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)

Inside The Meltdown

This week, PBS aired a new episode of Frontline entitled "Inside The Meltdown", chronicling the financial and economic events of this past Fall, and the events that lead up to the meltdown.

A lot of people, myself included, had started to feel pretty concerned about the housing, credit, and stock market booms a couple of years ago, and figured something bad was going to come of all this at some point.

But I doubt that many of us who were concerned understood just how extremely over leveraged the global financial system had become, based on financial instruments such as Mortgage Backed Securities, Credit Default Swaps, and other mathematical derivatives that not even their creators fully understood. I know I didn't; I had heard of those things, and that they were potentially dangerous, but... bring down the whole world economy? I did a few blog posts on the subject last Fall as things were unfolding and I was trying to make some sense out of it.

If you missed the broadcast, it's available online. I recommend it highly, since the meltdown and the ongoing attempts to stabilize things (and the future consequences of these steps) will reverberate through the rest of our lives.

(Sorry to drag the economy into my blog again, but there's just not much happening in local weather, and I had to write something that was longer than one or two sentences, just for practice! Plus, it's a great Frontline show)

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!

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...

September Revisited

Better late than never. I've been a little distracted lately by the impending collapse of the entire global economic system. Now that world governments have stepped in to nationalize the financial system and somehow back the 50+ TRILLION dollars of Credit Default Swaps and the absolutely insane amounts of leverage in the system, all is well again. What was I thinking? I'll try to stay more focused on happy thoughts in the future.

Compared to historical averages, September in Hood River was warmer, less windy, and drier.

The average temperature was 2.2 degrees warmer than long term averages, but 0.2 degrees cooler than more recent averages (2000-2007). Wind speeds were considerably lower than average, with SSW winds predominating.

There were no official temperature or rainfall records set in September.

	High	Low	Average	Historical Average
Temperature (F)	91	34	62.7	60.5
Wind (mph)	30		2.7	3.5
Rainfall (in)	0.21		0.27 (total)	0.92