Sunday, December 30, 2007

It has good words

This can sum up the credit crisis and the subprime loan craziness far better than I can:

Thanks to BAC for pointing me at these guys

Friday, December 28, 2007

And you thought Minority Report was just fiction

Those of you who read Slashdot regularly know that law enforcement agencies have been working on long range iris scanning technology for a while now. The FBI is actively pursuing one from the University of West Virginia that, once completed, should read at as much as 15 feet. But this isn't the worst of it. The Washington Post is running an article about how the FBI is starting work on a campus to house a database containing all biometric data they can get their hands on.

Now, I can understand condensing information on captured criminals and terrorists in one common, well protected, database, instead of scattered among dozens. Yes, I realize the "well protected" part of that sentence is not generally met, just judging by the number of wide open XSS holes that have been found in web pages (links courtesy True, an XSS hole doesn't by itself allow access to the database, but it can be used to compromise (very effectively in many cases) the system the browser is running on.

Compound that with the fact that they intend to hold "commercial" data (i.e. data on you and me) in there as well and you have the perfect recipe for massive identity theft. And this hits a bit harder than just social security or credit card number identity theft. This information can be used by a sophisticated criminal/terrorist to implicate you in something and you will never be able to fix it. At least with SSN/CC#s you can (with some difficulty) get a new one if it is compromised. You can't get a new iris or fingerprint.

There is also the plan the FBI has come up with to hold your data for your employer and notify them if you have a "brush" with the law any time in the future. Normally a criminal background check (although proven to be innaccurate in many cases) should only contain data about convictions. With this new plan, employers will be notified if your fingerprints are taken for any reason. It doesn't matter if you were guilty of anything, you could still, depending on the employer, lose your job.

Then there are other problems with those that can "legitimately" access your data. What could go wrong? The FBI audits all the companies that have access. Don't worry about the fact that these audits are only done every three years; it's not like the turn over rate at some of these companies is that large...

The closing quote by one of the researchers working on the iris/face matching software sums up the complete blindness these people have:

"The long-term goal," Hornak said, is "ubiquitous use. . . That's the key, you've chosen it. You have chosen to say, 'Yeah, I want this place to recognize me.' "

This of course ignores two facts that are obvious to anyone with any interest in personal privacy.

  1. If the technology is ubiquitous, you don't have a choice to be where it's not.
  2. If it can be done from across the room, you don't necessarily know it's being done.

Thus you have never chosen anything. Has anyone in the government ever heard of a little thing called the fourth amendment? Oh, I forgot, Cheney was using that part of the Constitution as toilet paper while he was on his hunting trips...

Via Bruce Schneier.

Sunday, December 23, 2007

Strength in (lack of) Numbers

So, it's been a year now with the Democrats in power and many of you are wondering where the change is. We are still stuck endlessly in Iraq. A large number of children will soon fall off the rolls of SCHIP and lose their only access to health care that doesn't come by trading electricity for HMO coverage. The few things that made it out of the House of Representatives have quickly disappeared, never to be heard from again. Meanwhile Bush & Co. are sitting (not quite) contentedly getting the funding they request only cut by 50-60%.

It all comes down to one word that the Republicans of a year and a half ago wanted to strike from the lexicon of the Congress. Something they swore was horrible and obstructionist and that no Senator should stoop to. It is also something the Democrats were going to fight to their death to protect. Something so vital to them that they couldn't imagine a Congress without it.

That word: filibuster. From the American Heritage Dictionary "The use of obstructionist tactics, especially prolonged speechmaking, for the purpose of delaying legislative action." This act, available only to senators, requires 60 votes to override and bring a piece of legislation to be voted on. Back in the good old days of Mr. Smith Goes to Washington a senator would actually have to speak for as long as he wanted the filibuster to last. Now, a senator merely has to say he is filibustering the bill to get a vote (call a Cloture vote) and if the vote fails, the Senate just moves on to more important things, like non-binding resolutions...

And do you know what I say about all of this? It's a damn good thing the filibuster exists. Without it, my generation would have lost the safety net that is Social Security. We would have @$$4073s like Bolton as our representative in the UN getting us nowhere (I know he made it there anyway, but everyone in the UN knew he was a fraud at least). And I can't remember what other idiotic things Bush tried to push through Congress but failed because of that minority.

There is also the power one man wields over all of this, and the real cause of the deadlock now going on in Congress. That is the power of the veto. This lets the president throw out bills he doesn't like unless Congress can override him with a 2/3 vote. Thats 218 votes in the House, and a mere 67 votes in the Senate. Only 7 more than what is needed for cloture, but apparently a very difficult 7 to get. This would be great when used to keep oppressive or bad legislation out. It is a very important check on Congressional power. Unfortunately, this time, it was put in the hands of a d1ck who has nothing to lose. He may be a lame duck in that he can't get any new legislation passed to help him (at least nothing he can't convince a large enough portion of the American public is important...), but he can stop anything he wants with impunity.

Normally, this would be where bi-partisanship and negotiation would take over. But if there is one thing this president has shown us, it's that playing the public for fools and making them think that there are only two ways to do something ("My way or no way" isn't it?) has worked to keep that from happening. This is both the strength and the weakness of a liberal majority: liberals are willing to work with other people to push toward some greater good. Bush has shown in numerous business and political ventures that he will do it only his way, and stick his fingers in his ears screaming "LA, LA, LA" as loud as he can when anyone asks him to do anything different.

Now I hear many of you screaming, "Well, if Bush is doing all of this horrible stuff, just impeach him!" This would be great, he hasn't done anything explicitly defined in the Constitution, but so many of the things he has done could definitely be put under "other high crimes" as the clause goes. But, there's a slight problem. Back in the 2006 elections, the Republicans, knowing they wouldn't have much of a chance, pulled a fast one on the Democrats without them quite noticing. Many Republicans in border line states prognosticated and said things along the lines of "If you vote for a Democrat, nothing will get done and all they will do is start endless hearings." The Democratic candidates were quick to counter "That's not what we will do; we have our first hundred days planned out. We are going to make this country better." Unfortunately, the first 100 days are quickly forgotten 600 days later... If they start serious impeachment proceedings against the president now, they won't be able to end by Nov. 4 because guess what ugly number springs up again: 2/3. To impeach a government official, you need two things: a simple majority vote in the House of Representatives; this labels the president officially "impeached" (bonus points for those who know which two (and only two) presidents have been thusly labeled). Then it is tried in the Senate (by the Chief Justice) and falls to a 2/3 majority vote. If you can't get 67 senators to say that children deserve health care, I doubt you will get more than 50 to say yes on an impeachment vote.

And what happens after the Congress fails to even get this done? The Republicans come back to their home districts and say "See! I told you they were do nothing Democrats!" and it's twelve more years of them being in the majority... I find it sad to say this, but with the cards we are dealt right now, we need the Democrats to continue with (most of) what they are doing. Keep fighting for good legislation, let Bush veto it, and throw something else at him. If you can show the Republicans are being obstructionist, and throw their own dirt back at them, we have a good chance of the Democrats picking up a few more seats.

Then it will be time for some real third (fourth and fifth?) party candidates to push forward with agendas Americans really want.

Wednesday, December 19, 2007

Let's help kick him out

I mentioned before that Robert Wexler (and two other members of the judiciary committee) appeared to be censored by major media outlets when explaining why they are calling for Cheney's impeachment. Wexler has already gotten 100,000 people to sign his petition and he needs more. His goal now is 250,000 signatures. Please sign up at and add your voice.

Let us remove the man who:

*whose wholly owned subsidiary, KBR, is implicated in a rape case brought by a female American employee (If this is true, I don't even want to know what they do to the Iraqi female employees...).

Monday, December 17, 2007


Albeit, probably only a small one.

Late today, from the e-mail I got about 8:30 PM CST, Harry Reid tabled the FISA reform bill due to the controversial terms. Thank you to Senator Dodd for leading the fight and thank you also to all the senators that added your voices. Now we have time to make sure this piece of legislation is a well thought out bill, and not just rushed through the Senate without anyone really reading it.

For those of you who haven't heard much about this bill, it is a follow up to a very temporary (and poorly written, IMO) piece of legislation the Congress pushed through at the end of last year before the Democrats took control. At the time, it expanded the eavesdropping abilities of federal agencies so that they would not need a warrant in most cases, and those being spied on would never know. This monitoring was supposedly targeting only foreign nationals here in the US, but report after report shows many abuses of this no warrant loophole. Fortunately, the Democrat minority at the time was able to attach a one year limit on the bill, leaving it to expire this coming February.

Unfortunately, the new bill has added more bad legislation. This new bill also includes amnesty for telecom companies, with the amnesty reaching back 7 years. This is an attempt to cut off investigations into the eavesdropping program that was brought to light back in early 2006 (and started this reform push). Twelve total amendments were also proposed for this bill, which the AP is not going into yet.

The core of the bill, however, I do agree with. Here is the short, short version ( doesn't allow for direct links to the bills, but search for SB 187 to read the full text):

  • It starts out adjusting how judges are appointed for the FISA court.
  • Next it authorizes the FBI, et. al. to hire more lawyers so that they can file requests to FISA more quickly and requires improved training on what electronic surveillance is allowed.
  • Next it widens the period of time between when monitoring starts and when the agencies need approval of the monitoring from three days to seven.
  • It then very explicitly states that if any intercepted communication someone in the US, and it isn't sent through FISA, it cannot be used.
  • Then it sets up heightened Congressional oversight and instructs the Supreme Court to expedite any appeals related to the "Terrorist" Surveillance Program.

All in all, fairly reasonable requests. More people to file the requests means it will actually get done, better training should lead to better enforcement, more clear rules should make it easier to train and follow the rules, and better oversight should keep abuses to a minimum. (I know, many uses of should...). Extending the time a monitoring program can be open is questionable, but a fair concession to Bush and the agencies if they are claiming they need to ignore the law because it doesn't give them enough time to file.

The problem is largely the immunity clause that is being proposed as an amendment (unfortunately I can't view the text of it in Thomas, because it hasn't yet been approved). This is being proposed to free the telecoms from liability for having, as is being charged in numerous law suits, broken the law in allowing these government agencies to spy on US citizens without a warrant. This has been going on at numerous companies since early 2001 (if not before) - before 9-11 and the "War on Terror". Most major telecommunication companies are implicated in this. In fact, a former worker at AT & T has testified that all major offices (including one not far from me in Bridgeton, Missouri) have rooms where all internet traffic routed through these buildings (about 90% of internet traffic) is split and a copy sent directly to the NSA. And that is 90% of all internet traffic, not just those people who pay AT & T for a connection.

It can be argued, as Senator Arlen Spector is doing, that these companies were just doing what the government asked them to do; that they shouldn't be held responsible. However, There is a company that rejected the NSA requests. Qwest refused, and faced consequences for doing so. They lost billions of dollars in government contracts for doing so, but they knew the law and stood up for it. Google has also rejected warrantless requests for search records from government agencies (although their human rights lapses in China tarnish this a bit). This means that there was either a lack of knowledge of the law on the parts of these companies (not an excuse legally, and probably not true given the size of their legal staff...) or they decided to ignore the law in the interest of profits. Neither one of these should let them off the hook. Yes the government was to blame, and it did a fair bit of illegal stuff pushing its weight around as it did, but it takes two to tango.

P.S. For those of you interested in privacy, please check out my sidebar on PGP, and if you want to test sending encrypted email, or just need a walk through, feel free to contact me at trianglman (triangle with no "e") at gmail dot com.

Friday, December 14, 2007

Freedom of the Press blogs

Two judiciary committee members sent an opinion piece to several leading major newspapers. Among the papers approached were the Washington Post, the New York Times, and the Miami Herald. None of these publications opted to print it.

Why? Because it was the justification for proceeding with hearings on the impeachment of Richard Chaney. It appears that corporate media is afraid to talk about such proceedings in anything but disparaging tones.

Oh, but I'm sure there's nothing serious going on. Just because the corporate owners of these publications are making money hand over fist because of initiatives this president and VP have pushed through wouldn't influence them. And I'm sure Chaney wouldn't threaten to cut off access to these newspapers' reporters, right? And anyway, these corporate interests wouldn't influence the newspapers' editorial boards.

Anyway, since the "mainstream" media doesn't have the guts to talk about this, at least we now have a way to share this information outside of them. Thank you Common Dreams for reporting on it and thank you to GMB for sharing it further. Please, any readers (the 1-2 of you out there) reading this, share this with your friends too.

Wednesday, December 12, 2007

When is 70 billion not enough but 35 billion too much?

When the 70 is to fund the thing killing more than 100 soldiers a month and the 35 is to provide health care for children that can't see a doctor...

Currently Congress is working on a federal budget. This is the annual budget that is going to fund pretty much all of government, except for the military and a few other things. The Pentagon gets funding through a separate budget process. However, Bush has requested $200 billion of extra funding to pour into Iraq.

Now, you and I know the Democrats aren't going to give in to such a foolish demand. Schumer, Polosi, Reed and all the rest told us they wouldn't give Bush any more blank checks for this war. They even said they would make sure we got out of there as soon as possible (some of them).

But surprise, according to CNN the Democrats are close to a deal that would give him only $70 billion for the next six months. They are trying to claim that this is some sort of victory; that giving him more than $200 from every man, woman and child living in the United States at this moment, and six months from now (not to mention just six months ago...) give him more. This is money that is sending our troops into a country we never should have entered in the first place. It has killed almost four thousand American troops and injured almost thirty thousand, devastating countless families.

And what do they call this gutless capitulation? "[A] partial victory." Why you might ask? Because "Bush is likely to get far less money than he originally requested." I'm sure Bush counts only seventy billion as a failure. I'm sure he will turn around and pull us out of Iraq now. You are sure showing him the bravery that the electorate was hoping for after hearing your promises of no new funding for the war. I mean, whats the difference between no new funding and 70 billion dollars, its nothing compared to the difference between 70 and 200 billion. Surely the voters won't notice.

And do you know the worst part? They are probably right. Most of us only have the choice between someone who will write a 200 billion dollar check that my three year old will need to pay off when he is 10 or a 70 billion dollar one. If there were one good alternative per district, you wouldn't see this crap. Even if these alternatives were in just half, maybe even in just a third of the country we might see change. But right now, it's a handicapped horse race. These two parties, who act so set against one another, are far less worried about disappointing their electorate than they are about saying no to a man that less than 35% of the population cares for.

To get to the second half of my headline, Bush has once more vetoed the SCHIP bill, saying it will be too expensive and its not the right thing for America. This bill that is too expensive is $35 billion for five years of funding, just 1.75% of his Iraq request. Just going by the numbers, this means that allowing 818 American soldiers (the six month average) to die is more than 57 times more worthwhile than helping an extra 4 million children who can't afford health care. That equation doesn't look good from any angle. And this doesn't even bring into account the potential wounded or the Iraqi civilian deaths and injuries.

Democrats, get some balls. Help our troops come home, or rather most of them - I'm not one of those who believe we can pull out completely, maybe I'll get into that soon. And you Republicans, tell this president that the children of this country do matter as more than just future cannon fodder for the war you're planning with Iran; get them the health care they need.

What do these people want?

The Federal Reserve Board yesterday dropped interest rates a quarter point as was expected by most economists and the market reacted. But instead of rising after getting what they asked for, markets fell over 2%. All because, as some have said, they didn't drop rates enough... This is just nuts! These rates control how much our money is worth, do they really want the dollar that devalued?

The reasons I have been hearing recently, in addition to what I have said before, are so that banks will be willing to borrow from the Fed to loan to one another. In my mind, that seems like an insane way to do business, for both the borrower and the lender. On the borrower's end, why couldn't they just borrow from the Fed directly at the lower rate? And if, for some reason, the Fed won't loan to the bank, why would another bank want to take on more risk than they already have in their mortgage holdings?

In my opinion, the main reason the Fed did anything was because if they didn't, investor confidence in them would have dropped significantly. Unfortunately for Bernanke and friends, you can't please people who don't know what they want.

Oh, and guess what else, oil prices jumped 2% already, to be back over $90, in just the couple of hours since the rate drop. It had dropped into the upper 80s before the Fed meeting, so I can't give as strong a bet on $100 oil, but I still think it's likely.

Sunday, December 9, 2007

The Mortgage Crisis - Part 3: Fixes and Fallout

If you haven't already, see part 1 and part 2.

Well, this is a fine mess we are all in now, and for most of us, we didn't do much to bring it on us. Housing prices are known to be inflated, credit is much harder to get (is this a bad thing?), and the markets are in a panic (I know, when are they not?). It seems there are two options being talked about a lot - bailout or let them sink. No good options seem to exists (that seems to be a common phrase these past 4-6ish years...). Here is my (probably not very) modest proposal for a good way out, or at least forward.

First, stop this fake rate freeze talk that is actually only going to help a couple thousand people. The people that this would actually help (between the never late for a payment and can't afford next hike restrictions) would be far better served by a true, honest and open, renegotiation with the banks, similar to what FHA is being brought in to do for some.

I believe that each borrower needs to be given a transparent way to ask for a renegotiation. Many of these borrowers were presented with the very false idea that they could afford more house than they really could. These borrowers should be allowed to present this and if fraud (or I expect the lenders might prefer "creative lending strategies") was involved the borrowers should be helped. But I don't think the government should be footing the bill, the lenders or brokers who did the misleading should be forced to face their mistakes.

In all fairness to the lenders, the borrowers should have been more careful in many cases or should have read more of the fine print. My wife and I were very careful with our finances (for those of you running Linux out there, a great finance tool called GNUCash is out there that really helps me keep everything in order - 100% free and open source and it does everything I would use Quicken for). We knew exactly how much house we could afford, and how much renting would cost us, both at the time and a couple of years down the line. We settled for a smaller house that we might have liked, but boy do we understand how tempting that larger kitchen with the brand new appliances can be, especially when the bank is telling you that you can afford it easily... I do think though that the borrowers shouldn't be completely let off the hook. This is why a neutral third party mediator should be brought in. Maybe not a judge, but someone along those lines.

ARMs, and really even fixed mortgage rates need to be more closely examined. Right now, and I didn't realize this until I asked a lender, mortgage rates can be whatever the bank thinks you should pay. It isn't tied to anything at all. Banks pay a discount rate to borrow, then there is the key interest rate, and also the prime lending rate. Mortgages, as I was told, vary day to day and are what the bank is choosing to charge. This means that I can't go bank to bank and compare rates, a rate given on one day could be completely different from what I am told the next. This needs to be changed. Banks can compete on how they treat credit ratings and other features of the loan (closing costs, etc.), but the base rate should be tied to something I can look at, not personal whim.

Finally, we do need to face some fall out. There will still be an increased number of foreclosures. Some banks will lose solvency. Many mortgage brokers will go out of business. The stock market will take a hit. Houses will still drop in price. However, the markets will stabilize quickly if this is handled responsibly. Funds, institutions and banks that are built on the mortgage industry's fraudulent practices will be removed from trading, and while there will be an overall drop in the market, those people who knew better than to listen to the pipe dreams these funds offered won't be as badly hurt (full disclosure, I kept most of my 401k out of mortgage and bond centric plans since I started with my current employer, so while I don't have anything to gain, I have less to lose). These fall outs will happen. I believe it is better to take care of it now and get it over with than to perpetuate the lies and let there be a bigger fall later.

Housing will be cheaper for a while, this will allow some people who may not be able to afford the house they are in to afford a smaller house, that's worth a little bit less than the one they currently can't afford. Not everyone will be able to get a house, but I'm sorry to say, not everyone can afford a house. I know a lot of this is a bit harsh, but there is no good way out other than to have not gotten into this mess in the first place.

Good luck to everyone out there, and if anyone can see a better way of getting through this, feel free to share.

The mortgage crisis, part 2 - Fraud

I already talked about how the Fed is thinking about lowering interest rates Tuesday to help the markets out during this credit crunch brought on by the mortgage lenders. GMB over at I can't believe it's not a democracy! pointed me to this article in the San Fransisco Chronicle about possible reasons for the new "freeze" being proposed. In it the author proposes that the agreement was agreed on to give the mortgage industry time to hide the fraud that is one of the root causes of this problem. I can only speak anecdotally about the subject, but I don't believe the fraud was as rampant as the reporter is claiming.

Don't get me wrong. There was a large amount of fraud happening. Everything from appraisers being paid to give good assessments to websites offering to sell you a paycheck stub (halfway down the page) to inflate your income. There was also the slightly more creative fraud in how these mortgages were presented to the borrowers - "Oh, don't worry about the balloon rate, by the time that kicks in you could sell your house and move in to one twice as big." (never mind the fact that the rate jumps just six months after you sign the paperwork...) However I don't believe, as the article's author said "I assure you it was a minority of borrowers whose loans didn't involve fraud."

Nothing was ever presented to us that would lead me to believe there was any fraud in our house purchase twelve months ago. Our income was just enough to afford this house (although we were told we could technically, according to their math, afford one 10% more expensive, which is shifty salesmanship and probably where a lot of borrowers were mislead), but we never caught wind that there might be a way to "boost" our income. It also just happened that the year after we bought our house it was due for a county re-assessment, and while our lender's assessment was higher than the county assessment (by about 5%) it was not significant and the county assessment was almost exactly what we paid.

Like I said though, this is all anecdotal and just one family's experience in the relatively stable mid-west. Your mileage may vary. I don't think though, that this rate freeze would work as a panacea to escape the fraud issue. There are a few issues that the article brought up, but didn't point out all the implications. First, and this was not brought up, much of the sub-prime lending was done through mortgage brokers and other third party institutions, which is where most of this fraud would have taken place. These people find the borrowers (often through agreements with real-estate agents), sucker them in with promises like what I described above, and then within days of closing on the mortgage sell it to a bank or other large institution, and never worry about it again. These people, currently, are getting off scott free, except for the fact that their business is drying up. Don't get me wrong, not all of them were bad. In fact, the one we finally went through was very helpful and upfront with us, and not pushy about how much to borrow.

The other problem is that these mortgages are only having their rates frozen, and just for five years. I don't know for sure about most of you, but my wages haven't increased significantly (outside of getting a new job) in the last five years, and according to the government, average wages for working class Americans has barely kept pace with inflation. This means that the five year freeze is just a gamble that the same thing won't happen again then, or maybe not a gamble, maybe Bush just doesn't want this to be as easy to stick to him...

Related to that is the fact that house values aren't likely, as of now, to appreciate significantly over this time frame either. Houses still aren't getting sold now, and people are still finding it harder to get financing to buy houses. It's so bad for one seller near me that they are advertising the price on the for sale sign. And like I said before, a drop in rates won't help most buyers because the banks are still more wary about lending.

He also, in the article, mentions that the FHA is being brought in to help some borrowers (the ones that won't get the freeze) to refinance. He says this is so that "[t]hey could say, 'Fraud? What fraud?! You knew the borrower's real income and asset information later when he refinanced!'" The problem though is that these borrowers would need to get approved for this new financing. This just won't happen in most of these cases as their houses clearly aren't worth as much now as when they bought it, even six months previously, and many won't be able to afford a standard FHA rate, which is why they got the ARM in the first place.

Thursday, December 6, 2007

A little of column A, but also some of column B

BAC over at Yikes pointed me to this:

During a Press Club event David Gregory, of NBC News, complained about the polarized nature of politics and how it affects them. When asked later by Hellen Thomas who he thought caused the polarization, he blamed it largely on the internet and the bloggers. While the soapbox nature of blogging does contribute to this problem, it was not the originator, and definitely not the only, and probably not the greatest contributor to the problem.

The polarization first started long before the internet became popular. Rush Limbaugh has not changed his format since he started up in 1988. Bill Clinton wasn't attacked time and again by bloggers. The Christian Right wasn't started by bloggers. George W. Bush is not, to my knowledge, a blogger. Fox News, Rupert Murdoch and the like were not, until recently, bloggers. Rove didn't use the internet originally. Michael Moore's primary medium isn't the internet.

What caused the polarized nature of politics today is the way the media classifies everything as a black or white issue where only one party can be right. It doesn't want to make its viewers think by explaining what each side is saying and what the truth is, it just wants to sell you a pack of Bud, a Happy Meal, and get you to watch the next show. When you are given only the back and forth and not any of the facts that the different sides are both manipulating, people are left to figure out what is true on their own. They will then side with whichever one they are already a part of, and since they are never given a real consensus on the facts, they can always shelter in their own world.

Blogs just allow this to continue. Many blogs, especially political blogs, are used, as I described above, as a soap box. The problem is that everyone has a soap box and few people get off long enough to look for whats really going on. They change from being a way to share your ideas to a way to reinforce your narrow view. I hope to go outside of that on this blog. I will attempt to research, and give you access to my research, my topics (when its not a pure opinion piece). I also ask that, if I am wrong, that you, my readers, show me where I went wrong and help me correct it.

So, David Gregory, you are not correct about where it started, you would have been right, though, to have said that the internet magnifies it.

Monday, December 3, 2007

The monkey in the middle

This is probably one of the most hilarious things I have seen from TV in a while. My respect for Erin Burnett has grown incredibly. Poor, poor Joe having to act like he is a clueless buffon... (or was he acting?)


Saturday, December 1, 2007

No lower, please!

On why lowering the interest rate is probably the worst thing that the Fed can do right now

As I can see it, if the Fed does what Wall Street is asking for it to do, there will be (at least) four major effects, half of which are "good" (depending on who you are...).

1. The trade gap will shrink from a record negative $764 billion last year. This is good for local manufacturers as that means we will sell more stuff and bring more money back here. However, some of the other effects act as a (smaller) counter-weight to this, limiting its impact somewhat.

2. Mortgage brokers and other lenders will see profits increase. This is largely because they can acquire lower risk borrowers with lower interest rates. They will also see profits rise on their currently held fixed rate mortgages. This is the primary reason the Fed would be willing to lower rates.

3. Now we start on the bad effects. First is inflation. Over the past couple months, the dollar has dropped significantly against the Euro and the British Pound (along with most other foreign currencies). This helps the trade gap, like I mentioned above, but it really hurts the consumer. I predict, especially if the Fed does a half point rate cut, that we will see oil prices over $100 within a week. Oil isn't over $90 a barrel just for giggles. It too has gone up in price with every rate cut. That will be the first one you see, but food and other imports are going to jump a bit too. Those have two things going against them, the spike in oil prices and the drop in the dollar value. Oh, and that inflation rate that is reported on monthly doesn't really reflect the inflation working class people face. Just anecdotally, my health insurance costs have gone up about 10% annually, what had been my rent (we got a house last year) had been going up 6%, gas is up, right now, 50% and like I said a moment ago, I don't expect it to come down any time soon. Heating and energy costs are up between 10 and 25% or worse from what I have been hearing. And food, or what I have been paying close attention to at least, is up about 6% too. These are the things working class people spend 70% or more of their paychecks on (most of the rest going to debts...).

4. It won't help fix the one thing that is causing the credit crunch, it will only hide it. This rate drop will not help fix the housing market in the least. Mortgage lenders are still going to be less willing to offer loans without a significant down payment. The group that was supporting the housing boom - college graduates and other first time home buyers - will still be unable to afford a mortgage. The other group supporting the housing market, speculators (i.e. flippers), will continue to lose their target customers and so fewer of them will be buying more houses. Add to this stagnant pool the expected record number of foreclosures expected in the coming months and you will see a continued drop in home prices, which will just add fuel to this fire...

At best I expect any interest rate cut to be a bandaid covering an infected cut. I just hope that the infection is taken care of before we have to cut the whole limb...

So please Federal Reserve, stop listening to crazy investors who can't see financial issues outside of Wall Street and start looking at the bigger picture. Don't lower interest rates; find ways to fix the real problem.