Failing Like Japan
By Bill Mann
November 11, 2008
In 1990 I spent a heady summer living in a very rural part of Japan. It was an incredible time to be there, the dawning of the age of Japanese hegemony. Japanese land, which comprised less than 0.1% of the world, was being valued at an estimated $20 trillion dollars, or 20% of the world's wealth at that time. Business leaders the world round were flooding into Japan to study the "Japanese Economic Miracle," and sought to implement its keiretsu and zaibatsu corporate structures.
We were in the middle of nowhere, but all around our little town, land was being chewed up to build golf courses that offered memberships primarily to businessmen from Okayama and Osaka, cities that were each a multi-hour ferry and train ride away. The cost of membership ran in the hundreds of thousands of dollars, and there was a long waiting list.
It didn't last.
The trouble with the Japanese miracle was that its basis wasn't management superiority -- though the country had some of the most admired companies in the world, including Toyota (NYSE: TM) and Sony (NYSE: SNE). Rather, the miracle in Japan was based upon over-loaning from the government to industrial conglomerates, which led, inevitably, to a bubble.
Unfortunately, the after effects of the Japanese bubble persist to this day, and they have deep implications as the American government considers making bailout loans to the Big Three: General Motors (NYSE: GM), Ford (NYSE: F), and Chrysler.
Why Japan continues to fail
In late 1989 the Nikkei 225, Japan's leading stock index, hit an intraday high of 38,957. Today, 19 years later, it's at 8,800. This multi-decade loss speaks to two things -- one, just how out of control Japan's asset bubble was, and two, for the sake of maintaining jobs, the Japanese government has not not made the hard decisions that would have allowed the country to grow.
In the aftermath of the bubble, Japan's government rushed in to prop up its banking system, which was teetering under the weight of nonperforming loans. Rather than letting businesses fail, this has had the effect of propping them up to continue operating. To this day the scope of the problem is still not known.
Without this information, investors both in Japan and outside have made a logical conclusion -- to take their investment dollars elsewhere. Japan's industrial sector has failed to meet its cost of capital over the last 20 years, in large measure because the government has allowed capital-destroying companies to continue to operate. Had these companies been allowed to fail, Japan long ago could have flushed out its system and gotten back on the road to economic health. In the name of protecting jobs, Japan's economy has continued to sputter, punctuated by spectacular bankruptcies in cases where the facade could not hold up. The cost of propping them up has been much, much more economic pain. Japanese call the long economic downturn ushinawareta junen, the lost decade.
Sure, but it's not your job we're talking about
As I look at the pressure being placed on the U.S. government to bail out or even nationalize American auto manufacturers, I see the same faulty logic being used. So desperate is the government to protect these jobs and these massive companies that it is willing to spend taxpayer money to keep Detroit afloat. It might be a good use of capital if the Big Three were thriving companies that had simply suffered from exogenous events that they'd reacted to improperly. But they aren't. These companies are sick and dying, and they have not generated a positive capital return in decades.
It's not as if this were an unpredictable outcome, as I noted in 2003 when GM raised $13 billion in debt to shore up its pension system. To what end would we bail out these companies? To keep them from collapsing? Wake up -- they have already collapsed.
The "end," of course, would be to keep thousands of jobs, particularly in Michigan and Indiana, from disappearing, to keep pensioners from being mauled at a point in their lives when they cannot afford it. These are loyal, good company people. What is happening at the Big Three affects them deeply, and it is both unfair and cruel. To think otherwise would be inhumane. I have some experience here, as my own grandfather's pension withered away as the textile company he devoted his life to collapsed, in no small part because it refused to relocate its factories to cheaper places.
But economic growth only comes when capital is allowed to flow to its most productive uses. I am very sorry, but propping up Detroit's dinosaurs is not productive. They have destroyed capital for a generation. They have too much debt, they have above-market labor costs, they have shown minimal aptitude at developing automobiles that people want to buy at prices that allow the companies to turn a profit. They are losing to Toyota and Honda (NYSE: HMC). Their parts suppliers are, as a group, collapsing, with Dana Holding Corporation (NYSE: DAN) and Visteon (NYSE: VC) teetering on the precipice.
Pain delayed is not pain avoided
There are no good answers here -- none at all. Whichever way we go, there is going to be substantial pain in the American auto industry. But a government bailout of recidivist capital destroyers is a particularly bad idea, as it perpetuates the destruction, and delays capital formation for more productive uses. It is a bitter, bitter pill. Better to let the Big Three take their medicine, attempt to reorganize in bankruptcy and attempt to emerge anew as smaller, more nimble competitors.
At a minimum, it helps keep the Japan scenario off the table. It's been easy to see that the political decisions made in Japan to protect companies and jobs have been destructive. I've often thought that one of the reasons American capitalism is superior is our willingness to allow companies to fail. Now I'm not so sure.
Thursday, November 13, 2008
Monday, September 22, 2008
What's caused the financial meltdown
Bad accounting laws, naked short selling, trading against bonds of companies shorted against, and I will add - the hyperavailibility and marketing of ARM financing on mortgages.
-------------------------------------------
How to Save the Financial System
By WILLIAM M. ISAAC
I am astounded and deeply saddened to witness the senseless destruction in the U.S. financial system, which has been the envy of the world. We have always gone through periods of correction, but today's problems are so much worse than they needed to be.
David KleinThe Securities and Exchange Commission and bank regulators must act immediately to suspend the Fair Value Accounting rules, clamp down on abuses by short sellers, and withdraw the Basel II capital rules. These three actions will go a long way toward arresting the carnage in our financial system.
During the 1980s, our underlying economic problems were far more serious than the economic problems we're facing this time around. The prime rate exceeded 21%. The savings bank industry was more than $100 billion insolvent (if we had valued it on a market basis), the S&L industry was in even worse shape, the economy plunged into a deep recession, and the agricultural sector was in a depression.
These economic problems led to massive credit problems in the banking and thrift industries. Some 3,000 banks and thrifts ultimately failed, and many others were merged out of existence. Continental Illinois failed, many of the regional banks tanked, hundreds of farm banks went down, and thousands of thrifts failed or were taken over.
It could have been much worse. The country's 10-largest banks were loaded up with Third World debt that was valued in the markets at cents on the dollar. If we had marked those loans to market prices, virtually every one of them would have been insolvent. Indeed, we developed contingency plans to nationalize them.
At the outset of the current crisis in the credit markets, we had no serious economic problems. Inflation was under control, GDP growth was good, unemployment was low, and there were no major credit problems in the banking system.
The dark cloud on the horizon was about $1.2 trillion of subprime mortgage-backed securities, about $200 billion to $300 billion of which was estimated to be held by FDIC-insured banks and thrifts. The rest were spread among investors throughout the world.
The likely losses on these assets were estimated by regulators to be roughly 20%. Losses of this magnitude would have caused pain for institutions that held these assets, but would have been quite manageable.
How did we let this serious but manageable situation get so far out of hand -- to the point where several of our most respected American financial companies are being put out of business, sometimes involving massive government bailouts?
Lots of folks are assigning blame for the underlying problems -- management greed, inept regulation, rating-agency incompetency, unregulated mortgage brokers and too much government emphasis on creating more housing stock. My interest is not in assigning blame for the problems but in trying to identify what is causing a situation, that should have been resolved easily, to develop into a crisis that is spreading like a cancer throughout the financial system.
The biggest culprit is a change in our accounting rules that the Financial Accounting Standards Board and the SEC put into place over the past 15 years: Fair Value Accounting. Fair Value Accounting dictates that financial institutions holding financial instruments available for sale (such as mortgage-backed securities) must mark those assets to market. That sounds reasonable. But what do we do when the already thin market for those assets freezes up and only a handful of transactions occur at extremely depressed prices?
The answer to date from the SEC, FASB, bank regulators and the Treasury has been (more or less) "mark the assets to market even though there is no meaningful market." The accounting profession, scarred by decades of costly litigation, just keeps marking down the assets as fast as it can.
This is contrary to everything we know about bank regulation. When there are temporary impairments of asset values due to economic and marketplace events, regulators must give institutions an opportunity to survive the temporary impairment. Assets should not be marked to unrealistic fire-sale prices. Regulators must evaluate the assets on the basis of their true economic value (a discounted cash-flow analysis).
If we had followed today's approach during the 1980s, we would have nationalized all of the major banks in the country and thousands of additional banks and thrifts would have failed. I have little doubt that the country would have gone from a serious recession into a depression.
If we do not halt the insanity of forcing financial firms to mark assets to a nonexistent market rather than their realistic economic value, the cancer will keep spreading and will plunge the world into very difficult economic times for years to come.
I argued against adopting Fair Value Accounting as it was being considered two decades ago. I believed we would come to regret its implementation when we hit the next big financial crisis, as it would deny regulators the ability to exercise judgment when circumstances called for restraint. That day has clearly arrived.
Equally egregious are the actions by the SEC in recent years lifting the restraints on short sellers of stocks to allow "naked selling" (shorting a stock without actually possessing it) and to eliminate the requirement that short sellers could sell only on an uptick in the market.
On top of this, it is my understanding that short sellers are engaged in abuses such as purchasing credit default swaps on corporate bonds (essentially bets on whether a borrower will default), which lowers the price of the bonds, which in turn causes the price of the company's stock to decline further. Then the ratings agencies pile on and reduce the ratings of a company because its reduced stock price will prevent it from raising new capital. The SEC must act immediately to eliminate these and other potential abuses by short sellers.
The Basel II capital rules adopted by the FDIC, Federal Reserve, Office of Thrift Supervision and the Comptroller of the Currency last year are too new to have caused big problems, but they must be eliminated before they do. Basel II requires the use of very complex mathematical models to set capital levels in banks. The models use historical data to project future losses. If banks have a period of low losses (such as in the mid-1990s to the mid-2000s), the models require relatively little capital and encourage even more heated growth. When we go into a period like today where losses are enormous (on paper, at least), the models require more capital when none is available, forcing banks to cut back lending.
As I write this article, I am seeing proposals by some to create a new Resolution Trust Corp., as we did in the 1990s to clean up the S&L problems. The RTC managed and sold assets from S&Ls that had already failed. It was run by the FDIC, just like the FDIC. We needed to create the RTC in the 1990s only because we could not comingle the assets from failed banks with those of failed thrifts, because we had two separate deposit insurance funds absorbing the respective losses from bank and thrift failures.
I can't imagine why we would want to create another government bureaucracy to handle the assets from bank failures. What we need to do urgently is stop the failures, and an RTC won't do that.
Again, we must take three immediate steps to prevent a further rash of financial failures and taxpayer bailouts. First, the SEC must suspend Fair Value Accounting and require that assets be marked to their true economic value. Second, the SEC needs to immediately clamp down on abusive practices by short sellers. It has taken a first step in reinstituting the prohibition against "naked selling." Finally, the bank regulators need to acknowledge that the Basel II capital rules represent a serious policy mistake and repeal the rules before they do real damage.
We are almost out of time if we hope to eradicate the cancer in our financial system.
Mr. Isaac, chairman of the Federal Deposit Insurance Corp. from 1981-1985, is chairman of the Washington financial services consulting firm The Secura Group, an LECG company.
-------------------------------------------
How to Save the Financial System
By WILLIAM M. ISAAC
I am astounded and deeply saddened to witness the senseless destruction in the U.S. financial system, which has been the envy of the world. We have always gone through periods of correction, but today's problems are so much worse than they needed to be.
David KleinThe Securities and Exchange Commission and bank regulators must act immediately to suspend the Fair Value Accounting rules, clamp down on abuses by short sellers, and withdraw the Basel II capital rules. These three actions will go a long way toward arresting the carnage in our financial system.
During the 1980s, our underlying economic problems were far more serious than the economic problems we're facing this time around. The prime rate exceeded 21%. The savings bank industry was more than $100 billion insolvent (if we had valued it on a market basis), the S&L industry was in even worse shape, the economy plunged into a deep recession, and the agricultural sector was in a depression.
These economic problems led to massive credit problems in the banking and thrift industries. Some 3,000 banks and thrifts ultimately failed, and many others were merged out of existence. Continental Illinois failed, many of the regional banks tanked, hundreds of farm banks went down, and thousands of thrifts failed or were taken over.
It could have been much worse. The country's 10-largest banks were loaded up with Third World debt that was valued in the markets at cents on the dollar. If we had marked those loans to market prices, virtually every one of them would have been insolvent. Indeed, we developed contingency plans to nationalize them.
At the outset of the current crisis in the credit markets, we had no serious economic problems. Inflation was under control, GDP growth was good, unemployment was low, and there were no major credit problems in the banking system.
The dark cloud on the horizon was about $1.2 trillion of subprime mortgage-backed securities, about $200 billion to $300 billion of which was estimated to be held by FDIC-insured banks and thrifts. The rest were spread among investors throughout the world.
The likely losses on these assets were estimated by regulators to be roughly 20%. Losses of this magnitude would have caused pain for institutions that held these assets, but would have been quite manageable.
How did we let this serious but manageable situation get so far out of hand -- to the point where several of our most respected American financial companies are being put out of business, sometimes involving massive government bailouts?
Lots of folks are assigning blame for the underlying problems -- management greed, inept regulation, rating-agency incompetency, unregulated mortgage brokers and too much government emphasis on creating more housing stock. My interest is not in assigning blame for the problems but in trying to identify what is causing a situation, that should have been resolved easily, to develop into a crisis that is spreading like a cancer throughout the financial system.
The biggest culprit is a change in our accounting rules that the Financial Accounting Standards Board and the SEC put into place over the past 15 years: Fair Value Accounting. Fair Value Accounting dictates that financial institutions holding financial instruments available for sale (such as mortgage-backed securities) must mark those assets to market. That sounds reasonable. But what do we do when the already thin market for those assets freezes up and only a handful of transactions occur at extremely depressed prices?
The answer to date from the SEC, FASB, bank regulators and the Treasury has been (more or less) "mark the assets to market even though there is no meaningful market." The accounting profession, scarred by decades of costly litigation, just keeps marking down the assets as fast as it can.
This is contrary to everything we know about bank regulation. When there are temporary impairments of asset values due to economic and marketplace events, regulators must give institutions an opportunity to survive the temporary impairment. Assets should not be marked to unrealistic fire-sale prices. Regulators must evaluate the assets on the basis of their true economic value (a discounted cash-flow analysis).
If we had followed today's approach during the 1980s, we would have nationalized all of the major banks in the country and thousands of additional banks and thrifts would have failed. I have little doubt that the country would have gone from a serious recession into a depression.
If we do not halt the insanity of forcing financial firms to mark assets to a nonexistent market rather than their realistic economic value, the cancer will keep spreading and will plunge the world into very difficult economic times for years to come.
I argued against adopting Fair Value Accounting as it was being considered two decades ago. I believed we would come to regret its implementation when we hit the next big financial crisis, as it would deny regulators the ability to exercise judgment when circumstances called for restraint. That day has clearly arrived.
Equally egregious are the actions by the SEC in recent years lifting the restraints on short sellers of stocks to allow "naked selling" (shorting a stock without actually possessing it) and to eliminate the requirement that short sellers could sell only on an uptick in the market.
On top of this, it is my understanding that short sellers are engaged in abuses such as purchasing credit default swaps on corporate bonds (essentially bets on whether a borrower will default), which lowers the price of the bonds, which in turn causes the price of the company's stock to decline further. Then the ratings agencies pile on and reduce the ratings of a company because its reduced stock price will prevent it from raising new capital. The SEC must act immediately to eliminate these and other potential abuses by short sellers.
The Basel II capital rules adopted by the FDIC, Federal Reserve, Office of Thrift Supervision and the Comptroller of the Currency last year are too new to have caused big problems, but they must be eliminated before they do. Basel II requires the use of very complex mathematical models to set capital levels in banks. The models use historical data to project future losses. If banks have a period of low losses (such as in the mid-1990s to the mid-2000s), the models require relatively little capital and encourage even more heated growth. When we go into a period like today where losses are enormous (on paper, at least), the models require more capital when none is available, forcing banks to cut back lending.
As I write this article, I am seeing proposals by some to create a new Resolution Trust Corp., as we did in the 1990s to clean up the S&L problems. The RTC managed and sold assets from S&Ls that had already failed. It was run by the FDIC, just like the FDIC. We needed to create the RTC in the 1990s only because we could not comingle the assets from failed banks with those of failed thrifts, because we had two separate deposit insurance funds absorbing the respective losses from bank and thrift failures.
I can't imagine why we would want to create another government bureaucracy to handle the assets from bank failures. What we need to do urgently is stop the failures, and an RTC won't do that.
Again, we must take three immediate steps to prevent a further rash of financial failures and taxpayer bailouts. First, the SEC must suspend Fair Value Accounting and require that assets be marked to their true economic value. Second, the SEC needs to immediately clamp down on abusive practices by short sellers. It has taken a first step in reinstituting the prohibition against "naked selling." Finally, the bank regulators need to acknowledge that the Basel II capital rules represent a serious policy mistake and repeal the rules before they do real damage.
We are almost out of time if we hope to eradicate the cancer in our financial system.
Mr. Isaac, chairman of the Federal Deposit Insurance Corp. from 1981-1985, is chairman of the Washington financial services consulting firm The Secura Group, an LECG company.
Friday, September 19, 2008
A disaster of Phil Gramm's making.... too much deregulation for wall street is terrible for taxpayers
Buffett's "time bomb" goes off on Wall Street
Thu Sep 18, 2008 1:42pm EDT
By James B. Kelleher - Analysis
CHICAGO (Reuters) - On Main Street, insurance protects people from the effects of catastrophes.
But on Wall Street, specialized insurance known as a credit default swaps are turning a bad situation into a catastrophe.
When historians write about the current crisis, much of the blame will go to the slump in the housing and mortgage markets, which triggered the losses, layoffs and liquidations sweeping the financial industry.
But credit default swaps -- complex derivatives originally designed to protect banks from deadbeat borrowers -- are adding to the turmoil.
"This was supposedly a way to hedge risk," says Ellen Brown, the author of the book "Web of Debt."
"I'm sure their predictive models were right as far as the risk of the things they were insuring against. But what they didn't factor in was the risk that the sellers of this protection wouldn't pay ... That's what we're seeing now."
Brown is hardly alone in her criticism of the derivatives. Five years ago, billionaire investor Warren Buffett called them a "time bomb" and "financial weapons of mass destruction" and directed the insurance arm of his Berkshire Hathaway Inc (BRKa.N: Quote, Profile, Research, Stock Buzz) to exit the business.
LINKED TO MORTGAGES
Recent events suggest Buffett was right. The collapse of Bear Stearns. The fire sale of Merrill Lynch & Co Inc (MER.N: Quote, Profile, Research, Stock Buzz). The meltdown at American International Group Inc (AIG.N: Quote, Profile, Research, Stock Buzz). In each case, credit default swaps played a role in the fall of these financial giants.
The latest victim is insurer AIG, which received an emergency $85 billion loan from the U.S. Federal Reserve late on Tuesday to stave off a bankruptcy.
Over the last three quarters, AIG suffered $18 billion of losses tied to guarantees it wrote on mortgage-linked derivatives.
Its struggles intensified in recent weeks as losses in its own investments led to cuts in its credit ratings. Those cuts triggered clauses in the policies AIG had written that forced it to put up billions of dollars in extra collateral -- billions it did not have and could not raise.
EASY MONEY
When the credit default market began back in the mid-1990s, the transactions were simpler, more transparent affairs. Not all the sellers were insurance companies like AIG -- most were not. But the protection buyer usually knew the protection seller.
As it grew -- according to the industry's trade group, the credit default market grew to $46 trillion by the first half of 2007 from $631 billion in 2000 -- all that changed.
An over-the-counter market grew up and some of the most active players became asset managers, including hedge fund managers, who bought and sold the policies like any other investment.
And in those deals, they sold protection as often as they bought it -- although they rarely set aside the reserves they would need if the obligation ever had to be paid.
In one notorious case, a small hedge fund agreed to insure UBS AG (UBSN.VX: Quote, Profile, Research, Stock Buzz), the Swiss banking giant, from losses related to defaults on $1.3 billion of subprime mortgages for an annual premium of about $2 million.
The trouble was, the hedge fund set up a subsidiary to stand behind the guarantee -- and capitalized it with just $4.6 million. As long as the loans performed, the fund made a killing, raking in an annualized return of nearly 44 percent.
But in the summer of 2007, as home owners began to default, things got ugly. UBS demanded the hedge fund put up additional collateral. The fund balked. UBS sued.
The dispute is hardly unique. Both Wachovia Corp (WB.N: Quote, Profile, Research, Stock Buzz) and Citigroup Inc (C.N: Quote, Profile, Research, Stock Buzz) are involved in similar litigation with firms that promised to step up and act like insurers -- but were not actually insurers.
"Insurance companies have armies of actuaries and deep pools of policyholders and the financial wherewithal to pay claims," says Mike Barry, a spokesman at the Insurance Information Institute.
"SLOPPY"
Another problem: As hedge funds and others bought and sold these protection policies, they did not always get prior written consent from the people they were supposed to be insuring. Patrick Parkinson, the deputy director of the Fed's research and statistic arm, calls the practice "sloppy."
As a result, some protection buyers had trouble figuring out who was standing behind the insurance they bought. And it put investors into webs of relationships they did not understand.
"This is the derivative nightmare that everyone has been warning about," says Peter Schiff, the president of Euro Pacific Capital at the author of "Crash Proof: How to Profit From the Coming Economic Collapse."
"They booked all these derivatives assuming bad things would never happen. It was like writing fire insurance, assuming no one is ever going to have a fire, only now they're turning around and watching as the whole town burns down."
(Editing by Andre Grenon)
Thu Sep 18, 2008 1:42pm EDT
By James B. Kelleher - Analysis
CHICAGO (Reuters) - On Main Street, insurance protects people from the effects of catastrophes.
But on Wall Street, specialized insurance known as a credit default swaps are turning a bad situation into a catastrophe.
When historians write about the current crisis, much of the blame will go to the slump in the housing and mortgage markets, which triggered the losses, layoffs and liquidations sweeping the financial industry.
But credit default swaps -- complex derivatives originally designed to protect banks from deadbeat borrowers -- are adding to the turmoil.
"This was supposedly a way to hedge risk," says Ellen Brown, the author of the book "Web of Debt."
"I'm sure their predictive models were right as far as the risk of the things they were insuring against. But what they didn't factor in was the risk that the sellers of this protection wouldn't pay ... That's what we're seeing now."
Brown is hardly alone in her criticism of the derivatives. Five years ago, billionaire investor Warren Buffett called them a "time bomb" and "financial weapons of mass destruction" and directed the insurance arm of his Berkshire Hathaway Inc (BRKa.N: Quote, Profile, Research, Stock Buzz) to exit the business.
LINKED TO MORTGAGES
Recent events suggest Buffett was right. The collapse of Bear Stearns. The fire sale of Merrill Lynch & Co Inc (MER.N: Quote, Profile, Research, Stock Buzz). The meltdown at American International Group Inc (AIG.N: Quote, Profile, Research, Stock Buzz). In each case, credit default swaps played a role in the fall of these financial giants.
The latest victim is insurer AIG, which received an emergency $85 billion loan from the U.S. Federal Reserve late on Tuesday to stave off a bankruptcy.
Over the last three quarters, AIG suffered $18 billion of losses tied to guarantees it wrote on mortgage-linked derivatives.
Its struggles intensified in recent weeks as losses in its own investments led to cuts in its credit ratings. Those cuts triggered clauses in the policies AIG had written that forced it to put up billions of dollars in extra collateral -- billions it did not have and could not raise.
EASY MONEY
When the credit default market began back in the mid-1990s, the transactions were simpler, more transparent affairs. Not all the sellers were insurance companies like AIG -- most were not. But the protection buyer usually knew the protection seller.
As it grew -- according to the industry's trade group, the credit default market grew to $46 trillion by the first half of 2007 from $631 billion in 2000 -- all that changed.
An over-the-counter market grew up and some of the most active players became asset managers, including hedge fund managers, who bought and sold the policies like any other investment.
And in those deals, they sold protection as often as they bought it -- although they rarely set aside the reserves they would need if the obligation ever had to be paid.
In one notorious case, a small hedge fund agreed to insure UBS AG (UBSN.VX: Quote, Profile, Research, Stock Buzz), the Swiss banking giant, from losses related to defaults on $1.3 billion of subprime mortgages for an annual premium of about $2 million.
The trouble was, the hedge fund set up a subsidiary to stand behind the guarantee -- and capitalized it with just $4.6 million. As long as the loans performed, the fund made a killing, raking in an annualized return of nearly 44 percent.
But in the summer of 2007, as home owners began to default, things got ugly. UBS demanded the hedge fund put up additional collateral. The fund balked. UBS sued.
The dispute is hardly unique. Both Wachovia Corp (WB.N: Quote, Profile, Research, Stock Buzz) and Citigroup Inc (C.N: Quote, Profile, Research, Stock Buzz) are involved in similar litigation with firms that promised to step up and act like insurers -- but were not actually insurers.
"Insurance companies have armies of actuaries and deep pools of policyholders and the financial wherewithal to pay claims," says Mike Barry, a spokesman at the Insurance Information Institute.
"SLOPPY"
Another problem: As hedge funds and others bought and sold these protection policies, they did not always get prior written consent from the people they were supposed to be insuring. Patrick Parkinson, the deputy director of the Fed's research and statistic arm, calls the practice "sloppy."
As a result, some protection buyers had trouble figuring out who was standing behind the insurance they bought. And it put investors into webs of relationships they did not understand.
"This is the derivative nightmare that everyone has been warning about," says Peter Schiff, the president of Euro Pacific Capital at the author of "Crash Proof: How to Profit From the Coming Economic Collapse."
"They booked all these derivatives assuming bad things would never happen. It was like writing fire insurance, assuming no one is ever going to have a fire, only now they're turning around and watching as the whole town burns down."
(Editing by Andre Grenon)
Thursday, September 11, 2008
Quote Max Planck "There is no matter as such"
As a man who has devoted his whole life to the most clear headed science, to the study of matter, I can tell you as a result of my research about atoms this much: There is no matter as such. All matter originates and exists only by virtue of a force which brings the particle of an atom to vibration and holds this most minute solar system of the atom together. We must assume behind this force the existence of a conscious and intelligent mind. This mind is the matrix of all matter. ---"QUOTE BY MAX PLANCK"---
Upon accepting his nobel prize
Upon accepting his nobel prize
Monday, August 25, 2008
How we cook food, much better to steam, boil, stew than fry and grill
How Food Is Prepared Important To Health: Study
Last Updated: 2007-05-07 12:00:10 -0400 (Reuters Health)
By Anne Harding
NEW YORK (Reuters Health) - By relying more on steaming, boiling and stewing to cook foods and using acidic marinades on meat cooked with dry heat, people may be able to stay healthier, a New York City researcher suggests.
These strategies will reduce the amount of advanced gycation end products (AGEs), or glycotoxins that people consume with their food says Dr. Helen Vlassara of Mt. Sinai School of Medicine. With her colleagues, Vlassara has found that the more AGEs healthy people eat, the greater their levels of inflammation and oxidative stress.
"It is time that we pay more attention to these toxic substances ... because they are extremely abundant in our foods as we have developed them today," Vlassara told Reuters Health. "They do cause inflammation and they tend to accumulate in the body. Over a long time the constant low-grade inflammation can lead to organ damage and disease."
Vlassara points out that inflammation plays a key role in a host of increasingly common aging-related illnesses, including Alzheimer's disease, diabetes, and heart disease.
AGEs are produced by the interaction of sugars with proteins and certain fats, and are found in animal foods. Cooking foods for a longer time at a higher temperature, in the absence of water, significantly boosts their AGE content, as does processing them.
AGEs are also a byproduct of normal metabolism, but high levels are found in people with diabetes and heart disease, Vlassara and her team note in the Journal of Gerontology: Medical Sciences. As people age they may be less able to clear AGEs from their bodies, they add, while kidney disease also makes it more difficult for people to excrete glycotoxins.
She and her colleagues had previously shown that diabetic individuals who ate a diet low in AGEs had lower levels of molecules involved in inflammation. The researchers have also found that aging mice have less oxidative stress and insulin resistance -- and live longer -- when they consume a low-AGE diet.
To understand whether the amount of AGEs healthy people consume might be related to their level of inflammation, Vlassara and her colleagues looked at 172 healthy men and women. One group of study participants were younger than 45, while the others were over 60.
The more AGEs people ate, the researchers found, the higher their blood levels of two types of AGEs in their blood. Consumption of AGEs also correlated directly with key indicators of inflammation and oxidative stress.
People can reduce their AGE consumption, and possibly their risk of disease, by using high temperatures to cook foods less frequently, and cutting down on processed foods, Vlassara and her team note.
Anyone concerned about AGE consumption should try to cook with water as often as possible, for example using boiling, steaming or stewing, rather than frying, Vlassara said in an interview. But people do not need to abstain from barbecue or grilling entirely; "moderation is the message, not eliminating something completely from the diet," she added. And marinating foods in lemon juice, vinegar or other acidic substances before cooking them with dry heat greatly reduces AGE formation, Vlassara noted.
Extrapolation from findings in both animals and humans suggests it's conceivable that people could extend their lives by reducing AGE consumption, she adds; to date, one of the only other interventions that has stretched lifespan in mammals is severe restriction of calorie intake.
"Our study shows that this can be done just by changing moderately the way we cook," Vlassara said. "In other words, we do not have to suffer any calorie restriction."
SOURCE: Journal of Gerontology: Medical Sciences, April 2007.
Last Updated: 2007-05-07 12:00:10 -0400 (Reuters Health)
By Anne Harding
NEW YORK (Reuters Health) - By relying more on steaming, boiling and stewing to cook foods and using acidic marinades on meat cooked with dry heat, people may be able to stay healthier, a New York City researcher suggests.
These strategies will reduce the amount of advanced gycation end products (AGEs), or glycotoxins that people consume with their food says Dr. Helen Vlassara of Mt. Sinai School of Medicine. With her colleagues, Vlassara has found that the more AGEs healthy people eat, the greater their levels of inflammation and oxidative stress.
"It is time that we pay more attention to these toxic substances ... because they are extremely abundant in our foods as we have developed them today," Vlassara told Reuters Health. "They do cause inflammation and they tend to accumulate in the body. Over a long time the constant low-grade inflammation can lead to organ damage and disease."
Vlassara points out that inflammation plays a key role in a host of increasingly common aging-related illnesses, including Alzheimer's disease, diabetes, and heart disease.
AGEs are produced by the interaction of sugars with proteins and certain fats, and are found in animal foods. Cooking foods for a longer time at a higher temperature, in the absence of water, significantly boosts their AGE content, as does processing them.
AGEs are also a byproduct of normal metabolism, but high levels are found in people with diabetes and heart disease, Vlassara and her team note in the Journal of Gerontology: Medical Sciences. As people age they may be less able to clear AGEs from their bodies, they add, while kidney disease also makes it more difficult for people to excrete glycotoxins.
She and her colleagues had previously shown that diabetic individuals who ate a diet low in AGEs had lower levels of molecules involved in inflammation. The researchers have also found that aging mice have less oxidative stress and insulin resistance -- and live longer -- when they consume a low-AGE diet.
To understand whether the amount of AGEs healthy people consume might be related to their level of inflammation, Vlassara and her colleagues looked at 172 healthy men and women. One group of study participants were younger than 45, while the others were over 60.
The more AGEs people ate, the researchers found, the higher their blood levels of two types of AGEs in their blood. Consumption of AGEs also correlated directly with key indicators of inflammation and oxidative stress.
People can reduce their AGE consumption, and possibly their risk of disease, by using high temperatures to cook foods less frequently, and cutting down on processed foods, Vlassara and her team note.
Anyone concerned about AGE consumption should try to cook with water as often as possible, for example using boiling, steaming or stewing, rather than frying, Vlassara said in an interview. But people do not need to abstain from barbecue or grilling entirely; "moderation is the message, not eliminating something completely from the diet," she added. And marinating foods in lemon juice, vinegar or other acidic substances before cooking them with dry heat greatly reduces AGE formation, Vlassara noted.
Extrapolation from findings in both animals and humans suggests it's conceivable that people could extend their lives by reducing AGE consumption, she adds; to date, one of the only other interventions that has stretched lifespan in mammals is severe restriction of calorie intake.
"Our study shows that this can be done just by changing moderately the way we cook," Vlassara said. "In other words, we do not have to suffer any calorie restriction."
SOURCE: Journal of Gerontology: Medical Sciences, April 2007.
Friday, February 8, 2008
Ten Traits That Make You Filthy-Rich
Saving money isn't all about whether or not you know how to score screaming bargains.
It has more to do with your attitude toward money.
Just think of those who don't fit the filthy-rich stereotype. People like Warren Buffett.
Here are 10 key traits:
1. Patience
Patience is one of the most important traits when it comes to saving money.
This means waiting until the first wave of product hype has passed, keeping a car for an extra few years before getting another one and waiting until something you want fits into your budget instead of putting it on credit.
Patience is often the difference between creating savings and being in debt. Having the patience to wait until you find a good deal is a cornerstone of good finances.
2. Satisfaction
When you're satisfied, there is no reason to spend money on nonessentials. The sole purpose of commercials is to make you believe that buying a product or service will make you happier, wealthier, better looking or improve whatever isn't bringing you satisfaction.
People spend because they want to capture the excitement shown in advertisements. When you are satisfied with what you have and your life (not trying to live like those on TV), your finances will be in a lot better shape.
3. Organization
Being organized can make you more productive and ensure that all the many issues pertaining to personal finances are addressed.
It means not paying late fees, not buying two of everything, knowing deadlines that can affect your finances and getting more done in less time. All these can greatly benefit your finances.
4. Discipline
You need the discipline to continue to save money for specific, long-term goals every month.
Personal finance isn't a way to get rich quick, but is a disciplined execution of your lifetime plans.
5. Reflectiveness
It's important to be able to look at your financial decisions and reflect on their results.
You're going to make financial mistakes. Everyone does.
The key is to learn from those mistakes so you don't make them again, or recognize if you keep repeating them.
6. Creativity
The economy and our earnings don't always match our expectations.
Unexpected developments wreak havoc to elaborate financial plans. When this happens, changes are needed to deal with the new circumstances. Creativity is essential to accomplish this.
Creativity allows you to make something last longer rather than purchasing it when you don't have the money. It means juggling money to stay out of debt rather than simply paying with a credit card. It means finding a cheaper alternative when money is tight.
In these ways, creativity plays a large role in keeping finances in order.
7. Curiosity
Having curiosity helps you learn, study and improve yourself.
The curiosity of wanting to know more, to take the time to study and then take what is learned and put into practice is an important process that is driven by curiosity.
8. Risk-Taking
To build wealth, one needs to be willing to take risks. This doesn't mean uncalculated risks. It means weighing all the options and taking calculated risks when appropriate.
The stock market has risks involved, but over the long term, history shows that it provides good returns on money that is invested wisely. Those who fear risk altogether end up saving money in accounts that likely lose money to inflation in the long run.
9. Goal-Oriented
The importance of setting and working toward goals is obvious. If you don't know where you are going, it's difficult to get there. It helps your personal finances immensely if you have money goals and are motivated to reach the goals that you have set for yourself.
Those who lack goals don't have a road map to take them to the financial destination they want.
10. Hard- and Smart-Working:
Creating wealth and staying out of debt rarely comes about without a lot of hard work.
Many people might hope that the lottery will solve all their financial problems. The true path to financial freedom, however, is to work hard to earn money while educating yourself to continue to have more value and increase your salary.
You may not possess all of the above traits. But knowing them can help you make changes so that you nourish the ones that you have and obtain the ones you're missing.
Ultimately they will help you with your personal finances and create a plan to accumulate the wealth you desire.
Saving money isn't all about whether or not you know how to score screaming bargains.
It has more to do with your attitude toward money.
Just think of those who don't fit the filthy-rich stereotype. People like Warren Buffett.
Here are 10 key traits:
1. Patience
Patience is one of the most important traits when it comes to saving money.
This means waiting until the first wave of product hype has passed, keeping a car for an extra few years before getting another one and waiting until something you want fits into your budget instead of putting it on credit.
Patience is often the difference between creating savings and being in debt. Having the patience to wait until you find a good deal is a cornerstone of good finances.
2. Satisfaction
When you're satisfied, there is no reason to spend money on nonessentials. The sole purpose of commercials is to make you believe that buying a product or service will make you happier, wealthier, better looking or improve whatever isn't bringing you satisfaction.
People spend because they want to capture the excitement shown in advertisements. When you are satisfied with what you have and your life (not trying to live like those on TV), your finances will be in a lot better shape.
3. Organization
Being organized can make you more productive and ensure that all the many issues pertaining to personal finances are addressed.
It means not paying late fees, not buying two of everything, knowing deadlines that can affect your finances and getting more done in less time. All these can greatly benefit your finances.
4. Discipline
You need the discipline to continue to save money for specific, long-term goals every month.
Personal finance isn't a way to get rich quick, but is a disciplined execution of your lifetime plans.
5. Reflectiveness
It's important to be able to look at your financial decisions and reflect on their results.
You're going to make financial mistakes. Everyone does.
The key is to learn from those mistakes so you don't make them again, or recognize if you keep repeating them.
6. Creativity
The economy and our earnings don't always match our expectations.
Unexpected developments wreak havoc to elaborate financial plans. When this happens, changes are needed to deal with the new circumstances. Creativity is essential to accomplish this.
Creativity allows you to make something last longer rather than purchasing it when you don't have the money. It means juggling money to stay out of debt rather than simply paying with a credit card. It means finding a cheaper alternative when money is tight.
In these ways, creativity plays a large role in keeping finances in order.
7. Curiosity
Having curiosity helps you learn, study and improve yourself.
The curiosity of wanting to know more, to take the time to study and then take what is learned and put into practice is an important process that is driven by curiosity.
8. Risk-Taking
To build wealth, one needs to be willing to take risks. This doesn't mean uncalculated risks. It means weighing all the options and taking calculated risks when appropriate.
The stock market has risks involved, but over the long term, history shows that it provides good returns on money that is invested wisely. Those who fear risk altogether end up saving money in accounts that likely lose money to inflation in the long run.
9. Goal-Oriented
The importance of setting and working toward goals is obvious. If you don't know where you are going, it's difficult to get there. It helps your personal finances immensely if you have money goals and are motivated to reach the goals that you have set for yourself.
Those who lack goals don't have a road map to take them to the financial destination they want.
10. Hard- and Smart-Working:
Creating wealth and staying out of debt rarely comes about without a lot of hard work.
Many people might hope that the lottery will solve all their financial problems. The true path to financial freedom, however, is to work hard to earn money while educating yourself to continue to have more value and increase your salary.
You may not possess all of the above traits. But knowing them can help you make changes so that you nourish the ones that you have and obtain the ones you're missing.
Ultimately they will help you with your personal finances and create a plan to accumulate the wealth you desire.
Wednesday, January 2, 2008
5 things to make habits
Top 5 Daily Habits for Your Longevity
It takes 14 to 21 days of repetitive behavior to form a new pattern in your brain. Once the pattern is formed, it becomes an automatic behavioral response.
As you develop new healthy habits, they will begin to replace bad habits. These healthy lifelong habits are adapted straight from the time-tested traditions practiced by centenarians all around the world, and I can say with certainty that they will transform and rejuvenate you!
Eat five small meals a day.
In the Western culture, meals are taken three times a day, but it is much better to eat five smaller meals. When you eat smaller portions five times a day, you deliver a steady stream of nutrients, blood sugar, and energy to your body throughout the day.
Additionally, eating this way is less taxing on the digestive and metabolic systems and also reduces your risk of heart disease.
Climb the stairs instead of using elevators.
The health benefits of a daily exercise program cannot be stressed enough. Regular exercise can help promote physiological well-being, strengthen the immune system, maintain joint mobility, increase energy - and the list goes on.
Look for opportunities all through your day to work in physical activity. Power-walk, run, or ride your bike instead of driving. Begin a daily tai chi practice. Join a gym and actually go! Practice safely and watch your health results pile up.
Laugh it up!
We know from research that laughter and joy boost immune functions, especially the production of the natural killer cells that help protect the body from illness and cancer. Laughter also increases the release of endorphins, compounds that give you a sense of well-being, in your brain. Without a doubt, joyful people live longer and healthier lives.
Drink 8 glasses of water every day.
Water is essential for all healthy body functions. Centenarians from around the globe cite their native water as the source of their health and longevity - and the scientists agree with them. What they all have in common is pure water sources located far from any city, free from chemicals and toxins.
Choose filtered water; the best filtration processes are the ones that use activated charcoal, which removes the impurities but leaves the water-soluble minerals. Also, do not store water in plastic containers because the polychlorinated biphenyls (PCBs) can leach into the water.
Unwind with meditation.
Stress is the root cause of most of the diseases that shorten our life span. In our modern society stress will continue to increase - unless you find techniques to manage it. Meditation is the best way to release tension and revitalize your being. It teaches you to breath properly, which is critical for eliminating up to 70% of your body's toxins and wastes. It also quiets your mind, lowers your stress hormones, and teaches self-discipline, which is a necessary attribute to achieving your health and longevity goals.
Try this beginning meditation:
Sit comfortably on a chair or the floor. Breathe naturally and close your eyes. Each time a thought appears, put it inside a balloon and let it fly up into the sky and disappear. Do this until the thoughts are exhausted. After a bit, your body will feel very light, and your mind will become still. The first few times it may take a while, but it will get easier and faster with practice.
I hope you use these healthy habits for years to come! I invite you to visit often and share your own personal health and longevity tips with me.
May you live long, live strong, and live happy!
-Dr. Mao
It takes 14 to 21 days of repetitive behavior to form a new pattern in your brain. Once the pattern is formed, it becomes an automatic behavioral response.
As you develop new healthy habits, they will begin to replace bad habits. These healthy lifelong habits are adapted straight from the time-tested traditions practiced by centenarians all around the world, and I can say with certainty that they will transform and rejuvenate you!
Eat five small meals a day.
In the Western culture, meals are taken three times a day, but it is much better to eat five smaller meals. When you eat smaller portions five times a day, you deliver a steady stream of nutrients, blood sugar, and energy to your body throughout the day.
Additionally, eating this way is less taxing on the digestive and metabolic systems and also reduces your risk of heart disease.
Climb the stairs instead of using elevators.
The health benefits of a daily exercise program cannot be stressed enough. Regular exercise can help promote physiological well-being, strengthen the immune system, maintain joint mobility, increase energy - and the list goes on.
Look for opportunities all through your day to work in physical activity. Power-walk, run, or ride your bike instead of driving. Begin a daily tai chi practice. Join a gym and actually go! Practice safely and watch your health results pile up.
Laugh it up!
We know from research that laughter and joy boost immune functions, especially the production of the natural killer cells that help protect the body from illness and cancer. Laughter also increases the release of endorphins, compounds that give you a sense of well-being, in your brain. Without a doubt, joyful people live longer and healthier lives.
Drink 8 glasses of water every day.
Water is essential for all healthy body functions. Centenarians from around the globe cite their native water as the source of their health and longevity - and the scientists agree with them. What they all have in common is pure water sources located far from any city, free from chemicals and toxins.
Choose filtered water; the best filtration processes are the ones that use activated charcoal, which removes the impurities but leaves the water-soluble minerals. Also, do not store water in plastic containers because the polychlorinated biphenyls (PCBs) can leach into the water.
Unwind with meditation.
Stress is the root cause of most of the diseases that shorten our life span. In our modern society stress will continue to increase - unless you find techniques to manage it. Meditation is the best way to release tension and revitalize your being. It teaches you to breath properly, which is critical for eliminating up to 70% of your body's toxins and wastes. It also quiets your mind, lowers your stress hormones, and teaches self-discipline, which is a necessary attribute to achieving your health and longevity goals.
Try this beginning meditation:
Sit comfortably on a chair or the floor. Breathe naturally and close your eyes. Each time a thought appears, put it inside a balloon and let it fly up into the sky and disappear. Do this until the thoughts are exhausted. After a bit, your body will feel very light, and your mind will become still. The first few times it may take a while, but it will get easier and faster with practice.
I hope you use these healthy habits for years to come! I invite you to visit often and share your own personal health and longevity tips with me.
May you live long, live strong, and live happy!
-Dr. Mao
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