Good Bank/Bad Bank

28 01 2009

goodbadWord is out that the new administration will unveil plans next week for what I’m going to call TARP II – Good Bank/Bad Bank. If you recall, the original purpose of the tarp was to remove ‘troubled’ assets from the balance sheets of the ailing banks. That quickly morphed into the Treasury making capital infusions into the participating banks and taking an equity interest as a preferred shareholder. Government gets a return on that money in the 5%-8% range. I kind of liked the idea, even though a lot of people thought it smacked of ‘socialism’. Heck, why not get a return on our money! How much ‘return’ do we get with some of these ‘earmarks’ that get stuck into bills in Congress? Now it looks like the spirit of the original TARP has come back into play. So I guess Paulson, Bernanke & Company didn’t have such a bad (original) idea after all?

One of the problems with the original TARP was how to come up with a reasonable market value of the assets to assume. Apparently the new plan will be addressing that, though I’m not sure I exactly trust the government in coming up with an optimal price.

However, the consensus is growing that infusions won’t be enough to ultimately help out. That may be true. Recently, NYU Professor Nourial Roubini made the statement that the U.S. banking system is insolvent. Expected losses of about $2 trillion exceed bank capital of $1.5 trillion, he said. FYI-Roubini had predicted the coming crisis a few years back as he said real estate values were riding ‘a speculative wave’ and would soon sink the economy.

So, this plan essentially makes ‘Bad Banks’ good by lifting depreciated assets and creates ‘SuperBad Bank (SBB)’. That’s great. One suggestion I have for the new CEO of  SBB: classify all your assets as Held to Maturity, please. Oh and a suggestion for Bernanke and Tim Geithner, the new Treasury Secretary – make SBB completely exempt from FAS 115 requirements. Maybe something that should have been considered sooner for the banks, thrifts and credit unions.


Off Topic: And It’s One More Day Up in the Canyon

31 12 2008


You might recognize that line from Counting Crow’s “A Long December”. It’s a great song and I can identify with it to a certain degree. It’s not been one of my better years. As another line goes: ‘Maybe this year will be better than the last’.

I am hopeful.

At this point, we still haven’t sold our Seattle house. See the previous post: “Movin’ on Up”. Right now though, we are spending the winter in probably one of the coolest places on earth: northern New Mexico. We are roughly 30 miles southwest of Santa Fe, butted right up against the Jemez Mountains, on the Pueblo de Cochiti.

The mountains behind us are chocked full of hiking and biking trails. Since Denise and I acquired a second home here, we’ve tried to make as much as we could of the outdoor recreation opportunities available. We’ve been told that we should definitely make the hike up Cochiti Canyon. I did some research and found out that the trail is an awesome mountain biking route as well. What a way to break in my new fat tires. The first week of December, Denise was out of town visiting clients. I decided that, since the weather was mild and snow was in the forecast the next couple of days, I’d try to make the trip up and back – about 25 miles round trip. I left around 10:30 am on Dec. 7 from our place in Cochiti Lake. I got back right about 4:00 pm and it was one of the most exhilarating and incredible things I’ve ever accomplished.

The trail begins at the Rancho de Cañada and ends at the ghost town of Pines, what’s now known as Tent Rocks Ranch. The elevation gain is about 2,000 ft in a 7.5-mile (one way) trail. I started at 5,600 ft. The air is much thinner than what I’m used to as a sea-level dweller and the track was much harder to complete than I thought. I’m 45 years old and not in excellent shape, but I’m no slouch either. I’m not going to fib, I had to walk certain portions of it – some of it because I hit snow and ice patches and some of it because it was kicking my ass, but I made it to the top. I can’t tell you how great it was to finally get to the end. For those of you that think you can’t accomplish something like that, let me tell you – you can – if you’ve got the drive and the sense of adventure.

I took pictures along the way and I’ve shared them on Click here to take a look. I also took my iPhone with me, loaded up with a pretty cool program (free!) called TrailGuru. Download it if you have an iPhone and like to walk, hike or bike. The phone crapped out and lost signal several times due to the elevation.  But, if you want to see the route, click here. Denise was totally jealous and we plan to do it together once summer comes.

So, Happy New Year! My wish for you is that your year is better than the last. Peace.

The Krispy Kremation of the iPhone?

30 12 2008

krispy-iphoneA few months ago, I needed to get a new cell phone. Denise insisted that I get an iPhone. I had always been an ‘alternate’ PDA guy: Palm Treo, Blackberry, etc. I never knew what the fuss was all about with the iPhone. When it was introduced, it was too expensive and existed on the ‘aging’ cellular network. But, when the 3G came out, we made the trek down to the University Village Apple Store in Seattle. I had heard the horror stories about the wait to get the crazy thing, but when we got there it was only ‘about 45 minutes’.

So, we queued up.

Once I had it a couple of days, I was hooked. It was a heck of a lot of a lot easier to use than the Blackberry I had, and way faster on the Internet than I had expected. And there are all these cool programs you can add – some free, some not. What a better way to part with your money than through your iTunes account! I can now keep track of all the business headlines through Bloomberg for the iPhone. It’s a wonderful world.

I’m becoming an Apple believer – ever so slowly. However, now it seems that you can get the thing almost anywhere. First, Best Buy was allowed to sell them. Now last week, iPhones began being sold at Wal~Mart! Huh!?

I understand Apple’s desire to want to appeal to a broader audience and increase sales, but I’m confused at the choice of retailer. Apple has a very well defined brand and I hope that they’re not becoming the latest to sacrifice uniqueness for ubiquity – like that venerable old doughnut maker.

Dude, Where’s My $50 Trillion?

8 12 2008

dudeIf you own a house, or stocks, bonds or mutual funds, even gold, you’ve probably noticed that the value of your assets has probably declined quite a bit in the last year.


It’s estimated that, since the beginning of the global financial crisis, close to $50 trillion of wealth has evaporated. The losses have occurred mostly in stocks and bonds both domestically and internationally and in real estate values in the US.

In the stock and bond markets globally, losses exceed $33 trillion. That’s not surprising when you see the declines in the world’s stock markets since their peaks:    

Dow Jones -36.8%
S&P 500 -42.4%
NASDAQ -45.5%
FTSE 100 (UK) -53.8%
CAC 40 (France) -53.4%
Xetra DAX (Germany) -53.0%
NIKKEI 225 (Japan) -37.0%
HANG SENG (China) -49.9%

Americans have also seen over $5.5 trillion in home value disappear. The UK is also experiencing steep declines, as are most developed countries across the globe. Even as commodity prices have come down, which may be good or bad depending on how you look at it, the result is trouble for oil-producing countries that depended on that wealth.

It’s not surprising then, to see that economic activity has slowed so much in the past few months. The ‘wealth effect’ is diminishing quickly. People just don’t feel as rich as they used to, and this has implications for consumers and business for a long time to come.

Helps Lubricate Stuck: Balance Sheets, Markets & Economies!

13 11 2008


Fasten your seatbelts; It’s going to be a bumpy night.

7 11 2008

bettebumpyThe latest employment figures were released this morning and the number reported by the Labor Department was not encouraging. Non-farm payrolls fell -240,000, greater than the -200K that was expected. In addition, last month’s figure of -159,000 jobs was revised down to -284,000. The unemployment rate spiked up to 6.5%. This is the highest unemployment rate since 1994. Over the first 10 months of 2008, 1.2 million jobs have been lost, with over half of those losses occurring in just the past three months.

This is just the latest in a string of poor economic numbers that have been coming out in the last few weeks. Recent events however (financial crisis, credit crunch, election, etc.) have overshadowed the numbers until this week. Last week, the advanced estimate of the U.S. Gross Domestic Product (GDP) came in a -.3%. If you’re unfamiliar, GDP is the sum total of all the goods and services produced in the country annually. For 2007, the amount was $13.8 trillion and it shrank for the 3rd quarter. Contrary to my prior blog post, a recession is defined as two or more consecutive quarters of negative GDP.

The list goes on, too. Consumers (you and me) aren’t spending as much as we were. Consumer spending accounts for as much as 70% of GDP. I’m hearing anecdotal reports from all over about businesses that are putting capital projects on hold as well.

Although it’s not necessarily official by definition, it’s pretty safe to assume that the U.S., as well as most other countries are in or will be in a recessionary environment very shortly. I think this was inevitable, as business cycles always peak and valley, but recent events certainly have accelerated it. It now is just a matter of how deep and how long the slowdown will be.

Recession versus Depression

21 10 2008

I’m in the process of moving, and I keep hearing about the possibility of a global recession as well as the depression in the housing market these days.

Just in case you don’t understand the difference between a recession and a depression, let me educate you.

A recession is when your neighbor loses their job.

A depression is when you lose yours . . . .