Quantitative Easing

I'm a little slow sometimes in catching up to what is going on in the economy.  The fact is, I don't pay that much attention to the news and most news coverage is of all the wrong things anyway.  The things that truly impact us tend to stay below the radar of most of the media.

Tonight a friend asked me what I thought about the Quantitative Easing Policy of the Fed.  It was a new term to me, so, I did some research.  At risk of being raked over the coals for doing so, I am going to link (here) to the Wikipedia definition.  Yeah, I know, there is definitely risk associated with using a Wikipedia definition, but, after a good deal of research of other sources I concluded that it does a pretty good job of explaining it.

I also am linking an MIT article that is another attempt at explaining it.  Interestingly, the conclusions of the two definitions are somewhat at odds.  The MIT article seems to think it will do no harm, the writer of the Wikipedia entry sees a good deal of risk.

I not only see risk, I see definite harm to the average citizen.  The impact of the policy is an increase of the money supply while forcing interest rates to artificially low levels.  The result is a deflated dollar.  That means that the average citizen is losing wealth because his money is worth less and he can't get a reasonable return on most investments that he would make.

The problems with the economy are not going to be fixed by Monetary Policy.  The real issue is uncertainty created by wrong-headed Fiscal Policy.  Until Congress and the current Administration get their house in order, the economy will remain stagnate.  While there is plenty of money in the system, no one is willing to risk it to create new jobs.  Banks aren't lending without Federal Guarantees and businesses aren't expanding in the face of huge tax increases on the horizon. 

A Senator Calls for Mortgage Loan Disclosure

As the mortgage scandal rocks on there is at least one call for clarity in disclosure. Let's hope that it passes and let's hope that it goes far enough. The only way to truly know if mortgage lenders are giving preferential treatment is to see the size of the loan relative to market value along with points paid and interest rates (along with average market rate for similar loans at the time of loan initiation). It is a scrutiny that few of us would desire of our personal lives but it is a price of public office.

Mortgage Crisis Bailout at Taxpayer Expense

I suppose that I have some old-fashioned ideas about debt. The first is that personal debt should be kept to a minimum. This would include consumer purchases, cars and homes. Business debt is a different issue but should be based on the business's ability to repay. The second idea is that if you incur debt you pay it back. The money that you borrow was someone else's hard-earned money. If they are willing to lend it to you it is your obligation to pay it back -- if it takes the rest of your life. I guess that's why I really have a hard time with debt forgiveness and bailouts.

Lenders have a responsibility also. They are responsible to their shareholders, their depositors (if they are a depository institution) and to the borrower. They shouldn't be loaning money to someone that is overextended. They should also counsel the borrower about debt.

Part of the mortgage lending crisis has to do with the way that mortgage packages are originated and then sold on a secondary market. The originator collects his fees and then passes on the servicing and ultimately the risk of the loan to someone else. Often, the risk of individual loans is hidden because it is blended into a package consisting of multiple loans.

This secondary market for mortgage loans has some advantage for borrowers in that it usually offers the opportunity for lower interest rates than might be the case if borrowing from an entity that intends to hold the loan. After all, a bank understands the risks associated with lending much better than the general public that might invest in mutual funds or other instruments that are comprised of mortgage debt. That is why they often charge higher rates for loans that they hold.

The downside for the consumer is that they often are encouraged to enter into a larger obligation than they can realistically expect to repay. This is sometimes justified with the idea that 1) on the average they won't own the house for more than about 5 years and 2) since the price of real estate is rising, they will be able to sell the house and pay off their debt. This falls apart in a falling real estate market.

Perhaps a solution to the problem would be a requirement that mortgage originators be required to escrow funds according to some percentage formula tied to risk exposure on a loan package that they are selling. The escrowed funds would then be tapped in the event of defaults within a sold loan package. The funds would be required to remain in escrow until a set percentage of the total value of the package was repaid. This would give them financial incentive to do a better job of underwriting the risk.

Ultimately however, it is the borrower's responsibility to repay his loans. Not mine as a taxpayer.

A Campaign of Change

The mega-campaign environment of modern politics is fueled by money. McCain has struggled to gain traction in that environment. So, he must look for strategies that will stretch the funding that he has tapped. He has the opportunity to create a new kind of campaign that operates both from the top (traditional) and from the grassroots (usually the domain of 2nd tier candidates). The increasing presence of blogs may help with that grassroots effort. It also will be necessary to re-think the other side of the equation -- the top-down piece. How well Senator McCain does in that area may be an indication of his abilities as Commander in Chief. Campaigning for President on a slim budget? Now that would truly be a campaign of change!

Senator McCain's Fundraising Efforts

Senator McCain seems to be gaining some momentum in his fundraising efforts but still lags behind his Democratic rival. He has had a difficult time reaching the traditional funding base of the party. Perhaps it is his style. Maybe it is his stance on a couple of key issues. Whatever the case, for the good of the country, it is time to unite behind Mr. McCain and provide the necessary funds to defeat the extreme left views of Mr. Obama.

Many are disgruntled by what is seen as the lack of a conservative candidate in this year's election. Sometimes one must compromise and support the candidate that comes closest to that standard. Mr. McCain is far more conservative on most issues than his opponent. Let's make sure he has what is needed to run a strong race.

A Civil Race for the Presidency?

Civility in a modern political race? What a novel idea. No media spin? Also novel. Senator John McCain is proposing just such a thing to Barack Obama. The response was an immediate entry into a struggle for control over the process.

"What a welcome change it would be were presidential candidates in our time to treat each other and the people they seek to lead with respect and courtesy as they discussed the great issues of the day, without the empty soundbites and media-filtered exchanges that dominate our elections," he wrote.

Agendas within agendas and manipulation within manipulations. That is what it has come to. All of us want to paint ourselves in the best light possible to those with whom we come in contact. At the level of politics in a Presidential race, with the power and prestige that is at stake, the temptation to fall to low standards is great. I pray that this race can be elevated to something higher. It would be wonderful to see a true debate of the merits of the various positions on the issues of our day -- not a propaganda-fest crafted by the power of money flowing from specific interest groups. It is John McCain's opportunity to shine if he can rise above the kind of politics that characterized the Democratic primary race.

The GOP Piggy Bank is Rattling

Money makes the political world go 'round. Obama has proven his ability to raise funds in a big way. So has Clinton. What about John McCain? So far, his fund-raising ability has been questionable. Is it due to the disenchantment of the traditional GOP base with their candidate?

It is going to take a monumental effort on the part of the GOP to offset the financial momentum that Obama has over McCain as we enter into the general election. Obama's base is motivated -- maybe electrified is a better word -- by their candidate. They are excited by their candidate. The same cannot be said for the nominee of the GOP. Will it be a loss due to lack of funding? That is a real danger. McCain must find a way to loosen the purse-strings of the party or he will fail dismally in the general election.

Dancing With the Devil; Money and Politics I

Have you given any thought to the amount of money spent on the 2008 Presidential race? According to OpenSecrets.org, it is in excess of $600 million through the end of April. They anticipate the winner will have spent approximately $500 million to win. That means the total spent on this one political contest will likely exceed $1.2 billion. That is greater than the GNP of 55 countries! (2005 numbers) Given the U.S. population of 302.2 million, that's $3.97 for every man-woman-and-child in the U.S. I would rather they bought us all a gallon of gasoline.