Tuesday, January 26, 2010

Monetizing Foreclosures

Fannie Mae reports that their delinquent mortgages are up 163% compared to last year. The delinquency rate was 4.9% in October 2009 and only 1.8% in October 2008. What does this mean for the economy?

We all know that the US Treasury has poured money into all sorts of financial institutions including Fannie Mae, Freddie Mac, AIG, and a multitude of banks. Less well known are the Federal Reserve Bank purchases of Fannie & Freddie’s debt and the mortgage backed securities (MBS) they guarantee.

What happens to mortgages that are on the Fed’s balance sheet? The Fed can buy MBS’s with money they create out of nothing. MBS’s are simply bundled mortgages. So the result is that the Federal Reserve Bank owns a growing number of mortgages and they paid nothing for them.

The fact that the Fed paid nothing doesn’t mean the seller received nothing. On the contrary, the money created by the Fed is just as spendable as the money the Treasury borrows from China. But this situation intrigues me.

If the mortgages the Fed brought with nothing become worth nothing when the borrowers default what happens? Is the money the Fed created to buy the bad loans inflationary? Or, does it merely inflate to the same degree that the bad load deflates?

If a house and its mortgage were worth $1,000,000 last year but this year they are worth only $500,000 is it inflationary if the Fed buys the mortgage for $1,000,000 or is it anti-deflationary by $500,000?

What if on average the Fed pays $750,000 for a bundle of identical suspect mortgages and in the end only 10% of them default? Then the Fed has assets worth $900,000 per original mortgage contract. Is this then deflationary? How about if the Fed sells the mortgages for that $900,000 average price?

It seems like everything depends on how much the Fed pays and what real default rate results. No matter what they do they'll be wrong. The only way they can not distort the money supply (and therefore eventual inflation) is to sell the mortgages for the same total dollar amount they originally paid. But, if they do that either the buyer gets an instant windfall profit (if the mortgage value at the sale is more than the Fed paid) or the Fed fails to sell the mortgages (if the mortgage value at the sale is less than the Fed paid).

My head hurts. If the Fed must play with the money supply I think they should stick to buying and selling Treasury bonds. Then, at least, they would be giving nothing for nothing - the valuation being purely made up and in the eye of the beholder.

Quote of the Day
“The essence of Government is power; and power as it must be in human hands, will ever be liable to abuse.”
James Madison

Tuesday, January 19, 2010

Lead, Follow, or Get Out of the Way!

"If you will not fight for the right when you can easily win without bloodshed, if you will not fight when your victory will be sure and not too costly, you may come to the moment when you will have to fight with all the odds against you and only a small chance of survival. There may even be a worse case: you may have to fight when there is no hope of victory, because it is better to perish than to live as slaves."
Winston Churchill

What must be done?
You must vote in November, naturally; but will that be enough?

What can be done?
Contributing money to Political Action Committees and conservative candidates will be helpful; but will it be enough?

What should be done?
Volunteering some of your time to help the campaign of a conservative candidate this Fall would be a very good thing; but what if your candidates aren’t conservatives?

Why are RINOs & Socialists in office?
Because conservative people are busy living private lives while those who are motivated to use politics for personal gain populate the county and city committees of the major political parties.

How can you ensure conservative candidates are on the ballot in future elections?
By joining and participating in your local political party committee yourself and by encouraging your conservative friends to do the same.

As was said in other times for other reasons, “If not now, when? If not us, who?”

Use this link to the "American Thinker" for additional ideas.

Quote of the Day
"Freedom is never more than one generation away from extinction."
Ronald Reagan.

Tuesday, January 12, 2010

At War With al-Qaeda

Are we at war with al-Qaeda? Did the “panty-bomber” commit a felony, attemped murder? Or, did he attack the United States as part of the larger war waged by al-Qaeda on the United States?

Below are some interesting thoughts on the subject.

“This is all quite mad even in Obama terms. He sends 30,000 troops to fight terror overseas, yet if any terrorists come to attack us here, they are magically transformed from enemy into defendant.

“The logic is perverse. If we find Abdulmutallab in an al-Qaeda training camp in Yeman, where he is merely preparing for a terror attack, we snuff him out with a Predator – no judge, no jury, no qualms. But if we catch him in the United States in the very act of mass murder, he instantly acquires protection not just from execution by drone but even from interrogation.”
From Charles Krauthammer’s article in Human Events
"War? What War?"

“… more than one-third of all terrorist plots since 9/11 transpired in 2009 – despite loud chest-thumping about rejecting the idea of a war on terror, reaching out to the Muslim world, and apologizing for purported American sins.”
From Victor Davis Hanson’s article in National Review On-Line
"Who Is the Enemy"

“Abdulmutallab's a rich kid. He didn't come from a deprived background, bearing the grievances of the slum. He's a graduate of a top English university. And Osama bin Laden's from a super-rich family. How does building a footbridge in Afghanistan deter them?

Most of our home-grown Islamist terrorists hail from middle-class families -- such monsters as Maj. Hasan or the Virginia virgin-chasers under arrest in Pakistan (where jail conditions are a lot worse than at Guantanamo -- can't we just leave 'em there?).
This isn't a revolt of the wretched of the earth. These terrorists are the Muslim-fanatic versions of Bill Ayers and the Weathermen, pampered kids unhappy with the world. Al Qaeda's big guns are rebelling against privilege. There's a lot of Freud in this fundamentalism.

Spoiled brats remade their god in their own vengeful image. And we have to kill them. This one really is a zero-sum game.”

Ralph Peters from the article entitled
"Lying To Ourselves"
New York Post12/29/2009

Sunday, January 10, 2010

Section K

He's on the right flank of the third rank of Section K. It’s a fitting place; a place of honor. It’s a place rightfully reserved for non-commissioned officers.

His unit guards the Western point of the encampment. Veteran solders join the formation weekly.

My Dad claimed his place on the right flank 1 November 2002. It was a carefully considered decision planned several years before. Tuesday, when he died quietly at home, he was 84 and his plan went into effect. The following Friday, he joined his comrades-in-arms at Section K, Fort Custer National Cemetery.

I visited his grave today for the first time since his interment. I stood before him although the only evidence of his presence was the small plaque imbedded in the snow-covered sod at his feet. The plaque proclaimed his name and plot number. Soon it would be replaced by an engraved footstone.

I stared at the plaque. Behind it was a Christmas wreath placed there earlier by one of my sisters and a miniature tree crafted by the other. Placing the tree was the immediate reason for our presence on this holy ground. Ground made holy by the bodies of thousands of brave men.

My wife and I, my Mother, my two sisters, and my niece visited that holy place to deliver the Christmas tree, to honor my Father, and to share our grief.

We stood before him mostly in silence missing him and remembering. I looked down the ranks and files of the Section K formation. The men, covered by a thick blanket of snow, were in perfect order, dressed right and front.

The white snow was dulled by the steel gray overcast sky. It was cold and remote. Guard duty like I remember it. It was lonely too, though only for us. Dad is in a great formation of soldiers, sailors, airmen, and marines. These men fought and beat the Italians, the Germans, and the Japanese on the battlefields of Europe, Asia, and the Pacific. They were the greatest armed forces ever assembled in the history of mankind.

My mind drifted entertaining the thought that this great army defeated all enemies but time. The survivors of World War II fall by the thousands to the bullets of age. Heart disease and cancer are the artillery and the machine guns of this new/old enemy who has never lost a war.

Before we turned to leave I wondered what God will do with this awesome army. Suddenly, I realized Dad has reenlisted. Sgt Irvin C Clark, a veteran amphibious tank commander from the Peleliu, the Philippines, and the Okinawan campaigns, has reenlisted.

I don't know what need God has of such an army. Ragnarok, the great last battle between the good and evil gods of Norse myth, is not found in the Christian scriptures. But if He has need of an army, He's getting the very best.

On Target: Paul Volcker in the 12/8/2009 London Telegraph

Excerpt from the 12/8/2009 The London Telegraph:

The former US Federal Reserve chairman told an audience that included some of the world's most senior financiers that their industry's "single most important" contribution in the last 25 years has been automatic telling machines, which he said had at least proved "useful".

Echoing FSA chairman Lord Turner's comments that banks are "socially useless", Mr Volcker told delegates who had been discussing how to rebuild the financial system to "wake up". He said credit default swaps and collateralized debt obligations had taken the economy "right to the brink of disaster" and added that the economy had grown at "greater rates of speed" during the 1960s without such products.


Wednesday, January 6, 2010

Tuesday, January 5, 2010

Some Health Care Reform Stupidity You’ve Probably Not Heard Yet

The Devil, as they say, is in the details. The only certainty is that government meddling has unintended consequences.

The Senate version of health care reform includes a provision that will penalize small business with more than 50 employees that provide health insurance to their workers.

Employees who are eligible for the Federal health insurance subsidy may choose to opt out of their employer-based insurance in favor of the insurance exchange created by the reform bill. For each employee who opts out the company can be penalized with up to $3,000 in extra taxes. And, the eligibility of the employee is determined by his family situation - working spouse, number of children, etc – things not under the control of the employer.

Furthermore, if enough employees (25%) opt out, the tax penalties may be enough to incentivize the company to drop its health insurance altogether since the penalty for providing NO insurance will be less than the penalty for providing insurance to employees who qualify for federal insurance subsidies.

Probable Effects:
1. Some companies will intentionally avoid hiring people who qualify for subsidies

2. Some companies will drop their health insurance plans resulting in significant health insurance cost increases to their employees who do not qualify for subsidies.

As usual, government is coming to “help” us! The details of this particular stupidity can be found in the article, "How the Senate Health Bill Punishes Businesses That Hire Low-Income Workers", By Robert A. Book, Ph.D. and published by The Heritage Foundation

Quote of the Day:
“What does Sarah Palin know about economic policy or foreign policy? Good question. But let us put the question in context. What does President Obama know about economic policy or foreign policy after a year on the job that he doesn’t need to unlearn (and fast)?”
Christopher Chantrill in the American Thinker

Universal Health Care
"Build a Health Care Bill: We Can Do It Better Than Congress"
Link to the "Build a Health Care Bill" Idea Log