WOLF HUFFED AND PUFFED BLEW THE LOAN DOWN!!!

Hi,

We discussed hedge funds several posts back and I wanted to give you the definition for the bundled mortgage funds that caused so much damage to our economy and helped put us into a depression not unlike 1929.

CDOs are Collateralized Debt Obligations or bundled mortgaged bonds,(HEDGE FUNDS). These funds, sold privately, allowed folks to buy houses well above their means or ability to repay the loans. Goldman Sachs has been the sacrificial goat for the Security and Exchange Commission's fraud case but many firms practiced the art of EASY MONEY and BIG PROFITS. Since CDOs were not traded on the regulated market, Wall Street has absorbed blame that belongs with those involved and the government.

The problem with these loans was not just RISK on both sides but how the clever (or cunning)financiers handled them. Now remember participants in obtaining a mortgage believed that the Government (Fannie Mae and Freddie Mac) was backing the effort and they went to mortgage lenders who all looked on the up and up to the home buyer. Ruse or right??????? The best?? of these were bundled into CDOs.

Folks with BADLY impaired or no credit history were given mortgages with interest-only payments for several years on homes well above their means to buy with the promise of refinancing at a later date and these mortgages were bundled into SUBPRIME MORTGAGE SECURITIES.

Financiers ASSUMED (there's that word again-ASSUME = ASS(OUT of)U(and)ME) the SUBPRIME MORTGAGES would be refinanced in a few years at a higher monthly payment and all would be well. If the owners (actually renters without rights under these conditions) could not meet the terms (essentially a new mortgage deal with high payments) this would cause default. And WOW!!!!!did it! All over the country and into a deep depression.

Prior to the market's fall, the not satisfied financiers bought their own mortgage companies, relaxed standards, created unlimited synthetic CDOs with no hard assets behind them. They then sold TRANCHES (slices) instead of shares as you would in other funds. The riskier the TRANCHE the higher profit yield to the investor. Again this was all done outside the Wall Street Market Place.

Still not satisfied other types of securities were created that were SYNTHETIC CDOs (Sounds like LAS VEGAS again) based on betting against the housing market.

We're now looking at deals that are considered fraudulent and for which the financiers and their companies may be potentially liable. Since Fannie Mae and Freddie Mac were totally involved-WOULD THIS BE CONSIDERED A GOVERNMENT SPONSORED CON GAME?????????????!!!!!!!

These CDOs though not publicly traded, were traded privately to many of the same clients, who bought stocks and bonds through firms that represented Wall St. There was no so-called transparency that is required by the SEC of Wall St. stocks. Although buyers were given a humongous list of included documents, few took the time necessary to investigate, trusting their broker to steer them right. The broker probably hadn't had time to read them either. An unknowing stock holder might buy what looked like a potentially secured investment of tranches that held some totally risky combinations. Although, one would expect someone buying large amounts of CDOs to at least have done some investigation!!??

The estimated sales reached 500 billion but not being public trade put it outside all the market rules and regulations. I'm not really sure why the SEC has to investigate something outside their parameters but I suppose it helps to calm those investors taken in by their blind greed.

Firms like Merrill Lynch (the most CDOs), UBS, JPMorgan Chase, Citigroup among others were large players in this gambling both in the US and overseas. The SEC has also been investigating how mortgages were sliced and by whom.

What also seems to be the case is that the firms were possibly allowing some investors to bet both ways-by buying CDO tranches then buying SYNTHETIC CDOs so betting against the tranches and allowing them to win either way the market went. A mitigation of risk called HEDGING. Sound familiar? Seems as if the only real losers in these schemes were the ignorant.

This house of cards came tumbling down as more and more home owners originally priced out of the housing market but let in by RISKY MORTGAGES AND CDOs finally defaulted and lost the homes that they never should have been sold in the first place.

The three little pigs listened as the Wolf said "I'll huff and I'll puff and I'll blow your house down." and he did. The houses were made of the straw and sticks of bad loans and were blown down. No wolves can blow a house down when its made out of the bricks of good finance

That sounds harsh but making credit easy is a BOOBY TRAP (yes, they think you are an ignorant boob) for a lot of folks. Credit cards carry the same risk. There is only one way to purchase what you want or feel you deserve--BE SURE YOU CAN PAY FOR IT BEFORE YOU BUY IT. That's fundamental all over the world.

There are two old sayings: LET THE BUYER BEWARE! and IF IT SEEMS TOO GOOD TO BE TRUE--IT IS! and of course add to that "THE THREE LITTLE PIGS". All teach the rules of good personal business.

There really isn't anyone out there who will take as good care of you and your money as you will. No matter how sincere or dedicated that someone may be. If that person is successful, he or she has numerous clients to look after so you become ONLY ONE of many.

So learn what you are doing!!!!!!! Don't look to others to take care of your needs or wants. Depend on yourself and if you make a mistake, at least it's your mistake and not another person's carelessness. Then if you hire someone for the various transactions, you will know what's happening not just trust in dumb luck.

There are so many good books out there by people who have studied financial matters. So it's boring--we're talking about your money here! Read a variety so that you don't cave in to someone's bias. It makes no sense to work hard at whatever you do and not to know how to make your earnings from that labor be protected from harm. Trust yourself!!! You'll clearly be better at this than a well-meaning stranger if you learn the rules for taking care of your finances.

Cheers, Connie

GDP ALSO DEFINED AS "G.D. POLITICS" Post 19

Hi,

Some terms seen constantly in the news need defining. Remember, Economics is part of the Social Sciences and it is a major field of study and assumption so we will not be covering it all. However, there are many sites on the Internet you can use through Google, Bing, etc. that will fill you in on anything I don't cover. One list of definitions that I favor is "A Journalist's Guide to Economic Terms" because the definitions are short and sweet. It does not cover all of them.

Most often seen in the newspapers: GDP (I define it as G.D. POLITICS, not in the economics dictionary) GROSS DOMESTIC PRODUCT is the value of all goods AND services within the United States (or any other country) during (usually) a year. It is a government measurement by output and reported by the US Bureau of Economic Analysis.

There is also REAL GDP (also called CONSTANT GDP) which is the total market value, measured by constant price, of all goods and services with the US (or any other economy) usually in one year.

Why the difference? Well again we are dealing with assumption here. The difference is that REAL GDP is measured in CONSTANT PRICES FOR THE YEAR and ADJUSTS FOR INFLATION for the year. You might want to compare both if checking on them.

SEE! That's why my definition of GDP is better. It's all based on G.D.POLITICS and the POLITICIANS who ARE doing the analysis???!!!!!!!!!! What to believe??? My Dad used to say when listening to a salesman (and believe me the Government is just that) take what the salesman says, halve it (or double it as the case may be) ADD OR DOUBLE 30% then factor in how fast talking and glib the salesman appears and deduct 10% (or add 10%). Seems reasonable. As reasonable as some of these figures.

GDP DEFLATOR: A PRICE INDEX based on the calculation of (RGDP) real gross domestic product and used as an indicator of average prices in the economy in REAL dollars and NOMINAL dollars (dollar amount without inflation adjustment). PULEEZZZ.....NOMINAL DOLLARS???? I ASSUME that's what's left after the IRS (Internal Ruining Service) gets through with you????!!!!!!!!!

This more fun than usual!

GNP (GROSS NUMDUM PREDICTORS) GROSS NATIONAL PRODUCT was the total market value of all goods and services produced by the citizens of the US economy (or any other) in a year, until it was replaced by GDP in the 1990s. Obviously OUT OF FAVOR like the ELECTORATE lately.

We should review HYPOTHESIS: a reasonable proposition about the workings of the world inspired by supposition which may or may not be true. It's essentially a prediction or theory from observation. It is supposedly tested against REAL? WORLD data and if supported over and over again becomes a principle. The key to this is the QUALITY of the TESTING.

SCIENTIFIC METHOD is called into discussion to sway folks who are dubious. It is a STRUCTURED method of investigation by testing and verification of a HYPOTHESIZED RELATIONSHIP. It is an act of discovery for exploring phenomena so that they can be better understood.

That's like what is nominally called the SEX act before marriage; considerable testing may prove unrelated to understanding the MARRIAGE act. After all it is still theory.

ECONOMIC ANALYSIS is using the scientific method in a systematic manner for an end result which may lead to combining concepts that leads to an analysis of the combinations ad infinitum (LATIN for never ending).

COMPARATIVE STATISTICS is the primary analytical technique used in the study of Economics. Used a great deal in observing markets and demand and supply curves. A tool used for Stock market ANALYSIS and you know the consistency of the stock market.

YOU'RE PROBABLY SAYING BY NOW: Why should I learn this if it's not about REALITY?????!! because YOUR POLITICIANS LIVE BY IT and so your bread and butter is gained or lost by their actions. PAY ATTENTION to their methods and you can gain through understanding the WHY and WHEREFORE!!!!!!!!!

STATISTICAL DISCREPANCY: The OFFICIAL (do you like that admission???) adjustment done to help equalize an income and expenditure approach to measuring the GDP. Balancing those "supposed" figures is a problem. It's a budget with an arbitrary percdentage left open for miscellaneous. That way the budget is always met.

Like having a checking account where the bank out of the goodness of their heart provides you with an open account amount and the flow of money is endless????!!!! No budget problems there!

The aforementioned (BEA) BUREAU OF ECONOMIC ANALYSIS. A Government agency in the Department of Commerce compiles and reports all the assorted measurements and data including national income and production as well as good old GDP. The problem here is that Economists rely heavily on BEA for data in their analysis. Does a MISTAKE here mean BEA (BAD ECONOMY ABUSE)???!!! UH OH.

In the event you learn all this stuff on Economics, be prepared for terms to OBFUSCATE (befog) you more. One is CETERIS PARIBUS (Latin) means OTHER THINGS BEING EQUAL. It is used to isolate one factor from all others in order to observe the results. It is supposed to "un-obfuscate" (lift the fog from) whatever theory they have. Feel free if you want to apply CETERIS PARIBUS to this blog to find out if you learned anything??????!!!!!!!!

Cheers, Connie

CLEANING LATRINES WON'T CAUSE WAR!!!! POST 18

Hi,

No matter how DULL international trade may appear, make no mistake it is affecting your life right now and affects your livelihood.

USTR (the office of the United States Government Trade Representative) was formed in 1979 in a reorganization order. It became USTR from STR and a centralized policy group to negotiate international trade. The office was greatly expanded and assumed responsibility for developing, coordinating, setting policy, monitoring foreign compliance, and conducting international trade and trade related investments.

It became the principal advisor to the President on trade and the impact of other policies on trade. The USTR includes being the vice chairman of OPIC (Overseas Private Investment Corporation); a non-voting member of Export-Import Bank Board of Directors; included in the US advisory committee on International Monetary and financial policies and being made the arbitrator in bilateral negotiations over investment barriers.

In 1984, USTR took charge of the implementation of US policies on trade in services; In 1988: it included coordination of trade policy with US agencies; and became principal spokesman for the President on international trade policy; USTR reports and advises the President and Congress on all matters relating to trade agreements and chairs the committee that advises the President.

WHEW!!! And in its spare time, USTR SHOULD CLEAN THE LATRINES in the White House.

However, All of that authority was not enough. In 1988 legislation provided a new role called 'SENSE OF THE CONGRESS" (I was unaware that our Congress had any sense, anymore). It held that USTR should be the Senior representative on any body the President establishes to advise him on how other policies and international trade interact and that USTR be included in all summits and meetings that discussed international trade in any fashion and further USTR now was given responsibility for implementing any trade actions subject only to specific direction by the President (if any).

In other words the President had a "say so" but USTR made the decisions.

1994 found USTR responsible for all negotiations under NAFTA and WTO (World Trade Organization-1995 that replaced 1947-GATT) both enforcement and implementation while 2000 added two new posts AUSTR (assistant US trade Rep for African Affairs) and USTR Chief Agricultural Negotiator) for trade enforcement and negotiations for US agriculture interests and products.

Any wonder why Congress doesn't really know what's going on? Or how things get so bloody anti-American? Here's an agency with more power over the financial structure of the US than that August body of Congress. In addition the GROUP OF SEVEN (US, Britain, France, Italy, Canada, Germany and Japan) meet regularly to decide fiscal and monetary policy including trade so that the global economy maintains cooperation.

However, much of the current trade is coming out of Asia with only Japanese representation on the GROUP OF SEVEN. Witness our astounding debt of 1-2 trillion dollars to China that currently classifies us a DEBTOR NATION. We were for decades a Creditor Nation because our exports were more than our imports and that gave us our power.

I have the definite feeling that all that bureaucracy and authority (the voters are paying for) should have at least noticed that we were headed toward massive debt in China and possibly used that authority to stop our plunge into a debtor nation. All things being equal, they were given "watchdog" authority.

My Lhasa Apso could have done a better job as a watch dog. She'd at least have barked a lot and bitten a few dozen officials.

Maybe USTR should have cleaned the White House Latrines and let some of their other jobs go. At least they would have cleaned up one mess and not have had time to make others.

Global Economy is an old Political idea from the 19Th Century. Since it is primarily based on politics, how much input do you think will be allowed to come from a DEBTOR NATION. Maybe a lot!!!??? Since we owe so much to China, do we now own the bank that lent us the money? If so I'm guessing a partnership will be in the works. Could be worse. Maybe that's why Obama bowed to the Chinese Chairman. He's not sure either!

The other scenario for the U.S.A. involves China's suffering at the hands of a victorious Europe holding China hostage for over 100 years. The Chinese call these years the "Years of Humiliation" both in trade and invasive use of Chinese lands. The country has grown to an immense power in a very short time due to its long history of Confucianism now translated into Communism. It is soon to be payback time. Since our recent Western world power puts the US in target range--GUESS who may not be coming to Dinner. Will Europe help us or throw us to the wolves? The answer to that is just TOO EASY.

Since history shows us that stability is necessary for a working global economy and when that stability falters as it always seems to do, war follows. Western mistakes during the MERCANTILISM era (Western feudal system l6TH-18TH Centuries) show the links between commerce and violence and offer an insight into trade's force in politics.

History shows great expansions of world trade being linked to earlier conquests such as World War 2 which fueled Asia's revival. Not really participating gave China great economic advantage over Japan and the Western world.

War is something that Economists do not desire since it interferes with whatever stability may exist. Conquest is too costly and depleting on the economies involved and allows too much advantage to competing economies. No, it's not true that war brings prosperity as Frankie (FDR) spread around not even when the USA wins. When you win, however, enjoy the power gained because that's the payoff.

Relative British and American economic stability have provided the geopolitical stability which allowed globalisation in the 19Th and 20Th century (even with the wars) much like the Mongolian stabilization in Asia in the 13Th and 14Th centuries. Are we allowing that stabilization to erode? It would appear so and will that mean greater conflict in the future?

Well if the Middle East AND OPEC (ORGANIZATION OF PETROLEUM-EXPORTING COUNTRIES-1961) is any example it is happening now and it may only be a matter of time before it worsens.

By the way, LEARN YOUR ABDs (ALL BUSINESS DEFINITIONS) in order to know what in the name of the Alphabet is going on in the U.S.A. and the world. Otherwise it all seems like gibberish or is that what's really going on!!!!??

Cheers, Connie