No more radio ads.
No more tv ads.
No more phone calls with stupid recordings.
No more junk mailings.
No more lawn signs.
No more mudslinging.
No more Tina Fey having to do Palin ever again. I’m sure of this.
No more.

I had the opportunity yesterday to talk to a wonderful economics professor about the current economy. He explained that basically, what isn’t happening right now that needs to happen is banks need to feel more confident to lend to one another. Unfortunately, they’re all afraid that if they loan money, they may not get it back due to all of the unknown amounts of bad debt that’s floating around at all the banks. Which bank is going to go next, nobody knows, so nobody wants to take any chances. The banks hoarding the money and not loaning to other banks is causing the Federal Funds rate to rise, supply for loans low, demand, high. He said that at around 5%, it’s pretty high but ok. At 7%, it chokes the economy. A few days ago, before the Congress passed the Bailout bill, it went as high as 10%! Now you have an idea of the severity of what’s happening. When the financial sector gets this bad, and banks stop lending to one another, it also chokes out banks lending to companies; companies who rely on this money to grow, to pay employees, to operate. And it chokes out lending to us, for our credit cards, our student loans, and our mortgages. That’s what’s happening now. Not just a slowdown of the economy, but a virtual stop, via this ripple effect.

A little background on the Federal Funds rate: It is the rate banks charge to each other when they borrow overnight. Every day, banks borrow from one another. In the evening the net is calculated and an interest rate is charged to the borrowing banks for what’s owed to whichever banks are lending. This rate is only indirectly controlled by the Federal Reserve. Here all along I thought the Federal Reserve set the Federal Funds rate. Nope. The way this rate works is controlled by supply and demand of loans from banks to other banks. This in turn is controlled by the supply of money. And that is controlled by the Federal Reserve, which is why it’s only indirectly controlled.

The Federal Reserve controls the supply of money in circulation through the purchasing and selling of U.S. Bonds. They can’t issue bonds, but they can buy and sell them like anyone else. Bonds originate from the U.S. Treasury, when our government needs money to spend. Anybody can buy them; banks and countries buy them, essentially loaning the government money. Then the Treasury spends it. In that situation, when the Treasury sells bonds, the amount of money in circulation remains unchanged. Taking $2 from Jack and giving it to Jill means there’s still $2 in circulation. The Federal Reserve on the other hand buys and sells bonds to control how much money is in the economy. If they want to tighten the money supply they’ll sell bonds that they have. Take $2 from Jack and give him a bond. Then keep the $2 to take it out of circulation. The monies they collect on the sale of the bonds are hoarded, kept by the Federal Reserve. This also raises the value of the dollar and the Federal Funds rate goes up as banks increase their overnight rate to each other. When the Reserve wants to lower the Federal Funds rate, they buy bonds from banks, thereby handing cash over to banks, and putting it into circulation. We see the value of the dollar decrease, inflation, and a lower Federal Funds rate. In essence, when there are a lot of dollars around, they’re easier to come by as supply is high, so the interest rate (the cost of borrowing the dollar) is low. The lower the Federal Funds rate, the cheaper it is for banks to borrow, the more they’re encouraged to do so.

That is what Bernanke is trying to achieve now. He’s pushing money into circulation by buying bonds from banks to lower the Federal Funds rate so banks will start loaning to one another. Inflation, though a concern, is still secondary to the immediate troubles we’re facing.

The $700 billion dollar bill that Congress has recently passed allows the U.S. Treasury to purchase the bad debts and free the banks from the risk they’re carrying. The desired effect is to give banks more confidence to lend and borrow with one another as it clears up their bad investments and increases their liquidity. The Federal Reserve really has nothing to do with this except to bolster the argument to Congress that this money is necessary to get the economy going again. With Bernanke’s backing, the U.S. Treasury (H. Paulson) was better able to convince Congress that this was the right thing to do. The reason why the Federal Reserve keeps pumping cash into the system is to again, lower the Federal Funds rate and encourage banks to lend to one another.

Just to distinguish between the Treasury and the Reserve: the U.S. Treasury is a government entity. Their existence and what they do needs to be permitted or mandated by an act of law (Congress). They are the government’s pocketbook. Money that the government spends is held in the Treasury. The Federal Reserve on the other hand, is independent of the government. That’s why it’s often said, the Chairman (Bernanke) is the second, if not most, powerful person in the world. The Reserve basically has what’s called a “dual mandate.” Two things they pay attention to in the economy: 1. Inflation – controlling it so it’s relatively stable. Protecting the value of the currency. 2. Unemployment – keeping it low.

Right now, banks are still skittish and worried that the $700 billion is not going to be enough. The challenge is in assigning values to these foreclosed homes that the banks are holding. It was purchased at $500k. Is that what you put down as the value now? If it should be lowered, then by how much? That’s why it’s hard to gauge how bad these bad debts are.

And that is what is going on.

As I mentioned before, the China-way of fixing things – scapegoat a coupla’ people and leave the rot.

Excerpt from the Washington Post:

Since then, Chinese authorities have fired several municipal and provincial officials and forced the resignation of the head of its General Administration of Quality Supervision, Inspection and Quarantine, who, during last year’s food and product safety scandal, said that foreign companies needed to do a better job of testing products made in China.

Premier Wen Jiabao has apologized for the tainted-milk scandal, but he has also insisted that China does not “cover up.”

Folks from China I’ve talked to blame the few unethical businessmen. They believe this is a case of a few bad apples not related to the government or the majority of the good businessmen. I doubt that’s the case though. The government took almost a year to warn people and force any action on the businesses to recall the tainted products.
No cover up, oh weawy?

Shijiazhuang is home to Sanlu Dairy Co., the 50-year-old company that health officials say covered up the problem when complaints first started coming in from parents of sick children last December. Local doctors also issued warnings that went unheeded until a journalist posted Sanlu’s name online at a Chinese social portal Sept. 11.

Hu Jintao and his sunshine band are doing a pitiful job of regulating their industries. This year, it’s melamine in milk products. In short, don’t eat foods made in China. The ethics of this is so deplorable, what are they saying when they come up with these ideas to deliberately taint foods?
“It’ll kill a few kids.”
“Perfect. Let’s apply for a government population control subsidy for that added feature.”

The worst is the reaction from their government after the realization that all this is happening. They’re more concerned with saving face than saving lives, recalling only some of their milk containing products and playing dumb. Ahem, remember SARS?

Maybe someone’s going to get sent to jail, fired, executed over this. Then it’ll blow over. Next year, melamine in flour. Communists.

Agh, hit me up with another puppy.

A lot has been happening these past two weeks in the financial sector which have been a bit complex and overwhelming for me to comprehend.  So here’s what I’ve learned from talking to people and reading about it:

Lehman Brothers – They’re an investment banking firm and this Tuesday, they filed for bankruptcy.  Causes: they were overleveraged.  Too much of their assets were financed on borrowed money.  Also, the ever familiar issue of having too large of a holding on bad mortgage investments.  Barclays is buying Lehman.  

Merrill Lynch - Earlier this year Bank of America  purchased Countrywide and this week, they bought Merrill Lynch, at a 70% premium too.  They paid $29 a share rather than $17, which was how much Merrill was worth.  I heard the reason was to stave off bidding wars because other banks were eyeing this purchase as well. 

AIG – Insurance and investing company.  They just got an $85 billion loan from the U.S. Treasury. At 10% interest rate, that’s a good deal for Uncle Sam for sure. Where are going to get that kinda’ growth these days? Not on the stock market I can tell you that much! And I don’t think AIG will tank so it’s a guaranteed 10% return. We win!

Freddie & Fannie – First of all, these two companies are government sponsored.  They’re there to make the mortgage market a bit more liquid which would foster more home purchases.  Banks sell their mortgages to Fannie Mae & Freddie Mac so they can have more capital to go forth and give out more mortgages.   Anything that passes through these two by default get AAA ratings.  Meaning, they’re good on getting paid back.  This is because they’re government sponsored.  Many foreign countries invested in Fannie and Freddie thinking they were very secure investments due to the government-ties.  Unfortunately, with the innovative mortgage loans that may go sour and with the difficulty of estimating how severe the bad loans are out there, they’re not sure if they can carry these hefty mortgage fallouts.  So the government took them under a conservatorship.  What once was an implicit loan payment guarantee became explicit.  They’re saying, if Fannie and Freddie can’t pay their loans because people can’t pay their mortgages, the U.S. Treasury will pay.  The hope is by keeping Fannie and Freddie afloat, it will keep mortgage rates low and encourage those thinking of buying homes, to buy.  Maybe by doing so, we’ll see the bottoming out of this real estate market and things will improve.

I’m not saying these entities should or shouldn’t be bailed out.  But what I see is typical election-year spending.  During the months before a presidential election, it’s hard for politicians to turn their backs on their constituents.  So set the money loose on the voters.  Maybe McCain will get his wish afterall.

Two years ago, it was the e. coli spinach, this year, it’s salmonella tomatoes. And the list goes on despite us having two different agencies (Food & Drug Administration and Food Safety & Inspection Service) making sure our food is “safe.” Here’s the problem with that setup: There’s overlap and conflicts of interest and poor coordination. We have the FDA inspecting packaged foods and FSIS inspecting the meat. Yet it’s the FDA’s Center for Veterinary Medicine that approves animal drugs. Then, while FSIS is trying to make sure the meat is safe, another agency in the USDA is marketing the meat on behalf of the meat producers. Sketchy. So on the one hand, while the cattle & beef lobbyists push for less testing of mad cow, we’re also contending with the risk that we have seen this disease in our livestock and consuming tainted beef can kill. So is the USDA supposed to protect us or the cattle industry? South Korea isn’t taking any chances.  I believe it was Congresswoman DeLauro who’s started to campaign this idea to create a new food safety regulatory agency that’s strictly protecting the interests of the public. Though, I’m not sure whether the USDA or FDA are interested in letting go of the money & control any time soon.

I submitted a service ticket last Sunday.

Hey could you send me some movies?

Thanks!

Here’s what they replied:

Sorry for the inconvenience.
We’re in the process of Updating our Inventory and striving to make some changes to the Website with new offers and features. We’re also trying to get all the dealers back on board. We will assure you that all the issues that you are facing will be sorted out as soon as possible and everything will be back to normal.

We appreciate your patience and understanding,
Intelliflix Creative Content Support

Everything sounds hunky dory ‘cept for the part about trying to get all the dealers back on board. Guess that’s why they haven’t been mailing me any movies for almost two months.

XLII.  Is that forty-two?  I thought we’d already played to at least forty-five.  Maybe after they reach Super Bowl fifty, they start counting backwards. 

With most news coverage about the primaries and economic stimulus package, I only heard about this year’s Super Bowl because a radio station reported about some guy who wanted to declare Super Bowl Monday a national holiday.  Ha!  As if pro sports weren’t bad enough economically.  Here’s a paper about how cities subsidize professional sports believing they will help bolster their economy.  In fact there are detrimental effects of professional sports on their host cities.  One of their examples is about decreased work productivity, which is exactly what the radio station was talking about with the Super Bowl holiday guy.  There are other examples but essentially, pro sports makes a small group of people very wealthy and costs the city a lot of money on infrastructure, not to mention congestion, pollution and all those negative externalities.  To be fair, it does offer a common interest for people to talk about, which can help build rapport and all that warm fuzzy stuff. 

Moving on though… here’s some basic info for all the sports dummies like me.  According to the official site of the Super Bowl, the New England Patriots are playing against the New York Giants this coming Sunday, February 3rd in Phoenix Arizona.  The Patriots are the favored team, which would make the Giants the underdogs.  Which state is the Patriots from anyway?  New England?  Isn’t that a bunch of states?     

The other day, I went to Costco to get a set of new tires. I got there relatively early, but by the time they got to me, the wait was three and a half hours long. Whoa. I like to shop, and Costco is big, but the most I can stretch that out is an hour. That includes going through all the aisles of things I’ll never need, like portable hard drives and 20 pound bags of sugar. So, I ambled through the aisles of stuff, reading the basic hummus components, and comparing the active ingredients of lotions. I can see your eyes crossing already but I had no choice, that is, until I came across the magazine rack. Costco doesn’t exactly have a large selection of magazines, and as I’m typing this now, I realize they also have books, so I could’ve gone that route too. As it were, I grabbed Us Weekly, People, Glamour, and the like, wandered over to the office furniture section and plopped my butt down on the most comfy looking leather desk chair. Then I proceeded to fill my brain with life’s great mysteries and the study of human nature. Some Tisdale girl is this other girl, Vanessa’s BFF. They are so close they even share Uggs. Ewww, sweaty boot sharing and Uggs.  This demonstrates that you’re not really pals unless you share sweaty boots.  Transfering that theory to my past experience, this means the person who wore my skates after me is my BFF.  I just don’t know her yet.  Or maybe I’m BFF with the person who wore my skates before me.  This is all so mindboggling, so let’s move on.  Next, I see a photo of Vanessa driving an Audi handing a homeless guy a rolled up Hamilton.  Charity is nice.  However, I’m not sure that was the best way to go about that.  But is it the outcome that matters or the intent?  I dunno how you feel but I’m going to provide my favorite answer: it depends.  Ha!  That answer sucks.  Ok I’ll pick one.  Outcome.  Intent is too touchy feely and I’m a cold cold woman. 

All in all, my four hours weren’t a complete waste.  I learned an interesting little tidbit concerning teeth, which I am very concerned about:

• Eating acidic foods weakens the enamel of your teeth. (So does bruxism.)
• Once the enamel wears out, it doesn’t come back, and then you get sensitive teeth.
• When you eat acidic foods such as citruses don’t mull over it in your mouth.
• Don’t brush your teeth until an hour after eating enamel-softening foods.
• Flouride helps strengthen your enamel.

So the most useful thing I learned from all that reading material came from a page of toothpaste advertising.

We were always taught the three R’s, “reduce, reuse, recycle,” in school. Things have changed since then. A couple of people mentioned this two r’s idea to me and I didn’t get it. I kept wondering what about recycling? What’s wrong with recycling? After hearing it for the third time, I think I understand this concept. Finally. :p

Recycling isn’t bad, it’s just that the first two r’s are better. Because in the end, recycling still uses up significant amounts of energy. So the reason why recycling has chilled out is because what you really want to do is emphasize ways to reduce the trash you generate and reuse things. Say you go to a coffee shop, bring your own coffee thermos. Don’t waste those paper cups, lids, cardboard cup holders, and cup sleeves. Grocery shopping? Bring your bags with you. Need sandwich bags for chips and crackers? Use tupperware or even some reusable containers of packaged foods instead. For instance, I like nuts, so I reuse those cans that the nuts come in with the plastic lids. I’ll usually fill em up with more nuts (that I buy in bulk or bags) or another snack food. They’re metal and sturdy as can be. If you’re the only one reading a print out, reduce the font and decrease the margins. Print on both sides of the paper. Instead of buying a pen holder for your desk, use a washed jar. Get creative. Recycle only when you’ve run out of uses. So don’t go patting yourself on the back just yet when you recycle your plastic grocery bags. You can do better than that. BYOB!

It gets easier as you do it. I used to forget my grocery bags in my car all the time. So there’s another new years resolution for me, mindfulness of R&R.

Oh, remember the waterpouch I got to eliminate purchasing bottled water? I loved it so much I got two more (.5 L and 1L sizes). Seriously, lugging around a 2 liter pouch of water is not too practical even if it does require less refilling. I keep that baby at my desk. The water tastes very clean. They’re inexpensive too. I got mine from Amazon. .5L is $6.95 and 1L is $7.95.