Sushi Money

Okay enough of the national focus for a while.  I’m going to try not to look at that stuff for the near future and take a more hopeful, optimistic view closer to home.  It strikes me that we need to think about a few other things in our lives, and catch up on responsibilities that may need examined once again.  What else should we be thinking about right now?

• Family budget:  A check-up on debt, budgeting, emergency and savings funds is a good idea about now.  All this talk about bailouts has me looking harder at paying down some debt.  I’m tweaking my debt re-payments by making them a little larger where I can.  I don’t like carrying debt, and it’s time to pay off a credit card debt I’ve held too long.  I think I’ll also tweak my savings goals and try to increase the amount I’m putting in both the savings and emergency funds after paying down that debt.  Never know when we might need that extra cash.  Getting the debt paid off will allow more to go to savings right?

• Rainy day money?  Do you have any cash sitting around at home?  I’ve never advocated saving cash at home since you don’t earn any interest on it, and inflation eats away at the value of that money.  But the events of the past few weeks have me rethinking that as well.  I’ve decided to keep a months worth of grocery/gas money in cash at home.  It’s sitting in a coffee can on a shelf.  I’ve never done that before, and hope I never need it.  Am I crazy?  But you know what?  It feels good having it sit there.
• Winter’s coming:  Are you ready for winter?  Have you thought about the house, vehicles and energy budget?  Around our place it’s time to catch up on vehicle maintenance, and getting the house ready before the freezing weather sets in.  That means cleaning out the gutters while the leaves fall off the trees, checking the furnace and other heating equipment, putting away the hoses, making sure windows are secured and sealed, closing off the outdoor water faucets and cleaning up the garage a little.  The fall weather is beautiful right now, but that means it’s time to get prepped for the colder months.
• Bill Payments: One of the issues facing consumers these days is that of credit card companies reducing available credit that consumers thought they had.  Why are they doing this?  Basically to reduce their debt load and the risk they are taking with outstanding debt.  It doesn’t matter if you have a perfect credit record, you may still find that your available credit has been reduced. 

          But what is very important is that some banks and credit card companies are also jacking up interest rates very         quickly on outstanding debt that consumers are holding on their credit cards, seemingly for no reason.  My point?  Make darn sure that all debt payments are paid on time or you’ll find yourself paying exhorbitant interest rates on that debt.  It’s also a good time to remind ourselves to pay all our bills and debt on time right now.  And maybe even to get rid of unnecessary expenses. Do you really need all those cell-phone features?  Maybe you don’t even need a cell-phone! 

         One of our relatives’ children had a birthday recently, and it was a very special day.  Just watching him smile and ride a new bicycle was a wonderful sight.  It served to remind me how our children live in the present, and find joy in the simplest things.   We can learn from that, and we should remember not to burden our children too much with the challenges we take home each day.  Instead we can help inspire them, and help them learn about hope, faith and the good things that are always present.  One day we’ll be long gone, and our grown children will live and survive through their own challenges based upon what they have experienced and learned in life.   If nothing else, we can help them prepare for the future in many positive ways.

  Here’s hoping for better days, and that you find great joy in life’s simple pleasures.  Best regards!

So the first vote is “NO!” on the Bail Out emergency spending bill.  I would have liked to have seen a real bipartisan bill passed with thoughtful, considered measures on behalf of the American taxpayer.  But it is simply not there yet.  Over 66% of House Republicans, and 40% of House Democrats voted against this bill.  Yes, 90 + members of the Democrat party voted against the bill.  The bill failed 228 to 205.

What really bothers me: Speaker Nancy Pelosi (D-CA) spoke a partisan view at every turn, yesterday calling the Republicans “unpatriotic” for standing up for their principles and fighting for what they believe is best for the country and their constituents?  She continued today, before the vote, by blaming Republicans for the entire financial crisis?!   That upset so many Congressmen that they probably voted no because of it.  

But it’s simply unbelievable that Senator Pelosi would attack other Congress members during this crisis, especially in the context that these are people who are standing up for their conscience to work out a plan that protects taxpayers from what they view as excessive debt and spending.  And now Speaker Pelosi is blaming the GOP for the failure of this spending bill even though 90 Democrats also voted no.

With both sides blaming each other for the bail out failure, many Republicans expressed concern that this just was not the right legislation at the right time, some asking their peers to think hard about what they were voting for:

“Before the vote, many House Republicans expressed opposition to the bill, saying it departed from free-market principles. Republican congressional aides also said calls from constituents were running 10 to 1 against the legislation.”

“The relevant test is, when you look at the good in the bill, when you look at the bad in the bill — does it take America in a direction that you believe America should go?” said Rep. Jeb Hensarling, a conservative Texas Republican, before the vote. “By that test, Madam Speaker, I will vote no on this legislation.

“I fear that ultimately it may not work. I fear that it is too much bailout and not enough work out. I fear that taxpayers may end up inheriting the mother of all debts,” he added.

Another Republican called on members to vote their conscience. “Ask yourselves why you came here and vote with courage and integrity to those principles. If, like me, you came here because you believe in limited government and the freedom of the American marketplace, I urge you vote in accordance with your convictions,” Rep. Mike Pence, R-Indiana, said.

“Stand up for limited government and economic freedom. Stand up for the American taxpayer. Reject this bailout and vote no on the emergency economic stabilization act,” he said.

Here’s something that really opens your eyes.  Representative Marcy Kaptur, a Democrat from Ohio speaks on how the Bail Out bill has been shoved down other Congressmen’s throats the past week.  This is an amazing video.

I normally try to take an objective viewpoint politically, and not to advocate for one party or another.  But today is a very sad day when the top leadership of our national Congress stands up and blames other members of Congress for not doing enough to solve what may be the greatest financial crisis in our nation’s history.   Both sides are certainly to blame here, and if they cared more about what is best for the nation instead of staying elected in office, then I think we’d be a lot further along.It’s amazing to watch and such a shame when we are so much better than this.   The real reason the bailout bill has not passed is that the Bail Out doesn’t do enough to protect American taxpayers from years of future debt and tax hikes!

Enough on that note.  Let’s hope we can move forward and get something functional put together. 

One of the stories taking a back seat to the financial crisis the past couple of weeks is how gasoline and other fuel supplies are in such short supply all across the southeastern U.S.  Supplies are so tight that some people are sleeping in their cars overnight just to fill the tank!  Take our poll below and share your views.

“In Atlanta, half the gasoline stations were closed, according to AAA, which said the supply disruptions had taken place along two major pipelines that have operated at well below capacity since the hurricanes knocked offshore oil production and several refineries out of service along the Gulf of Mexico.”

How did this happen, and why only across the southeast?   Presumably this region is almost exclusively supplied by gulf coast pipelines and refineries, and based on hurricane’s Gustav and Ike the stockpiles are really low.  Many refineries are still starting up, or just now increasing production from being shut down due to the hurricanes.  But the refineries had also cut back production of gas supplies  before the hurricanes because the price of oil and gas has been falling.  The storms timing couldn’t have been worse, and upwards of 40 million barrels of oil production was lost over the past month. 

But I have to wonder:  How do the oil companies keep their prices (and profits) high?  But restricting supply and keeping demand at a higher level.  That was the story before the hurricanes, and it will  simply take a few more weeks to get the supply back to normal.

For the drivers needing fuel in the southeast however, they don’t care what got them to that point.  They just want more gas as soon as possible.  And during a period of short supply of any product, what emerges as a human tendency?  Stockpiling and hoarding.  Not only do we top off our fuel tanks when we have the chance, but we also fill up extra gas cans for the lawnmower, the generator and just to have a little more on hand. 

Some experts say that hoarding is a natural expectation to a shortage of anything humans may need, as a method to ensure adequate supplies later on.  Is this true?  And if so, does that mean it’s okay to stockpile or hoard extra supplies of something when your neighbor might not have enough?

“A hurricane-related disruption in gasoline supplies prompted jittery drivers from Atlanta to Nashville to top off their fuel tanks more than usual, causing sporadic shortages and temporary shutdowns of stations. These closures only magnified the problem, of course, leading to more shortages, which sent local prices skyrocketing.”

“It’s a wonder people didn’t go out and empty all of the grocery store shelves, too,” said Larry Lamb, of Nashville. “All you need to do when something like this happens is just calm down.”

“Perhaps, in hindsight, that is the sensible thing to do.  But economists and other experts say individuals, not just Americans, are hard-wired to respond quickly when they are scared, and in a way that is not always in their own, or their neighbors’, best interests.”

“People are freaking out,” said landscaper Dennis McDonald, 50, after waiting to pump 10 gallons of gas into his pickup in Woodstock, Ga.

“Robert Prechter, a market forecaster and president of The Socionomics Institute in Gainesville, Ga., said in an e-mail that the response in Nashville and other cities to even temporary shortages of gasoline should have been expected.”

“Topping off is simply a rational reaction to disrupted supplies,” he said. “So it is incorrect to charge everyday people with thoughtless herding in this case.”

So the question for the day:  Is topping off the gas tank okay?  Is it a wise move to make sure you or your family have enough gas?  Or is topping off the tank a selfish act that takes away someone else’s ability to drive their car? 

Lets take a poll and see what you think (this poll only works on the SushiMoney.com homepage, not in the feed). Here’s the question:

Is Topping Off the Fuel Tank Smart or Selfish?

• Topping off is smart- it's like planning ahead.
• Topping off is selfish and wrong.
• It's wrong, but I do it anyway!
• None of your business.

View Results

What’s my take?  I’ll be straight up and share my opinion that when fuel supplies are really tight and it’s nearly an emergency situation, I think filling up and topping off the tank is just fine.  Especially if you need it for work, family, travel, etc.  But if you don’t need the fuel then I think it’s a selfish habit.  But could it also be both smart and selfish?  What I mean is that it could be like planning ahead for what you or your family might need, and even though it takes away from someone else, we’re trying to protect our own family’s best interests, and that makes it okay?  The Virtue of Selfishness perhaps, to quote from the Ayn Rand book title.

But I have to wonder, isn’t topping off the fuel tanks sort of like how we accumulate things we need at home?   For example, do we eat all the food in our refrigerator or pantry before buying more?  Do we only keep a few rolls of toilet paper on hand, and risk running out?  No!  Most people have a pantry filled with extra food and extra toilet paper on hand in case they need it (I hate running out of toilet paper). 

Is topping off the fuel tank different?  Why?  I guess for me it’s like planning ahead:  If I know I need to get to work, or take my kids to the doctor, or I live a little farther away than other people, then I want to make sure I have the gas to do what I need. 

But if you don’t agree, and think everyone should use most of the gas they have before topping off, or that they shouldn’t fill up if they don’t really need it, then how does anyone know, or what business is it of others to decide?   For some people the question may become how do we regulate, legislate, or make sure that people are complying with some sort of rationing?  In my view, Yikes! We don’t do that at all.  Can you imagine local government getting involved in how much gas (or food, etc) we can purchase?  If it gets to that point, then we really are reverting to socialism and the nation may be in bigger trouble.

But do you know what’s worse?  We may actually find ourselves in a situation where fuel supplies are in short supply all across the nation.  We may see long lines at gas stations, and we may even see some sort of daily rationing put into practice.  Why?  Because the U.S. simply does not have enough production and supply of gasoline or diesel fuel to support the nation’s needs without depending upon foreign countries that care very little about U.S. economic or national security.

We have placed ourselves in a situation where we depend on fuel supplies that are always very tight, and we depend on the production and delivery of oil from foreign countries.  We literally are sending billions of dollars of American money overseas to these other nations.  That’s why the argument is so heated in terms of U.S. energy independence, and why more and more Americans want our oil companies to produce more oil at home.

Can you imagine what our country could do with billions of dollars each year being spent here in the U.S. for jobs, construction, business, new roads, etc, etc.  We would be doing just fine thank you.  I’m not going to turn this post into a debate of oil versus other energy needs because we need them all.  And hopefully over the next few years our auto manufacturers will develop new and better cars and trucks that use many different forms of propulsion.

But for the next couple of decades at least, we are going to need to use additional sources of oil.  I for one hope that we can bring our dollars back to the shores of the U.S. and increase production of oil and gas here.  A new refinery or two wouldn’t hurt either.  Meanwhile, I’ll continue to keep my fuel tanks topped off.  If we do have a supply disruption and the gas lines start forming? Topping off isn’t really going to matter anyway.  We’re all going to be scrambling for gas.  Have a great day.

It looks like the financial bailout agreement is getting close.  But while we’ve been waiting for Congress to put the supposed rescue package together, they’ve also been busy creating other new legislation with a similar enormous pricetag.
The $634 billion economic spending package has been brewing for some time however, and provides legislative funding for everything from aid to hurricane victims along the gulf coast, to lifting the ban on offshore drilling (except for the oil-rich eastern Gulf of Mexico), loans for big U.S. automakers and funding for pentagon military operations and projects.  This whole thing happened this week in the background of the “financial crisis” we’re facing.

So now they’re also about to pass what may be a $700 Billion financial rescue package.  Even though it may be necessary, it’s worrisome because no one really knows how we’re going to pay for all of this.  What is the real cost down the road? Is there any way out besides what most Americans fear as tax increases?  How do we really benefit from this?

I’ve got to admit the last several weeks have been very disheartening in terms of the degree of bailout assistance and government intervention we have seen.  Some are decrying the death of the free market and believe the political leadership is deluded to be supporting such enormous government intervention without considering the economic impact on taxpayers.  The bailout seemingly provides the most help for the financial institutions that put us in this situation in the first place. 

And others are just upset and confused at the current state of economic affairs and worried about what it means.   The past week was amazing though.  On the one hand the government puts together an $85 Billion rescue package for AIG, but on the other the FDIC “takes over” Washington Mutual bank, one of the nation’s largest, and sells their assets to J.P. Morgan for pennies on the dollar. 

Shareholders of AIG may be pleased with the long term outlook compared to the alternative.  But shareholders of Washington Mutual are totally wiped out. Everyone from employees with 401(k) investments in Washington Mutual to everyday investors were left holding an empty bag.    Except for the CEO of course.  Washington Mutual’s CEO now stands to walk away with millions of dollars after being hired just several weeks ago.  Not bad, huh?

And J.P. Morgan?  Here’s a company that was practically handed the best of Washington Mutual’s properties and operations, and now stands to become one of the big winners of the financial crisis.  And here J.P. Morgan was only last week converted to a banking company, after being one of the top five investment institutions in the U.S.  One of the same investment institutions that created this financial mess in the first place, but perhaps managed their risk better than others.  Of course Washington Mutual helped create the mess as well, with poor lending practices and too much leverage… and the walls came tumbling down. 

It all doesn’t really make any sense. Which may tell us how difficult this situation is for the government, and the challenges that we face.  And what about the Fed and Congress making sure that excecutives and institutions don’t benefit too much from the bailout?  Well perhaps they mean “don’t benefit” after this.

Regardless of the bailout, the U.S. economy – more importantly the nation as a whole – will face continued challenges.  This is just the beginning.  Let’s hope the political leadership  puts together a constructive package that helps the nation start on the road to recovery. 

For investors there’s a lot of financial hand-holding going on these days, and it’s quite understandable. Many of us are thinking about what we have, or what we really need to live on these days.  Rather than give in to fear, we need to sit down and take a look at the reality of our situation.  If you have an advisor or planner, then sit down to look at where you are, compare that to your original goals.  Has anything changed?  For some people the words “risk tolerance” have taken on new meaning.  That’s actually a good thing because it can help you tailor a portfolio allocation to a more appropriate structure over the long term.

If the bailout does nothing else in the short term, at least we can begin to put the current uncertainty behind us and return to more normal financial market functioning.

I don’t know what bothers me more: The fact that the President has made 4-5 appearances over the past couple of weeks to reassure the public and tell us that we’re going to solve our financial crisis, or the fact that the bailout package is an enormous point of contention within Congress, and they haven’t got anything done quite yet. 

I think many Americans saw the financial crisis as simply a bunch of noise, until this week.  Now we’re hearing daily about political argument, risks to the economy and the largest bank failure in the nation’s history.  

Even tonight’s first Presidential debate has taken a back seat to the financial crisis.  Which in my view is appropriate; I agree that McCain has his priorities in the right place by stepping outside campaigning and advertising and to help solve the financial crisis in whatever way he can.  Many folks see it as a political stunt however, but that’s not McCain’s style.  His motto of “Country First” is a heartfelt statement about who he is, and what he believes in. Right or wrong, his sense of honor and dedication to the nation means a lot, and I respect someone who risks his entire campaign and chance to become President by doing what he thinks is right.  I’m not too naive to realize that politics are part of the game as well.  But McCain has rolled up his sleeves to help work through this, and that seems appropriate.  It may backfire on him especially by staying out of the debate.  **Update: Based on bailout talks progress, McCain will now attend the scheduled debate.**

But what does the bailout itself really mean?  Apparently the crux of the disagreement between Republicans and Democrats has to do with how much government regulation should be included in the package.   But more important to the economy is how effective the bailout will be immediately, and then what are the longer term implications.   We have a chance for this package to help the economy return the nation to a path of growth.  The bailout package will not be a panacea that solves the nation’s economic problems.  It will simply help us return to more normal financial market operations, and grow out of this situation more effectively than we would otherwise. But it’s an expensive way to grow the economy, and we need to make sure this does not happen again.  Perhaps it’s a new economic paradigm, one that speaks to the government stepping in to save the economy from self-destruction by derivative-laced financial instruments.

CNNMoney explores What’s at Stake for the Bailout: 

“Federal Reserve Chairman Ben Bernanke spelled out the implications of this credit crisis earlier this week in front of Congress.  He talked of how small businesses would not be able to get the credit they need to operate, grow and hire workers. Consumers would have trouble getting mortgages to buy homes, further driving down prices. And tighter credit would mean lower sales of cars and other big ticket items, leading to more plant closings and layoffs.”

“Credit is the mother’s milk of the modern economy. The tighter the credit spigot closes, the worse the economy is going to be,” said Mark Zandi, chief economist of Moody’s Economy.com. “Businesses operate on credit. If they can’t raise money, then very soon they won’t be making payroll.”

“Economic pushback. Economists say that without a restoration of credit, unemployment would likely shoot up to over 10% from 6.1% today. And GDP could fall at an annual rate of between 2% and 4%.”

“Those unemployment and GDP readings would be the worst in more than 25 years. And many believe it would not be until at least 2010 before the economy starts to recover, which would make the current downturn the longest since the Great Depression.”

Most experts believe we won’t see anything like the Great Depression in terms of unemployment or credit problems.  But a lingering economic recession can still have far-reaching negative effects on the nation.   We need Congress to get their act together and figure this thing out.  Get it started. After all they’re legislators- they can pass laws.  If they don’t like something, change it.  If you want to make it better, do it. 

Today President Bush makes a lot of sense is showing real leadership saying that “Congress must rise to the occasion and approve a plan.” 

œThere are disagreements over aspects of the rescue plan, said President Bush, œbut there is no disagreement that something substantial must be done. We are going to get a package passed.

When the nation is struggling economically, it is often those at the fringe of poverty or crisis that are the worst hit.  Add a natural disaster or two to the mix, and you have a prescription for hard times at its worst.  The American Red Cross, the Salvation Army and other relief agencies are having a difficult time raising funds to support their operations after Hurricane’s Ike and Gustav decimated the gulf coast.

In large part it’s just that the media interest has been focused on other things the past couple of months.  Instead of lingering news stories about the effects of the hurricanes, we’re now embroiled in the Presidential election and the financial crisis at the center of national interest.

But the hurricanes along the Louisiana and Texas gulf coast did an incredible amount of damage, wiping thousands of homes and businesses off the map and all but destroying the gulf seafood industry for years to come.  Did you know that the combined costs of Hurricane’s Ike and Gustav are forecast as second only to Hurricane Katrina?  The ongoing credit crisis is not going to make it easy for these states to rebuild their infrastructure either.  

But where’s the real national interest?  Where are the Hollywood stars traipsing through the streets?  Where are the MTV benefit shows and internet campaigns raising money for all of those displaced by this disaster?  The government’s response was much improved over Katrina, so we’re not reading story after story about the “failures of the system.”

But the real failures may be that the American public is not helping those in need as we’ve done in the past.  The national interest is just not there right now.  Whether it’s because of the lack of media interest, or that it wasn’t jazzy New Orleans that was hit we don’t really know.  But it looks like disaster fatigue has set in, not enough people are donating money and a lot of folks are really in need of help. 

For many of us living far from the region, the most efficient way we can help is by donating money to the organizations that put people and resources on the scene of the crisis. With that in mind, we’ve posted a few links to leading disaster relief organizations below.

All of these organizations provide an essential role in leading relief efforts, and getting food, water and coordinated shelter and clothing for people who need it. Especially for the children.  Please help in whatever way you can, or through your local relief organization.  Thank you!

American Red Cross Donation page

Salvation Army Donation page

Mennonite Disaster Relief donation page

It’s a good news, bad news kind of week.  Perhaps mostly negative on the financial front, but will we get a bailout recovery plan this week?  The debate has been heating up while members of both parties in Congress argue about what should be included.   One would think these folks could hammer something out more quickly.  Hard to say what they’re doing, but rather than focus on doing everything why not get some of it passed and move forward? 

Prediction:  If Congress takes too long, the President, Treasury Secretary and Federal Reserve Chairman will move independently to strengthen financial markets in the name of national (economic) security.  And do you know what?  That’s their job.  They’ve gone to Congress to sort out legislation, but if Congress stubbornly continues the political posturing I’m willing to bet the threat of action from the administration will help prod them along.  But any Executive action wouldn’t have the same degree of legislative strength, so that is not the best option.  Let’s hope the financial mess isn’t that bad.  While our political leaders haggle about the details, here’s a round-up of mixed news this week:

Good News:  The FBI has begun probing corruption and fraud at financial firms at the center of the financial meltdown.  The FBI is supposedly looking at 24 firms!  Why is this good news?  Because these businesses have almost destroyed the financial integrity of the nation, and sheer bad luck (or stupidity) cannot be responsible for this mess.   Was there widespread fraud or criminal behavior?  Maybe not.  But we’ve got to clean up the mess, and when any company risks the well-being of the nation and its citizens, they’re going to be looked at under a microscope for any wrongdoing.

Bad News:  Fed Chairman Ben Bernanke sees “grave threats” to the national economy if Congress doesn’t pass legislation quickly.  “Economic activity appears to have decelerated broadly,” Bernanke said today in remarks prepared for a congressional Joint Economic Committee hearing, downgrading the assessment of Fed officials when they met on Sept. 16. “Stabilization of our financial system is an essential precondition for economic recovery.”   He continues describing how recent financial risks ”will make lenders still more cautious about extending credit to households and businesses,” and that “The downside risks to growth thus remain a significant concern.”

Good News:   Billionaire Warren Buffet is investing $5 Billion dollars into Goldman Sachs, and indirectly into the financial markets, especially with GS new status as a bank holding company.  That money is going to be put to work. “I am to some effect betting on the fact that the government will do the rational thing and act properly,” Buffett, one of the world’s richest men and preeminent stock-pickers, told CNBC. “If I didn’t think the government was going to act I wouldn’t do anything this week.”

Bad News:   It looks like the Credit Default Swaps / derivatives markets may be partly (largely?) responsible for the credit crsis unfolding today.  These were bets by competing firms to hedge their risk in other companies and transactions, and they’ve effectively exaggerated risk concerns through a self-destructing downward  spiral.  So these institutions did it to themselves, and now the SEC is stepping in to regulate the mess.  And taxpayers will fund the recovery.

Good News:  Congress (aka the Democrats) are going to let the Offshore Drilling Ban expire!  Hooray!  Does this mean they concede defeat to an issue that most Americans want resolved?  And will it actually help lower oil and gas prices?  Probably not.  The Democrats plan new legislation to regulate any proposed drilling and the States can have their say as well.  It’s sure to be a long process and may not make much difference.  But it’s a start.

Bad News: Vice Presidential Candidate Joe Biden thinks Franklin D. Roosevelt was on television after the stock market crash of 1929.  Uh… television?  The moving picture thingy that few households even had until many years later?  And Roosevelt?  Well Joe Biden may only be 66 years old (6 years younger than Senator McCain), but how can you go on a network news program with pronouncements like that?! 

œWhen the stock market crashed, Franklin D. Roosevelt got on the television and didn™t just talk about the, you know, the princes of greed. He said, ˜Look, here™s what happened…”  Except, Republican Herbert Hoover was in office when the stock market crashed in October 1929. There also was no television at the time; TV wasn™t introduced to the public until a decade later, at the 1939 World™s Fair.

Good News:  What Franklin Roosevelt did do however was to help bring confidence back to the nation in a time of financial crisis and war.  He did this through his Fireside Chats during the Golden Age of Radio in the 1930’s and 40’s.  One of my favorites:

œAfter all, there is an element in the readjustment of our financial system more important than currency, more important than gold, and that is the confidence of the people.

Franklin Delano Roosevelt – First Fireside Chat œOn the Banking Crisis – March 12th, 1933 

Which sounds very appropriate today, doesn’t it?   As we move forward there are ways to Summon the Courage to Continue Investing.  James Stewart at SmartMoney.com has written an excellent article describing our penchant to give in to fear versus a more rational approach to investing.  Keeping in mind of course, that you have money to invest for the long term, and an emergency fund set aside for 3-6 months of living expenses (6-12 if you can afford it).

“It is time for all of us to summon the courage to invest calmly and rationally and in doing so demonstrate our confidence in the potential of the global economy and in our fellow man.  What, in practice, does this mean?”

“It means continuing to accept and even embrace a prudent degree of risk. No investment is entirely risk-free and the mindless quest for safety is damaging not only to your likely returns but the system as a whole.”

“It means to continue following a disciplined approach to asset allocation and investments such as the one I have long advocated in this column. Despite last week’s wild swings, the market did not reach one of my buying thresholds, which is to buy on 10% dips. Had it done so, (2025 on the Nasdaq) I can assure you I would be buying.”

“It means to continue rebalancing your portfolio, taking profits when positions become overweighted, and adding to those that have fallen below your targets. I expect to continue my gradual additions of financial stocks in the belief that we will weather this crisis.”

“It means considering investment alternatives. I found myself this weekend looking at real estate listings…”

Hmmm… if I had the money to look at distressed real estate, I’d be doing pretty well right now.  But here’s hoping that Congress and the Administration work out a recovery program for the nation, that the news gets better over the next few months and that you have a good news kind of day!

Quite a week coming up again and I can only wonder at the news tomorrow.  As of tonight Treasury officials and Congress are working hard on bailout talks.    Could it be viewed as a rescue plan for the national economy?  Whatever you call it, many Americans are pleased that action is being taken to solve the crisis, at least as a viable short-term response. But we really have no idea of the long-term implications.  Speaking as “Joe MiddleClass” I think we just want order restored and the financial world to get back to whatever “normal” means.  But whereas Friday I thought Congress would be on board quickly, now it doesn’t look like it.

Senator Leahy (D-VT) thinks the administration is trying to put a fast one over on Congress.  Politico is reporting that the “Dems say they won’t get fooled again.”

œWe will do something this week ” but if we learned anything from right after 9/11, it™s that the biggest mistake is to pass anything they ask for just because it™s an emergency, Leahy says.
œThey can™t get away with what they did in 2001, Leahy said. œThis will be ˜trust but verify.™ The biggest mistake they can make is holding a press conference while we™re negotiating to say there™s going to be a worldwide depression if Congress doesn™t do exactly what we want them to.

And leave it to Nancy Pelosi (D-CA) to continue the political bashing at the height of a national financial emergency:

“As we proceed to deal with this crisis, this is clear recognition that the party is over for the Bush administration’s anything goes, failed economic policies that have damaged our economy, undermined the middle class and further pointed out the need for a new direction.”

Does it make me feel better that the Democrats are claiming to ”protect the middle class” or some such message they’re preaching?  Certainly we hope taxpayers and the “middle class” are considered in the context of economic decisions by all legislators on both sides of the aisle. But I am disappointed that even when we need our political leaders to act in a bipartisan manner to safeguard the national economy, they resort to political finger pointing.

I’m also all for helping keep people in their homes, and to decrease foreclosures. But some of those delinquent loans are the reason we’re facing this crisis, and just as we don’t want to provide bailouts and incentives for the investment firms that brought this mess on, we don’t want to provide the same incentives to those speculators and home-flippers that took on more debt than they should have, and “bailed out” of their mortgage obligations.

The bottom line right now is to get things moving again.  What was last week all about?  The Shock to the nation’s financial system that forced the government’s hand.  There really wasn’t much choice over the actions taken.
 
I think those Democrats and Republicans who impede progress on the economic front may pay a high price over time.   No one questions that there are disagreements on so many issues. It is important to consider the larger implications of the effect on taxpayers and the national budget moving forward. But our political leaders need to think twice before making this a politicized process.

“Princeton University history professor Julian Zelizer, who has written a history of Congress in the 20th century, says the Democrats will try to extract whatever they can out of Paulson ” but must eventually bow to the reality that the perils of not acting quickly are just too devastating, economically and politically.”

So as of today it appears the Democrats want to set their own bailout terms.  What may have been quick action to pass bailout legislation may take until the end of this week.  Maybe that’s not such a bad thing with the $700 Billion price tag going in.  It’s not like the fate of the economy awaits the action of our vaunted leaders… is it?

Wow.  Get ready for a wild ride with the action by the Fed bankers making a huge move in supporting the U.S. financial markets by temporarily banning all short-selling in about 800 financial companies.  The SEC is also considering a wider ban on short-selling across all markets.  And the Treasury and Federal Reserve are moving to back institutional money market mutual funds because they’ve seen so many redemptions from investors (these are the non-FDIC insured money market funds). 

“The Treasury Department and the Federal Reserve announced separate actions Friday designed to bolster the nation’s $2 trillion of assets in money market fund assets, which had come under threat from one of the worst financial crises in decades.”
“The Treasury said it will tap into a Depression-era fund to provide guarantees for the money market mutual funds. The Fed said it will expand its emergency lending efforts to allow commercial banks to finance purchases of asset-backed paper from money market funds. The central bank’s move should help the funds to meet demands for redemptions.”

So why now?  It was a timely move, and I think government leadership just finally realized that in the midst of this crisis, we don’t need hedge funds or other short-selling raiders making it more difficult for a recovery, or more difficult for a financial company to stabilize and work out their debt arrangements.  Short-selling and redemptions of cash from money market accounts was pulling the rug out from under many financial firms and banking institutions.

Technology and computer-based trading has changed the game, and markets move so fast that it’s difficult to keep up.  I believe that’s why we’ve seen these midnight bailouts or bankruptcies, and equally because of the global nature of investing transactions.  Regulators are finally coming to grips with the fact that they needed to take broad action to slow things down a bit while business and governement works things out.

Yesterday, the UK finance ministers banned short selling in their markets.  So the U.S. kind of had to follow… markets today are global in nature of course, and where might the short sellers go if they were banned in one place, but not in another?  We don’t need a short-selling magnet here in the U.S. so I say good for the Fed bankers and this decision while they work on broader plans to put a rescue package together.  And it looks like Congress may even be on board and won’t delay a rescue package. 

We’re not out of the woods regarding the larger, systemic housing and credit liquidity issues facing the nation, but at least for now the government is taking aggressive, positive action to stem the tide and give our institutions (and investors) some breathing room.  And world markets are soaring on the news (but I sure wouldn’t put money back in Russia).  It should be an interesting market to watch today, but a more interesting year.  Is this the bottom?  The turn-around we’ve been waiting for?  It just might be.

There’s a debate taking place between Congress, the Fed Chairman and the Treasury Secretary.  Or maybe I should say until tonight Congress has been having the debate by themselves.  What is this about?  Well Congress is upset that they have not been consulted regarding many of the decisions regarding bailouts and measures put in place over the past few weeks to strengthen markets.  The AIG bailout in particular rankled both parties in Congress, as well as a lot of other folks, me included. 

But do you know what could be worse?  Letting Congress get involved in any short-term debate about financial markets.  Congress can’t figure out how to put an energy plan together or come to any bipartisan progress over countless issues.  So they expect when we’re having a national financial emergency that they will be consulted in order to debate and consider the implications?  What are they going to do, subpoena the Treasury Secretary, SEC Chairman and countless Wall Street executives?  Hold hearings?  Might be a good idea, except not right now!  (And where have they been for the last few years?).

And today the Speaker of the House was grandstanding and blaming the current Administration’s “failed policies” for the crisis we’re facing.  That really helps the situation doesn’t it?  We’re all tired of the “bailout” news, and are looking for accountability.  But instead of holding press conferences, you would think these folks could work together a little more effectively.

The Fed Chairman and Treasury Secretary may have averted financial calamity over the past week by actions that have been taken, and that serves the nation and the public as it should.  Right or wrong, the Treasury Secretary and Chairman of the Federal Reserve are working overtime with countless teams of professionals to do what is best for the integrity of our nation, our people and the economy.  These people are serving in their professions precisely because of their expertise, and Congress should work with them, rather than against them. 

The House Majority Leader may have hit the mark saying, “No one knows what to do…” Pretty scary thought but it’s probably true!  Yes Congress has a vital role in helping to solve this crisis, and is right to be concerned about the financial affairs of the nation. 

The Fed and Treasury Secretary understand this, and tonight, Treasury Secretary Paulson, Fed Chairman Ben Bernanke and others are meeting with the full congressional leadership to talk about creation of specific accounts that might handle risky debt of financial institutions.  It’s going to take a concerted effort by Congress to listen, and put partisan rancor aside in order to potentially pass legislation supporting the structural needs of the financial markets. 

The plans being put together will need legislative approval and perhaps the government will stand together instead of holding partisan press conferences for a few weeks.    And don’t worry, there will be plenty of time for congressional hearings. 

At some point many think we do need a great deal of reform and consideration for what’s happened over the past decade to the financial markets.  We need to reign in excessive compensation structures, costs and fees and increase both transparency and accountability.  But in the current climate, too many politicians are making political hay out of this crisis, and lengthy speeches do not serve the public interest.  Let’s see everybody working together for a change, shall we?