Financial Regulations

From this article on Yahoo Finance (my emphasis):

 

Wall Street profits could take a big hit if the government toughens regulations in a proposed overhaul of the U.S. financial system, the manager of the world's biggest bond fund said on Monday.

Gross referred to these Wall Street firms as "shadow banks" because they have raised billions in the capital markets, rather from savings and traditional lending. Less stringent regulations had allowed Wall Street to make riskier and more profitable bets than commercial banks.

This "shadow banking system," which consists of all the levered investment conduits, vehicles and structures created by Wall Street, is now facing liquidity constraints.

"Shadow banks will likely be forced to raise expensive capital and/or reduce the bottom line footings of their balance sheets," he said.

I tend to not be for government regulations, but in this instance I am all for them.  This is complaining that if the government toughens the regulations, then the investment bankers will have to have more capital (cash, real wealth) and less levered (debt) investments!  My response to this complaint:

 

Tough.

Contentment

The country song below expresses the value of contentment and maximizing the now.  I am not very good about either, having a tendency to be more like the girl in the song, thinking that I'll be ok "when...".  A game I played as a kid called Character Clues defined contentment in a way I have never forgotten: "Realizing that God has provided all of my needs for my present happiness."

Trace Adkins You're Gonna Miss This

She was starin' out the window of that SUV
Complainin' sayin' I can't wait to turn 18
She said I'll make my own money and I'll make my own roots
Mama put the car in park out there in front of the school
and she kissed her head and said I was just like you

You're gonna miss this
You're gonna want this back
You're gonna wish these days hadn't gone by so fast
These are some good times
So take a good look around
You may not know it now
But you're gonna miss this

Before she knows it she's a brand new bride
In her one bedroom apartment and her daddy stops by
He tells her it's a nice place, she says it'll do for now
Starts talkin' about babies and buyin' a house
Daddy shakes his face and says Baby just slow down

Cuz you're gonna miss this
You're gonna want this back
You're gonna wish these days hadn't gone by so fast
These are some good times so take a good look around
You may not know it now but you're gonna miss this

Five years later there's a plummer workin' on the water heater,
Dogs barkin' phones ringin' one kid's cryin' one kid's screamin',
And she keeps apologizing, he says they don't bother me I got 2 babies of my own one's 36 one's 23 it's hard to believe

But you're gonna miss this
You're gonna want this back
You're gonna wish these days hadn't gone by so fast
These are some good times so take a good look around
You may not know it now
But you're gonna miss this
You're gonna miss this
Yeah, you're gonna miss this

The Fed and Gas Prices

Over the last year gas prices have increased significantly.  As easy as it is to blame greed or even the war in Iraq for the gas problems, the primary culprit is the weakening dollar due to the Fed's economic activity.  Ultimately, the falling value of the dollar contributes to increasing the price for foreign goods (such as oil) because it takes more dollars to buy the same goods.  Why is the dollar falling?  The Fed has been aggressively cutting interest rates to attempt to prevent a recession.  Lower interest rates mean that an investor earns less on their investments then before (anyone seen their interest rates on savings accounts lately?) and thus US-securities become less attractive.  Furthermore, the Fed has been dumping billions of dollars of liquidity into the system to attempt to keep the credit crisis from affecting the economy as a whole (which has not been successful).  Two days ago the Fed announced a $200 billion dollar injection to trade the bad debt of banks for dollars.  They created this money out of nothing.  You can't do that without dropping the value of money by the same amount.  And sure enough, what happened.  Within two days oil rose 10%, is now above $110/barrel, and the Euro is now above $1.55..

 

In short:

 

Cutting interest rates makes the dollar less valuable

Dumping billions of dollars of "new money" reduces the value of the dollar

Therefore, weakening dollar equals increased prices for foreign goods (not to mention the soon-to-be increases in domestic goods)

 

What is disturbing about all of this is that the Fed is attempting to protect the economy from the consequences of poor decisions, instead of letting the market adjust itself.  If a bank was unwise in its lending activity (read, made poor business decisions), natural consequences take over.  If we try to interfere with those, it just makes things worse in the long run.  By dumping money and lowering interest rates, the Fed is playing a very dangerous (and stupid) game in an attempt to stop something that is happening.  It will just make things worse and the recovery longer.  I understand that much of it is political, but it is still stupid.  Politics and economics are not a good mix.

Politics in Oil

From this article (my emphasis):

The world economy could get some help with the arrival of a new U.S. president, and possibly a new economic policy, "and with this new situation it is very probable that the dollar will start to recover and thus permit a readjustment of the (oil) market," El Moudjahid quoted him as saying.

OPEC members meeting in Vienna last week decided to hold production flat, insisting markets were well supplied and blaming record prices on factors outside the group's control, including speculators and what Khelil called the "mismanagement" of the U.S. economy.

This is very disturbing. I read this statement as saying something along the lines of:

Unless there is a presidential change in the November elections which changes the US economic policy to continue its dependence on the oil we provide (as opposed to seeking alternate energy source), the oil prices will continue to rise.

Not cool.