Tuesday, September 30, 2008

humpty dumpty goes to wall street.

I recently received one of those chain emails. It started out, “I'm against the $85,000,000,000.00 bailout of AIG. Instead, I'm in favor of giving $85,000,000,000 to America in a We Deserve It Dividend.” It went on to claim that that would give over $400,000 to every American over 18. Sound good? Why bailout the fat cats? What about the common people who are really struggling? Wouldn’t that do more for the economy?

OK. Before we go on, let me ask a few questions.

#1. Do you know what a “credit default swap” is? (Also known as a CDS.) Did you know that there is 62 trillion dollars worth of these special financial contracts out there? Do you have any idea how much $62 trillion is? There are over 31 million seconds in a year. A trillion is a million million. So 62 trillion is how many ticks of a clock there are in 2 million years.

That is a big number.

The value of credit swaps is 15 times larger that the total stock market value of all U.S. corporations. If you added up all the incomes of the over 300 million Americans for a year, it would still be well less than a fourth of $62 trillion. If you added up all the incomes for a year of all the nearly 7 billion people on the planet earth, it would still be less than $62 trillion.

#2. Do you have any idea as to the consequences of a major failure in this market? What would happen if people lose confidence in the value of the credit swap contracts?

#3. Do you know what the so-called “bail out" of AIG really involved? Do you know what the money was going for or what was trying to be accomplished? What would have happened if AIG went into bankruptcy?

I doubt if one out of a hundred Americans could answer the above questions. I also doubt if very many members of Congress have a clue. I must admit, my own understanding of these questions is not the greatest.

Credit Swap?
A credit swap is essentially an insurance contract protecting owners of debt against default. If someone owes you money, this is like you paying someone to guarantee the debt will be paid. You pay someone a little to assume the risk of default or nonpayment. Credit swaps are generally between corporations. For example, Home Depot wants to borrow $10 million for 90 days. IBM loans them the money. However, IBM may pay a little to AIG to guarantee that Home Depot will pay. If Home Depot defaults, doesn’t pay IBM, then AIG will pay $10 million to IBM and then try to collect from Home Depot.

AIG was a fairly big player in the swaps market. They guaranteed a lot of bonds, including a good chunk of debt backed by home mortgages. AIG was losing a lot of money on the mortgage backed debt. The fear was if AIG went into bankruptcy, the insurance on debt would disappear, for all debt, not just the housing-backed stuff. The debt would become riskier and worth less to firms.

Cut to the Chase. I won’t try to explain the following in any detail. Two weeks ago credit markets were starting to seize up; not working at all. Firms were trying to sell the debt, the IOUs they were holding, no one was buying. Prices dropped, losses mounted. Other firms, even healthy strong companies, were finding it hard to borrow. No one was lending. It looked like the beginning of a world-wide financial meltdown the like of which has never been seen before. One participant in the Lehman Bros. and AIG negotiations that week said we were “at the edge of the abyss.”

You might be thinking, “Poor babies. Why should I care about the fat cats? What does it have to do with me?” To go back to our example, what if Home Depot can’t borrow money to pay workers or suppliers? What if companies supplying Home Depot are having trouble getting paid? Do you really think they will just keep on making shipments, keep on producing, keep on hiring people? What if this is a general problem not limited to Home Depot? A financial market breakdown will lead to a severe economic breakdown. Layoffs, declines in income, a big fat hairy recession that could last a long time. These results are guaranteed with a financial meltdown.

The bail-out was to keep AIG in business, not to rescue AIG stockholders. The bailout’s conditions, the conditions on the loan to AIG, were so severe that the U.S. government actually had a good chanced of ultimately making a profit on the deal. AIG accepted because had no choice if they wanted to avoid bankruptcy.

AIG needed to stay in business because the alternative was an extremely high chance of international financial collapse, a fall into the abyss. The breakdown of the credit swaps market would lead to a breakdown of credit markets in general. Once you get the meltdown, the collapse, it is really difficult to put things back. Humpty Dumpty goes to Wall Street.

Is this the We Deserve It America Dividend you want?

Now put out your thumb and index finger. Have them separated by about an inch.


This is how big a piece of the current financial crisis AIG represents. It is far more complicated than what I described. The AIG story is just one little piece of a much, much bigger puzzle. We’re not even getting close to the cause, but merely one of the many possible results of a much bigger problem.

Saturday, September 20, 2008

the most interesting week since '29

At least it has been interesting for economists. Here is a video I posted a while back but had disappeared from the YouTube and MetaCafe. It is a satirical piece first shown on British TV last year. It actually does a pretty good job of explaining the sub-prime crisis. That is what started off the series of events that cumulated in this week's financial crisis:


no god, no football

This was bound to happen when you take God out of football
(a video from THE ONION):


Friday, September 19, 2008

a new fear with the economy?

For fun from THE ONION, a video "Economists Warn Anti-Bush Merchandise Market Close To Collapse"




More economics humor?

Tuesday, September 16, 2008

snl palin-hillary opening

I thought this was good but probably should be rated PG-13. The Palin impersonation is right on. Enjoy.

Monday, September 15, 2008

abide in christ


Want a copy of Andrew Murray's Abide in Christ? A pdf file is available as a FREE download HERE. To purchase a new or used copy you can go HERE.

Why the picture with this post?
I dunno. I like it.

Sunday, September 14, 2008

more amazing grace

Yesterday's post wrote about John Newton, author of the hymn Amazing Grace. After Newton was saved he was, like all new believers, lacking in a lot of understanding. For example he was afraid of losing his salvation. He looked back on his past life of making moral resolutions and then eventually having moral relapses, leading a life of aestheticism then succumbing to a life of self-indulgence. How long could he last this time?

Fortunately he met another Christian captain, Alex Clunie, while in St. Kitts. Clunie was a strong Christian with Calvinist roots. (Evangelical Calvinists in the 18th C. weren't quite as extreme as today's Calvinists.) He told Newton that it only seemed like he chose God while the reality was that God first chose him. This clicked with Newton since he had spent his life running from God rather than searching for him. Despite Newton's continual rebellion, God had sought him, rescued him, preserved him and eventually drew him to Himself.

Newton began to understand Romans 11:6, "But if it is by grace, it is no longer on the basis of works; otherwise grace would no longer be grace."

If by strength and conviction you could receive Christ then by doubt and weakness you could lose Christ. Newton saw that he had been saved by grace and his remaining saved was through this same grace. As Newton later wrote, "Now I began to understand the security of the covenant of grace and to expect to be preserved, not by my own power and holiness, but by the mighty power and promise of God, through faith in an unchangeable Saviour."

When I read this I thought of not only how stupid I was, but how long it took me to catch on to this truth. (Actually, I'm still trying to grasp this truth.) I thought of all the time I wasted trying to be "diligent" in the things of God. I worked hard to obtain a holiness that could only be obtained by grace. I can't stop sinning unless the grace of God allows me. I won't be faithful unless God gives me faith. I missed out on the rest God promises unless I ceased to strive and instead accepted His grace.

Accept His grace? How do you go about getting something when there is nothing you can do to get it? That made no sense to me. All I could figure out to do was ask. I stopped struggling with sin, a fight I could never win. Stopped with my out-of-whack ideas about what diligence meant, and just asked Him for grace.

I quit working, and despite my thinking not working wouldn't work, it did work!

Go figure. Now that still doesn't make much sense to me.

I think this is also the message of John 15:1-12 which Andrew Murray expounded upon in his classic Abide in Christ.

It is hard to rest. No, I take that back. It is not hard. What is hard is to give up trying to do things in my own power and waiting with God. Diligence is resting in His grace. Even that can't be done without grace.

I can't figure this out. But then, nobody ever asked me to.

Be blessed,
RB

Saturday, September 13, 2008

amazing grace

Last week I watched the film Amazing Grace and would certainly highly recommend it. While it was about the British abolitionist Wilberforce, Albert Finney played the minor role of John Newton, Wilberforce’s spiritual mentor and the author of the hymn Amazing Grace.

This made me curious about John Newton. I went to the SLU library and found a recent, short biography about Newton by Steven Turner also titled Amazing Grace. Much to my surprise I found that the tales told in America about Newton are less than accurate. John Newton was a captain of only three slave ships and had previously been on the crew of only one. He was about to captain a fourth slave ship when ill health forced his retirement. However, all the voyages occurred after he came to know Christ as his savior.

Newton did become a leading voice for the abolition of slavery but only in his latter years, after he wrote his famous hymn. It was a process for him to get through the rationalizations for slavery offered in the mid-18th century and come under conviction for his part in the ghastly commerce.

You may be thinking that I just spoiled a wonderful story of God’s grace and mercy. Actually, I think the true story is more powerful. His true sins were more than awful enough for him to realize what a wretch he was. He grew up knowing the Gospel and purposely turned against it, becoming an enemy of Christ and a blasphemer as a young man. Newton also recognized God’s frequent interventions on his behalf but never fully repented.

While I do not have time, room, or ability to go into it here, John Newton’s true testimony was and is powerful. It preached, as some would say. He wrote it down in a series of letters that were published. His effectiveness as a speaker and writer led the wealthy evangelical Lord Dartmouth to arrange for him to become curate of a small church, despite the Church of England’s requirements for a university degree. Newton later accepted a position in a London church.

Why do we need a slave ship captain, tortured by horrors beyond understanding, to repent? What makes that story so compelling? Please think about it. A little self-reflection wouldn’t hurt. Is it more extreme and therefore more dramatic? However, might the harm of such drama be that it minimizes our own sins?

That is, it has us thinking “a wretch like him” instead of “a wretch like me.”

Be blessed,
RB

Sunday, September 7, 2008

soar on wings

Last month I visited my mother in Northern California. One afternoon I was sitting alone on her deck enjoying the wonderful warmth and dry heat of August. I noticed a hawk soaring high above the ground. Since my mom’s house is high on the side of a hill, I was actually watching it from above. Effortlessly riding the thermal heat waves, the hawk crisscrossed, occasionally turning into a sight breeze to soar even higher.

As I watched I thought how enjoyable it would be to soar like that. I also thought of the passage in Isaiah:

He gives power to the faint,
and to him who has no might he increases strength.
Even youths shall faint and be weary,
and young men shall fall exhausted;
but they who wait for the LORD shall renew their strength;
they shall mount up with wings like eagles;
they shall run and not be weary;
they shall walk and not faint.
~ Isaiah 40:29-31 (ESV)

The eagle and the hawk do not soar out of their own strength. Their large wing spans allow them to soar, but it is not due to the strength of the wings. The power to soar for hours comes from outside themselves, from the thermals and the breeze.

As believers, maybe we need to learn to ride the thermals and winds of the Spirit. We can do nothing without Him, for if we do things in our own strength eventually we will wear down. We will burn out. We will fail.

I don’t know about you, but I have wasted a lot of time working in my own strength. I mistakenly thought this was what it meant to be diligent. It didn’t accomplish much. It didn’t really work. The hawk I saw weeks ago was diligent but didn’t rely on its own strength at all. Relying on power outside itself and not on its own efforts, it was able to soar for hours.

Maybe diligence means relying on the Spirit rather than our strength, rather than working up our own passion and enthusiasm? Maybe diligence means to rest in His strength, to abide in Christ?

Be blessed.
RB

Saturday, September 6, 2008

wait, wait don’t tell me

I’ve been spending a lazy, quiet day, sleeping in, catching up on my reading. For amusement on such occasions I like to listen to NPR’s Car Talk and Wait, Wait Don’t Tell Me. Today’s opening monologue on the latter show was a bit disappointing. It consisted entirely of belittling jokes about the Republican V.P. nominee, Sarah Palin. After noting the absence of President Bush, one joke was that the best way to get on stage at the RNC was not to win two Presidential elections for the party but to knock-up Sarah Palin’s daughter. The joking about Palin continued throughout the program, mostly about her lack of foreign policy experience. Pointed but not very amusing, at least not by the third or fourth time it happened.

After the broadcast I thought I’d download the podcast of last week’s show, the one immediately after the Democrat’s convention. There the monologue started with noting tongue-in-cheek that McCain tried to steal the fire from the Democrats by naming his VP choice right after their convention. However, they would not let this distract them “from saying rude, uninformed, and borderline offensive things about the Democrats. The Republicans will have to wait until next week.”

Good, funny start. However, the monologue then ended. No Obama-Biden jokes. No jokes at all. They went right to the quiz show. During the show there were only a few remarks about the Obamas or Biden, some of which were funny but none of which were remotely belittling. They were only “fair” in that there were about as many Clinton jokes as McCain jokes on a show that was supposed to be devoted to laughing at the Democrats.

Earlier this week I told a conservative colleague that I thought Palin was a breath of fresh air. (This was before Fred Thompson said so at the RNC.) Much like Jesse Jackson and most of his civil-rights era cohorts hate Obama, the Left hates Palin. She is not their idea of a female leader. There are many reasons for this, but a real fear is that she is obviously the real thing and not the result of clever marketing.

I am afraid that it will be a very ugly campaign despite the common decency of the presidential and VP candidates.

I work around people who are very much into issues of “race, class, and gender.” What is quite obvious about this week is that the negative reaction of media elites to Palin is in large part based on social class. We’ve all probably heard the complaint that they wouldn’t raise these issues with a man. I think they wouldn’t raise these issues with a woman who went to an elite college, or better yet who had graduate degrees or who had spent serious time working on appropriately liberal causes or concerns.**

Race, class, and gender? Earlier this year folks thought that race or gender would be issues. They were. Now, with the nomination of Sarah Palin, social class is the issue. I’ll be interested in what my colleagues who focus on these issues have to say about this. (I wonder, do they even recognize it?)

I think most people already are beginning to sense that the so-called cultural wars this year will really be about social class. There is uneasiness about Obama that has nothing to do with race. However, it is easier for most people to feel it than to be able to articulate it. If something, or someone on the Republican side, crystallizes this feeling, McCain-Palin will make this election a contest.

However, Obama and his people are smart. They know this election cannot be won by McCain unless Obama loses it. Obama will not get caught riding around in a tank like Dukakis or caught windsurfing like Kerry. They have done an outstanding job of positioning Obama, of marketing him, and they aren’t likely to make a big mistake.

**Nancy Pelosi, the Speaker of the House of Representatives, is VERY liberal and the mother of five children. Her family has never been an issue.