e-commentary

GIGO may be the only acronym one needs to know today.  There are now daily cautionary tales about the CEOs and other ‘Os who created CDOs (collateralized debt obligations) while the OTC (Office of Thrift Supervision – one of the putative regulators) played dominoes.  The details and new concoctions (CLOs, CDSs, ABSs, SIVs, etc.) are intriguing and revealing and depressing.

The simple truth is captured in the old expression:  “Garbage In Garbage Out.”  No alchemy can convert a bad loan into a good loan as it slithers through the economy.  There is no way to “make a silk purse from a sow’s ear.”  Putting “lipstick on a pig” does make the pig a swan.  Rating something as “AAAAAAA” does not make it any safer than something rated “AAAAAA.”

This economic downturn is a small “d” democratic phenomenon.  Many Americans (ordinary citizens; realtors; appraisers; loan officers; bundlers; butchers; bakers; candle stick makers, etc.) actively participated in the fraud in broad daylight with their eyes sufficiently open.  Only those deluding themselves could have missed the inevitable Meltdown that is taking place and will get worse.  Those on “Wall Street” not only should have known about the fraud they knew that everything was junk in gilded garb.  Everything that glitters is not gold.

Bumper stickers of the week:

“Sir, ’Margin’ is holding on line 2”

Pigs get fed, hogs get slaughtered

[As many police as demonstrators took to the streets in DC on March 19.  So few care or believe that anything can be done about the “Forgotten War.”  The police did not don riot gear; a riot did not break out.  The police let the demonstrators take over a few intersections without major incident.  The demonstrators made a statement without making any major disruptions.  A bad day for America and the world, yet a good day for the First Amendment.]

40 wasn’t a red letter year for them.  They are deeply in the red this year.  [See the e-ssay dated February 7, 2005 entitled “The Microeconomics of Suburban Subsistence” for background].  He can only find part-time work for a company that does not provide any health care or contribute to a pension fund.  Their $175,000 house is now worth $150,000 even with all of the improvements financed with an equity line of credit and sweat.  The City still appraises it at $200,000 because the polis wants its pound of flesh.  The price of a pound of (bovine) flesh has risen about forty percent (40%); the meat may be tainted.  The Fed’s reduction of the Federal Funds Rate has not been passed on or trickled down to them or to prospective buyers of their home.  Interest rates to consumers are “sticky” and “ratcheted.”

The calls start like clockwork, because the callers start with the clock.  He can set his watch by the first call.  At eight o’clock, they start.  They would start earlier except for . . . federal regulation.  The Fair Debt Collection Practices Act, a federal regulation, sets limits on the amount of harassment that can be inflicted by a creditor on a debtor.  And the wake-up calls continue unabated all day, even after the consumer is wide awake.  From 0800 hours until 2100 hours.  Caller id is now a necessity rather than a luxury.  The credit card companies that cooed and wooed him are now cajoling and whining.  The companies devised a Bankruptcy Code that is expensive and burdensome.  The “Hope Now” program does not offer much hope now.  Try it; call the number yourself.  However, Congress now is considering a variety of legislation including a bill that allows the Bankruptcy Courts to adjust the amount owed on a home loan to reflect the current market value of the property.  That approach has some possibility.

Not only is the value of the house down.  Of note, the note for the car is now greater than the retail Blue Book value of the beast.  Each 25 cent rise in the retail price for gasoline lowers the market value of the gas guzzler by about one thousand dollars.  The rational course of action may be to give their car back to the bank and walk away from the house.

Bumper sticker of the week:

Greed isn’t always really good