Friday, August 31, 2007

Sudden Debt

I am adding a link to the blog Sudden Debt to the the Blogs I Read links on the right side of the page. The writer seems to have a good insight to the financial markets and I agree with his general idea stated on the top of his blog:

How Much Debt is There? Too Much. Way Too Much.

So check out his blog; I think you will find a lot of good information there.

Wednesday, August 29, 2007

John Edwards Proposes Regulation of Credit Cards

From Business Week:

As President, what would you do to help middle-class Americans reduce credit- card debt and help lower-income people avoid getting trapped by predatory credit-card lenders?

What we're going to do is restore balance in the credit-card market. I am proposing a Borrower's Security Act that would do the following: first, require credit-card companies to disclose the true cost of making only minimum payments, as many consumers do. Second, I would restore a 10-day grace period before imposing late fees and penalty rates. Third, apply interest-rate increases to future balances only. And fourth, end the practice of universal default, where a creditor can change a borrower's terms based on their debt payments to other creditors. We also need a new consumer protection commission, which I would call the Family Savings & Credit Commission, whose job it'll be to review all the financial services products that are being marketed to families and ensure that the terms are reasonable and fairly disclosed. [The commission would] oversee all types of financial institutions whether chartered under federal or state law.


The more John Edwards says, the more I like about his candidacy . . . and the closer I get to solidifying my support for him. He is the one candidate that seems to be really honing in on economic policies that are the most critical for the middle and lower classes. He may not have Hillary Clinton's money, and he may not have as much charisma as Barack Obama, but he is hitting every issue that I care about.

Read the entire interview for other bold proposals from John Edwards.

Credit Card Defaults Rising

I actually saw this on Calculated Risk yesterday, and now Barry Ritholtz is reporting it, too.

I think we are starting to see the signs of bad economic mojo on the horizon. Actually, we had signs of it before, but now it should start to become obvious to financial pundits.

I will wrote more about this later; but I still don't regret getting out of the bankruptcy practice. The new law's pitfalls combined with people who won't be able to pay will create problems for years to come.

Sunday, August 26, 2007

Bankruptcy Dichotomies

Elizabeth Warren has written about the dichotomy (i.e. hypocrisy) of protections for corporations and large debtors in bankruptcy with the protections (or lack thereof) for consumer debtors in the same situation in her post The Onion Plan.

Bankruptcy law is the final arbiter of debtor-creditor rights, but here's an interesting asymmetry in the law: If a corporation can no longer afford the mortgage on its factory, it has powerful tools to rewrite the mortgage in bankruptcy. But if a homeowner is in exactly the same trouble following an interest rate hike, those same tools are unavailable.

More details: A company that cannot pay its mortgage can declare Chapter 11 and do two things: 1) separate the mortgage into its secured and unsecured portions (called bifurcation), and 2) pay the secured portion at current market rates under a new mortgage and discharge the unsecured portion. So, for example, a $1.2 million mortgage at 12% on a factory worth only $1 million will be bifurcated into a $1 million secured mortgage at, say, 7% interest, and the remaining $.2 million can be discharged. The economic insight behind permitting this move is that the mortgage company will get 100% of the value of the property paid over time, which is a LOT better than the much lower amount it would get in foreclosure. The second insight is that this is precisely the risk the lender took: that the property would decline in value and the debtor couldn't pay. The Chapter 11 bankruptcy forces the lender to revalue the mortgage to the actual market value of the collateral.

But notice: If a homeowner can no longer afford her mortgage, the homeowner can declare bankruptcy and get rid of the credit card debt and doctor bills, but she cannot force the lender to write down the mortgage to the value of the home or to accept payments at the current market rate. All the homeowner gets is the right to make up past-due payments--in full, with interest. So, for example, a $120,000 mortgage at 12% on a home worth only $100,000 must be paid in full at 12%. In other words, homeowners get a lot less protection in bankruptcy than do businesses.


There are a lot of "asymmetries" in Chapter 11 bankruptcies and other chapters of the bankruptcy code. I have written about it before in regards to "retention bonuses" paid to corporate executives immediately before bankruptcy and consumer debtors who attempt to give assets to their relatives within a year of filing bankruptcy. These are but two examples of how the bankruptcy code works for the benefit of the wealthy in inconsistent ways to the detriment of the poor and middle-class. It shows in a glaring way why we need to change government regulation to bring more consistentcy and equality in the law's treatment of persons with disparities in income and wealth. In theory, that is always supposed to be true for persons who come before the Court. Obviously it's not.

Waste, Fraud and Abuse In Iraq, Oh My!

From Talking Points Memo:

We've all heard the expression "no good deed goes unpunished," but this is ridiculous.

One after another, the men and women who have stepped forward to report corruption in the massive effort to rebuild Iraq have been vilified, fired and demoted. Or worse.

For daring to report illegal arms sales, Navy veteran Donald Vance says he was imprisoned by the American military in a security compound outside Baghdad and subjected to harsh interrogation methods.

There were times, huddled on the floor in solitary confinement with that head-banging music blaring dawn to dusk and interrogators yelling the same questions over and over, that Vance began to wish he had just kept his mouth shut.

He had thought he was doing a good and noble thing when he started telling the FBI about the guns and the land mines and the rocket-launchers — all of them being sold for cash, no receipts necessary, he said. He told a federal agent the buyers were Iraqi insurgents, American soldiers, State Department workers, and Iraqi embassy and ministry employees.

The seller, he claimed, was the Iraqi-owned company he worked for, Shield Group Security Co. "It was a Wal-Mart for guns," he says. "It was all illegal and everyone knew it."

So Vance says he blew the whistle, supplying photos and documents and other intelligence to an FBI agent in his hometown of Chicago because he didn't know whom to trust in Iraq.

For his trouble, he says, he got 97 days in Camp Cropper, an American military prison outside Baghdad that once held Saddam Hussein, and he was classified a security detainee.


Why has waste, fraud, abuse, and corruption flourished over the last several years in Iraq? This might have something to do with it.

Of particular interest, the AP noted that whistleblowers are offered an avenue under the federal False Claims Act to file what's called a "qui tam" lawsuit, which allows private citizens to sue on the government's behalf. (The policy was developed under Lincoln to help root out corrupt contractors selling defective products to the Union Army.)

The Justice Department has the option of signing onto these lawsuits, 12 of which have been filed dealing with alleged Iraq reconstruction abuse since 2004. To date, how many qui tam suits have the Bush administration endorsed? Zero.


A little more on qui tam:

The full phrase qui tam pro domino rege quam pro se ipso in hoc parte sequitur, means “he who sues for the king sues for himself."

More information can be found on qui tam lawsuits at Answers.com. Of particular note, there's this:

The False Claims Act provides incentive to relators by granting them between 15% and 30% of any award or settlement amount. In addition, the statute provides an award of the relator's attorney's fees, making qui tam actions a popular topic for the plaintiff's bar. Indeed, a private [natural] person may not be able to commence a qui tam action "pro se" -- that is, without representation by a lawyer -- since the private person is actually representing/filing the suit on behalf of the government and that may only be done by a lawyer.

Once a relator brings suit on behalf of the government, a U.S. Attorney for the district in which the suit was filed has the option to take over the case. If he or she does so, the government will usually notify the company or person being sued that a claim has been filed. Qui tam actions are filed under seal, which has to be partially lifted by the court to allow this type of disclosure. The seal prohibits the defendant from disclosing even the mere existence of the case to anyone, including its shareholders (a fact which may cause conflicts with the defendant's obligation under Securities & Exchange Commission or stock exchange regulations that require it to disclose lawsuits that could materially affect stock prices). The government may then, without disclosing the identity of the plaintiff or any of the facts, begin taking discovery from the defendant.

If the government does not decide to participate in a qui tam action, the relator may proceed on his or her own, though such cases classically have a much lower success rate. Conventional wisdom states that this is due in part to the fact that the government will get involved in what it believes are winning cases, but will avoid losing cases.

Or, I suppose, if you don't want even greater corruption exposed.

Saturday, August 25, 2007

Sunday Music: Riding the Storm Out

While there may not be any hurricanes in the Gulf right now, I think there is a coming economic storm about to hit America. I am hoping by working here I will be able to Ride the Storm Out. So here is some music to set the mood.

REO Speedwagon -- Riding the Storm Out

Organically Speaking

I discovered an organic grocery store here. If there was one in Oklahoma City, it was nowhere near where I lived.

I don't know that, as a whole, people are better off eating organic foods. The research on it is mixed. But with the large variation in our DNA, I am sure that there are some people who benefit from it. I have decided to try it out.

I have read studies that link poverty with bad health due to a bad diet; and some attribute it to federal policies toward food production.

Why do low-income people tend to exhibit more diet-related health problems? Adam Drewnowski, professor of epidemiology at the University of Washington, posits a simple answer: people are gaining weight and getting sick because unhealthy food is cheaper than healthy food -- thanks in large part to federal policies.

...

According to Drewnowski and his student Pablo Monsivais, cheap and abundant additives such as HFCS allow manufacturers to sweeten food liberally without adding much to their production costs. For people on a tight budget, these additives can also make cheap food the most efficient way to get calories.

To illustrate his point, Drewnowski distinguishes between "energy-dense" and "nutrient-dense" foods. For energy-dense, think of a package of Ding Dongs -- 360 calories, 19 grams of fat, and a liberal dose of high-fructose corn syrup. For nutrient-dense, think of a three-ounce chunk of wild salmon, delivering high-quality protein and essential fatty acids, among other nutrients, in a 185-calorie package. The former will run you about a buck at any convenience store, bodega, or supermarket in the country. For the latter, prepare to sidle up to a pristine Whole Foods fish counter and shell out about $5.

From a short-term economic viewpoint, the Ding Dongs present a better deal: 360 calories per dollar, and no need for the time or skill to cook. "If you're on a limited income trying to feed a family, in a sense you're behaving rationally by choosing heavily sweetened and fat-laden foods," Drewnowski says.

The price gap between these two categories is growing. Drewnowski and Monsivais show that the overall cost of food consumed at home, when adjusted for inflation, has been essentially unchanged since 1980. But over the same time, the price of soft drinks plunged 30 percent, and the price of candy and other sweets fell 20 percent. Meanwhile, the price of fresh fruits and vegetables rose 50 percent.

"Energy-dense foods ... are the cheapest option for the consumer," Drewnowski says. "As long as the healthier lean meats, fish, and fresh produce are more expensive, obesity will continue to be a problem for the working poor."


Organic foods are definitely more expensive, but I am going to start trying them to see if it has any long-term health benefits.

Bad Credit Threatening U.S. Economy

From Business Week:


Bad credit has supplanted terrorism as the gravest immediate risk threatening the economy, a key national research group reported Monday.

Borrowers' withering ability to pay their bills and the subsequent fallout in the credit markets this summer topped the list of short-term risks on peoples' minds, according to a survey of 258 members conducted by the National Association of Business Economics.

NABE, a Washington-based association, said 32 percent of its surveyed members cited loan defaults and excessive debt as their biggest near-term concern.

Only 20 percent of members cited defense and terrorism as their biggest immediate worry, down from 35 percent when the survey was last conducted in March. Credit risk also topped gas prices, inflation and government spending.


My fellow bankruptcy attorneys are telling me that things are really heating up back home in the bankruptcy practice. I believe it. I no longer advertise in the phone book and I am starting to get 4-5 calls per week now. I have to tell people who call that I am no longer actively practicing law. But I have no regrets. My new job is not near as stressful as my life in the private practice of law. Soon I won't be taking phone calls at all as I will be getting a phone number that will take messages and I will get them in the evening after work.

If you are a former client and you find this page and you need to reach me, you will still be able to get my phone number from the Oklahoma Bar Association. The phone number for the OBA is on the very bottom of the page on the left.

Connectivity

The reason I have not been posting has a lot more to do with the fact that I have not been able to get an internet connection where I am staying than any other factor. I can get a good connection quite regularly at work, but I usually only have enough time before work to read my e-mail and catch up on a little news. The place where I am staying is working on getting a new ISP with a larger capacity and a faster, more reliable connection.

Soon I hope to be back to my regularly scheduled punditry.

Okie Blogger Awards Now Taking Nominations

The nominations for the 2007 Okie Blog Awards are now open. You must be an Okie Blogger to participate. You may only make nominations if you are an Okie Blogger yourself.

Here is the Nominations page. Nominations must be e-mailed to Okiedoke at obawards07@okiedoke.com.

Tuesday, August 21, 2007

V.I.F. ("Very Important Flunky")

Last Friday, someone asked me a question. It didn't matter what the question was, I just gave my standard answer: "I don't know; I'm just a flunky." Ms. Jean was standing nearby. Having overheard what I said, she replied: "Yes, but you're a Very Important Flunky." Ms. Jean, a.k.a. the Nicest Lady in the Office™, always knows how to cheer you up.

Marty, a.k.a. the Nicest Guy in the Office™, always gets the office started on a good note in the morning. Marty and I sometimes talk about investing (he knows a lot more than I about the stock market). And I am finding new information to look at (and I have given him some of mine, too).

I am adjusting to life in the office environment. I'll update you more when I have time.

I am living on the western edge of Cajun country. That in itself adds new flavor to my experiences.

Tuesday, August 14, 2007

Crazy From the Heat

I have not had any internet access at home, so I am blogging from my workplace.

I went down to the Gulf of Mexico and swam for 4 hours. The beach is only 30 minutes away, I discovered. When I came back, the air conditioning in my RV had failed. The ambient temperature has been 99 degrees Fahrenheit during the day, with the heat index at 110. So I had to spend the weekend in the heat. I think I might have lost some water weight from all the sweating. Don't worry, I'll gain it all back; I always do.

My job seems to be starting out well. Business activity is booming here along the coast. Besides the project we are working on, there are many oil refineries being built and there are several road construction crews out doing work upgrading the highways here.

If you are looking for work, you might want to look into getting a job with the oil industry. Everything it touches seems to turn to gold here.

Now if I could just get my internet up and running at home.

Wednesday, August 08, 2007

What's Wrong With America and What Will You Do About It?



I like the question asked and the answer given. We must answer this question to determine who we are as a people. It is central to our value system as a country.

Tuesday, August 07, 2007

The Dangers of Retirement Hedge Funds

This is what an editorial in the New York Times entitled Pensions and the Mortgage Mess had to say about risky mortgages being added to pension funds today:

Even as the plunge continues in investments tied to dicey mortgages, government regulators remain skeptical of the need for new rules to cover these newfangled derivative products or the hedge funds that tend to buy them.

The Federal Reserve chairman, Ben Bernanke, rightly argues that these are important instruments, making credit more available and allowing risk to be spread broadly. But as the casualties mount to more than just a few buckled hedge funds, it is important to address the downsides.

There is a real danger that the casualties to come will include a more vulnerable set of investors: the pension plans of working Americans. Mr. Bernanke recently told Congress, “In most cases, I think that pension funds should probably not, you know, go heavily into these types of instruments.”

But faced with growing numbers of retirees, some pensions — including those for police and firefighters in Ohio and Dallas — have been unable to resist making these risky investments in an attempt to increase their returns. Public and private pension funds have also plowed tens of billions into hedge funds, which have been piling into mortgage-related securities.

Many pension plans lack the analytical skills needed to evaluate these investments, relying on outside advisers and rating agencies. But the stellar triple-A rating assigned to many of these bonds proved to be misleading — with the agencies now rushing to downgrade them.

So far there have been no reports of pension plans in trouble because of the mess in the mortgage market, but we fear that it might only be a matter of time. The fact that pension plans are insured — private plans by the Pension Benefits Guaranty Corporation, a federal agency; state and municipal plans by taxpayers — makes the case for enhanced regulation even stronger.

Protecting pensioners from bad investments will not be easy. A good place to start would be to make rating agencies more accountable, perhaps by asking regulators to monitor their quality. Pension law should also be changed to ensure that the premium that private pensions pay into the P.B.G.C. takes into account the risk of their investments.

What is crucial is to ensure that pension managers perform adequate due diligence to understand what it is that they are buying. Regulators must make sure of that.


Given what we have seen happen to the working class' retirement funds through corporate bankruptcy and schemes like this, I am not yet convinced that expanding Social Security into a full pension plan for the elderly isn't a better, more secure way to go. Can we really trust private entities with pension funds anymore? In any case, even if my idea is not adopted, premiums paid the the PBGC reflecting the risk of pensions failing due to riskiness of their investment portfolio would be a good start.

Monday, August 06, 2007

Retro vs. Metro

Prior to the last election cycle, a website that sought to explain the division in American electoral politics cropped up.


Retro America’s commonalities are religiosity; social conservatism; an economic base of extraction industries, agriculture, nondurable goods manufacturing, military installations; and a commitment to the Republican Party.

Metro American states are loosely held together by common interests in promoting economic modernity and by shared cultural values marked by religious moderation; vibrant popular cultures; a tolerance of differences of class, ethnicity, tastes, and sexual orientation; and a tendency to vote Democratic.


In a great macro sense, it explains a lot. But even in Retro America, things are starting to change. Voting patterns based on old "extraction" industries are not as strong as they once were. The advent of the internet has made even people in rural America aware of the need for their children to have a better education and understanding of the world around them. And many people from rural areas are not as keen on the war in Iraq as they once were. The reality of the loss of loved ones in a foreign land with no perception of greater security for the country is eroding their faith in the President who says it's necessary to stop terrorism.

The economic hardships brought on by massive debts -- from medical debts to mortgages -- are breaking down the commitment to conservative free market political alliances.

Certainly these people are not becoming "Metro" in their worldview. They still have their traditional values; but there is also a realization that their children have to eat. With their relatively low incomes getting eaten away by real inflation and debt, more and more Retro voters are starting to question the wisdom of continuing to vote with a political party that supports narrow wealthy interests -- especially when it is against their own interests.

Traditionally, the conventional wisdom says that people vote their pocketbook. Does this explain why Metro political groups seem to be gaining strength? It also seems to be true that progressive faith-based organizations seem to be winning the war of ideas within the politically active faithful.

All in all, the Retro vs. Metro explanation of American political voting patterns is not as strong as it once was.

Saturday, August 04, 2007

Daisy Update

Daisy apparently found a good home where she is happy. A grandmother whose dog just died took her in. She has 5 acres of land with a creek running down the middle of it. Daisy found the creek and followed it until she came upon some horses. I was told she liked playing with them. The lady owner used to work for a vet, too.

It looks like she found a good home.

Popcorn Showers

Everyday here along the coast of south Texas they have what are called "popcorn showers." The clouds build up throughout the day and then it rains hard for about 10 minutes in the afternoon. Then the clouds dissipate and it gets sunny again.

It is an interesting phenomenon.

Friday, August 03, 2007

I Have Arrived

I actually arrived at 12:15am on Wednesday, but I didn't get internet access until tonight.

So far, I am quite pleased with my job. I am working on a project that will use carbon dioxide that would normally be a waste product from petroleum exploration (and is believed to contribute to global warming) to help extract more oil from the ground. See this page for more information about it. It is being advertised as a kind of "green" solution to oil exploration.

We are extremely busy with our project. Beaumont, Texas is a nice town. It's small enough that you don't have traffic jams at 5:00, but it's large enough that you have access to major shopping centers that you would expect in a large town.

If you need to see major sporting events or shows, Houston is only a little more than an hour away.

I am slowly settling in. After the initial shock of moving, I am quickly discovering that things are pretty good here. The weather is a little hot and muggy, but it isn't anything a little air conditioning can't fix. Besides, the ocean is not too far away, either. That's a premium when you are from a landlocked state.

Another difference in the weather is that the biggest threat is hurricanes rather than tornadoes. I was told with hurricanes you get days of warning rather than minutes.

The people I have met have been friendly for the most part; and I am already starting to think that some of my observations in Oklahoma may have been somewhat myopic. On the other hand, I think I may be living in a kind of oasis given what happened on the stock market today (and reading Charles Smith's predictions today at Of Two Minds).

I don't know how long this will last, but I intend to enjoy it while I can.