The Everyman Economist

Although the Everyman has been experiencing problems in the housing market for more than a year now, the situation isn’t getting any better and is destined to get worse. Foreclosures have been rising steadily and will likely continue to rise for at least another year. The subprime mortgage problems have spilled over into the plain vanilla market for common mortgages and homeowners are feeling far too much pain. The days of small down payments are gone for new home buyers, as it takes at least 20% down to buy a house in today’s extraordinarily tight credit market. The government is finally trying to ease an unbearable burden on the Everyman, but it is yet another example of management by crisis that is far too little and far too late. If not for the upcoming election, Congress would probably be doing nothing at all.

So where do we go from here? If you’re a homeowner and capabale of staying put, by all means do so. If times are too tough to handle, the government is offering some welcome relief, so contact your lender and get started on a path to financial repair. And if you’re looking to buy a home, you may not be close to the bottom of the market cycle, but with prices already down dramatically in most parts of the US, it doesn’t hurt to start looking. Some of the most aggressive sellers are the banks who have foreclosed on customers and that is where you may find your best opportunities.

This is not a pretty picture, but time heals all wounds and we will come through this period. In the meantime, it is imporatnt to be be proactive with your personal situation.         
 

Who won the popular vote in 2000 over George W. Bush? Al Gore. Who won the 2007 Nobel Peace Prize? Al Gore. Who won a best documentary Oscar in 2008 for “An Inconvenient Truth.” Al Gore. Who is currently the most popular Democrat in America and the most repected American politician throughout the world? Al Gore. And who can beat John McCain in November to become the next President of the United States? Yes, Al Gore.

Let Obama and Clinton continue their slugfest and guarantee that neither will pull enough delegates on the first ballot to win the nomination. Then do the best thing for the Democrat party and the 2008 Presidential election and nominate Al Gore on the second ballot as the party’s favorite son. Al will bring the party together, make everyone forget the months of in-fighting and start a fresh new campaign. What goes around comes around and it’s time the Everyman got the best person for the job and that’s Al Gore.

While Everyman has been led to believe that the #1 issue on the 2008 political agenda is ”the Economy, stupid” (shades of James Carville), the real culprit continues to fly just under the radar screen - OIL. Of course we all know that the price of Oil has been rising faster than a speeding bullet and that we’re paying more at the pump than ever before, but what we don’t appear to realize is that Oil is currently behind every major problem that confronts us. From the economy to inflation to a sinking dollar to global warming to terrorism to Iraq to China and so on, Oil is the spoon that stirs the pot.

Since the early 1970’s when we sat in our cars on alternate Tuesdays and Thursdays and lined up for gasoline, our leaders have done nothing more than pay lip service to this growing burden. And for more than 35 years, nothing has changed. Now, Obama wants to spend $150 billion dollars over the next 10 years and Hillary and McCain want to set up another commission. But nobody wants to take this issue on as the emergency crisis it is NOW! Until we find a way to abandon Oil and move to alternate sources of energy, we will be plagued by these same problems in one form or another and worse, we will be beholden to the countries that are not our friends and that will hold us hostage in the global economy. If we truly want to save ourselves from repeated disasters, it’s time to go to war and the enemy is Oil. Let’s spend whatever it takes to put our Public Enemy #1 in the garbage bin of history. We will solve countless problems, we will create millions of new jobs, we will clean the air we breathe and we will free ourselves of the shackles of dictators and despots. This is America and what we want to do, we can do, so let’s get it on. Abandon the OIL and Save the World!

This exciting political season is rife with predictions. But the most exciting thing about ”Politics 2008″ is just how wrong the oracles have been. They buried John McCain and Hillary Clinton, only to see them rise from the ashes. They assured us of the outcomes in Iowa and New Hampshire, and the outcomes were not exactly as predicted. And they reacted as if the sky was falling with “100 years in Iraq,” “Phone Calls at 3:00 AM,” “Wright was Wrong,” and “Snipers in Bosnia.” So with all that said, I’d like to jump into the fray.

Like my fellow Everyman, I too see the Democrats working hard to snatch defeat from the jaws of victory. Predictions abound about the destruction of the party and a tumultuous convention. I watch the same TV and read the same articles but I’m not so sure I reach the same conclusion. You see the Everyman electorate is usually focused on the “here and now.” And right now we are awfully far from the real “here and now.” That will take place when only 2 candidates are left standing and the Obama/Clinton feud is behind us. Only then will we know who we want and why we want him or her. In the meantime, however, the Democrat Family Feud may result in a very interesting scenario. At the moment, the big gun among the Democrats is also the quietest and his name is Al Gore. Al hasn’t backed either candidate, although he appears to have closer ties to Obama. But Al lurks in the background. My suspicion is that Al will come out of hiding if one of the two  main candidates becomes the clear victor. If not, Al will be at the convention as a “super-delegate” and he could make an exceptional compromise choice to replace both Barack and Hillary and bring the party together. It’s not a predictable event, but if the chips fall where they may, and the contest does not produce a decisive winner, Al Becomes a very realistic alternative. Wouldn’t that make what’s already a hot political season a real scortcher?        

Apparently the President of the United States is always the last to know. While the Everyman has been stranded in an economic wasteland, the President has been telling him that things aren’t that bad. Finally, last Friday, the President admitted that “the economy is going through a tough time.” Ya think? Is this the most out of touch leader we’ve EVER had, or simply the most out of touch for the past 2 generations? And now that the Prez is on board, the “B” word is front and center, or at least on Wall St. What we need now is a similar Bailout for Main St.

Bailout is not a dirty word. It is simply a mechanism that the US government employs to prevent a meltdown of the financial system. The government has stepped in numerous times since the Great Depression with one form of Bailout or another to avert such potential catastrophes. However, it is up to the judgment of the powers that be to determine if and when a Bailout is necessary. Chrysler and certain Savings and Loan institutions are recent examples, and the results were beneficial at the time. Similarly, the Bailout of Bear Stearns is beneficial to the entire financial system. It is important to note, by the way, that when a company sells for $2 per share after trading at 30 times that price only one week earlier, it is hardly a Bailout. I’d say it’s more like a fire sale. Nevertheless, if it’s good for the Bear, it’s good for the Everyman.

The President needs to stop hiding behind the slogans about small government being better than big government and get to the heart of the biggest problem that has plagued this country for the last 75 years. We can’t afford to wait 9 months for a new president and “emergency” measures. The emergency is upon us and it’s now time to come up with a plan to ease the burden on the financial system. And it’s pretty easy to do. Just create a new federal agency that will do the following: (1) buy up the loans that would result in foreclosures (2) freeze the lower rates for those homeowners who elect to be in the plan (3) establish a fixed target price for each home based on current appraisals (4) remove the downside risk for any homeowner in the plan, unless he chooses to sell and incur a loss (5) remove the upside gains from the fixed target price so that future increases in home prices would benefit the federal agency, not the homeowner. These actions would immediately stabilize a seriously deteriorating housing environment, while dramatically reducing foreclosures, but would also remove both the losses and gains for those homeowners that sign on to the plan. The plan would be optional and would still permit free market forces to work their way through the housing crisis, but likely with a softer landing. Some form of housing related Bailout is now critical to the health of the nation’s financial system and the time to act is NOW! If it’s good for the Bear, it’s essential for the Everyman.     

I’m not big on judging others for their weaknesses or misdeeds. I think we should leave all that to forces bigger than all of us. However, when someone lives a life in the public eye and makes his living by holding Everyman up to close scrutiny, that’s a whole different ballgame. Governor Eliot Spitzer of New York is just such a man. After reigning supreme as Attorney General in New York and sqeezing the life out of every possible misstep by corporations and individuals alike, Governor Spitzer has left himself no margin for error. And when the error is as absurd as his current plight…Spitzer MUST GO! How dare he defile the public trust when all along he built that trust on the backs of anyone who dared cross him and his self-righteousness. Apparently those beliefs did not cross over into his own life, where his judgement and actions are far from righteous. It is a remarkable story to watch unfold, but the end is very simple. Spitzer MUST GO and he MUST GO SOON! The hypocrisy is frightening and we should all feel bamboozled by this smaller than life Everyman.      

It’s time to start thinking “outside the box.” We live in a country where the most popular gift is a gift card and the time has come to use this important tool to stimulate the economy. We all know that the new stimulus package is designed to get us to spend the checks we receive on real goods, even if I personally believe that the money should be used to pay off debt. But if we’re destined to follow the government’s leadership and spend on “stuff,” let them at least send us all gift cards instead of checks. The gift cards should have an expiration date in the not too distant future, which would assure that the economy gets an immediate stimulus. Since people use gift cards to buy things, they are almost certainly not going to use the cards to pay off debt, which is music to the government’s ears. And as added bonuses, we get 2 more benefits. First, studies show that when people use gift cards, they often spend a lot more than the value of the card and that would cause a mulitplier effect for the economy. And second, the banks that issue these cards on behalf of the US government would be assisted in this troublesome period of their lives. So in the final analysis, if it’s right to give Everyman money to spend, gift cards are the way to go. And for additional emphasis, our sister company - www.coinland.com - will contribute $5 to Uncle Sam for every $100 Gift Card used to buy US coins and coin supplies on its website. If we can enlist more US companies to do the same, there would be a siginificant partnership between the US government and the private sector in an effort to boost the economy. So let’s start using the proven tools that work best and we will all help bring prosperity back to the Everyman.

Let me preface this entry with the contention that I am neither a Republican nor Democrat and I have no axe to grind. My only political interest is in the ability of our leaders to serve the people. In that regard, I am a loyal Everyman in the Realist party. That’s the party comprised of like-minded Everymen who believe that reality rules over dogma and that life events can cause mind altering change.

Pick an issue - the economy, Iraq, illegal immigration, social security, etc. Now who among us believes that any of these issues remain stagnant and that the opinions we had on any of the above in 2001 are exactly the same in 2008? If YOU do, then the Republican or Democrat parties welcome you as a non-flip-flopper. But if you’re like me, then welcome to the Realist party where the technology boom and the housing bust are different breeds of economic conditions, where WMD now stands for “wild men doomed,” where illegal immigrants are not only our factory workers but our housekeepers as well, and where the social security lock-box is now a Nobel Peace Prize.

In 2004, the Republicans spent oodles of money telling us that John Kerry was a flip-flopper, punishable by political death.  In 2008, you can be sure that they will spend even more money reminding us of Hillary’s failed health care initiatives in 1994. But in 2008 there’s no problem with Mitt the Flip, Huck the Unstuck or Mac the Retract. All of their opinions “changed” and in case you haven’t heard, change is ”IN” this year. Now this is all very fine and dandy, but it’s also a whole lot of nonsense. In the Everyman’s world, things happen and opinions change and if we don’t adapt to the turning tides, we are doomed to be washed out to sea. So let’s start giving our elected brethren the room they need to represent us. If we’re ever going to have a government that is “by the people and for the people” then we need more Everyman leaders in the Realist party. We may like leaders that have the strength of their convictions, but we must also have leaders with enough intelligence to change direction when there’s an oncoming train heading straight for them.  

How good does Everyman feel when he opens his mail and finds a check for hundreds of dollars, no strings attached? Pretty darn good I imagine and that’s what the Bush stimulus plan is really all about. It’s a feel good plan that will stimulate Everyman’s mind, so that he does not sink into an economic depression and help make a poor economy that much worse. Will it work? To some extent yes, but it certainly won’t fix all of our economic woes.

The government wants Everyman to spend his windfall on something, but don’t you dare pay off any debt. Instead, Uncle Sam wants you to buy American products, which is certainly a noble idea, but very hard to execute. Go into any store and try to find American products. Good luck! Most everything these days comes from another country, so any purchases you make will ultimately be funded outside of the USA. Right now China is our biggest benefactor, which is why we have the largest trade deficit in the history of Everymankind with our Asian neighbor. It’s all a never ending circle without any plan attached and that is exactly what’s at the heart of our economic problems. Show me a man or woman now running for President with a plan to reduce our dependence on foreign goods and currency and I’ll show you Ron Paul. Now maybe his plan is rather extreme, but it’s a plan nonetheless and we have to give him credit for that. He’s thinking like an Everyman with a problem, and he’s actually looking for a solution. Wow!

So enjoy your stimulus checks and please consider paying off some debt. It’s the only real way we can bring health back to our economy and we need to show the White House how it’s done. It’s about time for the Everyman to lead the way.

Who’s kidding who? Are we really to believe that a 31 year old Everyman trader with roots in the back office of the second largest bank in France is a ”rogue” culprit in a $7.1 billion trading loss?

Having traded myself for more than 25 years and having been in charge of hundreds of traders and their activities in both a British and French bank, I can tell you with authority that if the above is true, there aren’t enough people you can terminate for incompetence. And if the above isn’t true, terminations should be accompanied by prosecutions.

For starters, there has been overwhelming scrutiny over the past few years related to risk management at all financial institutions. A trader can hardly breathe without someone questioning the source of his oxygen. But apparently at one French bank, one lonely Everyman was able to put together a patchwork of transactions that quietly hid his journey into infamy. Furthermore, anyone who has ever traded in the financial markets will tell you that a $7.1 billion loss is just plain inconceivable. Some of the best traders in the history of Wall St folklore were known to have made or lost in the hundreds of millions on a specific trading move. I can think of only one trader, perhaps the best ever, who bet against the British Pound and profited by something more than $1 billion. But to lose more than $7 billion on a single trading foray is beyond human comprehension. And to have it go undiscovered is an absurdity wrapped in baloney.

No financial institution anywhere on our planet should be allowed to escape such lunacy. From the heirarchy on down, any person who is in some way responsible for the institution’s management of risk and/or trading activities, should be sent packing. There is no other way to convey the simple message in this type of debacle that it will NEVER happen again. The consequences must be consistent with the deed and that requires a housecleaning of historic proportions. If we were all French Everymen, we should demand no less.