Sunday, September 28, 2008

ACORN Fertilized By Your Money


Most of us are painfully aware of the financial crisis that has hit the country. As you might glean from earlier posts, I have been somewhat skeptical of the proposition that immediate, unchallenged, government action to take over failing portfolios is absolutely necessary. But there certainly is enough evidence that there are very serious financial problems within banking and investment firms that require some sort of response.

There can be all sorts of finger-pointing, but the fact is that a major artery has been cut and it appears there is a need for some emergency attention before the bleeding affects more parts of the body-financial.

There is about as much bi-partisanship being displayed as conceivable... given the election campaign in progress. Perhaps that is because the problem is worse than we have been told.

One of our friends who works at a large securities firm said that the extent of the problem has been still largely hidden... and what we might perceive as a serious knife cut may be more like a multiple stabbing that will take extended surgeries to repair.
The fact that both Sen. McCain and Sen. Obama danced around the financial crisis during their debate immediately after their meeting in Washington, D.C. could be viewed as an indicator of just how serious things are.
There was a notable absence of laying the blame... which probably means there is so much blame and the problem is so serious that even mortal political enemies have to come together for survival... and both parties realize that the situation is well beyond the laying of blame for political advantage.
That doesn't mean that a little political maneuvering isn't being attempted.
In case you have been on vacation in Borneo... from

By popular demand we are posting the text of the provision in the House bailout bill that requires Treasury to divert 20% of all profits away from taxpayers and to left-wing advocacy groups like the Association of Community Organizations for Reform Now (ACORN).


(1) DEPOSITS.—Not less than 20 percent of any profit realized on the sale of each troubled asset purchased under this Act shall be deposited as provided in paragraph (2).
(2) USE OF DEPOSITS.—Of the amount referred to in paragraph (1)—
(A) 65 percent shall be deposited into the Housing Trust Fund established under section 1338 of the Federal Housing Enterprises Regulatory Reform Act of 1992 (12 U.S.C. 4568); and
(B) 35 percent shall be deposited into the Capital Magnet Fund established under section 1339 of that Act (12 U.S.C. 4569).

More on ACORN’s long history of fraud, deceit and intimidation here. [and here].

If I am reading this correctly, there is one huge presumption: there will be a profit from the "investment" of $0.7 to ??? trillion of our tax dollars. Given the government's record of meddling in the marketplace, I place the likelihood at somewhere around... nil.
Regardless, just the idea that a special interest, politically-oriented, fraud-promoting organization should even get consideration by our government is repugnant.
Think about it. Your U.S. congressmen want to use your money to correct a situation they fostered and then, if there is any positive return, give a large chunk to an organization that was a big part of the original problem. Obviously, bi-partisanship has its limits.

It's a lot like everyone agreeing that surgery for knife wounds is needed to save the patient... and then a fund being established for the attacker from the victims insurance company.

10:00 AM EST update
ACORN proposal looks like it may have been roasted. Could there be some modicum of common sense in Washington?
See what ACORN got in the July version of the bailout.

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There is always an easy solution to every human problem—neat, plausible, and wrong.
Henry Louis Mencken (1880–1956)
“The Divine Afflatus,” A Mencken Chrestomathy, chapter 25, p. 443 (1949)
... and one could add "not all human problems really are."
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Tracking Interest Rates

Tracking Interest Rates


SEARCH BLOG: FEDERAL RESERVE for full versions... or use the Blog Archive pulldown menu.

February 3, 2006
Go back to 1999-2000 and see what the Fed did. They are following the same pattern for 2005-06. If it ain't broke, the Fed will fix it... and good!
August 29, 2006 The Federal Reserve always acts on old information... and is the only cause of U.S. recessions.
December 5, 2006 Last spring I wrote about what I saw to be a sharp downturn in the economy in the "rustbelt" states, particularly Michigan.
March 28, 2007
The Federal Reserve sees no need to cut interest rates in the light of adverse recent economic data, Ben Bernanke said on Wednesday.
The Fed chairman said ”to date, the incoming data have supported the view that the current stance of policy is likely to foster sustainable economic growth and a gradual ebbing in core inflation”.

July 21, 2007 My guess is that if there is an interest rate change, a cut is more likely than an increase. The key variables to be watching at this point are real estate prices and the inventory of unsold homes.
August 11, 2007 I suspect that within 6 months the Federal Reserve will be forced to lower interest rates before housing becomes a black hole.
September 11, 2007 It only means that the overall process has flaws guaranteeing it will be slow in responding to changes in the economy... and tend to over-react as a result.
September 18, 2007 I think a 4% rate is really what is needed to turn the economy back on the right course. The rate may not get there, but more cuts will be needed with employment rates down and foreclosure rates up.
October 25, 2007 How long will it be before I will be able to write: "The Federal Reserve lowered its lending rate to 4% in response to the collapse of the U.S. housing market and massive numbers of foreclosures that threaten the banking and mortgage sectors."
"Should the elevated turbulence persist, it would increase the possibility of further tightening in financial conditions for households and businesses," he said.

"Uncertainties about the economic outlook are unusually high right now," he said. "These uncertainties require flexible and pragmatic policymaking -- nimble is the adjective I used a few weeks ago."

December 11, 2007 Somehow the Fed misses the obvious.
[Image from:]
December 13, 2007 [from The Christian Science Monitor]
"The odds of a recession are now above 50 percent," says Mark Zandi, chief economist at Moody's "We are right on the edge of a recession in part because of the Fed's reluctance to reduce interest rates more aggressively." [see my comments of September 11]
January 7, 2008 The real problem now is that consumers can't rescue the economy and manufacturing, which is already weakening, will continue to weaken. We've gutted the forces that could avoid a downturn. The question is not whether there will be a recession, but can it be dampened sufficiently so that it is very short.
January 11, 2008 This is death by a thousand cuts.
January 13, 2008 [N.Y. Times]
“The question is not whether we will have a recession, but how deep and prolonged it will be,” said David Rosenberg, the chief North American economist at Merrill Lynch. “Even if the Fed’s moves are going to work, it will not show up until the later part of 2008 or 2009.
January 17, 2008 A few days ago, Anna Schwartz, nonagenarian economist, implicated the Federal Reserve as the cause of the present lending crisis [from the Telegraph - UK]:
The high priestess of US monetarism - a revered figure at the Fed - says the central bank is itself the chief cause of the credit bubble, and now seems stunned as the consequences of its own actions engulf the financial system. "The new group at the Fed is not equal to the problem that faces it," she says, daring to utter a thought that fellow critics mostly utter sotto voce.
January 22, 2008 The cut has become infected and a limb is in danger. Ben Bernanke is panicking and the Fed has its emergency triage team cutting rates... this time by 3/4%. ...

What should the Federal Reserve do now? Step back... and don't be so anxious to raise rates at the first sign of economic improvement.
Individuals and businesses need stability in their financial cost structures so that they can plan effectively and keep their ships afloat. Wildly fluctuating rates... regardless of what the absolute levels are... create problems. Either too much spending or too much fear. It's just not that difficult to comprehend. Why has it been so difficult for the Fed?

About Me

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Michigan, United States
Air Force (SAC) captain 1968-72. Retired after 35 years of business and logistical planning, including running a small business. Two sons with advanced degrees; one with a business and pre-law degree. Beautiful wife who has put up with me for 4 decades. Education: B.A. (Sociology major; minors in philosopy, English literature, and German) M.S. Operations Management (like a mixture of an MBA with logistical planning)