Saturday, January 17, 2015

"Crowd lending" as an investment?

You've probably heard of crowd funding web sites like Kickstarter that function as online forums for well wishers to support new business enterprises or community projects.  People fund these ventures because they believe a given solicitor's work has intellectual merit, serves some worthy ideal, or includes a compelling new technology.  Contributors do not receive any equity or financial return in exchange for their "investment".  

You might be less familiar with online forums created for "Debt Crowdfunding" which can indeed reward investors with a financial return on invested capital.  The concept itself is not exactly new.  The leader in this space is the Lending Club Corporation which was incorporated in 2007, trades on the NYSE under ticker LC and is registered with the SEC.  A competing company is called Prosper Funding LLC.  

Lending Club touts itself as "the world’s largest online marketplace connecting borrowers and investors" and it has made a palpable impact on the future of consumer lending (and probably commercial lending) by facilitating over $6.2B in loans since its platform launch, according to the company website.  If this business doesn't qualify as one with a "disruptive technology"; I don't know one that would.   

Individual or institutional investors that use Lending Club's exchange can invest in hundreds or even thousands of individual notes with consumer loan repayment periods of 36 months or 60 months -- or small business notes -- with loan repayment periods of 12 months to 60 months.  (The majority of consumer loans are issued for debt consolidation or to pay off credit card debt).  

Lending Club partners with WebBank who issues the loans and charges interest rates pegged to each borrower's credit profile.  Less credit worthy borrowers pay comparatively higher interest rates on loans.  Investors in these notes are compensated for the added risk of default, with comparatively higher ROI.  That transparency, or at least that built-in linkage between risk and reward, is one thing that attracted me to Lending Club.  Disclosure: I don't give investment advice, make paid endorsements or financial recommendations, but I've invested in Lending Club notes.

The investor web site is impressively simple to navigate with powerful views, charts and calculations.  One can see individual consolidated returns and returns for Lending Club investors, in the aggregate.  The site also gives investors an ability to see loan level detail (without personal identifiers of borrowers) and repayment performance on individual notes.  

As loans are paid back (some loans of course do not perform and get charged off with investors absorbing 100% of the loss) investor cash is credited, less a 1% management fee to Lending Club.  Investor cash -- which is the portion of one's Lending Club investment not committed to credit issuance -- is pooled in a trust account at Wells Fargo Bank.  Lending Club does not take custody of investor cash remitted to this account and investors can withdraw cash via ACH transfer to their own bank account at any time.  

Exiting an investment in notes prior to maturity is beyond the scope of this post and like any asset class, one ought not invest more than one is prepared to lose.  There's no guarantee on any of the notes or, of course, the solvency of Lending Club.  All said, crowd lending is an intriguing alternative investment, to explore with caution.  
Renaud Laplanche photo from Lending Club.

Finally, a word about Lending Club's founder, Renaud Laplanche.  Mr. Laplanche is a former practicing attorney with an MBA from the London Business School who turned himself into a software entrepreneur.  Last year he won the Innovation Award in the consumer products category from the Economist periodical.

Friday, December 26, 2014

Related to that Christmas Eve post...

There's a piece in today's Wall Street Journal called "The Fed's Needless Flirtation With Danger" in which Martin Feldstein writes that to stimulate demand, "Well-designed tax rules are a safe and effective alternative to quantitative easing".  Dr. Feldstein argues that we'd have been better served by stimulative tax policies that induce businesses to make new investments and help consumers consume, as opposed to so much QE.   

Unrelated to that X-mas Eve post...

I once saw an Economist on Squawk Box who insisted that nearly all of his peers (i.e. other PhD economists) -- collectively agree on all major policy prescriptions.  I
Nassim Taleb, Wikipedia
wish I could recall his name. 
He still strikes me as wishful.  In my opinion, the guy wanted everyone to believe that the discipline of economics actually breeds the kind of certainty found in the natural sciences.  

In any case, wouldn't a Krugman-Feldstein debate or a Taleb-Krugman debate be an interesting spectacle?  I'd settle for a Twitter smack-down.
Paul Krugman, Wikipedia

I miss the old TV debates that featured thought leaders at opposite ends of a policy spectrum, hashing out their differences on politics and economics.  My favorite debater remains the late William F. Buckley.*
*Amazon Prime members can access some of WFB's old Firing Line debates -- free.
WFB, Wikipedia

Wednesday, December 24, 2014

Holiday cheers for the American consumer

Have you read about the recent boost in U.S. consumer spending?  Of course you have and you know it is widely attributed -- at least in part -- to a steep drop in energy prices, particularly a drop in gasoline prices. clip art
This development is often described by the financial press as a tax cut because the dollar benefit accrues to the consumer in much the same way a tax cut does.  That is, by paying less at the pump, we automatically keep more of what we earn.  I wonder how Keynesian-devotees and other Paul Krugman types (who routinely advocate for enormous government spending to stimulate demand), are reacting.  

It appears that putting money directly in the hands of taxpayers, also spurs consumption.  Shocking.

Tuesday, August 12, 2014

Summer notes on New York

I've taken business trips to New York since the Eighties and for me much remains unchanged -- both good and not-so-good. 
Times Square street performer
John Maddente photo

Thousands of taxi cabs now co-exist with new and superior competitors like Uber and Lyft, but the ride through decrepit parts of Queens to or from LaGuardia airport, is still dreary.  

The Times Square area remains a crowded kaleidoscope of sounds, sights and smells that probably began to lose charm in the Seventies.  Unkempt oddballs mill around a neon backdrop of seedy shops and streets that cry for updates, or at least a protracted power wash. 

On the other hand, I'm still captivated by the view looking southward down Park Avenue that terminates at the Met Life Building and Grand Central Terminal, or looking northward down Park Avenue from the other side of these buildings. 

Central Park remains a rolling, twisting, verdant place of tranquility.  In Lower Manhattan ("Downtown") adjacent to the monolithic New York Stock Exchange, a timeless and magnificent statue of George Washington still looks on above the steps of Federal Hall where General Washington took his oath to become President.

I could go on about the gems of old New York, but have a look at the gleaming new Freedom Tower!  It is one of the most breathtaking buildings I've seen.  This structure with its inspired shape, beautiful blue color and sheer enormity -- soars over the somber space where the World Trade Center Towers stood. 

Freedom Tower
John Maddente photo

Sunday, March 23, 2014

Political slander and class warfare

As a boy, I once scraped together enough money to buy a hamburger.  I walked to a diner, sat down at a table and waited.  I watched waitresses serving customers around me and after a long period, I caught the attention of one waitress.  I asked if someone could take my order.  She replied that another waitress had seen me steal a tip and that's why none of them would wait on me.  The charge was bogus.  I had taken nothing.  I protested my innocence and left the diner with emotions recalled decades later as I write these words.

If one is going to accuse another of being a thief, one must be able to back up the accusation or there ought to be consequences for the accuser.  In politics, slander (or libel) is all too common and often goes unchecked. 
freepik image

Unfortunately, class warfare -- which is a the Excalibur sword of political slanderers -- can work as long as one advocates on behalf of a populist cause.  Yes, one can without evidence, accuse another of depraved motives like voter suppression or racism and get away with it.  It's grossly unfair and the smears often go unpunished, because too many people just shrug it off.  Want examples?   

Remember when Sen. Harry Reid likened the GOP to slavery sympathizers because he couldn't handle Obamacare criticisms?  (See my Examiner column published here).  His disgraceful words are largely forgotten.  

How about Vice President Joe Biden's gem on the campaign trail, telling African-American voters that Republicans are "...going to put y'all back in chains."  Pundits dismissed the remark as one more bone-headed comment by Biden, then Romney got crucified for citing an accurate statistic about the extent of government transfer payments.  Again, Romney's utterance wasn't populist, so the opposition could paint him as heartless while Biden walked away unscathed.

Two subjects frequently serve as tinder for this sort of thing: welfare and voting.   Political slander often occurs after Conservatives disclose ideas to reform the welfare state (Leftist character assassins will holler racism).  Advocates to reduce voter fraud often attract a full scale tar job, replete with charges of "voter suppression" (again, racism). 

freepik image
So, what if political slander happens to you?  Expose your character assassins and fight with facts -- but fight no less.  If you have a better remedy; please let me know.

Monday, September 02, 2013

Fast food and class warfare

CAUTION: The fast food wage debate is heating up. Get too close and you could get burned.  Consider recent actions against McDonald's undertaken by labor unions and community organizers and then...
Big Mac
Wikipedia image
read Al Lewis' column, ("Let Them Eat Burgers" September 1, 2013).  Lewis concludes a super-sized minimum wage increase is justified on the basis of a single data point (average age of minimum wage workers has increased) and a weak comparison to an Australian business model.  

Mr. Lewis' account of a recent protest demonstration reminds me of the danger I've been talking about since 2008.  Here's the story...

A mob is demanding a doubling of the minimum wage to $15 an hour, in front of a Denver-area McDonald's which had to shut down because of the ruckus.  Lewis interviews a man working at McDonald's (albeit a different McDonald's) -- twenty-six year old Dakota Bosma, who had this to say about his employer, 

"They'd rather line their own pockets, than take care of us." 

According to the Bureau of Labor Statistics (BLS), there are over four million workers employed at fast food establishments in the U.S. and half work part time. Turnover is high and this job pool is expected to narrow as new technologies become cost efficient alternatives to tasks currently performed by humans.

The education level required to perform most of these jobs is less than a high-school education.  Such jobs were not conceived as self-sustaining careers.  They are low skilled, temporary jobs for which the market pays a correspondingly low wage.  Nothing wrong with the work of course -- most of us have performed such jobs -- and I take Lewis' point that if the average age of minimum wage workers is increasing, it says something troubling about the employment picture.  I never said that no increase is warranted.  So far, we're fine.

However, does McDonald’s have a primary responsibility to "take care of us" or satisfy their customers, franchisees and shareholders?  What are the larger implications to our system if a corporation like McDonald's is pressured to transform itself from a great American business into a social safety net that also sells burgers?

What motivates these protests?  Is it a feeling that one has no choice?  What disturbs me most is the implication that employees are "owed" more by McDonald's.  Most McDonald's restaurants are not even owned by McDonald's Corporation -- they are franchised to individuals or small businesses that pay royalties and franchise fees to McDonald's. This fact might not matter to Mr. Bosma who added,

"The corporation makes billions of dollars every year -- they can afford to pay us $15".

Piling on, Mr. Lewis writes, "Companies have paid the lowest wages they could, for as many years as they could" but he fails to acknowledge that unions sought higher wages and benefits with limited productivity requirements.  It's called negotiation.

Microsoft Clip Art

Sunday, June 09, 2013

IRS Plot Could Be Worse Than Watergate

These days, some want to dismiss charges of government abuse as conservative cynicism but 40 years ago during Watergate, Dems made similar charges stick because there was criminal behavior in the federal government.  Although we don't yet know where the IRS plot began and who knew about it before the election, comparison between the two scandals was inevitable.

In the early 1970s, the abuse targeted high level political enemies of President Nixon.  This time, it's hundreds of ordinary citizens who were targeted by the IRS.  They happen to disagree with the direction of our country.

Some Pols are trying to tamp down the significance of what could become one of the saddest chapters in American politics.  George Will made this observation in the Washington Post (May 13, "In IRS Scandal, Echoes of Watergate"),
"Jay Carney, ... calls the IRS’s behavior “inappropriate.” No, using the salad fork for the entree is inappropriate. Using the Internal Revenue Service for political purposes is a criminal offense."
We also witnessed the former IRS Commissioner, Steven Miller, characterize the agency actions by using the word "mistakes."  Borrowing Mr. Will's style, I'd say, no, a mistake is purchasing too much mulch.  Using the power of the IRS to suppress political dissent is a criminal offense.  People go to prison for less -- ask Martha Stewart.

Ms. Lois Lerner, IRS director of tax-exempt organizations, took the Fifth before testifying but not before she exclaimed that she had done nothing wrong.  Really?
Even some Democrats like Senator Claire McCaskill (D-Missouri) are upset.  Ms. McCaskill said,
"We should not only fire the head of the IRS, which has occurred, but we’ve got to go down the line and find every single person who had anything to do with this and make sure that they are removed from the IRS and the word goes out that this is unacceptable." 
We also need to learn who at the highest level of government knew about this despicable effort and when they knew it -- just as Howard Baker demanded to know in 1974 at the Watergate hearings.

Sunday, April 14, 2013

If only the truth could go viral

"Vote for me and you'll get free stuff!"
Microsoft Clip Art
This post by a Rabbi in Teaneck, NJ is a powerful reminder why America is in trouble.  I've added blue italics for points which I feel are spot on.

By Rabbi Steven Pruzansky
"The most charitable way of explaining the election results of 2012 is that Americans voted for the status quo - for the incumbent President and for a divided Congress. They must enjoy gridlock, partisanship, incompetence, economic stagnation and avoidance of responsibility.  And fewer people voted.
But as we awake from the nightmare, it is important to eschew the facile explanations for the Romney defeat that will prevail among the chattering classes. Romney did not lose because of the effects of Hurricane Sandy that devastated this area, nor did he lose because he ran a poor campaign, nor did he lose because the Republicans could have chosen better candidates, nor did he lose because Obama benefited from a slight uptick in the economy due to the business cycle.

Romney lost because he didn't get enough votes to win.  That might seem obvious, but not for the obvious reasons. Romney lost because the conservative virtues -
the traditional American virtues – of  liberty, hard work, free enterprise, private initiative and aspirations to moral greatness - no longer inspire or animate a majority of the electorate. 
The simplest reason why Romney lost was because it is impossible to compete against free stuff.

Every businessman knows this; that is why the "loss leader" or the giveaway is such a powerful marketing tool. Obama's America is one in which free stuff is given away: the adults among the 47,000,000 on food stamps clearly recognized for whom they should vote, and so they did, by the tens of millions; those who - courtesy of Obama - receive two full years of unemployment benefits (which, of course, both disincentivizes looking for work and also motivates people to work off the books while collecting their windfall) surely know for whom to vote.
The lure of free stuff is irresistible.

The defining moment of the whole campaign was the revelation of the secretly-recorded video in which Romney acknowledged the difficulty of winning an election in which "47% of the people" start off against him because they pay no taxes and just receive money - "free stuff" - from the government.

Almost half of the population has no skin in the game - they don't care about high taxes, promoting business, or creating jobs, nor do they care that the money for their free stuff is being borrowed from their children and from the Chinese.

They just want the free stuff that comes their way at someone else's expense. In the end, that 47% leaves very little margin for error for any Republican, and does not bode well for the future.

It is impossible to imagine a conservative candidate winning against such overwhelming odds. People do vote their pocketbooks. In essence, the people vote for a Congress who will not raise their taxes, and for a President who will give them free stuff, never mind who has to pay for it.
That engenders the second reason why Romney lost: the inescapable conclusion that the electorate is ignorant and uninformed. Indeed, it does not pay to be an informed voter, because most other voters - the clear majority – are unintelligent and easily swayed by emotion and raw populism. That is the indelicate way of saying that too many people vote with their hearts and not their heads. That is why Obama did not have to produce a second term agenda, or even defend his first-term record. He needed only to portray Mitt Romney as a rapacious capitalist who throws elderly women over a cliff, when he is not just snatching away their cancer medication, while starving the poor and cutting taxes for the rich.    

Obama could get away with saying that "Romney wants the rich to play by a different set of rules" - without ever defining what those different rules were; with saying that the "rich should pay their fair share" - without ever defining what a "fair share" is; with saying that Romney wants the poor, elderly and sick to "fend for themselves" - without even acknowledging that all these government programs are going bankrupt, their current insolvency only papered over by deficit spending.

Similarly, Obama (or his surrogates) could hint to blacks that a Romney victory would lead them back into chains and proclaim to women that their abortions and birth control would be taken away. He could appeal to Hispanics that Romney would have them all arrested and shipped to Mexico and unabashedly state that he will not enforce the current immigration laws. He could espouse the furtherance of the incestuous relationship between governments and unions - in which politicians ply the unions with public money, in exchange for which the unions provide the politicians with votes, in exchange for which the politicians provide more money and the unions provide more votes, etc., even though the money is gone.

Obama also knows that the electorate has changed - that whites will soon be a minority in America (they're already a minority in California) and that the new immigrants to the US are primarily from the Third World and do not share the traditional American values that attracted immigrants in the 19th and 20th centuries. It is a different world, and a different America. Obama is part of that different America, knows it, and knows how to tap into it. That is why he won.

Obama also proved again that negative advertising works, invective sells, and harsh personal attacks succeed. That Romney never engaged in such diatribes points to his essential goodness as a person; his "negative ads" were simple facts, never personal abuse - facts about high unemployment, lower take-home pay, a loss of American power and prestige abroad, a lack of leadership, etc. As a politician, though, Romney failed because he did not embrace the devil's bargain of making unsustainable promises.

It turned out that it was not possible for Romney and Ryan - people of substance, depth and ideas - to compete with the shallow populism and platitudes of their opponents. 
Obama mastered the politics of envy – of class warfare - never reaching out to Americans as such but to individual groups, and cobbling together a winning majority from these minority groups. If an Obama could not be defeated - with his record and his vision of America, in which free stuff seduces voters - it is hard to envision any change in the future.

The road to Hillary Clinton in 2016 and to a European-socialist economy - those very economies that are collapsing today in Europe - is paved.
Society is permeated with sloth, greed, envy and materialistic excess. It has lost its moorings and its moral foundations.. The takers outnumber the givers, and that will only increase in years to come.  The "Occupy" riots across this country in the last two years were mere dress rehearsals for what lies ahead - years of unrest sparked by the increasing discontent of the unsuccessful who want to seize the fruits and the bounty of the successful, and do not appreciate the slow pace of redistribution.
If this election proves one thing, it is that the Old America is gone. And, sad for the world, it is not coming back."

Sunday, February 24, 2013

The yoke of two Americas

It became clearer to me after President Obama’s re-election that we are two Americas.  Has our country been this divided since the Vietnam War, or perhaps the Civil War?  Mr. Obama captured fifty-one percent of the popular vote.  Is this voting share tantamount to a popular mandate? 

Last November, I expected more from voters in the Center.  I thought Romney would win due in part to the now infamous, You didn’t build that slip which I believe validated much of the Obama skepticism.  I believed there was no credible way to take such a gaffe out of context and that the ripple effects would devastate the President's campaign.  I was obviously quite wrong

Our car tires rolled on public pavement while we drove to work or university to build our careers and businesses. This example demonstrates how government and public works projects facilitate prosperity as much as the virtues of personal initiative and hard work.  Sadly, that view is precisely how one America thinks and behaves. 
Leaders of that America also practice a mix of scare tactics and class warfare to preserve immoral government spending levels.  They welcome tax increases like the 2% payroll hike on all taxable wages up to $113,700 which is dismissed as end of a tax "holiday" (as though it's a more welcome way to reduce one's take home pay). 

Yes, large scale public works projects had their place in the nation's growth and as our population grew, a corresponding increase in the size of the federal government occurred, but the other America doesn't believe our nation flourished due to the government's expansion.  Rather, we believe, it was limited government and freedom that enabled our growth and prosperity in the first place.  For this view, we are often called extremists.
My America remains convinced that one of the most perilous problems faced by our nation today is federal spending and that added taxation by any name or game, is only an enabler -- an anti-solution.  

My America welcomes the prospect of a meager $85 billion spending reduction from a government that spent over $3.5 trillion last year and yet Obama's faithful still protest.  We have a chit worth $85 billion. Now we’ll see who has courage to apply it. 
White House Fiscal Advisor?
Wikimedia Commons

Saturday, November 17, 2012

The historical cycle that rings true today

A friend* trying to console me after Mr. Obama's re-election, shared a timeless quote:

"Again and again after freedom has brought opportunity and some degree of plenty, the competent become selfish, luxury-loving and complacent, the incompetent and the unfortunate grow envious and covetous, and all three groups turn aside from the hard road of freedom to worship the Golden Calf of economic security.  The historical cycle seems to be: from bondage to spiritual faith; from spiritual faith to courage; from courage to liberty; from liberty to abundance; from abundance to selfishness; from selfishness to apathy; from apathy to dependency; and from dependency back to bondage once more."
These prophetic words came from the leader of a Pennsylvania cork company during a speech given back on March 18, 1943.  The speech was delivered by Henning Prentis.  Mr. Prentis also believed this:

"At the stage between apathy and dependency, men always turn in fear to economic and political panaceas." (Industrial Management in a Republic, p. 22.).  

"Economic and political panaceas" might be a more elegant way of referring to Santa Claus-like candidates, but the concept still rings true today.

*Thanks, Kevin.

Sunday, November 04, 2012

Defending Paul Ryan

Excerpts from my letter to the editors at the New York Times Magazine concerning a cover story on Paul Ryan in the October 21 issue, were published online November 1.  

Illustration by Jaime Hernandez
The excerpts also appear in today's print edition of the New York Times Magazine.

Friday, October 05, 2012

Ben Stein speaks about hypocrisy

I saw Mr. Stein speak in San Diego last June.  An interesting figure: part lawyer, part economist, part actor -- he's also quite funny at the stump.  His latest wisdom follows...

Ben Stein - SodaHead image
"Fathom the hypocrisy of a government
that requires every citizen to prove they
are insured. . . but not everyone must
prove they are a citizen."
Now add this, "Many of those who refuse,
or are unable, to prove they are citizens
will receive free insurance paid for by
those who are forced to buy insurance
because they are citizens."

Saturday, September 29, 2012

The Romney tax policy

Conceptually, it's not more regressive than what we have but it's being labeled as such by Obama supporters who conflate marginal tax rates with effective tax rates.

Lower marginal rates on a broader base of income is a step toward real tax reform.  Reduce the mountain of deductions, credits and incentives -- apply lower marginal rates to a greater aggregate of taxable income and in the process remain revenue neutral while simplifying the code.  What's wrong with that?

The problem for Obama's supporters is that remaining revenue neutral might help curb federal spending.  Fomenting class warfare is often an effective way to divert the conversation away from government spending.

(This is a CEO, not a Community Organizer)

Sunday, September 16, 2012

FORTUNE-ATE? Don't sulk, resist!

In his piece from the current issue of Fortune magazine, Geoff Colvin says the current environment is a "...nasty, insidious force that's undermining the native optimism that buoys up business people everywhere" and then admonishes readers with one word -- "Resist!"

I like it.  I liked another article in this issue about prospering in difficult days, by Ms. Mina Kimes who wrote about a manager for the MFS International Value Fund -- Mr. Barnaby Wiener. 

I'm not an investment adviser and I'm wary of many (most?) of them.  I largely stick to index funds, but Mr. Wiener's actively-managed fund according to Fortune, is one of the best in its class having outperformed 99% of its peers since 2002.  Impressive, but what surprised me was his bias toward risk aversion. 

Mr. Wiener believes "It's much more important to avoid losing money than it is to make money."  I agree.  He adds, "If you avoid the big losses, you make money almost by default."

It seems consistent with Warren Buffet's view, "The first rule of investing is don't lose money; the second rule is don't forget Rule No. 1."  Anyway, please read on...


Election year stakes and all I care to say today 
1. The presidential election is only 50 days away.
2.  It's the most important election of my conscious lifetime (in other words, since I was 26).
3.  We desperately need a CEO more than a Community Organizer with velvety speeches.
4.  Encourage everyone still on the fence to get out and vote for Mitt & Paul.
Wiki image by Gage Skidmore

Wikipedia, Ryan official portrait
5. Thanks!

Saturday, June 09, 2012 raison d'être

Raison d'être -- is French for "reason for existence" -- which is a pretty heady concept.  I'll define this blog's primary raison d'être for my five readers (I used to say six but I've annoyed one and possibly lost him).  Many of my posts center on fiscal responsibility.  That won't change.  I care more about it than the environment (yes, I wrote that), abortion rights (yeah, I just wrote that too) or any other cause célèbre (the french theme won't last, so keep reading) that others hold dear.
Fotosearch Image

So when I see a column I agree with as I did today in WSJ by Steven Malanga ("State Politicians and the Public Pension Cookie Jar") -- I share it and talk about it.  I hope in a small way, I'll add attention to the theft taking place to the detriment of taxpayers and their children.  The size and scope of the problem is staggering.

Mr. Malanga focuses on a part of the problem called defined benefit programs for public employees -- better known as public pensions.  I didn't understand how outlandish they are until some six years ago -- when a retired pediatric dentist of all people -- educated me.

I have similar misgivings about pension plans in the private sector, but I say less about them because shareholders choose where to invest their money.  If they can stomach outrageously high employee retirement and health care benefits -- that's their business.  Investors can, and do vote with their feet.  But taxpayers can't simply make a few clicks to sell their shares. So, that's my topic du jour (OK, that's it -- I promise). 

Fortunately, voters are beginning to wake up and support leaders like Governor Scott Walker and the fiscal reforms they sponsor to curb these budget busters.

By the way, someone asked why I haven't been posting much lately -- the answer is simple -- I've been busy working and trying to add to my defined contribution plan.

Governor Scott Walker / Wikipedia Image
Finally, I'll share another column also found in today's WSJ  by Peggy Noonan about Governor Scott Walker's resounding win this week, called "What's Changed After Wisconsin". 

Mr. Walker, you'll remember -- not recall -- was the first recipient of the MVP Award for public adherence to fiscal responsibility under adverse conditions. 

No word from the Governor's Office about his availability to accept the trophy, but that gives me time to find one.

Saturday, March 17, 2012

Thank you, Phil Gramm

Why don't more TV journalists address the ways that federal government actions and GSEs perverted our housing markets?

While watching Bloomberg TV last month, I witnessed former U.S. Senator Phil Gramm discuss the housing meltdown, as well as, his own work to deregulate the banks.  The interview lasts about eight and a half minutes, with the point behind this post examined in the last two and half minutes. 

Phil Gramm, Wikipedia
Mr. Gramm highlights "concerted government action and pressure on banks" to make sub prime loans and destructive decisions in Washington "to force feed housing" ownership.

The interviewer (predictably) insinuates that there were as many predatory lenders as borrowers. 

Gramm then asserted that for every sub prime borrower who truly got swindled, there were "one hundred" that exploited the system, i.e. predatory borrowers.  There's the debate, Mate.

I thought I coined the term, "predatory borrower" but I discovered that Mr. Gramm was using it before me, perhaps in response to Paul Krugman types blaming him for the housing meltdown instead of the Barney Frank types that forced irresponsible lending requirements on the banking industry.  Thus, millions of borrowers bought properties they couldn't afford.

If you don't have time for the whole interview, consider moving the needle to the six minute mark.

Saturday, February 04, 2012

My take on GOP presdential candidates

Ron Paul, Wikipedia
Ron Paul -- I remain conflicted about Ron Paul.  The reasons are simple and shared by a number of GOP voters.  Let's first look at the plus side.  I love the man on fiscal policy.  As he once described his zeal to cut federal spending, “I am absolutely convinced it is the only road to prosperity.”  So am I and I believe he means it.  On monetary policy -- Ron Paul is the gold standard (pun intended).

If not for the Tea Party, I'd have bolted from the Republican Party a few years ago because I wasn't seeing enough Republicans walk the fiscal talk that Rep. Paul walks every day.  Then I discovered Ron Paul.  When Ron Paul says he'd cut a trillion dollars in federal spending year one, he even tells you how he'd do it.  When he talks about The Fed's destructive, easy money policies -- he means it.  I admire his courage and consistency.  Unfortunately, Rep. Paul's foreign policy is "Blame America First."  It's dangerously naive to brand virtually all American foreign intervention as "nation building" and as Commander-in-Chief, Dr. Paul could become Dr. Disaster.  He's more worried about domestic TSA agents, than foreign enemies of this country.  He's obsessed with "rights" of enemy combatants (non Americans) in Guantanamo and dismisses the record of domestic security our existing policies (maintained by leaders in both parties) have engendered.  I also question his views on Israel.

I recall an attempt Mr. Paul made to appeal to people like me (Republicans that want to vote for him, but struggle to do so), when he highlighted the fact he had voted to use force after 9/11.  Hallelujah!  My fear is that a President Paul would wait for another 9/11 before acting.  Ignoring one's enemies has nothing to do with liberty. 

All said, people like me have significantly more in common with Paul supporters than with Democrats -- and probably always will.  I respect the ideological purity of most Libertarians -- their loyalty and unswerving respect for the Constitution.  My problem with many of them is three-fold: a) their all-hands-off judgement about containing evil and preserving national security, b) they fail to embrace political reality by running hopeless candidates which siphon GOP votes and c) too many spout the nonsense that there is no difference between Republicans and Democrats.

Newt Gingrich, Wikipedia
Newt Gingrich -- If you never took the opportunity to see Newt Gingrich speak in public, you really must make the time.  He's a rare breed of public speaker -- poised, colorful and he has an enviable command of American history and politics.  I've never seen him use notes.  He doesn't need them.  Speaker Gingrich also says dumb things at the worst possible moments.  His recent attacks on Romney's private equity group were reprehensible, desperate attempts to harm Romney which utterly failed.

Mr. Gingrich will not be the nominee of his party.            

Rick Santorum --
Rick Santorum, Wikipedia
A lot of Americans are getting their first taste of Rick Santorum.  He's been a part of the Washington landscape for a long time while managing to keep his nose clean and win respect from people who agree with him and scorn from those who don't.  Mr. Santorum will not be the nominee of his party either.  His character, social values and deeply-held convictions are the stuff that lands one a spot on Mount Rushmore, but we need a CEO in the Oval Office more than a role model for at-risk youths.  I'm also troubled by his explanation for a vote against the Commonwealth of Pennsylvania when it tried to become a Right To Work (RTW) state.  Mr. Santorum says he'd sign an executive order allowing all states to become RTW states. By the way, check out this site to learn more about RTW -- site.

Mitt Romney --
That brings us to Mr. Romney.  Words that come to mind are: urbane, wealthy, smart and energetic.  Of course, that's not enough to lead.  I hope Governor Romney's commitment to balanced budgets will remain as pure as Governor Scott Walker's performance here in Wisconsin. 

By the way, I'm now awarding an annual MVP Award for public adherence to fiscal responsibility under adverse conditions.  Mr. Walker earns the inaugural award -- hands down -- for his 2011 performance.  Taking a $3.6 billion dollar deficit to a $300 million dollar surplus, without raising taxes, against a Tsunami of cheap legislative stunts and vicious public union attacks, has re-defined courage and leadership in this state.

But back to Mitt.  There's much more to learn and discuss about Mitt Romney, of course, but for now I'll close with this thought: Mr. Romney will be the GOP nominee facing Barack Obama in November and if elected, he'll become an infinitely better President than his predecessor.

Friday, December 16, 2011

A book: All The Devils Are Here

Back in 2007 while waves of defaults occurred after sub-prime loans "reset" (an adjustable rate mortgage payment that increases after the interest rate increases) I asked one loan officer,  "Why did lenders write variable rate notes when they knew these borrowers had little or no capacity to make higher payments down the road?"

What I heard in reply was that risky as these credit bets were, if conventional, higher fixed-interest rates were used, the borrower could not have qualified for as much of a loan.   My reaction?  Exactly!

I'm reading a book by Bethany McLean and Joe Nocera - All The Devils Are Here - The Hidden Story Of The Financial Crisis (Portfolio/Penguin).  I'm learning more about the origin of sub-prime lending and the players behind it but I'm struck by a rhetorical question the authors pose in Chapter Six, concerning the line between predatory lending and what I have called predatory borrowing:

"But in the larger scheme of things, did it really matter who was at fault?"

Yes.  It matters now more than ever.  Attention to causality (i.e. fault) is important because sweeping policies are being hatched to curb systemic risks for the future.  If they get it wrong, we'll over-regulate mortgage originators -- possibly choking off  liquidity for many qualified, low income borrowers.  My biggest fear is that we'll fail to transfer liability from the American taxpayer to future borrowers-lenders-investors (where it belongs).

Saturday, December 10, 2011

A debate over a Kyle Bass interview

Cameron and I are jousting again. 
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This time the fodder is an hour-long interview with hedge fund manager, Kyle Bass which Cameron and I both viewed with great interest.  Taped last month, I encourage you to view it too.
Cameron writes,
John, I watched that video, thank you for forwarding it. It was very insightful. There were a lot of things that really popped out but one especially. Bass states that Washington has a spending problem, but in the same breath he states that the solution is simple. He states we need to raise revenues 2 1/2% and reduce expenses by 5%.   
Which is exactly what I wish Washington would do, but the Republicans stance against no new taxes and no compromise on that issue is hardly going to get that accomplished.”
My reply to Cameron...

Note that the spending reduction Mr. Bass calls for is two times the tax increase he calls for.  Perhaps that’s because giving (additional) revenue to the federal government is like tossing it in the ocean.  Politically, raising some taxes might be an expedient way to get a budget bill past the Dems in order to ultimately net a much larger reduction in spending, but we don’t raise taxes because it is morally appealing, or because we think it's a prudent way to help the disadvantaged.
I hope to visit Cameron while I'm in Texas during the holidays.  At this time, I'd also like to wish all six readers of this blog a Merry Christmas.
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Friday, November 25, 2011

Quick hits for combative times

Super committee fails - or did they?
So, across the board (1/2 defense, 1/2 non-defense) federal spending cuts of $1.2T will begin January, 2013 without any tax increases.  That's the plan, but there is plenty of time for Congress to derail what strikes some of us as a modicum of progress.  Thankfully, President Obama says he'll veto any bill that attempts to overturn the sequester.  Republicans or Dems who try to do it to protect whatever it is they purport to be protecting -- will do so at their own peril.  This is the 2012 issue to watch.

GOP nomination and a narrowing field
I felt many of the same hopeful moments and (ultimately) profound disappointments from Herman Cain's candidacy as I felt during the Sarah Palin VP run in 2008.  My view has less to do with Mr. Cain's alleged personal indiscretions than his performance on the campaign trail which has become as painful to watch as Ms. Palin's was during the 2008 election.  Mr. Cain: Though you are ideologically appealing and charming, you are not ready for prime time, Sir.  Please leave the race with dignity and promote fiscal conservatism -- in a new way.

Cameron weighs in on income redistribution
In May of 2010, I began an interesting exchange with my old pal Cameron
More recently Cameron sent me the CBO report that has garnered so much attention, "Trends in the Distribution of Household Income Between 1979 and 2007.  CBO says, "... the population with income in the lowest 20 percent (quintile) in 2007 was not necessarily the same population group in that category in 1979."  That point seems lost on some who believe this 20% is the exact same control group tracked during the period of study and thus the one still mired in poverty.  There always has been and always will be, a lowest quintile -- with changing occupants.  CBO also mentions that this lowest 20 percent quintile, actually experienced income "18 percent higher in 2007 than it had been in 1979."  This data point suggests that a rising tide has lifted their boats too, though admittedly, not to the same degree as boats in higher quintiles. 

OWS and that "evil" one percent
Debate centers on the top 1% of income earners where the share has increased dramatically in recent years.  Why?  Because if one looks at the income share by quintile, going back to the late 1960s, one sees that the share percentage of income earned by the top quintile has gone up (and down) in  percentages of total income between roughly 43 percent to 50 percent.  When I looked back further to the 1940s, the data for this quintile was still bouncing around in the mid 40s share percentage.  Thus, the share of total income going to the top quintile, hasn't changed much. 

We all look at the part of the statistical puzzle that supports our worldview.  Don't want to talk about who pays the income taxes?  Just talk about income.  Don't want to talk about higher living standards, or increased consumption by all Americans?  Just focus on the income.  Don't want to talk about anemic economic growth, growth in government employment levels, or "temporary" food and energy inflation?  You got it -- single out income disparity -- particularily that one percent group. 

What's also troubling, is the class envy and resentment bubbling over on the streets.  For additional perspective, check out David Malpass' article in the current issue of Forbes Magazine ("Class Warfare Hurts Growth").