DC Capital Striders hands water to Mayor Fenty
Running into Reese Witherspoon at the Mall
Running and Swimming in Lake Zurich
Running during the Smithsonian Folklife Fest - Wales
Running on Independence Day
Ropes Course at Homestead, VA




2008 Creative Economy

After the Wars, TARP stood as Bush's Last Stand

Sunday, February 27, 2011 Reporter: RuninDC 1 Response

Migrant Mother during the Great Depression
As President Bush stated during a 2008 Ann Curry NBC Today Show interview,  “The Iraq and Afghanistan wars caused a boost to the economy.” Well initially it did  -- this was the case  in Washington, DC with rising expenditures in the Pentagon and defense contractors.  But today, with the Obama Administration sharply cutting back on federal spending, that economic boost spurred by the government is finally tapering off. 

How Much Did the Wars Cost?
During a double-digit recession, the wars, which is now the second-most expensive in US history after WW II, have become a huge drain for an economy that is hurting for dollars. The fiscal burden of war is not just to execute to win but also to sustain the fight during the occupation stage.  Additionally, American taxpayers will have to pay for the cost of the war throughout their life times, since there are many injured troops who have sustained lifelong disabilities and mental trauma.  Furthermore, the huge cost of military spending has worsened the deficit ($1.5 trillion) requiring the government to make immediate and steep budget cuts, which the GOP-led House is now championing.  Ironically, the GOP is fairly reticent in reminding Americans that it was President Bush's wars and tax cuts that led to this deficit (Brookings Institute)

Housing Crisis was the Trigger
But did the War lead us into a double-digit recession?  Despite the $2 trillion plus spent so far, it is merely just 1% of our GDP.  It was instead the housing crisis that caused the US and other parts of the world to slip into a recession.  Any good economist as early as 2005, could tell that the steep rise in the price of housing followed by the stock market bubble in the 90s was leading to a bubble that would eventually lead to severe consequences for our economy.

Was Bush to Blame?
So was the Bush administration to blame?  In my research on my previous paper on Frank Dodds, I was surprised to learn that it was the Bush administration (known for its support of deregulation) who wanted to keep tabs on both Freddie and Fannie.

Bush Wanted Oversight of Fannie/Freddie
In 2005, President Bush  (and also Sen McCain) wanted to transfer oversight of Fannie and Freddie to the HUD. After the accounting scandals that hit Enron, WorldCom and others, this seemed like a good idea. President Bush did not feel that Congress could do its job in overseeing Fannie and Freddie, who had issued over $1.5 trillion in outstanding debt.  

Democrats Oppose Transfer
But Rep Barney Franks, the ranking Democrat in the Financial Services Committee, strongly opposed this bill.  This clear act of partisanship turned out to be a huge mistake, because reining in Fannie and Freddie and preventing them from investing in risky securities could have significantly alleviated the housing crisis.

"These two entities—Fannie Mae and Freddie Mac—are not facing any kind of financial crisis," said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. "The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing."  Rep Frank

The Fiascos of Fannie and Freddie
Financial giants such as Freddie Mac and Fannie Mae with the government asleep at the switch, played in intricate role in the leveraging of the sub-prime market.  The Bush administration felt that Fannie and Freddie were cooking their books so Treasury Secretary John Snow proposed placing the companies under the Treasury oversight with strict controls over risk and capital.
Even if the Bush administration was successful in transferring oversight  of Freddie and Fannie to the HUD, the housing crisis would likely not have been completely averted.  However, it is possible that the HUD would have found the subprime market problematic and sounded alarm bells sooner which could have possibly significantly lessened the impact.

Nevertheless, the Bush administration with the backing of the Federal Reserve, failed to convince Congress to transfer oversight until it was way too late.  During this time, interest rates stayed abnormally low, making it cheaper for consumers to buy houses.  After origination, mortgages were then repackaged and sold as securities such as Collateralized Debt Obligations (CDO).  And when they ran out of borrowers, they mortgage industry found a way to make sub-prime loans to people who couldn't afford them.

Were Americans at Fault?
The mortgage crisis began in 2007 after a sharp rise in mortgage delinquencies and foreclosures.  About 80% of the mortgages issued from around 2005--2007 were adjustable-rate mortgages (I know, I was issued a couple of them from refinances on a few of my rental properties in SE DC which I used mainly for repairs and renovation.  In many ways, I and my borrowing habits contributed to the Housing crisis.

Some may argue that the American public should have stayed on its toes and applied some pressure on these companies to stop such risky investment. But lets face it, middle class America was able to purchase homes that they would have never dreamed of buying in the past, and the average person would assume that these large banking and investment firms would have been reasonable and not have invested more money than they could risk in investments that were very risky. The books should have all balanced out. Liabilities should never have been greater than assets but greed and mismanagement got the best of them.

Money Could Have Have Stamped out World Hunger
But despite the fact, that the wars did not cause the recession, with the myriad of problems we are facing today, it was not a prudent way to spend money.  That $2 to $3 trillion dollars could have been better spent providing healthcare to the uninsured, feeding the poor, stamping out illiteracy around the world, etc.  In addition there were second-tiered effects since our indebtedness from the wars contributed to disastrous monetary policy and regulations which favored low interest rates spurring the real estate bubble.  Because of the burgeoning costs of both wars (which far superseded earlier projections of only $100 to 200 billion), the Federal Reserve flooded the American economy with cheap credit to help pay for it. Quite frankly, without the burden of managing two wars, our government could have focused on our economy and reacted sooner and more comprehensively.

"The regulators were looking the other way and money was being lent to anybody this side of a life-support system." 
Professor Joseph Stiglitz, a Nobel prize winning economist  at the Columbia Business School and a former economic adviser to President Clinton.

By, 2008, with our economy on the brink of collapse, President Bush had one last chance to keep our country from slipping into a depression.  From 9/11 to Katrina, Bush’s eight-years in office was full of turmoil and catastrophe – would there be one more that would eclipse the Great Depression of the 1930’s?  Amazingly, President Bush rose to the challenge, quickly gaining bipartisan support and decisively bailing out the Automotive Industry, the Banking Industry, the Housing Industry and many others.

Congress authorized $700 billion for the Troubled Asset Relief Program (TARP) which by itself added 3.4 percent to the GDP and added almost 2.7 million jobs.  With this money, Congress purchased distressed assets, especially mortgage-backed securities, and made capital injections to banks.

Chairman Ben Bernake warned Bush sternly that if he didn’t act fast, our country would slip into another Great Depression.  Secretary Paulson said that “We may not have an economy on Monday.”  Despite all the past missteps, the government’s action during this very critical and dire time in history was far reaching and just the right intervention that rescued our economy from falling off a cliff.

Today, not only have the majority of the loans been paid off, the government is actually starting to make money.  The government proved its mettle during the most difficult time in Bush’s administration.  It proved that government intervention (as opposed to Laissez Faire) does work.  Ironically, the government performed well as a bank and got paid back a lot sooner and more completely than expected with more government money.

With the world financial crisis (US, Greece, Dubai, Ireland, etc.), these scenarios prove that John Maynard Keynes may have been right all along – that government intervention during times of economic turmoil” is exactly what’s needed.  Keynes also argued that the private sector can be inefficient and that the public sector needs to be more responsive.
Thus a key public policy recommendation is more government regulation (However, with the budget deficit, this would have to be conducted with less government).

It was faulty public policy of deregulation and home ownership that led to the financial crisis.  Thus the public policy should have been given greater oversight of Fannie and Freddie and the Housing Market.  Ironically, in 2005, President Bush wanted to transfer oversight of Fannie and Freddie to the HUD, after accounting scandals had hit Enron, Worldcom and many others. Sadly, Rep Barney Franks and the Financial Services Committee stuck with party lines and opposed this proposal.

It was also the federal government’s public policy (both Republicans and Democrats) that promoted home ownership through FHA and allowing buyers to purchase homes with the smallest down payment possible.  Sadly, Fannie and Freddie had enormous lobbying powers and were able to influence Congress who didn’t want to vote against Congress.

This policy for increased home ownership was devastating to our economy and was a huge factor that led to the financial crisis.

Today, the housing market in some areas have stabilized thanks to improving public policy in this area.  Additionally, home owners who were able to modify their loans were able to receive an average of 36 percent reduction in their mortgage payments.

With TARP, the government performed well as a bank and got paid back a lot sooner and more completely than expected (with more government money).  In addition, unemployment has come down (although slightly).  Since the government bailed out the banks, the government is relying on them to spur the economic recovery.  The government  (Secretary Geithner) is pushing for a more liberal monetary policy so that banks can lend more to individuals as well as businesses.  Sadly, many banks (who are flush with cash) are still lending very little of its bailout funds – this needs to change in order for the economy to recover more quickly.

The government proved its mettle during the most difficult time in Bush’s administration.  It proved that government intervention (as opposed to Laissez Faire) does work and both the government and the private sector needs to work side-by-side.  Today as borrowing costs have come down, larger businesses have raised substantial capital from private sources.  Now the government should continue pushing hard for the small businesses (which hires half of American workers and is thus crucial for economic recovery) to tap government money.  In doing so, the government can provide incentives to banks who cater to small businesses.  This can be done under the umbrella of TARP.  So even with the past success, TARP can be leveraged towards creating jobs and even cutting the deficit.


Will Dodd Frank Survive the GOP?

Sunday, February 20, 2011 Reporter: RuninDC 0 Responses

Rep Frank and Sen Dodd

In 2005, President Bush  (and also Sen McCain) Wanted to Transfer Oversight of Fannie and Freddie to the HUDAfter the accounting scandals that hit Enron, WorldCom and others, this seemed like a good idea. President Bush did not feel that Congress could do its job in overseeing Fannie and Freddie, who had issued over $1.5 trillion in outstanding debt.  But Rep Barney Franks, the ranking Democrat in the Financial Services Committee, strongly opposed this bill.  This turned out to be a big mistake, because reining in Fannie and Freddie could have significantly alleviated the housing crisis.

Financial giants such as Freddie Mac and Fannie Mae played in intricate role in the industry and its problems.  The Bush administration felt that Fannie and Freddie were cooking their books so Treasury Secretary John Snow proposed placing the companies under the Treasury oversight with strict controls over risk and capital.
"These two entities—Fannie Mae and Freddie Mac—are not facing any kind of financial crisis," said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. "The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing."  Rep Frank
Since 2008, both Fannie and Freddie were placed in conservatorship by the US government. Since then the Dodd-Frank Wall Street Reform act have been put into place in order to prevent market meltdowns again.  However, the bill has left out Fannie and Freddie.  Now with a GOP controlled Congress, the House are starting to debate how to reform these government sponsored enterprises.  A House Financial Services Committee has called for weighing the "costs and benefits" of Dodd-Frank "to improve those parts that work well while changing those parts that do not."  Meanwhile, Rep Michele Bachmann has introduced legislation to repeal the full bill.

Contrary to this argument is that government is in place to protect its citizens from corporations that are out solely for the purpose of making a profit.

Budget Deficit
Meanwhile because the US is over $1 trillion in the hole, the government needs to start making significant cuts.  This bipartisan initiative means that the government will have less capital to implement Dodd-Franks.

America has certainly evolved from an era of sole industry giants, and government share holding.  All persons most of the time are seeking what its in the best of their interest and regulations more often than not seek to prevent further abuse in such quest, often hurting opportunity and advantages one could have gained had it not been for such.

Lets looks at the facts of what has occurred since the The Dodd-Frank Wall Street Reform and Consumer Protection Act was proposed in late 2009, and shortly months afterwards was signed into law by President Obama. The Act in itself calls for a wave of sector regulations in the financial market, in hopes of identifying and prevent future market shocks as the ones created by the housing market but also calls for the creation of a new consumer agency that broadens the power of government and shifts responsibility from consumers to industry.  In addition, the Obama administration will need to create a replacement for Fannie and Freddie.  The creation of these bureaus are currently being scrutinized by the Senate.

It has been over six months since the Dodd-Franks bill was passed and very little progress has been made.  In fact, the SEC, one of the most important players of Dodd-Frank has been just “squeaking by” because they are quickly running out of money.  Meanwhile, House Republicans today unveiled a plan to cut $61 billion from fiscal 2010 levels set by the Obama administration.  If these massive cuts are passed, not only would the government find it hard to fund Obama care, but also implement the vast majority of the measures in the Dodd-Franks bill.

Some of the highlights of the legislation calls for consumer protections with authority and independence. Housed at the Federal Reserve, it would provide consumers with information on financial products and market practices. Another intricate part of the bill interesting to the private sector is the end of so called government bailouts. This practice which had been seen in the late 2000's and in the midst of the financial crisis had outraged million of Americans while saving some of this nations largest corporations from imminent failure. The Act also called for an advance warning system to identify and address risks in any given sector before they affect the market as a whole. This is still a controversial topic and remains to be expanded as to how far of a reaching power it may have on the free markets. Other things include such things and calls for transparency and accountability for exotic instruments, interfering in executive compensation and corporate governance, protection for investors, and a call for regulation of current statues and laws already in the books.

This bill thus creates an independent Watchdog that is housed at the Federal Reserve with the authority to ensure that Americans get the accurate information they need on banks and other financial products. It calls for the government to have more involvement in hopes of avoiding future risks to our financial market. The Consumer Financial Protection bureau would be comprised of several pieces. These include: the necessity for a Financial Head with independent budget. They would also have an independent rule writing and examination and enforcement of these.  

The government has also set up a new hotline that consumers can use to report abuses, much like a complaint hotline. However, the Republican controlled House is hoping to eliminate the funding for the consumer watchdog.

As you might expect government is a much needed part in a civilized society. Having taking a look at our nations past history and in times of financial boom and bust, one can agree that a government that works hand-in-hand with the private sector and in the interest of the people is one that works best. The idea that a single act or piece of legislation will root out all greed and self interest in the system is certainly a fallacy. In my opinion its up to each and every one of us to take personal responsibility for our actions, including those of investments, and at the same time try to share a common sense of personal responsibility in generations to come.

Most of Dodd-Frank’s provisions have a deadline of one year.  That means we have past the half-way point, with the second half been all uphill.  Although Republicans want to repeal the act, all they might be able to do is to trim around the edges.  In light of significant costs to implement and massive budget cuts been proposed, perhaps the two parties should come to a consensus on what can be trimmed, so that the Bill can take effect in protecting consumers. 

Now that the Republicans are in control of Congress, they want to roll back the bill by trimming the edges.

Contrary to what government has tried to convince the public of in the last past years, America was made great by private industry both by smalls businesses and giant corporations.  Can America regain its competitive edge?

For more information and details on the act visit:


Obama Extending Bush Tax Cuts

Tuesday, December 07, 2010 Reporter: RuninDC 0 Responses

I think stocks maybe looking up for rest of the year.  Why, because short of a major conflict in the Middle East or Asia, there's no expected bad news ahead that could spook the markets.  How about Gold -- perhaps Gold which had a wonderful run so far this year, can take a little respite.

Surprise tax cut boost from the President (I was shocked that the White House would concede w/ GOP).  As you may know, I believe strongly in government intervention and regulation.  I'm not a supporter of Laissez Faire and from my visit to Greece this summer, I don't believe neo-liberalism works.

President Obama didn't really want to extend the cuts for the wealthy. But this was a good concession.  I give him credit for this.  Better for tax cuts for the wealthy than no tax cuts for the poor and middle-class.

The GOP backed the President's plan to extend the 13 mos unemployment benefits paid to jobless workers -- this is huge for these folks to continue spending.  And it was wise of Obama to leverage this lame duck session to get his initiatives accomplished.

Additionally payroll tax was decreased for folks making less than 40K a year putting $800 more into their pockets -- these are folks throughout America.

As stocks rally, Bonds slump.  This pushes the Yield up.

If this stimulus and cut is the start of something big that could spur economic growth, watch rates to rise over the next year.
So far, retailers are doing better than expected this holiday season (both bricks and mortar and online)

This helps the economy and the stock market in the short term. But how about long term?  Many Dems are accusing the White House for capitulating to the GOP.

Also many Monetarists claim that consumer spending is a fallacy of Keynesian Economics.

They say that consumer spending does not necessarily drive the GDP.

Y = C + I + G

In this case, C increases, G increases (stimulus).  But does Y increase?


Artificial Diamonds and Impact of Loss in Inventory

Sunday, October 17, 2010 Reporter: RuninDC 0 Responses
Neida makes and sells diamond earrings.  Cost and market price largely determined by the price of diamonds.   Artificial diamonds have really improved especially in China.  Sometimes, detection can be challenging.

Neida is concerned that these earrings will undercut her sales.   But then she says "As long as I don't sell any of the diamonds that I purchased at the old, higher price, I won't make a loss."


In this figure, Neida's old diamonds are part of the beginning inventory.  So, she already took a loss on the diamonds.  

Is this statement true?

Answer:  No, Neida incurred a loss on the diamonds in the inventory when the market price for diamonds dropped.  The current value of old and new diamonds is same and it does not matter which one she sells.


The Coming of the $1 Cupcake

Sunday, September 19, 2010 Reporter: RuninDC 0 Responses

So last night, my date introduced me to the wonderful world of cupcakes.  Red Velvet cupcakes to be exact (Penn Quarter near Chinatown).  And before last night, I was not a believer.

So what is behind the rise in the popularity behind the elusive world of cupcakes?  Though my Red Velvet was super sweet and delightfully delicious, it wasn't something to write home about or nutritious enough to substitute for lunch or dinner.

So clearly, the cupcakes are considered a luxury item.  And with prices that surpass $3 per cake, sampling a few can easily set you back $15-20.  (For this price, I could buy a burrito and a six pack of domestics)

The production of cupcakes is relatively inexpensive.  There are only a few flavors, the raw material is cheap and so is the labor to produce and sell. In addition, product inventory is low and since all their stores are tiny matchboxes, with lines that stretch outside a block long, the amount of rent they pay is minimized (they should pay the city for renting out the sidewalk).

Since there were only a handful of favors (Red Velvet and Chocolate), Process Costing  (used in companies that make many units of similar products) equals Total Manufacturing cost/Total Unit Produced.

Cupcakes seem to sell well without much marketing. All you need to do is head for the long lines.  Thus, they are able to bring in a lot of customers without having to spend much on overhead (marketing).  The women are crazy over it, and the men are lining up because their girlfriends asked them to do it.

With a low manufacturing overhead cost, their Predetermined Overhead Rate is also relatively low.

So with high revenues, do things look all rosy for the cupcake industry?  For the time being, yes, but in the long run -- a different picture.

First, I'm willing to stick my neck out and say that the cupcake industry is benefitting from its recent wave of popularity (Thanks to Sex in the City) as well as the downturn in the economy (Most people consider cupcakes as an affordable luxury -- a way to feel good about rewarding yourself with a trendy cupcake without breaking the bank).

Since it's relatively easy to make cupcakes (I'm sure even I could learn how to if I had the patience), and the start-up investment costs is much smaller than opening a cafe or restaurant, there currently is new competition sprouting up all over town.  I bet it won't be long before they open up cupcake kiosks in Giant and Safeway.

Huge returns naturally attracts competition.  Extra competition attracts capacity.  Now with more supply, the cupcake stores' incentive is to lower prices so that they can retain some of that business. 

Meanwhile demand remains constant and may decline over time, as people lose their adoration for them and the men get tired of waiting those long lines or realize this is wrecking havoc on their diets.

So, despite my great experience with Red Velvet (thanks to my friend), I'm not yet hooked (like I am for stand-up paddling) and fortunately for us, with new competition and lower prices, things don't look all rosy for the cupcake industry.

Yes, my friend, there will be a $1 cupcake in the not too distant future.


Things No Longer Gray East of the River

Sunday, September 19, 2010 Reporter: RuninDC 2 Responses
Last week, Chairman Gray soundly beat incumbent DC Mayor, Adrian Fenty.

Gray won mostly from votes in the predominantly African American neighborhoods east of the Anacostia River (83% in Ward 8)

One of Gray's top campaign promises is to bring jobs and economic development to the high unemployment communities (Unemployment tops 28%)

It's foreseeable that Gray can get this done.  He has lived in this community for many years and major developments are already happening today.

The Department of Homeland Security is currently building their headquartes in St Elizabeths (billed as the largest construction project in the history of the U.S. General Services Administration)
This project is expected to bring more than 30,000 jobs (both direct and indirect employment) during its duration with a payroll earnings of approximately $1.2 billion.

Gray will ensure that these projects hire local Washingtonians first and that Ward 8 will be the first to benefit.  More local jobs mean more social services and less drugs.  Everyone knows that illicit drugs is a major source of crime (both violent and petty).

So, provided that the economy in Ward 8 improves drastically over the next four years, meaning more jobs for the residents and higher Gross Domestic Product, the crime rate will surely decrease.

Here is a Supply and Demand model where the X-axis is GDP and the Y-axis is money.

Over time, as the economy improves and so does the GDP, the amount of wealth within the community increases.

With more jobs, greater wealth, the rate of crime (drug related, robbery, assault, rape) will also decrease.

So things are no longer looking Gray for Southeast.


The Supply and Demand for Cash for Clunkers

Saturday, September 04, 2010 Reporter: RuninDC 21 Responses

So you want to buy a car?  New or used?  It does make a difference, and the Cash for Clunkers program that seemed like a great idea at first may not be so hot after all.

Well, for starters, Cash for Clunkers seemed like a great idea at first.  But it has to do with supply and demand. 

A lot of people, 700,000 really, traded in their old cars for a nice government rebate.   So a lot of cars were being sold and inventories came down, bringing up prices.

But that was the last time auto dealers had a boon in sales.  People were just buying their vehicles earlier, moving up their purchases from the fall and even spring and summer of 2010. 

According to economists Amir Sufi of the University of Chicago and Atif Mian of University of California-Berkeley:
The government’s “cash for clunkers” program boosted auto sales by 360,000 during the two months it was in place, according to a new study. But in the seven months that followed, sales were down by 360,000 compared to what they would have been without the program, the study found.
The one good thing this program did was that it saved thousands of dealerships unprepared for the economic downtown from going under.  They were able to clear their huge backlog of cars sitting on their lots.

A year later, the price of used cars have gone up about 10% because now the inventory of used cars have gone down.  The government destroyed the clunkers, many of them (680,000) could have been recycled as used cars.

Also, with consumer confidence low, Americans are forgoing buying new cars, so the demand for used cars have gone up.

So was this good for consumers and the economy?  Or was it just good for the environment?


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