Mortgage/Credit Crisis Doesn't Spur Change in Banks' Ability to Hide Assets

We can almost guarantee that you didn't pause as you passed by this New York Times headline, "Accounting Board Delays an Asset Rule." That's truly a bummer. We wish this important article had this headline, "Companies Still Allowed to Hide Assets in Wake of Credit Crisis." We think that would have caught your attention.

Here's why you care: Read the article and ask yourself if this is the type of regulation that will help bring confidence to investors - and thus more investors back to Wall Street?

So now that you're asking yourself - why on earth are the Banks getting a pass for another year? The answer is essentially this: If banks had to account for all of their assets this year given how bad the market is, it would force them to raise even more cash when they are all trying to do that just to get buy.

The Washington Post has interesting quotes from the folks that decided to let the banks get by for another year. What's most interesting is how conflicted and angst ridden their comments are.

Here's another reason why you care: If it is a big deal to the reluctant rule makers, it should be a big deal to you.

Reading the Tea Leaves of the Power Players

We think the one article that you probably didn't read but really should is the New York Times story about an investment firm (Lone Star Funds) taking advantage of a down market to buy mortgages at bottom basement prices. Lone Star Funds is interesting for a couple reasons: 1) They bought Merrill Lynch's mortgages at fire sale prices; and 2) they made money during the Savings and Loan debacle years ago.

Here's why you care: As we've said before, right now is like an after Christmas sale for the financial and real estate inclined. That can mean Lone Star Funds, or other firms we've pointed to in the past. What they all have in common is that they saved their pennies, and didn't get soaked when the bubble burst. If more of these actors are coming on the stage then hopefully it means things are getting back on track.

A sign they are not? Well, that would be the Federal Reserve's move to extend until January the ability of Wall Street firms to get emergency overnight loans. Basically, this is what the Fed did because of Bear Stearns. (We pointed out a great explainer piece on the Fed the other day). They say if things get better before January, then they'll pull back. Why you care is because it helps Wall Street feel a little more confident given the trouble waters.

And here's why you care again: If you have investors picking up the scraps, and the Fed helping the banks - those are both good signs given your property value.

Obama, Bernanke and 16%

As Why You Care noted for you last week, three times as many people say the economy should be the government's first priority over terrorism. That's why both Sen. Barack Obama and Sen. John McCain are out and about talking everything from jobs to oil. We noted that you'll see more of this. The Wall Street Journal reports that Sen. Obama is meeting with Federal Reserve Board Chairman Ben Bernanke today.

Here's why you care: First come the meetings, then come the policy statements. Get ready for lots of coverage of Sen. Obama's - and Sen. McCain's - economic game plans. That's good, we just want clear details so we can have something to analyze. And remember, this is all within the context of a report showing that home prices drop almost 16% from this point last year. (Even more interesting is the market to market analysis - that's why you care about this report).

The Warning Sign: Lending Pendulum Changes Course - How Extreme Will it Get?

Chances are you actually saw this article today given it was on the front page of the New York Times. We just hope you took a moment and didn't dismiss it as, "If it is Monday, there must be another bank related headline".

Here's why you care: The Times perfectly lays out just why the tightening of credit (aka the ability for a business to get a loan) is creating financial constipation. The squeeze on the small business owner means he can't get the loan to do his next thing. That next thing means expanding and hiring another worker. That means one more person who could have had money in his pocket. And so on, and so on...

There are those that say, nah, don't worry about the business, they'll take care of their own. We say, nah, don't ignore the warning signs. The lending pendulum swings both ways, and this story illustrates the flip side of not having money available.

In other words, we're talking about all of our collective jobs.

Three Times As Many People Say the Economy Should be Priority #1 for the Government as Terrorism

What a difference a housing crisis makes. The latest Wall Street Journal/NBC poll out today shows that three times as many people say the federal government should make jobs and the economy the first priority as terrorism. The numbers have been trending that way for a while, but wow.

If you dig into the poll you'll see that jobs/economy had 23% to terrorism's 8%. What's more eye opening is that if you combine jobs/economy with the next highest response which was energy/gas price at 20% then you end up at 43%. That's over five times more than terrorism.

Here's why you care: You may say, ok yeah, but polls are polls. Nah, the poll is about you, but why you care is because of who reads the polls: Politicians. They are reading and they are listening. That's why former Navy pilot/Senator/Republican Presidential Candidate, John McCain gets treated in the Politico to this headline: "McCain Struggles to Overcome Economy Gap".

In short, there will be many stump speeches from both Sen. McCain and his Democratic rival Sen. Barack Obama on the issue of economy. The key will be to look past the headlines, and really consider the outcomes of their proposed policies. Why You Care is looking forward to more details from both of their camps.

You can count on us parsing the verbiage. In the meantime, look at the both of the pending VP picks and ask - hmmmm, did concern over the economy play into this?

Not Only is Your House Worth Less, You're Gonna Pay Higher Taxes (for Everything)

Do you feel a squeeze? You probably said, yeah. Well, what you may not realize is the domino effect the mortgage mess has on everything else connected to your wallet. The Wall Street Journal has a terrific explanation as to how the first domino of the mortgage mess kicks off a cycle.

Step one: Defaulting mortgages bring down home prices.
Step two: Consumers pull back on spending for fear of rising prices and or their jobs.
Step Three: Less homes sold, cars sold, etc. means less tax collected by the states.

Here's why you care: The states HAVE TO make up that money as the Wall Street Journal rightly points out because many of them have to balance their government checkbook.

THAT MEANS they take a multiple choice test:
A) Raise taxes
B) Raise prices on the things your state does for you (like transportation or community college).
C) Cut back on things the state provides (everything from the Park Ranger to health care).

But there's something that is going to make it feel like a double whammy. That something is those bonds we talked about a week or so ago and pointed to another Wall Street Journal article that deserved more attention.

Why you care is because when the state wants to do things it gets a bond. When the market is tight that means the state pays more. And, if the state has less money, but paying more over the long haul it is the equivalent of the state taking a credit card balance and pushing on a new card with a higher rate but over a longer period. In other words, it will cost more money. That's your money, and you'e gonna pay for it either in choice A, B, or C.

Now do you feel squeezed?

The Two Stories You Shouldn't Miss Today: Is Calif. the Mortgage Canary in a Coal Mine? And Fortune Explains the Fed.

Stunning news out of California as more homes were foreclosed on in a three-month period since 1992. The LA Times has the full write amidst the backdrop of the legislation wrangling that gets the bigger headlines today. BUT, there's something else here that requires further watching - California's mortgages just might be the indicator everyone has been looking for in the search for the bottom.

Here's why you care : Buried in the article is this, the "latest figures contained one surprise: defaults -- the first step toward foreclosure -- rose by just 6.6% in the second quarter, down from a 39% spike the previous period." Wow. The LA Times rightly points out that the reason is unclear... Completely overwhelmed processors slowing down under the avalanche? Or the bottom? Who knows - but this is why you need to watch that market. It will ultimately put you ahead of the curve.

Meanwhile, as the angst and teeth gnashing continue for investors and home owners, Fortune's senior editor at large, Allan Sloan, has gone and written a terrific, short, clear explanation as to why the Federal Reserve in fact does not set your interest rate. In addition, he offers an explanation that despite any further bailouts the Fed isn't about to run out of money.

Why You Care salutes Fortune for doing this amidst the chaos. You should take a moment and read it if you don't already know the answers. Knowledge is power.

Seeing is Believing - Is that What it Takes to Not Repeat Past Economic & Political Mistakes?

Last night Why You Care went to the movies. But, not just any movie it was Screen on the Green on the Mall. Which means a large movie screen gets built on the Mall with the Capitol dome perfectly framed behind it. Normally this wouldn't amount to a Why You Care posting but it does. Stick with us because it matters. What was the movie? Well, none other than 1972 Robert Redford political drama The Candidate. Which to jog your memory is about an erstwhile liberal activist who runs a Don Quixote like Senate campaign against the Republican incumbent in California for the purpose of being able to talk about his issues. Sound familiar? But, of course, along the way he begins to gain in the polls, not by sticking to his issues but by using platitudes (his slogan: A Better Way) in order to broaden his message. Kinda interested in where we are going now?

Here's why you care: Against Congress' brilliant bone white dome backdrop, Redford's candidate played out on the movie screams to gasps, guffaws and occasional laughter - but not for the intended reasons. The reason was that the largely 20-something and early 30-something crowd had never seen the 1972 film before. What was old was now new - and the issues in the 1972 campaign sound like our past months of political and economic coverage.

With no irony lost on the crowd here's a sampling of what drew gasps and wows:

* The Republican incumbent candidate talked at length about the environment and cleaning up the smog in California.

* The Republican incumbent candidate talked about need for tighter regulation when it came to offshore oil drilling. (Fortune's got a great article relating to that today).

* Redford's candidate talked about the economy and California's unemployment rate being incredibly high.

* Redford's candidate talked about how addressing issues of guns, crime, etc ignored the underlying issues of race and how we make society work. (Sort of like how the Wall Street Journal wrote about changing city demographics due to real estate in the past few days).

That's to name a few.

Here's why you care again: The crowd was stunned because they read about past bubble's bursting and economies slumping, but they haven't lived through very many. The question for you is do you want to be on the cycle of ridding a bubble, losing money, latching on to another bubble? Or do you want to be a part of a cycle of saving, investing long term in well analyzed remnants of the last burst bubble that will grow for the future? In other words, why you care is because if you are willing to each day take a look at a few prescient business articles then you can be ahead of the curve. Often times that means ignoring the sexy headline and paying attention to something buried in the paper. It is tough, but Why You Care is happy to highlight the reporters ahead of the curve. Even if you are in your 20's, early 30's there's enough coverage out there and analysis that everything old doesn't have to be new again.

And today's example of why you care: There's a new report out (which got a great write in the New York Times) showing that women are now just like men. That is to say, the slacking economy is bouncing them out of employment at the same rate as men. The worst part is that for these women (like the men) it is happening at the height of their financially productive years (25-54). Seems to us that means they'll have less saving moving forward - which means less to invest for their retirement, and most definitely means they can't take advantage of deals to be had when a bubble bursts.

Overlooked Story & More Telling Than Its Headline: He Trades Real Estate for the Presidential Race

Former New York Mayor/Former Presidential Candidate Rudolph Giuliani made headlines yet again, but this time not with politics but with real estate investment. He's partnering up to create a real estate fund. Boring you say? Nah, we say. Just listen...

Here's why you care: If there was any doubt in your mind that the terrible headlines from the financial firms on Wall Street and from your neighborhood's latest real estate prices then consider this - the smart money is shopping. It is like an after Christmas sale for the financial and real estate inclined.

Mr. Giuliani gets it. So do his new partners and the new fund to be named Berman Enterprises Opportunity Fund according to the New York Times article from Sunday that you likely ignored once you realized it wasn't about whether Mr. Giuliani was seeking another office.

America's Mayor's role? The New York Times says he brings in contacts with foreign investors. His partners supply the real estate know how.

Here's why you care even more: That should tell you that if those who can buy, are buying... Well that means the big money is betting long term on the big picture.

Would you like to go along on that ride too? Is the rollercoaster over? Nope, it's not even August. Give this article a read, then consider that this got covered because it was America's Mayor. But, who else is out there buying and creating funds? We think there's more going on than you think. AND, that may be a good thing, an even BETTER thing would be more coverage of it.

Another Airline’s Profit Crashes and Burns, and Your City May Pay the Price

Another day, another bad financial report on an airline. You could be forgiven for flying past the New York Times’ posting of Continental’s reported loss today.

The problem is that by overlooking this report you might miss the forest: Several airlines have stopped flying and even a scrubbing in bankruptcy seems to fail to halt the long-term tide of red ink for many “legacy carriers” (By the way, you’ll see that term a lot in airline stories, when you do just think: United, Delta, Northwest, American, Continental, and US Airways).

Fuel has become the lead weight around the planes that they can’t unload. That’s true and understandable, but we’ve often heard the argument that over their history airlines have always lost more than they’ve made. The mantra of the day is “too many airlines and too much capacity”, sooooo guess what? That’s right, airlines continue to shed employees, flights and capacity.

But that begs the question how many flights are truly necessary? Perhaps far fewer than airlines like to admit.

Here’s why you care: The decisions of the airlines affect much more than your next trip to mom and pop or your mean Aunt Tilly. Aside from airline jobs lost, whole industries are affected – hotels, restaurants, and even automobiles through rental cars. Remember, tourism has become a major driver of economics.

But there is more: A loss of easy access to airlines condemns many middle size and smaller cities to failure in their competition for jobs and industry. Transport is a major factor for urban centers to keep business and build new ones. The “hollowing out of America” is hastened when solid smaller cities lose airlines or pay outrageous fares to attract them. The result? Like much of the rest of the global economy, the spread between haves and have nots steam rolls on because only the wealthy cities can afford to keep bustling airports. So is technology somehow the savior? You’ll have to wait in the passenger lounge for the answer.

Can Washington Steady Wall St. by Nixing Nudity and Regulating Shorts?

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First Buy Bear Stearns, THEN do Charlie Rose

The uber quotable J.P. Morgan Chase CEO Jamie Dimon got the Charlie Rose treatment last night. It is one thing to read it in the pages of the Wall Street Journal a few days before (the interview obviously being taped) but another to watch it on Rose's show. You can see a clip here that the Rose program evidently posted on YouTube. Dimon is waxing Bear Stearns and it is helpful to hear a CEO walk through the reasoning for buying the wayward company. What you miss in this limited clip is 1) Dimon calling for a full SEC investigation of the rumor mill that he thinks ultimately killed Bear Sterans by guaranteeing a run on the bank; and 2) his embrace of more regulation for the industry in the wake of the credit crisis. Most notably he didn't say what type of legislation - which is the real debate.

Why do you care? You care because listening to his decision making explanation gives you a sense of how and why Wall Street acts.

A Boring Headline That's Really the Whole Enchilada

Let's call the mortgage mess and credit crisis a flood for a moment. If your village flooded you'd build a dam right? Well what if you built a dam, and a passer by said, "Hey, I see a leak." Or better, what if an actual engineer said, "Hi, I do this for a living, and I see a leak and the dam is going to give way." What would you do? Would you ignore them or focus on the problem?

That's what is going on right now. The Wall Street Journal's story today, "Finance Group Questions Bond-Rating Proposals" likely sounds boring to those not following the market. That's a shame. Why you care is because it really is the whole enchilada when it comes to making sure we don't have another Wall Street meltdown. In fact, if done right it would inject the type of confidence into the market that would get the bulls frisky.

The story is about how the agencies that rate investment products are susceptible to pressure and their own internal controls are not working they way they would want. In other words, the ratings that you and other investors count on may not be entirely on the nose. These are supposed to be the dams that hold back developing problems like the credit crisis by pointing out that someone's math doesn't add up. If this doesn't get fixed we'll have another flood.

AND, the rating agencies are not the only ones under this type of pressure. We recently published an op-ed on how the same thing is happening with accounting firms. Both the rating agencies and the accounting firms are the lynch pin in whether you/we trust what Wall Street tells us.

This is a big deal. The dam is leaking.