Archive for the 'Current Events' Category

Debate #2

Wednesday, October 8th, 2008

Voter: “Senator McCain, How would you … ?”

McCain: “My friend, I know how to get things done.” Followed by attacks.

And so it went for 90 minutes. I thought the town hall format was supposed to be his best event! At this stage I need to know specifics. Ideas. Why I am going to vote for you, not why I have to vote against the other guy. At least I can take some comfort in the fact that there is now less than 4 weeks until this turkey is done.

‘nough said.

Bailout: Round 1

Monday, September 29th, 2008

I’ve got so many thoughts and emotions running around my head that I will have to take some time to sort out things rationally. However, my irrational response is as follows. I find it somewhat befuddling/amusing that it is the republicans that are against the Wall Street bail out! Aren’t the Republicans the ones who are supposed to be in favor of big business and against the average Joe? Did they want more? We’re they repelled by the cut lines to the golden parachutes for CEOs? And conversely, why are the Democrats so gung-ho in support of this? Is it because of the help for those who borrowed under ‘unsavory terms’ for their mortgage from predatory lenders? I don’t know, but it isn’t making sense to me right now.

I must admit that if I was a republican in the house and had just sat through yet another partisan tirade from speaker Pelosi, I’d probably vote against it too. Of all of the people (and I use that term loosely) in the house, ol’ Nancy scares me the most. Today she had a golden opportunity to demonstrate a non-partisan side of her persona and she completely failed the test. If and when this bill comes back up for a vote, I would only vote for it if Nancy agreed to step down as speaker afterwards.

The thought of Obama and Nancy running things together was worrisome. Now it is frightening. It might actually be sufficient grounds for me to reconsider McCain. I’ll wait to see how Palin comes across in the VP debate before I change colors.

Good god it would be great to have a real choice beyond these two non-starters.

How did we get into this mess?

Friday, September 26th, 2008

Here is another article that caught my imagination. As I read this I could not believe what I was reading. Why do people have to be told these things? We have been saving for retirement for quite some time. We keep our cars for at least 10 years. We did not build the biggest house we could have qualified for (although it will be paid for in 2 years). We do not have to have everything – every new gadget, fashion, or trendy experience to be happy. We do not have to give the appearance of affluence to be affluent (whatever that really means). At the same time we do not deny ourselves very much. Perhaps I would define this as being realistic and living realistically. Setting proper expectations is the key to happiness. I’m sorry but the problems we currently face with the mortgage meltdown and financial collapse is primarily a manifestation of having unrealistic expectations. We have taken a huge and hopefully short lived hit to our savings as a result of the excessive lifestyles, unrealistic expectations, and outright greed of others, but I know we will be alright. I can’t say the same for everyone else because I think they believe they deserve more than they will ultimately obtain from the future. There is a bigger collapse looming than the current market crisis, it is a return to reality from this fantasy many of our neighbors are living. As I drive to work each morning I often wonder how these neighbors of mine afford to keep up the appearance that they strive to uphold. Now that the housing bubble has burst somewhat (I say somewhat since the valuations here have not changed much, only the growth has slowed a bit) we have an opportunity to examine our role in this calamity. I suspect few will take the opportunity to do so but rather bemoan that they are being denied their rights.

Tropical Storm Hanna

Sunday, September 7th, 2008

Weather Data

Weather Data (click to enlarge)

Tropical Storm Hanna passed closely by yesterday afternoon. Aside from some tree damage and a broken mail box post, the storm was not much to talk about. This image presents some of the data from my weather station. The top graph shows the Humidity in percent (the red and green lines are the temperature and dew point – not to scale). The highest wind gust was 35 MPH. The third panel shows the temperature (red) and heat index (orange). The bottom panel shows the barometric pressure in mb (gray) and the rain (cyan). Hanna produced 0.85 inches of rain total.

Freddie and Fannie

Saturday, September 6th, 2008

CNNMoney reports that our government is about ready to put both Freddie Mac and Fannie Mae into a conservatorship. Apparently the markets were not taking the bait and had not been buying back into the stock of these psuedo-companies. What scared them off I suspect was the news a few weeks ago that the Secretary Paulson of the Treasury department was approved to do whatever was required to keep the Mortgage buyers/repackagers/insurers Freddie & Fannie afloat.

I believe this is a huge mistake. The report goes on to say that if Freddie and Fannie are not able to continue supplying low interest funding to the mortgage market, buying the mortgage loans, giving what amounts to government insurance (assurance), and repackaging those loans to feed them back to the market – banks will have to raise interest rates on mortgages and raise credit standards for borrowers!?! Isn’t that what banks should be doing? Making sure the borrowers deserve the loans they apply for and pricing those loans to properly represent the inherent risk? Isn’t this a return to what got us into this credit crisis in the first place? I think the terrible mess that Freddie and Fannie helped the industry generate needs to be completely unwound rather than restored to do more damage. Let Fannie and Freddie fend for themselves. Since the story that triggered this post is based on ‘media reports’ I hope that they turn out to be wrong and that when the real announcement is made next week that it ends up being good news. I won’t be holding my breath though.

What’s Pickens up to?

Saturday, August 23rd, 2008

T. Boone Pickens has been very active recently. You have probably seen his first series of commercials publicizing his plans (actually his actions) to promptly get the US off of its oil habit addiction. Many of you, myself included, noticed this, but paid little attention to his initial round of ads. He was recently promoting his plan in Las Vegas at a democratic conference. While this news was making its way off of front page news circles, a coworker emailed me an outline of his plan. While reading it the essence of the plan hit me. Yes, the initial series of infomercials touting the widespread availability and value of wind power are what you may be familiar with. The real genius of the plan is that it advocates the use of natural gas in transportation systems to bridge the gap leading up to technological demonstrations of alternatives like biofuel, electric cars, … . It took a while before the full impact of the plan sunk in. The key to any alternative energy source is the time it takes to be adopted and penetrate the market. One of the longest lived infrastructures are buildings (homes and commercial real estate have lifetimes in excess of 50 years). Automobiles, trucks, planes, and trains are a close second at 8-20 years. Pickens’ plan advocates the conversion of the transportation infrastructure from oil to natural gas. Aside from the cleanliness of natural gas relative to oil, the brilliance of this plan lies in the fact that existing vehicles can be converted from oil to natural gas at a minimal cost (relative to the cost of total replacement with hybrids or electrics – not to mention the infrastructure costs). I have had the opportunity to drive dual fuel vehicles that ran on both natural gas and gasoline. There is essentially no difference in convenience or performance. Imagine a tax on gasoline that funds a tax credit that offsets the cost of converting an existing gasoline/diesel vehicle over to natural gas. Both the increased cost of gas along with the rebate to offset the cost of conversion would quickly move us from oil to natural gas for our transportation needs. The US natural gas resources would create internal wealth, decrease significantly our trade deficit, and turn an unstable part of the world into something less important than it currently is. This is just a bridge to our new undefined energy future. It buys us time. It creates jobs and wealth within the US. By reducing our trade deficit, it gives us the capital to develop and deploy the long-lived solutions that are still in development. This is exciting and I am impressed with the plan. Let’s hope the message can be well formulated and spread widely.

Petition to the FCC

Tuesday, August 19th, 2008
Mesh Network

Mesh Network

Google is behind a petition to the FCC that requests that they set aside the soon-to-be-vacated VHF & UHF analog TV spectrum for free access (open, unrestricted – to some extent). Their vision is a wireless network from coast to coast with few, if any, gaps and free access for all. Just think of an iPhone that does everything the current one does without the need for a telephone company. Imagine home internet access with DSL, Cable, or dial-up service costs. Think cable or satellite TV without the cable or satellite TV companies. Think access everywhere and anytime without having to sell your arm/leg/first-born to a borderline monopolistic company raking in huge (I’ll argue excessive) profits. Imagine the reliability of a mesh network. Go to the website, read the FAQ, and sign the petition.

Sub-prime Mortgage Meltdown

Thursday, August 7th, 2008

A lot of people don’t understand what the sub-prime mortgage meltdown is, why it is happening now, and what it all means. That is not surprising despite the daily media coverage that has been ongoing for months now. I’d like to equate the meltdown to the game of Hot Potato. The kid’s game of hot potato is similar to musical chairs. An item is passed around from player to player while music plays. They player caught holding the potato when the music stops is out of the game. This game of financial hot potato goes like this. People want to buy homes, after all it is the American Dream. Others want to make money building homes, selling homes, and financing homes. All of these folks are players in this game of hot potato. I’ll come back to a few points to fill in the details in a bit. Fannie Mae, Freddie Mac, large Banks, and Insurance companies are the ones who create and toss the potato around. The potato is a bundle of mortgages. These players want to hold them when they are ‘cool’ because they provide a steady source of income for them and they also provide stability and diversity to their portfolio of loans and assets. The bundle of mortgages representing the potato, is in theory, designed to stay comfortably cool because it is also made up of mortgages that represent diversified risk. A few might be bad, but the whole lot should be OK. The temperature of the potato is both a measure of the risk it represents and the difference between the cost of buying it and the value it has. A potato with inherently high risk or that is worth less than it costs is the hot potato. This game of financial hot potato is a little different then the one you played as a kid. First off there are many, many players. So many so that this game has a lot of potatoes being passed around. The potatoes are also going in every direction. At any given time a player can be holding several potatoes. Every potato has a different temperature too and you don’t know whether the ones coming your way are hot or not. Control of the music is given to the borrowers. They also control the heat of the potatoes to some extent since the borrower’s ability to repay the mortgage is the inherent risk and it changes with the state of the economy. The music stops periodically, when the loans with adjustable rates (ARMs) reset to a higher rate. The temperature of the potatoes also change at this point in time because the risk of default on a loan is linked to the size of the jump in the loan interest rate (linked primarily to the rate of inflation via the Feds interest rates) and the growth in the economy (borrower’s ability to absorb the increased monthly payment via low inflation and modest increases in wages). For years this game of financial hot potato has been very boring. When the music stopped, none of the potatoes were hot. Recently, the so called housing bubble has been heating up the potatoes. High risk borrowers were given loans that they should not have. This, in my view, was driven primarily by the greed of home builders, the greed of mortgage brokers who made the questionable loans in the first place, the arrogance of the home buyers who expected the American dream to be their right (as opposed to a goal), and the greed-blinded financial institutions who did not or could not see the true risk. Things did not get really hot until very recently as energy costs rose and began to rattle through the economy. This increased inflation while also reducing jobs – classic stagflation (visible as a prolonged and significant drop in the value of the dollar). This combination creates a budget imbalance for the borrowers. The wages aren’t growing enough to keep up with the daily needs and so the discretionary part of their budget decreases. By itself, this is not enough to heat up the potatoes. The other thing that happened was that the inflation-paranoid Fed under Alan Greenspan was raising interest rates. This increased the size of the resets in interest rate of the ARMs. This added effect was enough to break the borrower’s back (er, budget). Defaults increased and the potatoes started to get hot. This time when the music stopped a few players got burned and they did not want to or could not continue to play. The reduced number of players could not handle all of the potatoes out there so, the number of potatoes had to be reduced. This meant that borrowers could not obtain new loans. Houses took longer to sell, Builders did not need to build as fast, construction workers lost jobs, people who had to move started to sell at a loss, all of this lead to a decrease in housing values and ultimately increased the temperature of the hot potatoes even more through both increased risk of default and the difference between the cost and value of the mortgage packages. The players are all holding several hot potatoes and can’t quit without being burned now.

There is one good thing about the free market system, imbalances return to a balance, although that process is usualy not pretty and not everyone is happy about the way it happens. Returns will eventually properly reflect risk and determine the price/value. The big Banks and Mortgage insurance companies are taking big losses. They write them off and reduce the amount of taxes they pay. The government is going to absorb the losses from Fannie Mae and Freddie Mac. Irresponsible borrowers and lenders will be saved (temporarily) by various bail outs from congress (in order to keep their people happy and thereby keep their jobs by handing out our money). In the end, literally, the taxpayers foot (or is it butt) the bill for this irresponsible behavior. Not all of the bill though, as the game was so much fun that international players begged to get in to play as well. Some of that pain is spread globally. Whether it harms the long-term international investment patterns that are vital to the strength of the dollar and the global economy has not fully played out yet. Strengthening the dollar by borrowing/consuming less and producing/exporting more is the key. This will reduce inflation and allow the Fed interest rates to rise to match the rest of the world which will boost the value of the dollar.

Off shore leases for oil exploration

Wednesday, August 6th, 2008

Congress and the presidential candidates are on the verge of missing an opportunity. There are several bills working their way through congress to open up more off shore areas to oil exploration and, eventually, drilling. I propose that congress include a requirement that whomever obtains a lease to the new areas must install windmill electric generators at the site prior to exploration. The leases will be cheap, the infrastructure to get the power to land is to be included in the improvements they must build, and the energy produced must be purchased at a fixed price by the utility the power is fed into. In return the leases will be cheap. The oil companies should be required to meet a certain number of megawatts per acre of installed wind potential and in return will be able to buy that power at a discount for oil rig operations as well as obtain the leases at a significant discount. If the exploration does not pan out, they at least have power they can sell. This is very similar to the terms that were required of the early western settlers when they established mining claims. They needed to make site improvements beyond just digging the mine. This could be a win-win situation if only the dimwits in DC see the opportunity for what it is.

For the paranoid, are these leases the way for the oil companies to lock out wind power from prime wind locations?

Hummer

Wednesday, August 6th, 2008

GM is looking to sell its Hummer brand and I think this is a huge mistake. Certainly the Hummer H1, H2, and H3 are obscene and their sale must come to an end. The Hummer name can undergo a transformation. Have you every heard an electric car? Hummer is the perfect name to associate with the sound they make. It is a marketing match made in heaven. GM should also use its Hummer name to manufacture and sell wind turbines. Again the marketing options are huge! We sell the electric cars and the windmills that power them. If GM sells the Hummer brand they deserve to go bankrupt.