Nov
Ideas For Getting The Economy Back On Track
Posted by jerry as finance, politics
I was driving my family to lunch yesterday when my 8 year old son asked “Dad, why are so many stores going out of business?”. I thought for a second and gave him an 8 year old appropriate view of what has happened. As I was talking to him, I couldn’t help but think that he is living through what may well turn into the second great depression.
A lot of insanity has transpired lately. We have seen an unprecedented level of government intervention trying to stop the economic bleeding. The US has declared handfuls of companies “too big to fail”. The US was already spending hundreds of billions of dollars on the Iraq and Afghanistan wars, now nearly a trillion dollars more to save some key companies.
With all of that in mind, here are my humble ideas for getting the US back on track:
Stop spending so much damn money
1. Discontinue the practice of injecting money into troubled companies.
Instead, let bankruptcy work the way it is designed to. In extreme cases, facilitate an orderly unwinding of a dying company, such as AIG.
GM does not need $25B from the US to stay afloat. It needs to fundamentally restructure itself. This is what chapter 11 bankruptcy is for. It is possible, even likely, that one or two of the “big three” will not emerge from bankruptcy. Yes, it will be a terrible set back for the economy, but it is inevitable. The US automakers have been slowly dying for decades now.
2. End the Iraq and Afghanistan wars to save money
3. Unwind a majority of the new, post 9/11 surveillance infrastructure and foreigner harassment programs to save money and start making the US a world travel destination again
Leverage the savings from 1 through 3 above to establish the following programs:
4. Establish a program to offer new mortgages at a rate of 4% for a set period of time
The near nationalization of the US banking system, and having Freddi and Fannie in a conservitorship should make this possible. Note that I am not recommending the relaxing of lending requirements.
We do not want to try to re-inflate the housing bubble, but at the same time, the broken and dysfunctional state of housing is likely to be the weight that carries us in to another depression.
5. Establish a series of large scale, nation wide programs to address specific infrastructure issues, such as bridges, water distribution, or power.
For some reason, economic stimulus in the US has to come in the form of a check from the government. I think that is a fundamentally bad approach to the problem it’s trying to solve.
I generally identify myself as a Libertarian, and some of these ideas are uncomfortable to me, but in many ways, the direction has already been set, now we have to find a way to undo the damage and get back on the right track.
Aug
More Troubled Ideas To Reform Social Security In the US
Posted by jerry as finance
I read this blog post recently, proposing an idea for social security tax reform. The net of the story is that the FICA tax is regressive – it impacts the poor more than the rich, so lets turn it around. Put a lower limit in place for salaries, below which there is no FICA burden. Remove the cap that is currently in place where FICA drops off after the first $97,500. Then, lower the overall FICA rate from 6.2% to 3.2%, making the people in the middle income brackets happy as well, but sticking it to the rich.
I don’t agree.
Jul
Maintaining Musical Groups As A Brand
Posted by jerry as finance
I was driving home the other day, listening to Squizz on XM. A new song started and a glanced down at the screen on my dash and saw that it was the group Dokken. I listened, but I didn’t recognize the song, though it was clearly Dokken. At the end of the song, the DJ announced ‘that was a new from Dokken’. Holy smokes, Dokken is still making albums!
I have a long drive, so my mind tends to wander. I started to ponder the question: “why don’t musical groups continue to maintain an ongoing brand, even after the original artists fade away?”, like Pantera and the Beatles. It seems that successful groups spend many years, and millions of dollars in building their brands, and that the brand essentially dies once the group disbands.
Allowing popular bands to dissolve is akin to the management of a successful company saying ‘well, that was quite a ride, time to go our separate ways’, and the company dies then and there. There is one clear problem with this example – musical artists continue to make money after the group disbands, because their works continue to sell without additional effort by the former group.
I suspect that the major problem with the continuity of musical groups is the pervasive use drugs, and general bad behavior and even worse business decisions.
Jul
Lowering The Price Of Oil Through Supply Increases
Posted by jerry as finance
I have read and heard repeatedly by analysts, economists and politicians that say “drilling for oil is not going to do a thing for oil prices now”, mostly in response to the latest actions by George W Bush to allow off-shore drilling again.
I understand the logic behind those comments. Drilling for oil now means that we may have more supply in 10 years, because of the time to actually find where it is, and the infrastructure build duration. But, that assumes the price of oil is simply a matter of supply and demand. We have more demand than we have supply.As much as many people don’t want to hear it, we DO have enough supply, on a daily basis at least. It’s true that we are burning through a resource that will one day be completely gone, but we’re not there yet.
May
What happened to Chuck E Cheeze?
Posted by jerry as finance
When I was a kid, the highlight of my year was to get to go to Chuck E Cheeze. They had many cool games and the singing, dancing animitronics. I hadn’t been there is a long, long time until last year. I went for a birthday party that my son was invited to. It was pretty well run down. And the store is a very nice part of town. At the time I dismissed the experience as catching them on a bad day.
So, yesterday I get to go again for another 5 year old’s birthday. Nearly a year later. The first thing I notice as I’m walking around is that ALL of the games are the very same as my last visit. I also notice that the same games that were not working last time are STILL not working this time. I would estimate about 5% of their games are broken.
So, it comes time for the party to gather. As we sit down, the lights dim and the curtain opens and the animitronic Chuck E Cheeze starts to sing and do his bit. Except there’s no sound. One of the kids sitting at the table behind me asks her mom: “mommy, why can’t Chuck E Cheeze talk?”.
As I look around, there are some TV screens built into the walls. Some big, some small, all of them BROKEN. Two of them have only the red color gun working, the other colors making a nasty zig-zag line on the screen.
Now it’s time for Chuck E Cheeze to make his floor debut. As he’s meeting and high-fiving the kids, another employee is getting a large boom box out, asking a fellow co worker if the right CD is in. She takes the stereo over to the wall near where Chuck E Cheeze is greeting his fans and plugs it in. And hits play. The group of kids conga’s around the store behind Chucky to music coming from the portable stereo.
After they all return, the employee lights the candles on two cakes - there are two simultaneous parties happening, after all. She runs over and changes the song to the Chuck E Cheeze happy birthday song. Which is interactive. And requires the employees to dance. The employees are trying to get the crowd to sing their part of the song: “I say happy… You say birthday… Happy…” silence. Over and over and over. I would swear that I was in some kind of bad Chevy Chase movie.
I felt pretty bad for the poor employees who kept bumping into each other as they are attempting to pull off the corporate dance moves, and being unsuccessful at rousing the crowd.
On my way home, I started to wonder: why is it like that? Then, I remembered seeing a sign on the door as I walked in: “All of our games are now just 1 token!”. Ah, that’s it. When I went 30 years ago, the games were a quarter as well. The games I can play at home on my Wii at least compare favorably to the best games at the store, blowing most of them away. Going to Chuck E Cheeze is not the experience for my kids that it was for me. When I was a kid, Chuck E Cheeze had games that seemed so far advanced I felt like I was in the future. It was a maical place to me. For my kids, Chuck E Cheeze is a challenge to get as many tickets at possible to cash in for some crappy toy.
The margins of that store have to be razor thin.
Apr
Iran’s decision to trade oil in Euros instead of dollars
Posted by jerry as finance, politics
Iran announced that it is now trading oil Euros instead of dollars. The weakness in the dollar is cited as a primary reason, though it is understood that the growing tension between the US and Iran is probably a key factor as well.
The general reaction I have seen is: “Holy Crap!”. But, I have to wonder: what is the real impact of doing such a thing, from any side? Oil is a fungible commodity. Currencies are traded on the market. Oil sold in Euros is still convertable to the current exchange rate to dollars. So, someone who wants to buy a million barrels of oil from Iran has to convert $120M to 75M Euro before conducting the transaction? That does sound grave. I suppose the net effect is that Iran will be holding $80B less US dollars per year. Since NO US institution can transact business with the Iran anyhow, Iran is most likely having to exchange them for Euros, Yen or some other currency before doing anything meaningful with it anyhow.
I suspect the risk is that the whole oil market will eventually follow suit. With the recent behavior of the US, that seems likely, but I still have to wonder: will we care?
Jan
Our Economy is in Trouble
Posted by jerry as finance
In the past 24 hours, Bank of America has announced that it entered into an agreement to acquire Countrywide Financial. That’s an amazing thing. Countrywide holds north of 20% of mortgages in the US. As the housing market continues to unwind, they are seeing an increasing number of delinquent payments. Despite this, Countrywide has to continue to pay the investors who funded a given mortgage until a disposition has been reached on that mortgage – either a new payment plan can be established, the borrower pays up, or the mortgage goes into default. Normally, a company like Countrywide would tap a line of credit to help cover any difficulties. These days, though, extremely few investors want to buy debt. So, Countrywide sits in a position where it is exposed to the point where it may have to file for bankruptcy protection, which will cause a further unwinding as it’s credit rating deteriorates. BoA can be seen as a white knight coming in to provide a stable foundation for Countrywide to continue operations. For it’s part, BoA needs to protect the $2B investment is previously made in Countrywide.
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