The Bear Stearns Situation, play by play. May 29, 2008
Posted by baxtersbrother2 in Accounting, Economy, Social Discourse, Tax Policy., US Government, Uncategorized.Tags: Bear Stearns, Federal Reserve, Government Intervention, JPMorganChase, Sub-prime mortgages, Wall Street Journal
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There is a very indepth series of articles from The Wall Street Journal that goes into great detail about the failure and “bailout” of Bear Stearns. The articles paint a picture that is nothing short of breath-taking. The beginning of the article has a vision of a trader, confronting the CEO, Alan Schwartz, and asking “How could this happen to 14,000 employees?” “Look into my eyes, and tell me how how this happened!” This is the 64,000 question.
Many large financial institutions have failed. One, was Drexel Burnham, Lambert, for example. But what makes this interesting is that this is the first time that the Federal Reserve responded.
Bear Stearns had alot of mortgages on their books, mortgages that were defaulting. The risk that Bear Stearns was assuming was great along with the fact that they had a cashflow problem.
Wikipedia explains it well…. As of November 30, 2007 Bear Stearns had notional contract amounts of approximately $13.40 trillion in derivative financial instruments, of which $1.85 trillion were listed futures and option contracts. In addition Bear Stearns was carrying more than $28 billion in ‘level 3′ assets on its books at the end of fiscal 2007 versus a net equity position of only $11.7 billion. During 2007, Bear Stearns had several funds that invested heavily in Sub-prime mortgages, and as the market tanked, the value evaporated. This was noticed in releasing earnings, when it was shown that net profits dropped 61%. Then in November, Bear Stearns wrote down another $1.2 billion. This caused more skepticism of the group, as many other brokerages (faced with their own problems) wanted to not do business with Bear Anymore.
In March, clients were dropping like flies. Cash was disappearing. Bankruptcy was definitely on the table, even though it would decimate the business. Then someone called the Federal Reserve. Then in an act of governmental interaction, the Federal Reserve, in connection with JPMorganChase issued an emergency 28 day loan. 4 days later, Bear Stearns and JPMorganChase agreed to a merger at $2 per share ( which got raised to $10, because of threat of shareholder lawsuits.)
What this blog found interesting was that the Treasury Secretary Henry Paulson was leery. The Wall Street Journal reports that “given the unprecedented level of government intervention in rescuing the troubled firm,& appearing to bailout Wall Street Investors while many were facing foreclosure.
GOT ALL OF THIS…. It is the opinion of this blog that this was a bailout that is unprecedented. The Congress is having a dreadful time regarding the Mortgage crisis, but can scope out a deal over a weekend. It furthers the question of how much governmental intervention is appropriate. There are two schools of thought, one is that Ok, you invested, got over extended, and failed; the second is that this needed to be done, otherwise the economy would have been driven further into recession.
The Bear Stearns situation is a situation that is the sign of the times. The sub-prime and other mortgage crisis not only effected the borrowers whose homes are repossessed, but large institutions as well. However, what is different, is that the government was quick to come to Bear Stearns aid and has been not as quick in coming to those effected by the sub-prime crisis. What is good for one, should be good for the other. Many, Many people lost billions of dollars because of the situation and there is empathy. The true effects will be felt for many years to come.
The Farm Bill, The Farm Bill, The Farm Bill. May 16, 2008
Posted by baxtersbrother2 in Fiscal, Just Ranting, Social Discourse, Tax Policy., US Government, Uncategorized.Tags: Farm Bill, Farmers, Farming, NYTimes, President Bush, Senate, US Congress
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Once every 5 years or so, there is a package from the US Congress that is commonly called “The Farm Bill.” Typically, the farm bill contains agricultural programs for the nations farmers and Food Stamp money for the nations hungry. As illustrated in the NYTimes, even though it is a bi-partisan bill, and almost veto-proof, President Bush should veto this bill. The present package is a $307 billion dollar package that is full of pork for very wealthy farmers who are benefiting from the Ethanol revolution and increases in Net income. In the fine details, there is tax breaks for racehouse breeders in Kentucky by Senator McConnell. They pay the farmers not to farm!! If they are farmers who do not farm, what are they?
Also:
- Continues to subsidize millionaires. Currently, all full-time farmers may be eligible for farm subsidies regardless of income (part-time farmers must earn less than $2.5 million annually). President Bush reasonably proposed limiting farm subsidies to those who earn less than $200,000 a year.
- It pays people to farm dirt or do not farm at all! Here is a article from The Washington Post.
- It goes to school nutrition programs which I think is great. However, many of the school programs are corporate run, and they are feeding the children garbage with sugar that is creating a bigger obesity crisis.
- Many of the farmers do not like the bill and believe that it is fraud. The Grand Island Independent reported the passage of the bill and how Senator Chuck Hagel voted against it. “We must reconnect our policy to its original purpose: providing a true safety net to real farmers when they need it most, while limiting government involvement in producers’ decisions,” Hagel said.
- Senator Chuck Hagel also said “It will continue to distort land valuations and inflate food prices, while jeopardizing our trade agreements,” he said. “We need a farm bill that significantly reforms our current policy. Agriculture is far too important to Nebraska and America for it to continue on such a misguided path.” As a person who has traveled thru Nebraska at 100 mph, I completely agree.
- Fewer than half of America’s farms benefit from our current farm policy and nearly 66 percent of farm payments go to only 10 percent of producers. It is unwise and wrong to continue these policies. The real farmers and taxpayers lose. The big guys win.
- The average food stamp receipts receives an average $1.10 per meal. That is it. At the local Safeway, you can barely buy a box of Mac and Cheese for that price.
Regardless of ones political philosophy, WE DESERVE BETTER!
Barack Obama’s Bitterness on an overall spectrum April 15, 2008
Posted by baxtersbrother2 in Economy, Election 2008, Fiscal, Just Ranting, Resources, Social Discourse, Tax Policy..Tags: , , Barack Obama, Economy, Election 2008, Fiscal
3 comments
Well, it was bound to happen eventually, Barack Obama officially fumbled and was off message last week when he indicated that “It’s not surprising then they get bitter, they cling to guns or religion or antipathy to people who aren’t like them or anti-immigrant sentiment or antitrade sentiment as a way to explain their frustrations” during an event in San Francisco. In today’s NYTimes, one of their columnist indicates there is racial undertones present. Personally, I believe that it is more simpler than that. Many, Many Americans are finding it difficult in challanging economic times not to be angry. There was a poll that was conducted that 81% of the American electorate believes that the nation is in the wrong direction. Everyone is talking about how much gasoline has increased, how much food prices have increased, how much utilities have increased. They see their investments deflating, jobs being offsourced. They see their friends going thru the same thing. This is not believe that it is a “working class” thing but what is present regardless of socioeconomic status.
Lou Dobbs, on his nightly program, states that there is “A War on the Middle Class.” I partly agree. People are frustrated and wanted to just know why. Questions of “Why is this happening to me?” And, they want someone/something to blame, whether it be the Government, illegal immigration, or trade policies.
Barack Obama was politically stupid to make this statement because it appears that he is completely out of touch with the American electorate. Plus, he is apparently out of touch. Americans are NOT domestic simpletons that cling to God and Guns. They need leadership and resolve.
There has been a comment that has been all OVER the place yesterday. The phrase of “elitist” was prevelant. There were many that believe that Barack Obama, by making the stupid comments, is an elitist. However, America, do not buy it. This is a divide and conquer strategy used to distract people from the real issues. The GOP has to present a solution that is different than what they have produced thru the leadership of President Bush. They haven’t. The Democratic Party needs to present something that will captivate and motivate. They have not. Instead, we have stories about Pastors and some of the comments that they present, the “pimping” (Now this was stupid) of Chelsea Clinton, and so forth. What I would like to know is what are these people going to do or not do to change the quality of life of the American people and if those solutions simply do not work, then change them to a more libertarian approach.
Happy Tax Day everyone!!! Most have probably spent their refunds to survive. But, nonetheless, Happy Tax Day. I have also included the schedule of when people get their “economic stimulus” checks.This is the infamous Bi-Partisan “Economic Stimulus Act of 2008.” The interesting thing is that this does not truly impact the economy. This is not “free money.” This is an advance on your refund for when you file the 2008 return, and the bad part of all of this: IT IS PURE DEFICIT SPENDING. Many of us, will take the funds when they see it online in their accounts, go over to the billpay section of their banks website and pay something. In the act, there were some investment credits, but not enough to make a difference. It is exactly the same in theory as the Stimulus Acts that were done in 2001, and 1975. The net impact was that there was minor, if any stimulus to the economy.
Supply Side Makes a comeback March 27, 2008
Posted by baxtersbrother2 in Tax Policy., Uncategorized.Tags: Tax Policy.
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This was posted in The New York Times yesterday that was great. It is linked here. Goes into great lengths that explains that supply side economics can work. It has been demonized at a university level and history does repeat itself. I was at a function earlier last week and we were debating policy over beer ( it is always good to debate something when you are half lit). Anyway, I can predict the future right here. Even though I will disagree with it with passion, I believe that the Bush Tax Cuts will be repealed. I believe that the current political dialogue and the deficit will be about $400 billion. I thought that I upset those who are most passionate, but I can be a realist and I am an accountant at heart. I have read tax code in earnest. Nothing remains the same in terms of policy. Rates are changed, calculations are “enhanced” or simplified. If you ever want to relieve yourself of insomnia, get the latest CCH’s Guide to US Tax policy. Guaranteed to confuse and just anger. The policy is written like this, there is a simple rule (under the disguise of If you have this, Do this). Then there are hundreds of exceptions and phaseouts to the rule. It is so stupid. Things like, “this does not apply to certain industries” to things like, “if you live in Alaska, and grow corn organically, you get a tax credit.” Remember, these are written by politicians. They got things to do like fundraise, go to lunch, and grandstand. So, lets make it as difficult as possible.. Sad.
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