How many TARPs?

I am tired of the TARP and I am frustrated to hear that many senators of this nation, including our own Gordon Smith (R), are trying to build a shanty town out of a once glorious nation. I strongly urge you to read about the bailouts that are being proposed and question how many 'TARPs' we can use to cover the nation before the rain starts dripping in.

Handing out money to big business is not the solution. Mistakes were made, and now debts are due. We all understand there are consequences for our action so why now are we looking for a way out? When it comes down to the individual or the corporation (which is treated as an individual by law) there should be no distinguishing who pays for their mistakes and who does not. If that means you lose a house due to poor decision, so be it. While it may be difficult to swallow on a personal level, I feel the same way on a broader scale.

When a car manufacturer produces inefficient sub-standard vehicles which inevitably become unpopular I do not feel like I an obligation to bail out said company. They never looked out for you me. There eyes were fixed on our wallets. Let them fail if the market no longer sustains them. Poor planning, lack of insight and disregard for fiscal discipline from the 'Big 3' is not my error.

Yes, they created jobs, but they are only a small piece of this economy. We have to look on a broader scale at the long term goals we have as a nation. There is no clear prospect for future prosperity in U.S. auto manufacturing. Instead betting on a proven loser (see Chrysler bailout 1979) we should put stock back in the individuals of this nation.

Now is the time for sound economic policy, which Bernanke and Paulson have failed to implement. I implore congress to consider a reduction in taxes. While it is costly, just as a bailout is in terms of increased U.S. debt, tax reduction is a proven tool to curb recessions. It is one of the few time proven tools.

Attached you will find more of my thoughts on this subject more contained more concisely in a letter to Gordon Smith. I urge you to contact your politicians as well. A cry from my single voice may seem futile, but there can be no change when everyone is silently dissenting.

Dear Senator Gordon Smith,

I disagree with your vote in favor of the Troubled Assets Relief Program. With a new bailout on the near horizon, I strongly urge you to oppose any bailout of the auto industry.

The auto industry has made significant lobbying efforts recently, which should not overshadow their poor long term viability and track record. There is no guarantee that a government handout will solve the struggling auto manufacturers’ problems. GM, Ford, and Chrysler are failing industries that need not be an additional financial burden on the citizens of this country. As we have seen, a bailout for Chrysler in the past was unable to ensure a successful future.

Market forces can, and will, work. The 'Big 3' auto manufacturers are not the top 3 any longer. There is a reason for this. For too long these companies have been patronized based on their location, in the U.S., while there products were inferior. I am not suggesting that automobile manufacturing in the U.S. will cease to exist; however, its presence may diminish until the proper leadership and discipline rekindles it's status. That task is not our responsibility.

Now is not the time to protect the unfit corporations riddled with complacency. It is time move forward and device relief efforts that will aid our economy from the ground up; not from the top down. Big business is inherently inefficient and many corporations have been caught with their pants down in recent months.

Taxpayers’ money should not be handed out to failing industries. Now is a time for decreased regulation and tax reduction. In the current economic climate, we know that cutting taxes is a sound course of action. This is a fundamental concept in economics. It has proven itself, over time, a viable tool to curb recessions. The TARP and proposed subsequent bailouts have no such track record.

Again, I urge a vote against any legislation that allocates taxpayers’ dollars to private industry, whether in the form of loans, grants, or handouts. No company or industry should be too big to fail. Without the reality of failure there is no reason to aspire to excellence.


Sincerely,

Jeremy Evans

The News

Today it occurred to me. I am happy about the recent turn in news coverage in this country. The economy has taken a good tumble and now Uncle Sam is getting ready to kick it while it is down. The catch is he will offer a hand up while he plans his next kick.

While I disagree with many about the correct course of action, I find economic policy fascinating. It was just a few short months ago when the media started to focus less on international issues (e.g. Iraq) and more on domestic issues (e.g. the U.S. economy). I am elated. Economics is interesting, impacting, and challenging. It as about time we focused more on our own problems at home rather than abroad. In fact, the financial crisis may even for an end to a war that has become a tedious, fruitless endeavor.

Personally, I support the do nothing approach. Let us allow the market to function. If the market collapses it will eventually rebuild at a cost to the investors who took the risk. Not me. I am not concerned about people who invested blindly. It is your money and there is risk where there is opportunity.

McCain May Privatize Fannie, Freddie; Obama Sees

Another example of slighlty better economic policy from McCain. I get tired of people complaining about Obama's lack of foregin policy. What about economic policy? Strong economic leadership is what this country needs.

John McCain and Barack Obama agree the Treasury needed to step in to rescue Fannie Mae and Freddie Mac. They disagree over how much the U.S. government should be involved in the housing market once the immediate crisis is past.

Republican Senator McCain of Arizona wants the government to take over the two agencies, split them up, and then exit the mortgage-finance business by selling them off. Democratic Senator Obama of Illinois is suggesting a more lasting federal involvement.

http://www.bloomberg.com/apps/news?pid=20601068&sid=a1ujoLiLLz78&refer=home

Discounting Costco to Wal-Mart Signals Surge on Sales

It is interesting that their has long been a relationship between Costco and Wal-Mart stock price movement. They are both discount retailers, so it makes sense. With Americans straped for cash and bleeding benjamins at the pump, it may be time to go to Wal-Mart and Costco and take stock in them as well.

If I wasn't buried in debt, I would purchase some Costco stock.

Sept. 3 (Bloomberg) -- Costco Wholesale Corp., the biggest U.S. warehouse club, may have its best holiday-shopping season since going public 23 years ago because most U.S. retailers are preparing to have their worst since 1979.

Over the next 12 months, that will change with the warehouse chain likely to outperform the world's largest retailer [Wal-Mart], gaining 27 percent to $85 a share, according to estimates by Edward Weller, a ThinkPanmure LLC analyst in San Francisco. A surge in the stock would follow an historical relationship between the two chains' shares, based on data compiled by Bloomberg. Costco lagged behind run-ups in Wal-Mart at least four times in the past four years before rallying to surpass it.

Costco's price-to-earnings ratio of 23 is ``low compared to where they've been historically,'' said Patricia Edwards, a portfolio manager at Wentworth Hauser & Violich in Seattle.

http://www.bloomberg.com/apps/news?pid=20601213&sid=a0AFVOR4NeYI&refer=home

Credit Card Bond Spreads Reach Record Over Benchmarks

Silly Americans, you cannot prosper while drowning in debt. Oh wait... there is always bankruptcy. Go ahead, spend away and let the investor eat the loss. They can spin it as write down and charge new borrowers a higher interest rate. Besides, you don't need good credit if everyone defaults at the same time. You credit score will still be relatively good.

I was taken back slightly as I read the following lines. Consumer debt is $2.59 trillion. That is about 1/3 of the national deficit. Without doing the calculation, I estimate that is roughly $10,ooo in debt for every man woman and child in this country. It would be interesting to find the per capita income and then derive the percentage of income paid out in interests each year. It kind of seems like share cropping all over again. History repeats itself in mysterious ways.


U.S. consumers borrowed more than twice as much as economists forecast in June. Consumer credit rose by $14.3 billion, the most since November, to $2.59 trillion, according to the Federal Reserve.

http://bloomberg.com/apps/news?pid=20601087&sid=a2qvrELyaqmA&refer=home

U.S. Manufacturing Contracting

Good news. Manufacturing in this country is now over the threshold and officially contracting again. Now we can all get moving towards a service based economy where there are a few super elite and the rest of us serve them for minimum wage and tips if we are lucky. It is just like slavery, but it will be legal. The future of this country looks bright.

http://www.bloomberg.com/apps/news?pid=20601068&sid=aZefCZbvH2lM&refer=home

Oil is Moving Down Again

The Price of oil is dropping again. Right now it is hovering around $107 a barrel or about $2.79 a gallon for gas at the wholesale level. Keep watching for the target of $80 a barrel. I think that is where it is headed; by market forces or government regulations.

http://www.bloomberg.com/apps/news?pid=20601087&sid=afYvxHexr7PY&refer=home

Our Phony Economy

Even though I am a junkie for economic theory and mathematics, this struck me as a refreshing depiction of our economy today.

The article excerpt and link are far below (look for italics). The following is just my rambling.

In my opinion, we have been riding a bubble of sorts. While I avoid branded items, most unnecessary expenses, and popular culture I realize that most of America thinks I am weird. To them, and you, I say thank you. You have fueled an economic bubble that has made it easier for me to live on the cheap. While you are stuffing your face with McDonald's, wearing Abercrombie & Fitch, and maxing out your MasterCard--I am stacking my cash and frequenting thrift stores. My salary is in line with yours, but I am not in line with you at Starbucks. I am winning, for now.

I long wondered how you afforded to consume so many products. The numbers didn't seem to add up, and now I know they truly do not. You are addicted to products. In order to get products you need money. Hmm.. this sounds like a drug. And your dealer is the credit industry. Unfortunately your dealer seems to be cutting your supply after years of endless offers.

Putting it all together, I am taking some of the blame off of the financial sector for the economics problems we currently see. Let us give some blame back to the people who failed to read their financial contracts and devise repayment plans and strategies. We do not fault casinos for playing unfairly. Why is it we think banks and lenders are supposed to do us favors? They are all in the business of making money.


By the standard of the GDP, the worst families in America are those that actually function as families–that cook their own meals, take walks after dinner, and talk together instead of just farming the kids out to the commercial culture. Cooking at home, talking with kids, walking instead of driving, involve less expenditure of money than do their commercial counterparts. Solid marriages involve less expenditure for counseling and divorce. Thus they are threats to the economy as portrayed in the GDP. By that standard, the best kids are the ones who eat the most junk food and exercise the least, because they will run up the biggest medical bills for obesity and diabetes.

http://harpers.org/archive/2008/06/0082042

Crying About Credit

While I believe the credit industry is underhanded, I have little sympathy for the victims. However, I do suggest watching the documentary Maxed Out: Hard Times, Easy Credit and the Era of Predatory Lenders (2006). From the article, Banks Warn Credit Card Legislation May Hurt, Not Help Consumers, I found one statement at the end profound and rudimentary.

``I've since decided to simply use cash and only use a credit card as a last resort,'' Chan said.

But, didn’t we already know that credit cards should be a last resort? Once again, I suggest we all move to strictly using cash on hand. Aside from the obvious individual costs, this current macroeconomic crisis–which is impacting us as a whole–is born out of the financial lending markets. These markets should serve a niche market or cease to exist at all, in my opinion. Unfortunately, citizens in want of immediate gratification–the majority of Americans–keep begging for more credit at almost any cost. This near inelastic relationship has opened the door for extortion and victimization. Instead of waiting for the government to create legislation to protect the stupid–most of us at this point–let's all stop buying the overpriced name brand clothing, purchasing large quantities of gasoline, and dining out with our plastic. Oh wait, did I just lose you? I think you misunderstood. I didn't say you shouldn't spend money on those items; that is your business, not mine. My point is at the tail of the sentence. Protect your own financial interests already. Lose the plastic.

Nobel Winners Expect Crisis to Further Weaken Growth

If you haven't heard of Scholes then look him up. He is particularly known for his work in developing the Black-Scholes PDE for valuation of derivative equities. You know, it’s the he model that was applied to Long Term Capital Management's bond arbitrage scheme. While LTCM did not manage to stay solvent, the ideas leveraged from the Black-Scholes PDE were critical to the excellent performance which spanned several years. Then, the Russian government defaulted on their bonds and undermined previous assumptions that large countries' governments do not default. This fueled a mass exodus from foreign currency investment which led to the demise of an overly leverage company known as LTCM. It is a great story with full of brilliant investor and mathematicians who got too greedy at just the wrong time. But, I digress.

My point being, Scholes has a crisp understanding of the way the financial sector in America, and around the world, got far too "innovative." The turmoil sprung from sub-prime mortgages packaged as investment products-in the form of derivatives-is right up his alley mathematically. So, this week there was a conference for self important and likely wealthy people. They all gathered to listen to significantly distinguished scholars disperse their insights and predictions about the economy. Some blame Greenspan for letting the growth fire rage out of control, but that is another discussion altogether. The recession is here. If it hasn't arrived it will be coming to a town near your soon. In fact you may already feel it at the pump and in the driveway; if you still own one. You and I can see it. Our president and some in the media deny it, but we are all feeling the impact of a recession. Anyway, it doesn't take a Nobel laureate to figure out the worldwide economy is going to suffer, but he is correct.




``There will be a global recession,'' Scholes said in an interview today at a conference in Lindau, Germany, featuring 14 Nobel laureates in economics. Stiglitz forecast the world economy would continue to perform below its potential for some time, resulting in a ``social loss'' through weaker employment.

http://www.bloomberg.com/apps/news?pid=20601087&sid=ap.AW9Y5rJ_A&refer=home