Myron Gushlak

Pills

noreply@blogger.com (Myron Gushlak) — Wed, 10 Nov 2010 13:10:58 PST

Bloomberg News reports that stock for the company Vivus has jumped because it appears that the FDA could approve its new diet pill as early as next year. www.bloomberg.com/news/2010-10-29/vivus-gains-on The pill acts on the centers of the brain that control feelings of hunger. With one third of the United States considered obese, it’s no wonder the stock has jumped. As a business model, it’s kind of like being able to buy stock in water.

I’m reminded of the Steve Martin line, “I’d do anything to be thin – anything, that is, except eating healthy and dieting.” Without the annoying need to eat right and be somewhat less than stationary, I too would sign on to be thin. I hope now that this hurdle of obesity has been crossed, Vivus will start making a pill that will work on the part of women’s brains that would make men appear handsome. In which case, (being newly handsome and thin) minor issues like peace in the Middle East and world economy might be considered. Or not. I probably wouldn’t care that much either way.

By Myron Gushlak

Diamond in the Rough

noreply@blogger.com (Myron Gushlak) — Mon, 18 Oct 2010 18:30:33 PDT

Peter A Diamond, who just won the Nobel Prize for Economics has been called unqualified to serve on the Board of Governors of the Federal Reserve. Diamond was an Obama nominee, and there are those who feel his winning of the Nobel constitutes a bit of politicizing by the Nobel Committee. It’s hard to say, the criteria for winning is never discussed. Diamond is considered an expert on taxation, social security, pensions, Medicare, labor markets and behavioral economics. Ben Bernanke was one of his students. Republican senator Richard Shelby of Alabama is his primary opponent. www.allgov.com/Top_Stories/ViewNews/Nobel_Prize_ Earlier this year, Shelby held up the nominations of 70 prospective appointees trying to convince the Obama administration to award a $35 billion defense contract to his state. Rarely at a loss for words, I find I don’t even know what to say about that.

By Myron Gushlak

Mediation

noreply@blogger.com (Myron Gushlak) — Fri, 01 Oct 2010 13:54:34 PDT

Mortgage mediation sounds like such a good idea, particularly in a state like Nevada where one out of every 84 households in the state received a foreclosure notice in August, four and a half times the national average. www.nytimes.com/2010/09/19/business/19gret.html

The mortgage mediation bill passed in Nevada is forward thinking and more effective than the Federal government’s home mortgage modification program. The trouble is, after a promising beginning, it doesn’t really work. Lenders are coming to mediation hearings without the necessary documentation or without fulfilling other requirements spelled out in the program. It is their version of simply saying, “No! We don’t want to.” Lawyers who protest the banker’s ability to bargain in good faith find themselves outside of the process. In the words of New York columnist Don Marquis, “The chief obstacle to the progress of the human race is the human race.”

By Myron Gushlak

Mortgage Loans

noreply@blogger.com (Myron Gushlak) — Mon, 20 Sep 2010 11:58:44 PDT

The Wall Street Journal reports that a growing number of people are opting for 15 year mortgages rather than the more conventional 30 year term. During all of 2009, almost twenty percent of all borrowers chose the shorter term. www.wsj.com/article/SB100014 While this is driven by historically low interest rates, and is obviously a strategy that can only be utilized by someone with a few extra bucks each month and equity built into their home, perhaps there is more to it than meets the eye. According to Bob Walters, the chief economist of Quicken loans, this is an indication of a different psychology about debt. In recent decades, a common strategy was to take on the largest mortgage one could handle and use some of that money for other investments. The trend nowadays is to get rid of the personal debt as quickly as possible. After the past two year’s events, it’s one of those things that sound so logical, it’s hard to remember the counter-argument.

By Myron Gushlak

TV News

noreply@blogger.com (Myron Gushlak) — Sun, 08 Aug 2010 15:11:07 PDT

A couple of weeks ago, I wrote about the apparent disinterest in the war. It got me to thinking, what exactly are we interested in? I went to the latest Tyndall report which monitors ABC,CBS, and NBC news. 70% of all Americans still get their news from television. The war in Afghanistan dominated foreign news coverage in 2009, but that is a relative thing. www.ipsnorthamerica.net/news.php?idnews All foreign related news accounted for 3,750 minutes, which is only one quarter of all news coverage aired on those three networks. News about Europe, East Asia (with the exception of North Korea), Latin America and Africa were virtually non-existent.
Michael Jackson’s death got more coverage than Iraq, Somali pirates, India, the Chinese economy or global warming. And unless I miss my mark completely, 2010 will have spent more time on Lebron James and Tiger Woods than those five 2009 runner-ups combined. It is easy to forget that what is reported to us is already the result of an editorial opinion.

By Myron Gushlak

The War

noreply@blogger.com (Myron Gushlak) — Mon, 19 Jul 2010 19:49:06 PDT

Has there ever been a country at war more disinterested than the United States? One had to go all the way to page nine in last Sunday’s New York Times before there was even a mention of it, and that was about a six inch article about casualties. www.nytimes.com A couple of weeks ago there was a relative deluge about an upcoming US offensive, but it came and went. I don’t even know if it was successful nor could I find on the internet what the battle was called. In fact, I couldn’t name one battle of the entire war.

I know that recently, the war in Afghanistan became the longest war in the nation’s history. There was no public outrage, no mass marches on Washington. Is it because we have a volunteer army? I’m sure if I had a family member enlisted, I would be more aware of what was going on, but that only further illustrates my point. I don’t know what to make of all of it. Are we not informed because we’ve proven we don’t care and the media outlets are well tuned to what we read or watch? Or is the lack of information more thought out and perhaps more sinister than that? I ‘m looking forward to the next decade so I can read about what exactly took place over there in history books.

By Myron Gushlak

Mortgages

noreply@blogger.com (Myron Gushlak) — Wed, 30 Jun 2010 17:37:01 PDT

I remain fascinated by the Fannie Mae/Freddie Mac train that is continuing at break neck pace to God knows where. These quasi government agencies took over a foreclosed property about every ninety seconds over the past three months. www.nytimes.com/2010/06/20/business/20foreclose.htm

They now own 163,828 homes across the United States. Most of the properties are being “bought” from bankrupted owners and are being resold at bargain prices. The American taxpayer at some point, will make up the difference. While there is little to be gained from the old “what if?” game, it is hard not to wonder what the current landscape might be if FDR didn’t initiate this “tool” to help Americans buy their own homes in the first place, or if it wasn’t dolled up by the Eisenhower or Lyndon Johnson administrations. It remains responsible for the vast majority of home ownership in the US because it essentially “guaranteed” local banks that their local mortgage loans would be made whole in the event of foreclosure.

We accept home mortgages as a necessary part of the modern landscape, and we forget that mortgages are not accepted as readily around the world. Is Syria, for example, mortgages are unheard of, yet home ownership is possible for the average contractor or business owner. My intention is not to hold Syria up as a model country by any means, but just to illustrate how deeply entrenched the idea of government backed mortgages is in the US. Americans accept the notion of a mortgage as though the idea came directly from the mouth of God. I just wonder what life might be like if the government never got into the business to begin with.

By Myron Gushlak

Fannie and Freddie are Lurking

noreply@blogger.com (Myron Gushlak) — Mon, 17 May 2010 20:56:40 PDT

One thing you hear little about in the news is the Fannie Mae/Freddie Mac situation. No one, it seems, wants to even talk about the problem. The combined debt of both government backed organizations is equal to 46% of the total national debt. www.hnn.us/articles/1849.html Fannie Mae was created by FDR in 1938 after the collapse of the national housing market. LBJ privatized Fannie Mae in order to remove the debt from the national budget. Freddie Mac was added in 1970. It makes one wonder what might have happened if the government did nothing at all. Somewhere along the way, and I’m not certain when it occurred, there was a definite shift in the expectations of home buyers. Our parents and grandparents bought a house, and paid it off hoping to leave it to their children with a value that approximated what they paid for it. Today’s home buyers see their homes as an investment, one that should increase two or three times in value before the mortgage is paid and the house is left to an estate. Certainly, this was not FDR’s intention. I don’t think, however, that people are too eager to return to the “good old days.”

By Myron Gushlak

Caveat Emptor

noreply@blogger.com (Myron Gushlak) — Sat, 03 Apr 2010 20:07:04 PDT

Lest you think that the shenanigans that caused the recent financial crisis were restricted to fat cat bankers and mortgage brokers, (www.businessweek.com/magazine/content/08) I’d like to share a story. A friend of mine in New Jersey; I’ll call him Stan, owns a few convenience stores From time to time people walk in and offer him merchandise that doesn’t always come through normal channels or with a receipt. One day recently he was offered a truck full of eggs, which came from a man who bought them from a man who bought them from another man. Turns out, however, that the eggs were bad, and Stan had to throw them away. The next time he saw this “salesman”, he complained that the eggs he had bought were all rotten. The salesman looked at Stan the way you might look at someone who tells you the car with four flat tires has a bumpy ride, and said with a perfectly straight face, “Stan, those weren’t eating eggs. They were selling eggs.” Word to the wise – make sure your house is a “living-in” house, and not just a selling house.

By Myron Gushlak

Still Number One

noreply@blogger.com (Myron Gushlak) — Mon, 22 Feb 2010 14:43:54 PST

Multi trillion dollar deficits be damned, the credit rating of the USA remains AAA. There is a “warning” attached to this rating that the deficit must be addressed or the recovery must come quicker than expected, (www.nytimes.com/2010/02/07/weekinreview/07sanger) but the perception of the USA as a credit worthy investment is remarkable. The news last week that Greece, Spain and Portugal may default on some of their obligations caused more of a ripple in the world’s markets than the down turn of the American economy.
The USA has never defaulted on a loan, and the world is betting they won’t end that record in the near future. There is no longer talk about when Japan might overtake the US as the world’s biggest economy. The talk now is when China might overtake Japan for the number two spot. It is another sign that things are never as bad as they seem in low times nor never as good as they seem in high times.

By Myron Gushlak

Text Me

noreply@blogger.com (Myron Gushlak) — Mon, 01 Feb 2010 19:44:59 PST

Perhaps you missed a new phenomenon in the wake of the Haiti earthquake. It is hard to find something positive to say about such a disaster, but $22 million dollars was donated to the relief effort in just five days through the use of text messaging.
(www.pbs.org/newshour/bb/science/jan-june10/haiti4_01-18.html) That amount of money is staggering, and is a huge component of a charitable wave that eclipses the response to the tsunami of the past decade.

Robert Lowe, a Red Cross spokesman said, “I need a better word than unprecedented or amazing to describe what’s happened with the text-message program.” What we’re seeing here is a virtual earthquake in the charitable donation business comparable to the earthquake it rallies around. Every now and then something happens that really hits you over the head with the message that we really are in a new age. Unlike a lot of those messages, this one happens to be beneficial.

By Myron Gushlak

Business Opportunity

noreply@blogger.com (Myron Gushlak) — Fri, 15 Jan 2010 13:13:40 PST

Is there any finer example of entrepreneurial-ship than the recent developments in China regarding Google? It seems that the censorship restrictions placed on the internet by the Chinese government, known in China as the “Great Firewall” (www.nytimes.com/2010/01/16/technology/internet/16vpn.html) has opened up a fantastic business opportunity for those who wish to help the Chinese circumvent the wall. This has created a booming market for software companies, which are capitalizing on the growing desire of China’s Internet users to “fanqiang,” or scale the wall, to visit Web sites like Facebook, YouTube and Twitter.

I find this kind of news extremely uplifting amid the tumult of bad news. While governments go to war, dispute boundaries, and fight over shares of natural resources, people are communicating without borders. The jury is still out on whether that’s a good thing. In fact, many juries are out, including in Iran, where the government there is also unable to stem the free flow of information. The early twenty-first century will certainly come to be known as “The Internet Age”.

By Myron Gushlak

A Decade Ago

noreply@blogger.com (Myron Gushlak) — Wed, 06 Jan 2010 10:21:20 PST

The top stories ten years ago, in 1999, were the Elian Gonzalez repatriation story and the Y2K scare. www.cbsnews.com/stories/1999/12/27/world/main143365.shtml That same year, AT&T made a commitment to broadband, though few knew what that meant, and it was the year of the Euro, with eleven European countries switching currencies. It was, of course, pre 9/11, pre Iraq war, pre Afghanistan, pre financial meltdown and pre “Great Recession.” It’s hard to believe that many people will ever look back on this current decade as nostalgically as we now look back at the 1990’s.

In 2000, after George W was elected president of the US, The Onion had a headline story that in the wake of what has followed seems more prescient than satirical. For those who are not religiously addicted to The Onion, it is a weekly satirical “newspaper” available both on-line and on many street corners in Manhattan that pokes fun at modern society and political events. www.theonion.com/content/index The headline back in those innocent days read: “George Bush: Our Long Nightmare decade of Peace and Prosperity is Finally Over.” Some things just aren’t as funny as time marches on.

By Myron Gushlak

Making Money in the Great Recession

noreply@blogger.com (Myron Gushlak) — Tue, 01 Dec 2009 15:59:02 PST

Somewhere during the past few weeks, this current recession has been unofficially christened “The Great Recession.” I first heard the term a couple of weeks ago on CNN, and it has been creeping into a lot of conversations both in the media and in normal conversations. The losers in this recession are well documented, but I’d like to give a little shout out to a couple of benefactors in these hard times. The primary winner of the (non-existent) Big Winner of the Year award goes to all the recipients of advertising both for and against health care reform. The latest figures I can find date back three months to August and by that time $54 million dollars had been spent in various media outlets. www.washingtonpost.com/wp-dyn/content/article/2009/08/04 It only seems logical that at least that much has been spent since then, as the real fighting was taking place. That figure probably goes underreported because, lets face it, the people receiving the money are the ones who would be reporting about it. The runner up to the Great Recession Sidestep Award goes to retailers of America who will make an estimated $8 billion in gift cards that are purchased but never redeemed. It just goes to show that no matter how tough things get, somebody is always making money.

By Myron Gushlak

Anniversary

noreply@blogger.com (Myron Gushlak) — Fri, 25 Sep 2009 09:09:03 PDT

This week marked the first anniversary of the collapse of Lehman Brothers, the watershed event of the near financial collapse. The New York Times paid the event the appropriate homage with its report of the winners and losers of the past year. www.nytimes.com/2009/09/11/business/11views.html?_r=1&scp=3&sq=financial.

The losers have been clearly identified. Lehman and Bear Stearns of course, who did not survive. Fannie Mae, Freddie Mac, American International Group and Citi Bank are all on life support. The winners? It seems JP Morgan Chase is the strongest. They incorporated Bear Stearns and Washington Mutual and have repaid the government TARP monies. Wells Fargo who was able to raise needed recovery money from private investors and Goldman Sachs who recently converted to a commercial bank in order to qualify for FDIC insurance all seem to be on the right road..

On a day when seemingly conflicting reports of a drop in unemployment and an unexpected decline in housing both make news, it seems that only one thing is clear. The story of winners and losers is far from over.

By Myron Gushlak

Bernanke and FDR

noreply@blogger.com (Myron Gushlak) — Fri, 28 Aug 2009 09:23:42 PDT

The Federal Reserve Bank chairman, Ben Bernanke was reappointed to second four-year term in a move that seemed unlikely a few short months ago. Although a holdover from the Bush administration, Bernanke has repeatedly earned the thanks of President Barack Obama as he has helped to steer the US economy through these troubled economic times. www.google.com/hostednews/afp/article/ALeqM5i7ZxXpevkTny0tqWCIgC5TZZqe7g

Bernanke is a noted scholar of The Great Depression, and although he has apparently kept the US from a repeat of that calamity, he might be the first to admit that it was Franklin Delano Roosevelt, and not himself, who was mostly responsible for keeping the nation from reaching new depths in the economy. The modern reader may be unaware of the enormity of the programs of The New Deal as implemented by Roosevelt. Among other things, FDR created the Unemployment Insurance Act, which has helped keep the ravages of unemployment to manageable levels for millions of Americans. He also created the Social Security Act which has helped growing segments of today’s aging population from feeling the full wrath of another major depression. The FDIC, also a Roosevelt initiative, has protected the savings of millions of Americans and prevented far more damaging bank collapses. The domino effect in the absence of any of these three programs alone would have plunged the world into a far more severe recession.

In a way, the programs initiated by Roosevelt have created “stop losses” throughout the economy. His programs at the time were railed against as being socialistic, but it is hard to imagine how far last autumn’s economic free fall might have lasted without them.

I in no way want to diminish Bernanke’s achievements. It is a far more complicated and a far more global economy than the one that stared back at FDR. But certainly Bernanke understands the historical context of his actions far better than most. Seventy-five or eighty years later, Roosevelt’s programs still represent a new deal for millions of Americans. It’s just that today, few of them realize it.

By Myron Gushlak

The Fellowship

noreply@blogger.com (Myron Gushlak) — Thu, 13 Aug 2009 09:04:56 PDT

Has “The Fellowship” come across your personal radar yet? How about the C Street House? “The Chosen”? If none of these things have yet to make it into your world, drop your soap opera of the day, or your reality show du jour. This is “way more better” as the saying goes. You know all those republicans that feel it is their moral duty to instruct all of us mere humans about morality? You know the ones – The Governor Mark Samfords of the world, the Senator John Ensigns, the Chip Pickerings? Shall I go on? You know them either as the latest documented philanderers or you may know them as members of The Fellowship. It seems that many of the nation’s Christian Republicans hang out in (or live in) a boardinghouse in Washington, D.C. www.nytimes.com/2009/07/19/opinion/19dowd.html?scp=4&sq=The%20Fellowship&st=cse where prayer and bible study are de rigueur. It is nicknamed the C Street House.

Often referred to as “The Family” because of their constant quest for power and control , conservative Republicans continue to pontificate from this particular perch about God and country, and yes, morality. When questioned about the seeming contradiction between what is preached and what is practiced, some of these lofty Republicans refer to the fact that they weren’t merely elected, they were “chosen.” If you need to read more, check out Jeff Sharlet’s “The Family,” available in paperback, or read his article in Harper’s. www.harpers.org/archive/2003/03/0079525

I’m a sucker for this sort of thing. I keep waiting for Roger Clemens and Manny Ramirez to co-author a book about the moral pitfalls of drugs in sports. Or Paris Hilton’s future tome extolling the virtues of a good education. This would all be hysterically funny if it wasn’t so damn scary.

By Myron Gushlak

Walter

noreply@blogger.com (Myron Gushlak) — Tue, 28 Jul 2009 09:45:45 PDT

It was hard to miss the news that Walter Cronkite died this past weekend. Every news station paid fitting tribute to the grandfatherly CBS anchorman. What caught my eye, however, was the enormity of his audience. In his heyday, three out of four Americans watched the news as it was read by Walter Cronkite. (www.cbsnews.com/stories/2009/07/19/sunday/main5173016.shtml)

By its very definition, nostalgia hearkens back to a time that seems simpler and less complicated. In this current era of splintered marketplaces, that nightly following seems incomprehensible. Does anyone even know how many possible news sources there are today? CNN, MSNBC, BBC,CBS,NBC – seemingly more sources than there are letters to cover them. Would ten or twelve percent of the country not be considered an enormous following? What does this say, then, about the enormous influence of this man?

Walter Cronkite made it his first priority to be an objective reporter of the news. Today, it is difficult to say when an anchor is reporting or when he is editorializing. Cronkite himself said that he only interjected his own opinion one time in his life – that during the Vietnam War. He said he thought the war was un-winnable and that the US should pull out without victory. What impact did that have? Lyndon Johnson, the president at the time, said that when he heard that he “lost” Cronkite, he knew he lost the American people. Think about that for a moment out of the context of television. Do many of us ever utter any words that effect more than a few hundred people? Most of us fail to impact more than a dozen. Cronkite was able to influence the policy of the country.

His stated objective to report the news without bias might have changed history again had he not retired when he did. Cetrtainly, in Bill Moyer’s excellent reporting of the weapons of mass destruction fiasco that led to the Iraq war, even one objective article might have prevented the groundswell of public opinion that led to that war. www.pbs.org/moyers/journal/btw/watch.html.

I think it is safe to say that no one will ever again wield so powerful a voice to shape public opinion. In that regard, Cronkite’s death marked the end of an era.

By Myron Gushlak

End of Recession

noreply@blogger.com (Myron Gushlak) — Thu, 16 Jul 2009 11:25:17 PDT

The million dollar question as we hit the mid point of the third quarter of 2009 is when will the recession end? I am reminded of the age old story of a business owner asking his accountant what was the sum of two plus two. The accountant replied, “What do you want it to be?”

A quick perusal of the web will find you a prediction that the end of this current quarter will mark the low point of the economy, to one that predicts the effects of the recession will last until the end of 2010. The financier, Conde Nast, who made a bit of a name for himself by predicting the real estate collapse back in 2002 illustrates the problem. He has predicted that it will end soon (www.portfolio.com/views/columns/economics/2009/01/07/Spotting-Signs-of-Economic-Recovery), and that it will not end anytime soon. (www.portfolio.com/views/columns/economics/2008/11/11/Economic-Predictions-for-2009) . Nast may be the only one, then, certain to be correct when all is said and done. Feel like relying on the leading economic indicators as the tea leaves for the future? Not so fast. The interpretation of the meaning of these indicators is as diverse the crowd at a United Nations Bake Sale.

At Blue Water Partners, www.BlueWaterPartners.com we are well aware that people are always making money no matter how bad the economy. I suspect the end of the recession will come at different times for each of us, or to paraphrase George S. Kaufman, “It depends on your threshold for pain.”

By Myron Gushlak

Why Nothing Gets Done

noreply@blogger.com (Myron Gushlak) — Tue, 30 Jun 2009 18:22:52 PDT

The current economic situation has spawned a billion “fix it quick” schemes. I think most of them found there way to my desk via group e-mails. Most are half baked; all self-serving. But one caught my attention and it illustrates some very valid points. Not that I thought it was a good idea, just that it shed light on the complexity of the problems in a world with this many people. The e-mailer said that his solution for the current economic downturn was to give every American over the age of fifty one million dollars. He said that this would cost the government fifty billion dollars. More on that in a second.

With that influx of mad money pumped into the system, the author said, the housing crisis would be immediately ended because there would be a huge demand for upgraded houses. Banks would receive a huge influx of cash from existing mortgages being paid off. The auto companies would be back on the sunny side of the street because presumably everyone would buy cars. State coffers would bulge from the increase in sales tax revenues. Money would not only trickle down to every facet of society, but would gush down flooding even the most deprived areas of the economy with new money. “Happy days are here again….”

Okay, first of all, the man’s math was hideously wrong. There are over sixty million US citizens over the age of fifty, bringing the cost of his tongue in cheek plan well into the trillions. But let’s assume his math was correct. Imagine what would happen. The day the plan was announced, millions of people around the age of forty would flood the streets making the last week’s violence in Iran look like a stroll down Sunset Boulevard by comparison - everyone bemoaning their exclusion and demanding to be included in some way into “The Great Fix”. The Democrats and Republicans would want to take full credit for the plan for all those who would be receiving money while blaming the other party for excluding everyone else. Overnight, counterfeit birth certificate mills would spring up, with false documents selling for as much as $100,000 (ten percent of the value) or more. An entire industry dedicated to bilking the elderly would spring up instantly. (Even more tenacious than the one currently in place) The price of both houses and cars would be artificially inflated by the enormous demand, thereby creating a bubble that would only burst again after all the millions were spent a couple of years down the road. The effect on the global economy from this American solution is too complex to analyze in anything with only one volume.

This “solution” or lack of one to be more accurate, comes to mind with the United States grappling with health industry reform of an unprecedented magnitude. Be on the lookout for arguments from all those “forty year olds” about to be excluded from the final plans. Everyone currently benefiting from the system as it is now will be pumping billions of dollars into a marketing campaign warning the population that the new plan will bring down the very wrath of God. All those companies who will benefit from a change in plan will be pumping equal amounts of money promoting “the new solution.” It will be very difficult to harvest the truth from either argument. And no plan could possibly come close to being “right for everyone.”

Somebody, someplace will have to say, “This plan is not right for me. It will cost me more money, but I am in favor of it because it will benefit the country as a whole.” In fact, many millions of “somebodies” will have to say that. “Talk about your paradigm shifts…..…….

By Myron Gushlak

Scam Insurance

noreply@blogger.com (Myron Gushlak) — Wed, 17 Jun 2009 12:26:56 PDT

The past eighteen months or so have provided an endless supply of news stories about financial failures, scams and reports of general mis-management. Regular readers of this blog will recall several months ago, that I railed against the watchdogs of the industry – Moody’s, Standard and Poor et al for being practically criminally negligent as they continued to highly rate the financial products of many of the now infamous companies as they were about to collapse. Freddie Mac and Lehman Brothers are only two of many examples. It seems that there might not be a need for the government to get involved with a punitive action against these institutions. It seems, as is often the case, that the market is taking care of that situation internally.

I am referring to an article that came out that reports that David Einhorn has revealed that his current short-selling target is Moody’s, the credit rating firm. www.dealbook.blogs.nytimes.com/2009/05/28/prominent-short-seller-puts-moodys-in-his-sights . Why is this newsworthy? Mainly because Mr. Einhorn , who runs the New York hedge fund, Greenlight Capital, is the same man who sold Lehman Brothers short many months before it collapsed last fall. Mr. Einhorn declined to say how long he had been selling Moody’s short, but the share price was down 7% as the story broke. “Einhorn contends that investors have learned not to rely on Moody's, which for years has been criticized because it earns fees from the companies it rates. And after the mortgage market melted down in 2007, Moody's came under fire for giving top grades to bonds and derivatives backed by subprime loans.”

In explaining his rationale, Einhorn said, “The truth is nobody I know buys or uses Moody’s credit ratings because they believe in the brand. They use it because it is part of a government –created oligopoly and, often, because they are required to by law.” The “oligopoly” surely refers to the practice of being paid by the very people you are hired to rate, one of my own problems with the rating system as spelled out in past blogs.

Those who favor less government regulation can tout this development as an example of how the market self-corrects without government micro-managing. It is a classic case of the problem being fixed from within -a modern version of taking the criminal into the back room and beating the crap out of him. By the time “the law” gets there, they might find that justice has already been served. It’s an amusing idea, really – the notion of selling short as vigilante justice. But it does have a certain old world charm nonetheless.

By the way, shortly after this story broke, Einhorn told Reuters that he had been watching Moody’s since 2002, which is explanation enough as to why his actions are gathering so much attention.

By Myron Gushlak

Approaching Equality

noreply@blogger.com (Myron Gushlak) — Wed, 20 May 2009 06:41:38 PDT

Laura Pendergast-Holt has apparently broken through the glass ceiling and is about to join the “white men only” hall of fame for scam artists. According to today’s Dallas Business Journal . (www.bizjournals.com/dallas/stories/2009/05/11/daily54.htmlPendergest-Holt” , Ms Pender-Gast pleaded not guilty to fraud charges and is currently out on $300,000 bond. She was the chief investment officer of the Stanford Financial Group, which is in the midst of an eight billion dollar fraud allegation. You will recall that this past February, the SEC charged R. Allen Stanford with fraud and seized all his assets.

Although the inclusion of Ms. P-G in this elite company can only be considered a triumph for women everywhere, it should not be construed as an indication that the fight has been won in any real sense of the word. Until Ms.P-G can be joined by other minorities, including, but not limited to the African-American community, can anyone really defend the assertion that any real equality exists in the upper tiers of American society?

Furthermore, her inclusion in this prison bound club does not, even now, allow Ms P-G to be treated equally. Most reports stoop to commenting on her attractive appearance, and her youthful age. This merely shows how far we, as a society, need to come. Until equal attention is paid to the personal appearance of such felons as Bernard Madoff and Stanford himself, all news reports merely underline how far things need to progress before true equality can be claimed. The report from the above cited Dallas source refers to her as the “former thirty-five year old chief investment officer.” Did they also refer to Madoff’s former ages? No, I think not.

But progress comes slowly. For now, we must content ourselves with the incremental successes as they happen. We now have the Susan B. Anthony of scams and her name is Laura Pendergast-Holt. A pioneer in her own right, perhaps some day her portrait will grace the $7 bill. The words of Charlotte Whitton resound loudly on such a proud day. “Whatever women do they must do twice as well as men to be thought half as good. Luckily this is not difficult.”

By Myron Gushlak

The Age of Scam

noreply@blogger.com (Myron Gushlak) — Thu, 09 Apr 2009 10:02:14 PDT

In the same way that the 50’s ended and the 60’s began when John Kennedy was assassinated in 1963, the 1990’s ended on September 11, 2001. --But what of the decade that followed – the decade with no easy nickname. The aughts? The O’s? Whatever it is or will be called, the first decade of the twenty-first century ended prematurely this past autumn with the fall of Lehman Brothers and the threat posed by AIG’s possible collapse. Perhaps it will be known as the Decade of the Scam. Not all the scams that have been discovered have had the enormity of the Bernard Madoff Ponzi scheme, nor had Allen Stanford’s cache, but a week barely goes by without a new scam being revealed. They are epidemic.

If we expand the definition of “scam” a bit, it will be impossible to paint the past decade as anything but a fertile ground that nurtured a valley of scams. It has been a decade of calling a spade a diamond. If the media agrees that the spade is a diamond, then it becomes, in fact, a diamond. Bill Moyers (www.pbs.org/moyers/journal/btw/watch.html) made that abundantly clear in his television show explaining how the weapons of mass destruction allegations became facts in the buildup to the Iraqi war eight short years ago. Moyer’s show is must watch tv, even now, five years after the fact (and is still available on line, I believe). Perhaps the roots of manipulating perception can even be traced to Bill Clinton’s infamous, “It depends on what you mean by the word ‘is’” defense. There are no shortages of examples. The Bush administration’s legal argument about torture is possibly the final word on this phenomena. You know the argument by now. It went something very much like “the President of the United States does not condone torture. The President sanctions waterboarding. Therefore, waterboarding is not torture.”

Some might call it simply good “spin doctoring” but whatever you might call it, the result is The Decade of Scam. Anything goes, as long as you can call it something else. I want to put that phrase in the past tense, make it “everything went” instead of everything goes. But I’m not feeling quite that optimistic. At some point, a spade is a spade no matter what you call it. Perhaps in this next decade we will figure that out.

By Myron Gushlak

Legal Scams

noreply@blogger.com (Myron Gushlak) — Mon, 09 Mar 2009 16:32:30 PDT

With all the talk about scams and frauds and new government regulations, it is disturbing to me that there are still “credit counselors” and mortgage lenders out there preying on the desperate. Many of, if not most of, the credit counselors who offer to get people out of credit card debt are predatory lenders. Some are affiliated with the credit card companies and operate to discourage consumers to declare bankruptcy, even when that financial option might be the best available. Some of these “counselors” often do nothing more than take a fifteen year debt and convert it to a thirty year debt. Yes, the result is “lower monthly costs”, but the overall cost is criminal, and do nothing for the borrower except offer a band-aid for a gunshot wound.

The credit card companies are just as bad. Their slick advertising campaigns mask usurious rates that would have been illegal a few years ago, and quite frankly, I don’t know why they’re not illegal now. They can change rates “at any time, for any reason” provided they notify the card holder of the change. There is a bill pending, the so called “Credit Card Reform Act of 2008” that may attempt to address some of these ills, but there is no mention of limiting rates credit card companies can charge. There is an attempt to end the ubiquitous “double cycle” billing method which averages out the balance from two previous bills, so the consumer gets billed for retroactive interest even if they paid off the balance. (www.money.cnn.com/2008/07/21/pf/consumer) Even though the banking industry is opposed to the changes that this act will attempt to address, most consumer advocates complain that the proposed changes barely scratch the surface of what is needed.

There are still mortgage companies offering 97% mortgages and other financial options that got us into this mess to begin with. It is probably wishful thinking to believe that government can cure these ills. As long as there are people desperate enough, or uneducated enough to borrow money under punitive conditions, there will be lenders available to them. I want to, in the very least, add my voice against such practices. To me, the practices that are currently the norm in the credit card industry are nothing more than a legal scam, as wrong and as damaging as the illegal scams that grab the headlines.

By Myron Gushlak

Scam or Charity?

noreply@blogger.com (Myron Gushlak) — Mon, 02 Mar 2009 10:50:30 PST

It is a scam if we give someone something and get nothing in return. But not always. Sometimes we give something away with no expectation of return, and that is called charity, and not a scam at all. So where does the billions of dollars of aid that the United States gives to Africa fit into that equation? There has been a re-examination of that aid due to the massive amount of attention received by Dambisa Moyo, often referred to as the “anti-Bono.” Moyo is a leading economist and policy maker in the United States and served as the head of Economic Research and Strategy for Sub-Saharan Africa. (www.brookings.edu/articles) She is the author of Dead Aid, hence her comparison to Bono.

She argues in her book that Western aid to Africa, a pet topic of mine over the past year, has not only perpetuated poverty but also worsened it. She points to China to support her argument where there are 3.1 billion people. Forty years ago, China was poorer than many African countries. Today they have money that they earned from what they built, working hard to create a system where they were not dependent on aid. China now lends money to the United States. She believes that aid to Africa has held it back. “You get corruption-historically, leaders have stolen money without penalty- and you get dependency, which kills entrepreneurship. You also disenfranchise African citizens, because the government is beholden to foreign donors and not accountable to its own people” Moyo argues. (www.NYTimes/Questionsfor)

What she recommends in lieu of charity is to microfinance – to give people jobs. That resonated particularly with me because she cites Kiva (www.Kiva.org) as a suitable place to begin to truly help Africa. Kiva has been targeted in the past year by my own charitable foundation, (www.MyronGushlakFoundation.com)

Anyone who has spent any time parenting knows that this is a central dilemma. When to help and when to stand by and let your child fall. At some point, the offer of aid becomes a weapon creating a dependency that will guarantee compliance with what the giver wants to get in return. Aid can “buy” political compliance, as well as pave the way for favorable trade terms for the giver. So the original question stands, is it charity or is it a scam?

By Myron Gushlak