Tim Geithner's "toxic assets" Plan

As the US economy continues to fall into the harshest recession since the Great Depression, Congress is developing new plans for a turn-around on the investing frontier. Many are finding it hard to trust the government's intervention in such times, especially after the perhaps unethical actions taken by AIG after bailout moneys were dispersed several weeks ago. Even though President Obama has declared himself personally responsible for some of the 'lesser opportunistic' decisions made by companies after receiving bail-out money, assuming that risk does absolutely nothing to rectify the current economic challenges faced by America today. One may argue either way as to the foreseeable probability of the actions taken by AIG prior to its lending, however that particular mistake should not be an end-all to support of Obama's diligence in working to repair the economy. After initial bailout plans such as the Recovery and Reinvestment Program had been released to the public, US Secretary of Treasury and previous president of the Federal Reserve Bank of NY Tim Geithner has begun to finalize a plan that will attempt to buy up toxic assets to help propel the country into economic stability.

Geithner's toxic assets plan (The Public-Private Investment Program) is an attempt to "set up funds to provide a market for the legacy loans and securities that currently burden the financial system." In a nutshell, the program involves pools of loans that will be sold by banks in order to relieve their books of toxic assets. In turn investors will have the ability to compete for these funds, being enticed by the fact that they are government financed. Initially the FDIC and Federal Reserve will offer backing of $500 billion with the possibility of expanding to $1 trillion in terms financing.

Let's diagnose the current clutter in the United Stated economy, and take a look at the possible outcomes of what I like to call the toxic assets plan. First off, as most know, or least most reading this, the current financial struggle has come at the hands of the credit crisis and the fall of the real-estate market. Point blank, as Americans we are in our current financial predicament due to our ill-advised investing mistakes. As mortgages were introduced to the American public (1934) as a means of pursuing a trait of the 'American Dream,' individuals and families found themselves at ease when purchasing their own home. This created a boom in the real-estate market that in turn resulted prosperity nationwide... THEN came refinancing. Many Americans began using false documents and records in order to obtain their mortgages with plans of refinancing within a year of receiving their loans. In a Dateline special that aired on March 22, many banks had shown individuals claiming yearly incomes of $105,000+ for jobs like 'carpenter' or 'professional cleaner.' It would take an idiot to accept such false information - OR a bank who could care less about fraudulent information as refinancing would make it 'all better.' Americans were borrowing more than they could afford, refinancing to a lower percentage with an even higher risk loan, then defaulting on the new mortgage. Initially, the primary lenders were paid with the loans that resulted from a refinance, so they hadn't a care - but foreclosures continued to rise to an all-time high leaving the economy in its current recessive state. We have no one to blame but ourselves and the banks flawed ratings system together.

My opinion is concurrent with that of University of Texas economics professor Dr. James Galbraith, just a little less 'harsh' in refutation. As Galbraith states, the Geithner plan assumes that the bad assets that will be dumped by banks will increase in value over time. However, if these assets "realize massive losses," the government's financing will result in the those losses being charged to the FDIC. The plan will most likely work for one partner and one partner only, THE BANKS. Geithner's plan is that of an economic fairytale for investors. The problem is that as competition begins to heat up for these assets, banks may bid-up the price giving investors the perception that the bad assets are worth more than they truly are - this is what I like to call the "used car salesman effect." I.E., give a used car salesman a salvage-titled car worth $500, and he'll sell it for $5,000 - the bottom line is it's still only worth $500, and will continue to depreciate. While the banks understand that there is a bidding process for assets that would otherwise fall into larger debt on their own hands, pricing up the market value of such assets leaves risk solely on the taxpayer. Once those assets are off the banks' books, if the value decreases the burden is on the shoulders of the investors. Why is there reason to believe such an outcome? Because at this time the recovery rate on sub prime mortgages is extremely low. Another danger as Galbraith states is that the plan will not shrink the current financial system. Banks will be able to remain in business by dumping the bad assets, however there is no credit relief as there will be no increased ability to lend. On top of not being able to lend, there is no alleviation or help for the current borrower, leaving a surplus of unsaleable houses throughout the country.

I have a somewhat neoclassical view on how to fix such a problem. At some point, the banks are going to have to realize these losses - which have a combined residential real-estate and total peak market value of housing in the ballpark range of $20 trillion. The economy cannot recover until banks can lend. Banks cannot lend with large debts on their books, and even after some of the pools have been sold will not lend due to fear of losing their equity and being shut down. AMERICANS MUST INCREASE LONG-TERM SAVINGS. This will increase the solvency of the banks that can remain open. The public must be made aware as to the assets of these banks in order to reestablish confidence in the borrowing-lending system as Galbraith states. The system must be cleaned up, as it has been flawed and fraudulent for years. The banks that are too big to be managed will need to be taken over by the regulatory organization in this country, the FDIC. As savings increases and lending is stabelized, the economy will begin a recovery. One of the major oppositions to such a plan stated by Galbraith and annotated by myself (and many others) is that it is much more time consuming and extremely long term in comparison to the Public-Private Investment Program.

Calulated Risk Blog
Geithner - WSJ
Part I: Geithner's Plan "Extremely Dangerous," Economist Galbraith Says
Part II: Geithner, Obama Kowtowing to "Massively Corrupted" Banks, Galbraith Says
Private Options for Mortgage Recovery Offered

"BUY! BUY! BUY!"

I've recently dipped into Peter Lynch's One Up On Wall Street, a book in which Lynch reveals that any average investor can beat the big whigs on Wall Street by using the simple information in their everyday lives. While still working on this interesting read, which is hard to come by in today's investment world, I believe one of the most important lessons in the book is in its first fifty pages. As Lynch chronicles his own personal investment learning, and a few stories of his friends (both fortunate and unfortunate) he makes one thing clear, the stock market is not nearly as complicated as the average person believes. Lynch tells readers that most of the hot investments can be found in the companies that lie in your kitchen, bedroom, bathroom, closet, etc... What Lynch is saying is that the average investor can 'whomp' on Wall Street by investing in those companies that they see "hot" in their everyday lives, as opposed to what's read in magazines, news papers, or seen on television - point being, if you're reading that its "hot" by the time you're buying it, its already cooling down. While this is not necessarily true 100% of the time, in an extremely volatile market its likely more often than not.

One of the examples Lynch uses is L'eggs by Hanes. When Roger Ferriter released his L'eggs design with Hanes in the 1970's, he "introduced a unique trade dress by placing its product in white plastic chicken egg-shaped containers egg." Unique? CHECK! Increased shelf-space? CHECK! Booming interest? CHECK! Women were flocking to this new product, raving about its packaging, functionality, and convenience creating one of the most successful product launches in history. One of Lynch's friends' wives returned from the store after the release of this product, going on and on and on about how "hot" the item was going to become. Said friend decided to go with a stock already hot on the market. Result? Hanes stock skyrocketed as a result of the product, and his friend's stock, well, it fell through the basement and into the storm cellar.

Just by walking down the street, seeing stores with lines to the sidewalk, looking at products jumping off shelves, or fishing through your home to find items you religiously purchase, chances are you're sitting on stocks that have pretty good potential returns. What to do? Just as Lynch says, don't go purchasing stock blindly. Do some research, talk to your broker or someone you trust with knowledge of investing. Check out some quarterly earnings numbers, watch the volatility of the market overall, and do some intrinsic calculations. There's nothing easier than letting your money make even more money for you.

While reading One Up On Wall Street I decided to jump harder into my mock stock portfolio. I am a BIG technology fan, and as a result a BIG technology stock fan. However, as any market vigil knows, technology hasn't been the greatest of investments steadily in the past 18 months. Long term - I feel technology stocks should be watched closely, purchased with care, sold strategically, but DEFINITELY invested in. While a mock portfolio allows you to play with any amount of money you prefer, the returns are still of proportion as no matter what your numbers are of "hard" relativity. In my technology craze, I jumped back on the GOOGLE wagon, earning me a 7.25% return over about 3 months. Once deciding to sell (my general rule is sell between 7-9% depending upon market volatility), my girlfriend's mother tipped me off on Kellogs. I thought Kellogs? But eventually decided to go with the old phrase "mom knows best" and subsequently purchased some - along with CISCO of course to fill my technology lead... Thus far it's worked in my favor, boosting portfolio returns from 7.25% to 7.37% in 5 days. Though the short term is no way a great indicator of a stock's real strength, it just goes to show that an average investor who pays attention to what's going on around them can strike bronze, silver, gold, platinum, and all other good things in market.

Next up on the purchase list? Make-up. Why you ask? My girlfriend tells me in a down-turned economy women spend less money on clothing and expensive items, but still need that "pretty me up" fix. She says the buy make-up because its cheap, makes a woman feel good, is sometimes a true shopping addiction, and allows a woman to continue indulging in those little self-improvement rituals. When you think about it, a case of lipstick can range from $4-$20, but is an easy quick grab while at any consumer goods outlet.

Last House on the Left - A Review

As I'm sure many of you have now either seen Wes Craven's second take of horror film Last House on the Left, or you've heard enough buzz to formulate reason's to skip out on 2009's double Friday 13th release. Either way, the following is a brief review of the film from a "by no means" professional critic, but from an avid horror-goer...

There have been many reviews commenting on the 2009 "remake" of Last House on the Left. To start off, let's point out some of the consistent inconsistencies between the original 1972 flick, and that of present day. The "original" - (and original is used in a rather loose presence as many claim the 2009 picture is in fact not a remake, although anyone who has seen either film can attest to its historical/borrowed nature) - depicts two teenage females, Mari Collingwood and friend Phyllis Stone embarking on a trip to see favorite band Bloodlust. The show is in celebration of Mari's 17th birthday, and becomes the catalyst at which a gang of rapist/murderers indulge in their next victims. While awaiting the show Mari and Phyllis are kidnapped as they try to score some pot before the band takes stage. While entrapped by the so-called criminals, Mari is forced to witness the rape of Phyllis, and the two are then locked in the trunk of the car which will eventually break down in front of Mari's house - unbeknownced to the killers. . . Finally, as I'm sure you can infer, the film turns into a rage-infested, fight-for-your-life "revenge-flick" as the Collingwood parents realize the strangers they harbor within their own home are the cause for the disappearance of their beloved daughter; a detail discovered by a peace-charm necklace Mari was wearing at the time of her departure that had been placed in the home by Junior, the son of the criminal "gang" leader. The rest is history, as the Collingwood parents seek revenge upon the group, murdering them one-by-one (Sadie, Junior, Krug & Weasel) - turning the film into the ultimate "good-triumphs-evil" terror film.

In the latest version (2009) the Collingwood family travels to their secluded lake house for vacation one year after their son's death. However, this time the two young females, Mari and Paige (Phyllis '72), become the innocent victims of a similar gang of criminals after, much like the original. The two teenagers are caught with Krug's son Justin (Junior '72) in their motel room after previously murdering two police officers. It was the unfortunate miscalculation of Krug and the gang's return by Justin that led to the indefinite surmise of Paige and Mari. Like the original, Paige and Mari traveled to the motel room with Justin in order to "score" some pot. The repeated attempts to escape Krug, Francis (Weasel '72) and Sadie end in Paige's murder and Mari's rape. However, Mari manages to get away and miraculously swim back to her lakehouse after being shot. Feeling responible for the two girls' resulting situation, Justin finds it almost unbearable when he realizes they have saught refuge at the Collingwood residence as in the 1972 version. Justin alerts the Collingwood parents in similar fashion to that of Junior, by leaving a gold pendant wrapped around his hot-chocolate mug in the home's kitchen. This pendant is significant as Mari was wearing it when she departed for Paige's. Once again the family seeks revenge (with the help of remorseful Justin) and kills each member of the gang individually before leaving the house by boat.


After-thoughts -
The main reason for writing this entry was to critique the movie, so here it is... One of the most pivotal scenes in the current version of the film lies within its first 20 minutes. As Mari is raped by the gang leader Krug, the directors leave out no, and I mean NO details. The entire scene is displayed on screen, start to finish, graphic, violent, terrorizing, nightmareish, and any other descriptive word one can think of. This leaves viewers, including myself, asking the following questions - 1. How much is too much? - 2. When does the MPAA (CARA) set more harsh regulations on film ratings? - 3. When is an 'R' rated movie, more than just an 'R' rated movie?

1.) The rape of a 17 year old girl, on any screen, is too much to be shown publicly. One may argue that if one purchases tickets to a film of their choice, they bear their own risk and discomfort of what may be displayed on the screen. However, when the common norm for rape scenes in publicly shown films - if there is such a thing - is "out-done" by a new flick, the viewer may have no idea what they are getting themselves into. Witnessing the complete rape of a 17 year old girl was the most disturbing thing I have ever seen in my entire life. Could I have left the theatre and asked for a refund? Sure. However, that does not provide a solution to what should and should not be allowed in theatres nationwide. And for those who have viewed the original, when rape was hardly shown in movies at all, would have no idea what to expect. Yes, 37 years difference brings changes of liberation to what's allowed on television, radio, and in cinematography - but those original fans got more than they bargained for, especially knowing the original directors had a hand in the 2009 remake.

2.) At some point the MPAA (CARA) and ratings committees MUST decide when to employ tight regulations on films. I am a fairly liberal individual, an avid horror movie fan, and all for freedom and rights in this great country. However, the showing of an entire rape start-to-finish of a 17 year old teenager is where a BOLD line should be drawn on film regulations. Not saying that showing the rape of a 40 year old woman on screen would be any better, but showing scenes like tin Last House on the Left have a far more profound impact on viewers, especially those younger than the 17 yr. minimum to view 'R' rated movies --- and this brings up another point, at what age should one be able to view such horrific scenes? In the showing I attended, there at least six children between the ages of 11-14 who's parents bought them tickets (hopefully having no idea what they were about to see). The only thing saving these kids is the fact that some may have been too young to really comprehend what was actually happening, while others (especially males) should not be exposed to such content until able to cognitively breakdown and understand what's going on atop the big bright screen. Scenes like the rape scene of this film should be removed, as it turns the movie from a good suspenseful horror flick, into a showing of pure terror at which most viewers leave in disgust.

3.) 'R' movies are one thing, 'R' movies. They may display gross sexual conduct, nudity, profane language, sexual content, sexual language, drug use, you get the picture... The MPAA states: "An R-rated motion picture may include adult themes, adult activity, hard language, intense or persistent violence, sexually-oriented nudity, drug abuse or other elements, so that parents are counseled to take this rating very seriously." Their reasoning for the 'R' rating in Last House on the Left is as follows: " Rated R for sadistic brutal violence including a rape and disturbing images, language, nudity and some drug use." The words "sadistic brutal violence including a rape" should never be acceptable criteria for a publicly viewed 'R' rated film. The rating system is in fact voluntary, therefore no law can be put in place to legally "enforce" regulations on 'R' rated films. Looking back to the 1996 horror film Scream for a loose (Yes I said loose) comparison: "The film Scream was originally rated NC-17 for "graphic horror violence and gore" but under appeal by director Wes Craven, it was changed to R with some overly graphic content cut out." - In looking at the content between the originally NC-17 rated movie Scream and the MUCH MORE graphic LHOTL, there are obvious inconsistencies in United States film ratings.