Is Alan the Culprit?

Who or what caused the Mortgage Crisis? Alan Greenspan claims he should not be blamed! He tells us that "Bubbles can not be safely defused by monetary policy before the speculative fever breaks on its on." Of course Fed's flood of liquidity after 9-11 would have had nothing to do with the bubble's inflating in the first place, now would it have?

Those of us with the more mundane worry of whether the crisis will translate into a recession will be reassured The Wall Street Journal already has the remedy: use fiscal policy not monetary policy. The paper's editors believe the dollar's virtue can not take any more ease. Read its editorial, "False Savior."

The Subprime Mortgage Credit Crisis & the Bursting of the Housing Bubble Drops Mortgage Mail Solicitations By 62%

Mintel Comperemedia research tracks direct mail sent to households. Their data show mortgage solicitations in the mail fell 62 percent in the third quarter from the same period last year. Not surprisingly, ARMs (adjustable-rate mortgages) no longer predominate. The proportion of offers for for adjustable-rate mortgages fell from 56 percent to 22 percent.

Prominent mortgage brokers and mortgage banks have gone bust while major players have with drawn from the market.


DM News reports that the Treasury facilitated plan to selectively freeze the rates on some ARMs is causing direct marketing pros to adjust their offers.

Electronic Payments Now Outnumber Checks by 2-1!

The Fed has done yet another study of how payments are made in the United States. The study, which did not include payments by cash, showed American households and businesses made twice as many payments electronically than they made by check.

Check usage by 6.4 percent a year from 2003 (the last year studied) to 2007.

Economic Terms and Concepts

The Present Value of a future cash flow discounted at X% is the amount of money you would need to invest today earning interest compounded annually at X% to accumulate that future amount. It answers the question "How much do I have to invest now to end up with that future sum if I earn the discount rate?"

A bond's Yield to Maturity is the one discount rate that equates the present value of the cash flows (interest payments and principal) to the price.

A security's Current Yield is its annual income divided by its current price. For a bond it is the coupon interest divided by the price. For a share of common stock, it is the annualized dividend divided by the price.

If the Goliath Has the Distributors In His Pocket, It's Time For David's Sling

Craft brewers are small brewers who brew beer much more like homebrewers do and eschew the tricks of the mass marketed beers such as those of Anheuser-Busch, Miller, and Coors. Craft brewers have about 5% of the U.S. beer market; imported beers have about 11%. Anheuser-Busch, Miller, and Coors have over 80%. Read David Kesmodel’s article, "Small Brews Show They're Not Weak Beer: As Popularity Rises, Specialty Brewers Challenge Distributors" (Wall Street Journal, December 10, 2007; Page B1.) State beer distribution laws sound like one more "consumer protection" law that harms competition, consumer choice and consumer welfare.

The Dreamliner Is Back On Target!

In news of great local importance to Wichita, Ann Keeton reports "Boeing, After Initial Delay, Says 787 Is on Track." Keeton tells us, "Boeing's efforts to deliver the hot-selling 787, which is expected to be more efficient than current aircraft, are being closely watched. Boeing in October said troubles with suppliers would delay delivery of the first aircraft by six months to the end of 2008. But the company said it could still turn out 40 aircraft by the end of next year and produce 109 total aircraft by the end of 2009 once it worked out the kinks in initial production. Boeing has said the delays have so far affected 19 airline." Molly McMillan, in the Wichita Eagle, tells us "Boeing has 762 orders for the new plane valued at more than $120 billion. Spirit AeroSystems in Wichita is a key supplier for the program."

The Subprime Mortgage Crisis, Recession, and Citibank

This morning's Wall Street Journal is full of opinion and commentary on our favorite topics.

Alan Greenspan dissects "The Roots of the Mortgage Crisis." He thinks that if it had not been subprime mortgages, then something else would have precipitated a crisis after risk premia had fallen so low.

Also on the Opinion Page, Alan Reynolds analyzes the dollar in his commentary, "Interest Rates and Dollar Fundamentals" and Martin Feldstein advises on "How to Avert Recession."

Meanwhile, Citicorp, parent of Citibank, has decided that Vikram Pandit and Sir Win Bischoff should stay on as CEO and Chairman, respectively. They were both acting in those jobs. You can read about it in Robin Sidel and David Enrich's article. The big question remains: "Can a universal retail/wholesale bank be created like a hothouse plant through mega mergers and acquisitions?" I have my doubts. That certainly not the way the House of Morgan was created. On October 16th, Ms Sidel and Jeffrey McCracken reported increased skepticism that Citi's universal banking strategy was working.

Jobs Are Up: A Little Bit.

The Wall Street Journal reports: "The Labor Department reported that employment at nonfarm businesses rose by 94,000 jobs in November. That followed revised increases of 170,000 in October and 44,000 in September; those gains were initially estimated at 166,000 and 96,000, respectively. The unemployment rate stayed at 4.7% for the third-consecutive month."

Succession Planing At News Corp?

Has Rupert Murdock decided it is time for James to be next?