Massive Gas Discovery, Maybe Debt NOT such Bad News After All, Anti-Palin, Emmies ROCK 30
Stafford Williamson
September 23, 2008
As many of you have heard me say before sometimes it pays to be a pessimist. If you're expecting the worst you can hardly be disappointed so anything that is better than that is a cause for some happiness. However the doom and gloom emphasis in the news media's reporting can sometimes be so scary it can almost bring about a sudden heart attack, the result of which is that severe pessimists may not survive to hear that good news when the worst does not happen. This has been the case with the disastrous results, or rather the extreme measures to prevent disastrous results, in the liquidity crisis at AIG, the bankruptcy at Lehman Brothers, the temporary ban on short selling of certain financial stocks, the Federal guarantee on money market accounts, arrangements that, in effect, have nationalized Fannie Mae and Freddie Mac, and culminating in the Federal bailout of all sorts of "bad debt" instruments in an as yet undefined range. The worst part, in all probability are the scary numbers. That is the good news I have for you today.
Despite the monster math that is taking place, having loaned up to $85,000,000,000 to AIG (which is in fact supposed to be a bridge loan to resolve a liquidity problem in the short term)[next 2 years while it sells off assets], and $200,000,000,000 plus $300,000,000,000 to backstop Fannie Mae and Freddie Mac turn into a tsunami totaling up to $1,300,000,000,000 (that's $1.3 Trillion) most of that total is the sensationalize exaggeration of the media. For instance, the former chairman of American International Group, Maurice Greenberg explained recently on Charlie Rose's program on PBS that the liquidity problem is specifically only with American International Financial Products division and that with special permission from insurance commissioner of New York State $20,000,000,000 of capital will be transferred from the various insurance companies are under American International Group, and, Greenberg claims a mere $20,000,000,000 in additional funds would solve the problem. Notice, too, that the authorized amount of $85,000,000,000 is a LOAN!
Similarly, the bad debt bailout, the number for which is often spoken of as $500,000,000,000 but sometimes as high as $1.4 trillion, is in fact to purchase debt securities which are mostly mortgages. The government will then own these securities which will eventually be sold so that at least some of the money will be recovered. The effect is that not every penny of these figures will be an expense. Say, for instance, in the case of a $200,000 mortgage on a property which was valued at $220,000 at the time of a loan, even if the value of the house has fallen by 30% to just $154,000, when the house is eventually sold the government would recoup that amount. So, if you do the math, 77¢ of each dollar comes back. Okay, in reality there's probably a 10% overhead for administration but that still means about a 70% recovery. That may not be much of a consolation if the initial figure really is $1.4 trillion reduced by $980,000,000,000. The remaining $420,000,000,000 is no small amount. Nor, for that matter, is a figure of $150,000,000,000 as the net loss starting from $500,000,000,000. And consider, too, that while not all of the bad debt securities are mortgages most of them are, so in some instances these mortgage amounts may be being counted multiple times. The fact remains that these numbers may very well be heavily inflated.
If the total loss that is being covered by the Federal government amounts to more than $500,000,000,000 for all of these programs I would be surprised. Nor am I willing to subscribe to the conspiracy oriented theory that the Republican Administration is intentionally saddling the next administration (that they presume will be a Democratic Administration) with this extra burden of debt in order to hobble, hog tie, and generally financially handicap them from accomplishing anything in one or even two terms in office. Although clearly, that obviously could be the case.
A disturbing analysis of the bailout efforts headed by Secretary Henry Paulson (formerly a Wall St. firm CEO) while perhaps a sensible course, also sounds like the Federal Government acquiring massive quantities of debt instruments for which they have no in-house expertise, so they will have to hire the very Wall St. cronies of Secretary Paulson who got us into this mess in the first place.
Even so, I cannot seem to manage to adopt my own advice to take a pessimistic view all the time. I remain optimistic about Senator Obama his electability. I am encouraged by the recent tilting of the polls and favour of Senator Obama. And above all, I have tremendous optimism that the Obama campaign platform of economic stimuli centering around a green economy and including 0.5 million new green collar jobs will create resonating waves so significant throughout the economy that we will all be surfing on the green wave's over rising economic tide very quickly after he takes office.
I hinted earlier that you'll likely hear some significant good news soon. The good news comes from the energy sector. All the current status is more rumor in fact, rumor has it that some 500,000,000,000,000 cubic feet (yes, that's trillion) of natural gas reserves have been discovered in an area stretching from West Virginia to New York State and covering much of Pennsylvania called, the Marcellus Range. Remember, this is not current production, but estimates of reserves. If Mr T. Boone Pickens' publicity campaign is having a significant effect on public opinion it seems quite likely that much of this may become available as transportation fuel and certainly could, at minimum, allow conversion of millions of homes that currently use the ever-more-expensive home heating oil. Adding new natural gas pipeline capacity and home heating equipment conversions will also be a tremendous stimulus to the economy over the next eight years.
Now I'd really rather keep my mouth shut about Sarah Palin but the woman is such a disaster area it would be like not mentioning the landing of Apollo 11 on the moon. It seems that in Alaska, where staging a community meeting that draws 10 people is considered a success (after all, Alaska's entire state population is less than the NW quarter of our metropolitan city of Phoenix) it seems that some "concerned" mothers wanted us to know that Governor Palin's viewpoint did not express their views on every subject, especially a woman's right to choose, since she opposes keeping Roe V. Wade the law of the land. So these woman organized a rally on the lawn of the library in Anchorage (so the story goes) and 1400 people showed up. (There were also 93 "anti-anti" demonstrators there in support of Palin, though that was a feeble showing considering that a conservative talk-radio host [who also turned out in person] had urged his listeners to overwhelm the protesters.) As indicated (if everything works out as planned) by the small image of the circle and bar around Governor Palin's face, and the "McPain Failin'" hand-lettered sign at the top of this article, signage was encouraged, especially home-made signs. It's all very well to organize a "grass-roots" rally, but you don't want it to look "too" organized with printed signs, or the locals are going to claim it was "outside agitators" (a favorite tactic for defeating ballot propositions in Alaska, I have read somewhere). But the one pre-printed sign I did see (a bumper sticker, apparently) was quite cute, let's hope this link works so you can see it too.
Not being a fan of the NBC sitcom 30 Rock the seven Emmy awards was a surprise to me, though Tina Fey's talent certainly shines, especially in her recent SNL portrayal of Governor Palin. It seemed appropriate that someone referred to Tina during the Emmy broadcast as, "the Elaine May of a new generation." (Elaine May was married to film director Mike Nichols, and in their younger days did comedy as a duo billed as "Nichols and May".) The fabulous mini-seriesJohn Adams won numerous awards and so did the AMC seriesMad Men (a period drama series about Madison Avenue Advertising industry). The really superior quality of both made the wins less than a shock, and even somewhat satisfying.
Love and warm wishes,
Stafford "Doc" Williamson
http://making-biodiesel-kit.psyrk.us/
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