Dollars & Nonsense

Everyone has an opinion--especially on the California state budget. Think you know what cuts and/or tax increases should apply to resolve the ~$23 billion deficit we face? Alright smarty pants, here's your opportunity. Take a crack at it by following the link provided by the LA Times.

Once your done, you can copy the link and paste it in the comments or print your results. Who are you willing to cut services to and/or who are you willing to tax to close the gap?

My thoughts on potential cuts and tax increases are here.

Greed is Good Isn't It?

If there's anything we've learned the past few months, it's that Gordon Gekko (aka Michael Douglas) had it wrong when he said "Greed is Good.". The real point, ladies and gentleman, is that smart regulation, competition, risk based pricing, open markets and access to capital are the basics for businesses to thrive responsibly.

What's been missing is smart regulation and risk based pricing within the credit markets, specifically the mortgage and home equity industry. The intent here is not to assign blame, although anyone who had their had in the cookie jar should be held accountable. After all, if we had risk based pricing, one could argue that the present delinquncy and default rates should have been forecasted appropriately by banking analysts.

So is it any real surprise that if such lax standards are witnessed in a highly regulated industry, like home mortgage, that other credit industries would fare worse? I'm no economist so if there's something I'm missing, do share.

As the Markets Crumble

To say that it's been an interesting week on Wall Street, would be an understatement. The sell off in equities and the flight to safety isn't exactly news, but the sheer volume of activity yesterday was a phenomena. We typically see institutional investors, hedge fund managers, pension planners and others mitigating losses by loading up on Treasuries as quickly as possible before the portfolios they manage deteriorate further. We've known for a while the credit crunch consumers faced would lead to slow down in economic growth, despite the stimulus package sent out by the Bush administration. And because the US consumer drives 2/3 of our economy, that's exactly what happened. But what's happening now is further cause for concern. The Dow Jones was down well over 5% in one trading day--I don't believe we've seen that since the Great Depression. We've got our government interested in protecting the lives of corporations more than consumers. We've got Fannie and Freddie, the staples of the secondary market for mortgages, lacking sufficient capital to cover losses resulting in a takeover by Paulson and the US Treasury.

The only question I have is: what happened to laissez-fair economics? The current administration, the Republican Party and Adam Smith himself said the individual, and thus a corporation itself, will pursue its own gain as if led by an invisible hand. The companies in question took actions that drove their revenues through the roof during the peak of the housing market. And now that the market is contracting, they should deal with it. But we throw this view out the window because what's at risk are companies that have been around for over a 100 years? One could even argue that it's a matter of survival of the fittest and these firms should dissolve or be acquired. As a taxpayer, as a financial consultant and as a progressive democrat, I simply can not support these actions.

Change can't come soon enough.

It's the Economy, Stupid

You can tell what's happening nationally by simply looking at what's transpiring locally...

For the past two weeks, something has been amiss with casual carpool and it finally became clear this morning. Not only has the line gotten longer, but the number of drivers has noticably decreased. The result, as with this morning, was a one hour commute door-to-door. But more importantly, it means that I've been getting in past 8am for work and that's not a good thing with early morning meetings. The explanation is simple--the price of gas. Given that the bay area has generally had higher fuel prices that the rest of the state, it's become clear the effect this is having on consumers. Couple that with the increase in the price of milk, other basics at Whole Foods or even Safeway, the cost of parking/taking Bart, and it serves as evidence the squeeze many are feeling.

My number finally arrived and I got into the car with the other 'poolers. We had a chatty driver and at some point the conversation turned to housing. He shared with us a story of his friend who was having trouble making the mortgage payment. His friend "John" had an interest only arm that was scheduleded to re-set at the end of the month. John worked with a mortgage broker who didn't properly explain what an I/O ARM was--the broker merely said that it was the type of mortgage John needed to get into his first home. The story didn't have a happy ending. John, like many folks these days, decided to walk away from the house and his mortgage payments all together.

We arrive in San Francisco, exit the car and go our separate ways. After logging onto the network and dialing into the conference call, my cell phone vibrates. Looks like mum was not able to convince Mamaji(uncle)about going to the Bollywood concert. Mamaji has been unemployed for over a year and the last thing he can afford to do is spend discretionary money on a concert--even if its Ash and Amitabh and Abishehk. I decide to take his place and of course, pay for the ticket.

Inflation, unemployment, the housing market, the credit crisis, call it what you will. At the end of the day, Bill Clinton said it best to the older Bush, "It's the Economy, Stupid."