Eden Hill Journal

Comments, dreams, stories, and rantings from a middle-aged native of Maine living on a shoestring and a prayer in the woods of Maine. My portion of the family farm is to be known as Eden Hill Farm just because I want to call it that and because that's the closest thing to the truth that I could come up with. If you enjoy what I write, email me or make a comment. If you enjoy Eden Hill, come visit.

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Location: Maine, United States

Saturday, December 27, 2008

Street Value

Wall Street certainly is a mystery to me. How can so much money appear out of nowhere and then vanish just as quickly? It doesn't even equate with a poker game where someone can be in the money one minute and in deep trouble the next, all on a single bad hand. No, at the poker table the money all goes to somebody in the end. On the street, it just vanishes.
A year ago we were all trying to figure out why Wall Street investors were pulling their investments out of stocks and sinking them into oil futures when these same investors knew very well that they were damaging the economy by driving up fuel prices. Yet that didn't stop them from doing it. That whole thing turned into a little circus ring with investors seeing oil futures going up and finding the temptation too great to pass up. The more investors dumped stocks and went for the oil futures, the more money there was in that market chasing after a fixed commodity, so the prices rose making the investment in oil futures even more tempting for other investors. Money seems to have a bubble mentality.
I never did figure out if the oil futures market wound up ahead on that game or lost their shirts when oil futures toppled.
But it's the mortgage securities market that really baffles me. We all know that investors lost their shirts on that one. I was thinking about that today and it occurred to me that it isn't really the bankers themselves that lost at that game. I mean, banks did lose but not as much as investors lost. It was a good game for banks. They made the loans, then packaged them and got their money back by selling those mortgages to investors. But really, what did investors see in low-interest mortgages? Why were they so hot to buy that crap when stocks were still on the rise? What made this market in low-return mortgages look more appealing to investors than actual productive stocks?
Clearly it wasn't the return on investment represented by mortgage interest. There had to be something besides interest that made these securities seem so appealing. But what?
The only thing I can think of is that the value of the property secured by these mortgages had some sort of appeal. Back in '03, '04, and to some extent '05 there was an attitude that real estate was a secure investment. But the security of real estate seemed to be rising. Property values were on the rise and seemed to be rising at a stronger rate every year. Mortgage investment strategy, the packaging of mortgages for sale to Wall Street investors and the seemingly endless supply of easy money for real estate purchases, was throwing ever more money at a limited commodity, housing. This extra money was driving up the prices of real estate. These rising prices seemed to offer security to investors so even more money came flooding in from Wall Street. That whole thing turned into a little circus ring with investors seeing real estate futures going up and finding the temptation too great to pass up.
Deja Vu...
There's only one hitch here...
There were only two ways for Wall Street to see any sort of "good" return on their investments in low-interest mortgages.
One was if the mortgages were short-term and the interest rates would be higher when the mortgages were renegotiated. Did Wall Street stand to gain this way? Was that part of the scheme? Somehow I doubt it. I doubt that the investors expected the homeowners to give them higher interest rates rather than refinancing the mortgages and leaving the investors with near-zero return.
The other way seems much more likely to me. The other way I'm referring to is that Wall Street could see gains if the mortgage became a foreclosure and the investor wound up holding a property whose value had inflated well above the value of the mortgage. With property prices rising like a space shot to the moon, that option must have had a very strong appeal to investors who knew the loans were being given to many people who simply did not have the ability to pay them off. Foreclosures were a sure thing.
So what was it that finally tipped over this apple cart?
It was Katrina when gasoline prices finally rose above $3.00 a gallon. Do we remember that? We were paying $3.10, $3.20, even $3.50 or more a gallon for a little while back then. The price soon came back down, but the scare altered the landscape of our economy. The scare scarred us.
For one thing it allowed the advocates of "peak oil" to convince us that there was a tipping point in the supply/demand scale for oil and that this tipping point was getting close. Talk of $5.00 and $10.00 gasoline didn't seem so far-fetched anymore. Gasoline had gone from $1.50 a gallon to $3.50 in just the first five years of the Bush Administration and the sky was the limit. We were actively alienating our suppliers around the world as well as our competitors and the future looked bleak.
So all of a sudden American home buyers began finding themselves a little short of money as they commuted in their new SUVs from their new far-suburban homes to work. Already the Federal Reserve Bank had decided there was a risk of commodity inflation so interest rates were on the way up. Low-interest credit was getting harder to find. But consumers were finding they had less money left each month to make house payments. They were paying too much of their income for heat and gasoline.
At first it must have looked like a wet dream come true for Wall Street. People would soon be foreclosing on property that was worth much more than what they paid for it.
Wet dreams rarely end well.
The only way most people would foreclose is if they had no way to sell their property and pay off the mortgage. The only way that would happen was if the value of the home was falling and had fallen below the current value of the mortgage.
Somehow Wall Street hadn't taken this into account -that is to say if my option two above was true, if Wall Street anticipated foreclosures as a part of the investment returns strategy. Wall Street anticipated foreclosures in an inflating property market. Instead, they got foreclosures in a deflating market. They got foreclosures in the only way that foreclosure made sense.
Maybe now with less money to throw around, we can find some stability for awhile. Maybe we can figure out a way to stop investors from building these ridiculous pyramid schemes that just wind up being clown and elephant filled circuses?
And why are there elephants in the circus and not donkeys?
Maybe this is like a high stakes poker game where there winds up being far more money on the table than entered the room in the players' pockets.

Thursday, December 25, 2008


Interesting new term being thrown out in this video, "Christ-ophobes." I think that would be what the right-wingers would refer to me as. But watching this whole video reminded me a lot of good old (now deceased) Jerry Falwell. Look at the jiggling blubber around his scornfully smiling face, and the way he puckers his lips when he is trying to make a special point to his simpleton audience. And the pride, oh look at all the pride! If you don't see Falwell in that you have forgotten Falwell.
So from your favorite Christ-ophobe, Merry Jesusmas to all!

Wednesday, December 24, 2008

Christmas - Saved

Saved in the sense of "born again" and God's Grace and the Spirit of Christ...
Just not "saved" in the sense of "returning to the real meaning of Christmas," the birth of the God-child Jesus, star shining bright, wise men crossing deserts on camels, angels talking with lonely shepherds in the night. What I mean is saved in the sense of being saved from the religious notion that somehow Christmas has been stolen from them.
You see, I've been there. I've had these strong feelings that Christmas has been so commercialized that we have lost sight of the real meaning of the nativity, the Bible story about the birth of Jesus. I have been a member of a church, many of whose members bemoaned this same over-commercialization and corruption of Christmas. But I was weak as a Christian. I couldn't blind myself to the fact that ALL of the people in the church who had this complaint still celebrated Christmas in the commercial way, most very happily so! Me, well I knew that if I were to put my beliefs into practice and deprive myself and my family of a Christmas tree and brightly wrapped presents and cookies and eggnog and trips over to Birch Street to look at the lights on that guy's house and then on to the end of Maple Street and a few other streets in town and Santa Claus and Rudolph and the mad rush of wrapping all the presents on Christmas Eve (my wife's tradition) and Christmas songs and... well you know what I'm talking about. The story of the pregnant virgin and her much older husband being turned away at the inn but by God's fiat creating that spectacle at Bethlehem a couple thousand years ago was losing ground.
But a day or two ago I came to the realization that the story of Jesus' birth on the Winter Solstice is a fable in itself. The Bible never said Jesus was born on December 25 and there is no indication that all the events surrounding this birth all took place on that same day. In fact, the tradition of celebrating the birth of Jesus on or around the solstice seems to have derived from the adoption by the church of Rome of pagan celebrations in order to increase membership.
In other words the story of Christmas being about the virgin birth is just as bogus as the story of Santa and Rudolph.
So why sweat it? God in His Grace isn't sweating it. Complaints and resentment don't express the spirit of Christ. And really, none of us are upset by the commercialization the way Jesus was upset by the money changers in the temple. So why not just shut up about the religious significance and get on with enjoying Christmas?
Remind me that I wrote this if I ever slip back into thinking that the real meaning of Christmas has been lost.
Update: You have to read this...

Sunday, December 21, 2008

A Liberal Flat Earth

I might be stepping out of bounds here in terms of what I usually have to say about things, but I don't think it's very far out. You be the judge.
I just read a post in Juan Cole's blog about his attending a Muslim event along with Melissa Etheridge and Rick Warren. Rick Warren is the author of the book The Purpose-Driven Life and pastor of Saddleback Church in Lake Forest, California. Barack Obama has invited Warren to give the invocation at his inauguration ceremony on January 20. This has caused quite a stir since Warren is a religious conservative and advocated for California's Proposition 8 which banned gay marriage in the state and annulled 18,000 gay marriages. I have been reading for days in John Aravosis's AMERICAblog about what a bad idea it was for Obama to make that choice since Warren has done so much damage to the gay and lesbian community. Aravosis was an early and strong supporter of Obama even when other highly respected liberal bloggers favored Hillary Clinton.
An aside...
I'm neither gay nor lesbian. I found the love scenes in Brokeback Mountain disturbing and un-tasteful. In other words I find male homosexual copulation to be disgusting. I don't attribute morals to the God who is going to oversee the destruction of our entire universe eventually and certainly the death of our own sun. But in human terms I can understand why most societies consider homosexuality immoral. Homosexual marriage appears to me to be an attempt to legitimize the morality of homosexual sex. I do see that this is what the gay and lesbian activists have been trying to do for decades here in America, to legitimize the morality of how they engage in sex. Again, morality isn't a God thing. It is based on human consensus. But that doesn't mean that in human terms anything goes. Some things clearly are immoral. Take for instance the torture of human beings. That is clearly immoral by any human standards of morality.
Back to my thesis...
Aravosis's derogatory tone towards Obama's choice of Warren and by extension Obama's bad judgment in general - something we have heard a lot of recently from liberals - hasn't been striking a chord with me. I have not been surprised or upset so far with Obama's leadership or with his choices when it comes to advisors and cabinet members. It makes sense to me that Obama wants his administration to represent not a small core of America's political community, the liberals, but a wider spectrum. Obama has enough faith in his own judgment and in the powers entrusted to him by the Constitution to believe that he can lead this wide political spectrum to do what is right for America. I still think that's what Obama is doing - not just trying to do but doing in reality.
So I disagree with Aravosis and the LGBT "community" here. I don't see Warren as a hateful person. I don't see myself as hateful either. But Aravosis is basing his support on only one issue, the gay and lesbian marriage issue. This isn't at all unlike the conservatives who base their judgment of political figures on one or a few conservative hotspots.
Juan Cole attempts to lift the debate a little bit. He comes to Warren's defense and suggests that it would do the right wing religious faction good to embrace social issues the way Warren has been doing. That's a very good point. But it seems to be Cole's only point.
I've met a lot of conservative-minded people who have good personalities, really likeable people, gifted and charming. That's no reason to trust them any more than charm and philanthropy are good reasons to trust car salesmen. There can be very little doubt that Warren and his congregation are advocates of conservative policy and adversaries of anybody with liberal intent. Cole doesn't seem to want to point that out.
I just think that all these single-issue debates are two-dimensional, so flat-earth. You have to look into the depths of what people want to keep secret before you can see things three-dimensionally, before you see the curvature of the earth. Warren may appear to be philanthropic, but at his core he's still a conservative and so are his constituents. They keep a lot of secrets. Aravosis may appear to be liberal and an Obama supporter, but at his core he is a gay activist. He keeps a lot of secrets.
The earth appears to be flat from so many different and opposing perspectives. It's up to us to expose that it is round, to expose the secrets that make the illusion of two-dimensional reality possible.