A Ray Of Hope

I'm trying not to get my hopes up, but today the Iraq government has taken encouraging steps towards mandating total US troop withdrawal by 2011. And, the Bush administration is apparently OK with that, after being against timetables for withdrawal. Thanks, Mr President. Being willing to change one's mind when circumstances warrant is a sign of maturity.

I'm pretty sure Rush won't approve of this weak-spined flip-flopping though, but as far as Rush is concerned, Obama is already President and is directly responsible for this recession (depression?) plus every other bad thing in the world. Maybe the entire Universe. At least the heat is off the Clinton administration. Oh wait... the current Obama administration IS the Clinton administration. Funny stuff.

Pushing On A String

This weeks Hood River Weather site poll wonders what we should do about the impending bankruptcy of the Not So Big 3 U.S. automakers.

My thoughts? I believe capitalism and a "free market" system (with just enough regulatory oversight to keep companies relatively honest and/or legal) are probably the best fit for human nature. Capitalism allows companies to take risks and either succeed or fail based on product quality, consumer demand, and how well the company is run. It's far from a perfect system, but much better than economic systems where the government runs the companies.

Of course, we've never had a pure capitalistic free market system. There have been and always will be elements of government control and socialism sprinkled into the mix. But lately the sprinkling has turned into a downpour, as banks, insurance companies, and now automakers have been deemed "too big to fail". Unfortunately, as economists have increasingly pointed out, some institutions may prove to be "too big to save".

So where do we draw the line with taxpayer money being used to sustain companies with failing business models? My opinion is: right here, right now, starting with US automakers. Let the bankruptcy system work. Let creative destruction eventually fill the niches with leaner, smarter companies. Yes, thousands, perhaps millions of people will suffer tragic economic hardships, at least temporarily. Yes, facing the music and letting companies fail will deepen the recession. But recessions NEED to happen occasionally to wring the excesses out of the previous economic boom times.

And besides, governmental attempts to avoid recessions are usually about as successful as pushing on a string.

They Knew...

Yet another post about the ongoing global financial meltdown. Sorry, but this stuff is really fascinating to me. But then, I would find an asteroid striking the Earth really fascinating too.

It's the popular consensus that the main (or at least initial) cause of this financial mess was the collapse of the housing bubble. Blame for the bubble and subsequent bust is being placed everywhere: Clinton, Bush, liberals, conservatives, greedy mortgage lenders, under qualified home buyers, crazy types of loans, government regulators asleep at the wheel. All of which are factors, but this misses the Much Bigger Question, which is:

We've had housing boom/bust cycles before. Never before did they threaten to take down the entire global financial system like this. What's so different this time?

What's so different is what was done with the mortgages after they were sold. Wall Street investment companies (Bear Sterns, Lehman Brothers, etc) were buying up as many mortgages as they could from banks and mortgage companies so they could repackage the loans into exotic instruments sold all over the world as AAA rated "safe" investments. Banks and mortgage companies were more than happy to quickly unload these increasingly risky mortgages onto someone else. Every step along the way, big commissions were being made. Unfortunately each step took the underlying risk and magnified it, while at the same time making the increasing risk less and less visible.

The result? The entire global financial system became an extremely leveraged house of cards, with risky mortgages forming the foundation.

To shift metaphors a bit, when the first domino fell (foreclosures and the drop in housing prices), Wall Street investment companies were the next domino in line. And there are a whole lot more dominoes starting to fall that were set in place by greed and lack of regulatory oversight. Insurance companies, pensions, entire countries, and much much more. We haven't seen the end of this.

Speaking of the end of this, here's an excellent (but lengthy) personal account of what was going on in Wall Street over the past decade. Titled "The End", it is authored by Michael Lewis, who worked for a while in Wall Street, and earlier wrote the book "Liars Poker".

When Bear Sterns and Lehman collapsed, putting thousands of investment analysts out of work, the photos I saw of them leaving their workplace for the last time seemed rather odd. They were mostly all smiling or at least not looking worried. Strange, for having suddenly just lost a very high paying job. But it turns out that a lot of them saw this coming a long time ago, and some even placed (and collected!) multi-million-dollar bets that the risky financial instruments they had created from mortgages would eventually take down the very companies they worked for. Not to mention, most of the global economy.

They knew. They knew...

(another really fascinating global meltdown scenario)

Leverage This

Those pesky Credit Default Swaps (CDS), which have turned a housing boom/bust cycle into a full blown global financial meltdown, are even worse than I thought.

It was 2 years ago, upon reading a lot about Wall Street's and insurance company's invention of CDS's, derivatives, their connection to the housing boom/mortgages, and their potential disastrous consequences, that I decided to move pretty much out of stocks. I was a year early, and missed out on some big gains, but also some big losses. It was one of my luckier market timing moves, and it almost makes up for all my typically terrible stock market timing moves earlier in life. I am VERY SLOWLY moving a little cash back into equities, but today I read this:

Unbelievably, CDS's were also set up to insure the debt of ENTIRE NATIONS.

This is not good. Not good at all. Talk about a domino effect... Goodbye to some insurance companies, goodbye to some sovereign nations' finances. Goodbye totally leveraged global financial house of cards. It was fun while it lasted.

The weather in Hood River, however, continues to be fantastic, fun, and lasting. Perfect for leveraging these warm days, cool nights, and great Fall colors into some great outdoor activities!

Babitz For Mayor

In an era where governmental fiscal responsibility is pretty much an oxymoron, there are some refreshing exceptions. Those exceptions exist largely because state and local laws require balanced budgets. But, as California's annual budgetary contortions demonstrate, there are plenty of ways to hide a deficit. "Kick the can down the road" politics at its best. Or worst.

Realistically, there's not a lot I can do to change global, federal or state fiscal irresponsibility, but I can act locally. And this year's City of Hood River mayoral race provides just such an opportunity.

City Councilman Arthur Babitz has thrown his hat into the mayor's race. After reading the position statements on his blog, he's got my vote. It's refreshing to have a candidate who has a specific, well thought out, and responsible fiscal plan, rather than the usual vague platitudes.

The Hood River Weather site's weekly poll asks how you will vote in this mayoral race. And if you aren't registered to vote in the real world yet, you have until Oct 14th in Oregon.

Now it's outside in the real world to enjoy this fantastic early Fall heat wave!

Indian Summer (Debatably)

The expression Indian Summer might not be all that politically correct anymore, but it sure is a great time of the year. Native Americans can be proud. Besides, what's not to like about a period of warm days and cool nights after the first frost, accelerating the changing colors of the deciduous trees and shrubs?

The debatable part refers to the fact that in Hood River City proper, this beautiful warm spell isn't technically an Indian Summer yet. At our weather station, we hit a low of 35 on Sept 23, and the official MCAREC station dipped to 33. But, temperatures at slightly higher elevations went below 32, and most likely put an end to the tomato, pepper, squash, and cucumber season at those locations. Close enough to an Indian Summer for me.

The average first frost date in Hood River is Oct 20. Last year, it held off until Oct 26. The year before, Oct 10th.

Speaking of debatable, how about that Presidential debate? Since neither candidate screwed up too badly, I suspect each side is convinced that its candidate clearly "won". What is clear is that there is a distinct difference in personality and viewpoints, and how future challenges will be perceived and acted upon.

What is not so clear to me is whether who wins the election will make much of a difference. Fiscal irresponsibility and bad decisions, past and present, have set our country on an economic course that is probably not reversible in time to avoid some historically huge icebergs ahead. And whoever is President over the next 4 years will have their hands tied as to their options.

Like most people, I vote for the candidate whose stand on the issues and approach to problem solving is most aligned with mine. I'm pretty independent; political party affiliation is way down on my list of things to consider, especially since I don't hardly even recognize Republican or Democratic actions anymore. Years ago the Republicans were the more fiscally responsible party (pre-Reagan), but that notion is long gone. Now it's borrow and spend. Or, if you prefer tax and spend, the Democrats will be happy to oblige. But how about "live within one's means"? How quaint of a notion is that?

At this point, I'll probably be voting for Obama. He lives more in the current and future world than McCain. He's younger, more flexible, more open to new data and approaches, not driven by religious dogma, and hopefully not so prone to solving future problems with yesterday's worn out solutions. Besides, it's time to let someone from a different party other than Republicans fail miserably over the next 4 years.

Good luck to whoever wins this election. They will definitely need it.

Autumn

Ahh, Autumn. The autumnal equinox, equal days and nights. The start of Fall here, the start of Spring down under. The sun moves directly over the equator at noon today on its annual path through the seasons from the Northern to the Southern hemisphere.

Of course, it's not the sun doing the actual moving through the seasons; it's Earth sailing smoothly along its elliptical orbit around the sun, tilted just enough to present different hemispheres to the sun at different times of the year.

Speaking of things that are not sailing smoothly along, I am so relieved that the federal government has stepped in to save the faltering world economy with untold trillions of dollars that we don't really have and never will. I was very concerned that Wall Street brokerages, SEC regulators, banks, mortgage companies, and mortgage holders might actually be held responsible for mistakes made. Whew. That was close. Saved by the printing press.

For now. In the long run (maybe not so long of a run), by bankrupting our country, we can kiss our currency goodbye. Thought you had enough money set aside for a secure retirement? Think again. And, if you can, keep working.

Now that I've set a dismal tone for the beginning of Fall, here's an old Edgar Winter song that, although beautifully written and sung, never fails to put me in a vaguely depressed and melancholy state of mind:



Actually, I do love the autumn months. It's a visually stunning time of the year, and the weather is varied and interesting.

And I'm not really depressed. I'm just a little pissed off at the amount of irresponsibility and incompetence that has created this financial mess. And the laissez-faire "everything goes if it benefits businesses" approach of the government didn't help things.

I'll get over it. This too shall pass...

Never Mind

I guess I spoke too soon in the previous post. With the Feds apparently about to step in and cushion the collapse of giant AIG insurance company with taxpayer dollars, all is now good with the stock market. There will probably be a big jump in stocks tomorrow.

So here's the current investing plan: When the Feds appear to be stepping in and helping support otherwise bankrupt companies, the stock market will soar. When the Feds appear to be holding back from such taxpayer support, the stock market will plummet.

This would be really exciting, if it weren't so damn depressing and potentially catastrophic.

There seems to be a fire somewhere up valley from here (here being May and Rand Street); the evening sun is turning orange from the smoke. Haven't seen anything on the news about it yet; hopefully no homes are in danger.

9/17 update: It's apprently the Gnarl Ridge fire on the east flank of Mt Hood, which was started by lightening in early August and has re-emerged.

Harvested some pumpkins this past weekend (mellowed by the currently orange sunlight):

Wall Street Takes A Hit

And not a moment too soon. One of the things I find interesting and try to keep current on is the economic structure of our civilization. I was getting a little tired of the US Federal Government stepping in with their ability to create electronic money out of thin air (more debt) and using it to rescue companies who really should be allowed to go bankrupt due to the companys' poor business decisions. It's called the principle of moral hazard. If you insulate companies and individuals from the consequences of their actions, it's not a good thing.

So today I felt something I haven't felt for a while: a sense of respect for the Feds. They held their ground. They didn't bail out Lehman Brothers. I don't expect that practice to continue, but it felt good today.

And such fiscally responsible actions are the morally right thing to do for future generations. They will be the ones wondering what were we thinking when we saddled them with unpayable mountains of debt that has the potential to destroy our currency through hyperinflation, or crash the economy into deflation. It's happened throughout history with other countries that were fiscally irresponsible, and we are not immune.

So, vote for the most fiscally responsible candidates! (Good luck figuring out who they are).

Enough ranting. Enjoy this wonderful late summer weather.

Just A Taste

Of Spring: Warm, sunny weather made a welcome (but too brief) visit this weekend. Friday's high at our weather station was 70, while yesterday's high hit 77. Today looks to be somewhere around 70 to 75, as cooler and wetter air returns tonight through next week.

This week's Hood River Weather poll question is specifically designed to make you crazy or at least irritated. Given the federal government's seeming inability to contain spending, is it better to match income to outgo (tax and spend), or to borrow against the national debt and let future generations deal with it (borrow and spend).

I deliberately left out more reasonable choices (like maybe control spending better?), since I just don't see the feds wanting or being able to do that any time soon.

I waver between the two bad choices, but lean more towards tax and spend. It seems a little more honest, at least as long as the level of taxing does not unduly strain people's and company's budgets. As a percentage of GDP (which is how deficit defenders typically justify national debt), total taxation in the US is way down on the list, 34th lowest out of 36 major countries.

On the other hand, I think most people prefer tax cuts and especially "free" rebates from the feds. There is something to be said for Keynesian economic theory that it is rightfully the government's job to stimulate the economy through deficit spending in times of economic slowdowns.

Unfortunately, the flip side of Keynesian theory is that the government should run a balanced budget or surplus the rest of the time. But that involves responsible balancing of taxing and spending and is no fun at all for politicians or their constituents (us).

The last time we even came close to having a balanced budget was during the Clinton presidency, where gridlock between the Democratic president and Republican congress helped keep the government from adding and expanding spending programs.

So maybe gridlock is the economic model we should be striving for? And what does that mean for the choices in the upcoming presidential election?