What Is, Is

I was having breakfast the other day at Baldy's, one of the eateries in Seymour, MO. I like Baldy's. The food is good, the atmosphere is NASCAR, and the service is well above average. That day I was having my usual; biscuits and gravy, hash browns and burnt bacon. Baldy's is one of the few places that I have been able to train to cook my bacon, I'm picky.

Usually there are two tables that engage in political discussion; one table is predominately Democrat and the other is usually Republican. Prior to the election, the battles were almost daily and quite entertaining. Now, a couple of weeks after the election things had settled down - a little at least.

As my waitress April refilled my coffee I noticed the two tables were actually agreeing on something for a change. They both were wondering what "is" was going to be.
I remember when Bill Clinton was going through his tribulations over his cigar. He said, "It depends on how you define 'is'". This may not be a direct quote, but you get the idea.

"Is" is a fascinating word. I remember after I got into the martial arts and was studying Zen Philosophy, I was having difficulty grasping the concept. Then one day I saw a three word sentence that cleared it all up for me. "What is, is." Being me, I added - "ergo, what ain't, ain't". Bingo, Zen philosophy expressed in seven words. I threw away the sixteen books I had bought trying to figure out what can be expressed in seven words.

Good news - WE HAVE CHANGE! Bad news -WE DON'T KNOW WHAT IT IS YET!
Strange, we're still talking about the bail out. In fact, now we have the auto makers, ice cream makers, and the lobster men trying to get bailed out. Amazing isn't it how far 700 Billion dollars will not go in today's economy.

Strange, we still don't have a fence on the Southern border. Hmmm!

Strange, we still don't have proof the President Elect was born in America. Hmmm!

Strange, we are giving all of this power to the very people that created this economic disaster. Hmmm!

Strange, they have had all of this emergency money - for how long now, and the issues still exist. Hmmm!

When I was in Iraq, I extrapolated my "What is, is. Ergo what ain't, ain't" and changed it to "It is what it is, 'till it ain't that no more!" Kind of like "Kilroy was here" during WWII, I peppered Iraq with "It is what it is, 'till it ain't that no more!"

Here is the deal. We don't know what is, is - yet. My word, I'm starting to sound like Bill, but it is the truth. Already on both the state and national levels, the politicians are waking up to the fact that most of their campaign promises - CAN NOT BE FULFILLED! There is NOT enough money to do all they campaigned on - go figure!

In the days and weeks to come, you and I are going to learn a lot more about what "is" is going to be. I predict we ain't gonna like much of it. I predict it won't be as bad as the Republicans fear, NOR will it be as good as the Democrats expect. That is the nature of politics.

I'm still waiting to see who all we're going to bail out. Each day the list seems to grow longer. Each day, the number of folks who made bad investments and stupid financial deals grows longer, and they are waiting for you and me to pay for their mistakes.

I can't accept that, because accepting means it is all done. Accepting means you are a victim. Rather, I embrace the current mess. That means I think there is a train wreck coming and I embrace it. That means I'm not going to be on the train.

What can we do? My gosh! I have had that question asked of me many times over the past few weeks. Here is the deal - WE must make sure we have our own house in order. WE must make sure that we can take care of ourselves and our loved ones. WE must make sure we are as insulated from the train wreck as we can be.

Gun sales are going through the roof and ammo is flying off the shelves. Guess what, that stuff is being tracked! Assaults on freedom of speech - continuing. Assaults on freedom of religion - continuing. Assaults on the 2nd Amendment - continuing. Stupidity - continuing.

Now, you and me will be learning what "is" is going to be. Not just at Baldy's, but at Pappasito's in Houston, TX, Macaroni Grill in Springfield, MO and at kitchen tables all across this land; we'll be talking and find out what this change is going to be all about.

I'm originally from Texas and to a Texan, making good Chili is very important. A couple of years ago, I learned something I never knew - chili powder and cinnamon look just alike. If you don't taste the chili while you're making it you can end up with something that even the dogs won't eat (like I did). Heck, even the fire ants won't eat that mess. That mess of chili looked real good, it smelled great, but I failed to taste the chili while I was cooking.

Folks, the chili is in the pot. You have a lot of folks putting spices in. Remember - taste the chili!

Bend Over Here it Comes Again!

Allan Stone from Springfield, MO wrote a letter to the editor with comments on a recent column of mine. With a PhD in Economics, Dr. Stone identified that economics "consists of theories, laws and explanations of cause and effects. Economics is not a body of opinions or policies though we all have opinions Anderson's piece is largely his opinions, clichés and sayings, not economics."
He was responding to the following comment that I had written - "How did we get in this economic mess? Answer; go back to the Carter administration then fast forward to the Savings and Loans debacle under President Clinton - that is where the deregulation and eventual collapse started. I won't bore you with the details, just go read about it for yourself and you'll see what I mean.”

Dr. Stone correctly identified that Clinton was elected president was President from 1993 to 2001 and the S & L mess started in the 1970s; how could I blame that on him. Today I WILL bore you with the details!

In the later 1970s Jim McDougal owned an S&L (Savings and Loans) and he formed a 50/50 real estate venture with the attorney general of Arkansas, who at the time was Bill Clinton. For years, this company received cash from the S&L. In 1978 Clinton was elected governor of Arkansas. This company also received money from a small business investment corporation that diverted federally guaranteed funds from a program "designed for socially and economically disadvantaged people” to the governor's partners and finally in part to the company (allegedly at the governor's request). It was called Whitewater! Does that ring any bells?

I am NOT an economist! However, a recent article in the Bloomberg News shouts Wall Street bailout harkens back to S&L crisis. The article by Jonathan Keehner and Bob Ivry states in part, "The $700 billion bailout of Wall Street's sub prime-tainted securities hearkens back to the real-estate bets that sparked the savings-and-loan crisis in the 1980s. The geography is the same, too. Then, as now, the government created a taxpayer-funded enterprise to absorb the fallout from bad real-estate investments."

I am NOT an economist, but people, our politicians and media are playing us like a West Virginia Fiddle - again! I will try to draw the lines for you but it’s up to you to color in the picture. To clarify and prove the points I was making, below is the Federal Deposit Insurance Corporation's (better know as FDIC) own Chronology of the S&L Crisis:

1966-1979 Market interest rates fluctuate with increasing intensity and S&Ls experience difficulty with each interest rate rise. Interest rate ceilings prevent S&Ls from paying competitive interest rates on deposits.

1967--State of Texas approves major liberalization of S&L powers. Property development loans of up to 50% of net worth are allowed.

1972--Hunt Commission recommendations would have created federal savings banks to replace S&Ls. The banks would have had additional authority to make commercial loans and invest in commercial paper.

1973--FINE Study would have granted same powers for S&Ls as for banks, including checking accounts. Also recommends consolidation of the regulators. Interest rate insurance was recommended if S&Ls are to remain primarily involved in housing finance.

1978--Financial Institutions Regulatory and Interest Rate Control Act of 1978 enacted. Weak version of previous recommendations. Allows S&Ls to invest up 5% of assets in each of land development, construction, and education loans. This was also the year Bill Clinton was elected governor of Arkansas.

1979--Doubling of oil prices. Inflation moves into double digits for second time in five years.
1980-1982 Statutory and regulatory changes give the S&L industry new powers in the hopes of their entering new areas of business and subsequently returning to profitability.

March, 1980--Depository Institutions Deregulation and Monetary Control Act (DIDMCA) enacted. The law is a Carter Administration initiative aimed at eliminating many of the distinctions among different types of depository institutions and ultimately removing interest rate ceiling on deposit accounts. Authority for federal S&Ls to make ADC (Acquisition, Development, Construction) loans is expanded. Deposit insurance limit raised to $100,000 from $40,000. This last provision is added without debate.

November, 1980--Federal Home Loan Bank Board reduces net worth requirement for insured S&Ls from 5 to 4 percent of total deposits. Bank Board also removes limits on the amounts of brokered deposits an S&L can hold.

August, 1981--Tax Reform Act of 1981 enacted. Provides powerful tax incentives for real-estate investment by individuals. This legislation helps create a "boom" in real estate and contributes to over-building.

September, 1981--Federal Home Loan Bank Board permits troubled S&Ls to issue "income capital certificates" that are purchased by FSLIC and included as capital. Rather than showing that an institution is insolvent, the certificates make it appear solvent.

1982-1985--Reductions in the Bank Board's regulatory and supervisory staff. In 1983, a starting S&L examiner is paid $14,000 a year. The average examiner has only two years on the job. Examiner salaries are paid through OMB, not the Bank Board. During this period of supervisory and examination retraction, industry growth increases. Industry assets increase by 56% between 1982 and 1985. 40 Texas S&Ls triple in size between 1982 and 1986; many of them grow by 100% each year. California S&Ls follow a similar pattern.

January, 1982--Federal Home Loan Bank Board reduces net worth requirement for insured S&Ls from 4 to 3 percent of total deposits. Additionally, S&Ls are allowed to meet the low net worth standard not in terms of generally accepted accounting principles (GAAP), but of even more liberal regulatory accounting principles (RAP).

April, 1982--Bank Board eliminates restrictions on minimum numbers of S&L stock holders. Previously, it required at least 400 stock holders of which at least 125 had to be from "local community", with no individual owning more than 10% of stock and no "controlling group" more than 25%. Bank Board's new ownership regulation would allow a single owner. Purchases of S&Ls were made easier by allowing buyers to put up land and other real estate, as opposed to cash.

December, 1982--Garn - St Germain Depository Institutions Act of 1982 enacted. This Reagan Administration initiative is designed to complete the process of giving expanded powers to federally chartered S&Ls and enables them to diversify their activities with the view of increasing profits. Major provisions include: elimination of deposit interest rate ceilings; elimination of the previous statutory limit on loan to value ratio; and expansion of the asset powers of federal S&Ls by permitting up to 40% of assets in commercial mortgages, up to 30% of assets in consumer loans, up to 10% of assets in commercial loans, and up to 10% of assets in commercial leases.

December, 1982--In response to the massive defections of state chartered S&Ls to the federal system, Nolan Bill passes in California. Allows California-chartered S&Ls to invest 100% of deposits in any kind of venture. Similar plans adopted in Texas and Florida.
1983--Lower market interest rates return many S&Ls to health; 35% of institutions, however, still sustain losses. 9% of all S&Ls (representing 10% of industry assets) are insolvent by GAAP standards.

March, 1983--Edwin Gray becomes Chairman of the Federal Home Loan Bank Board. Beginning in 1984 and continuing throughout his tenure, regulatory and supervisory measures passed by the Bank Board begin the reversing of deregulation.

November, 1983--Bank Board raises net worth requirement for newly chartered S&Ls to 7%.
March, 1984--Failure of Empire Savings of Mesquite, TX. "Land flips" and other criminal activities are a pattern at Empire. This failure would eventually cost the taxpayers approximately $300 million.

April, 1984--Bank Board moves jointly with the FDIC to attempt to eliminate deposit insurance for brokered deposits. Federal court rejects this attempt in mid-1984 as overstepping statutory limits.

July, 1984--Bank Board requires S&L management to adopt policies and procedures for managing interest rate risk.

January, 1985--Bank Board limits the amount of brokered deposits to 5% of deposits at FSLIC insured institutions failing to meet their net worth requirements. Bank Board also limits direct investment (equity securities, real estate, service corporations, and operating subsidiaries) to the greater of 10% of assets or twice the S&Ls net worth, provided the institution meets regulatory net worth.

March, 1985--Ohio bank holiday. Anticipated failure of Home State Savings Bank of Cincinnati, OH and possible depletion of Ohio state deposit insurance fund; cause Governor Celeste to close Ohio S&Ls. Eventually, those that can qualify for federal deposit insurance are allowed to reopen.

May, 1985--S&L failures in Maryland eventually cause loss to state deposit insurance fund and Maryland taxpayers of $185 million. Ohio and Maryland S&L failures helped kill state deposit insurance funds.

July, 1985--Chairman Gray begins transfer of federal examiners to the twelve regional Federal Home Loan Banks so that they are no longer overseen by OMB and their salaries are paid directly by the Bank Board system.

August, 1985--Only $4.6 billion in FSLIC insurance fund. Chairman Gray tries to gain support for recapitalizing FSLIC on Capitol Hill. In 1986, GAO estimates the loss to the insurance fund to be around $20 billion.

December, 1985--Bank Board allows S&L examiners to "classify" questionable loans and other assets for the purpose of requiring loan loss reserves.

1986-1989--Compounding of losses as insolvent institutions are allowed to remain open and grow, allowing ever increasing losses to accumulate.

August, 1986--Bank Board raises net worth standard gradually to 6% with up to 2% points offset for reduced interest rate-risk.

1987--Losses at Texas S&Ls comprise more than one-half of all S&L losses nationwide, and of the 20 largest losses, 14 are in Texas. Texas economy in major recession: crude oil prices fall by nearly 50%, office vacancy is over 30%, and real estate prices collapse.

January, 1987--GAO declares FSLIC fund insolvent by at least $3.8 billion. Recapitalization has stalled on Capitol Hill until now by claims of powerful S&L lobbyists that Bank Board regulations are too harsh and arbitrary.

February, 1987--Bank Board requires prior supervisory approval for S&Ls making direct investment in excess of 2.5 times their tangible capital.

April, 1987--Edwin Gray ends his term as chairman of Federal Home Loan Bank Board in June. Before his departure, he is summoned to the office of Sen. Dennis DeConcini. DeConcini, with four other Senators (John McCain, Alan Cranston, John Glenn, and Donald Riegle) question Gray about the appropriateness of Bank Board investigations into Charles Keating's Lincoln Savings and Loan. All five senators, who have received campaign contributions from Keating, would become known as the "Keating Five". The subsequent Lincoln failure is estimated to have cost the taxpayers over $2 billion.

May, 1987--Bank Board begins phasing out the remains of the liberal RAP accounting standards. S&Ls must conform to GAAP accounting standards, as banks do. Effective date of this rule postponed by new Chairman of the Federal Home Loan Bank Board, M. Danny Wall, to 1/1/1989.

August, 1987--Competitive Equality Banking Act of 1987 enacted. The Act authorizes $10.8 billion recapitalization of the FSLIC with only $3.75 billion authorized in any 12-month period. Also contains forbearance measures designed to postpone or prevent S&L closures.
February, 1988--Bank Board introduces the "Southwest Plan" to consolidate and package insolvent Texas S&Ls and sell them to the highest bidder. The strategy is to resolve insolvencies quickly while conserving scarce cash for FSLIC. The Bank Board uses a number of strategies to pay for the difference between assets and liabilities of the failed institutions: FSLIC notes, tax incentives, and income, capital value and yield guarantees. The Bank Board disposes of 205 S&Ls through the Southwest Plan with assets of $101 billion.

November, 1988--George H. Bush elected President. S&L problem not part of election debate.
1989--President Bush unveils S&L bailout plan in February. In August, Financial Institutions Reform Recovery and Enforcement Act (FIRREA). FIRREA abolishes the Federal Home Loan Bank Board and FSLIC, switches S&L regulation to newly created Office of Thrift Supervision. Deposit insurance function shifted to the FDIC. A new entity, the Resolution Trust Corporation is created to resolve the insolvent S&Ls.

I’ll end with this closing sentiment. Santayana said, "Those who do not remember the past are condemned to repeat it." S&Ls or the Bail Out or the Rescue Plan – reminds me of a saying we had in the military, "BOHICA". It means "Bend Over Here it Comes Again!"