Thursday, March 22, 2007

Moderate + Mainstream

I am right of center....fiscally. I am left of center....socially.

I believe that government is the worst use of our money. It is a necessary evil with regard to those things it was originally empowered to do. It has however, stepped into many things it does not belong in. The less money it has, the less meddling it does.

I am pro-abortion...for the first two trimesters....then opposed on virtually any grounds.

I am against a single-payer medical system. I have family in England and I have had medical care in Canada. Talk to the average person in either country and they will literally spit their hatred of their medical systems. I am willing to support a government program of vouchers for medical care AND schools.

I am pro-education, but anti-teachers unions. One of the worst features of our educational system is tenure. It should be abolished. I am opposed to unions in general. My father was a shop steward. In Chicago. I have seen first hand the terrible toll unions can inflict on workers and businesses.

I am pro-military. I served, my father served, my brother served (and retired from) and my nephew is currently serving. My support is total. (Did I support the actions inAbu-Grab, no, don't be stupid)

I am pro-1st, 2nd, 3rd, 4th, 5th and so on amendment rights. I am anti-ACLU.

My positions are MODERATE. They are shared by the VAST majority of Americans.

However, our media - all of it - has reached a point where people on the left can not tell a moderate liberal position and where people on the right can not tell a moderate conservative position. Increasingly, the only voices you hear on TV, cable or radio are absolute conservatives and absolute liberals. I chose the adjective absolute instead of far-left/right because someone doesn't have to be far-either to be an absolutist. Victoria holds virtually no conservative positions (I have just sat here for 5 minutes to try and think of one with no luck) but I wouldn't call her far-left.

It has become "normal" for the far-right/left to eat their own. Code Pink camping out on Pelosi's stoop? Air American couldn't espouse a moderate position if it's life depended on it. Ann Coulter has become a parody of herself. The religious right sees Satan in every picture/video/liberal.

People are tuning out media. Networks are losing viewers (they are not going to cable); newspapers are dead - momentum is all they have going for them right now. The average radio or cable show has a couple million listeners/viewers....many shared. (The Air America crowd watchesOberman, the Rush crowd watches O'Reilly)

People of good intentions on the left get shouted down by the right because if the right gives an inch, the left takes a mile. People of good intentions on the right get shouted down by the left because if the left gives an inch, the right takes a mile. No one wants to give the left/right any more ammunition than they already have so the moderates shut up and leave the field to the fringe - now called "mainstream"

Rush has said that moderates do not get anything done. Only those that take a stand firmly Conservative(Liberal) accomplish great things. He might be right about great things, but every day, every where, moderates stock theWalMart shelves, deliver the gas to the stations, serve in our military and serve in the soup kitchens.

I am proud to be a moderate. Someday, we might even elect one.

Monday, March 12, 2007

Top Picks - Science Fiction

My top picks for Science Fiction, book

1. Battlefield Earth, by L. Ron Hubbard (say whatever you want about Scientology, the book is a first rate read)

2 Jumper by Stephen Gould. I spent months after first reading it thinking about what I would do! I decided to re-read it!

3. White Wing, by Gordon Kendall. A complete surprise and worth packing in your favorite suitcase after reading it...because it is worth reading every time.

4. Ender's Game, by Orson Scott Card. I didn't know, til Ender did and easily the best of the series.

5. There are two series, any one from which is a top five:
Sten series (8 books) by Chris Bunch and Alan Cole, I still tell the jokes.
Honor Harrington series (10? books) by David Weber. Is it luck if you pick the right club, call the shot, land it exactly, and sink it from 100 yds?

I just finished reading Old Man's War based on a blog recommendation and it is already a top ten. After another read sometime late this year, it will probably move up some.

Saturday, March 10, 2007

Mortgage Fraud

One of the questions swirling around bankruptcy attorney circles is: where is the fraud?

We are seeing people facing mortgages where the monthly payments are increasing 40% or more in a 2-2.5 year period. Chapter 13 bankruptcy trustees are beginning to require proposed plans deal with the mortgage payments at their highest possible level rather than what the loan currently calls for.

It started me thinking. Everyone (that supported bankruptcy reform) is going blame the consumer for agreeing to mortgages that they had no chance of ever repaying. The consumer is going to blame the mortgage originator that told them they could refinance before the adjustments started. The mortgage originators are going to offer, the consumer knew the risks...of course, we are watching mortgage lenders flee the scene like cockroaches.

A typical bond is sold based on the interest rate earned. Because the rate of the bond is fixed, as interest rates move, the price moves inversely. Mortgage back securities (MBS) operate in a generally similar way. Although there are many more factors and risks involved, the issue is "what is the rate of return"?

For a good overview of the MBS market, check out this Fannie Mae page.

That said, let me share some numbers.
A $200,000 loan, 3/27 ARM, initial rate 8.5%, index 9.5%+LIBOR, 6 month adj, 11.5% initial cap, initial monthly payment $1,537.83.

Based on current LIBOR, if this loan was issued in 2004(it was), then on Jan 1, 2009, the payment will be $2,401.51, a 56% increase. This does not include any amounts for, or changes in, property taxes or insurance.

If the loan goes to maturity, the effective rate over the term would be 10.48%
Ignoring all the risk factors, what would the basis for purchase price of this loan be?
The 10.48% yield?
The 8.5% initial yield?
The 9.52% index yield?

Assuming a Fannie Mae MBS was priced to yield 6.5% on a pool of 1000 of these?

Value of 10.48% yield $322,557.53 x 1000
Value of 8.5% yield $261,538.46 x 1000
Value of 9.52% yield $292,923.08 x 1000

If I borrowed $2,000,000 from you at 5.5% and loaned it to 10 people at the 3/27 ARM rate indicated. The potential profit on reselling the loans in 90-120 days is enormous. Of course defaults and early repayments seriously affect as a buyer of the MBS, I might be a little miffed if the underlying loans crash and burn.

The scenario I see unfolding (originally) is that as more money is made, it chases more and more potential loans with huge index spreads...this would drive DOWN the initial interest rates as lenders compete. As the market begins to crash (when there are no more people obtaining loans (you have already dreged the bottom), then the interest rates are going to climb to ...the index yield, 9.52%, at least.

What happens to a bond price when the interest rate climbs 3000 basis points?

Care to answer Fannie Mae? Chairman Bernanke?

There may be no interest rate acceptable to the market for these securities. If that happens, the MBS market will crash and the largest holder of MBS is Fannie Mae.

Bernanke may have no good options to deal with the situation. Large banks and securities firms will have no choice but to purchase the MBS originators at losses to protect their own positions as large scale bankruptcies would all but eliminate funding for the MANY hundreds of billions of loans resetting with millions of borrowers unable to qualify for a standard loan.

Let me be a scare-monger. It is possible that as many as 90% of ARMs sold in the last 2-3 years will default eventually.

And who do you think will be blamed?

Tuesday, March 06, 2007


I want to say something about lying. It seems to be happening more frequently.

People are getting up in front of cameras and opening their mouths and what is coming out is so blatantly a lie that you'd expect everyone to audibly gasp. But it doesn't happen. No one calls them on their lie. No one questions their lie. Lies. Flat out, clear cut, lies.

My problem is that EVERYONE lies a little. For a long time I tried really hard to either tell the truth or shut up. But little things happen: the boss is in but doesn't want to talk to someone "sorry, not available". I am pretty good at avoiding big of the reasons people tend to ask me for my opinion is they trust what comes out, even if they don't like what they hear.

We expect politicians to lie. It is part of the job description. Still, John Edwards talks about two Americas while building a 28,000 sq ft mansion; Al Gore talks about global warming while flying in private jets; the war on drugs is apparently now the war on those fighting drugs; "we support the troops"; Sandy Berger forgot about the documents in his underwear; Libby was covering for Cheney; Joe Wilson was set up;

Don't get me started on American Idol or the Oscars...

We are well down a spiraling slide of dishonesty...and I can't see anyway to stop it.

Monday, March 05, 2007


Research in this country is in serious need of assistance. If you believe that basic research needs more attention and you have a research bankground, I would be interested in your opinions. By invitation only.

Thursday, March 01, 2007

Blog Talk Radio

A new service is available for just about anyone to host their own podcast/radio show. I will be hosting my first show today at 9:30 central. Tune in live (call in is available) or listen later!

Ketsup or Catch Up