The entire Wall Street is a giant Ponzi scheme

Oil dropped below $40, standing at $36 and changes. That is lowest in last four years. Just a few months ago it was at above $150, and expected to go to $200. What happened? Supply and demand? Not entirely.

Remember a few months ago, no matter how much production increase OPEC countries implemented, the oil price just kept going up. Now it is the opposite: no matter how much production cut, the oil price keeps dropping. Yesterday OPEC leaders announced a huge production cut, 2.2M barrels/day, or 7%, after slicing 1.7M/day already in the past three months. Surprise, oil price dropped >9%. Go figure!

There are just too much speculative trading in oil by the Wall Street. It is creating tremendous volatility in oil price that is very bad for businesses. Same situation is happening to currency exchange. Dollar has gone from dog house to king's castle in a matter of past three months. A few months ago, one Euro can buy more than $1.50. A few days ago it went down to $1.27. And in last few days, it is back to $1.43. Volatility in basic materials and currency exchange is very damaging to global trade and business investments. When business cannot reasonably forecast their input costs and trading revenue (in foreign countries), how can they conduct effective business planning? They will often have to engage in expensive hedging plans to offset the uncertainties. That benefits the Wall Street but hurts economy.

We HAVE to regulate more the hedge fund industry and stop this type of crazy speculations that damage real people and real economy.

Bernard Madoff's "Giant Ponzi Scheme"

The Bernard Madoff saga continues to dominate the financial news headline. This 70-year old fellow has been running a "giant Ponzi scheme" (in his own words) for the past two decades. Loss to the investors could exceed $50B, largest financial fraud in history. Where were the auditors? Where was the SEC?

Ponzi scheme is a term named after Charles Ponzi, a financial con artist. But even Ponzi was not able to deceive people for so long. A Ponzi scheme is like robbing Peter to pay Paul. Investors are promised high return. So they gave the money to the fraudster. The fraudster pay the earlier investors with money gotten from the later investors. As long as money keeps pouring in, the scheme can continue. But if new investors do not come in, the music stops.

Madoff has aroused a lot of suspicion over the years. Today's Wall Street Journal profiled a guy by the name of Harry Markopolos who had been prodding the SEC to investigate Madoff for years. SEC basically ignored him.

Over the past several years, government regulatory agencies have become too cozy with the businesses they regulate. President Bush wants the government agencies to "serve" the industry, and be "business friendly". Republican ideology is "let business self regulate". What you end up with is "Robber Barons" style capitalism. Large business hire lobbyists to pass government policies that favor the big businesses and create barriers for competition. Small businesses and consumers are left in the dark.

I doubt there will be any significant change even under Obama. There are just too many vested interests out there. It would be enormously hard to overcome them. The American public is stupid , and can be easily misled by these big interest groups who control the media and the propaganda machines. If Obama wants to change all that, he will be slandered and demonized, and then rendered completely ineffective. I think Obama understands that. If he really wants to do something good for America, he should make small incremental changes. Gradualism is the key. Don't step on too many toes. I hope he is smart enough. He does not want to end up like JFK, right?

Bailing out auto companies without debt restructuring amounts to bailing out Wall Street

I agree with the Senate republicans: if the auto companies don't restructure the huge amount of debt on their balance sheet, giving them any amount of money will not help them. The money they receive will only be enough the service the interest payment on the debt. Who owns their debt? Wall Street investors. So without first restructuring the debt, the money will just end up in the hands of the debt investors. And a few months (or even weeks) down the road, these dying auto companies will have to come back to ask for more financial help.

A debt restructuring without filing for Chapter 11 is the best way out. Their debt is already trading at below 19c on a dollar. To me that means debt investors are waiting for a Chapter 11 type of debt restructuring.

Treasury yielding 0%: absolute risk averse of the investors

Yesterday, the Treasury auctioned $30B worth of 4-week bills with 0% interest to the investors. For the off-run 3-month treasury, the yield briefly was pushed to negative territory. Basically investors are lending money to the Treasury (Uncle Sam) for free, or even paying the government for storing their cash (in the case of the negative yield 3-month bills), while demanding high interest rate to lend to corporations and individuals even with good credit. In a finance lingo, the credit spreads are unusually wide. That means investors are absolutely risk averse.

We are in an uncharted territory here. Last time when the Treasury auctioned short terms yielding 0% was late 1930s and early 1940s, during the great depression. This is certainly not a good sign.

When the private sector is not willing to take any risk, which is reflected in the ultra low interest rates on public debt and exorbitantly high interest rates on other debts (commercial, local municipalities, and individual loans), should the government step in to provide credit for the economy, as Keynesian economists would propose? I think the answer is absolutely yes.

The banks are not doing the lending. They took the cash from the Treasury's TARP (Troubled Assets Relief Program, widely known as the $700 Wall Street Bailout), and stuffed it in their vault. Homes are continuing to default. Businesses cannot get loans. Individuals cannot buy a house even they can afford (the credit standard has tightened too much). The result is that real economy is suffering. The Treasury bailout did not benefit the main street. It only fattened the pockets of the financial institutions.

Now it is the time to give money to the main street, to the real economy that creates real value to the country, not the paper-flipping Wall Street firms. How do we do that? I think the Obama economic stimulation plan is a good start. But it is not enough. And it is not quick enough. Let's put cash to work, right now!

First, the Treasury should use its cheap financing option to pump cash directly to the mortgage market, by buying high quality mortgage loans. (In my previous post, I argued that this action would even make money for the Treasury). Along the same line, the Federal government should aid the State and local governments by directly giving low interest loans to them to meet their budget shortfalls because they cannot borrow in the municipal bonds market. And yes, the Treasury should rescue the auto industry. Not only that, it should also help other domestic companies who cannot borrow from the commercial paper or corporate bond market.

The Treasury needs to act quickly. TARP is not working. Credit for the real economy is still frozen (although inter-banking lending has loosened). By real economy, I mean those "goods-producing" companies, not those trading financial papers (Wall Street). According to some estimates, there will be $800B corporate debt that needs to be refinanced in 2009. And $200B faces refinancing in the next quarter! If the credit spread does not narrow, many companies will be put to the brink of bankruptcy. The ripple effect throughout the economy would be unthinkable.

We need to end this lame duck government sooner than Jan 20. Can we amend the Constitution to allow Obama to swear in right now?

Treasury to the rescue: 4.5% mortgage interest rate?

Today Wall Street Journal revealed that the Treasury Department is mulling a plan to bring down mortgage interest rate to as low as 4.5%. According to WSJ, this can be accomplished by direct purchasing of new mortgages by the Treasury through Fannie and Freddie. You know what? This is a fantastic idea. Only the Wall Street type would come up with this great idea. The Treasury is headed precisely by a Wall Street pro, Hank Paulson. (No, I am not being sarcastic here. I mean it. Finally, some real good idea came out of there.)

How does this work? Let me explain.

Right now the Treasury Bonds are trading at an extraordinarily low interest rate. Yield on the 30-year T-Bond is below 3.1%, while yield on the 10-year bond is around 2.6%. That means the Treasury right now can borrow money at very low cost. In the meanwhile, the interest rate on Mortgage debt is relatively high. A 30-year conforming loan right now is yielding around 5.3%. In the Wall Street lingo, the "spread" between Treasury and Mortgage is very wide, at least 2.2% (5.3%-3.1%).

What if Treasury borrow money from the financial market by selling Treasury Bonds at an interest cost of 3.1%, and then use the money to buy mortgage debt that generates a much higher interest income. The higher interest income the Treasury would get from the Mortgage investment would more than enough to pay for the borrowing cost on the Treasury Bonds, still leaving a smart chump for the Treasury.

How much the Treasury could make if it indeed decides to go ahead with such a plan? The Treasury will not buy all mortgages. It will buy only high quality conforming mortgages, minimizing default risk. Total market for these mortgage loans could be more than $600B/year. Let's assume that the Treasury would buy $100B of these Mortgage loans at a target interest rate of 4.5%. On the other hand, the Treasury would have to first issue $100B Treasury Bonds, probably at a higher cost than current, say 3.5%. So the spread would be a full 1%, which translates into $1B net interest income per year for the Treasury.

Secondary effects of these transactions would be very positive. Home sales would go up because of the attractive interest rate. Existing mortgages should be repriced because of thawing up of the mortgage market. Indirectly banks would be helped because their mortgage investments will regain liquidity. I think this is a great idea. This is an idea that would first help homeowners and also help the financial institutions. So far the $700B Bank Bailout Plan (the "trickle-down/top-down plan", as I would call it) has not produced the desired result. Banks are hoarding the cash they got from the government, instead of lending out to businesses. Credit market has not seen any much loosening so far. I believe this proposed plan, (a "bottom-up plan" as I would call it) would produce the desired result: loosening up the credit market.

One caveat remains: the money Treasury would get from Mortgage payments should go back to pay down the debt it borrowed in the first place. The government cannot get its hand on this bucket of money for other budget use. Any profit from the transaction should also be used to pay down the government debt. This way, we would not end up creating another inflationary bubble.

Bailout for the Auto industry: good or bad?

Chiefs of the Big Three auto companies came to the Capitol Hill to beg $34B to bail out their companies. This time, they did not come on their private jets. They took Southwest Airline and took a train to the Capitol. But there are still significant doubts among the lawmakers whether the bailout will be sufficient to turn around the failing US auto industry.

First of all, I think the government SHOULD help the auto industry. As to what is the best way to help them, I am not sure. Will writing them a check for $34B help? I don't know. But we cannot let the auto industry fail. It is one of the very few REAL industries that the US still has. If the federal government can spend a tune of $5 trillion (based on some analysts' estimate) to bail out the fraudulent financial industry, how can it not spare a small change of $34B to rescue the REAL economy?

But I do have lots to complain about the US auto industry:
1) Don't blame your failure on the Union
Sure it would be nice to have low labor cost. But why not these companies also reduce their executive compensation? Alan Mulally, the CEO of Ford, made $55M in last two years, while the company lost over $15B during the same period.

2) Big Three's problem is not that their cars are not cheap enough. Their problems is people don't want to buy their cars no matter how cheap they are
So the Big Three's problem is more of a REVENUE side, than a COST side. If they can sell more cars, they would be able to make a profit. But their market shares are dwindling despite the fact that they offer so much enticement for people to buy their cars, such as 0% financing and thousands of dollars of rebate. Lowering cost would not reverse the trend of their market share loss.

How do we deal with the problems at the Big Three? Honestly I have no clue. And I do not think anybody has any clue. Until we can convince American consumers to buy US cars not Japanese cars, no matter how much money we give them it will save them.

Are we going back to gold standard? Not quite so fast

Recently there have been increasing number of pundits calling for bringing the dollar back to gold standard. If you have read the Wall Street Journal and Financial Times in the past few weeks, you would have seen on the opinion pages many anti-Keynesian economists arguing for the virtues of gold standard and a real free market monetary system. Many of them point out the current financial crisis is precisely caused by credit bubble created by an inflationary fiat monetary system. To cure the global financial malaise, they contend that we need a sound money, the value of which is not based on the illusive credit-worthiness of the government, but on the tangible worth of certain precious metal such as gold.

How does gold standard work? It is very simple. Under the gold standard, the value of the dollar will be determined by its exchange rate with gold. Usually government should be the only entity that issues (meaning prints) paper bills at a predetermined exchange rate with gold (which is dictated by the market). For example, gold is now trading at around $800/troy ounce. You can bring one troy ounce of gold to the government, it will print out $800 fresh paper dollar bills for you (maybe minus a small fee, which is called seignorage), and keep the gold in its vault. The government cannot print more paper money than the worth of gold it receives. Individuals can exchange paper money for real gold if they choose to. Under a true gold standard monetary system, the amount of paper money in circulation should be exactly the same as the amount of gold in government reserve (gold stored in its vault).

The advantage of gold standard is that the government has to eventually balance its budget. The government cannot simple print money to spend. It has to borrow money from the private sector at an interest rate that is determined by the free market, not by the Federal Reserve. If the government borrows too much, the market will demand a high interest cost for its borrowing, which deters the government from running up its budget deficit.

Another benefit of gold standard is the elimination of fluctuation in currency exchange rates which should greatly facilitates global trades. When currencies are all pegged to gold, the exchange rate between currencies will be fixed. Nations will not have to be concerned above currency manipulation by their trading partners. Corporations will not have to buy expensive currency hedges when doing business in foreign countries. Wall Street currency traders will lose their jobs (that is a good thing for the economy, less friction cost).

In order for the gold standard to work, the Federal Reserve has to be abolished. Under the gold standard, money supply is completely determined by the market, rendering the Federal Reserve irrelevant. In fact, any Federal Reserve intervention in money supply will undoubtedly break the link between value of the money and value of gold. That is why even before President Nixon completely decoupled US dollar from gold in 1971, gold had been already traded way above the official dollar/gold exchange value.

But gold standard is not without its potential perils. One of the gravest risks of gold standard is that it is highly susceptible to speculation. Speculators who amass huge amount of gold can manipulate the price of gold and wreck havoc on the financial market. By hoarding gold, they can potentially deplete bank reserves and create a run-on-bank. Even sovereign reserve can be depleted by speculators' manipulation (recall the 1997 Asian financial debacle that was largely caused by western financial speculators). That is why in order for gold standard to work, we have to have absolutely strong market oversight and appropriate rules and regulations in place to prevent speculators like Rothchild and George Soros from creating instability in the financial market.

Personally, I do not believe we will ever go back to gold standard. First, no politician will be able to muster the kind of support needed to pass a law to abolish the Federal Reserve. Second, governments around the world are addicted to the easy money afforded by the fiat monetary system. Third, people who support gold standard loath government regulation. I believe stringent government regulations are absolutely critical for gold standard to function properly. Without implementing proper rules and regulations, gold standard will be subjected to constant market manipulation and eventually lose popular support.

What went wrong for the USA?

What's wrong with America? Who is to blame for the current financial and economic meltdown?

Some people blame the government for running up too much debt. Others blame the poor people for borrowing too much that they cannot afford to pay back. But the real cause is that America's financial industry outgrew the rest of the economy.

Financial industry does not create wealth. Let me repeat it again: financial industry does not create wealth. It only re-distributes wealth. Wealth is created in the real economy, the goods-producing economy. The problem is that America is producing less and less goods, because manufacturing has been increasingly outsourced to overseas. America's economy is becoming an empty shell. If this trend continues, our children will only find jobs in either Walmart, or Wall Street. No wonder we have seen in this country the wealth gap widening, and middle-class disappearing, because the good-paying manufacturing jobs have all but gone overseas. First was the textile industry, then the electronic industry, and now the automobile industry. If the US auto industry should disappear, and most likely it will, I don't know what real stuff America can produce any more.

On the other hand, the financial industry has been growing, and it has been obsessed with growth. It forced main-street companies to move production to low cost countries, so the profit can be larger and stock prices higher. Not only that, the financial industry has been using all kinds of tricks to convince peope to borrow more, because the more we borrow, the more profit for the industry. It uses all kinds of innovative financial engineering to make borrowing easier for everyone. To persuade individuals to borrow, they give us credit cards with rewards. The more you buy, the more you save. If you own a house, they want you to borrow against your house. They call that home equity loan. After you exhausted your home equity, they ask you to borrow against your next paycheck. To persuade government to borrow, they always support lower tax and higher spending. When it comes to persuading corporations to borrow, that is where they get extremely innovative. They design all kinds of financial instruments to allow corporations to borrow easily.

The end result was the enormous growth in credit, which in turn stimulated growth of the entire economy. But this type of growth can't sustain. When individuals, government, and corporations exhausted their ability to borrow further, that is when the house starts to crumble. That is exactly what is happening now.

Don't get me wrong. I have nothing against the financial industry (I for one work for the industry). The financial industry serves a vital function, which is to promote most efficient capital allocation. In a normally functioning financial market, capitals are taken away from failing businesses to support value-creating businesses.

Because of the vital role the financial market plays in real economy, there have to be stringent and adequate rules and regulations. You cannot have a great basketball game if there are no clear rules and referees, no matter how talented the players are. The problem with our current financial system is that government under enormous lobbying pressure does not want to set rules. Existing laws are antiquated because the industry always try to find ways to circumvent them. For example, banks set up SIVs, or Structured Investment Vehicles, to engage in non-regulated investment activities, putting depositors capital under risk. Insurance companies sell innovative quasi-insurance products, such as CDS, credit default swaps, without putting sufficient capital reserve as collateral. That was how AIG got into trouble. AIG's traditional insurance business was doing just fine. It was its non-regulated business (selling CDS) that incurred huge losses and needed $155B bailout from the government.

America, I am so proud of you! Dawn of Hope!

At this moment, 10:33PM EST, Obama has 207 electoral votes. OH, NM and IA are Obama's country. That is just an early indication of a landslide.

1) MLK can now rest in peace. Forty years after his famous "I have a dream" speech, this nation can now look beyond the color of an individual's skin, and judge the person on his or her own merits.

2) The world is now looking at America in awe! America is STILL the beacon of light for the world. It is still the symbol of hope and inspiration.

3) It is so unfortunate that Obama's grandmother could not live to witness his grandson winning this historic election. She died one day before the election. But I am sure she is now smiling in heaven.

4) Now it is time to get to work: we need to give some desperately needed help to the middle class and the poor. Then we need to invest in America's future, by supporting education, healthcare for everyone, alternative energy technologies, and rebuilding of the crumbling infrastructure.

Finally we can all go to sleep with smile. Sweet dream, America, and wake up to the dawn of a new era, an era of new hope.

McCain's tax plan vs. Obama's tax plan (satire)

Let's be frank about it. McCain has a better tax plan than Obama. Not only he gives some tax cut to the poor, he will also cut tax for the wealthy and big corporations, just in case they need it. McCain will cut tax for EVERYONE, not only the middle class and poor.
How will he balance the budget, if he cut taxes? He will freeze all domestic spending except the military. Sure, this will cripple domestic economy. But no worry, our corporations can always do business in other countries. And our military spending will definitely stimulate the economy of our friends in the middle east. Yes, tough economic time is ahead of us here in the US. But that is why we are asking you to put the country first.
Even freezing domestic spending would not balance the budget, because we are already running a half trillion dollar budget deficit. But, don't fret. The government can always borrow. We have been doing that in the last eight years! Why can't we continue doing that?

On the other hand, Obama only gives tax cut to those who need it. He asks the wealthy and the corporations to chip in a little bit more. That is socialism, my friends. Obama will reduce our military spending by ending the war in Iraq, and boost domestic spending to stimulate the US economy. He will give tax credit to small businesses that create jobs in the US, not ship jobs overseas. He will repair the crippling infrastructure, and encourage investment in alternative energy technologies. My friends, that does not work! That is government intervention. You democrats did that in the 90s, the early 60s, and the late 30s. The New Deal. The Great Society. Blah blah blah. Those are false hopes. They work for a while, until we republicans came in to crash them.

My friends, on November 4th, remember to vote for McCain.

Here we are again, 1% Fed Funds target rate

Yesterday, the Fed lowered the target rate for Fed Funds by 50bp to 1%, matching the lowest level set in 2003-2004 time frame under Alan Greespan. US Libor dropped less than 10bp on the Fed move. Clearly, the Fed simply cannot control the price of credit.

Fed action was matched by similar rate cuts in China and Europe. Stock markets in Asia seem to like the move. Overnight HenSeng went up more than 13%. US large cap was slightly down yesterday, while mid to small caps were broadly up. Today, the market followed through with a broad rally in the 2-3% range.

The congress today was deliberating on a potential fiscal stimulate package. Nuriel Roubini, the crazy economist of NYU, was testifying for such a stimulative spending package. Roubini tends to make exaggerated statements. But so far he has been right about the economy.

US government policy largely favors big businesses and financial institutions. When banks are running into problems, meaning they are over-leveraged or borrowed too much, the Federal Reserve lowers interest rate and inject capital to save them. But when it comes to ordinary consumer, if he or she borrowed too much, no one would come to the rescue. You know the financial institutions have a perverted way of doing business: they tend to lend to the rich at low interest rate. But when they lend to low-income households, they charge extraordinarily high interest rate. The poor on average are paying much higher borrowing costs than the rich. Is that fair? I guess it is :)

I have been thinking about gold-standard monetary policy. I used to be very supportive of that. But the current financial crisis made me think again. I think a gold-standard, or silver-standard for that matter, will collapse in a financial crisis when everyone is selling out risky assets to demand for cash. Under stringent gold-standard, there would not be sufficient liquidity (in this case gold money) to meet the demand. The whole system would crash. In the fiat system, the central banks can print as much cash as the market demands. The critical issue here is at what point it is appropriate for the central bank to intervene? In many cases, the central bank should not intervene, and let the financial market to work the trouble out by itself. But in situations like now, the central bank has to take drastic actions. Though it is rather difficult to determine where to draw the line.

It feels good to agree with Warren Buffet

I have been saying here that it is insane to hold fast depreciating cash now, when the Fed is printing trillions of dollars of fresh new bills, and stocks are trading at extraordinarily low valuation. And I myself have been buying stocks hand-over-fist. Let me name a few example: Capital One (COF), trading below book value, with pristine balance sheet and more than adequate reserves for loan losses and credit charge offs. Western Digital (WDC), the best managed hard disk drive (HDD) companies out there, is trading at 4 times last year's free cash flow! As consumers generate more digital data (videos and photos), the demand for HDD will not go down, even there will be competition from flash memory storage products, which is much more expensive than HDD. Then there is Apple, trading 15x earnings, and has $23/share cash on the balance sheet.

OK, I am going to stop here. The point is that you can buy many great stocks at very cheap valuation.

Today, I am very glad to know that the investment guru Warren Buffet happens to think the same way. In his Op-Ed on today's NY Times, he urges investors to be "greedy" when others are running in "fear". He claims that he is buying US equities. Here is the reprint of his piece on NY Times:

-----------------------------------------------
THE financial world is a mess, both in the United States and abroad. Its problems, moreover, have been leaking into the general economy, and the leaks are now turning into a gusher. In the near term, unemployment will rise, business activity will falter and headlines will continue to be scary.

So ... I’ve been buying American stocks. This is my personal account I’m talking about, in which I previously owned nothing but United States government bonds. (This description leaves aside my Berkshire Hathaway holdings, which are all committed to philanthropy.) If prices keep looking attractive, my non-Berkshire net worth will soon be 100 percent in United States equities.

Why?

A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation’s many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now.

Let me be clear on one point: I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month — or a year — from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.

A little history here: During the Depression, the Dow hit its low, 41, on July 8, 1932. Economic conditions, though, kept deteriorating until Franklin D. Roosevelt took office in March 1933. By that time, the market had already advanced 30 percent. Or think back to the early days of World War II, when things were going badly for the United States in Europe and the Pacific. The market hit bottom in April 1942, well before Allied fortunes turned. Again, in the early 1980s, the time to buy stocks was when inflation raged and the economy was in the tank. In short, bad news is an investor’s best friend. It lets you buy a slice of America’s future at a marked-down price.

Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.

You might think it would have been impossible for an investor to lose money during a century marked by such an extraordinary gain. But some investors did. The hapless ones bought stocks only when they felt comfort in doing so and then proceeded to sell when the headlines made them queasy.

Today people who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value. Indeed, the policies that government will follow in its efforts to alleviate the current crisis will probably prove inflationary and therefore accelerate declines in the real value of cash accounts.

Equities will almost certainly outperform cash over the next decade, probably by a substantial degree. Those investors who cling now to cash are betting they can efficiently time their move away from it later. In waiting for the comfort of good news, they are ignoring Wayne Gretzky’s advice: “I skate to where the puck is going to be, not to where it has been.”

I don’t like to opine on the stock market, and again I emphasize that I have no idea what the market will do in the short term. Nevertheless, I’ll follow the lead of a restaurant that opened in an empty bank building and then advertised: “Put your mouth where your money was.” Today my money and my mouth both say equities.

McCain is an angry old man in today's debate

This is the last of the three presidential debate. Obama maintained his cool and showed America that he is of the Presidential material. But McCain throughout the debate was agitated, constantly making faces and showing emotion. He does not look presidential at all. He was constantly on the attack of Obama. But when it comes to articulating his own policy stances, he failed to present a coherent message. We really don't know what his policy is except the repeated slogan of "cutting taxes" and "small government". I think tonight's debate has put "the nail on the coffin" of this election. Obama is going to win in a landslide.

Yet another brutal day for the financial market

Stock market continues to slide today, erasing almost the entire gains of Monday rally. Major indexes dropped between 8-9% today, shattering the hope of the investors for a near term recovery. Investor confidence is in short supply. Even commodities are trading broadly lower. Crude oil tumbled 5.9% to $74.03, down almost 50% since its peak earlier this year. A slue of bad economic news (retail sales and Fed Beige Book) underpinned today's dramatic sell off. Where is an end to all this?

There are now so many cheap stocks you can pick from. You don't have to buy those risky controversial names. You can now buy solid healthy global franchises at bargain prices. Where are the risk takers in America? I think a few years down the road when we look back, we would appreciate what a tremendous time this is to buy stocks extraordinarily cheap.

Mutual funds and hedge funds are forced to sell their stock holdings because investors are pulling money out in fear. Irrational. Investors are so irrational.

We are witnessing history

The current financial crisis is probably a once-in-a-lifetime type of event. And I feel awed to be in the middle of it.

After losing eight straight days, the stock market rocketed on Monday (yesterday) with all major indexes ending up more than 11%. Stocks around the world rose in double digit percentages yesterday, after central banks and governments around the world vowed to provide "unlimited" liquidity for troubled financial institutions. England led the pack by first nationalizing some of its major banks. European countries were all offering deposit insurance for bank deposits, in an attempt to preempt potential bank run.

International stock markets had nice follow-through upon yesterday's huge gain. Stocks around the world ended higher on Tuesday. US equities started off on a high note today, up around 3% in early trading. Treasury Department announced a plan to immediate inject $250B into nine major US financial banks (sure, Goldman is included, along with Morgan Stanley, Merrill Lynch, BoA, Citi, JPMChase, Well Fargo, Bank of NY Mellon, and State Street). But the early gain slowly fizzled, with the market ending slightly down.

I think the road ahead will still be rocky. Hedge funds are stocking cash preparing for a rush of investor redemption. That is why when stocks were moving lower, oil and gold were also moving lower. The only plausible explanation is that hedge funds are unwinding their long oil and gold positions to build up cash cushion for potential redemption. This can last for a quarter.

But the stocks are cheap. There are plenty of opportunities to find high quality names trading at depressed valuation.

This is probably also a once-in-a-lifetime opportunity to buy stocks extremely cheap.

McCain finally showed some restrain

Attack on Obama from the McCain campaign in the past few weeks has really intensified. The strategy was to question the character of Obama, instead of discussing issues. He asked his supporters during a rally: "who is Obama?". His running mate Sarah Palin took on more direct and nasty role of attack, calling Obama "palling around with terrorists". McCain/Palin supporters have become increasingly vocal about their hatred towards Obama. The fact that Obama is leading McCain in major national polls makes these staunch republicans so mad. The madness seems to reaching to the boiling point which could have the potential to incite violence.

During the weekend, McCain wisely toned down his personal attack on Obama, calling him "a decent American". I am really glad to see this turn about. As to Palin, I really don't care. She is just a tool, a parrot. It is a joke that McCain selected her as VP candidate. That shows how desperate and irresponsible a McCain Presidency could be.

Depression ahead of us?

Another brutal day on Wall Street. There seems to be no let up. The market did not have a single up day for the last eight days. The passing of the bailout last Friday did not serve to sooth jitter investors. Credit spreads remain wide, and stocks continue to sell off. Investors are shunning risky assets and parking liquidity in the "safe heaven" of Treasury bills. Most notable is that commodity prices are sliding as well, with crude oil now trading below $87, down from the peak of $147 set sometimes in March of this year. Gold edged up during this period of stock sell-off. But rise in gold price is not as much as I would have expected. It appears that the likelihood of going back to gold-based currency is very low (although that may be the right choice), because governments around the world are addicted to the power of printing money to finance spending without raising taxes.

Are you heading to a a 1929-style depression? Hardly. I think we have more financial tools now to prevent a depression from happening. I have long maintained we do not need a Federal Reserve (central bank) system to regulate the interest rate (or price of credit). In fact the Fed is incapable of regulating interest rate. Despite the rate cut Fed announced yesterday, Libor remains high. In normal situations, Fed action does affect the credit. But in times of financial crisis, Fed has very little power to influence the credit market. The Fed has pumped tremendous amount of liquidity (in the order of trillions of dollars) into the financial system, and in fact central banks around of the world have done the same. Yet banks are just hoarding the cash and refuse to lend.

Yesterday, UK government decided to take ownership of some of its banks. Today, Treasury secretary Paulson also indicated that the Treasury may buy stock shares of the troubled banks. It feels more and more like socialism. I guess when capitalism runs into trouble, socialism comes to the rescue. How ironic.

Notwithstanding the flaws of the Federal Reserve System and fiat money, I do think the Federal Reserve, if there is any use of it, is precisely designed for the current situation. Investors want to sell risky assets at depressed valuation and buy risk free Federal Reserve Notes? OK, keep coming. As long as the printing press at the Federal Reserve still works, there is infinite quantity of paper money to meet the demand. Someday these investors will realize what they are holding are worthless papers. Then they will start to come back into assets such as bonds and stocks.

In a long run, I think inflation will go up dramatically. Economic activities will be slow for a long stretch of time. Yes, there won't be a depression. But we are going to have multi-years of stagflation (stagnation + inflation).

For future reference, it is worthwhile to record the dramatic selloff of the stock market towards the afternoon of today. Here is what yahoo finance recaps today's financial market activities:

Stocks plunged Thursday, sending the Dow Jones industrial average down 679 points -- more than 7 percent -- to its lowest level in five years. Stocks took a nosedive after a major credit-rating agency said it might cut its rating on General Motors and Ford, further rattling investors already fretting over the impact of tight credit on the economy.

The Standard & Poor's 500 index also fell more than 7 percent.

The declines came on the one-year anniversary of the closing highs of the Dow and the S&P. The Dow has lost 5,585 points, or 39.4 percent, since closing at 14,164.53 on Oct. 9, 2007. It's the worst run for the Dow since the nearly two-year bear market that ended in December 1974 when the Dow lost 45 percent. The S&P 500, meanwhile, is off 655 points, or 41.9 percent, since recording its high of 1,565.15.

U.S. stock market paper losses totaled $872 billion Thursday and the value of shares over all has tumbled a stunning $8.33 trillion since last year's high. That's based on figures measured by the Dow Jones Wilshire 5000 Composite Index, which tracks 5,000 U.S.-based companies' stocks and represents almost all stocks traded in America.

Thursday's sell-off came as Standard & Poor's Ratings Services put General Motors Corp. and its finance affiliate GMAC LLC under review to see if its rating should be cut. The action means there is a 50 percent chance that S&P will lower GM's and GMAC's ratings in the next three months. GM has been struggling with weak car sales in North America.

S&P also put Ford Motor Co. on credit watch negative. The ratings agency said that GM and Ford have adequate liquidity now, but that could change in 2009.

GM, one of the 30 stocks that make up the Dow industrials, fell $2.15, or 31 percent, to $4.76, while Ford fell 58 cents, or 22 percent, to $2.08.

"The story is getting to be like that movie 'Groundhog Day,'" said Arthur Hogan, chief market analyst at Jefferies & Co. He pointed to the still-frozen credit markets, and Libor, the bank-to-bank lending rate that remains stubbornly high despite interest rate cuts this week by the Federal Reserve and other major central banks.

"Until that starts coming down, you'll be hard-pressed to find anyone getting excited about stocks," Hogan said. "Everything we're seeing is historic. The problem is historic, the solutions are historic, and unfortunately, the sell-off is historic. It's not the kind of history you want to be making."

The Dow ended the day at its lows, finishing down 678.91, or 7.3 percent, at 8,579.19. The blue chips hadn't closed below 9,000 since June 30, 2003, and haven't closed at this level since May 21, 2003.

The Dow's 2,271-point tumble over the last seven sessions is its steepest seven-day point drop ever. Its seven-day percentage decline of 20.9 percent is the largest since the seven-day plunge ending Oct. 26, 1987, when the Dow lost 23.8 percent. That sell-off included Black Monday, the Oct. 19, 1987 market crash that saw the Dow fall nearly 23 percent in a single day.

Broader stock indicators also tumbled Thursday. The S&P 500 fell 75.02, or 7.6 percent, to 909.92, while the Nasdaq composite index fell 95.21, or 5.5 percent, to 1,645.12.

The Russell 2000 index of smaller companies fell 47.37, or 8.7 percent, to 499.20.

A wave of fear about the economy sent stocks lower in the final two hours of trading after a volatile morning in which major indicators like the Dow and the S&P 500 index bobbed up and down. The Nasdaq, with a bevy of tech stocks, spent much of the session higher but eventually declined as the sell-off intensified. Still, its losses were less severe because of the relatively modest drops in names like Intel Corp. and Microsoft Corp.

On the New York Stock Exchange, declining issues came to nearly 3,000, while fewer than 250 advanced.

The sluggishness in the credit markets that triggered much of the heavy selling in markets around the world since mid-September appeared little changed Thursday following days of efforts by the Federal Reserve and other central banks to resuscitate lending.

Libor, the bank lending benchmark, for three-month dollar loans rose to 4.75 percent from 4.52 percent on Wednesday. That signals that banks remain hesitant to make loans for fear they won't be paid back.

The Fed and other leading central banks this week lowered key interest rates to help unclog the credit markets and promote lending to help the global economy. While a rate cut can take up to a year to work its way through the economy, the move was aimed as a boost to investor sentiment.

"We're stuck in a morass and I think it's going to take quite some time to come out of it," said Stephen Carl, principal and head of equity trading at The Williams Capital Group.

Demand remained high for short-term Treasurys, a refuge for investors willing to trade modest returns to protect their money. The yield on the three-month Treasury bill, which moves opposite its price, fell to 0.58 percent from 0.63 percent late Wednesday. Longer-term debt prices fell, with the yield on the 10-year note rising to 3.79 percent from 3.65 percent late Wednesday.

Investors across markets were mulling a plan being considered by the Bush administration to invest in hobbled U.S. banks as a way to stabilize the financial sector. The $700 billion rescue package signed into law last week allows the Treasury Department to inject fresh capital into financial institutions and obtain ownership shares in return.

Britain rolled out a similar plan, though no U.K. bank has received any investments. In Iceland, the government now has control of the country's three major banks as it struggles to contain the troubles there.

Wall Street is also looking for any effects of short selling now that a three-week ban imposed by regulators has expired. Short selling is a technique in which investors borrow shares in a company from a broker and sell them, hoping to buy them back later at a lower price. Essentially, it's a bet that a stock's price will fall. Short sellers can lose money if they have to repurchase the stock after it has risen.

Some analysts believe the unprecedented ban on short selling -- an effort to bolster investor confidence -- did more harm than good at a time of historic market volatility. They contend that short sellers help the market rally by covering their bets and creating demand for stocks.

"I think the market's way oversold. But I can't stand in the way of this falling knife -- I'd get sliced open," said Phil Orlando, chief equity market strategist at Federated Investors. "Investors are just saying, get me out at any price."

He also said that with the short-selling rule back in play, hedge funds might be shorting again to make up for their forced liquidations.

Energy names were among the biggest decliners as the price of oil fell and investors worried about a slowing economy. Exxon Mobil Corp. fell $9, or 12 percent, to $68, while Chevron Corp. fell $9.10, or 12 percent, to $64.

Light, sweet crude fell $1.81 to settle at $86.62 a barrel on the New York Mercantile Exchange, the lowest closing price since October last year.

Health insurer WellPoint Inc. fell $3.94, or 9.7 percent, to $36.50, while insurer and investment manager Lincoln National Corp. fell $9.66, or 35 percent, to $18.31.

The tech sector saw less selling than other parts of the market after IBM Corp. affirmed its forecast.

IBM fell $1.55, or 1.7 percent, to $89. Meanwhile, Intel fell 65 cents, or 4 percent, to $15.60 and Microsoft fell 71 cents, or 3.1 percent, to $22.30.

Consolidated trading volume on the NYSE came to 8.14 billion consolidated shares compared with 8.54 billion traded Wednesday.

In Asia, Japan's Nikkei 225 closed down 0.50 percent while the Hang Seng added 3.31 percent. In Europe, Britain's FTSE-100 fell 1.21 percent, Germany's DAX fell 2.53 percent, and France's CAC-40 declined 1.55 percent.

700B bailout package truned into $850B spending

Politics in Washington DC defies logic. Last week, the House vetoed the 700B bailout package with a 228-205 vote. Then the Senate took on almost the same exact bill, adding to that an additional $150B pork spending. Surprise, surprise, the bill passed both the Senate (yesterday) and the House (today). Bush signed it into law immediately after.

Will the bailout help? Certainly it will help the banks' balance sheet. But I do not think the lending activity will come back quickly. The credit spreads won't narrow in short term, either. What the bailout will do for sure is to ensure some of the big banks to make a lot of money.

JPMorgan took on WaMu with its mortgage portfolio at depressed value without paying anything for it. Bank of America earlier took on Merrill Lynch, which also has lots of mortgage exposure. Now Wells Fargo and Citi are battling for Wachovia. Last Sunday, Wells Fargo pulled out in the last minute from the negotiation of potential take over of Wachovia. Citi came as the rescuer, after FDIC sweetened the deal with some loss guarantees for Wachovia's mortgage assets. Now with the knowledge of the bailout package likely to pass, Well Fargo came back today with a better offer to acquire the entire Wachovia at roughly $7/share. Citi's offer was a measly $1/share, only for the banking portion of Wachovia. Citi was hoping that Wachovia to provide it with the much needed cheap domestic source of financing, as most of Citi's deposits are international, while its investments are more geared towards US. It seems that it would be a great deal for Citi. But Well Fargo, with the backing of Warren Buffet, came in to spoil it.

A lot of people may be surprised to know that shares of Well Fargo, JP Morgan and many other banks are trading close to 52-week highs. These banks will do even better with the Treasury's $700B to help them shed those "toxic" assets from their balance sheet.

You got to love capitalism!

Sarah Palin avoided another national embarassment

Yesterday's vice president debate turned out to be less a spectacle many of us have been expecting. Frankly, I was waiting for another comedy show by Palin in front of the national audience.

By sticking to the rehearsed talking points, and avoid answering questions, Palin avoided another national embarrassment. The entire republican party and McCain campaign sighed a collective relief. Sure, she was not answering questions directly. Sure she just repeated what she was instructed to say. But that was far better a performance than the interview she did with Katie Couric.

I thought Joe Biden did a great job, better than Barack Obama did in his first presidential debate. He kept hammering at McCain, calling him no maverick on critical issues, and continuing the failed Bush policies both domestic and international.

Indeed, there is basically NO difference when it comes to national defense policy, health care policy, tax policy, and energy policy, between Bush and McCain. Most troubling, and most dangerous (I believe), is that McCain has shown no sign of changing the course from the misguided Bush's beating-the-chest cowboy foreign policy, which has strengthened US enemies and alienated US allies. If this policy would continue, and I believe it would under McCain, we would continue to spending $10B/month in Iraq for the foreseeable future. McCain wants to cut domestic spending to preserve defense spending (Iraq war). That will lead to domestic economic decline and further stimulate the economy of the middle east. Thanks a lot McCain, our "friends" in the middle east would say.

We've got to elect Barack Obama President of the United States.

How to make the Bailout work?

Bloody Monday: Dow dropped 777.7 (6.98%), largest single day point loss in history, and largest percentage drop since 9/11/01 terrorist attack (or more accurately CIA attack). Nasdaq did even worse, dropping 199.76 (9.14%). S&P 500 declined by 106.62 (8.79%). There was no place to hide. Energy was hit the hardest, and even Health Care sector could not escape the sell-off pressure.

After working over the weekend in an attempt to come up with a modified $700B bailout package, the Whitehouse and bipartisan congressional leaders worked out a bill to present to the House for a vote. The bill suffered a surprising and stunning defeat, with 228 nays and 205 yeas. This morning, we were greeted with the news that Wochovia sold its entire banking business to Citi for a mere $2B, or $1/share. It looks like we are going to have only a handful banks left after this turmoil. That is certainly not good for consumers.

What is the root problem of the current financial crisis? In a very simple term, many banks have mortgage securities on their balance sheet that they have no idea how much they are worth. As a result, no one knows whether the banks have sufficient capital to operate. Many banks refuse to lend each other for fear of counterparty risk.

For the main street, many corporations find it hard to re-finance their short term debt now that the commercial papers market almost dried out, because of the scare of money market funds, caused by Lehman bankruptcy and Prime Reserve's Money Market Fund breaking the sacred $1/share mark (it traded 97c) in last week.

It seems that the contagion is spreading quickly. And I start to feel we have to have some sort of rescue plan to address the root problems of the financial market, because the crisis boils over to the main street.

I think the $700B bailout plan in its original form (3-page proposal by Hank Paulson) was a scam. But the insurance proposal by the House Republicans is even worse. Taxpayers may incur even larger loss under that plan.

I think the critical component of any rescue plan should contain the provision that allows the Treasury to purchase the mortgage assets from the banks at a fair value, thus establishing a liquid market for the mortgages that are currently hard to value. Once a market is established, banks' financial health can be easily ascertained. That will lead to banks more willing to lend to other banks with sufficient capital. It should not be a bailout for the failing banks. It should be an intervention of the government to establish and maintain an orderly market for the mortgage securities. I think if the rescue plan is presented in this way, it would be much easier for taxpayers to swallow.

You may ask how the Treasury determines what price to pay for the mortgage securities? Ben Bernanke's idea of paying at the hold-to-maturity price is scandalous. That would be a huge give away to the banks. I think a so called "reverse auction" process is much fairer. Basically banks would submit their bid to sell their assets. Treasury would buy the lowest bidders up to a certain percentage of the total bids (say 50%).

To address the democrats demand that taxpayers should participate the upside of the banks recovery, we may demand the bidding banks to issue warrants to the Treasury valued at 10% of the assets the banks sold to the Treasury. When the banks' stock recovers in the future, Treasury can convert the warrants to non-voting shares in the banks and sell the shares for a profit.

One more thing I think we should be addressing is the potential inflationary effect of the bailout package. In short term, I do not think the bailout to be too much inflationary. But once the market returns normal, the excess cash in the system would create inflation pressure. That is why it is important that when Treasury sells the mortgages it bought from the banks, the proceeds should not be considered government revenue. It should be ear-marked to pay down the national debt, which was taken on to provide the initial bailout money.


But who am I? Who would listen to me? Washington politics is not determined by reasoning or what is right or fair, it is determined by the final compromise among different interest groups.

Sigh!

The $700B bailout is a huge scam

Today some detail leaked out about the $700B bailout package that Hank Paulson has requested on behalf of the banks. Wall Street Journal had an article in a very obscure section disclosed some of these details:

First, it appears that the bailout is not restricted to mortgage debt or mortgage backed securities. Even credit card debt may be included. So this is intended to be a wholesale bailout for the pure benefits of the banks.

Second, Paulson and Bernanke believed that these bad debts should be priced based "held-to-maturity: formula, not the current book value. So the bailout is a complete giveaway to the banks.

You may not understand what held-to-maturity (HTM) valuation accounting means. Let me explain, when a bank purchased a debt security, it paid, say, $1000 for that debt. Under HTM, the debt will always be listed as $1000 in value, no matter what the current value of the debt may be. Obviously most of the debt securities that the banks are holding now have declined significantly in value, because the debtors don't have the ability to pay in many cases. It is very common some of the debt securities are trading at below 30 cents on the dollar. That means the $1000 asset that the bank holds is now worth only $300. Yet Hank Paulson and Ben Bernanke would like to give the banks $1000 (HTM value) for the assets that worth only $300.

Now you understand that the whole bailout is a scam. It is a scheme to enrich the banks at expense of taxpayers! How dare they are! They thought the public is so gullible that they would not even understand what is going on. That is why they brazenly requested $700 B complete giveaway for their friends on the Wall Street. When asked why $700 billion? You know what they answered: "we don't know. It is an arbitrary number!"

People, are you really so sheepish that you are willing to be fleeced? You got to stop this criminal deception!

By the way, the US government does not even have $700B to spare. It has been running budget deficit since Bush took the White House. National Debt already stands over 10.6 trillion dollars. Where is this money coming from? It is going to come from printing from paper! That means inflation will for sure to go up. It is just a form a stealth tax on all the savings of ordinary people.

I am really sickened by this. All these criminals! Because they think people are so stupid that they can get away from it.

A lot of people argue that we have to do this bailout. No, we don't. Yes, the banks are not lending right now. That is healthy, because US is already overly in debt. We all need to de-leverage. That means many banks will HAVE to go bust! We cannot simply re-inflate the financial system to create another bubble! We need to take the pain. The banks first, then American consumers. Yes, we have to pay higher interest rate. Borrowing will be more difficult. Consumer spending will slow down. But That would be normal. Isn't overspending and over borrowing that got us into this mess in the first place? Why do we want to give $700B easy money for the banks so they can lend unscrupulously and invest badly again?

You have to watch this video. God bless Marcy Kaptur, the Democratic Representative from Ohio.

Hank a lot (Mother of all Bail-outs)

Over the weekend, Treasury Secretary Hank Paulson deviced a $700 billion bail-out package for all the banks, to take on the underperforming mortgage securities on their balance sheet. Christmas came to the Wall Street early this year. Hank a lot, Paulson!

Most striking is the boldness of Paulson's request. He basically asked for a blank check to do whatever he sees fit. He specifically requested that no court oversight should be allowed! Yeah, we should all trust that Hank Paulson won't do anything hanky panky with his old Wall Street pals. Give me a break! Talking about put a fox to guard hen house!

The reason for the bail out sounded very solid. They have depicted a near apocalyptic outcome if the bailout is not done right now: financial melt down, multi-year depression, loss of jobs, close of factories, end of the civilization as we know it. Fear. No, even more than that. Terror. They want to terrorize all of us into submission (accepting the bailout proposal). I think they have done similar thing very successfully: they have used our fear of terrorism to slowly take away the liberty from us. They have succeeded in doing that. Now they will succeed in taking away our hardly earned savings! American people are gullible sheep! High finance is so complex and who understands it? Let's just trust that these people are doing the right thing and have us taxpayers' interest at their hearts. LOL.

Is this $700 B bail out necessary? Absolutely no. The only argument for the bailout is that: banks have all but stopped lending, even after the Fed vowed to wide open its check book to offer low-interest loans for these banks (through the Fed discount window). So the thinking goes like this: if banks stop lending, economy will grind to a standstill.

Not so fast. As I have pointed out, consumers are de-leveraging: not borrowing! Corporations other than the financial industry are in very good shape. Most of them have sufficient cash cushion to weather the storm. In fact, Microsoft just announced today it is using the cash on its balance sheet to buy back $40 Billion worth of its own stock. So corporation can live without borrowing at least for now.

So it is not end of the world if banks stop lending. Banks will never stop lending anyway. It is their business. If some banks stop doing that, that will cause their own demise. Why would they do that? They are doing it now ONLY TO HOLD THE PUBLIC HOSTAGE. They are acting like cry baby: woo, woo, if you don't bail us out, we will not lend.

We should not cave in. We should not allow them to socialize their losses. When they were making huge profits, they did not ask us to share with them. They dished out hundreds of millions dollars of bonuses to their top executives. Now they are asking us the poor taxpayers to rescue them! Take a hike! You could die. There will be others taking your place! Capitalism does not lack risk takers.


The moral hazard is tremendous. They are all trying to get big so they will be regarded to be too big to fail. Bank of America has bought MBNA, CountryWide, and Merrill Lynch. Wachovia does not want to stay behind. It is trying to buy Morgan Stanley. Nobody wants to end up like poor Lehman, right?

All these banks seem to have a put option written for them against the taxpayers, if you understand what a put option means. This all started from 1998 LTCM bail-out engineered by Alan Greenspan. They used to call it "Greenspan put". More accurately, it should be called "taxpayer put".

Now the $700B bailout package seems to be set in stone. I still think it could work in taxpayers favor if sufficient oversight and accountability are present. We cannot let these banks to dump their bad debts to us at inflated prices. And we also need to make sure we can sell these debts at fair market value later on. If we can accomplish that, the taxpayers may not lose too much in the end. If we allow Hank to do whatever pleases him, then we will have a big bill to pay, for generations to come.

We know American households are broke, and the government is even more broke. We don't have the $700B. We did not have the $39B used to bail out Bear Stearn. Neither the $200B plus for Fannie and Freddie. Nor the $85B for AIG. Where is the money coming from? Printing press. We live in a fiat money system. Worthless paper can turn into green dollars, not so magically. It is a form of stealth tax. We all pay for it, not knowingly. It is reflected in higher prices we pay for food, energy, and everyday stuff. In another word, it is called "inflation". Instead of letting the asset (real estate asset) bubble to burst completely, the Fed is trying to print more money to keep it inflated. No wonder oil price today rocketed up more than $16 to >$120/barrel, largest single jump ever! Hank a lot, Paulson! Way to go Ben!

Finally someone is bold enough to say something about the crimes Bush/Cheney have committed

This is a reprint of a news item from the Associated Press

Vermont candidate to prosecute Bush if she wins
By JOHN CURRAN, Associated Press Writer Fri Sep 19, 3:45 AM ET

BURLINGTON, Vt. - Lots of political candidates make campaign promises. But not like Charlotte Dennett's. Dennett, 61, the Progressive Party's candidate for Vermont Attorney General, said Thursday she will prosecute President Bush for murder if she's elected Nov. 4.

Dennett, an attorney and investigative journalist, says Bush must be held accountable for the deaths of thousands of people in Iraq — U.S. soldiers and Iraqi civilians. She believes the Vermont attorney general would have jurisdiction to do so.

She also said she would appoint a special prosecutor and already knows who that should be: former Los Angeles prosecutor Vincent Bugliosi, the author of "The Prosecution of George W. Bush for Murder," a new book.

"Someone has to step forward," said Dennett, flanked by Bugliosi at a news conference announcing her plan. "Someone has to say we cannot put up with this lack of accountability any more."

Dennett and two others are challenging incumbent Attorney General William Sorrell, a Democrat, in the Nov. 4 election.

Bugliosi, 74, who gained fame as the prosecutor of killer Charles Manson, said any state attorney general would have jurisdiction since Bush committed "overt acts" including the military's recruitment of soldiers in Vermont and allegedly lying about the threat posed by former Iraqi dictator Saddam Hussein in speeches that were aired in Vermont and elsewhere.

"No man, even the president of the United States, is above the law," said Bugliosi.

The White House press office didn't respond to a request for comment Thursday. But Republican National Committee spokesman Blair Latoff denounced Dennett.

"It's extremely disappointing that a candidate for state attorney general is more concerned with radical left-wing provocation than upholding the law of Vermont," Latoff said. "These incendiary suggestions may score points among the most fringe elements of American society, but can't be settling for anyone looking for an attorney general."

Anti-Bush sentiment runs deep in Vermont. It's the only state Bush hasn't visited as president, and one whose liberal tendencies make it unlikely he will.

In 2007, the state Senate adopted a resolution calling for Congress to begin impeachment proceedings against Bush and Vice President Dick Cheney.

Last March, the towns of Brattleboro and Marlboro voted to seek indictments against Bush and Cheney over the war, and dozens of other towns voted at town meetings to call for his impeachment.

Sorrell, who is seeking a sixth term, said he doesn't believe a Vermont attorney general would have the authority to charge Bush.

"The reality is, in my view, that unless the crime takes place in Vermont, then I as the attorney general have no authority under Vermont law to be prosecuting the president," Sorrell said.

Vincent Bugliosi, left, speaks at a news conference in Burlington, Vt., Thursday, Sept. 18, 2008. Bugliosi, the author of the book, 'The Prosecution of George W. Bush for Murder.' was in Vermont to support the candidacy of Progressive candidate for attorney general of Vermont, Charlotte Dennett, right.(AP Photo/Toby Talbot)

Did I just call the bottom of the market yesterday?

Maybe yesterday was the capitulation. Today the stock reversed the trend of early slide and ended up fast and fierce. Dow was up 410 points, going back up above the 11000 level, ending up 3.9%. Nasdaq was even giddier, up 100 points, or 4.9%. S&P 500 was up 50 points, or 4.3%. Wachovia Bank(WB), which was rumored to be in talk to buy Morgan Stanley, powered up a whopping 59%.

In the morning, news outlets reported that the central banks of various countries were working with the Fed in a coordinated way to provide sufficient liquidity for the banks around the world. Even that news failed to change the sour mood on the Wall Street. Dow erased an earlier gain of close to 200 points, and traded down more than 140 points in the middle of the day. Then there was a report that the Government is contemplating on setting up an entity to "absorb" the bad debt banks are carrying on their balance sheet. This entity would be modeled after the Resolution Trust Corp (RTC) set up in late 80s by the government during the savings and loan crisis. The idea is that the government entity would purchase bad mortgage debt from all the banks, and sell it to investors. The entire process may take several years. Saddled with the bad mortgage debt, banks currently are very cautious in lending to businesses and individuals. With out bank lending, economy may grind to a halt, the end result of which is unthinkable (multi-year depression). With the government taking over the bad debt, banks will be freed of these "toxic" assets and start to lend again, which will slowly lead to economic recovery.

I guess this may be the best option out of all the worst ones. This is what often referred to as "privatizing profit and socializing loss" of the US financial system. Tax payers are left to hold the bag when banks gambled with depositors' money. When banks are making billions of profit, tax payers don't get to share with it. But now when they are making huge losses, tax payers have to shoulder them. Is this "laissez faire" capitalism?

Yesterday I was questioning the wisdom of selling assets for cash by investor mass. Today it is becoming even clearer that cash is worthless. But people are just so frightened by risk that they are doing irrational things. That is why they have been selling all risky assets, including even money market, in exchange for safe cash, which is treasury bills. Annualized 3-month treasury yield went to almost ZERO! In some case, people are willing to buy treasury bills at negative yield. Talking about insanity! We are living in a fiat money society. Money is a piece of paper. Central banks can print as much as you want. Oh my Lord, what a bunch of blind!

Buy stocks (but be choosy), believe me. Stock is incoming producing asset, unlike commodities which yield no income. I don't want to buy fixed income in this situation when the Fed's printing press is running 24/7.

Is this capitulation?

Holy! We got a brief reprieve yesterday. But today is another brutal carnage on the Wall Street. Dow is down almost 450 points, or 4.1%, Nasdaq down 109 points, 4.94% (!), and S&P off by 57 point, 4.71%. This is breathtaking! Dow is now below 12000. Gold shot up almost 12% and silver up more than 14%. All these was precipitated by the Fed's $85B bailout of AIG. Fear! Is this the final capitulation? It certainly feels like. I have gone though the dot com bust. I thought that was brutal. Lord, Lord, Lord! Please save us!

In my yesterday's post, I analyzed that Corporate sector (Business Sector, outside of the financial) of the US economy is pretty healthy. It is the government sector and household sectors that are debt-ridden and under strain. Judging from retail sales and consumer spending, I think households are starting to de-leverage and repair the balance sheet by cutting spending. But the government sector has yet to show any sign of restrain in spending. That is because the twin wars are costing us dearly. We GOT TO STOP the senseless and wasteful wars! We may not be able to end it abruptly. But certainly we have to start the process of pulling out of Iraq! That is why it is so crucial to elect Obama, and pressure him to rein in defense spending.

I understand why people sell financial stocks. But I don't get it why people are selling shares of perfectly healthy and strong companies such as Intel and Cisco. We are living in fiat money society. Cash is worthless paper. Why sell the income-producing assets (common stock) in exchange to fast depreciating cash?

I guess fear is now the dominant force of the market. I think when everybody is selling assets and demanding cash, (the Fed will keep printing cash to meet the demand), the smart move would be to go against the herd. But you have to have the stomach to take it.

Confidence takes a long time to restore. We are still in the dark tunnel.

Turmoil on the Wall Street

You've seen it yesterday: Lehman Brothers filed for bankruptcy protection after failing to reach a deal with potential buyers (Barclay and Citi were rumored to be the interested parties) over the weekend. Meanwhile, Merrill Lynch, one of the marquis investment banks on the Street, agreed to be bought by Bank of America in a deal valued at $50B. This deal was viewed as BoA bailing out Merrill. Furthermore, rumors about impending bankruptcy of AIG caused people to believe more bad news is yet to come. Stock sold off around the world, with Europe down more than 4% and Asia down close to 5% before US stock market opened. As you would expect, the Monday trading on Wall Street was bloody. Dow declined more than 500 points, or 4.4%, worst single day decline since the burst of dot com bubble seven to eight years ago. It was indeed a "black Monday".
To make things worse, pundits were all sounding doom and gloom. A NYU economist, Nouriel Roubini, even warned that American's deposits in the banks are at risk (I think he should shut up, or be locked up for inciting run on banks). Our old pal Allan Greenspan said this is the worst crisis in last hundred years. That means the 1929 depression was even better than current financial and economic crisis. I think all these pundits have their ulterior motives (not very noble often time) to try to scare people, and further weaken people's confidence.

I think the current crisis in a large part is a crisis in confidence: people don't know how to evaluate the risky assets after having burned by subprime mortgages. So they start to sell all the assets for cash. So if you take a look, ALL asset classes are under selling pressure, even the darlings just a few months ago (oil and commodities). It will take a long time to restore confidence.

I have been a critic of the Fed and US government for creating such crisis in the first place. But the action, or lack of action of the Fed and the Treasury department over the weekend, was a wise decision. I think history will prove that not bailing out Lehman was the right move. Collapse of Lehman is no big deal. The Fed should not even have bailed out Bear Stearns earlier this year. But Fannie and Freddie were entirely a different matter. Taking out Fannie and Freddie was necessary and a right move, in my opinion. Today, the Fed maintain the Fed Funds rate at 2%, which is a big sigh of relief. I was really worried about that Fed would cave in to the pressure from the Wall Street and lower the interest rate. At this point lowering interest has no positive effect at all. It in fact would be counter productive, causing further panic in the financial markets. Lowering interest rate would do nothing to reduce investors' risk premium, which is very high right now.

So what is my assessment of the situation? Should we sell stock and stay in cash, or this is a great opportunity to buy? Before I tell you my opinion, let me show you my thought process:
If one looks at the entire US economy in three segments: household sector, government sector and corporate sector, and then analyzes the health of each sector, he or she should be able to see more clearly where problems lie and what are the solutions.

1) US household is under stress, there is no doubt about that. Consumer spending has been outpacing consumption for a long time, financed by cheap credit provided by foreign investors. Since 2000, medium household income actually shrunk in real term by $1000, according to some reports. Wealth gap has widened significantly. The ultra rich have seen their wealth grow fastest in decades, while middle to lower class people are suffering. When the US consumer cannot borrow against their future income, they started to borrow against their assets, their houses. Due to the artificial low interest rate engineered by Allan Greenspan and the Fed, Americans were able to extract tremendous amount of cash from home equities, and spend the cash as on home remodeling, vacation, or buying bigger nicer cars. Then the house prices start to decline, that is when many people begin to see equities in their houses evaporated. Mortgage default rate start to rise rapidly, creating a chain reaction in the world financial institutions who willing lent to these overstretched homeowners.
Now US household is deleveraging, trying to repair the balance sheet. That is a good thing. But expect consumer spending to decline in the next few years, and financial service industry will have to de-leverage, too, to shrink their balance sheets as well. So the demise of a few financial institutions is just the normal course of the consumer adjustment we are witnessing now. That is good in long run, painful in near term.
2) The government sector is also under stress. Tax revenue has not grown, due to the big tax cut Bush enacted back in 2002. In the meanwhile spending has rocketed, largely due to twin wars we are fighting in Iraq and Afghanistan. The government cannot continue to rely on printing money to finance the deficit spending. So we either have to raise the tax or cut spending, or both. You can't raise tax on middle class in this economic environment. I support Obama's tax plan to raise taxes on the wealthy, who have disproportionally benefited under the Bush tax plan. In the meanwhile, we have to cut spending. That is difficult: you cannot cut social security or medicare. Healthcare for the uninsured will be extra money the government has to spend. And the national infrastructure is also in dire need of repair (bridge collapse in Minneapolis was an indication). We also have to invest in alternative energy (wind mills) to wean our dependence on fossil fuel. So where the cut can come from? The only place is Iraq and Afghanistan war spending. The whole war on terror is a self inflicted pain. As you know, the US government had all the tools to prevent 9/11 from happening. If you don't believe they made 9/11 happen, you should at least believe they LET 9/11 happen. So the whole war-on-terror spending is just waste of money and resources. We can save that for more productive use, such as building the national energy and transportation infrastructure and investing in healthcare. That is why it is so important to elect Obama as President coming November.
3) US corporate sector, apart from the financial institutions or auto industry, is very healthy. Profit margins are at all time high. Earnings have been strong. Corporations are awash with cash, balance sheet is pristine. US companies are very competitive compared with companies of other nations. So the US corporate sector is very strong. We have to encourage corporations to invest in the US to create jobs and grow household income. I think Obama has detailed plan for that.
So what is my opinion?
If Obama wins, I will buy stocks with all the money I have. If McCain wins, and he continues the Bush policy, then I will have to cash out to invest in gold and swiss franc.
We got to elect Obama!

I am voting for Barack Obama

Wow, what a great acceptance speech by Barack Obama at the Democratic National Convention (DNC)! Before the speech, I had doubt. Now I am completely on board. No more cynicism. Let's get Obama elected the President of United States of America!

It was fitting that yesterday marks the 45-year anniversary of MLK's famous "I have a dream" speech. The very fact that a black man is nominated to be the presidential candidate of a major political party is a testimony to how far this country has progressed. There is no turning back. For those who are still hanging on to the old way of politics, your days are coming to an end!

In his speech, Obama talked about his humble beginnings, and the values he was taught with by his mother and grandparents. He admitted that his father did not have much influence on him. He was more shaped by "his (father's ) absence".

He also laid out his policies, item-by-item, in a way that ordinary people can understand. For example, to counter McCain's accusation that he is going to raise taxes on the middle-class, he said he is going to cut taxes on 95% of the families.

But most importantly, at least to me, he addressed some of the issues that democrats have been commonly criticized for. The republicans have long criticized that democrats don't have a set of clear principles, and they follow the polls to please people in order to get elected. Yesterday, Barack Obama answered those criticisms very eloquently.

He contrasted the republican principles vs. his democratic principles. The republicans talk about "Ownership Society". But in reality it means "you are on your own". But democrats believe we have "mutual responsibilities" to each other. As Obama puts it: "We are our brothers' keepers, and our sisters' keepers."

I thought this is a great comparison, and is exactly what I had hoped the democrats would say for a long time. The republicans often claim moral superiority over the democrats. But where is the morality to favor big businesses and refuse to raise the minimum wage for the low-income workers? (I believe in America, if you choose to work, you ought to be able to earn a living wage! That is the moral responsibility of the entire society to the less fortunate segment of our community). Where is the morality to oppose abortion while turn a blind eye to the deaths and destruction in some inner city America? The republican principles have so many contradictions to bordering hypocrisy.

Obama also talked about his belief in what the appropriate government's roles in our lives. Here again, republican believes are full of contradictions. It has become a cliche to the republicans that government does not work, and the less government regulation the better. Yet they want you all to vote for them so they can occupy the government positions to prove that government indeed does not work. The Bush Administration really proved that its government does not work: from the mis-management of the Iraq War, to No-Child-Left-Behind, to Hurricane Katrina fiasco.

If the republicans want the government out of our lives, why do they insist on regulating people's morality? I am a Christian, and I have a set of values that I believe will benefit everyone. But I can't impose my values to others, and let alone having the government to impose my values to everyone in the country. Yes, we disagree on many issues, but we should always seek common ground, not to be bogged down by our disagreements. That was what Obama preached last night. He touched on a few very controversial issues (abortion, gay marriage, and gun control) and illustrated where we may find common grounds.

Most importantly, unlike the republicans who cynically claim that government simply does not work (so they should outsource critical government functions to the private businesses run by their cronies), we democrats believe government plays a critical role in some of the functions of the society, as clearly laid out in the US constitution, such as providing common defense (not only defending foreign threats, but also environmental threats). Obama also gave other examples of where the government can make a difference: education, promoting scientific advancements and technological innovations. Unlike the cynical republicans, we democrats believe "yes we can". Yes, we can, under the right leadership! It was not the government that failed us. It was the lack of leadership in the past eight years that has failed us!

Obama also showed that he is a new breed of democrats, not exactly in the mold of traditional so called "liberals". He talked about "personal responsibilities", in the same breath of "mutual responsibilities". He wants to "cut wasteful government spending", not exactly the kind of "big government liberal" the republicans make out of him. I call this new brand of democrats "progressive". And I am so happy to see them becoming more prominent in the democratic leadership.

Go Obama!

Have the Beijing Games changed the West's view about China?

As the Beijing Olympic Games are approaching to the end, a lot of Chinese are wondering: has hosting the Games succeeded in changing the West's stereotypes about China?

I have been wondering the same question. what I found out seems to be very disappointing: the Beijing Olympics only served to reinforce the stereotypes about China.

Leading up to the Games, all Western media focused on one talking point: how China was preparing the Games as a propaganda tool to project a better image to the world. But what we Chinese are saying? We want the world to see the REAL China first hand. There have been too much distortion in the Western media about China. We were hoping the Olympic Games can help change that.

The opening ceremony was a big bang. Everyone I met told me it was spectacular, unprecedented, incredible, (add your own adjectives here). Initially I was very happy. I was proud. But after carefully examining, I sense these praises are not exactly what we are looking for. Yes, many people were awe-stricken by the 2008 drummers counting down to the opening of the Games. But I sense that awe was a little bit condescending. It is not the kind of awe when people watch the first man landed on the Moon. Nor the kind of awe that people have when they watch Usain Bolt dashing to the finishing line, leaving others in the dust. It is rather the kind of awe when people see thousands of ants transporting food, seemingly without any supervision, or when people see the bees dancing in front the bee hive, signaling where the flowers are. It is that kind of condescending awe most of the Westerners felt when they were watching those spectacular performances of the Opening Ceremony.

In their view, the Chinese are like machines, displaying absolute conformity and non-individuality. The group synchronized performances at the Opening Ceremony only help reinforce that view. To them, we are just like the ants, or the bees.

Then you may ask, what about all those gold silver and bronze medals. As of now, China has won 89 medals, second only to the US. Fifty of those medals are gold, far surpassing the US. Shouldn't we be proud? Shouldn't that change people's view about Chinese?

To westerners, Chinese are typically nerds who are good at math and sciences. Sports are the fun thing that the Chinese does not know much about. Even though Chinese athletes have won so many medals, that fact still does not change their view. They think Chinese athletes are just manufactured goods. They are not even human. They are the products of a nationally organized sports machine or factory. They believe: we western athletes play sports for fun, and the Chinese train for sports only to get gold medals. Chinese sports programs are just like factories that churn out athletes.

Back in 1996 when the Olympics were held in Atlanta Georgia, NBC ran a program that provided stories about the real life of the athletes. When it was about the American athletes, NBC showed how these men and women loved the sports and were having fun playing in the Olympics. But when it came to the Chinese athletes, the stories were often very sad. The Chinese athletes were picked by the government to be trained in sports camps. They left their families at very young age, and spent their childhood training for sports. To them, sports were not for fun. They were for winning gold medals to glorify the Chinese nation. So all the Chinese athletes were shown to be under tremendous pressure. What NBC implied in the program was obvious, the Chinese don't like sports. They just use sports to serve propaganda purposes.

So with this view, no matter how many medals the Chinese athletes win, it does not change a bit the stereotypes about China and Chinese.

So for those Chinese who pin too much hope that Olympics would help the world see the real China, wake up. It ain't gonna happen!

So stop worrying about what other people would think about you. Don't give a damn about their opinions. Let them say whatever they want to say. Let us just have some fun!

Let the Games continue!

Was Bruce Ivins a scapegoat for the FBI

If you still recall, back in 2001, there was an anthrax in the mail incidence that killed several people and hospitalized several others. In the past SEVEN years, the FBI was trying to find out who did it. First the FBI found a wrong person, Steven Hatfill, and ended up having to pay $5.8M to Hatfill to settle a lawsuit against the FBI by Hatfill.

Last week, only after the death of Bruce Ivins, a government bioterrorist research scientist, ruled as suicide, the FBI leaked to the media that Ivins was FBI's prime suspect for the 2001 anthrax case. I stress that the FBI leaked the information, because officially, the FBI did not say anything. Under intense public pressure, FBI started to provide more information about their investigation of Ivins. They claim that Ivins was a homocide maniac, according to Ivins' "psychotherapist".

But friends of Ivins vehemently defended Ivins as a smart, outgoing, and caring person. To the friends, it is utterly unbelievable that Ivins could be the person who sent out anthrax laced letters.

Now more and more evidence has emerged that the FBI may be just looking for another scapegoat to blame on. They have deliberately put pressure on the objects of their investigation, in an attempt to destroy them psychologically. Steven Hatfill was tough enough to endure the pressure and prevailed. But Bruce Ivins was less lucky.

This makes me wonder: is the FBI interested in finding the real criminal, or just looking for a scapegoat to cover the whole thing up? My suspicion is the latter. Then that begs the question: what does the FBI want to cover up? why the FBI may not want to find out the truth about the 2001 anthrax incidence?


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Housing bill to bail out the banks

Last week, the House democrats pushed to pass the "housing bill", aimed at providing financial "help" for the "distressed homeowners". The bill also provides guarantee for Fannie and Freddie's $5 trillion mortgage debt.

As I have mentioned before, there are two major problems that the nation is confronted with: subprime mortgage crisis, and runaway inflation fueled by rising prices of commodities. You might be amazed by the fixation of the politicians on the former one, and scant attention that they pay to the latter. You should not be surprised, because the first problem is the problem of the banks, and the second one is the problem of ordinary folks. Do you really expect politicians to care much about the problem of ordinary people?

While all the media circus is focusing on mortgage crisis, the mortgage delinquency rate (defined as 30 days payment overdue) for the first quarter of the year (latest data available) was only a little bit above 6%. The actual foreclosure rate is less than 1%. Vast majority of the homeowners are paying their bills on time. What the housing bill will do is to reward a tiny minority of those who engaged in irresponsible speculation on the housing market or bought homes they cannot afford, while punishing the vast majority of us who are financially responsible. The true objective of the housing bill is to bail out those banks that have engaged in reckless, fraudulent, or even predatory lending, and the investors who were gambling on the subprime housing market.

If the politicians truly want to help people and the nation's economy, they should do something about the inflation. The bloody fact about inflation is that, it is created by the government's excessive printing of money. As Milton Friedman has pointed out, inflation problem everywhere and every time is a monetary problem. When inflation occurs in Zimbabwe, Sudan, and many African countries, we all know that was caused by the government excessive printing of paper money. But when inflation occurs in US, why all of sudden we are at a loss about what has caused it?

The housing bill essentially will put the $50 trillion mortgage debt Fannie and Freddie owes, on the books of the Treasury department, virtually tripled the amount of debt US government owes. That will put further pressure on the value of US dollar, leading to even higher rate of inflation. If you think the gas price is high now, wait until the housing bill becomes law.

Politicians, democrats or republicans, are crooks. They are fed by big business interests, and do whatever it takes to advance those interests. Sad thing is that the public is so ignorant and gullible. I tell you, I really doubt the so-called 'democratic system". What good doe it to do to ordinary people? You might as well go back to the "benevolent authoritarian" system that China has.

I admit that I am confused.

America's twin financial woes and how to solve them

The current financial crisis in the USA boils down to two problems: subprime mortgage, and inflation. I have argued in my previous post that the more devastating one of the two is inflation. Subprime problem affects largely the Wall Street financial institutions, while inflation affects every single consumer, particularly those in the lower economic ladders.

To solve the financial crisis, we have to address these two problems. My argument is that: if we address the inflation problem first and head-on, other problems will be resolved easily as a result.

So how to solve the inflation problem? First we have to look at the root cause of inflation.

1) Inflation is caused by excessive printing of the dollar
As the great economist Milton Friedman stated: "inflations are always the result of increases in the supply of credit money: it is easy to print paper, and governments that have begun issuing paper money have always eventually fallen to the temptation of just printing and spending new money."

The root cause of inflation is the excessive money creation by the Federal Reserve. As the world's reserve currency, US dollar affects inflation not only in the US, but around the world.

2) Printing money was necessitated by increased government spending

Why did the Fed print so much money to begin with? To finance the run-away US government spending. After Bush took over the White House, he immediately reduced personal and corporate taxes across the board, fulfilling his campaign promise. Then the US entered two wars, against Afghanistan and Iraq. Government entitlement was also expanded during this period (Medicare prescription drug benefits for the seniors, or the Part D Program), plus all those pork barrel spending the congress likes to lavish on their own home states.

Now the common sense dictates that if you increase spending, you have to have the income to pay for it. Not in this case, because the government tax income was greatly reduced by tax cuts. Now what do you do? You print money, that is the only way out.

That is why US dollar has been steadily declining in value since 2001, which led to accelerating pace of inflation.

To stem the inflation, I have the following remedies. But I doubt any politician would have the courage to adopt them:
1) Pull out of Iraq
We went in for the wrong reason, we have to get out, before the war bankrupts USA. I am not suggesting pull-out immediately, but a measured and definitive time table of military draw-down seems to be the only way to get us out of there.
2) Increase taxes on the wealthy
The widening wealth gap in the US is alarming. In this time of war, some personal sacrifices are needed. The poor have sent their sons and daughters to Iraq. It is only fair that the rich need to pay their duties. We have to roll back the Bush tax give-aways to the wealthiest of the wealthy.
3) Adopt a long-term strategic energy policy to reduce reliance on fossil fuel
If it was not because of the oil, we would not have gone to the war with Iraq. That is undeniable truth. Let's not fake it. Imagine how much the US has to spend each year on military to protect the oil trade. The amount is staggering. We have to produce reliable source of renewable energy domestically (such as wind, solar, and bio-fuel). And we also have to conserve energy consumption. Currently the US is consuming 25% of the world's oil production, while the US population is only 4% of the world total.
4) The Federal Reserve has the reverse the excessive money printing process.
How can it do that? By raising the interest rate. I bet if the Fed starts to raise interest rate, US dollar will rise in value and commodities prices will start to fall. That will be a huge shot in the arm for consumer confidence and business confidence. Once confidence is restored, I think subprime problem will be eased as well. Part of the subprime issue is the lack of confidence of investors in the value of those mortgages. Restoring confidence will help the market to clear out all the liquidity excesses and mislocations.

Struggles of Asian Americans

The other day, my son was mimicking the accent of a Chinese lady working in his school cafeteria: " du yu wan a peessa? give me a dolla!" (do you want a piece of pizza? give me a dollar if you do).

I was very upset that he did that. I asked him why he would do that. He said his classmate taught him this and he felt it was funny. And my son is only 11.

This is not a funny matter. Asian Americans (and many other immigrants in America) who have an accent speaking English often feel that they are treated unfairly. Speaking with an accent gives people an impression that the person is poorly educated. Sometime ago, a close friend of mine told me that he could not get promotion or work at a position he felt well qualified, purely because of his accent. Our mouths may speak with an accent, but our brains do not think with an accent, I heard someone once declared.

The trouble is that not every type of accents are treated equally. European accents (particularly of west and north Europe) are treated favorably. On the other hand, Asian accents and Spanish accents do not receive the same favor.

When I was in Cornell many years ago, I read about an undergraduate Chinese American student expressing his feelings about his heritage in a Chinese email forum. He said he was often shamed of being with his parents, because of their accents.

The struggle of our first generation Asian immigrants is enormous. We are a very family-focused culture. We work hard and sacrifice personally, hoping to bring a better life for our next generation. We save a lot, and rarely care about our own outward appearance. We would be very willing to buy a $100 shirt for our children, but for ourselves, we buy the least expensive ones. We speak in accents. We have a lot of feelings, but find it difficult to express them because of the language hindrance.

We thought if we work hard to bring good lives for our children, they would appreciate us, and be grateful to us because of our love and sacrifices. But the sad thing is, we are losing our children. Our children don't feel proud of their parents, and their heritage and cultures. And we the parents, after so much personal sacrifice, are gradually losing the hearts and minds of our children.

You cannot blame our children for that. Our children can rarely find a role model, or a hero, that has Asian background, to look up to. What they can only see in the media make them so conscious about themselves, because the media are black and white dominated (used to be only white dominated).

I have an advice for all our struggling Asian parents: every summer break, bring your children to Asia. Let them witness first hand the vibrant culture there. Bring them to places and teach them the history about those places. Let them have a chance to see the culture programs of our native lands. I am hopeful our children will soon discover the beauty in our own cultures, find heroes in our history and people, and feel proud of being themselves.

Working hard is not enough. Saving lots of money for your family is not adequate. You need to care about the spiritual needs of your children.