What's behind the Russian-Georgian Conflict

U.S. Vice President Dick Cheney is quoted in this article posted on CNNMoney.com a stating, "Russian aggression must not go unanswered." That is not surprising given that Georgia is a U.S. ally, and given that the U.S. has an interest in stability and humanitarian issues. But, keep in mind as you watch the terrible pictures from the region that both Russia and the U.S. have another interest in the region.

Here's why you care: CNN gets it right with this headline: "Oil jumps on Russia-Georgia conflict." That's right oil distribution will be disrupted because of the conflict. It is why Russia cares. It is why the stock market cares. Read this article and then observe the statements from all parties through the lens of not just diplomacy but economics.

Debating Keeping Businesses in the U.S. While Sweeping Up the Mess

We're guessing when you read the words "Sarbanes-Oxley" (unless your job is to care about it) means you skip to the next article. You shouldn't do that with this one. Even though Floyd Norris' terrific column today may be in the business section for people who already have a financial background, it is just as well written for those who don't. Forget about Sarbanes-Oxley for a moment, this article is important to you because it shows that regulation doesn't necessarily mean companies will flee the U.S.

Here's why you care: There's a big debate going on right now as to how much the U.S. government will regulate the banks and Wall Street. Yes, legislation already passed. But, passing legislation in the nation's capitol and implementing and enforcing it are two different matters. Some fear too much tightening will cause financial institutions to essentially hop the pond and increase their office space in London. Other's think if we don't enforce we'll send the market further down the drain. Both have good points. The report Mr. Norris highlights shows that just because you institute a regulatory measure doesn't mean everyone leaves. Think about that in the context of credit crisis and the mortgage mess.

Here's another reason why you care: The political conventions are around the corner. Why You Care bets that the mortgage mess and solutions to the economy will be a big part of it. You're going to hear lots of speeches about regulation - from all sides. This article will help you be smart when you hear Senators Obama and McCain. Too bad Mr. Norris was on the business page today and not the A Section.

Next Week's News Today

Truth be known, Why You Care wanted to make Next Week's News Today a regular Wednesday feature and post this yesterday. But, when we saw the article yesterday about the bank in San Diego buying up properties, we felt compelled to post that along Fairfax County, Virginia making a similar move. It was just too interesting and informative.

So, we were not really that surprised when we woke up this morning to find both the Wall Street Journal and New York Times running stories about retail sales.

Here's why you care: Business like politics is often a game of expectations. Retailers are interested in setting the tone regarding their July sales BECAUSE NEXT WEEK many of them are due to report earnings.

Here's why you care again: Those earnings are often times looked at by Wall Street as not static figures but rather subjective ones. For instance, if you establish you are going to post a loss, but post less of a loss than was expected - BINGO you're a winner. The thing about retailers that impacts you personally is that if they don't do well that means part time jobs start to dry up. That means less spending power. And if they really don't do well, that means malls start losing their stores. A few small ones, not the end of the world (except for that small business owner). But, you lose an anchor store (i.e. the goliath store at the mall that all the other ones center around) then the rest of the stores may fall like dominos.

Bad for you pocket book, bad for anyone you know that needs a part time job, bad for you community. We think you care.

And if you are a land owner near by, really bad for you property value.

So, next week expect lots of stories that fall into the framework laid out above because take a look at who is reporting earnings next week that relate to retail:

Macy's (Wednesday 8/13/08)
Wal-Mart (Thursday 8/14/08)
Estee Lauder (Thursday 8/14/08)
JC Penny (Thursday 8/14/08)
Kohl's (Thursday 8/14/08)
Nordstrom (Thursday 8/14/08)
Abercrombie (Friday 8/15/08)

You're Next Week's News Today bonus: Consumer Price Index (CPI) numbers should be out on Thursday, August 14. What's CPI? CPI, although criticized by some economists and market watchers, is used to more or less gage inflation. That's because it is supposed to measure the average price of goods you as the consumer are out purchasing. When tracked over time, some point to it as inflation thermometer - but again, talk to three economists on this, and they'll are likely get wound up. You'll also see stories about inflation next week because 1) the Federal Reserve is concerned about it; and 2) the CPI numbers are out on Thursday.

The Real Estate After Christmas Sale Continues

There are two groups who benefit when a bubble bursts: Those that saved their pennies, and those who are lucky enough to have deep pockets. That's why we've said repeatedly right now is like an after Christmas sale for the financial and real estate inclined.

That doesn't lessen the hurt for others, or does it?

Here's why you care: Amidst the further gloom and doom headlines today is a great story in the Wall Street Journal about how a bank in San Diego is buying up houses banking on the market turning around in five years. Even though you likely don't live in San Diego, and each real estate market is just that - a market unto itself - this matters to you. Why you care is because even if you can't take advantage of the sale, and are worried about your house price, it is another sign that those who are financially enabled are convinced of a turn around (albeit down the line). That should help some of the sleepless nights.

Here's another reason why you care: Just like this San Diego bank, the Washington Post has previously reported that Fairfax County Virginia has stepped in as a local government actor to buy properties in foreclosure. They are acting in defense, but down the line, that just might look like a terrific offense. (Many thanks to the alert Why You Care fan that sent us this link).

Gives you a sense that there a lot more deals going on out there than you are aware of, huh?

While the Fed Debates Rates, Get Smart on Oil's Impact

While the Federal Reserve Board meets today to discuss rates, a wounded real estate market, flaccid economy, and concerns about inflation we thought it would be a good time to give you two excellent pieces that should be read together. They are, of course, about oil. But, they are really about where you live and how.

Here's why you care: FORTUNE has a well researched article called "Falling Oil Prices: The Downside". Their point, oil is coming down because there's less demand. There's less demand because our economy is in the tank. That's interesting to consider that pump pain relief comes at a different cost - i.e. an acknowledgement the economy is sick.

BUT, if you take the FORTUNE article then read Sunday's New York Times' "Shipping Costs Start to Crimp Globalization" you'll get an even different take. Their point, pump pain means higher fuel costs for shipping goods. Thus, made in Akron, Ohio starts looking better than made in India to the Wal-Marts of the world.

So while you are pumping your next tank and watching the numbers roll over like a slot machine trying to calculate the national deficit, consider which pain you're willing to bear.

Here's another reason why you care: We're going to pay either way, so what's the best path? We think reading these two articles today will leave you better informed as the campaign cycle heats up and the legions of political advisers look at data to shape presidential campaigns. They'll do that believing they know why you care. These two articles will help you make up your own mind.

The Solution, Or Trading One Drug for Another?

Today's New York Times' lead - shouting that banks expect borrowers with decent credit to start defaulting - has enough angst in it to cause a run on Zantac at your local drugstore. One would think that would be enough to say that's why you care, and this is your one must read article today.

You'd be wrong. What you REALLY want to do is read their lead today, then go read their lead editorial from yesterday regarding banks and private equity (aka deep pocket investors).

Here's Why You Care: The argument (which the Times editorialized against yesterday) is that, it has all gone to hell and the only way out is for the private deep pockets to invest in the banks so they can start lending again. If that happens, then the machinery that allows everyone to borrow money and make money can start moving again. The catch? The catch is that the private investors want to be free of the rules that essentially say if you buy enough of a bank, then you get regulated like one.

Here's another reason Why You Care: The Times makes some very good points regarding a lack of regulation and fancy math being the twin sirens that have grounded our collective financial ship. But, when you wake up Monday and read today's headline, you start to get the picture of just the type of pressure regulators will be under from private investors who say, "hey, we've got away out" all the while each day's headline points to further meltdown. In other words, does this end up being part of the solution, or would this really be like trading one drug habit for another?

The Sunday editorial did a good job of showing the behind the scenes debate. To best understand it and whether regulators will bend is to read both pieces together. Then you'll really understand why you care.

Book Review: "Deception and Abuse at the Fed"

By Tom Kaufman and Christian Hudson

Originally Published in the Santa Cruz Sentinel: 07/27/2008

Foreclosures in record numbers, inflation worries, a stagnant stock market ... Ask yourself: Have you seen a newscast in the past week that doesn't mention the Federal Reserve Board?

That's because the Fed is very much the 800-pound gorilla when it comes to righting our country's financial ship. But we're willing to bet you really don't know much about the Fed, and that's because historically it likes it that way.

That's why Dr. Robert Auerbach's new book, "Deception and Abuse at the Fed," has perfect timing. Auerbach served for more than a decade as an economist on the House of Representatives' Banking Committee [now Financial Services Committee] under then Chairman Henry B. Gonzalez. [Full disclosure, Auerbach has been a long-time friend, source and adviser in the ways of both Washington and economics for one of the column's authors.]

It is former Fed Chairman Alan Greenspan who takes center stage in Auerbach's critical look at the Fed's actions over the years. Perceptions ebb and flow in waves and the sea may be leaving Greenspan's reputation on somewhat rockier shoals of history. In part, this may be due to Auerbach's detailed account of skirmishes between then-chairman Greenspan and then-chairman Gonzalez.

The skirmishes pitted an ever-aggressive populist with little patience for the perceived imperial Fed in Gonzalez versus Greenspan's protection of the Fed's cherished independence.

The depiction is certain to dim the luster of the Greenspan years and bring into question the role of the Fed. More importantly for Greenspan, the book questions his political role in the Bush tax cuts and not preventing some of the abuses that have led to bubbles and the recent economic distress first arising out of the subprime market.


The book makes the case that for 17 years, the Fed insisted there were no records of the meetings of the famous "Federal Open Market Committee," which sets Federal Reserve strategy. Dogged determination by Gonzales forced the Fed to admit that there were actual transcripts going back to 1976 and they were eventually released. In other words, journalists and market watchers should send Auerbach a thank-you note pushing them into the light.

Greenspan was an unparalleled master of the media, and Auerbach asserts that as the "Master of Garblements" he manipulated congressional hearings and the press to achieve his desired results. Auerbach also argues that the Fed has brilliantly insulated itself from criticism by gobbling up able-minded economists out of academia with plum contracts.

Knowing the world would dissect his every word, Greenspan became a zen master at vague descriptions that left open an incredibly wide range of interpretations. At one session, four eminent newspapers had four different headlines on the same answers given by Greenspan: "Greenspan Sees Chance of Recession," "Recession is Unlikely, Greenspan Concludes," "Recession Risk Up, Greenspan Concludes," and "Fed Chairman Doesn't See Recession on the Horizon."

But this book highlights more than just Greenspan and his legacy. It sets forth the challenges that Congress faces in dealing with the Fed. The Fed needs to remain independent, but it is Gonzalez's premise, and apparently Auerbach's too, that it is unacceptable for an unelected body having vital control over the U.S. economy to be able to operate in secrecy without disclosing to the public its entire decision-making process. Auerbach's book, while focused on Gonzalez's victories with the Fed, is invaluable to anyone who cares about the economy and the at-times guerilla warfare between Congress and the Fed as they both grapple with what's best for the American economy.


Tom Kaufman is the Capital Markets Committee Chairman for the American College of Real Estate Lawyers.

Christian Hudson, a former Santa Cruz resident, now practices law at Hunton and Williams LLP in Washington.