Sam Tressler

I won't get into a lot, but I have this gut hunch that tomorrow, barring drastic action by the Fed., will be one of the bloodiest days in stock market history.

I don't have a ton of evidence, but rather this gut hunch. Perhpas that makes me irresponsible for posting this; I don't know.

Basically, I think that the Fed. is more or less out of options. The consistent drops we've seen in the past five days have all been people eeking out their time in the market, and waiting for a solution and today's talk about a potential buying of equity shares reeks of 'last resort' talk. Moreover, I don't see what the Fed buying shares will accomplish that it won't undo by tipping its hand that whatever company it is buying is in the tank.

Overall, I'm distant and intrigued to watch this happen real time. I know that sounds callous, but this has been something that I have known is a possibility as an abstract concept for years, now I am learning the specifics by watching. I feel like the time I cut my finger and after a nerve block watched the doctor sew it up, and give me a brief tour of the inside of my pinky. The nurse turned a little green, while I'm detached and studious, yet know that what is going on very much affects me as a person.

I hope I'm wrong, and frankly, don't have any experience so it is a high likelihood, but I'm of the opinion tomorrow will beat 777 by a fair margin. Spooky.

Last night I was gearing up for the debate party my friend Sean was hosting around the corner. I was tasked with picking up sour cream and diced tomatoes on my way so I grabbed my cloth bag from the rack put on my jacket and waled outside. I passed the perpetually group of kids ranging through to 20 somethings that inhabit the stoop across the street.

Now, I live in a quickly gentrifying community. I know this because I've lived here since before it was gentrifying, and I see the people coming into this neighborhood inspired by inexpensive rent but also having no desire to make this a home, or invest in making this neighborhood nicer. This was one of the primary reasons I felt a need to get involved even minimally with the community garden, and reach out to the more receptive neighbors. I want to live in a place I am welcome.

I was about 20-30 feet past this group when I heard a loud crack and felt an intense pain in my left ear just and just rear of my temple. I don't want to over dramatize it, but my immediate thought was, is this what it feels like to get shot? It isn't.

This is what it feels like to get hit in the side of a the head with a rock about the size of a golf ball thrown from somewhere across the street and behind me.

I doubled over and stumbled into the plywood wall of the building under construction unsure if more were to follow this and reached up to assess the damage. Blood dripped down onto my hand and I could barely think. I might have screamed, 'What the fuck was that?!' at the top of my lungs, and quickly hurried down the street and around the corner. I vaguely remember an adult voice saying, "That's enough get inside now!"

I called Sean, and told him to open the front door and got upstairs. By this time the initial haze was wearing off. I got my ear cleaned up, and like most head wounds it was a small cut but a bleeder. Disinfected it and told Sean I was going back to talk to these people. Perhaps not the best decision I could have made.

But this is where I draw my line in the sand. I don't want to live in a place that doesn't want me here. I've put a lot of work into trying to fit into this community and not just using it as a crash pad till I move up in the world. And I'll be damned before I let someone hit me in the head with a rock from behind and not have the guts to walk up to them and ask them why they did it.

Now, as we walked back around the block, I got to thinking about how I've seen the younger kids throwing rocks against this plywood wall before. I have no doubt that this wasn't an accident. But I can imagine two scenarios leading up to this. The first in which a late teenager or twenty-something decides they don't like me and they want a fight and they nail me in the head with a rock. Straightforward, simple.

I can also imagine a 9-12 year old, cocky, and thinking they could scare me with a near miss and unintentionally nailing me. I'll never know, but I know I can live in a neighborhood with the latter scenario, and perhps find a little forgiveness for it too. The first one only ends poorly.

I walked right up to them, still a little stunned and said, "Can I talk to you for a minute. I don't know who did it, but someone just threw a rock at me across the street and hit me in the head".

A chorus of, "We didn't do nuffin, man".

I followed up, "I didn't say you did, but you were all out here, and if you know who did, just let them know if they got a problem with me they can talk to me. I'm your neighbor. Does anyone over here have a problem with me?".

"Nah, no one here has aproblem with you."

"Did you see it happen, it was right over there," I point, " and I was screaming at the top of my lungs, you had to have seen it."

"Nobody here saw nothing."

"Sorry, I'm still a little rattled, I just got hit in the head with a rock. Ya'll have a goodnight."

And that was about that. I went on to watch the debate, with a handful of aspirin and an ice pack. So, what now? Well, I don't believe communities happen, I believe they get made. I think I'm just going to try to reach out more, say hello on the street more, work more in the garden. In truth, I really don't know what else I can do.

This guy Robert Peston puts it the best I've seen it put so far. The question with the 7-800Billion dollar institution is in the long term profitability to the taxpayer.

http://www.bbc.co.uk/blogs/thereporters/robertpeston/

If this debt is bought up at the price the banks have been labeling it as being worth, then we have a taxpayer issue. We can't really come out even unless we make it up in interest over time, but we almost certainly won't make a profit.

I could deal with breaking even to get us out of this mess, but that does one other substantial thing. It sends a strong signal to all the banks that have had poor lending practices for years, that have overvalued the price of homes, and stock, and played it fast and loose, that it is all A-OK, they'll still get their paycheck at the end of the day, complete with golden parachute attached. That is wrong.

The counter argument is that if we buy all this bad debt at fire sale prices we aren't really helping the economy now. These banks still might fold, it still might ripple through the economy and all we did was incur a whole lot of bad debt.

Chris Dodd has it right this go around, we need to see the details. And I strongly suggest that you and I as taxpayers insist on seeing the details. Schumer, Clinton, and Towns will all be getting a phone call from me.

The only way for this to work is to tie it in with simple oversight. A few rules tied to this money and I will sleep well at night.

A) Define a metric on what makes 'Too big to fail', and prevent it in some way shape or form that from occurring again. In short, no one should be able to hold the American taxpayer hostage. Furthermore, Letting Lehman collapse while A.I.G. doesn't creates a foul moral soup. Did Lehman just not collectively screw America enough?

B) Define future criteria for the government to get engaged earlier. If anyone is interested I've been tracking parts of this issue since 2002, and the REAL time for government intervention was somewhere between Aug. 2007 and March 2008.

C) Push predatory lending laws.

That's all I got for ya right now.

If you've been playing along at home you've seen in the past weeks Freddie and Fannie get bailed out, Lehman Brothers declare bankruptcy, A.I.G. get a largely ineffectual bailout, and today a $180B cash injection from the Federal Reserve. If you don't know what I'm talking about, stop and go read a newspaper, for real.

The papers seem to be writing a whole lot about 'How could this happen?' and in my oh so humble opinion failing utterly to explain in lehman's terms (pun intended) what is going on, so here is my attempt to do so. Partially, I'm writing this cause I've had to explain it verbally so many times in the past few days that I figure I can hone my rhetoric by writing it down.

I'm sharing it for any of my friends who are having issues and concerns with this right now. I can't promised I'm unbiased, as anyone who has heard me rant about economics and the credit market before. I also, will strive to be accurate, but am not an economist, so corrections are *welcome* in the comments. And finally, I've tried to simplify it as much as I can so feel free to skip past things if they seem rudimentary.

First, it is important to understand that what is happening today is not rooted in the past few weeks or few months even. It is the result of years of poor practices in the financial markets.

The second thing to realize is that money is not imaginary, and should not be treated as such. As much as these huge numbers being thrown around may seem daunting and impossibly large, we can trace down through them and see the process that has gotten us to where we are today. Let us start with a simple transaction.

Joe Fatsquatch wants to buy a house. The house costs $575,000 (these are hypothetical numbers, not imaginary numbers) and Joe has $75,000. He needs to get a mortgage to pay the remaining $500,000.

Joe goes to the bank and gets a pproved for a mortgage in which he agrees to pay the bank $500,000 plus 5% (again, hypothetically selected for easy mathematics) interest over the next 30 years. The bank then pays the seller of the house the $500,000, and takes as collateral the house Joe plans to live in.

Over the course of 30 years the bank is going to be paid back much more than the 500,000, and Joe will have paid much more than the initial asking price. In effect what Joe is paying for is the house, plus the luxury of thirty years to pay off the debt, while having possession of the property. Obviously, Joe would have been happier had he not needed a mortgage at all, or not needed to finance quite so much.

What does the bank have? The bank now has a piece of paper that is worth $2,058,067, if they wait 30 years. Now, obviously that is a hypothetical interest rate, and amount to be financed, but you can see the high price of having the luxury of credit.

The bank doesn't want to wait 30 years to see that money. They just don't, it's better to use it now, surely there is some way to monetize this immediately. And along comes Fannie Mae. She is a giant institution that buys and sells mortgages by the thousands. The Bank Joe got his mortgage from sells Fannie Mae that piece of paper, along with 49 other pieces of paper and receives slightly less than the price it would be worth had the bank just waited thirty years for it, but that is OK cause they now have significant chunk of cash available *now*.

Fannie Mae isn't naive, she also values these 50 pieces of paper a little less because she knows that she is accepting the risk of Joe or one of his 49 buddies defaulting on the mortgage. At which point the piece of paper is back to being worth $575,000, not $2,058,067 as there is no longer the interest rate attached to it. Funny how paper can change value like that based on outside circumstances, eh?

Now, if we take those 50 pieces of paper collectively, Fannie has paper worth 102,903,389.88 and physical property value worth 28,750,000. In order to obtain the larger of those two values Joe and his 49 buddies need to pay their mortgages, and in order to do that they need jobs. Indeed, vetting the employment and employability was one of the chief things the original bank did in order to give Joe a mortgage.

Fannie Mae wants to raise capital in order to buy more of these bundles of mortgages as they are obviously a good investment. Fannie Mae issues stock, and sets the price fairly high. Higher in fact, than the value she could actually deliver were all those mortgages to foreclose. Naturally we assume *all* the mortgages won't foreclose so this is probably a safe bet. However, Fannie is a little greedy. She knows she is the big kid on the block, and was put there by the government. And while no one has ever overtly said anything, there is an implicit knowledge that should Fannie Mae not be able to cover her issued stocks the government would step in and cover those stocks for her.

This makes those stocks Very Attractive. Fannie can charge prices completely out of line with the value of the mortgages she owns in fact and does. This is the first point in the chain when we have decoupled the value of what we have to the value of what we pay for. Fannie Mae was issuing stock on imaginary assets and implicit value.

However, the market goes along with it, and because they know Fannie Mae would get backed up in a crisis, almost all the investment banks want a piece of Fannie Mae. Which, of course, makes her that much more expensive. All these investment banks need cash to make purchases. They daily take large loans that are paid back before the end of the business day or week to procure an array of investments and make profit. They are working with a large pool of money that isn't theirs. It is a combination of their investors (people like you and me who have mutual funds, and other group investments) and also these short term loans.

Now, say Investment Bank A borrows 100,000 from Investment Bank B, to be paid back on a set term. Where does Bank B get the money? They have it available in their accounts and Bank B trusts Bank A well enough to lend it to them, with a reasonable assurance that it will get paid back. In fact, this is a common practice Just the other day Bank B borrowed 100,000 from Bank C with the same understanding.

Bank C from Bank D, and Bank D from ... Bank A? Somewhere along the line someone lost track and Bank A has both taken a loan from Bank B and given a loan to Bank D. Something is odd here, each of these Banks now has and can spend 100,000, but only 300,000 exists. Money is not imaginary. And this is the second place we see value decoupled from actual assets.

This model is surprisingly workable as long as the money keeps flowing. It is remarkably similar to our mortgage model in which those pieces of paper have an increased value as long as Joe and his 49 friends continue to pay their mortgages. If the cash in the bank situation above were to stop flowing though, someone would be left with the 'hot potato' and have to bow out of the game. Similarly, if Joe stops paying his mortgage, a value suddenly evaporates.

Well, surely there must be a way to game such a system? One can easily imagine a system where a bank wants to make quick cash to use, and is willing to incur higher risk, feeling confident that if anything went wrong they could stick their neighbor holding the debt.

You could in fact, issue a mortgage to Henry, even though Henry doesn't have a job in which he could pay for such a mortgage. Doing so would be a very poor practice, but Fannie Mae is buying al your mortgages anyway, so who cares? She's big enough to take the hit if Henry defaults.

The Lending Bank issues the bad mortgage, knowing that Henry can keep his head above water for 4 maybe 5 years. Sells it to Fannie who issues stocks with a nod and a wink, backed by the government, And it gets thrown into this buying and selling game where Investment Back start passing it back and forth. Henry defaults.

The mortgage piece of paper loses 75% of its value. Trace that up the chain and go back to the banks lending one another cash, and You have Bank A having just borrowed 100,000 from Bank B, from Bank C from Bank D. We already know we are counting 300,000 as 400,000 as long as the cash keeps flowing and suddenly, because of Henry defaulting, you now only have 225,000 in the 400,000 circle. Poof.

Bank A needs cash and they need it NOW or else Bank A folds, of course, they had no real money to begin with, they were just playing with imaginary money. If for some reason it would be Very Bad for America if Bank A folded it might get an emergency loan from the government, in order to give them time to make good on their assets. This would be called a Bail Out, and we've seen several over the past weeks.

The Fed made $180Billion available for these emergency loans today. And what you are seing is everyone playing with funny money close up shop.

I'd been contemplating this scenario for a while when back in August of 2007 the Federal Reserve and nations around the country injected raw cash into the market to stabilize it. Kind of a 'free loan' day for all the people holding the debt. Think of that maneuver as priming the pump. If Bank A, in the above scenario could get a loan, we could keep the money flowing and sustain the status quo. Over several days the other mortgage payments come in, and that missing 75% gets absorbed into the whole.

But here is the issue, we're still playing with fake money. All the bailouts do is maintain the existing system. Would it be more or less effective to regulate what mortgages can be given? Or how one bank lends to another bank on trust?

I'm still thinking on that one. The one thing I am pretty certain on is that if Bank B knew that Bank A had debt outstanding past the loan requested, they might think twice about lending. Transparency in lending could go a long way towards noturally stabilizing this situation.

That's it. Hope it helps and also hope I'm not dead wrong on how all this works.

I can't help but feel that a large portion of my generation is suffering from lack of purpose. There seems to be an innate knowledge that 'things aren't good'. Most everyone I know is not happy with the state of the world. These feelings are delivered by an entire regiment on unaddressable woes. We are at war in Iraq. An 8 sq. mile chunk of Canada just fell into the ocean: http://news.bbc.co.uk/2/hi/science/nature/7532435.stm. The government is spying on us.

I don't raise these points to be alarmist. There is little point in that. But hands down the #1 question that I here from my peers is, "Well, what can you do about it?" It got me to thinking about a lot of things. What can I do about it?

I lead a busy life. My friends do to. I realize that not everyone has the time or energy to devote a lot to saving the world, stemming from nothing but the goodness of their hearts.

So, I arrive at this statement. Little things matter.

Earlier this year, in the spring, I sprung the 4 hours and about $35 to make a container garden. I have basil, dill, jalepenos, cayenne, bannana peppers and a few less successful plants that are still great for show. It is my first year doing it, and I expect better results next year, not that this year was poor, but live and learn.

I water said garden, 3 times a week for about 5 minutes at a shot. And I have fresh herbs, and peppers.

I have fresh goods for less than I would pay in the grocery store. Fresher than you could ever find, literally off the stem. These have garnered many compliments on appearance from the neighbors. And all for about 10 total hours of my time, spread over 6 months. Prime requisite: access to sunlight and something that holds dirt.

That is just an example, I'll write more about the container garden in a later post, with photo's ad how-tos. The point of this is that this is the type of 'little' thing that has a high impact (do you know how much energy it takes to ship a Jalepeno cross country?).

When I originally conceived of this blog this was the type of thing I envisioned writing about. I've been kicking around the idea of a reorganization.

Sections:
Home: aggregation of all other sections.
Sustainability: Little things that matter
Book Reviews: Just that.
Forums: worthwhile?
Sam's life: just for kicks.

This is the type of site I might look for a guest blogger or two to round out. I could take or leave the current domain name, for somthing catchier that is more related to group blogging about these topics.

Thoughts? I know this has been done some before, but I think my friends could form a certain micro community of people who want to do little things that matter.

I don't post these much, but my friends will get a kick out of how I scored on "The Geek Test"

Your result for The Techie Test...

The Techie

Well, you did it. You have ascended to that highest level. You don't just use technology, you don't just have a basic knowledge of how it works... you bend it to your very will. You don't use technology... you control it.

You have a questioning nature, and you love to know what makes things tick. This is the mark of the true tech-head. It's no good simply being able to make use of someone elses creation, unless you can make it yourself. You've probably made at least your own website, and possible your own web server. You build your own computers, and own at least 2. You know the word "mod" means more than just Counterstrike. Heck, there's a chance that you've never PLAYED Counterstrike... such things are beneath you.

A new frontier has been building the last few decades, and you're riding the crest of the wave. But to stay on top like this takes a focussed mind... too focused, often. You risk losing track of what's really real, of people and feelings. You're probably here because you feel something is missing. And one thing you can never program... is love.

Take The Techie Test at HelloQuizzy

I'll write the rest of this up later, but while it was fresh on my mind. I went hiking this weekend, and because I missed the train that goes to "Applachian Trail Station" I looked up the closest next station and found it to be only 1.9 miles away so I got a ticket to there and hiked back. However, when I got to the train station... there was no there, there. Nada. I back tracked, I forward tracked, I circled around. I was carrying ~40lbs of crap on my back, and 2 hours of this bumping around Rt.22 was getting old. And while I can be proud in this case I was ready and willing to ask directions, but this was the side of a highway.

Finally caught someone in their front yard and they set me straight, I was off by more than a mile. Or rather, google AND the MTA are both off by more than a mile. They correlate, reality doesn't.

Here is a map from the "Appalachian Trail Station" to "The real Appalachian Trail Station" - sattelite view shows you the pavillion that is the station.

More later - with pictures!

View Larger Map

Oh yes, How could anyone have possibly known this would happen!

http://online.wsj.com/article/SB121599777668249845.html

Really folks, we've known for over 6 years, that these guys were playing poker with the new improved "Taxpayer's Gambling Insurance" and almost exactly nothing was done to stop it. Incidentally, that implicit knowledge of a bailout gave them an approximate 40% edge when raising money from investors.

If you want big money, don't bother stealing it, get the feds to back you then drive your company into the ground.

I've been doing some thinking lately and it is leading me in a new direction on my thinkings about a fluid economy. We are in a recession. People can debate me about the technical meaning of the word recession, and those people can feel free to employ the term 'economic downturn' or 'slowing economy' - whatever; recession.

I had been of the opinion that 'economic downturns' were a fixture of a regular economy. That these things happen in pendulum swings of sorts, like the world economy breaths in and out and nations are just taken along for the ride. Breath in: growth and prosperity, breath out: recession and job loss. And that, to some degree, this was a good thing, as semantically everyone everywhere couldn't always be profitable.

But now, I feel I've been alive long enough, and have personally witnessed enough of these events that I think I can call that line of reasoning wrong. This change in thought comes at the heels of a LOT of thinking about sustainability. Every one of these economic downturn's in the U.S. has been caused in turn by a trail of overspending, poor accounting, and frankly bad common sense. That is to say, there is no chronological swing of the economy.

There are, natural economic events, that, I'll grant can cause micro-setbacks - as the recent events of the river have shown us; or rather our corn crop. But these events cause smaller ripples, and short of a long chain of natural disasters aren't going to provide the basis for a nationwide, or global economic downturn.

The difficulty lies in tracing any economic downturn to any single event and then quantifying a ruleset that is sustainable. Well, heck, what is a poor practice? I'm working my way towards a set of Sustainable Business Rules - which someday I may publish, but for the purposes of today's article, lets just look at some cases from this particular economic crunch. I like the fact that my blog has been online that I can point to some old articles where I spoke about these things as they were happening.

Freddie Mac and Fannie Mae just slid 18% on the market in a single day. Interestingly, recent accusations of cooking the books go back to 2004 http://www.workers.org/2005/us/housing-0505/ So, while it may seem like new knowledge now that the entire housing market was propped up on false data for an extended period of time, it wasn't. These early warnings were ignored or dismissed. Overstating profit of GSE's (government sponsored enterprises, or limited monopolies) seems to be a common factor in these things.

When Entire Stock Markets need to be bailed out by the Feds - Aug. 2007 - we should probably acknowledge that something went screwy and do something about it, instead of burying it in the news.

Congress allows National Debt to top 9 trillion (insert previous high water line here) for first time in history "The Senate voted Thursday to allow the national debt to swell to nearly $9 trillion, preventing a first-ever default on U.S. Treasury notes." in Mar.2006 - currently $9,506,133,823,396.86 - National debt in and of itself isn't a bad thing. Rising national debt out of proportion with revenue is.

I realize I most recently wrote this - about poor accouting in Iraq http://www.treslervania.com/node/427 , I had forgotten that I had also written this, long before the fact. http://www.treslervania.com/node/149 - "Funnelling Taxes Through Iraq" - the point isn't to say "I told you so" but that Government Accounting in general needs to be tighter on the Military Industrial Complex - particularly the contractors.

There are many more than that, but those are just grist for the mill. The larger point is that I think a periodic downturn, is really a periodic 'forgetting of the rules and why they are there.' Wealth - Disaster - Recovery - Caution - Laxness - Wealth cycle makes a pretty good sine wave, and it is easy enough to make Time the X axis, when perhaps "Recent Human Memory" would be a better X axis.

Of note, we also have tendency to refuse to look at the bigger picture, wanting to deal with specific issues. It is too big to think of changes in the housing market, student loan market, credit card market, national spending and taxation, hedgefunds, etc, but many of us feel we have a handle on any one or two of these. Too bad it is the big picture that matters.