S&P rates a subprime MBS higher than US debt

I know this comes as no surprise to many, but Bloomberg is reporting today that S&P has rated a subprime package bond higher than US Treasury obligations.

If you've taken my banking class you'll know that my take on the whole financial crisis is related to this: S&P and Moody's didn't know how to rate subprime MBS (and probably didn't really know how to rate REGULAR MBS) and therefore relied on the "implicit" guarantee that FHLMC and FNMA would be secured by the full faith and credit of the US taxpayer if anything went wrong. The market relied on this too. So when Lehman and others came up with their own MBS based on subprime originations, S&P and Moody's were trapped. They had to rate the new, non-GSE debt the same way (or they would look like morons). And that's what happened. That's just lazy - unless you get a meltdown, and then it's nearly criminal. At best, it cost them their reputations as fair arbiters of value and credit ratings.

After THEY abdicated their historical role, the market stepped in to provide a hedge against all the phone credit ratings: the credit default swap. The void was filled by the HUGE CDS market. Things happen for a reason, not always just because people are overtly greedy.

Salomon Brothers', Goldman, and now B of A

Warren Buffett has added Bank of America to the list of firms that Berkshire Hathaway has bailed out over the years. More in the article at Yahoo - it seems that Buffett bailed out GE Financial during the 2008 crisis as well; I had forgotten about that one.

On a related note: I'm starting to like the coverage of financial stuff at Yahoo. Especially the free reports on market ups and downs.

The "one man blue-chip bailout machine" is another good read w/video.

49% of American children on federal food assistance? I thought there was a childhood obesity problem.

Evidently ABC News has learned that almost half of the kids in this country are on government food assistance, whatever that means.

Haven't we been hearing that there is a childhood obesity epidemic in this country for years now? Which is it? CDC and other governmental bodies have bombarded us with this stuff.

New Bloomberg expose of "secret" FRB lending programs, $1.2T for Wall Street "Aristocracy"

It seems full of hyperbole to me, but when Bloomberg tallied seven of the emergency liquidity programs from 2008-2009 they came up with $1.2 trillion in total borrowing, with a large part of that going to banks from Yurrup evidently.

I haven't checked to see if this was truly "new" info, or just a rehash of what we've heard since then. As far as I can remember, there were 14 or more special liquidity programs in total, not including the Federal Home Loan Bank programs that were out there.

No, GM didn't pay everything off, and no, you can't sue them for defects on your 2007 Impala

Just thought I'd post this here so that we're not tempted to believe the hype on GM.

GM has now argued in a class action suit that it is NOT the manufacturer of the 2007 and 2008 Chevrolet Impala and therefore it isn't liable for defective suspension components. The company has responded that the new firm, New GM, was responsible only for warranty coverage. It said

"New GM did not assume responsibility for Old GM's design choices, conduct, or alleged breaches of liability under the warranty."

Huh?

Let me ask though: if New GM isn't responsible, who is? If 2008 Impalas started bursting into flames tomorrow because of a manufacturing defect, who would we sue? Doesn't that say a lot about the bankruptcy process here?

As I noted here in April of '10, this shouldn't be surprising. GM isn't the same company it was; THAT firm went out of business before paying off what it owed but after wrecking the bankruptcy precedent. This is the best proof yet of the bureaucratic double-speak on this.

Warren Buffet: Stop Coddling the Super-Rich? Not so fast there, Sparky

Warren Buffet says in a NYT op-ed that it's time to collect more from the rich folks in this country.

Unfortunately, his math doesn't work. The Tax Foundation did the math and discovered that taxing those that earning $10 million or more would only reduce the annual deficit by 12% and ease the debt burden by 2%.

Class warfare disguised as "logic" is really scary, folks. Who knows why Warren Buffet has decided to become more generous in his old age, but I don't think there's anything stopping him from writing checks to the government. The rest of us down here in the middle class, however, are already paying too many taxes and eating too many regulatory burdens.

Salon is running a series of articles where they are asking the 20 richest folks in the country if they'd pay more taxes. Mark Cuban responded that he'd like to see it spent more accurately , saved for things that needed it and not just more government waste and dependency. His response:

I have absolutely no problem paying more taxes. None.

What I have a problem with is how the money is spent. If the incremental money could be directed to defined and deserved recipients. I would be thrilled to write the check.

The problem I have is not on the revenue side, its on the expenditure side. Too much money is wasted on bureaucracy, adminis-trivia, pensions and over expansive federal employment.

So I'm a resounding yes on more taxes, but an attachment to the funding to be directly spent on approved programs. If a program doesn't deliver 95pct or better to its intended recipients, it should be put on hold until it does.

An example of what he's against can be seen in last week's announcement by SecAg Vilsak that each dollar of federal food stamps to recipients produces $1.84 in economic benefit, hence food stamps are the most quick and direct form of economic stimulus.

Nobody thought to ask how much it costs to provide a dollar of benefits, via the state and federal government, to a recipient. I bet it's more than $1.84.

(Actually, I thought unemployment benefits were the most direct form of economic stimulus. That's what Speaker Pelosi said, at least.)

Until people take the politics out of federal spending (buying votes, bailing out unions and Wall Street, buying Congress, etc.) nothing's going to solve the budget crisis.

The EPA plans enforcement of anti-coal measures over the next 18 months that will change our way of life forever

Ed Klein's WashPo article discusses some of the new measures that will take upwards of 100 coal plants offline over the next year and a half. You can find it here.

If timelines are more your type of thang, the timeline cited in the article is here.

Please note that many of these regs go back to the Bush administration or even before. And I'd bet that many of those coal plants have been grandfathered since the Clean Air Act was passed in the 70s. Regardless, I think it gives us a great illustration of how government works: it refuses to respond to a problem until after the problem has been shown to be specious in the first place.

We know now that no polar bears died because of coal-fired power. The rush to "fix" global warming looks more and more like a rush to slow us down so the rest of the world can keep up. If you can't win in the market of the minds, you can always get bureaucrats to do it for you.

For a look at the Texas side of this story, the Star-Telegram has more here.

Online may be the best for some students, has a steep learning curve for students, faculty & administrators

Inside Higher Ed published something last month that caught my eye: the Community College Research Center has again found that community college students have a higher dropout rate in online studies than otherwise.

IHE has a discussion of the situation. The actual link to the paper is here. A related study using data from Virginia is here.

The authors make the following recommendations (from the IHE link):

• Require students to take an assessment of their readiness for online instruction. (Washington State encourages, but does not require such participation.) Further, the assessment might do more, the authors write, for students who are found to be unlikely to succeed. For instance, it might automatically point them to courses they could take in person.
• Add training for faculty members on online pedagogy.
• Improve student support services. The authors note that many community colleges offer around-the-clock technical support for online students, but offer tutoring and academic online services only during limited hours. The same scheduling reasons that encourage community college students to enroll online mean that they need flexible hours on a range of services, the authors write.

Of course this isn't new (or rocket science). The overwhelming majority of evidence out there suggests that there are higher, often much higher, attrition rates for online students, and that students with developmental challenges are severely handicapped without face-to-face instruction. Better students, however, as found again in the Virginia study, still drop out more often in online classes. Again, no surprises.

It is up to faculty to make sure that our online classes match our face-to-face classes in every respect, and especially in the level of support that we offer students.

I don't know about other faculty, but my online course development has led to more resources for my face-to-face students as well. Over the last couple of years I've consistently increased the material in the course to reflect a new, online world full of information for learning about banks. There's so much material out there that I've decided to spend time making sure that students can find the most relevant (and reliable) information for their learning away from class.

On a related note:
Heck, just the other day I had a summer 5133 student cut-and-paste test answers from Wikipedia and other online sites, and now they have an F on their transcript. Surprise! SafeAssign has really helped us crack down on cheaters. Moving forward, I hope it will help folks realize the value and sense of accomplishment one feels when doing an assignment oneself.

Don't forget! Online education is going to be very popularrrr in Texas. Here's an IHE post from Feb that discusses the new $10k degree initiative, leaning on online may be their answer.

Higher Ed and lifetime earnings

From Yahoo and US News today.

Jobs, Jobs, Jobs, as contractors

If you know anyone from Northern Virginia (NOVA) then you're already familiar with the whole DC contractor situation. I've had plenty of students go into working for the federal government through contractors, both here in Houston and in DC (from my time at James Madison University in Harrisonburg, VA).

The WashPo today details the lifestyles of the rich and blameless in the communities (enclaves sounds so cool) surrounding Washington. It's usually NOT the Cinderella story that leads this piece; usually, we end up finding out that contractors have some "in" at the department they're contracting with.

The graph is the most interesting part.

Jobs, Jobs, Jobs - as regulators

Investors' Business Daily is reporting today on the boom in regulatory positions in the federal government.

I know that we've placed a bunch of people in high profile state and fed jobs from UHCL in the last few years, including the Texas attorney general's office, the Social Security Administration, and others. If I were looking for a job fresh out of school it would be one of the best places to look, especially with the federal spending we've seen over the past 5 years.

A jaundiced eye on military retirement from the Pentagon

Evidently the Pentagon is getting the full court press to figure out more ways to "fundamentally change" the American way of life. In particular they're considering eliminating the half-salary retirement at 20 years, the traditional military benefit that millions have counted on and benefited from.

Evidently, not enough of those folks vote.

Since red states traditionally send more people to the services than blue states, I wonder if that has anything to do with it. Maybe it's just desperation.

Being discussed is a plan that would give every military member a contribution plan, similar to a 401K, and not just retirement for the 20-year and up folks, which would be more fair, admittedly, to those who just go in for a few years. I know plenty of folks like that, and many of them planned to go 20 and just couldn't for one reason or another. For most of us who volunteered for service, the retirement benefit was a small part of it - most of the drive was from the need to serve our community and country. When we couldn't do that it was devastating, and the loss of our pension options wasn't really on our minds at the time.

On the downside though people would have to wait for retirement age to collect. That sounds like part of the problem the rest of us have now - we're paying in and who knows if it will be there when we retire.

I agree that ownership of the funds would be a good idea, but revising the system won't be easy. And I'm not sure we'll be able to recruit without that big pension out there to spur people along.

Swiss consider tying SF to euro

Who knows if this will end up happening, but with a cup of coffee at $8.30, Swiss goods are just too expensive to outsiders these days, and some in that small country are asking why they aren't tied to the euro. The SF is 39% "overvalued" against the euro, and there's supposed to be something wrong with that.

I'd suggest that the euro is properly valued against the Swiss franc. The euro is going to have to absorb Italy, Portugal, Greece, Spain and Ireland's defaults or near collapses.

Just remember, history is a great guest speaker, but it usually doesn't top the bill.

So now that the euro is struggling, it's time to go find more wealth to drag into the union? That's wishful thinking, but it's always happened in the past. Bankrupt your system and then go find more assets/wealth/taxpayers to tap for salvation.

Big conference happening today in Yurrup on the Yurrpeen situation. We'll have to see what happens, but I wouldn't bet on the Swiss opening their currency anytime soon. I hope not - I have a strange affection toward any small mountainous country that speaks multiple languages and arms every household with training and an automatic weapon. I hope they'll stay independent from the clowns in Brussels as long as they can.

How does legislation get made? Witness the polar bear fiasco

Because of a single seven-page paper, polar bears are now considered endangered.

Sounds like the specter of drowned polar bears is having a tough time surviving in a world with better information. Just goes to show that you can't believe everything you see on teh Intarwebs.

My favorite quote: "We never mentioned global warming in the paper."

Warren Buffett, other insurers, get downgraded too

"See, it's not a big deal - everyone is getting it." Sounds stupid, but I'm sure we'll have to hear this one over the next week. S&P announced it's updating the rating outlook for several major insurers, including Warren Buffett's Berkshire Hathaway.

And by the way, Warren Buffett is not Jimmy Buffet's dad.

Ahhh, the good old days, when loans were loans, and Fannie was lending to everyone with a pulse

Here's a blast from the past, courtesy Joe Pags' show this morning. I think I've posted it before, too. Fannie's antics started before this, of course, but this shows how little they thought of just plunging ahead into the abyss.

By the way, Moody's hasn't downgraded Treasury debt yet. I have visions of S&P and Moody's sitting down at a table a few months ago and arm-wrestling, with the loser having to downgrade Treasury debt and getting everyone in the place audited by the IRS. See, now Moody's is the one making noise about state & local government ratings revisions. Hmmm.

S&P downgrades spread to others (Freddie, Fannie, etc.)

S&P announced today that it's current emphasis on quality is being applied to agency securities as well.

Don't panic because of the downgrade, though. Most regulated institutions won't have to sell their Treasuries or Agencies because those are usually listed without reference to credit rating in regulatory language. In other words, banks get extra credit for holding Treasuries even if they go to BBB. So we shouldn't see a massive sell-off (in fact, as of this morning Treasury prices were up because of the flight to quality effect).

On NBCs "Face the Nation" yesterday, Alan Greenspan said that the current sell-off in equities was a reaction to Italy (or Eet-lee, as a friend of mine used to say). Rachel Maddow, predictably, said that the debt default was the Tea Party's fault (at least she didn't use the other term that she likes to use on the air).

We'll see. Currently (10 AM) the Dow is down about 330.

Gulf Coast Job Fair set for 9/21 at UHCL

Students ask me every week how they can find a job in such a troubled economy. Here's a tip:

UHCL Career Services has announced the 2011 Gulf Coast Job Fair to be held on September 21st.

This is the type of thing that aspiring graduates should make a point of attending. Career Services is also holding resume workshops, interviewing workshops, and mock interviews between now and then, so please take advantage of their services. Even if you're not actively looking for a job, this is a great way to show folks how interested and interesting UHCL's students and alums are.

Even people who've already graduated can benefit from some of this stuff, so don't dismiss Career Services events just because you already have your sheepskin.

Please register if you can attend.

So far we have McDavid, Verizon and several other sponsors, but alums are always welcome to bring their firms too. Employers can get more info by contacting Caitlin Weekley at Weekley@UHCL.edu .

Food stamps at record high of 45 million

After what I posted just the other day, a report out today says that as many as 45 million used federal food stamps in May. Of course, that may be due to all the money spent on advertising them over the past three years. Hipsters seem to be using them a lot as well (and perhaps other college students, most of whom are eligible). The Economist recently published a piece about their effectiveness, pointing out that it's the single remaining federal program that doesn't require mounds of paperwork. As such, officials around the country have found that it's also subject to a great deal of cheating.

Back in the 70s, there were vigilante groups fighting cheaters. Pretty neat, huh? That's about the only thing that's changed.

Are you eligible?

In a 1966 piece in The Nation, Cloward & Piven suggested that the only way to achieve real social reform was to push every existing program to its boundaries and basically "bankrupt the system." I wonder if many people have read about that. It's pretty clear that there has been a surge in use, but the focus on bringing in more "customers" goes back to before 2006.

From Cloward & Piven (as linked):

"A welfare crisis would, of course, produce dramatic local political crisis, disrupting and exposing rifts among urban groups. Conservative Republicans are always ready to declaim the evils of public welfare, and they would probably be the first to raise a hue and cry. But deeper and politically more telling conflicts would take place within the Democratic coalition. Whites--both working-class ethnic groups and many in the middle class--would be aroused against the ghetto poor, while liberal groups, which until recently have been comforted by the notion that the poor are few and, in any event, receiving the beneficent assistance of public welfare, would probably support the movement. Group conflict, spelling political crisis for the local party apparatus, would thus become acute as welfare rolls mounted and the strains on local budgets became more severe. In New York City, where the Mayor is now facing desperate revenue shortages, welfare expenditures are already second only to those for public education."

Fannie is needs more

Fannie Mae is evidently asking for another $5.1B from taxpayers to cover quarterly losses.

Maybe they should just sell out to the Post Office.

Pell Grants are OK after budget cut - at the expense of graduate loan subsidies

Where did the money come from to save Pell Grants from the recent budget "cuts" at the federal level? I bet it was from the $22B in interest subsidies lost to grad students.

Wall St. Journal today has an article on how Pell Grants were held immune from the budget fiasco. Pell Grants are reserved for low income and at-risk undergrads.

I blogged yesterday an article about the subsidy cut. Today's article makes clear that the Pell Grants impact far more than the 1.5 million grad students who will be hurt by the subsidy loss.

Note that one of the Congresscritters who were worried about this thinks that Pell Grants raise tuition. That's a wonderful observation. Sort of like how Fannie and Freddie fueled the rise in home prices in some areas. The Law of Unintended Consequences is completely lost on the morons within the Beltway. [I'm convinced that many of them know EXACTLY what they're doing, and they don't care.]

Is anyone surprised at this point?

"Silent" Bank Run in Greece?

Article from the UK today.

CFO Magazine: Women in finance need sponsors to move to the top

One thing that our alums and recruiters tell us over and over, without fail, is that having a mentor (or mentors) is crucial to your long-term success in your career. I have mentors at UHCL, but also all over the world - people whose opinion I value, and who I can count on to give me the straight skinny on any question I ask. And they count on me the same way sometimes; mentoring is never a one-way street.

CFO magazine has just published an article about how women, in particular, need a "champion" or "sponsor" to rise above others in an organization. That's just another type of mentoring, and it's probably all about the certification function as much as anything, another form of credentialing. For all of our degrees, and varied accomplishments, every professional needs testimonies and promoters, but it's even more important for women.

This is the kind of thing that all of us need to pay attention to - good talent only knocks once.

Business Week: About that National Debt Thing, "It Gets Worse"

BW's Opening Remarks for the 7/27/11 issue is titled "It Gets Worse." It highlights something I've tried to impress upon a generation (it seems) of students - no matter what our national debt, it's the difference between inflows and outflows, and commitments, that matter. The fiscal gap is the real issue, and it's not about to be overcome anytime soon unless DC changes its dialog, and even its vocabulary on this.

To quote:

The US is in danger of reaching a generational tipping point at which older Americans have the clout to vote themselves benefits that sap the strength of the younger generation - benefits that can never be repeated... Senior citizens are being told by their own lobbyists, repeatedly, that any attempt to rein in the cost of Social Security and Medicare is an unjust attack on earned benefits... Similar messages aimed at Democratic voters make the same charge against Republicans.

Unfortunately, many folks seem to believe that junk.

I'm a firm believer that as things progress many of the productive folks in the economy will choose to be less productive if they can't control the marginal benefit of that extra production. I can also see that many folks are already giving in to the idea that the government should provide for them - food stamps rolls are up over the past three years, and a big part of that is because state and federal government agencies are spending beaucoup advertising dollars to root out everyone who might be eligible for that aid and get them to apply. I know folks who have applied even though they didn't need it, but they were pressured to by social workers, right here in Houston. I've read about college students (without families) on food stamps. Hello? Something's got to give, and once the productive here wake up and smell what's cooking, they are going to pay for less and less over time.

In the meantime: Retirement? What's that? The recent model of retirement is done for. Most folks of my generation and younger should expect to expire at the podium; there won't be any retirement for us without some drastic changes in the economic realities facing this country. Will that bring resentment against the Boomers? You bet. But worse, that will bring resentment against us from our own children. They'll want to know why we didn't do anything to stop the impending calamity, and their questions will be sound. Enjoy your time with them now, because once they're a bunch of wage slaves with a lower standard of living they might not be as accepting of their situation.

I'd like to remain optimistic, but the recent spending deal doesn't let me do that. I still see a lot of good in this country, in our communities and families especially, but I also see the challenges that we face, as a society and economy. And things are scary. The difficult decisions on national spending & debt are yet to come, and it appears that we lack the political will to fix things. America is a great, unique experiment, but the Petrea dish is getting moldy at this point, just as John Adams said it would.

Debt Hike Bill Signed Behind Closed Doors

From the administration that promised "unprecedented disclosure," we have the signing of the debt bill. No press? Or, just "some" press.

Federal subsidies of grad student loan interest to end

Hey! Looks like the debt deal will cancel $22 Billion in student loan interest subsidies, which means no more deferrals until after graduation - borrowers will accrue interest from the date of the loan. For a change.

Note that this doesn't mean you'll have to start paying back until you get out of school, it just means that interest will build up even though you're not making payments yet. Different from how it was last week.

Full disclosure: I think anything that encourages people to get their PhD is a good thing, otherwise we'd end up with only the folks at Haahvaad getting their PhDs. The horror! I received interest deferrals while in school, that was just part of the deal. I also taught multiple college classes for $10k per year as a TA; that was part of the deal too.