Atlanta Braves Sign: Rafael Furcal 3 Years – $30 million
Philadelphia Phillies Sign: Raul Ibanez 3 Years – $31.5 million
New York Yankees Sign: CC Sabathia’s 7 years – $161 million
Mark Teixeira looking for $200 million contract.

With every news channel explaining to us how terrible the economy is, that people are going hungry, giving less money to charity and losing their homes, the sports wire continues to proudly report on the avarice of Major League Baseball.  I grew up as a devoted baseball fan, sneaking a pocket sized radio to bed with me so I could listen to the Minnesota Twins play on WCCO radio, but now that blossom is well off the tree.  The last round of strikes MLB went through in the 90’s did me in.  I no longer am a fan.

Now, it occurs to me that the greed and gluttony displayed by players and owners has reached epic proportions.  Why are these people not taking pay cuts and dramatically lowering ticket prices?  Why do we continue to endorse this?

I think those of you who are still baseball fans should voice your opinion by not renewing season tickets and not watching baseball on TV.  Me?  I will stick to hockey.

1) The largest issue with the banking crisis is FAS 157 (FASB is the Financial Accounting Standards Board and FAS is Financial Accounting Standard).  FASB is the organization that recommends and implements financial accounting  standards for all businesses is the US and is generally driving many international accounting principles.  They start with a recommendation and the allow for discussion on the recommendation, then in most cases the recommendation becomes a regulation.  Once the recommendation becomes a regulation, the regulation becomes part of GAAP (Generally Accepted Accounting Principles) and most companies implement immediately.    More on FAS157 below.

2) The bailout is needed.  The reason the bailout is needed at this point is FAS 157 creates a “death spiral” for the broader financial markets.  Again, look below for explanation.  Everyone at the table agreed that the bailouts were a bad thing, and certainly a bad direction for the country, however, it was just about the only thing we can do to prevent a wider collapse of the financial industry.

FAS 157 and the economy

In its simplest form, FAS 157 talks about valuation.  In the past, companies (Savings and Loans, Japanese Banks, Enron, etc.) artificially inflated  or stated valuation of assets.  This placed the shareholders in a situation where they were unable to understand the true financial situation of the company.  FAS 157 basically says a companies valuation on assets must reflect what those assets could sell for on the open market TODAY.  Not yesterday, not last year, nor next year.  This sounds like a great idea right?

Well, yes and no.  The issue we are having today is: Let’s say I am a bank and I have 1000 mortgages in my portfolio.  All 1000 loans are current and in good standing.  Each loan is $100 in value and I am receiving a 6% year over year return.   I would be receiving $6,000 of revenue and my portfolio would have a valuation of just about $100,000.  This is a great situation for a bank!  However, apply FAS 157 to the valuation of the loan portfolio in today’s economy.  No one is buying mortgage paper (by this I mean no banks will buy the mortgage, this issue has no effect on the homeowner), which means even though I have a well performing portfolio of loans, the market value is as little as 5% of the true value of my portfolio, which means I now have to adjust my valuation from $100,000 to $5,000!  Nothing has happened, I am not losing money, my bank is in great shape, however I just took a write off of 95% of my portfolios net worth!  Multiple my number by millions and that is in large part the issue we are seeing with the banks and investment companies.

We have been lead to believe these banks are losing billions of dollars, and in most cases they are not losing money, they are losing valuation due to FAS 157.  Add an additional ingredient: most banks have a  requirement to maintain a certain amount of capital (money) in reserve. These banks now have to raise up to 95% of their old valuation to make FAS 157 work with the existing capital.  It is a crazy situation and the worse the market gets, the more value all of the portfolios lose, causing more write downs.  FAS 157 is the principle cause of the spiral we are in.

I am not smart enough to understand the global implications of rolling FAS 157 back, and many banks adopted FAS 157 1/1/07, which is 11 months earlier than they had to.  They did this for two reasons: 1) It is easier to account for a whole year using the same account practice for the entire year. 2) In many cases the bank received greater valuation for current assets.

The bailouts will grant capital to banks and other institutions caught in the FAS 157 death spiral, and prevent the economy from sinking deeper and deeper into the abyss.  Again, understand, the core issue here is an accounting issue, not a true fundamental economic issue.

I remain opposed to the government socializing our insurance and banking industries, but I think I better understand WHY we are here and HOW we can get out of the death spiral we are in.

Again, everything above might be wrong.  I will endeavor to investigate this futher and post my finding here.

Today I am scratching my head wondering how the fiscally and socially conservative Republican Party has seemingly overnight turned into a socialistic society.  Those on the Democratic side of the street claim the bailouts being proposed and executed (a good word for it) is simply cronyism, which is completely absurd.  I believe the real issue is the current Republican Government (good old GWB) is attempting to stabilize the economy in a fairly transparent effort to bolster support for John McCain.  First and foremost, I do not believe McCain needs that sort of help, secondly, IT IS STUPID, DESTRUCTIVE, AND EXACTLY WHAT WE DO NOT NEED!

The idiots running these large companies need to be punished!  Not for making a bunch of money, but for running a business recklessly.  Market corrections are a part of the free market model, if Uncle Georgy wants to save all of the big companies, it only encourages this type of misbehavior!  What about all of the banks and financial institutions that did not recklessly invest or loan money to people they had not business loaning money to?  Is that fair?

There is only one logical outcome from this course is governmental ownership of most banking, financial, and insurance companies, socialism. We are on the path towards socialism and arguable we are on the path to communism!  It did not work for the Soviet Union, why would it work for us?

This “crisis” has been brewing for many years.  Dave Ramsey (radio host and financial guru) has been talking about this for AT LEAST 6 years!  Why are we acting surprised by this?  We are we allowing our lawmakers to pass nearly a TRILLION DOLLARS in bailouts?!?!

The solution?  Clearly we have had the last 20+ years to get into this mess, it will take some time to get out of it.  Here are my thoughts:

1. TODAY: write your US Congressman and Senator and tell them to STOP socializing our economy.  Let them know that you will vote against them in any and all elections they run in if they vote yes on the bailouts.
2. The US Government should immediately privatize Freddie Mac and Fannie Mae.  Load the new private companies with debt via an interest free loan.
3. Do not bailout any other companies.  Help companies in trouble sell themselves to stronger companies.  By helping, I mean establish a process to guarantee much quicker FTC and SEC approvals for sales of large companies.
4. Ride out the down market!  Yesterday I listened to a podcast, where the financial guy compared a huge downturn in the financial market to a forest fire.  While it may not be pleasant, the long term product is a stronger more sustainable forest!  Economic downturns should be allowed to happen!

If you are reading this thinking “Boy, this guy is sure dumb, why not let the government bail us out?  It will make things less painful for the citizens.”  My answer is: a) WE ARE THE GOVERNMENT, WE WILL BE PAYING FOR THIS BAILOUT FOR YEARS!!!  b) Once we pay for this “bailout”, our free market, capitalism based economy will be put in serious jeopardy. This means we will have less innovation and entrepreneurship.  Our economy is fundamentally strong, because it is based on capitalism.  Once we lose the capitalism driver, we will sink into the morass of other great countries AFTER their golden age.

John McCain’s campaign has begun lambasting Barrack Obama over his choice of advisers, in the ad Tumulty references, they are going after Frank Raines (Former Fannie Mae chief).  In Tumulty’s “report”, Tumulty alleges that the McCain ad is displaying ” Sinister images of two black men, followed by one of a vulnerable-looking elderly white woman.”

Tumulty uses the image of a smiling Barrack Obama and a somewhat sinister picture of Raines as evidence that the McCains ad  “Plays the race card”.  What a bunch of political bullsh*t.  Go figure that Time-Blog.com is “In partnership with CNN”.  I am more balanced in my own made up blog than this idiot is.

Tumulty says “Let me stipulate: Obama’s Fannie Mae connections are completely fair game. But this ad doesn’t even mention a far more significant tie–that of Jim Johnson, the former Fannie Mae chairman who had to resign as head of Obama’s vice presidential search team after it was revealed he got a sweetheart deal on a mortgage from Countrywide Financial. Instead, it relies on a fleeting and tenuous reference in a Washington Post Style section story to suggest that Obama’s principal economic adviser is former Fannie Mae Chairman Frank Raines. Why? One reason might be that Johnson is white; Raines is black.”

Umm, McCain has ads going after Johnson (which she notes in the bottom of her post as an “update”).  So apparently if Obama is advised by a black idiot and McCain points it out, he is playing the race card, however if Obama is advised by a white idiot and McCain points it out, that is okay with Tumulty.  Next, I am sure Time-Blog/CNN will try to spin this as “McCain was forced to come out with a Jim Johnson ad due to pressure related to race”, or some such crap as that.

Tumulty’s report is completely bias and ridiculas in nature.  Since I have ripped on her, in fairness, read her original post HERE. At least I try to be balanced.

As with most Americans, I was interested in hearing her speak last night.  WOW! Color me impressed!  If Sarah Palin can be remotely as eloquent and charming as she was last night in non-prepared speeches, she is going to give the Dems a good run for their money. (Rumor has it she did half the speech from memory due to a screwed up teleprompter)

I believe this election year will bring us the most interesting and exciting campaign season in a very long time.  I find the stance the republicans taking on working mothers quite intriguing.  The crazy right wing “Mothers should stay at home” crowd is being forced to bite their tongues while the more moderate republicans are defending working mothers!  Wow, what a change of pace.

It is also very interesting to me that most of the “women first” organizations have either come out against Sarah Palin, or have remained silent.  I thought the National Organization for Women was for Women, not for Women whose politics they agree with!  Sarah Palin is the first legitimate female Vice Presidential Candidate in the history of this country, female gender activists should be jumping to her side in droves, but she is conservative and pro-life, so let’s remain silent.  I sometimes abhor politics for the two-faced antics that go on (on both sides).

No matter who wins the presidential seat this November, both the campaign season and the next presidency promise to be very interesting.  We will either have the first black President of the United States of America, or the first female Vice President of the United States of America.  Either way we will be shaking up the establishment!

All in all I am more engaged in this campaign than I have been since 1988!

Pros:

• Palin will help with the far right wing conservative vote.  Palin is anti-gay marriage and pro-life (two things McCain apparently is not)
• Palin is a young 48 44 (offsetting McCains clearly advanced years)
• Palin is a raising star in Republican Party, clearly charismatic with a varied background which should make her appealing to “Joe and Jane Public”  (Just call me Joe)
• In case you missed it, Palin is a woman.  Perhaps McCain is thinking this will help him with the female vote?  (I for one believe this country is prepared for a female Vice President!  Heck if Hilary was not so despised, she would have had a reasonable shot at being president!)

Cons:

• Palin has limited experience in politics:  She has served as governor of Alaska for only two years, with little government experience beyond that (Not necessarily a bad thing)
• Palin is governor of ALASKA!  I love Alaska, it is beautiful, but certainly our 49th and least populated state is not strong resume material – The democrats will pick this apart in the coming months.
• In case you missed it, Palin is a woman.  (”What?!??!” you are thinking, “dummy listed that as a Pro!”).  This one is a double edged sword.  I believe McCain will draw some support from the female moderate democrates he would not have otherwise had, he also will lose some support from the more sexist moderate male democrates who might otherwise have voted for McCain.

I am not certain how much Sarah Palin will help McCains presidential aspirations, though in aggregate, I think it might have helped him.  What would help him more is Gustav not causing too much trouble during the Republican National Convention.