Monday, November 24, 2008

Socialism. The New Consumerism

Consumer spending just may be the thing that takes America over the cliff to socialism. The stars are aligned. After 8+ years of single-party dominant control of the three branches of government (6 years in legislative, 8 years in executive, and 219 years in judicial), the American people are already beginning their cognitive transition.

Consider these seemingly unrelated sub-plots (like a Tom Clancy novel!):

Today there are 8,430 FDIC insured banks in America. Over 8000 of these banks are pretty small and you’ve probably never heard of them. Some have failed or have been forced to consolidate, but study this frightening list of big banks and institutions that failed or were forced to merge or accept government supervision: Countrywide Bank, Washington Mutual, IndyMac, Freddie, Fannie, Merrill Lynch, Bear Sterns, Wachovia, Lehman Brothers, National City, AIG. Those are not small main street banks. Those are the biggest of the big banks (and financial services co’s) in America.

Small banks, statistically speaking, are doing fine. Why? Their biggest credit exposure: commercial real estate. And they offer the same level of FDIC insurance to you as “big safe 100 year old Wall Street banks.” Meanwhile, consider the biggest of the big banks’ exposure: multi-billion dollar credit default swaps, equity derivatives, collateralized debt, securitization of all sorts of bizarre consumer debt, LBOs, SIVs, commercial paper, and credit cards. When Argentina defaults on its debt again (just a matter of time), the big banks will be hardest hit because their globally diversified portfolios have fingers in risky sovereign debt as well. Following this logic, last week we hear about Citibank losing investors. Investors see few deposits and few tangible assets compared to their illiquid assets (worthless assets), liabilities, and ever-increasing allowances for bad debt.

The biggest institutions are the riskiest. Therefore, expect investors to catch on and to see more failures in the largest names of finance. This includes banks (like Citi, Morgan Stanley), credit providers (like American Express, GMAC, GE), and insurance companies (like Met Life, Hartford, Prudential, Lloyds).

Our current situation can be traced to just one bankruptcy (Lehman Brothers on September 15th). Imagine if some of these other firms declared bankruptcy. Due to the miracle of credit default swaps (my favorite derivative), trillions of dollars of “default insurance” will be paid on the few billions of dollars of debt that those companies held. Then as those “default insurance” companies go bankrupt, the remaining “default insurance” companies will go bankrupt, until no large banks and insurance companies exist!

Still following? … Okay, so imagine you’re the government, and you saw what happened when you let just one “too big to fail” bank fail (Lehman Brothers). You’ll say, “We can’t let any more financial institutions like that go bankrupt, or the country will be sunk back to the stone-age.” Remember, as the financial system goes, so go jobs, so go bankruptcies, so go prices, so go tax revenues, so goes the ability of the country to pay off its debt, and so goes the US Bond (the “risk free rate” is now very risky). World financial markets melt, WW III shortly thereafter.

Faced with two bad options, what would you do? 1) Begin the large-scale takeover of American industry (starting with finance and insurance, then auto, then housing, then retail), or 2) Allow the US to go bankrupt like Iceland. Now note the first paragraph of this blog post: If ever there was a political party to chose option 1, it is the incoming administration. So the chess board has already been set. It’s just waiting for things to fall into place. Republicans will initially fight it or passive-aggressively “find it interesting that our country is moving closer towards European-style socialism,” but their initial hesitation will be weighed against the tidal wave of increasing job losses and bankruptcies (each contributing to the other in a really vicious circle). It won’t be long before hospitals and health care companies (like Humana, Aetna, Kaiser) go bankrupt as health care subscribers default on their health debt. The government will gallantly ride to the rescue of consumers, socializing the health care industry, and providing us with pretty decent health care. Incidentally, our aggregate average life expectancy will probably increase, but you’ll hear sad stories about how the government declined to pay for an 85 year-old’s $1M lung transplant.

In the near-term, personal bankruptcy will not be a social stigma, but an accepted reality. It will be really hard for Americans to lose their “stuff.” Heck, it will be hard for me to lose my stuff. I love my stuff. I love my house and my new dishwasher. But we’ll all get used to the brave new world order. Don’t worry, as long as you have your health and your love ones. We can all live off of soup and bread for a few years :-)

Saturday, November 22, 2008

Wednesday, November 19, 2008

New Dishwasher

Nothing major to note, just that we have a dishwasher and garbage disposal installed, thanks to Bob B. and his mad carpentry/electrical/pluming skills. We had gone about 7 months without a dishwasher (and 1.5 years w/o a disposal), so this is very big and exciting for us. (Photos soon)

Oh... and yes, we were following the election (Nov. 1st was our last blog post). And yes, it was very exciting and noteworthy! Here's a great political poll tracking website for future reference: five thirty eight.

Saturday, November 01, 2008

Halloween Pictures & Dr Visit

Jude had his two month pediatrician visit this last week. He got his vaccinations and let out one big yell before falling asleep for the ride home. What a good baby. We also got some stats on him:
Height: 23 1/4 inches
Weight: 12 lb 8 oz

Jude at 2 months old - full body shots

We had a low key Halloween. Jude was way against having his picture taken. But the next day, he was all smiles!

Our little pea in the pod

A few more pictures:
Close up of our little pea in the pod
Jude got a little sleepy

Saturday, November 1st. Jude is nine weeks old today and he likes to smile in the brief periods of time between eating and sleeping. It's hard to capture his really great smiles though - I think he knows the camera is going to flash bright lights at him.

9 weeks old and smiling

Another cute picture of Jude