Monday, November 16, 2015

Vive la France!

France vector map I sympathize with the great nation and people of America's oldest ally -- FRANCE.    God bless you all.

Our President is mistaken about the national security challenges we face.  Unfortunately, he views each domestic problem through the lens of social justice or race while proclaiming evil abroad is "contained".   

As Divider-in-Chief Mr. Obama demonizes free enterprise, law enforcement, or just people holding views to the right of his own.   All the while, the national debt has grown more under his tenure than it has under all previous US presidents combined 

I'm counting the days until he leaves office.

Thursday, August 13, 2015

The real danger to our civil liberties

Destruction of evidence, failure to comply with Congressional subpoenas and giving false testimony before Congress, are impeachable offenses.  One thinks of Watergate which resulted in prison time for a few officials and forced the resignation of President Nixon.

Now I'm referring to the IRS scandal I first wrote about over two years ago ("IRS Plot Could Be Worse Than Watergate" June 9, 2013).  I'm surprised how little fallout has occurred since.

An article for interested readers to examine was published in the Wall Street Journal (WSJ) last month by two Congressmen, Messrs. DeSantis and Jordan.  Any reasonable person who still denies existence of a partisan scandal ought to read this article:

"The Stonewall at the Top of the IRS" -- July 28, 2015
by Congressman Ron DeSantis and Congressman Jim Jordan

(Also well-worth reading in WSJ: "How Congress Botched the IRS Probe" -- May 15, 2015 by Foley & Lardner attorney, Ms. Cleta Mitchell.)

To my Libertarian friends, I ask, where are you?  Last week, during the Republican Presidential debates, Sen. Rand Paul ranted about meta data collected to catch terrorists, but nary a word about this issue. 
IRS Commissioner John Koskinen
Official photo

The IRS scandal is more tangible than any federal surveillance problems we've seen, yet Sen. Paul prefers to slam the NSA without evidence of citizen abuse. 

Sunday, April 26, 2015

Spring has sprung!

While it's still too cool in Wisconsin to get excited about the weather, the morning sunlight streaming across my lawn is enough.  A week of travel on a sour stomach and poor weather in north Texas, makes me appreciate the moment all the more.

I recently discovered a quote by John Stossel that captured my attention.  I don't know much about Stossel, other than the fact he's a Libertarian.  I've seen a few of his topical reports on television and that's about it, but his pithy take on taxation made me smile...

"Politicians, bureaucrats and the people they 'rescue' get money through force — taxation.  Don't think taxation is force? Try not paying, and see what happens."

Wednesday, March 04, 2015

Private mortgage underwriting can benefit America

“Isn't this what got us in trouble in the first place?” 

That was the first reader comment following a CNN/Money web article concerning a recent shift by government sponsored entities (GSEs) who buy most mortgages from lenders, to accept down payments as low as 3%. The previous minimum was 5%.  In an era when banks are forced to hold more capital, the GSEs which became insolvent during the financial crisis and received one of the largest bailouts in American history, have cut the minimum down payment for home buyers.

This policy change enacted by the Federal Housing Finance Agency (FHFA) which regulates the GSEs and by extension, influences trillions of dollars in mortgage exposure to American taxpayers, is worrisome.  Defenders of the FHFA actions point out that the change still protects taxpayers by requiring private mortgage insurance (PMI) and it applies only to issuance of fixed rate loans. 

Fixed rate requirement
To be fair, fixed rate notes help borrowers to service their debt predictably, which in turn helps to manage taxpayer exposureMany will recall that waves of defaults occurred in 2007-2008 after in-over-their-heads borrowers experienced mortgage payment increases from adjustable rate loans that reset to higher interest rates.  

Private mortgage insurance requirement
The PMI component offers less comfort to critics.  PMI is by design reactive -- it kicks in after default.  President Obama recently directed the Federal Housing Authority (FHA) to decrease premiums it collects for FHA mortgage insurance. (The FHA is an agency of the federal government that insures private loans issued for new and existing homes).  Like the GSEs, the FHA mortgage insurance fund required a taxpayer-funded lifeline in 2013, after unprecedented default volumes.  The stated intention behind all of these moves is to lower the cost of a conventional mortgage for lower income home buyers. According to HUD, these lower mortgage insurance premium rates (alone) will add 250,000 new first-time home buyers. Should the goal be 2.5 million new first-time buyers?  Would that make the move more successful in the eyes of policy makers or their base?  

The debate, my take
We continue creation of potentially catastrophic bubbles inflated by some noble intentions and lots of ignoble politics.  I'm dismayed when I encounter people who still prefer to blame The Great Recession completely on the banks.  They completely ignore an indispensable factor -- federal government housing policy.  Without its unparalleled ability to encourage loans to anyone with a pulse, the housing crisis -- and subsequent financial paralysis -- could not have occurred.  There would not have been enough lousy loans to securitize.

Private sector alternatives
Private sector partnerships can help mitigate publicly-backstopped asset bubbles in the sub-prime housing markets.  Such programs, which are beginning to take hold in the Twin Cities and elsewhere around the country -- prove that public-private partnerships can work when funded by entities and accredited investors risking their own money.  

Such programs can help moderate the huge spigot of taxpayer-sponsored mortgage credit and mortgage insurance that the Left continues to embrace too fully.

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.