Archive for October, 2008

The Kingdom

Sunday, October 19th, 2008

Fear not, little flock; for it is your Father’s good pleasure to give you the kingdom. Luke 12:32

So what is the kingdom of God’s promise? My understanding is that it is everything that we need to grow in our understanding of ourselves and him.

My sense of this moment in time is that the kingdom is going to be a new social paradigm.

For those who have been following some of my previous posts, the crisis that we are facing bears and eerie resemblance to the Fourth Turning predicted by some generational historians. If their theories are accurate, we will have to create a new social order to survive this crisis – the kingdom.

What is fascinating about this whole financial scenario is that it ultimately is the death knoll for the concept of self-regulating markets. What we are going to see now is whole new global regulatory structure which will enforce more conservative investment practices and prevent institutions from getting into the upside down position that they found themselves earlier this year.

The US will have less influence in this system than it had in the past because, among other things, we were the ones who promoted the strength of the unregulated market. Asia, Russia, and the Middle East have a bigger role in this new system because they are the winners in the current global economy.

The other casualty is the conservative fantasy of small government. The election this fall will only serve as evidence of something that most thoughtful people already know.

The era of conservative influence is over. When the conservatives running the government were staring down the barrel of the gun of global financial collapse, they abandoned their principles and embraced the biggest package of government socialism that we’ve ever seen. Our government has adopted a policy of nationalization of a significant portion of our financial infrastructure.

So when you begin to unravel this conservative fantasy, it leaves a lot exposed. The conservative/libertarian ethos is that an individual should be completely accountable for their own actions. They are solely responsible for their own success or failure. So by extension, if government just left everyone alone, defended the borders, and kept the peace – the marketplace would sort everything else out by rewarding the just and punishing the unjust.

What this crisis (and really the last eight years) has proven is that this philosophy no longer works in a globally connected economy. We are interconnected and co-dependent. Our attempt to go it alone, in one great last grasp for conservative greatness, has left us battered and weak.

The more cynical in the audience might take this a step further and suggest that those in power only used conservative principles to gain power. When it served their purposes, they were conservatives. When it was their own money on the line, they suddenly morphed almost overnight into liberals advocating big government socialism.

So where do we go from here?

What the Four Turnings researchers predict is that a new leader will emerge to help define this new social order. The old divisions will evaporate as we all realize that our collective survival requires a new identity.

My sense is that we need leadership which can embrace a new global role for both government and citizens. Our opportunity is to become leaders of this a new emerging globalism because our interdependencies and our problems can no longer be defined by our borders or our old ideologies.

Financial markets, global warning, stateless terrorism, nuclear proliferation, and continued conflicts in Afghanistan and Iraq all require multi-national solutions. Our ability to be a leader in those solutions will depend on our ability to put our own internal differences aside and embrace this new globalism ourselves.

Our opportunity is to become a leader in forging new alliances to marginalize stateless terrorism by addressing the root causes that give it life.

Our opportunity is to become leader in building a new carbon-neutral economy.

Our opportunity is to embrace the real promise of the American dream for all those who are willing to work for it regardless of color, creed, birthplace, or sexual orientation.

We are going to need everyone in the boat pulling on the oars to raise our country out of the problems it is currently confronting. The good news is that we have a generation of young people eager to take on that role. The bad news is that in order to accept the kingdom that our Father is poised to provide to us, we have to be willing to give up our previous closely held beliefs about what it might look like.

When you vote in November, spend a little time evaluating which of the two men running has the vision to lead us to this new social order.

Posted in Finance, Politics, Uncategorized | 2 Comments »

Lender

Saturday, October 18th, 2008

“Behold, the LORD maketh the earth empty, and maketh it waste, and turneth it upside down, and scattereth abroad the inhabitants thereof. And it shall be, as with the people, so with the priest; as with the servant, so with his master; as with the maid, so with her mistress; as with the buyer, so with the seller; as with the lender, so with the borrower; as with the taker of usury, so with the giver of usury to him.” Isa 24:1-2

This is how the BC Jews tried to reason their way through hard times. They ultimately figured that they must have done something to make God mad at them. They looked for scape goats, but ultimately realized that it was likely that they were all to blame because they were all interconnected.

We find ourselves in a similar situation today with our economy.

What happened as best anyone can figure is that financial institutions lost confidence in the financial system as the value of mortgage-backed securities was questioned.

I’ve already posted some things on why mortgage-backed securities failed, but here’s the best summary I can come up with. It was a huge pool of global cash chasing the percieved safety of the American mortgage market. Irresistible demand combined with a philosophy of deregulation resulted in a supply of increasingly risky loans that were passed off as high quality investments.

The important question is what we do to move forward. In order to talk about the solution, we first have to dig a little deeper into the problem.

We are no longer an independent economy. Our economy is intimately linked to every other world economy through a shared global financial system of interdependent hierarchical lending institutions. All of these institutions to one degree or another hold mortgage-backed assets. When the value of those assets began to erode, the most highly leveraged and least regulated of those institutions, the investment banks, quickly collapsed because they didn’t have other assets to cover the loses they were experiencing in their mortgage portfolio.

By this time every financial institution that held mortgages in one form or another began internal audits to determine what those assets were really worth. As they discovered the extent to which they had been overstating their net worth, they realized that they were overextended. They also realized that if they had to, they probably could not raise enough cash from selling those assets to pay off all of their outstanding loans. Their natural reaction was to retain more cash to make up for the loss in their asset value. The way they did this is was as their outstanding loans were repaid, they initiated fewer new loans. The way they did that is tightened up their new loan requirements which resulted in fewer qualified loans. One of the loans that quickly fell out of favor were those to other banks. That’s because every bank assumed that every other bank shared the same problem they did.

It quickly got to the point where all banks were holding on to virtually all of their funds. This is not a viable long-term position because banks depend on loans for their income. It is an entirely understandable short-term position, however, because the survival instinct is much stronger than the profit motive.

And so the problem.

Unlike in days past when we could barter for goods and services, our economy runs on the principle of deliver today and I’ll pay you tomorrow. In other words, borrowing against future earnings. So the reason why the plumber can leave you a bill rather than insist on a cash payment is because he is able to take that bill to the bank who, for a small fee, will loan him $ .80 for every the dollar of your bill. The bank is willing to do that because the plumber can show a history that you and your neighbors do all pay your bills. The plumber can then pay his bills even though you might take a month to pay yours.

So when the banks stopped lending because they didn’t have enough value in their pool of assets to support their outstanding portfolio of loans, the plumber could no longer leave a bill and started asking for cash. The builder had to shut down his project because he couldn’t get the loan against the future value of that project which would allow him to pay the plumber in cash. The truck dealership had to cancel the sale of a new truck to the builder because the builder couldn’t get the bank to finance the purchase and didn’t have the cash to buy the truck. The truck manufacturer had to close a plant because they weren’t selling enough trucks. The factory worker couldn’t get his faucet fixed because he didn’t have the cash to pay the plumber.

Basically you get the idea. Legal commerce pretty much grinds to a halt and the only people who have cash are drug dealers and illegal immigrants, and only because they don’t use the banking system.

The next interesting thing that happened is that the US Treasury proposed a vague $700B bailout plan where the US would buy assets from banks, only to see the British trump it with a direct investment of government funds into their banks. The rest of the world had to follow suit because if they didn’t, money would quickly move into British banks and out of the banks of the countries who didn’t provide similar guarantees to their banks.

So what is happening now is that each of the major industrial nations is guaranteeing that their banks now have sufficient cash to cover any loses they may experience from the mortgages they hold as assets. The hope is that this will prove sufficient to cause banks to loosen their lending rules and begin to put some of their money at risk again in the market.

Next post will speculate on what this means for the future.

In the meantime for those so inclinded, here’s little bit of scripture to think about in scary times.

“Fear not, little flock; for it is your Father’s good pleasure to give you the kingdom.” Luke 12:32

Posted in Finance | 2 Comments »

Blind Eye

Wednesday, October 8th, 2008

 

“Since the world began was it not heard that any man opened the eyes of one that was born blind. If this man were not of God, he could do nothing. They answered and said unto him, Thou wast altogether born in sins, and dost thou teach us? And they cast him out.” John 9:32-34

 

As predicted, we are now into the last desperate weeks of the presidential campaign and the character assassination has begun in earnest.

 

Governor Palin appears to be settling into her role of attack dog by bringing up Senator Obama’s relationship with Bill Ayers and to a lesser extent Tony Rezko.  In return, the Obama campaign is bringing up Senator McCain’s relationship with Charles Keeting.

 

I’ve covered Rezko and Keeting in a previous post, so I won’t do that again.

 

Here’s a little on Bill Ayers and his wife Bernadette Dohrn.

 

They were political activists in the late sixties and early seventies.  He is credited with founding the radical weatherman group.  As the organization became more and more violent, they left.  Ms. Dohrn was convicted of a felony.  Mr. Ayers was acquitted because of evidence of illegal wiretaps.  In the thirty years since, according to many in Chicago, they have both led exemplary lives.  They have become active in education reform, rights of children, and advocacy for the poor.  They no longer advocate violent overthrow of the government.

 

Many articles point out that Senator Obama’s relationship with Dr. Ayers is casual.  As a result of Senator Obama’s commitment to his Southside community, they served on a couple of boards seeking grant funding for Chicago schools.  There were many Chicago political figures on those same boards including conservative republicans  Dr. Ayers also hosted a small meet and greet at his house in 1995 at the request of Illinois State Senator Alice J. Palmer.  She was running for Congress.  She introduced a young lawyer to the group whom she had recruited to run for her seat in the Illinois Senate – Barak Obama. Senator Obama and Professor Ayers also happen to live in the same University of Chicago neighborhood. 

 

Senator Obama has publically rejected the past political positions and actions of Dr. Ayers.  They don’t correspond.  They only see each other occasionally on the street and I’m sure their meetings are cordial.

 

The sense that we should expect our elected officials to somehow publically and privately shun folks like Dr. Ayers because of things that happened thirty years ago is the hieght of hypocrisy for the McCain campaign.  As Senator Obama has pointed out, the McCain campaign is run by folks who not only associated with but were paid by organizations that McCain now condemns (Fannie Mae and Freddie Mac) as the catalyst for the worst financial crisis in recent memory. 

 

What’s really going on here?

 

Senator McCain is losing the election. 

 

 

As I pointed out in an earlier post, the this election was going to turn on the fundamental points of both campaigns.  The Obama campaign says that McCain represents four more years of the failed Bush policies.  The McCain campaign says that you can’t trust Obama. 

 

 

The bad economic news and his “deer in the headlights” response to the crisis have undermined Senator McCain’s claim to be the steadier hand.  It was Senator Obama who quietly worked behind the scenes with administration officials and the black caucus to finally insure the passage of the recovery bill.  Senator McCain on the other hand seem to make matters worse by rushing to Washington and then trying to distance himself from actually getting the billed passed.

 

The debates have also given the voting public an opportunity to see both candidates in action.  Most in the media agree that Senator Obama has appeared at least as “presidential” as Senator McCain.

 

So Senator McCain and Governor Palin are attempting to change the conversation from an issue on which they can’t win to an issue of character assassination.  But doesn’t this also go against their “country-first” mantra too?  Senator McCain knows that there isn’t any substance to this charge.  What he is doing instead is following a scorched-earth policy which will just make it more difficult for either man to govern after the election.

  

Unfortunately, this isn’t a new tactic.

 

We can read about it in the Bible too.  The Pharisees condemned Jesus because he chose to heal on the Sabbath day.  Rather than question their own values, they rejected not only Jesus but those whom he had healed too.  They said they were all sinners in league with the devil.  Fortunately, then as now, God’s Truth remains the most powerful element in human existence. 

 

Hopefully we will see Truth in action in November too.  If the voting public continues to reject the politics of dissension, maybe it will finally have run its course and future elections will benefit from its defeat in this one.

Posted in Politics | 2 Comments »

The Unjust

Monday, October 6th, 2008

“be the children of your Father which is in heaven: for he maketh his sun to rise on the evil and on the good, and sendeth rain on the just and on the unjust.” Matt 5:45

Seems like we spend a lot of time in this country and in this culture trying to figure out who to blame when things don’t go the way that we would like them to go.

I’ve read a lot about the causes of the current financial crisis and heard even more.

Those who haven’t bothered to do much research want to blame it on the greed and irresponsibility of the financial community. There is some truth to that, but only in the context of the philosophy that the free market should be able to govern itself.

Instead this claim sets up a sort of convenient us against them, except in this case it is the Republicans encouraging us to bite the hand that feeds them.

The problem with the simple explanation that this was just wall street running amok is that it fails to place the blame where is should be, on all of us.

First a little history of this bubble.

Many have said it began with a bill intended to stop a discriminatory lending practice called red-lining. The bill was called the Community Redevelopment Act. Banks were required to make a portion of their loans in the neighborhoods in which they took deposits. This whole process worked well from 70’s through the 90’s.

The Bush administration is actually where things began to jump the tracks. There was a law in 2000 that made sure that credit swaps were unregulated. The criminal penalties for falsifying a loan application were removed and the SEC in 2004 allowed the largest brokerage firms to borrow up to 30 times their assets.

All of these things ended up marginalizing the Community Redevelopment Act because unregulated mortgage brokers offered the poor much better deals than banks were able to offer under even the weakened CRA provisions during the Bush years.

There have been attempts by conservative papers like the Investor’s Business Daily to fix blame on the democrats, and there were certainly prominent democrats who supported the effort, but most all of the damage was done during the period of time when the republican party controlled both houses of Congress, all of the committees, and President Bush didn’t use his veto once.

Now a little talk about real blame.

Wall Street for doing what we ask them to do, make as much money for themselves and us as they can.

President Bush and the Republican congress for doing what we elected them to do, systematically get government out of the business sector, reduce regulations, reduce taxes, reduce interest rates, and expect that the free market will usher in a new age of prosperity and conservative dominance.

All of us for flipping houses, taking out equity loans to finance our lifestyle, living on credit cards, and letting our government run up debts that our children will have to pay off.

It is unclear when this financial crisis will sort itself out. Right now everyone is very afraid and as a result the ready cash which had been financing our growth is suddenly hard to come by.

The most disappointing aspect of this crisis, however, is that we are in the middle of a choosing the person who will lead us for at least the next four years, and we are spending our time talking about bogus character issues. We should be holding both candidates accountable for an honest evaluation of how they plan to lead us out of this problem. I haven’t heard it yet.

What I have heard, though, is Jesus’ advice. If you want to be the children of your Father, you have to start by loving the just and those that we think are unjust. I’m working on it.

Posted in Finance, Politics | No Comments »