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Archive for October, 2008

McCain/Palin’s Economic Stimulus Plan

Posted by Larry Doyle on October 23rd, 2008 9:05 AM |

This post is written in response to the October 21st statement issued by the McCain/Palin campaign:



“We are deeply concerned about our nation’s economic outlook and will support measures that improve the outlook for American families. This economic crisis has its roots in the housing market and the most effective stimulus will be to reverse the cycle of foreclosure, neighborhood blight, and falling housing values. The American Homeownership Resurgence Plan is the best kind of stimulus.

“The Democrat-controlled Congress will likely propose additional measures. We do not believe that a national crisis should be taken as a license for wasteful spending or earmarked projects. Each new proposal must pass on the grounds that it is timely, effective in supporting business sales and job creation, and consistent with long-term fiscal discipline.

“In the past, raising taxes and cutting off international trade have only served to make hard economic times worse. We oppose harmful attempts to just ‘spread the wealth.’ Our job-creating economic plan is the best path for the economy and includes the types of policies that the Congress should consider.”

Prior to addressing the prospects of another economic stimulus plan, let’s review some of the steps that the Fed and Treasury have taken over the course of the last month: (more…)

“Give a Man a Fish, Feed Him for a Day . . .

Posted by Larry Doyle on October 21st, 2008 7:00 AM |


While there are so many issues being debated during this election, it seems clear to me that the relative merits of our current tax system as highlighted by “that one’s” interaction with “Joe the Plumber” will carry the day.

Amidst all the rhetoric and spin that is giving me a headache, I thought it may be helpful for all of us to take a deep breath and merely “review” some data so that we can make as informed and thoughtful a decision as possible.

Let’s lay out some data that I collected from a variety of reputable sources (Kiplingers, U.S. Census Bureau, WSJ) and then go from there. To be fair, the numbers are taken from the last few years but for our argument here, the big picture will be very much in focus.


Economic & Market Highlights 10/20/08

Posted by Larry Doyle on October 20th, 2008 10:45 PM |

The markets had a very solid rebound of app. 5% across the board which brings us back to the levels seen literally one week ago. What prompted the rally??

1. Credit continued to loosen. 3mo Libor moved down to 4.05. This rate was in the 4.75% a week to ten days ago.

2. Speculation that the Fed will cut rates at next week’s meeting. The Fed Funds rate is currently at 1.5%. (I also am concerned about this move. I think it increases the chance for real growth in the money supply which becomes a precursor to increased inflation)

3. Speculation that there will be another stimulus package coming from Washington. This package would be in the vicinity of $100-150bln. This package would likely be a mix of extended unemployment benefits, spending on infrastructure, and debates about tax cuts vs spending on liberal programs. (I view this as a shot of morphine to a patient that needs a long term program of more exercise, a balanced diet, and clean living) (more…)

A Wall St. Insider’s View of Freddie/Fannie

Posted by Larry Doyle on October 16th, 2008 6:00 AM |

I am happy to provide you with a full accounting of what occurred from the late ’90s to the present.

–The repeal of Glass-Stegall (GLBA) is a total non-event in the midst of the current economic turmoil. What this repeal did was allow commercial banks to get more deeply involved with investment banking activities. Thus, JP Morgan, Citigroup, Bank of America were able to utilize their significant balance sheets and capital bases to become a force on Wall Street. Fast forward ten years and it is those institutions that are now thankfully supporting and bailing out our system.

–Throughout the 90s and into the early part of this century, Freddie Mac and Fannie Mae were utilizing their significant lobbying power to gain an ever increasing portion of the overall U.S. mortgage market. They had the enormous advantage of being able to borrow at just marginally over U.S, government rates given the “implied” but not explicit backing of Uncle Sam. I mean, come on. That worst case scenario could never come to pass!!

While Freddie and Fannie were designed to provide liquidity to the market in the form of bundling mortgages into securities, charging a guarantee fee for return of principal to the investors in these MBS, and then selling the MBS into the private market, they decided to “grow their business”. Just how did they grow? Given their ability to borrow at very cheap rates they decided to effectively grow their own internal portfolios. This business model was nothing more than a massively levered hedge fund under the guise of “helping the homowner”. (more…)

The Economy–What Lies Ahead

Posted by Larry Doyle on October 14th, 2008 10:03 AM |

I share these opinions with you given the historic nature of the events currently going on in our global financial markets and economy. I hope that you find them of interest. I would be very interested in your thoughts as well. Much like that scene in the movie “Trading Places” when the wealthy tycoon “turn those machines back on,” I view this bailout package as nothing more than the best of a litany of very bad alternatives. Without being overly pessimistic, though, if you want to reduce this package to layman’s terms this package is the equivalent of a massive injection of capital/liquidity into a Ponzi scheme that was being played (whether they knew were playing it or not) by certain large financial institutions.

The systemic risk was so massive that something had to be done. That said, this injection of capital will not necessarily fully flow through to the economy.The banking system here in the U.S. likely has $1 trillion in embedded losses. This plan is trying to buy time for the system to recognize those losses. The recognition of those losses will curtail future growth for the banking system and the economy as a whole. The U.S. followed Europe’s lead and specifically Great Britains’ in making the direct capital injections into banks. If the U.S. did not there would likely have been a significant capital flight to Europe. However, while the U.S. is injecting 250mm (i.e., billion) as part of the 700mm package, Europe has injected 10 times that figure. We may still see a flight in capital away from our economy. Not that other economies are necessarily stronger, because they are not, but merely due to the fact that the level of nationalization of deposits is actually deeper. How do all these programs, both here in the U.S. and around the world get funded? What are the implications for the markets?

In my opinion, I see the following:

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