and our civilization; and I mourn for the stake which was lost at Richmond more deeply than I rejoice over that which was saved at Waterloo.

~ Lord Acton, letter to Robert E. Lee on November 4, 1866

Congressman John Rarick on the Council on Foreign Relations

The CFR dedicated to one-world government, financed by a number of the largest tax-exempt foundations, and wielding such power and influence over our lives in the areas of finance, business, labor, military, education and mass communication media should be familiar to every American concerned with good government and with preserving and defending the U.S. Constitution and our free enterprise system. Yet, the nation's right-to-know machinery, and the news media, usually so aggressive in exposures to inform our people, remain conspicuously silent when it comes to the CFR, its members and their activities. The CFR is the establishment. Not only does it have influence and power in key decision making positions at the highest levels of government to apply pressure from above, but it also finances and uses individuals and groups to bring pressure from below, to justify the high level decisions for converting the U.S. from a sovereign Constitutional Republic into a servile member of a one-world dictatorship.

~ Congressman John Rarick

Lew Rockwell on "natural" disasters

Oddly, and by some strange practice that dates back to, hmmm, the beginning of time, rulers are not to be held responsible for actions that take place on their watch. So the government is not liable. It should be but it isn't. So putting government in charge is always a perfect storm for disaster without responsibility.

~ Llewellyn H. Rockwell Jr., “Land Socialism: Playing With Fire,” October 24, 2007

Walter Cronkite on the Rockefeller establishment

The Rockefeller's are the epitome of the nation's permanent establishment: Governments change, economics fluctuate, foreign alliances shift - The Rockefeller's prevail.

~ Walter Cronkite, broadcast journalist, anchorman of The CBS Evening News

Zbigniew Breninski on "a more controlled society"

The technetronic era involves the gradual appearance of a more controlled society. Such a society would be dominated by an elite, unrestrained by traditional values.

~ Zbigniew Breninski, National Security Advisor to President Carter, member of the Council of Foreign Relations

Carroll Quigley on the Council on Foreign Relations

The Council of Foreign Relations is the American Branch of a society which originated in England and believes national boundaries should be obliterated and one-world rule established.

~ Carroll Quigley, Professor of History at Georgetown University

Chester Ward on elitist groups

The most powerful clique in these elitist groups have one objective in common - they want to bring about the surrender of the sovereignty of the national independence of the United States. A second clique of international members in the CFR comprises the Wall Street international bankers and their key agents. Primarily, they want the world banking monopoly from whatever power ends up in the control of global government.

~ Rear Admiral Chester Ward

Barry Goldwater on the corridors of power

The Trilateral Commission is international and is intended to be the vehicle for multinational consolidation of the commercial and banking interests by seizing control of the political government of the United States. The Trilateral Commission represents a skillful, coordinated effort to seize control and consolidate the four centers of power - Political, Monetary, Intellectual and Ecclesiastical.

Does it not seem strange to you that these men just happen to be on the Council of Foreign Relations and just happen to be on the Board of Governors of the Federal Reserve, that absolutely controls the money and interest rates of this great country without benefit of Congress? A private owned organization, the Federal Reserve which has absolutely nothing to do with the United States of America.

~ Senator Barry Goldwater, With No Apologies

Oct 26, 2007

Sheldon Richman on resources

Men begin with only their labor and nature-given materials. They have to apply their labor to rearrange the materials in order to produce things of value. That requires ingenuity. And ingenuity is clearly the more important of the two. In fact, it is ingenuity that turns nature-given materials into resources. It was ingenuity that turned worthless underground black gunk into valuable oil. It was ingenuity that turned sand into silicon. Nature, strictly speaking, does not provide resources; it provides materials. A resource is a product of man’s mind; a material stamped with man’s purpose.

As important as ingenuity is to the creation of wealth, it does not exist unconditionally. To think, to discover what they need and how to produce it, men must be free. They can’t create at the point of a gun.

~ Sheldon L. Richman, "Phony Benevolence," The Free Market, October 1989

Erich Zimmermann on resources

Previous to the emergence of man, the earth was replete with fertile soil, with trees and edible fruits, with rivers and waterfalls, with coal beds, oil pools, and mineral deposits; the forces of gravitation, of electro-magnetism, of radio-activity were there; the sun sent forth his life-bringing rays, gathered the clouds, raised the winds; but there were no resources.

~ Erich Zimmermann, World Resources and Industries (1933), p. 3

Rothbard on resources

Before the development of the automobile and of modern machinery, the vast pools of petroleum under the earth were totally valueless to man; they were useless, black liquid. With the development of modern technology and industry, they suddenly became useful resources.

~ Murray Rothbard (1974)

Hayek on conservationists vs. progress

Industrial development would have been greatly retarded if sixty or eighty years ago the warning of the conservationists about the threatening exhaustion of the supply of coal had been heeded; and the internal combustion engine would never have revolutionized transport if its use had been limited to the then known supplies of oil (during the first few decades of the era of the automobile and the airplane the known resources of oil at the current rate of use would have been exhausted in ten years). Though it is important that on all these matters the opinion of the experts about the physical facts should be heard, the result in most instances would have been very detrimental if they had had the power to enforce their views on policy.

~ Friedrich Hayek, The Constitution of Liberty (1960), p. 369

A.C. Pigou on resource depletion (1932)

It is the clear duty of Government, which is the trustee for unborn generations as well as for its present citizens, to watch over, and if need be, by legislative enactment to defend, the exhaustible natural resources of the country from rash and reckless despoliation.

~ A. C. Pigou, The Economics of Welfare (1932)

Sheldon Richman on explaining poverty

Had [foreign aid advocate Mickey Leland] given the issue some thought, he might have discovered that the proper question is not “Why are these people poor?” but rather “Why is anyone rich?” Man was born in poverty; it needs no explanation because it is simply the absence of wealth. What needs to be explained is how anyone ever beat poverty and became prosperous. A certain logic is missing from the simple-minded argument that the rich got that way by robbing the poor.

We needn’t have expected Leland and his colleagues in Congress to discover the truth for themselves. It was readily available to the most casual investigator and has been available for many years.

In the 1830s two Englishmen understood it: standing grief stricken at the grave of a child who had died of starvation, one of them, Richard Cobden, turned to his friend, John Bright, and said, “Come with me. There are in England women and children dying with hunger – hunger made by the laws. Come with me, and we will not rest until we repeal those laws.” In the next decade Cobden and Bright united the efforts of industrialists and laborers in a crusade to repeal the causes of starvation in England: the Corn Laws, which made grain imports artificially expensive. Their success brought a period of unprecedented prosperity to England.

Cobden and Bright understood the source of prosperity. Men begin with only their labor and nature-given materials. They have to apply their labor to rearrange the materials in order to produce things of value. That requires ingenuity. And ingenuity is clearly the more important of the two. In fact, it is ingenuity that turns nature-given materials into resources. It was ingenuity that turned worthless underground black gunk into valuable oil. It was ingenuity that turned sand into silicon. Nature, strictly speaking, does not provide resources; it provides materials. A resource is a product of man’s mind; a material stamped with man’s purpose.

As important as ingenuity is to the creation of wealth, it does not exist unconditionally. To think, to discover what they need and how to produce it, men must be free. They can’t create at the point of a gun.

~ Sheldon L. Richman, "Phony Benevolence," The Free Market, October 1989

Sheldon Richman on wealth creation

Let’s dispose of an economic point; the government cannot “redistribute” wealth. The word in quotations marks implies that wealth is initially distributed. It is not. In the market there is no common pot from which someone ladles wealth. The incomes we observe result from a long series of voluntary exchanges. In each transaction, two parties decide that what they will get is more valuable than what they will give up. If each did not believe that, no transaction would occur. (The exception, of course, is income derived from government sources.)

Since there is no distribution, it cannot be judged fair or unfair. No one decided how much each person would get. Rather, everyone had opportunities to enter or not enter into transactions, depending on their values and what contribution they could make to the productive process. It makes no sense to call the “distribution” of income unfair if each step in the series of exchanges that brought that outcome was fair, that is, voluntary.

~ Sheldon L. Richman, "Egalitarianism," The Free Market, July 1990

Sheldon Richman on the welfare statist

It is bad enough that the administrators of the welfare state are moved by a hatred of ability. The greater tragedy is that they poison the minds of the constituency they so desperately need. Instead of the poor learning to admire the productive and aspire to be like them, they are taught by the system that their poverty is caused by others’ affluence. They learn to resent achievement and to prefer seeing the achievers dragged down. That is all the welfare state can bring about.

The welfare statist will cry out that we have responsibility to those less fortunate. We do, but in a sense other than the egalitarian imagines. We have a responsibility to create and maintain a free society so that all may go as far as their abilities and determination will take them.

~ Sheldon L. Richman, "Egalitarianism," The Free Market, July 1990

Teddy Roosevelt on war and peace

No triumph of peace is quite so great as the supreme triumphs of war.

~ Theodore Roosevelt

Plato on speaking and listening

Wise men speak because they have something to say; fools because they have to say something.

~ Plato (428 BC-348 BC)

Plato on politics

Those who are too smart to engage in politics are punished by being governed by those who are dumber.

~ Plato (428 BC-348 BC)

Plato on justice

Justice in the life and conduct of the State is possible only as first it resides in the hearts and souls of the citizens.

~ Plato (428 BC-348 BC)

Tolstoy on rationalization

To sin is a human business, to justify sins is a devilish business.

~ Leo Nikolaevich Tolstoy

Goering on bringing the people to war

Why, of course, the people don’t want war. Why should a poor slob on a farm want to risk his life in a war when the best thing he can get out of it is to come back to his farm in one piece? Naturally the common people don't want war; neither in Russia, nor in England, nor in America, nor in Germany. That is understood. But after all, it is the leaders of the country who determine policy, and it is always a simple matter to drag the people along, whether it is a democracy, or a fascist dictatorship, or a parliament, or a communist dictatorship.

Voice or no voice, the people can always be brought to the bidding of the leaders. That is easy. All you have to do is to tell them they are being attacked, and denounce the pacifists for lack of patriotism and exposing the country to danger. It works the same in any country.

~ Hermann Goering, at the Nuremburg Trials

(This quote was part of a conversation Gustave Gilbert, a German-speaking intelligence officer and psychologist, held with a dejected Goering in his cell on the evening of April 18, 1946, as the trials were halted for a three-day Easter recess.)

Schopenhauer on truth

All truth passes through three stages. First, it is ridiculed. Second, it is violently opposed. Third, it is accepted as being self-evident.

~ Arthur Schopenhauer, (1788 - 1860)

Atlanta Fed study: Why the rise in homeownership?

After three decades of stability, the national rate of homeownership suddenly began rising around 1995. The rush to buy homes fueled an enormous surge in housing construction and home prices. Experts differed on the cause of the increase in homeownership, from 64.2% of households in early 1995 to 69.1% in early 2005. Was it the aging of the population? Or was it an expression of what President George W. Bush calls the "ownership society"?

Neither. Surprising new research published by the Federal Reserve Bank of Atlanta concludes that the bulk of the increase was caused by innovations in the mortgage market, in particular the explosion of "piggyback" or "combo" loans that made it possible for people to make small or zero down payments. Young families with little savings flocked to those loans to buy first homes.
Trouble is, lenders aren't making many of those loans anymore because default rates on the smaller, second loans have been extremely high. That means that one of the main props of the housing market has been kicked away. If the homeownership rate drifts back to where it was in 1995, the outlook for housing construction and home prices could turn out even worse than the pessimistic projections.

The Atlanta Fed paper, "Accounting for Changes in the Homeownership Rate," was published in September. Its authors are Matthew Chambers, an economist at Towson University in Maryland; Carlos Garriga, an economist at the Federal Reserve Bank of St. Louis; and Don Schlagenhauf, an economist at Florida State University and a visiting scholar at the Atlanta Fed.

Many analysts have fingered easy lending as a contributor to the housing boom, but the Atlanta Fed paper may be the first to quantify its effect in a rigorous way. Using math-heavy econometric analysis, the authors conclude that the availability of new kinds of mortgages, mainly ones with low down payments, accounted for 56% to 70% of the decade-long increase in the U.S. homeownership rate, while demographic changes accounted for only 16% to 31% of the effect.

~ BusinessWeek, "A Troubled 'Ownership Society'," October 22, 2007, by Peter Coy

Hitwise: Searches for "housing bubble" hit 2-year low


As of the week ending February 17th 2007, searches for "housing bubble" have reached a two year low, only 4.4% of the searches on the same subject that occurred during the second week of June 2005. A media frenzy around a pending correction occurred that very same week, which demonstrates just how suggestible we are, as well as how short our attention spans can be.

But while the bubble seems not to be a major concern, there is a growing game of chicken between buyers and sellers. In the past, searches for "homes for sale" have outnumbered "homes for rent" by nearly 3 to 1. As of last week that margin was cut nearly in half as online domicile searchers indicated their willingness to at least explore renting pending a drop in home prices.

~ Bill Tancer, general manager of global research, Hitwise, "Will The Housing Bubble Burst in 2007?," Time, February 22, 2007

Marx and Engels on capitalism

The free market was the first to show what man's activity can bring about ... and has created more massive and more colossal productive forces than all preceding generations together.

~ Karl Marx and Friedrich Engels, The Communist Manifesto (1848)

Mark Hulbert: "Odds continue to favor the bulls" (2007)

Consider the latest readings of the Hulbert Stock Newsletter Sentiment Index (HSNSI), which reflects the average recommended equity exposure among a subset of these timers. As of Thursday's close, the HSNSI stood at just 7.7%. In other words, the average short-term market timing newsletter is now almost completely out of the stock market.

The bottom line? Anything can happen. But, from the perspective of a contrarian analysis of sentiment among investment newsletters, odds continue to favor the bulls.

~ Mark Hulbert, "Air sickness. Commentary: Market's volatility making timers skittish; that's bullish," MarketWatch.com, October 26, 2007

BusinessWeek cover: It’s a Low, Low, Low, Low-Rate World

Borrowers, of course, are deliriously happy. Even the shakiest companies are seeing their debt costs plunge… Most remarkably, the craziness isn’t likely to stop anytime soon.

~ "It’s a Low, Low, Low, Low-Rate World," BusinessWeek, February 19, 2007 cover story

Mises on the credit boom

There is no means of avoiding the final collapse of a boom brought about by credit expansion.

~ Ludwig von Mises

Thomas Donlan on the business of Wall Street

The work of Wall Street often is to introduce people who should not borrow to people who should not lend.

~ Thomas G. Donlan, Barron’s editor

Oct 25, 2007

Peter Yastrow to the Fed: "put out the fire"

The Fed's going to have to ease because all of these pristine traders who have all these wonderful trades on. When you take it all the way you just realize in the end it's collateralized by somebody's house, which isn't worth what they said it was worth when they borrowed the money for the house. It all ties back to that.

You can't just say "we told you so" and turn your back. The Fed is the fireman of our economy, and there's a fire and they're gonna put it out. That's their job. Their job is not to sit around and scold people for making bad loans [and] for other people for buying those bad loans. The Fed's job is to put out the fire.

~ Peter Yastrow, market strategist, MF Global Ltd., August 9, 2007, as appeared on CNBC

Andrew Brenner begging for 1/2% rate cut from Fed

If the Fed wants to keep the economy going and the Fed wants to keep housing from deteriorating further and they want to keep the banking system solid, they are going to have to ease by 50 [basis points], as well as 50 in the discount rate.' Brenner said in an Oct. 22 interview.

~ Andrew Brenner, co-head of structured products, MF Global Ltd., October 22, 2007 interview

Source: "Wall Street Wants 50, Fed May Give Zip for Now," Bloomberg.com, October 25, 2007

William Poole: "It was good policy" to cut 50 basis points

It was good policy to get out ahead and stabilize the market.

If we did 25, then we would have had the market expectation of 25 at the next meeting. So it was better to do 50 at once and have the market settle down.

~ William Poole, president, St. Louis Federal Reserve Bank, October 19, 2007 interview

Source: "Wall Street Wants 50, Fed May Give Zip for Now," Bloomberg.com, October 25, 2007

(At the Sept. 18 meeting of the Federal Open Market Committee, Fed officials voted to cut their target for the overnight lending rate by 50 basis points, to 4.75 percent.)

Charles Evans: "We see growth recovering next year"

Our baseline forecast sees soft economic activity this fall; notably, it is likely that a further sharp decline in residential investment will weigh on the top-line growth numbers.

But we see growth recovering next year and moving up to average close to potential later in 2008, which we at the Chicago Fed currently see as being somewhat above 2 1/2 percent.

~ Charles L. Evans, president, Chicago Federal Reserve Bank, October 22, 2007 speech

Source: "Wall Street Wants 50, Fed May Give Zip for Now," Bloomberg.com, October 25, 2007

Christopher Haley: Underweight REITs

REIT valuations are not factoring in a more significant slowdown of the economy.

~ Christopher Haley, analyst at Wachovia, which has an overall investment rating for the industry of "underweight," "REITs See Biggest Drop Since 1998 as U.S. Rout Grows," Bloomberg.com, October 25, 2007

Jon Markman: Avoid bank and brokerage stocks

Somehow, the big banks have to find a way to retain investors' confidence despite a January that is likely to feature many of the same problems we witnessed earlier this month. In early October, you may recall, institutions such as Wachovia (WB, news), Bank of America (BAC, news) and Merrill Lynch (MER, news) did an about-face from assertions that their businesses were not harmed by the credit crunch when they announced massive write-downs on asset-backed paper.

Investors will let them get away with that sort of rudeness only once. If the banks do it again -- after potentially being forced to take a lot of debt onto their balance sheets from failed "structured investment vehicles" -- shareholders are likely to slaughter the bank stocks, pushing them down at least another 20%.

[Banking analyst Richard] Bove contends that for every $1 in uncollected debts that they have written off so far, the banks have uncovered another $2.50 from failed mortgages, auto loans and commercial lending. "Bad loans are going onto their balance sheet faster than they can write them off," he said.

Once investors determine that the banks' bad loans are out of control and that the risk cannot be adequately measured, they will sell first and ask questions later. So, we are about to enter even more interesting times. A debt-led recession punctuated with joblessness and foreclosure is almost certainly en route. The only questions are whether it comes early next year or in 2009, and how deep a hole we'll need to dig for the burial. Whatever the timing or depth, continue to avoid the bank and brokerage stocks.

~ Jon Markman, "Why we need a recession -- soon," MSN Money, October 25, 2007

Jon Markman: Bankers are like heroin dealers

Just as heroin dealers are in business to sell drugs, banks are in business to make loans. Their financial engineers will do everything in their power to force debt down consumers' throats -- and then find ways to keep them on the hook for it as long as possible. Although they talk a big story about encouraging responsibility in borrowing, they actually want consumers to max out their credit cards and to take large home-equity lines of credit, small-business loans and car loans, with the goal of having customers pay interest as long as humanly possible.

~ Jon Markman, "Why we need a recession -- soon," MSN Money, October 25, 2007

Aldous Huxley on war and politics

The most shocking fact about war is that its victims and its instruments are individual human beings, and that these individual beings are condemned by the monstrous conventions of politics to murder or be murdered in quarrels not their own.

~ Aldous Leonard Huxley

Churchill on arbitrary arrest and imprisonment

The power of the Executive to cast a man into prison without formulating any charge known to the law, and particularly to deny him the judgment of his peers, is in the highest degree odious and is the foundation of all totalitarian government whether Nazi or Communist.

~ Sir Winston Churchill

Mark Twain on gratitude

If you pick up a starving dog and make him prosperous, he will not bite you; that is the principle difference between a dog and a man.

~ Mark Twain

Cervantes on truth

Where truth is, God is, truth being an aspect of divinity.

~ Don Miguel de Cervantes Saavedra

Source: Johnson, Paul, The Birth of the Modern, Page 68

Sir Francis Bacon on truth

Truth is more likely to arise from error than from confusion.

~ Sir Francis Bacon

Michael Faraday on truth

The man who is certain he is right is almost certain to be wrong; and he has the additional misfortune of inevitably remaining so. All theories are fixed upon uncertain data, and all of them want alternation and support.

~ Michael Faraday, 19th century British scientist, in a lecture to the Philosophical Society

Simon Bolivar on revolution

He who sows a revolution ploughs the sea.

~ Simon Bolivar

The larger quote is,

America is ungovernable. He who sows a revolution ploughs the sea.

As recorded in Paul Johnson, The Birth of the Modern, Page 651. ‘America’ in this context probably means Latin America, but the comment would be prescient if the United States ultimately demonstrates that it too is ungovernable.

Bill Maher on airport security

Good news for the terrorists: Undercover agents posing as passengers were able to get simulated bombs through the screening process here at LAX 75% of the time ... but not one drop of shampoo.

~ Bill Maher, Real Time with Bill Maher

Mark Twain on his death

The reports of my death are greatly exaggerated.

~ Mark Twain in a May, 1897 note to the New York Journal. This is widely misquoted.

John Denson on Teddy Roosevelt

[Jim] Powell [author of Bully Boy: The Truth About Theodore Roosevelt's Legacy] states that "Theodore Roosevelt believed war was glorious, even healthy for a nation. He thought that reasons for participating in war should not be limited to national defense. He insisted that the United States should intervene in affairs of other nations and enter into other people’s wars to do good." Powell further states that T.R. "Claimed that war would make better men and a better world. He longed for the excitement of war as he showed clearly in the Spanish-American War, when he resigned from his position as assistant secretary of navy to enter the fighting and secure a measure of glory." Powell reveals the fact that T.R. actively lobbied to obtain the Congressional Medal of Honor, but was denied this because he only served for two weeks and his "exploits were limited to a single day. More than a century later Roosevelt was awarded the Medal of Honor posthumously by President Bill Clinton." Powell goes further by quoting T.R. "No triumph of peace is quite so great as the supreme triumphs of war."

Powell’s book points out the aggressive measures of T.R. in gaining Federal control of the economy in order to eliminate the free market. Powell states, "Theodore Roosevelt claimed that politicians and bureaucrats could achieve fairness by interfering with the economy." He "never recognized the fatal flaw of giving a few people enormous power over the entire economy." Powell points out that it was T.R. who introduced his slogan, "The New Nationalism" by which he meant, "Executive power as the steward of the public welfare." T.R. believed that it was within the president’s power "not only his right but his duty to do anything that the needs of the nation demanded unless such action was forbidden by the constitution or by the laws."

Powell quotes T.R. as stating, "I am a Hamiltonian in my governmental views, especially with reference to the need of the exercise of broad powers by the national government." I believe that if you connect the dots you will see a straight line from Hamilton to Henry Clay to Lincoln to T. R. to Wilson and finally to FDR. All of these politicians believed that the federal government should be in control of the economy but certain businesses should be favored by a partnership with the government through subsidies and other benefits.

~ John V. Denson, "American Mussolini," LewRockwell.com, October 25, 2007

Jim Powell on the concentration of executive power

Indeed, [Teddy] Roosevelt ushered in the practice of ruling by means of executive orders, bypassing the congressional legislative process. There had been presidential directives since the beginning, but they had seldom been used. During the presidency of Abraham Lincoln, they became known as executive orders. From Lincoln to Roosevelt’s predecessor, William McKinley, there was a total of 158 executive orders. Roosevelt, during his seven years in office issued 1,007 . . . . Only two other presidents issued more executive orders than he: his fellow progressive Woodrow Wilson (1,791) and his distant cousin, Franklin Deleno Roosevelt (3,723).

~ Jim Powell, Bully Boy: The Truth About Theodore Roosevelt's Legacy

Teddy Roosevelt on power

I don’t think that any harm comes from the concentration of power into one man’s hands.

~ Theodore Roosevelt

Giuliani packs foreign policy team with neocons

Mr. Giuliani’s team includes Norman Podhoretz, a prominent neoconservative who advocates bombing Iran “as soon as it is logistically possible”; Daniel Pipes, the director of the Middle East Forum, who has called for profiling Muslims at airports and scrutinizing American Muslims in law enforcement, the military and the diplomatic corps; and Michael Rubin, a scholar at the American Enterprise Institute who has written in favor of revoking the United States’ ban on assassination.

~ The New York Times, "Mideast hawks help to develop Giuliani policy," October 25, 2007, by Michael Cooper and Marc Santora

William Kristol endorses Republican frontrunners on foreign policy

I would say, as a card-carrying member of the neoconservative conspiracy that I think Giuliani, McCain and Thompson are all getting really good advice — and Romney. [None of the leading Republican candidates] buy any of these fundamental criticisms that Bush took us on a radically wrong path, and we have to go to a pre-9/11 foreign policy.

~ William Kristol, editor of The Weekly Standard, "Mideast hawks help to develop Giuliani policy," The New York Times, October 25, 2007

Oct 24, 2007

Croesus on war

No one is fool enough to choose war instead of peace - in peace, sons bury their fathers but in war fathers bury sons.

~ Croesus, after being reprieved by Cyrus as recorded in Herodotus, The Histories, Book 1, 87

Gene Epstein: Housing isn't killing the economy (2007)

What doesn't kill the economy, to borrow a phrase from Nietzsche, only seems to make it stronger. You'd think that, if the bust in residential housing didn't fatally wound the economy, it would make it much weaker.

But so far, the standard measure of gross domestic product shows just the opposite. Ever since the housing bust began, GDP growth, excluding residential investment, has accelerated.

How could this be? The answer is probably that, if housing hadn't gone bust, the rest of the economy would have expanded even faster. But the fact that we even need this counter-factual to find collateral damage is not only testimony to the economy's astonishing resilience. It also suggests that, if the housing sector worsens even further -- which now seems likely -- the economy will nonetheless muddle through.

~ Gene Epstein, Barron's "Economic Beat" editor, "Housing Isn't Clobbering GDP," October 22, 2007

Bill Laggner on investors pandering for rate cuts

They're now begging for 50 basis points. This is like watching the Comedy Channel.

Bill Laggner, Bearing Asset Management, October 24, 2007

Opitz on the Constitution

No one can read our Constitution without concluding that the people who wrote it wanted their government severely limited; the words "no" and "not" employed in restraint of governmental power occur 24 times in the first seven articles of the Constitution and 22 more times in the Bill of Rights.

~ Edmund A. Opitz, historian

Jack Welch: "This system is resilient"

This system is resilient and there is so much liquidity around, that these problems get solved.

Our economy is strong and all of this doom and gloom is nonsense.

~ Jack Welch, as appeared on CNBC, October 24, 2007

Oct 23, 2007

Hans Sennholz on war and peace

Peace is the natural state of man, war the temporary repeal of reason and virtue.

~ Hans F. Sennholz

Jim Rogers: Sell U.S. dollars, buy Chinese yuan

I'm in the process of -- I hope in the next few months -- getting all of my assets out of U.S. dollars. I'm that pessimistic about what's happening in the U.S.

It's the official policy of the central bank and the U.S. to debase the currency.

The U.S. dollar is and has been the world's reserve currency, the world's medium of exchange. That's in the process of changing. The pound sterling, which used to be the world's reserve currency, lost 80 percent of its value, top to bottom, as it went through the whole period of losing its status as the world's reserve currency.

[The Chinese renminbi is] the best currency to buy right now. I don't see how one can really lose on the renminbi in the next decade or so. It's gotta go. It's gotta triple. It's gotta quadruple. [China is] going to be the most important country in the 21st century.

[The carry trades in yen and francs will] unwind someday, [which will send the currencies] straight up. I'm buying the yen.

[The bull markets in bonds and stocks are] over. Bonds will be a terrible place to be for many years and will in fact be going down for many years.

Jim Rogers, "Jim Rogers Shifts Assets Out of Dollar to Buy Chinese Currency," Bloomberg.com, October 23, 2007

James Madison on war vs. liberty

Of all the enemies of true liberty, war is, perhaps, the most to be dreaded, because it comprises and develops the germ of every other. War is the parent of armies; from these proceed debts and taxes; and armies, and debts, and taxes are the known instrument for bringing the many under the domination of the few.

~ James Madison, 4th U.S. president

Huebert: Bill Clinton, philanthropist?

Clinton wants to be remembered as a great philanthropist. And he's having no trouble finding media people to play along. Indeed, a fawning cover story in the October Atlantic Monthly suggests Clinton may one day be known "as a philanthropist who happened to have been president."

Bill Clinton, a philanthropist? Aren't philanthropists usually people like Andrew Carnegie, who first make a lot of money and then give it away? Clinton never made a fortune as a captain of industry, and the only thing he's ever been known for giving away is semen.

~ by J. H. Huebert, "Clinton the Philanthropist," LewRockwell.com, October 23, 2007

Hornberger on why Lincoln waged war

From the first grade in every public school in America, students are taught that the reason that Abraham Lincoln waged war against the South was to free the slaves. If only it were so! At the inception of the war, Lincoln himself repeatedly emphasized that it was secession, not slavery, that drove him to wage war against the Confederate states: "We must settle this question now, whether in a free government the minority have the right to break up the government whenever they choose."

~ Jacob G. Hornberger, president, The Future of Freedom Foundation, "Should Old Glory Fly over the Capitol?," January 2000

Chanos on the rating agencies

The rating agency system breaks down when most needed. Rely on it at your own peril.

Time and again, when confronted with negative financial "surprises" by corporate issuers during the last decade, the "independent" ratings agencies fell down on the job. This kept slow-on-the-uptake investors dancing on the decks of numerous financial Titanics, while those heeding other signals (such as the burgeoning market for credit-default derivatives) prepared to man the lifeboats.

Whether it was the hubris of not wanting to precipitate a run on the bank (as if it wasn't happening already!), or the incompetence of one ratings agency analyst admitting to not having read the company's SEC filings, the shortcomings of an analyst-based ratings agency system became apparent in the Enron fiasco. Market-based price-discovery agents, such as short sellers in the equity market and purchasers of credit-default insurance in the bond/derivative markets, supplanted the Big Three ratings agencies as accurate predictors of Enron's financial distress.

~ James Chanos, "Short-Lived Lessons From an Enron Short," The Wall Street Journal, May 30, 2006

Lincoln on character

Nearly all men can stand adversity, but if you want to test a man’s character, give him power.

~ Abraham Lincoln, 16th U.S. president

Lincoln on racial segregation

I will say then that I am not, nor ever have been in favor of bringing about in anyway the social and political equality of the white and black races - that I am not nor ever have been in favor of making voters or jurors of negroes, nor of qualifying them to hold office, not to intermarry with white people; and I will say in addition to this that there is a physical difference between the white and black races which I believe will forever forbid the two races living together on terms of social and political equality. And inasmuch as they cannot so live, while they do remain together there must be the position of superior and inferior, and I as much as any other man am in favor of having the superior position assigned to the white race. I say upon this occasion I do not perceive that because the white man is to have the superior position the negro should be denied everything.

~ Abraham Lincoln, 16th U.S. president, Fourth Debate with Stephen A. Douglas at Charleston, Illinois, September 18, 1858

Oct 22, 2007

Bill Laggner and George Karahalios on the credit bubble's great unwind

To many it seemed preposterous to suggest that a credit crunch could prevail in a world flushed with liquidity. Thus, when the recent sub-prime loan fiasco materialized, authorities assured the masses that it was “contained” to a fraction of the overall mortgage market. As the contagion spread and claimed a few levered hedge funds, central bankers deemed this to be a necessary purging of weak hands which they welcomed. Finally, when a few of the “fringe” lenders responsible for the most risky of loans declared bankruptcy and the domestic equity markets held relatively firm, many believed that the worst of the crisis had passed. Instead, a global run on the banks ensued, not by depositors, rather by bankers themselves who no longer felt comfortable lending money to their peers at the discounted rate decreed by their respective governments. So in a world of allegedly ample credit, central banks were forced to infuse even more liquidity to maintain their already low short term interest rates and to prevent the imminent unwinding of the credit bubble. In a debt-laden U.S. economy dependent on asset price appreciation, even a government bureaucrat comprehends the importance of protecting the collateral by forestalling its liquidation.

~ Bill Laggner with George Karahalios, Bearing Asset Management, "Collateral Damage: The Inevitable Unwinding of 'Assets' and the Impending Governmental Intervention," Financial Sense, October 18, 2007

Lesch on competition

The underdog in many products… can pick and choose where it wants to hit the giant; the giant, by contrast, must defend itself everywhere.

~ George Lesch, Colgate-Palmolive executive

Sam Walton on who's boss

There is only one boss: the customer. And he can fire everybody in the company, from the chairman on down, simply by spending his money somewhere else.

~ Sam Walton, Wal-Mart founder

John Adams on fear

Fear is the foundation of most governments.

~ John Adams, Thoughts on Government (1776)

Oct 21, 2007

Chanos: 10 lessons of Enron

The convictions of Ken Lay and Jeff Skilling are less than a week old, and yet conclusions are already being drawn about whether "corporate wrongdoing" is a thing of the past. As someone with more than a passing interest in the Enron story -- I was, to quote Ken Lay's bizarre testimony, one of the "short-sellers that were organized and working together and conspiring together" against Enron -- I feel a need to examine what lessons those of us who slog it out daily in the corporate trenches might gain from Enron's spectacular collapse. I propose to offer the top 10 lessons from Enron that executives, investors and lawyers will soon forget:

1. The Enron scandal shows a need for a standards-based accounting system, rather than a rules-based one.

2. Mark-to-Market accounting was not the problem at Enron, Mark-to-Model was.

3. Off-balance-sheet deals and entities are "off" the balance sheet for a reason.

4. Wall Street analysts don't "do" complex.

5. The rating agency system breaks down when most needed. Rely on it at your own peril.

6. Beware of, and question, unexpected executive resignations.

7. Whistleblowers aren't whistleblowers if they blow their whistles inside the company walls.

8. Special investigations by corporate boards are almost always a waste of time/money, and often prove highly misleading.

9. Character cannot be compartmentalized.

And, finally, 10: Friends do not let (possibly guilty) friends take the stand in criminal trials.

Let's face it, the Enron trials of Lay and Skilling had it all; greed, arrogance, an incompetent defense strategy (oh, how I wish short sellers had the power that Enron's defense team claimed we have!) and, of course, larger-than-life corporate villains. One would assume the high profile nature of the trial itself might underscore this observer's list of lessons learned from Enron's spectacular collapse. But thankfully, I'm pretty confident that they will be forgotten soon.

~ James Chanos, "Short-Lived Lessons From an Enron Short," The Wall Street Journal, May 30, 2006

Chanos on the rating agencies

It's a great business model as long as you can get people to pay for it. If they have no predictive power over that which they're rating, then why bother?

~ James Chanos, president of Kynikos Associates, a New York hedge fund with about $3 billion in assets that specializes in short selling, "Moody's Faces the Storm," The Wall Street Journal, July 10, 2007

Forstmann on security and taking risks

In a state-run society the government promises you security. But it's a false promise predicated on the idea that the opposite of security is risk. Nothing could be further from the truth. The opposite of security is insecurity, and the only way to overcome insecurity is to take risks. The gentle government that promises to hold your hand as you cross the street refuses to let go on the other side.

~Theodore Forstmann

Saffo on vision

Never confuse a clear view for a short distance.

~ Paul Saffo, technology forecaster

George Will on government

If you want to understand your government, don't begin by reading the Constitution. (It conveys precious little of the flavor of today's statecraft.) Instead, read selected portions of the Washington telephone directory containing listings for all the organizations with titles beginning with the word National.

~ George Will

Lamm on government deficits

Christmas is the time when kids tell Santa what they want and adults pay for it. Deficits are when adults tell government what they want and their kids pay for it.

~Richard Lamm

Gladstone on foreign policy

Here is my first principle of foreign policy: good government at home.

~William Ewart Gladstone

Woodworth on government

If human beings are fundamentally good, no government is necessary; if they are fundamentally bad, any government, being composed of human beings, would be bad also.

~Fred Woodworth, The Match!, No. 79

Walter on trusting men vs. government

Many people say that government is necessary because some men cannot be trusted to look after themselves, but anarchists say that government is harmful because no men can be trusted to look after anyone else.

~Nicolas Walter, About Anarchism

Borah on government

The marvel of all history is the patience with which men and women submit to burdens unnecessarily laid upon them by their governments.

~William E. Borah

Penn on democracy

Let the people think they govern, and they will be governed.

~William Penn, Some Fruits of Solitude, 1693

Disraeli on "conservative" government

A Conservative government is an organised hypocrisy.

~Benjamin Disraeli, 1845

Ewing on government deficits

The government deficit is the difference between the amount of money the government spends and the amount it has the nerve to collect.

~Sam Ewing

Finck on government

Everybody wants to eat at the government's table, but nobody wants to do the dishes.

~Werner Finck

O'Rourke on government and power

Giving money and power to government is like giving whiskey and car keys to teenage boys.

~P.J. O'Rourke

Shaw on democracy

Democracy substitutes election by the incompetent many for appointment by the corrupt few.

~George Bernard Shaw, Man and Superman, "Maxims: Education," 1905

Lowell on democracy

Democracy gives every man the right to be his own oppressor.

~James Russell Lowell

Churchill on democracy

The best argument against democracy is a five-minute conversation with the average voter.

~Winston Churchill

Goldwater on big government

A government that is big enough to give you all you want is big enough to take it all away.

~Barry Goldwater

On democracy (anonymous)

Democracy is a government where you can say what you think even if you don't think.

~Author Unknown

Will Rogers on Congress

Ancient Rome declined because it had a Senate, now what's going to happen to us with both a House and a Senate?

~Will Rogers

Flynt on democracy

Majority rule only works if you're also considering individual rights. Because you can't have five wolves and one sheep voting on what to have for supper.

~Larry Flynt

Mencken on democracy

Democracy is the art and science of running the circus from the monkey cage.

~H.L. Mencken

O'Rourke on democracy

Every government is a parliament of whores. The trouble is, in a democracy, the whores are us.

~P.J. O'Rourke

Coren on democracy

Democracy consists of choosing your dictators, after they've told you what you think it is you want to hear.

~Alan Coren

Emerson on democracy

Democracy becomes a government of bullies tempered by editors.

~Ralph Waldo Emerson, Journals, 1847

Lord Acton on government

The danger is not that a particular class is unfit to govern. Every class is unfit to govern.

~Lord Acton, letter to Mary Gladstone, April 24, 1881

Lichtenberg on democracy

Democracy: The state of affairs in which you consent to having your pocket picked, and elect the best man to do it.

~Benjamin Lichtenberg

Mencken on democracy

Under democracy one party always devotes its energies to trying to prove that the other party is unfit to rule — and both commonly succeed and are right.

~ H.L. Mencken, Minority Report

Steve Forbes on housing

Thanks to Fed-created inflation, housing prices in most of the U.S. will firm and then rise. This won't save overextended subprime lenders and most come-lately speculators. But it will give much of the industry something of a second--albeit brief--wind.

~ Steve Forbes, "Fact and Comment: Housing," Forbes, June 18, 2007

Bastiat on education

The most urgent necessity is, not that the State should teach, but that it should allow education… all monopolies are detestable, but the worst of all is the monopoly of education.

~ Frederic Bastiat

Jefferson on the media

Advertisements contain the only truths to be relied on in a newspaper.

~ Thomas Jefferson

Ed Bugos on the root of all evil

Power, not money, is the root of all evil.

~ Ed Bugos

Ed Bugos on regulation

The best way to regulate the bad guys is to allow the good guys to compete.

~ Ed Bugos

Lord Acton on power

Power tends to corrupt, and absolute power corrupts absolutely. Great men are almost always bad men.

~ Lord Acton, from a letter to Bishop Mandell Creighton in 1887

Charles Mackay on crowd behavior

Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one.

~ Charles Mackay, Extraordinary Popular Delusions and the Madness of Crowds (1841)

Thomas Sowell on economics vs. politics

The first lesson of economics is scarcity: There is never enough of anything to satisfy all those who want it. The first lesson of politics is to disregard the first lesson of economics.

~ Thomas Sowell

Jefferson on education

If a nation expects to be ignorant and free, it expects what never was and never will be.

~ Thomas Jefferson, 3rd U.S. president

Reagan on entrepreneurship

Entrepreneurs are the forgotten heroes of America.

~ Ronald Reagan, 40th U.S. president

Cleveland on foreign policy

The genius of our institutions, the needs of our people…dictate the scrupulous avoidance of any departure from that foreign policy commended by the history, the traditions and the prosperity of the Republic. It is the policy of independence…It is the policy of peace…It is the policy of neutrality, rejecting any share in foreign boils and ambitions upon other continents.

~ Grover Cleveland, 22nd and 24th U.S. president

Jefferson on security vs. freedom

A nation that limits freedom in the name of security will have neither.

~ Thomas Jefferson, 3rd U.S. president

James Madison on democracy

Democracy was the right of the people to choose their own tyrants.

~ James Madison

Reagan on government

Government’s view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.

~ Ronald Reagan, 40th U.S. president

Tyler on democracy

A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largesse from the public treasury. From that moment on, the majority always votes for the candidates promising the most benefits from the public treasury, with the result that a democracy always collapses over loose fiscal policy, always followed by a dictatorship.

~ Alexander Tyler

Phil Duffy on government

Government is the problem, or more specifically government is traditionally used by the unscrupulous to fleece the unsuspecting.

~ Philip Duffy

Mencken on security

The one permanent emotion of the inferior man is fear--fear of the unknown, the complex, the inexplicable. What he wants above everything else is safety.

~ H. L. Mencken

Yogi Berra on taking action

When you come to a fork in the road, take it.

~ Yogi Berra, baseball player and manager

Forbes: Subprime fears overblown (2007)

[F]rom a bond market analyst's perspective, fears of a broader contagion are overblown. Just 1% of the mortgage bonds securitized so far this year and rated by Moody's Investor Service have been downgraded or put on watch, for example. That's out of $149 billion securitized since January.

Panic? What panic? "In view of how the laws of probability have yet to be repealed, a steep jump by subprime mortgage loans share of total mortgage originations from the 9% of 1996 to 2000 to the 21% of 2004 to 2006 practically assured an upward shift in mortgage delinquencies," wrote Moody's in a report Tuesday.

As if to prove their point, the bond ratings agencies noted that delinquencies in the prime loan market had risen, but not by as much and not nearly at the magnitude of the subprime sector. Prime loan delinquencies were 2.57%, up from 2.44% in the third quarter, according to the Mortgage Bankers Association.

~ Liz Moyer, "Overblown Fears In Subprime Land?," Forbes, March 14, 2007