Sunday, February 22, 2009

We got juiced royally by high-roller executives, well-paid math experts and a banking system that knew better but went along for the ride knowing they could always use the principles of a free banking system to in the end ask for bailout money and probably get it.

It should not be forgotten that it was this very thing – The requirement of Ransom Payments that urged Christ to spread at least a portion of the message he did. Also, the Pilgrims were fighting a system of taxation they felt was unfair, due to the King’s threat that without payment of this same Ransom Payment he would order his soldiers not to defend the merchants in the case of an attack.

Bailout money is the latest form of a Ransom note: Pay us or we will go bankrupt and sell all your savings to the highest bidder and collapse your system beyond hope of repair.

Obama, despite all his “Rock-Star” charisma, will do nothing to halt or reverse this Ransom threat. He is part of the system that allowed the present state of affairs to exist!

Control of the value of output production needs to be brought-back to the people. Oversight should be in the interest of the common good.

This is a funny thing in that it is not evidenced in any common nor civil law codes to date: It should be a crime to conscientiously perform any act that is not in the interest of the common good.

No surprise, as we and the rest of the world adopted the laws created by Madison et. Al. who believed that a free market should protect the interests of the “superior man” against the interest of the common masses. That was turned-into the fairy-tale of the free, interventionist Capitalistic Model. Hey, it worked for about 100 years.

Now we’ll all pay the price. Should have listened to the piper, his tune has been perfumed since time immemorial. Instead we paid him.



"Asset securitization began with the structured financing of mortgage pools in the 1970s. For decades before that, banks were essentially portfolio lenders; they held loans until they matured or were paid off. These loans were funded principally by deposits, and sometimes by debt, which was a direct obligation of the bank (rather than a claim on specific assets).

But after World War II, depository institutions simply could not keep pace with the rising demand for housing credit. Banks, as well as other financial intermediaries sensing a market opportunity, sought ways of increasing the sources of mortgage funding.

To attract investors, investment bankers eventually developed an investment vehicle that isolated defined mortgage pools, segmented the credit risk, and structured the cash flows from the underlying loans. Although it took several years to develop efficient mortgage securitization structures, loan originators quickly realized the process was readily transferable to other types of loans as well."[9]

In February 1970, the U.S. Department of Housing and Urban Development created the transaction using a mortgage-backed security. The Government National Mortgage Association (GNMA or Ginnie Mae) sold securities backed by a portfolio of mortgage loans. [10]

To facilitate the securitization of non-mortgage assets, businesses substituted private credit enhancements. First, they over-collateralized pools of assets; shortly thereafter, they improved third-party and structural enhancements.

In 1985, securitization techniques that had been developed in the mortgage market were applied for the first time to a class of non-mortgage assets — automobile loans. A pool of assets second only to mortgages in volume, auto loans were a good match for structured finance; their maturities, considerably shorter than those of mortgages, made the timing of cash flows more predictable, and their long statistical histories of performance gave investors confidence.[9]

This early auto loan deal was a $60 million securitization originated by Marine Midland Bank and securitized in 1985 by the Certificate for Automobile Receivables Trust (CARS, 1985-1).[11]

The first significant bank credit card sale came to market in 1986 with a private placement of $50 million of outstanding bank card loans. This transaction demonstrated to investors that, if the yields were high enough, loan pools could support asset sales with higher expected losses and administrative costs than was true within the mortgage market. Sales of this type — with no contractual obligation by the seller to provide recourse — allowed banks to receive sales treatment for accounting and regulatory purposes (easing balance sheet and capital constraints), while at the same time allowing them to retain origination and servicing fees. After the success of this initial transaction, investors grew to accept credit card receivables as collateral, and banks developed structures to normalize the cash flows.[9]

Starting in the 1990s with some earlier private transactions, securitization technology was applied to a number of sectors of the reinsurance and insurance markets including life and catastrophe. This activity grew to nearly $15bn of issuance in 2006 following the disruptions in the underlying markets caused by Hurricane Katrina and Regulation XXX. Key areas of activity in the broad area of Alternative Risk Transfer include catastrophe bonds, Life Insurance Securitization and Reinsurance Sidecars.

The first public securitization of Community Reinvestment Act (CRA) loans started in 1997. CRA loans are loans targeted to low and moderate income borrowers and neighborhoods. [12]

As estimated by the Bond Market Association, in the United States, total amount outstanding at the end of 2004 at $1.8 trillion. This amount is about 8 percent of total outstanding bond market debt ($23.6 trillion), about 33 percent of mortgage-related debt ($5.5 trillion), and about 39 percent of corporate debt ($4.7 trillion) in the United States.

In nominal terms, over the last ten years, (1995-2004,) ABS (Asset Backed Securities) amount outstanding has grown about 19 percent annually, with mortgage-related debt and corporate debt each growing at about 9 percent. Gross public issuance of asset-backed securities remains strong, setting new records in many years. In 2004, issuance was at an all-time record of about $0.9 trillion. [13]

At the end of 2004, the larger sectors of this market are credit card-backed securities (21 percent), home-equity backed securities (25 percent), automobile-backed securities (13 percent), and collateralized debt obligations (15 percent)*. (See below, these are the second worst forms of securitizations) Among the other market segments are student loan-backed securities (6 percent), equipment leases (4 percent), manufactured housing (2 percent), small business loans (such as loans to convenience stores and gas stations) (That is greatly exaggerated – A small-business loan is far greater than the 3 and 4 employee example – SBL’s could be to even a 200 employee company, depending on output and classification by the lender) , and aircraft leases. [13] More recently an attempt to securitize excess energy generated by renewable energy resources is being attempted bt J. Brant Arseneau and his team.

As the result of the credit crunch precipitated by the subprime mortgage crisis the market for bonds backed by securitized loans was very weak in 2008 unless the bonds were guaranteed by a federally backed agency. As a result interest rates are rising for loans that were previously securitized such as home mortgages, student loans, auto loans and commercial mortgages[14]

* I add this further explanation of the current crisis:

Collateralized debt obligations (CDOs) are a type of asset-backed security (ABS) and structured credit product. CDOs are constructed from a portfolio of fixed-income assets. CDOs are divided by the issuer into different tranches: senior tranches (rated AAA), mezzanine tranches (AA to BB), and equity tranches (unrated). Losses are applied in reverse order of seniority and so junior tranches offer higher coupons (interest rates) to compensate for the added default risk.

Since 1987, CDOs have become an important funding vehicle for fixed-income assets.

During the credit bubble of the mid-2000s, a few academics, analysts and investors such as Warren Buffett and the IMF's former chief economist Raghuram Rajan warned that financial derivatives such as CDOs and other ABSes were greatly increasing risk in the financial markets, but their views were dismissed.

With the advent of the 2007-2008 credit crunch, it has become clear that CDOs, like all ABSes, suffer from a fundamental flaw that causes all tranches to be extremely high risk for investors: loan originators retain no residual risk for the loans they make, but collect substantial fees on loan issuance, which causes unchecked degradation of underwriting standards. This problem was exacerbated by the failure of credit rating agencies to take into account the collapse of underwriting standards when valuing these products. (Who were paid by the originators to keep their mouths shut!)

The institutions buying CDOs relied on the ratings agencies, as they lacked the competency to monitor credit performance and/or estimate expected cash flows. Major loss of confidence has therefore occurred in the validity of the process used by ratings agencies to assign credit ratings to CDO tranches and this loss of confidence persists into 2009.

As many CDO products are held on a mark to market basis, the new understanding of the underlying risks of CDOs and the associated collapse of liquidity in these products led to substantial write-downs starting in 2007 and continuing into 2009.

That last statement is a big explanation of the crisis: Now that we have no reliable agency to rate these pooled assets, how can we take them back to the values they were sold at?

All sources: Wikipedia. Simple, brief, digestible. Good for stuff like economics, bad for stuff like religious views or who is the best sports-team!


Sunday, February 08, 2009

The most crafted song in modern history – Let It Be by the Beatles.

A little known fact is the origin of the word “amen” and its significance in both modern and ancient cultures. So let us take a moment and examine the significance of this word.
The word means literally “So be it, truly” and so is a gesture of affirmation. This comes from an ancient Hebrew concept of sacrifice, the bewildered spectator of a sacrifice finally accepting the act as the will of God.

The word originates in Ancient Egypt, and was a reference to her chief king, known either as Amen-Ra or Amen-Hotep and to the Egyptians literally meant “that which is hidden”. Early Judaism was very much influenced by the Egyptian “Book of the Dead” which predates their own culture by thousands of years.

From the Jewish use of the word to express communion of understanding and faith, but most of all trust in a higher power, the word spread to other languages, all the while maintaining this same meaning: In Islam, it is the standard ending to the Dua (supplication). A version of “amen” can even be found in Hinduism, “astu”, because it means the same thing – literally, “so be it.”

It is an expression foremost of faith, it cannot be challenged. When one utters the phrase it is because the phrase or phrases before it are so very fundamentally true that they cannot be challenged. Thus in the Jewish Law you have instances where you must say “amen” such as after the hearing of a blessing. Conversely, one must never utter “amen” if one is entering a room, hears the rest of the congregation reciting “amen” but has not heard the blessing itself. This has to do with the conviction one has in uttering the phrase – Do you truly accept this as God’s word and wish it therefore so?

Due to the Diaspora, it is not unreasonable to theorize that this concept of giving-in to the domination of the will of a great king would be an element in uniting a dispersed people. It is a part of Jewish law that one recites and therefore confirms this acceptance of the will of God in various contexts. It is thus a very important part of the communion of a people. It is used in exactly the same fashion in every culture that uses it – Christian, Islamic, Judaic and Hindu.
And it is not an unreasonable concept. Something put us here. Here we will be a light for some short time, and then the darkness will near. We should be able to put our faith in the will of whatever put us here that it is this same will that will take us out. We all fear our own mortality however much we know that it is inevitable. If only to lessen the anxiety, just let it be.
Therefore to name a song “Let it be” is quite the act of pomposity!

In 1964, in an interview with Maureen Cleave of the London Evening Standard, Lennon uttered these words: "Christianity will go. It will vanish and shrink. I do not know what will go first, rock 'n' roll or Christianity...We're more popular than Jesus now.” On May 8th, 1970, the Beatles released their final album with the title “Let it Be”. Very much written in the spiritual style, the song uses as a refrain of virtually every pronouncement of the singer with “Let it be.”

The Beatles aren’t shy about their view of themselves, as they express in the opening lyrics:

When I find myself in times of trouble
Mother Mary comes to me

To my understanding, Mary was the mother of Jesus, not John.

Speaking words of wisdom, let it be.
At least they didn’t attribute the wisdom to themselves.

And in my hour of darkness
She is standing right in front of me
Speaking words of wisdom, let it be.
Let it be, let it be.
Whisper words of wisdom, let it be.

Straight to the hour of darkness, the initial problem and the focal point of faith, let it be.

And when the broken hearted people
Living in the world agree,
There will be an answer, let it be.
For though they may be parted there is
Still a chance that they will see
There will be an answer, let it be.Let it be, let it be.
YeahThere will be an answer, let it be.

Now we get to where the issues get muddy, both the issue of the true interest of faith (is it just to comfort us as we face death?) but also the use of the term “Let it be”.

Should Lennon and McCartney’s word receive the same uncritical acceptance as the words of Mary?

Nothing ever happened by accident in this band’s history.

This was the most carefully-crafted money-making, popular-culture influencing group of five-then-four people ever assembled. They knew the significance of how close “amen” is to “let it be” and they used it for all it was worth.

This was their swan-song, they had conquered the world, and so they could demonstrate this by usurping the place of the mother of God herself.

And when the night is cloudy,
There is still a light that shines on me,Shine on until tomorrow, let it be.

All four members knew that the Beatles by this time were on their death-knell. None could muster the courage required to go on. And yet this lyric again invokes that even in death, the light will shine on them. They don’t say it, but the lyric has a feel that this light will shine specifically on them and not others.

I think that I can prove again that this was intentional in the next lyric:

I wake up to the sound of music
Mother Mary comes to me
Speaking words of wisdom, let it be.

This is the Beatles post-Beatles. Mother Mary, (whom they have usurped,) will come to them and their music which is heard at the dawn of their rebirth.

The song refrains-out in a glorious celebration, which is typical to the style of a sermon, which is always told as an uplifting and unchallengeable story of the presence of pure good!

Homiletically, this song is a piece of pure craftsmanship:

Let it be, let it be.
There will be an answer, let it be.Let it be, let it be,
Whisper words of wisdom, let it be

One feels this rapture, and it is annoyingly difficult to get these lyrics out of one’s head once heard. Let it be, let it be, let it be, let it be… By this point if anyone has any hope that the Beatles intended for this to be anything other than self-promotion then the Beatles have done exactly as they expected – Used the most sacred word of at least four world cultures for their own personal benefit.

And these are the thoughts that kept me out of any of the really good schools.