FYI

I almost bought this little thing (way closer than I let on). Sooo,
should I? Hmmmm. Thoughts?

A Fine Mess

This article was posted at www.WSJ.com. It was sent to me and I thought it would be great for some of you who wanted to try and understand the nice little financial mess America is in right now.

The financial crisis that began 13 months ago has entered a new, far more serious phase.

Lingering hopes that the damage could be contained to a handful of financial institutions that made bad bets on mortgages have evaporated. New fault lines are emerging beyond the original problem -- troubled subprime mortgages -- in areas like credit-default swaps, the credit insurance contracts sold by American International Group Inc. and others firms. There's also a growing sense of wariness about the health of trading partners.

The consequences for companies and chief executives who tarry -- hoping for better times in which to raise capital, sell assets or acknowledge losses -- are now clear and brutal, as falling share prices and fearful lenders send troubled companies into ever-deeper holes. This weekend, such a realization led John Thain to sell the century-old Merrill Lynch & Co. to Bank of America Corp. Each episode seems to bring intervention by the government that is more extensive and expensive than the previous one, and carries greater risk of unintended consequences.

Expectations for a quick end to the crisis are fading fast. "I think it's going to last a lot longer than perhaps we would have anticipated," Anne Mulcahy, chief executive of Xerox Corp., said Wednesday.

"This has been the worst financial crisis since the Great Depression. There is no question about it," said Mark Gertler, a New York University economist who worked with fellow academic Ben Bernanke, now the Federal Reserve chairman, to explain how financial turmoil can infect the overall economy. "But at the same time we have the policy mechanisms in place fighting it, which is something we didn't have during the Great Depression."

Spreading Disease
The U.S. financial system resembles a patient in intensive care. The body is trying to fight off a disease that is spreading, and as it does so, the body convulses, settles for a time and then convulses again. The illness seems to be overwhelming the self-healing tendencies of markets. The doctors in charge are resorting to ever-more invasive treatment, and are now experimenting with remedies that have never before been applied. Fed Chairman Bernanke and Treasury Secretary Henry Paulson, walking into a hastily arranged meeting with congressional leaders Tuesday night to brief them on the government's unprecedented rescue of AIG, looked like exhausted surgeons delivering grim news to the family.

Fed and Treasury officials have identified the disease. It's called deleveraging, or the unwinding of debt. During the credit boom, financial institutions and American households took on too much debt. Between 2002 and 2006, household borrowing grew at an average annual rate of 11%, far outpacing overall economic growth. Borrowing by financial institutions grew by a 10% annualized rate. Now many of those borrowers can't pay back the loans, a problem that is exacerbated by the collapse in housing prices. They need to reduce their dependence on borrowed money, a painful and drawn-out process that can choke off credit and economic growth.

At least three things need to happen to bring the deleveraging process to an end, and they're hard to do at once. Financial institutions and others need to fess up to their mistakes by selling or writing down the value of distressed assets they bought with borrowed money. They need to pay off debt. Finally, they need to rebuild their capital cushions, which have been eroded by losses on those distressed assets.

But many of the distressed assets are hard to value and there are few if any buyers. Deleveraging also feeds on itself in a way that can create a downward spiral: Trying to sell assets pushes down the assets' prices, which makes them harder to sell and leads firms to try to sell more assets. That, in turn, suppresses these firms' share prices and makes it harder for them to sell new shares to raise capital. Mr. Bernanke, as an academic, dubbed this self-feeding loop a "financial accelerator."

"Many of the CEO types weren't willing...to take these losses, and say, 'I accept the fact that I'm selling these way below fundamental value,'" says Anil Kashyap, a University of Chicago Business School economics professor. "The ones that had the biggest exposure, they've all died."

Borrowing Slowdown
Deleveraging started with securities tied to subprime mortgages, where defaults started rising rapidly in 2006. But the deleveraging process has now spread well beyond, to commercial real estate and auto loans to the short-term commitments on which investment banks rely to fund themselves. In the first quarter, financial-sector borrowing slowed to a 5.1% growth rate, about half of the average from 2002 to 2007. Household borrowing has slowed even more, to a 3.5% pace.

Goldman Sachs Group Inc. economist Jan Hatzius estimates that in the past year, financial institutions around the world have already written down $408 billion worth of assets and raised $367 billion worth of capital.

But that doesn't appear to be enough. Every time financial firms and investors suggest that they've written assets down enough and raised enough new capital, a new wave of selling triggers a reevaluation, propelling the crisis into new territory. Residential mortgage losses alone could hit $636 billion by 2012, Goldman estimates, triggering widespread retrenchment in bank lending. That could shave 1.8 percentage points a year off economic growth in 2008 and 2009 -- the equivalent of $250 billion in lost goods and services each year.

"This is a deleveraging like nothing we've ever seen before," said Robert Glauber, now a professor of Harvard's government and law schools who came to the Washington in 1989 to help organize the savings and loan cleanup of the early 1990s. "The S&L losses to the government were small compared to this."

Hedge funds could be among the next problem areas. Many rely on borrowed money to amplify their returns. With banks under pressure, many hedge funds are less able to borrow this money now, pressuring returns. Meanwhile, there are growing indications that fewer investors are shifting into hedge funds while others are pulling out. Fund investors are dealing with their own problems: Many have taken out loans to make their investments and are finding it more difficult now to borrow.

That all makes it likely that more hedge funds will shutter in the months ahead, forcing them to sell their investments, further weighing on the market.

History of Trauma
Debt-driven financial traumas have a long history, from the Great Depression to the S&L crisis to the Asian financial crisis of the late 1990s. Neither economists nor policymakers has easy solutions. Cutting interest rates and writing stimulus checks to families can help -- and may have prevented or delayed a deep recession. But, at least in this instance, they don't suffice.

In such circumstances, governments almost invariably experiment with solutions with varying degrees of success. Franklin Delano Roosevelt unleashed an alphabet soup of new agencies and a host of new regulations in the aftermath of the market crash of 1929. In the 1990s, Japan embarked on a decade of often-wasteful government spending to counter the aftereffects of a bursting bubble. President George H.W. Bush and Congress created the Resolution Trust Corp. to take and sell the assets of failed thrifts. Hong Kong's free-market government went on a massive stock-buying spree in 1998, buying up shares of every company listed in the benchmark Hang Seng index. It ended up packaging them into an exchange-traded fund and making money.

Today, Mr. Bernanke is taking out his playbook, said NYU economist Mr. Gertler, "and rewriting it as we go."

Merrill Lynch & Co.'s emergency sale to Bank of America Corp. last weekend was an example of the perniciousness and unpredictability of deleveraging. In the past year, Merrill has hired a new chief executive, written off $41.4 billion in assets and raised $21 billion in equity capital.

But Merrill couldn't keep up. The more it raised, the more it was forced to write off. When Merrill CEO John Thain attended a meeting with the New York Fed and other Wall Street executives last week, he saw that Merrill was the next most vulnerable brokerage firm. "We watched Bear and Lehman. We knew we could be next," said one Merrill executive. Fearful that its lenders would shut the firm off, he sold to Bank of America.

This crisis is complicated by innovative financial instruments that Wall Street created and distributed. They're making it harder for officials and Wall Street executives to know where the next set of risks is hiding and also contributing to the crisis's spreading impact.

Swaps Game
The latest trouble spot is an area called credit-default swaps, which are private contracts that let firms trade bets on whether a borrower is going to default. When a default occurs, one party pays off the other. The value of the swaps rise and fall as market reassesses the risk that a company won't be able to honor its obligations. Firms use these instruments both as insurance -- to hedge their exposures to risk -- and to wager on the health of other companies. There are now credit-default swaps on more than $62 trillion in debt, up from about $144 billion a decade ago.

One of the big new players in the swaps game was AIG, the world's largest insurer and a major seller of credit-default swaps to financial institutions and companies. When the credit markets were booming, many firms bought these instruments from AIG, believing the insurance giant's strong credit ratings and large balance sheet could provide a shield against bond and loan defaults. AIG believed the risk of default was low on many securities it insured.

As of June 30, an AIG unit had written credit-default swaps on more than $446 billion in credit assets, including mortgage securities, corporate loans and complex structured products. Last year, when rising subprime-mortgage delinquencies damaged the value of many securities AIG had insured, the firm was forced to book large write-downs on its derivative positions. That spooked investors, who reacted by dumping its shares, making it harder for AIG to raise the capital it increasingly needed.

Credit default swaps "didn't cause the problem, but they certainly exacerbated the financial crisis," says Leslie Rahl, president of Capital Market Risk Advisors, a consulting firm in New York. The sheer volumes of outstanding CDS contracts -- and the fact that they trade directly between institutions, without centralized clearing -- intertwined the fates of many large banks and brokerages.

Few financial crises have been sorted out in modern times without massive government intervention. Increasingly, officials are coming to the conclusion that even more might be needed. A big problem: The Fed can and has provided short-term money to sound, but struggling, institutions that are out of favor. It can, and has, reduced the interest rates it influences to attempt to reduce borrowing costs through the economy and encourage investment and spending.

But it is ill-equipped to provide the capital that financial institutions now desperately need to shore up their finances and expand lending.

Resolution Trust Scenario
In normal times, capital-starved companies usually can raise money on their own. In the current crisis, a number of big Wall Street firms, including Citigroup, have turned to sovereign wealth funds, the government-controlled pools of money.

But both on Wall Street and in Washington, there is increasing expectation that U.S. taxpayers will either take the bad assets off the hands of financial institutions so they can raise capital, or put taxpayer capital into the companies, as the Treasury has agreed to do with mortgage giants Fannie Mae and Freddie Mac.

One proposal was raised by Barney Frank, the Massachusetts Democrat who chairs the House Financial Services Committee. Rep. Frank is looking at whether to create an analog to the Resolution Trust Corp., which took assets from failed banks and thrifts and found buyers over several years.

"When you have a big loss in the marketplace, there are only three people that can take the loss -- the bondholders, the shareholders and the government," said William Seidman, who led the RTC from 1989 to 1991. "That's the dance we're seeing right now. Are we going to shove this loss into the hands of the taxpayers?"

The RTC seemed controversial and ambitious at the time. Any analog today would be even more complex. The RTC dispensed mostly of commercial real estate. Today's troubled assets are complex debt securities -- many of which include pieces of other instruments, which in turn include pieces of others, many steps removed from the actual mortgages or consumer loans on which they are based. Unraveling these strands will be tedious and getting at the underlying collateral, difficult.

In the early stages of this crisis, regulators saw that their rules didn't fit the rapidly changing financial system they were asked to oversee. Investment banks, at the core of the crisis, weren't as closely monitored by the Securities and Exchange Commission as commercial banks were by their regulators.

The government has a system to close failed banks, created after the Great Depression in part to avoid sudden runs by depositors. Now, runs happen in spheres regulators may not fully understand, such as the repurchase agreement, or repo, market, in which investment banks fund their day-to-day operations. And regulators have no process for handling the failure of an investment bank like Lehman Brothers Holdings Inc. Insurers like AIG aren't even federally regulated.

Regulators have all but promised that more banks will fail in the coming months. The Federal Deposit Insurance Corp. is drawing up a plan to raise the premiums it charges banks so that it can rebuild the fund it uses to back deposits. Examiners are tightening their leash on banks across the country.

Pleasant Mystery
One pleasant mystery is why the crisis hasn't hit the economy harder -- at least so far. "This financial crisis hasn't yet translated into fewer...companies starting up, less research and development, less marketing," Ivan Seidenberg, chief executive of Verizon Communications, said Wednesday. "We haven't seen that yet. I'm sure every company is keeping their eyes on it."

At 6.1%, the unemployment rate remains well below the peak of 7.8% in 1992, amid the S&L crisis.

In part, that's because government has reacted aggressively. The Fed's classic mistake that led to the Great Depression was that it tightened monetary policy when it should have eased. Mr. Bernanke didn't repeat that error. And Congress moved more swiftly to approve fiscal stimulus than most Washington veterans thought possible.

In part, the broader economy has held mostly steady because exports have been so strong at just the right moment, a reminder of the global economy's importance to the U.S. And in part, it's because the U.S. economy is demonstrating impressive resilience, as information technology allows executives to react more quickly to emerging problems and -- to the discomfort of workers -- companies are quicker to adjust wages, hiring and work hours when the economy softens.

But the risk remains that Wall Street's woes will spread to Main Street, as credit tightens for consumers and business. Already, U.S. auto makers have been forced to tighten the terms on their leasing programs, or abandon writing leases themselves altogether, because of problems in their finance units. Goldman Sachs economists' optimistic scenario is a couple years of mild recession or painfully slow economy growth.

Here's my thoughts on this (done in all of 30 seconds of thinking):

1) Everyone shouldn’t have a house (that sounds funny and yes I realize it's bad grammer. What else is new. Haha). Some people can’t handle it. The fact the banks loaned out money to almost anyone and loaned out far too much money based on their salary pains me. I remember when I got the amount I was approved for to buy my house I almost died. It was an insane amount.

2) It is absolutely ridiculous that banks were making billions and billions on mortgages for 6 to 8 years and have zero assets today to back that risk. I might buy it if the banks only made money for one year and then it crashed, but where did all that money go?

3) It is insane that you can just default on your house and consider it rent paid. I get bankruptcy if you start your own business, but its far too easy for the American to just say ‘eh, I’m not paying it anymore’. My plan, when I become President, would be to hold people liable for their decision to buy a house. Let’s say you have a house that you owe 150G on. You default on it. The bank then sells it via auction for 80. The bank takes a 70 grand loss (they should do better knowing who they give loand too) and you also have a 70 grand debt. That debt can be put in forbearance for a long long time, but the second you report X income on your taxes the government should then start to garnish wages. It should not just go away and leave the person with just bad credit as 'punishment'.

okay...I'm going to stop now before someone gets mad at me.

Vegas Facts

I'm headed to Vegas for a little fun, gambling and sun (it's in the mid 90s out there!). I thought I'd throw up some Vegas facts in celebration of my trip.

Seventeen of the 20 biggest hotels in the U.S. are in Las Vegas.


Over 39.2 million people visit Las Vegas each year.


Camels were used as pack animals in Nevada as late as 1870.


Howard Hughes stayed at the Desert Inn for so long that he was asked to leave. He bought the hotel.


Vegas Vic, the enormous neon cowboy that towers over Fremont Street, is the world's largest mechanical neon sign.


In Nevada it is mandatory that video slot machines pay a minimum of 75 percent on average.


Bugsy Siegel named his casino the Flamingo after the long legs of his showgirl girlfriend.


When Paul Anka first played Vegas he was too young to be allowed in the casino.

Texts!

HA! We did it! I know all of you read my blog on text messages and stormed right up to your cell phone providers to complain. And then, when they ignored you, you went to Congress! Well done!

(Okay, maybe not, but the below is pretty good news...)

http://www.walletpop.com/blog/2008/09/11/congress-demands-to-know-why-text-message-prices-have-skyrockete/

Things We'll See Before We Die

Here's the list of things I think will happen before we die. Yes, some of these are far out and a complete guess, but I really do think they will be true. To be honest, I'm sure someone has already called each and every single one of these, but I thought it would be fun to type them out.

Media:
- TV = Computer, Computer = TV

- "Cable" is 100% on demand, meaning if you want to watch The Simpsons you click a button and watch The Simpsons instantly

- "Albums" will be a thing of the past. Artists will release one song at a time perhaps month to month. As long at the artist is popular he or she will continue to release songs at a rapid rate. These songs, of course, will be downloaded instantly to your phone/ipod/iphone/etc.

Healthcare:
- Your doctor will be replaced by a machine that scans your body and tells you everything that is wrong with you. If your heart is bad, you'll be able to grow a new one via stem cells. (this will be more viable for those who are just now born and have "Cord Blood" or something as such stored)

- Those issues with health that can't be cured will controlled via drugs. These drugs will not cure the disease, but will sustain a great quality of life for the person for a very long time.

- People will live 25-50% more time than they do now on average. I fully expect to hear someone hits 150 years old but the average age will jump well over the aveage lifespan that is currently in place at a very rapid rate.

Work:
- Your home office will be your office. You will be seemlessly connected to everyone you need to be connected to via your home office and the computer.

- You'll be contracted by your productivity and the difficulty of the task at hand, ending "salaries" as we know them. This is because in the future it will be very easy for an enterprise to track each and every action you take in your home office.

- Competition will be brutal. No longer will experience matter for much due to the ability to instantly learn anything by a simple query of information via the internet. Those who become "stale" and comfortable in their positions will be passed up quickly by those who are aggresive and adaptive to the world.

Environment:
- Gasoline will be a thing of the past.

- The sun and wind will be our primary energy sources.

- Recycling will be done by a machine in our kitchen for every single piece of garbage we have. The "garbage men" will become "recycle men". They will simply pick up the converted and collated garbage to bring back into the production cycle of each product.

- Actually driving or steering a car will end. You'll add a location to your car and it will take you there via the electronic roadmaps built into the road. Accidents will drop dramatically or, perhaps even be eliminated.

Society:

- The term "private" will become sononomous with "not trustworthy" by all accounts. People will expect to be able to google your name and find a fun blog, digital pictures of your vacation, and an open willingness to join the social network of your choice. This will be especially apparent in the work world where employees expect the big CEO to be "normal" and define that by their openness.

- "Home phones" will be obsolete but you will be more "connected" than ever via your cell phone. The cell phone will no longer be called a "cell phone". It will be called a "connection pod" or something of the sort due to its ability to trade text, pictures, music, and video at the same rate and ease that voice currently travels on cell phones.

- The divorce rate will sky rocket due to the consistant temptations delivered via the media venues we have.

- There will be a woman president, but she will carry the feminimity of a "soccer mom" and the charm of Ingrid Bergman in Casablanca. She will be know as one of the greatest presidents of all time.

Anything more to add? Please do in the commments section!

Big Ben Roethlisberger Vs Elisha Eli Manning

I think Big Ben is one of the top 6 QBs in the NFL. It seems like a no brainer. However, my friends and I have had an on going battle for years about just that. In fact, my one friend ranked Ben as number 16 in the NFL overall. That's just absolutely ridiculous, therefore I won't even approach that. However, the other argument is specific to who is a better QB; Big Ben Roethlisberger or Elisha Eli Manning. Obviously, as a Steeler fan, I'm going to say Big Ben. Alas, I thought it would be fun to break down the numbers and see what the facts say.

First, let's just take a look at the raw numbers.



So, to review, Ben has a better Average AY/A, better Average Completion %, Less INTs, More TDs, better Average TD %, better Average Y/A, better Average Y/C, better Average Y/G, and more yards. Eli, well, Eli has more attempts. 6 more per game. If you think about it, that number is reflective of the completion percentage but we'll give him that one. If you're keeping score, that's 9 positive marks for Ben and 1 for Eli.

Let's summarize their career numbers just to be sure:



Should I stop now?? The answer to the question, "who is better?" is pretty clear. Heck, the numbers aren't even close.

Alas some naysayers will say Ben had more "help" because the Steelers have a great running game. So let's quickly look at that:

Past Three Years Giants Running Game: 6513 Yards
Past Three Years Steelers Running Game: 6383 Yards.

So much for that theory, my friends.

Oh, but wait, Eli was MVP of the Superbowl (cough...Dexter Jackson...cough...Mark Rypien...cough)! Okay, let's look at overall playoff numbers:



I can't get INTs in that graph for some reason, and Eli does better in that category, however its really not even close overall once again.

Now, let's take a look at their respective Superbowl runs. First, remember Ben's run was two years earlier. That makes a huge difference. Additionally, let's remember both teams were wild cards so they were about even money going into the playoffs. When it comes to the actual Superbowl game, however, it wasn't even close. Eli was far better. I can make excuses, such as Samuels from the Patriots dropping an easy INT, but the fact of the matter is Eli played better. That, however, is where it stops.

First, I've been saying it forever, the AFC is far better than the NFC. It's not even close. I have an email I sent to a buddy last year when the Patriots were 10-0 saying they would not finish undefeated. My theory was the AFC is just too brutal and eventually it would catch up with them. Truth be told, I think a team like Jacksonville would have been in the Superbowl a few times already if they were in the NFC. The fact of the matter is, the Giants had a much easier path to the Superbowl.

As for the games, if you remember Ben came out firing and took big leads during all three games up until the Superbowl with his arm. My friend who loves Eli claims they were playing "9 in the box". Besides the fact a 9 in the box formation does not make life easy for an opposing quarterback, it's also silly to think after Ben threw on the Ben-girls that the opposing coaches ignored his talent in subsequent games. To be fair, I recently went back and looked at the box scores of those games to find a fault. I found nothing other than one INT. Ben played out of this world in his second full year as a starter (third year on the team).

Conversely, Eli played good verse Dallas (we'll work backwards) for the Conference game. I think this was his most underrated game, to be honest. Did he win the game or set a fast pace with his arm for the other team to catch up by throwing (like Ben did)? Absolutely not, but he played well. Before that game, during the Divisional Game, he threw around a 50% completion rate and zero TDs against Green Bay. You cannot play well and have a 50% completion rate and zero TDs. That is impossible. And before that Eli, during the Wild Card game, started out with an okay game verse the NFC joke of a playoff team called Tampa Bay. But Josh, he had two TDs and a higher completion rate!!?!?! Yes, but check this out:

10-E.Manning pass short right to 89-K.Boss to NYG 35 for 3 yards
10-E.Manning pass incomplete short right to 85-D.Tyree
10-E.Manning pass short left to 12-S.Smith to NYG 23 for 6 yards
10-E.Manning pass incomplete short middle to 12-S.Smith
10-E.Manning sacked at NYG 18 for -8 yards
10-E.Manning pass short right to 17-P.Burress to TB 49 for 4 yards
10-E.Manning pass short right to 81-A.Toomer to TB 32 for 17 yards
10-E.Manning pass short left to 81-A.Toomer to TB 19 for 10 yards
10-E.Manning pass incomplete short middle to 12-S.Smith
10-E.Manning pass short middle to 81-A.Toomer to TB 5 for 13 yards
10-E.Manning pass short middle to 27-B.Jacobs for 5 yards
10-E.Manning pass short right to 17-P.Burress to TB 46 for 11 yards
10-E.Manning pass short left to 17-P.Burress to TB 37 for 9 yards
10-E.Manning pass short middle to 12-S.Smith to TB 17 for 21 yards
10-E.Manning pass short right to 44-A.Bradshaw to TB 8 for 9 yards
10-E.Manning pass incomplete deep middle to 89-K.Boss
10-E.Manning pass short left to 27-B.Jacobs to TB 7 for 11 yards
10-E.Manning pass incomplete short right to 17-P.Burress
10-E.Manning pass short middle to 81-A.Toomer to TB 4 for 8 yards
PENALTY on NYG-10-E.Manning, Delay of Game, 5 yards
10-E.Manning pass short right to 12-S.Smith to TB 7 for 2 yards
10-E.Manning pass incomplete short right to 44-A.Bradshaw
10-E.Manning pass short right to 39-M.Hedgecock to NYG 13 for 5 yards
10-E.Manning pass incomplete deep right to 17-P.Burress. PENALTY on NYG-17-P.Burress, Offensive Pass Interference
10-E.Manning pass short middle to 81-A.Toomer to NYG 22 for 11 yards
10-E.Manning pass short right to 81-A.Toomer to NYG 40 for 11 yards
10-E.Manning pass short right to 89-K.Boss to TB 35 for 11 yards
10-E.Manning pass incomplete short right to 88-M.Matthews
10-E.Manning pass short left to 17-P.Burress pushed ob at TB 21 for 14 yards
10-E.Manning pass short right to 81-A.Toomer for 4 yards

That's right, not one pass was a long pass. Not one. You cannot have anything but an okay game if you are throwing passes I can throw. It's impossible.

Finally, I'll leave you with this survey done by NFL players:



You CANNOT be better than Ben if you are on this list. Also, check out the company Eli has on this list. Ouch.

So, I add all this up and it's pretty obvious who's better. In fact, its not even close. This can change dramatically this year and the years to come. For now, the number one pick in the draft is getting destroyed in almost every category and angle I can think of by the eleventh pick in the draft....and I love it!

GO STEELERS!

Update: A reader points out I have Eli's playoff run backwards. I'm too lazy to change it, but the performance analysis is no different.