Sunday, September 23, 2007

The REAL Social Security

I have been sympathetic to President Bush's overtures about privatizing social security, but this week he made his opinions public about the real social security - taking care of our children. On Thursday he threatened to veto legislation to expand health care for children. One of the best things this country can do solve its expanding programs is to ensure a new generation of healthy, bright, and well-educated. When the baby-boomer generation is getting their third heart by-pass operation, they better make sure they have a cadre of competent, smart, and productive young people working to pay the bills. That starts with good medical care while they have developing their brains and their bodies.

So I asked my brother about this issue. He is a medical doctor and a bit more clued into health issues than myself. Dah, the reason for the veto is that the bill wants to pay for child health care with a tobacco tax.

Politics over people - little people this time - George havn't you learned anything?

Wednesday, September 19, 2007

Fed Drops Interest Rates

As I predicted, along with many others, the Fed decreased the interest rates for the nation's banking system yesterday in order to increase the amount of money circulating in the economy. Both the Fed Funds and Discount window saw their rates decreased by 50 basis points to 4.75% and 5.25%.

A rising tide lifts all ships and that is the thinking behind increasing the money supply. It doesn't directly address the credit problem but the rate cut should stabilize housing prices and help the ratings of those mortgage bonds that now underly the credit system for the derivatives markets.

Lower interest rates weaken the dollar and it was no surprise that crude hit record highs above $80 a barrel. All those Toyotas and Nintendo Wiis got a little more expensive as well.

The high energy prices means that the US will go screaming into a future of alternative energy sources.

Monday, September 3, 2007

Subprime Mess, Part II: XML to the Rescue?

In "Subprime Mess, Part I" (See Below) we found out that the entire world credit system had been placed on the foundation of the US housing market. Mortgages were bundled in bonds that were rated highly by the credit agencies and sold hedge funds and other speculators. Besides paying a good dividend, these packages were also used as collateral for getting loans from the banks for additional speculation in everything from currency markets to shares.

So why XML? XML (EXtensible Mark-up Language) has been embraced by the mortgage industry to standardize real estate finance transactions on the Internet. The use of XML has the potential of disaggregating the packaged loans and removing those in trouble and reorganizing them in other packages that can be appropriately rated by Moody's and Standard and Poors.

This hasn't solved the problem of the margin calls as these mortgage bond packages get rated down but it suggests a more flexible system for maintaining the quality of commercial paper.