The Federal Reserve broke new ground recently when it
facilitated the purchase of Bear Stearns by JPMorgan Chase.
Although Bear is ranked fifth out of the top five US
investment banks, it was counterparty to over $10 trillion
in derivatives contracts and swaps. Therefore, the Fed
decided it was necessary to accept Bear’s $30 billion pile
of rotting mortgage-related debt as collateral, allowing the
new owners breathing room. No one would have dared purchase
Bear without this guarantee. It would have descended into the
abyss, and may very well have taken the global credit markets
along with it- that would have been bad.

Even though Chase has to pony up more dough to buy Bear
(shareholders balked at the original $236 million bid, equivalent
to $2 a share- the company’s stock was trading at $170 a share
a year ago), many say the new price of $10 is still a steal. This
is because Bear Stearns’ headquarters building alone could fetch
several times the original bid price, and, analysts peg its brokerage
business to be worth a few billion dollars. But, the real sweetener
is the Fed’s guarantee to assume responsibility for Bear’s massive
and quickly souring mortgage portfolio. If the mortgages used
as collateral fail- no problem, the Fed has guaranteed them.

The Fed was established in 1913 to help avoid banking calamities
and smooth out the wild boom and bust cycles in the economy.
(The famous panic of 1907 almost laid waste to the industry.)
It would regulate short-term interest rates and become the lender
of last resort for banks. In order to borrow from the Fed, member
banks would have to abide by its regulations.

The Fed’s over-the-weekend decision to bail out an irresponsible
investment bank raises questions as to what rules such entities
will have to follow in return for resuscitation. If this is the start
of a new Fed policy, investment banks should be made to follow
rules, just like their commercial banking cousins. Otherwise, it
looks as though the Fed has rescued speculators with public
funds (US taxpayers will foot the bill if Bear’s collateral becomes
worthless). If there were no strings attached, moral hazard
was unwittingly introduced to the system of global finance.
Investment banks will know that if they bet really, really big,
their failure will bring down the entire credit market, and the
Fed will have no choice but to ride to the rescue.

©Greg Strid 2008

Sales of existing homes and condos increased 2.9 percent
to a seasonally adjusted annualized rate of 5.03 million,
crawling past the 4.85 million low-ball concensus estimate
from America’s practitioners of the dismal science- sometimes
known as economists. So, is it time to bring out the bubbly?

This marks the strongest showing for existing home sales
since last October. But, sales are off by almost 24 percent
from year ago levels. Inventories of unsold homes also fell-
by 3 percent to 4.03 million, which translates to a 9.6 months
supply at current sales levels. Though inventory levels are
declining, they are still much higher than during the frenzied
market of two years ago.

It seems as though the condo has been fairing worse than its
cousin, the single-family home. Although condo sales rose by
3.7 percent last month compared to a gain of 2.8 for single-
family homes, condo sales are off by 29.7 percent form a year
ago, and inventories actually rose by 14 percent last month,
representing a 13 month supply.

The real reasons for the bounce in sales and overall decline in
inventories may be coming from the rapid descent of home
prices. The median sales price for single-family American
chateaus sank by 8.2 percent last year, and now stands at
$195,900. This painful dropoff is the largest since 1968, the
first year that realtors began tracking them. This, coupled
with the Fed’s slashing of interest rates, may have caused
a few more buyers to step in.

So much for the crowd’s belief in ever-rising real estate prices.
And, for those thinking that this momentary upswing in the level
of existing home sales marks a bottom-I’ve got a bridge topped
off with poorly built condos to sell you.

The grotesque conditions- mainly the disappearance of lending
standards and the willingness of investors from around the globe
to ignore risk- that fueled this real estate bubble are rapidly
reversing. It is harder to get mortgages, especially those of
the “jumbo” variety that helped float prices to the stratosphere.
It seems that credit standards are regaining sanity, and investors
are sobering up to the concept of risk when assessing potential
returns.

Markets never move in a straight line- up or down. Today’s
“good news” is just a respit. The real estate market is in the
middle of a prolonged correction that will see further price
declines, and stubbornly high inventory levels. And, as in
previous asset market price corrections, once a bottom is in
place, it will not then lead to another idiotic gallop to the
heavens. Conclusion: let’s keep the Champaign on ice for now.

©Greg Strid 2008

I returned to C-Town, a week after my last visit, to
buy a mixed bag of groceries: Krasdale Quick Oats,
a dozen free-range, home-schooled eggs, a can of
tomatoes and two yellow onions. ( I also ended up
with two bottles of Refresco Goya- the coconut flavor
is unbelievable- it really is liquid crack.)

I saw the rack of Earthwise bags-it was packed,
looking like a tree with too many leaves. So I plucked
one down to carry my goods as I weaved in and out
of the aisles- they really are well made- strong, and
they are a bright, vibrant color green.

I then created a small bit of confusion at the check out
counter, which resulted from my attempt at fancy math
designed to reduce the amount of coins I would have
to carry home.

This was actually advantageous because the manager/owner
came over to remedy the situation. I took the opportunity
to ask how the Earthwise bags were selling. “They are selling
great. I order about a hundred new ones a week,” he said.

I was surprised because the rack was full. “Who buys them?”,
I asked.

“White customers,” he replied. He then explained that 95
percent of his customers are poor, and cannot afford to pay
99 cents for shopping bags.

I then proceeded to point out the rack of 99 cent 2 liter bottles
of soda located just a few feet from the green bag display, and
then rambled on a bit about the other items that people of low- to
moderate-incomes can buy for a dollar and then about where I
used to live -around the corner- and what my favorite color was
and why. I was starting to lose him in mid-ramble, so I thanked
him for his time and carried my booty home in my environmentally
friendly bag.

I was pleasantly surprised to hear how well Earthwise bags were
selling. But, unfortunately, I was correct in assuming that most
of C-Town’s core customers were not purchasing them. I believe,
as I stated in my last article, that people struggling to pay for
basic necessities need a financial incentive in order participate
in the green movement.

I have a suggestion to the people at Earthwise: reach out to
companies like Coca-Cola and Proctor & Gamble. It would make
sense to cross-promote basic consumer products with those
that help save the environment. It would also make sense for
promotional campaigns to be advertised in local urban dailies
in addition to larger publications and the web (internet access
is also a luxury that many with low incomes cannot afford.)

©Greg Strid 2008

The following is a press release from Mana Fine Arts:
WWIII
A Wonder Women Project presented by _gaia and hosted by Mana Fine Arts
March 14 – April 12 2008

I went to C-town on Jersey Ave in Jersey City a week ago.
As soon as I walked in, I saw bright green “Earthwise” reusable
bags hanging on a display rack. Only 99 cents; I grabbed 2 along
with some half and half and Murphy’s Oil Soap before checking
out- please don’t speculate as to why these items were purchased
together.

The cashier took off the plastic price tag- shame on you greenies-
and to my surprise, the bag opened up at the bottom to a width
of about 6 inches. It has straps that are stitched to the sides, running
to the bottom, but they are two separate pieces- a relatively minor
fault that takes away from the bag’s overall strength.

The bag held about 10 pounds of odd things with no signs of
stress. I felt good about not taking any unnecessary plastic home.
I brought a back pack, which carried items from a small grocer on
Newark Street- I was so green that day; I felt like giving Al Gore a call.

I realized that these bags probably wouldn’t sell that well at
C-Town. This store caters to urbanites of moderate means; people
who have more pressing concerns to deal with, such as budgeting for
food and paying rent and utility bills. I don’t think feeling good about
the environment is that high on their list.

Don’t pardon me if I sound like a snob. I believe that the self-
congratulatory, politically correct crowd at upscale grocers such as
Whole Foods care about the environment because it is a leisure-time
activity- all of their pressing needs are taken care of.

A way to sell more of these “green bags” would be to cross-promote
them. Producers of American processed food and drinks should offer
coupons and discounts to shoppers who buy these bags- and offer
incentives to use them on a regular basis. After all, government
subsidies make their key ingredients artificially cheap; I feel that
they would want to give something back in order to boost their
standing in society. (Just a few feet past the green bag display was
a rack filled with 2 liter bottles of sweet, syrupy soda that were
priced at 99 cents- cheaper than most bottled water.)

I bought a bag because 99 cents is much less than I pay for a cup
of coffee, and it made me feel good about myself. To many of the
shoppers at C-Town in Jersey City, 99 cents buys a large bottle of
soda, a can of Speggettios, a bag of chips, etc. People that are
concerned about having enough money to survive would be more
likely to be environmentally aware if there was an incentive attached.
(By the way, my new green bags are still sitting in my kitchen; they
have not left the house for a return trip to C-Town, or any other store
for that matter.)

©Greg Strid 2008
Here is link to the Earthwise site:
http://www.earthwisebags.com/

Hillary Clinton has been touting her bold plan to save
the crumbling housing market, which would comprise
a halt on foreclosures for 90 days and, most alarmingly,
freezing interest rates on mortgages for five years.

The freeze would help hapless homeowners who are
struggling to pay the ever-rising rates on their adjustable
rate mortgages. But, those taking out new mortgages
would be stuck with much higher interest rates.

Since investors would be basically screwed out of the rates
they were promised when they bought these mortgages
from U.S. investment banks, they would make up the
difference by charging much higher rates on new mortgages.
This would be disastrous for an already sick and suffering
housing market. The cost of owning a home would actually
increase, shutting more buyers out, causing inventories to
build and prices to fall even further. In addition, her plan
would bail everyone out, allowing reckless speculators off
the hook at the expense of new home buyers- bravo Hillary!

What this amounts to is the introduction of political risk to
America’s financial markets. For a nation that prides itself
on the transparency and stability of its markets, this type
of stone-gloved government intervention would be a severe
blow to our standard of living. International investors- the
ones who loan us the money we need to survive- would shun
securities issued by our government and the private sector.
The interest rates we all pay on our mountain of debt would
skyrocket and the dollar would sink to new historic, mind-blowing
lows.

Please, Hillary, if you do manage to wrest the nomination from
Barack with your super delegate strategy, promise to sober up
before you take on McCain in November.

©Greg Strid 2008