Missing Call Letters

Killeen, Texas, Tuesday, Nov. 10, 2009. (AP Photo/Kiichiro Sato)

I just watched the Fort Hood Memorial, and you can’t help but get emotional. It’s a tragedy not only for the needlessly slain victims, but for the wives, husbands, daughters, sons, parents, and friends of the fallen. Watching the long line of family members wearing white ribbons makes you realize not only how much the military sacrifices but also how much their families sacrifice.

The price of war has plagued soldiers and their families the last decade. On the eve of Veterans Day, remember to not only show gratitude to those currently serving in the military, but also to remember those who have paid the ultimate price. The AP estimates at least 4,353 soldiers have died in Iraq since March 2003 and at least 836 have died in Afghanistan since 2001.

Now, President Obama is considering sending another 40 thousand troops to Afghanistan as soldiers serve tour after tour of duty just so I can write a blog post in a comfortable chair on a Tuesday afternoon.

The President put it best in his Fort Hood speech:

Theirs are tales of American men and women answering an extraordinary call — the call to serve their comrades, their communities, and their country. In an age of selfishness, they embody responsibility. In an era of division, they call upon us to come together. In a time of cynicism, they remind us of who we are as Americans.

As a journalist I’ve spoken to many individuals who haven’t had the luxury of freedom. Just think of the people in Iran whose lives are threatened for protesting an unfair election or the religious groups in China that are persecuted for their beliefs…

I’ve also had the opportunity to speak with the men and women serving in uniform at recruitment centers and at a reveille ceremony on Armed Forces Day this summer, which you can watch below. My whole point is to get to know these people. Thank them, and appreciate all they do. Happy Veterans Day.

Missing Call Letters

Need a job? So do other millions of  Americans (including myself) throughout the country. Well there’s one institution that’s always looking for more applicants….the army. Since the economy took a downturn, there’s been huge increase in army enlistments.

The Defense Department recruited 168,900 active troops this year–103 percent of the goal for the fiscal year. What’s more interesting is a good amount of those soldiers hold college or advanced degrees, or are in the 30′s because of the economic times. Watch the video for more.

Here in the States, we take for granted some of the most inherent rights and freedoms we grew up with, especially the freedom of religion.  While I was reporting in Torrance, I interviewed Jie Li, a woman who fled China after being imprisoned and tortured for her practice of Falun Gong. You can watch Jie’s story in the video above.

Falun Gong is not a religion, but more of a spiritual discipline that teaches the principles of truthfulness, benevolence, and forbearance. There are over 100 million people who practice Falun Gong throughout the world. On July 20, 1999, the Chinese government began cracking down on Falun Gong practitioners declaring the practice an evil cult. The Chinese government outlawed the practice and claimed to only arrest and jail practitioners that have broken the law.

Falun Gong Emblem

But followers are saying they are being imprisoned on false claims. What’s even scarier, is reports began to surface about the illegal harvesting of organs of Falun Gong practitioners combined with the disappearance of many followers.

Jie told me she has many friends who have suddenly disappeared or died without a trace. When the Chinese government was contacted about their deaths, Jie was told they committed suicide in prison.

A Canadian politician and lawyer independently investigated the allegations of organ harvesting of practitioners in a report called ‘Bloody Harvest.’ The pair sites phone calls to hospitals that said ‘they have Falun Gong in stock’ when asked about organ transplants. But besides this report, not much else has been done.

In November 2008, the United Nations Committee Against Torture observed an increase in organ transplants around the same time China began to persecute Falun Gong practitioners.  The group demanded an explanation, but the Chinese government claimed the report was based on ‘rumors and false allegations.’

Rumors or not, serious allegations with substantial evidence should be looked into. And why isn’t the national media doing their jobs and investigating these claims? Or why has the US government not taken a stronger stance on China’s human rights violations? Maybe the media is too preoccupied with balloon boy and Jon & Kate to do any real reporting, and perhaps the 500 billion or so dollars we owe China weakens our position with them.

HB Fourth of July Parade

Practitioners like Jie, however, spend time protesting and holding rallies all over the world to promote their cause. Followers also utilize various parade venues to bolster support, including right here at the Huntington Beach 4th of July parade.

But more could be done to stop the torture by writing to your senators and representatives. It doesn’t sound like much, but Falun Gong persecution is still going on and can effect our local community.

This summer, I received an email from a Southern California local whose mother and sister were recently imprisoned for practicing Falun Gong. I leave you with this family’s heart breaking story and encourage everyone to spread the word about the atrocities that are happening in China.

Press Release – Rescue my Mom and Sister

June 4^th, 2009, my mother, Li Yao-Hua, and youngest sister, Zhang Yi-Bo were illegally abducted at home by Chinese local policemen for their spiritual belief, Falun Gong. Involved Chinese local law enforcement were 610 officers of Xuhui Branch Bureau and policemen of Tianlin Police Station in Shanghai. They not only broke in without proper warrant, but also seized many valuable personal possess. My mother and sister are held in detention center for 48 days because they would not give up their belief in Falun Gong. Currently, they are still held at Xuhui District Detention Center in Shanghai.

Cheng's Mother - Li Yao-Hua

My mother, Li Yao-Hua, is 63 years old. She is a Hong Kong resident who lives in Lu Wan District with my sister Zhang Yi-Bo and my father. She used to work at Shanghai Stamp Factory. Beloved by people around her including the neighbors, she was suffering because of her inherent spinal disease. Sometimes, the back pain is so severe that she couldn’t walk for days. In 1996, all that has changed as she started to practice Falun Gong. The spinal disease was quickly healed and no more unbearable back pains. After personally witnessed the healing power, she faithfully practice Falun Gong since.

My sister, Zhang Yi-Bo, has a master degree. At age 29, she has worked for Siemens Shanghai Branch for over 8 years as a financial manager and has a successful career.

Cheng's Sister - Zhan Yi-Bo

However, she has battled with stomach illness for years. After seeing the remarkable progress our mother has made, she decided to give Falun Gong a try and has improved her health ever since. Moreover, practicing Falun Gong has made her a better person by dealing with emotions in a much more positive way.

My name is Yi-Yuan Chang. I was born in Shanghai city, China and moved to Taiwan with my Grandpa, Mr. Lee Shan-Cheng, when I was 10 years old. I currently teach at UCLA School of Dentistry and serve as an Assistant Director of Center for Esthetic Dentistry. After knowing what happed to my family members, I tried to call Chinese local governments and the detention center multiple times, but only fond out everyone involved is trying to cover it up. Sometimes, they just hung up the phone to not talk to me. Since they were arrested, 48 days has gone by and no family visits have ever been allowed so far. We are very concerned about their health condition. We tried to get some helps from the lawyers we hired in China and found out there isn’t much they can do at this point. We sincerely ask for U.S. government officials’ and public’s helps to secure my mother and sister’s release and freedom.

-Jonathan

“In a book called Normal Accidents, Charles Perrow examines failures of man-made systems (power plants, airplanes, etc.). He makes the point that it is human nature to find someone to blame for an accident. We want to know the “cause”. However, Perrow argues that the cause of an accident of a man-made system is to be found in the complexity of the system. An accident that results in a catastrophe is a series of small events that viewed by themselves seem trivial. It is the interaction of multiple failures that can explain the accident. Patient accident reconstruction often reveals the banality and triviality behind most catastrophes. In other words, great events have small beginnings” (AIMA’s Roadmap to Hedge Funds 143).

What caused the mortgage market meltdown and the current global financial crisis? In the following report, I am going to attempt to perform a patient accident reconstruction of the global economy and the events leading up to our current state of distress. I think it is safe (or unsafe, depending on how you look at it) to say that the global economy is currently on life support, propped up by central bankers and the occasional shock from the government defibrillator. Each new month brings more havoc coupled with an entire new set of challenges for our world leaders. In the US, we have seen an unprecedented expansion of both monetary and fiscal policy, with current government support levels estimated at 10 to 12 trillion dollars. However, as evidenced by the massive unemployment numbers and extreme drop in value of nearly every asset class, much of what has been done has been ineffective in stabilizing the financial and economic system.

In order to completely understand our current crisis, we must look all the way back to the Great Depression (a fitting time to begin considering the comparisons that are being made in the media). In 1934, the Federal Housing Administration (FHA) was created in order to provide housing assistance and stabilize the home mortgage industry through the insurance of mortgage loans. In 1938, the Federal National Mortgage Association (Fannie Mae) was created to additionally stimulate the housing market. Fannie Mae’s goal was to provide liquidity in the mortgage market by purchasing FHA mortgages on the secondary market, pooling these mortgages into securities, and then selling them to investors on the open market.  Fannie Mae later became a stockholder owned corporation chartered by Congress in 1968 as a Government Sponsored Entity (GSE). As a GSE, Fannie Mae was assumed to be implicitly backed by the government, and thus has always been able to borrow at preferential interest rates in the capital markets.

In the 1970’s, with the onset of the civil rights movement, Congress once again intervened into the housing market. In 1970, through the Emergency Home Finance Act, the Federal Home Loan Mortgage Corporation (Freddie Mac) was created in order to expand the secondary mortgage market. Freddie Mac was chartered as a private, stockholder owned corporation with implicit backing by the federal government through its Government Sponsored Entity (GSE) status. Freddie Mac essentially became the “brother” to his “sister” counterpart, Fannie Mae.

To better understand the securitization process of Fannie Mae and Freddie Mac, I have provided a diagram and the accompanying description from Freddie Mac’s 2008 10k report.

“We guarantee the payment of principal and interest of PCs created in this process in exchange for a combination of monthly management and guarantee fees and initial upfront cash payments referred to as delivery fees. Our guarantee increases the marketability of the PCs, providing liquidity to the mortgage market. Various other participants also play significant roles in the residential mortgage market. Mortgage brokers advise prospective borrowers about mortgage products and lending rates, and they connect borrowers with lenders. Mortgage servicers administer mortgage loans by collecting payments of principal and interest from borrowers as well as amounts related to property taxes and insurance. They remit the principal and interest payments to us, less a servicing fee, and we pass these payments through to mortgage investors, less a fee we charge to provide our guarantee ( i.e. , the management and guarantee fee). In addition, private mortgage insurance companies and other financial institutions sometimes provide third-party insurance for mortgage loans or pools of loans. Our charter generally requires third-party insurance or other credit protections on some loans that we purchase. Most mortgage insurers increased premiums and tightened underwriting standards during 2008. These actions may impair our ability to purchase loans made to borrowers who do not make a down payment at least equal to 20% of the value of the property at the time of loan origination.”

With Fannie Mae and Freddie Mac firmly in place with implicit GSE backing by the federal government, the path had been laid for massive growth in the home mortgage market. However, the GSE’s proliferation was still unable to satisfy the insatiable political appetite for increased homeownership in the US. In 1977, the Community Reinvestment Act was passed by Congress to reduce discriminatory credit practices against low-income neighborhoods, a practice known as redlining. “The Act requires the appropriate federal financial supervisory agencies to encourage regulated financial institutions to meet the credit needs of the local communities in which they are chartered, consistent with safe and sound operation of such institutions” (Authority of the Federal Financial Supervisory Agencies under the Community Reinvestment Act). The CRA was passed in near tandem with the Home Mortgage Disclosure Act (HMDA) of 1975, requiring mortgage lenders to provide detailed information about mortgage applications. Both organizations rated private banks on their CRA compliance and encouraged lending to risky borrowers. The CRA and the HMDA, although seemingly noble acts of Congress to help eliminate discriminatory lending practices, have proved to be two of the biggest culprits in the ensuing financial crisis.

In 1989, a seemingly small piece of legislation was passed in order to modify the original Home Mortgage Disclosure Act (HMDA). The HMDA data was expanded to include mortgage rejection rates by race. Once again, on the surface, the expansion of HMDA data was a seemingly noble act of Congress to eliminate the inequities of the world. However, this piece of legislation helped to produce one of the most influential statistical analyses (albeit badly mangled), ultimately leading to the severe loosening of traditional mortgage underwriting standards. News organizations, along with politicians in masse seized the day showing that minorities were denied home mortgages at a rate far superior than non-Hispanic Caucasians. In essence, this was a rather perverse manipulation of statistics to satisfy a populist nation. Banks did not give loans to low income families because low-income families are at a higher risk of default. If banks felt they could supply loans to individuals that would pay them back, there should be no question in anyone’s mind that the banks would take advantage of the economic benefit arising from this situation. If it so happens that low-income families are also minorities, then the real culprit is discrimination in our education system or the workplace, not in denying low-income borrowers access to credit. In any case, it did not take long for a government organization to compile enough statistical data to produce a “definitive study” that showed racism was running rampant in mortgage lending. In 1992, the Federal Reserve Bank of Boston (Boston Fed) introduced a statistical analysis “which purported to demonstrate that even after controlling for important variables associated with creditworthiness, minorities were found to be denied mortgages at higher rates than whites” (Liebowitz 6). Many politicians jumped on the bandwagon to support the Fed’s study: “This study is definitive,” and “it changes the landscape,” said a spokeswoman for the Office of the Comptroller of the Currency. “This comports completely with common sense,” and “I don’t think you need a lot more studies like this,” said Richard F. Syron, president of the Boston Fed (and former head of Freddie Mac). One of the study’s authors, Alicia Munnell, said, without any apparent concern for academic modesty, “The study eliminates all the other possible factors that could be influencing [mortgage] decisions” (Liebowitz 6). Thus the famed Boston Fed study purported to bring sweeping changes in the future home mortgage market. But what was really in the fed data that seemed to be so definitive? Author Stan J. Liebowitz Ph.D. in Anatomy of a Train Wreck states the following: “In fact, the study was based on such horribly mangled data that the study’s authors apparently never bothered to examine them. Every later article of which I am aware accepted that the data were badly mangled, even those authored by individuals who ultimately agreed with the conclusions of the Boston Fed study.” In fact, Dr. Liebowitz and his colleague Ted Day personally reviewed the fed study and their results were nearly staggering:

“Data problems were obvious to anyone who bothered to examine the numbers. Here is a quick summary of the data problems: (a) the loan data that the Boston Fed created had information that implied, if it were to be believed, that hundreds of loans had interest rates that were much too high or much too low (about fifty loans had negative interest rates according to the data); (b) over five hundred applications could not be matched to the original HMDA data upon which the Boston Fed data was supposedly based; (c) forty-four loans were supposedly rejected by the lender but then sold in the secondary market, which is impossible; (d) two separate measures of income differed by more than 50 percent for over fifty observations; (e) over five hundred loans that should have needed mortgage insurance to be approved were approved even though there was no record of mortgage insurance; and (f ) several mortgages were supposedly approved to individuals with a net worth in the negative millions of dollars.”

Once the erroneous data had been removed, Dr. Liebowitz found that the evidence of mortgage discrimination had vanished. Without discrimination, there was no reason to “fix” the supposed “racially driven” mortgage market. What happened next can be easily summarized in an animated Fannie Mae report authored by some leading academics:

“Attempts to eliminate discrimination involve strengthened enforcement of existing laws . . . There have also been efforts to expand the availability of more affordable and flexible mortgages. The Community Reinvestment Act (CRA) provides a major incentive . . . Fannie Mae and Freddie Mac . . . have also been called upon to broaden access to mortgage credit and home ownership. The 1992 Federal Housing Enterprises Financial Safety and Soundness Act (FHEFSSA) mandated that the GSEs increase their acquisition of primary-market loans made to lower income borrowers . . . Spurred in part by the FHEFSSA mandate, Fannie Mae announced a trillion-dollar commitment. The result has been a wider variety of innovative mortgage products. The GSEs have introduced a new generation of affordable, flexible, and targeted mortgages, thereby fundamentally altering the terms upon which mortgage credit was offered in the United States from the 1960s through the 1980s. Moreover, these secondary market innovations have proceeded in tandem with shifts in the primary markets: depository institutions, spurred by the threat of CRA challenges and the lure of significant profit potential in underserved markets, have pioneered flexible mortgage products. For years, depositories held these products in portfolios when their underwriting guidelines exceeded benchmarks set by the GSEs. Current shifts in government policy, GSE acquisition criteria, and the primary market have fostered greater integration of capital and lending markets. These changes in lending herald what we refer to as mortgage innovation” (Liebowitz 7).

With the passage of the aforementioned FHEFSSA, the Boston Fed created a “Nondiscriminatory Mortgage Lending for Dummies” booklet in order to assist lenders in determining the credit worthiness of low-income and minority borrowers. Highlighted in the following paragraphs are four distinct areas in which lending practices were to be modified for low-income households:

“Credit History: Lack of credit history should not be seen as a negative factor. Certain cultures encourage people to “pay as you go” and avoid debt. Willingness to pay debt promptly can be determined through review of utility, rent, telephone, insurance, and medical bill payments. In reviewing past credit problems, lenders should be willing to consider extenuating circumstances. For lower–income applicants in particular, unforeseen expenses can have a disproportionate effect on an otherwise positive credit record. In these instances, paying off past bad debts or establishing a regular repayment schedule with creditors may demonstrate a willingness and ability to resolve debts. Successful participation in credit counseling or buyer education programs is another way that applicants can demonstrate an ability to manage their debts responsibly” (Liebowitz 8).

“Obligation Ratios: Special consideration could be given to applicants with relatively high obligation ratios who have demonstrated an ability to cover high housing expenses in the past. Many lower–income households are accustomed to allocating a large percentage of their income toward rent. While it is important to ensure that the borrower is not assuming an unreasonable level of debt, it should be noted that the secondary market is willing to consider ratios above the standard 28/36” (Liebowitz 9).

“Down Payment and Closing Costs: Accumulating enough savings to cover the various costs associated with a mortgage loan is often a significant barrier to home ownership by lower– income applicants. Lenders may wish to allow gifts, grants, or loans from relatives, nonprofit organizations, or municipal agencies to cover part of these costs. Cash–on–hand could also be an acceptable means of payment if borrowers can document its source and demonstrate that they normally pay their bills in cash” (Liebowitz 9).

“Sources of Income: In addition to primary employment income, Fannie Mae and Freddie Mac will accept the following as valid income sources: overtime and part–time work, second jobs (including seasonal work), retirement and Social Security income, alimony, child support, Veterans Administration (VA) benefits, welfare payments, and unemployment benefits” (Liebowitz 10).

As can be gleaned from the above paragraphs, a number of problems will arise if lending standards are to be lowered in the particular ways that are being suggested. I will point out some of the most obvious. Under the Credit History section, the Boston Fed points out that participation in credit counseling or buyer education programs should be seen as a material factor in determining credit quality. Unfortunately, credit counseling and educational programs do little to pay a mortgage and there is “no evidence whatsoever that credit counseling helps applicants avoid mortgage defaults” (Liebowitz 9). Dr. Liebowtiz suggests that the focus on consumer education may have more to do with political payoffs to “community activists” who help provide the education than with providing any benefits to homeowners and lenders. In the Obligation Ratios section, logic and common sense would tell us that the modification of standard obligation ratios for low-income borrowers is clear grounds for a toxic loan. Apparently low-income borrowers who tend to have very little savings or other discretionary income will be more apt to pay for housing expense ratios above normal. Not only is this logic flawed, but it puts the borrower at a greater risk of foreclosure by allowing them to purchase a mortgage that will consume a disproportionate amount of their income. As we examine the Down Payment and Closing Costs section, we see a mix of ideas that clearly distorts logic. In allowing for nonprofit organizations or municipal agencies to cover down payment and closing costs, lenders open the door to homebuilder “donations.” “Since these guidelines went into effect, it has become commonplace for builders to “gift” the down payment to the mortgage applicant, often using a nonprofit front organization to channel the funds. Since homebuilders are not charities, the price of the home is raised by an amount equal to the cash gift, with appraisers apparently willing to go along” (Liebowitz 9). Lastly, as we look at Sources of Income, we see a disturbing inclusion of unemployment benefits as a source of income to cover mortgage payments. As we all know, unemployment benefits are neither consistent nor lasting, causing an improper inclusion for income.

With government backing in full force to help impose weaker lending standards on mortgage institutions, banks and thrift institutions willing to meet the new lending standards proliferated in masse. Of the many lenders that engaged in these weaker lending practices (Washington Mutual, Wachovia, etc), the poster child for low-income lending was Countrywide Financial Corporation, now a wholly owned subsidiary of Bank of America. Countrywide continued to loosen lending standards at the continued cheers of the politicians, regulators, and GSEs. In fact, Fannie Mae praised Countrywide as a paragon of lending virtue. The following report by Fannie Mae highlights Countrywide’s brilliance:

“Countrywide tends to follow the most flexible underwriting criteria permitted under GSE and FHA guidelines. Because Fannie Mae and Freddie Mac tend to give their best lenders access to the most flexible underwriting criteria, Countrywide benefits from its status as one of the largest originators of mortgage loans and one of the largest participants in the GSE programs. When necessary—in cases where applicants have no established credit history, for example—Countrywide uses nontraditional credit, a practice now accepted by the GSEs” (Liebowitz 10).

In essence, from 1990 to 2006, every government agency, including congress and the presidency, was involved in the weakening of lending standards in order to increase homeownership. These weaker lending standards allowed mortgage growth to surge and helped to balloon the GSEs into their current state of crisis today. As can be gleaned from the graph below, home ownership had remained stagnant from 1970 – 1990. However, with the “mortgage innovation” of the 1990’s and 2000’s, homeownership had increased to all time highs because of the GSE mandates and the infinite wisdom of the political powers that be. Unfortunately, never once did anyone question the possibility that weaker lending standards “might lead to defaults, particularly if housing prices should stop rising” (Liebowitz 7). In fact, Fannie Mae and Freddie Mac have grown at such astronomical levels that they now own or guarantee nearly 5 trillion dollars in mortgages, about half of the 12 trillion dollar US housing market. The GSEs have been placed under federal conservatorship as of September 2008, and since then have posted additional loan write down losses over one hundred billion dollars.

I could continue to go on and on about flexible underwriting standards and the GSEs incredible support for these “innovative” practices, but I think you get the point. Thus, I am going to shift my focus towards the companies and individuals who helped to sell these “innovative” mortgages, a practice which helped to create the systemic problems currently plaguing every facet of the global economy.

In order to understand how these “toxic” mortgages were treated as such highly regarded assets, we must revert our attention to the big three rating agencies: Moody’s, Fitch, and S & P. Moody’s was the first rating agency to be founded in 1909 by John Moody. Mr. Moody carved out an important niche in the marketplace by rating corporate debt on a 21 point scale. Later Fitch and S & P were founded to perform a similar task. For most of the 20^th century, rating agencies served an important role in the financial markets. Growth at rating agencies was slow and steady, however most investors used the debt rating scale as a mere addition to the extensive due diligence performed by individual investment firms. This all changed in 1970, with the shocking collapse of Penn Central Railroad. The government soon realized it needed better watchdogs over corporate debt. Although the regulators were supposed to be performing this duty, “the SEC faced with the question of how to measure the capital broker-dealers, decided to penalize brokers for holding bonds that were less than investment-grade” (Lewis 322). But investment grade according to whom? Enter the rating agencies. The SEC created a new category of officially designated rating agencies, thus grandfathering in the big three with the approval and backing of the US government. “In effect, the government outsourced its regulatory function to three for-profit companies” (Lewis 322). This helped to create a business model with a huge conflict of interest. As one financial analyst puts it, “Rather than selling opinions to investors, the rating agencies were now selling “licenses” to borrowers. Indeed, whether their opinions were accurate no longer mattered so much. Just as a police officer stopping a motorist will want to see his license but not inquire how well he did on his road test, it was the rating – not its accuracy – that mattered to Wall Street” (Lewis 322).

With the groundwork laid for a big three oligopoly in the rating landscape, the development of structured finance became an incredible business opportunity for both the rating agencies and Wall Street. The entire creation of mortgage securities was centered on the rating given to a specific security. The challenge to investment banks was to design securities that were just able to meet the specific criteria to obtain the highly coveted “AAA” investment grade rating, the highest rating that could possibly be obtained by the rating firms. A former Moody’s expert in securitization states: “Every agency has a model available to bankers that allows them to run the numbers until they get something they like and send it in for a rating” (Lewis 324). Subprime analyst Chris Flanagan at JP Morgan states, “Gaming is the whole thing” (Lewis 324). This eventually led to ratings shopping – banks only pay if the respective rating agency delivers a desirable rating. This took any chance at independence completely out of the picture. Highly respected CEO Jamie Dimon sums it up best, “There was a large failure of common sense” by rating agencies and also by banks like his. “Very complex securities shouldn’t have been rated as if they were easy-to-value bonds” (Lewis 321). To understand the complexity in these structured securities, consider some of the more simple ones. Wall Street largely owned CDOs (collateralized debt obligations), or securities that invested in mortgage backed securities, once removed from the actual debt. Some investment banks even structured CDOs squared, securities invested in CDOs which invested in MBSs, twice removed from the actual debt. The shear logistics of trying to rate these structured securities was nearly impossible.

Obviously much of the failure at rating agencies can be attributed to the aforementioned issues; however the statistical models that the rating agencies use to determine their rating are wrought with imperfections. Apparently, consumers were at fault for not living up to the past. “The real problem is that agencies’ mathematical formulas look backward while life is lived forward. That is unlikely to change” (Lewis 329). Mark Adelson, a former managing director in Moody’s structured finance division, remarks, it was “like observing 100 years of weather in Antarctica to forecast the weather in Hawaii” (Lewis 328). Although all of the rating agencies have made public statements with regards to changes in their historical models, none of the current reforms being proposed will eliminate the conflict of interest in the issuer-pays model.

With the rating agencies triple “A” stamp of approval firmly in place, there was nothing to hold back the financial wizards of Wall Street. Soon nearly every firm was packaging mortgage back securities, and selling them off to investors. One of the most exclusive firms involved in this business was Bear Stearns, the fallen investment bank that was gobbled up by JP Morgan back in March of 2008. In the following Bear Stearns sales pitch given in 1998, the salesman takes a rather unorthodox view in evaluating the credit quality of subprime debt:

“Traditionally rating agencies view LTV as the single most important determinant of default . . . While we do not dispute these assumptions, LTVs have to be analyzed within the context of the affordable- loan situation. Three or 4 percent equity on a $50,000 house is significant to a family of limited financial resources. In relative terms, $1,500 to $2,000 could easily mean three to four months of advance rent payments in their previous housing situation. Obviously, there are more delinquencies with the higher LTV loans than the lower, but there is no tight linear correlation between the LTV levels. Delinquency rates increase along with the LTV levels, but not proportionately. As a result, the use of default models traditionally used for conforming loans have to be adjusted for CRA affordable loans” (Liebowitz 13).

Dr. Liebowitz describes this sales pitch in the following statement: “The logic being put forward by Bear Stearns appears to be that 3–4 percent (as a down payment) of a small mortgage is more important to poor people than 3–4 percent of a bigger mortgage for wealthier applicants” (Liebowitz 13). Thus, if home prices fall by more than 3-4% (the entire equity in the home), Bear Stearns is assuming that the poor and moderate income individuals will not leave their home even though they are underwater in their mortgage. This is absurd considering the nonrecourse nature of home loans. Individuals can quite easily default on their underwater mortgage and find another home at a much cheaper market price. This leaves the bank or investor stuck with a home that is worth far less than the mortgage. However, Bear Stearns did not see it this way and neither did most of its investors. The common pitch made by Bear Stearns if questioned in its strategy was as follows: “To many lower-income homeowners and CRA borrowers, being able to own a home is a near-sacred obligation. A family will do almost anything to meet that monthly mortgage payment” (Liebowitz 14). This flawed economic logic may bring tears to your eyes and appeal to an investor’s emotional side, however the fact that a leading financial firm would use this reasoning as an investment strategy is completely absurd. Rest in peace Bear Stearns.

Obviously the majority of our focus thus far has been on subprime debt and for the most part, this is the main cause of the crisis. Unfortunately, that is only half the story. Enter the housing speculators! Everyone wishes to believe that nasty, subprime, predatory lenders sold all of the homes currently in default. In actuality, many of the foreclosures that have occurred were foreclosures on prime borrowers. As suggested by Liebowitz and later supported by some incredibly compelling data:

“One possibility for the remarkable increase in defaults on adjustable-rate mortgages is that adjustable-rate mortgages drew a very different type of home buyer than did fixed-rate mortgages. Fixed rate mortgages, since they charge higher interest rates, make sense for people who plan to stay in their homes for several years and who do not want to risk the possibility of rates increasing. Adjustable-rate mortgages, on the other hand, are most attractive for people who intend to stay in a home for only a short period of time if at all. Such buyers get the lower interest rate without the worry about interest rates rising in the future, since they do not intend to own the home long enough for the rates to reset” (Liebowitz 24).

The concept of option ARMs helped to move the mortgage crisis out of the subprime realm and into the wealthy middle and upper class. Individuals could borrow money for incredibly cheap, short-term rates that lasted for 1, 3, or 5 years. At the end of this period, the interest rate would reset at a more normal rate, however the owner of the option ARM never planned on owning the home for more than 1 year. These practices were widely popularized and soon everyone became a “flipper” or used their home as an “ATM.” Even the media took hold of this practice and made popular reality shows that portrayed seemingly “savvy” home buyers who bought fixer upper homes and then later resold these homes for massive profits. All was fine as long as the value of the homes continued to appreciate. Unfortunately, no asset class appreciates to the sky and home prices were doomed to fall eventually.

As you will see in the following chart, the extreme increases in foreclosures started at the end of 2005 and the beginning of 2006.

Source: Liebowtiz, Stan J. Anantomy of a Train Wreck

Now look at the following comparison of subprime foreclosures to prime foreclosures. Obviously, as would be expected, the “real” amount of subprime foreclosures is much higher than prime foreclosures. At a rate of around 4% in subprime foreclosures by the end of 2007 compared to a rate of about .45% in prime foreclosures, this is consistent with historical subprime defaults rates nearly 10 times the rate of prime default rates. However, if you examine the data further, you notice that the rate at which prime foreclosures increased is much greater than subprime foreclosures. Prime foreclosures went from a low of .15% in 2006 to almost triple that in 2007 at .45%. Subprime foreclosures, however increased from a rate of 1.5% to around 3.75%, around a 250% increase from trough to peak. Obviously, this data is a bit dated being that it does not take into account the massive foreclosures that ensued in 2008, however, that data was not yet available when I produced this report. In any case, the evidence is quite compelling and shows the severity to which prime borrowers partook in the cheap money housing bubble.

Source: Liebowtiz, Stan J. Anantomy of a Train Wreck

The chart below gives an even more compelling argument in showing how the speculators managed to fuel the housing bubble to greater heights. As noted earlier, ARMs were widely used by individuals to invest in housing at incredibly low, short-term interest rates. As can be gleaned from the two charts below, these ARMs defaulted at numbers incredibly higher than traditional fixed-rate mortgages. In fact the increase in foreclosures for fixed-rate mortgages hardly changed from 2005 to 2007. However, the increase in foreclosures for ARMs, especially in the prime borrower market, increased exponentially. If we look at the foreclosure percentage increase for ARMs in the subprime market, 2005 foreclosure rate at around 1.5% increased about 400% to nearly 6%. However, the increase is by far more dramatic in the prime foreclosure ARMs. In 2005, foreclosure rates occurred at a rate of .2% and increased by about 600% to 1.2%. The increase is much more dramatic because these prime borrowers were able to leverage their high quality credit scores in ways unimaginable to anyone with common sense.

Source: Liebowtiz, Stan J. Anantomy of a Train Wreck

With the clear underpinnings of the crisis understood, we must try to understand how it was possible for so many individuals to obtain oodles of capital at incredibly low interest rates. Enter the Federal Reserve. The Federal Reserve’s monetary policy has been the topic of great debate over the past year and many highly intelligent individuals have weighed in on the issue, including both the prior Federal Reserve chairman Alan Greenspan and the current Fed chairman Ben Bernanke. I will start by describing the commonly held argument that the Fed’s low interest “easy money” policies between 2002-2005 helped to fuel the crisis and then I will propose the arguments offered by the two Federal Reserve chairmen. It will be easy to see which argument makes more sense, but I will try to provide an objective point of view.

The Federal Reserve’s monetary policy problems over the past decade can best be described by David Milpass in his Wall Street Journal article “Did the Fed Cause the Housing Bubble?”

“The blame for the current crisis extends well beyond the Fed — to banks, regulators, bond raters, mortgage fraud, the Bush administration’s weak-dollar policy and Lehman bankruptcy decisions, and Congress’s reckless housing policies through Fannie Mae and Freddie Mac and the Community Reinvestment Act.

But the Fed provided the key fuel with its 1% interest rate choice in 2003 and 2004 and “measured” (meaning inadequate) rate hikes in 2004-2006. It ignored inflationary dollar weakness, higher interest rate choices abroad, the Taylor Rule, and the booming performance of the U.S. and global economies.

Even by the Fed’s own backward-looking inflation metrics, the core consumption deflator exceeded the Fed’s 2% limit for 18 quarters in a row beginning with the second quarter of 2004, while 12-month Consumer Price Index (CPI) inflation hit 4.7% in September 2005 and 5.4% in July 2008. This despite the Fed’s constant assurances that inflation would moderate (unlikely given the crashing dollar.)”

Now to allow both Fed chairman a chance to defend themselves, I have included Greenspan and Bernanke’s op-ed responses to the harsh criticisms stated above. A common theme in both individuals’ stance on the financial crisis contends that a massive inflow of foreign savings into the US and other developed nations fueled the credit boom and the ensuing financial crisis. This inflow of foreign savings is likely a plausible argument and could have helped fuel the crisis, however, I highly doubt that it is the root cause of the global meltdown. Greenspan is quoted as stating:

“As I noted on this page in December 2007, the presumptive cause of the world-wide decline in long-term rates was the tectonic shift in the early 1990s by much of the developing world from heavy emphasis on central planning to increasingly dynamic, export-led market competition. The result was a surge in growth in China and a large number of other emerging market economies that led to an excess of global intended savings relative to intended capital investment. That ex ante excess of savings propelled global long-term interest rates progressively lower between early 2000 and 2005.”

Bernanke makes a similar argument in his speech to the Morehouse College graduates on April 14, 2009:

“Indeed, the net inflow of foreign saving to the United States, which was about 1-1/2 percent of our national output in 1995, reached about 6 percent of national output in 2006, an amount equal to about $825 billion in today’s dollars. Saving inflows from abroad can be beneficial if the country that receives those inflows invests them well. Unfortunately, that was not always the case in the United States and some other countries. Financial institutions reacted to the surplus of available funds by competing aggressively for borrowers, and, in the years leading up to the crisis, credit to both households and businesses became relatively cheap and easy to obtain.”

In addition to Greenspan’s argument noted above, he defends the Fed’s “easy money” monetary policies from 2002-2005 and states that the Fed only has control over short term interest rates, not long term interest rates in which the 30 year fixed rate mortgage tends to abide by. Greenspan goes on to cite some interesting statistical data, and most individuals would probably be led to believe his argument because of his fairly untarnished record. However, with some simple data and a couple of charts, Greenspan’s argument can quite easily be thrown to the trash heap.

As you look at the graphs below, pay attention to the “Fed Funds” rate and the ARM rate for the period between 2001 and 2006. The data clearly shows that the Federal Funds rate and the ARM rate track each other very closely for this particular period. This is not difficult to comprehend given that ARMs are based on short term interest rates for periods of 1, 3, or 5 years. Allen Greenspan obviously forgot to factor in these short term mortgages and their increased influence in the mortgage market when he drastically lowered the federal funds rate in the beginning of 2001. Although Greenspan and Bernanke seem to be committed to their story, they are more likely in severe denial of “unknowingly” causing both the financial and global economic meltdown through their drastic short-term interest rate policy that began in 2001.

Source: Liebowtiz, Stan J. Anantomy of a Train Wreck

Source: Murphy, Robert P. Greenspan’s Bogus Defense

I think it is clear that a perfect storm had to ensue in order for the current crisis to occur. A build up of government support in the housing market for multiple decades began snowballing in the early 90’s because of strong political support for the GSEs and their housing mandates. This snowball fell off a cliff when the Fed began dropping interest rates in 2001. In 2006, the snowball smashed into the ground and caused a financial crisis that continues to rip through our global economy. Now, everyone is asking the question: “How did this happen?” Unfortunately, no one is giving the right answer. Stan Liebowitz states, “Seemingly everyone went along. And most felt morally upright doing so since they were helping increase home ownership, especially among the poor and minorities” (Liebowitz 12). The reckless loosening of lending standards helped achieve political goals, however, the plan backfired with the Fed’s “easy money” policy in the early 2000’s. The metaphorical language of James Grant, editor of Grant’s Interest Rate Observer, sums the Fed policy up quite nicely:

“Imagine a man at the top of a stepladder. He is up on his toes reaching for something. Call that something “yield.” Call the stepladder “leverage.” Now kick the ladder away. The man falls, pieces of debt crashing to the floor around him. The Fed, watching this preventable accident unfold, rushes to the scene too late. Not only did Bernanke et al. not see it coming, but they actually egged the man higher. You will recall the ultra-low interest rates of the early 2000s. The Fed imposed them to speed recovery from an earlier accident, this one involving a man up on a stepladder reaching for technology stocks.”

In closing, I truly hope that we manage to learn from our mistakes and modify our financial system properly to prevent the harsh realities that we are now facing. Obviously there were many culprits and individuals to place blame on for our crisis, and I neglected to mention the reckless subprime mortgage lenders as well as the appraisers who helped to push the housing bubble further into the stratosphere. However, one recurring theme that you may have noticed in the aforementioned research is the intervention of politicians and the federal government in the capital markets. Many individuals have protested capitalism in recent months, stating the current crisis as proof that “capitalism does not work!” Unfortunately, it is our anti-capitalist policies that have failed us and protesters should be more upset that modern capitalist systems tend to take on the form of socialism at the first sign of a downturn in the business cycle. The government’s continual intervention in the current capital markets is going to have drastic implications for the future of our global economy and may delay any possible recovery. The future of our economy looks bleak; however the future of capitalism looks even bleaker.

Works Cited

“AIMA’s Roadmap to Hedge Funds.” aima.org. 2008. 28 April 2009. <http://www.aima.org/en/              knowledge_centre/education/aimas-roadmap-to-hedge-funds.cfm>.

“Authority of the Federal Financial Supervisory Agencies under the Community Reinvestment     Act.” usdoj.gov. 1994. 28 April 2009.  <http://www.usdoj.gov/olc/cra.html>.

Lewis, Michael. Panic: The Story of Modern Financial Insanity. New York, New York: W. W.          Norton & Company, Inc., 2009.

Liebowitz, Stan J. “Anatomy of a Train Wreck: Causes of the Mortgage Meltdown.”          Independent.org. 2008. 28 April 2009. <http://johnrlott.tripod.com/Liebowitz_Housing.                       pdf>.

]]> http://jbtamayo85.wordpress.com/2009/07/22/a-failure-on-every-level-%e2%80%93-patient-accident-reconstruction-of-the-financial-meltdown/feed/ 0 jbtamayo85 pic 1 pic 2 pic 3 pic 4 pic 5 copy pic 6 pic 7 pic 8 http://jbtamayo85.wordpress.com/2009/06/04/obamas-middle-east-speech/ http://jbtamayo85.wordpress.com/2009/06/04/obamas-middle-east-speech/#comments Thu, 04 Jun 2009 22:25:41 +0000 jbtamayo85 http://jbtamayo85.wordpress.com/?p=1061 ]]> In case you didnt’ catch the speech live, here’s video of Pres. Obama’s speech in Cairo with the full transcript

A New Beginning with Muslims

By Barack Obama

I am honored to be in the timeless city of Cairo, and to be hosted by two remarkable institutions. For over a thousand years, Al-Azhar has stood as a beacon of Islamic learning, and for over a century, Cairo University has been a source of Egypt’s advancement. Together, you represent the harmony between tradition and progress. I am grateful for your hospitality, and the hospitality of the people of Egypt. I am also proud to carry with me the goodwill of the American people, and a greeting of peace from Muslim communities in my country: assalaamu alaykum.

We meet at a time of tension between the United States and Muslims around the world – tension rooted in historical forces that go beyond any current policy debate. The relationship between Islam and the West includes centuries of co-existence and cooperation, but also conflict and religious wars. More recently, tension has been fed by colonialism that denied rights and opportunities to many Muslims, and a Cold War in which Muslim-majority countries were too often treated as proxies without regard to their own aspirations. Moreover, the sweeping change brought by modernity and globalization led many Muslims to view the West as hostile to the traditions of Islam.

Violent extremists have exploited these tensions in a small but potent minority of Muslims. The attacks of September 11th, 2001 and the continued efforts of these extremists to engage in violence against civilians has led some in my country to view Islam as inevitably hostile not only to America and Western countries, but also to human rights. This has bred more fear and mistrust.

So long as our relationship is defined by our differences, we will empower those who sow hatred rather than peace, and who promote conflict rather than the cooperation that can help all of our people achieve justice and prosperity. This cycle of suspicion and discord must end.

I have come here to seek a new beginning between the United States and Muslims around the world; one based upon mutual interest and mutual respect; and one based upon the truth that America and Islam are not exclusive, and need not be in competition. Instead, they overlap, and share common principles – principles of justice and progress; tolerance and the dignity of all human beings.

I do so recognizing that change cannot happen overnight. No single speech can eradicate years of mistrust, nor can I answer in the time that I have all the complex questions that brought us to this point. But I am convinced that in order to move forward, we must say openly the things we hold in our hearts, and that too often are said only behind closed doors. There must be a sustained effort to listen to each other; to learn from each other; to respect one another; and to seek common ground. As the Holy Koran tells us, “Be conscious of God and speak always the truth.” That is what I will try to do – to speak the truth as best I can, humbled by the task before us, and firm in my belief that the interests we share as human beings are far more powerful than the forces that drive us apart.

Part of this conviction is rooted in my own experience. I am a Christian, but my father came from a Kenyan family that includes generations of Muslims. As a boy, I spent several years in Indonesia and heard the call of the azaan at the break of dawn and the fall of dusk. As a young man, I worked in Chicago communities where many found dignity and peace in their Muslim faith.

As a student of history, I also know civilization’s debt to Islam. It was Islam – at places like Al-Azhar University – that carried the light of learning through so many centuries, paving the way for Europe’s Renaissance and Enlightenment. It was innovation in Muslim communities that developed the order of algebra; our magnetic compass and tools of navigation; our mastery of pens and printing; our understanding of how disease spreads and how it can be healed. Islamic culture has given us majestic arches and soaring spires; timeless poetry and cherished music; elegant calligraphy and places of peaceful contemplation. And throughout history, Islam has demonstrated through words and deeds the possibilities of religious tolerance and racial equality.

I know, too, that Islam has always been a part of America’s story. The first nation to recognize my country was Morocco. In signing the Treaty of Tripoli in 1796, our second President John Adams wrote, “The United States has in itself no character of enmity against the laws, religion or tranquility of Muslims.” And since our founding, American Muslims have enriched the United States. They have fought in our wars, served in government, stood for civil rights, started businesses, taught at our Universities, excelled in our sports arenas, won Nobel Prizes, built our tallest building, and lit the Olympic Torch. And when the first Muslim-American was recently elected to Congress, he took the oath to defend our Constitution using the same Holy Koran that one of our Founding Fathers – Thomas Jefferson – kept in his personal library.

So I have known Islam on three continents before coming to the region where it was first revealed. That experience guides my conviction that partnership between America and Islam must be based on what Islam is, not what it isn’t. And I consider it part of my responsibility as President of the United States to fight against negative stereotypes of Islam wherever they appear.

But that same principle must apply to Muslim perceptions of America. Just as Muslims do not fit a crude stereotype, America is not the crude stereotype of a self-interested empire. The United States has been one of the greatest sources of progress that the world has ever known. We were born out of revolution against an empire. We were founded upon the ideal that all are created equal, and we have shed blood and struggled for centuries to give meaning to those words – within our borders, and around the world. We are shaped by every culture, drawn from every end of the Earth, and dedicated to a simple concept: E pluribus unum: “Out of many, one.”

Much has been made of the fact that an African-American with the name Barack Hussein Obama could be elected President. But my personal story is not so unique. The dream of opportunity for all people has not come true for everyone in America, but its promise exists for all who come to our shores – that includes nearly seven million American Muslims in our country today who enjoy incomes and education that are higher than average.

Moreover, freedom in America is indivisible from the freedom to practice one’s religion. That is why there is a mosque in every state of our union, and over 1,200 mosques within our borders. That is why the U.S. government has gone to court to protect the right of women and girls to wear the hijab, and to punish those who would deny it.

So let there be no doubt: Islam is a part of America. And I believe that America holds within her the truth that regardless of race, religion, or station in life, all of us share common aspirations – to live in peace and security; to get an education and to work with dignity; to love our families, our communities, and our God. These things we share. This is the hope of all humanity.

Of course, recognizing our common humanity is only the beginning of our task. Words alone cannot meet the needs of our people. These needs will be met only if we act boldly in the years ahead; and if we understand that the challenges we face are shared, and our failure to meet them will hurt us all.

For we have learned from recent experience that when a financial system weakens in one country, prosperity is hurt everywhere. When a new flu infects one human being, all are at risk. When one nation pursues a nuclear weapon, the risk of nuclear attack rises for all nations. When violent extremists operate in one stretch of mountains, people are endangered across an ocean. And when innocents in Bosnia and Darfur are slaughtered, that is a stain on our collective conscience. That is what it means to share this world in the 21st century. That is the responsibility we have to one another as human beings.

This is a difficult responsibility to embrace. For human history has often been a record of nations and tribes subjugating one another to serve their own interests. Yet in this new age, such attitudes are self-defeating. Given our interdependence, any world order that elevates one nation or group of people over another will inevitably fail. So whatever we think of the past, we must not be prisoners of it. Our problems must be dealt with through partnership; progress must be shared.

That does not mean we should ignore sources of tension. Indeed, it suggests the opposite: we must face these tensions squarely. And so in that spirit, let me speak as clearly and plainly as I can about some specific issues that I believe we must finally confront together.

The first issue that we have to confront is violent extremism in all of its forms.

In Ankara, I made clear that America is not – and never will be – at war with Islam. We will, however, relentlessly confront violent extremists who pose a grave threat to our security. Because we reject the same thing that people of all faiths reject: the killing of innocent men, women, and children. And it is my first duty as President to protect the American people.

The situation in Afghanistan demonstrates America’s goals, and our need to work together. Over seven years ago, the United States pursued al Qaeda and the Taliban with broad international support. We did not go by choice, we went because of necessity. I am aware that some question or justify the events of 9/11. But let us be clear: al Qaeda killed nearly 3,000 people on that day. The victims were innocent men, women and children from America and many other nations who had done nothing to harm anybody. And yet Al Qaeda chose to ruthlessly murder these people, claimed credit for the attack, and even now states their determination to kill on a massive scale. They have affiliates in many countries and are trying to expand their reach. These are not opinions to be debated; these are facts to be dealt with.

Make no mistake: we do not want to keep our troops in Afghanistan. We seek no military bases there. It is agonizing for America to lose our young men and women. It is costly and politically difficult to continue this conflict. We would gladly bring every single one of our troops home if we could be confident that there were not violent extremists in Afghanistan and Pakistan determined to kill as many Americans as they possibly can. But that is not yet the case.

That’s why we’re partnering with a coalition of forty-six countries. And despite the costs involved, America’s commitment will not weaken. Indeed, none of us should tolerate these extremists. They have killed in many countries. They have killed people of different faiths – more than any other, they have killed Muslims. Their actions are irreconcilable with the rights of human beings, the progress of nations, and with Islam. The Holy Koran teaches that whoever kills an innocent, it is as if he has killed all mankind; and whoever saves a person, it is as if he has saved all mankind. The enduring faith of over a billion people is so much bigger than the narrow hatred of a few. Islam is not part of the problem in combating violent extremism – it is an important part of promoting peace.

We also know that military power alone is not going to solve the problems in Afghanistan and Pakistan. That is why we plan to invest $1.5 billion each year over the next five years to partner with Pakistanis to build schools and hospitals, roads and businesses, and hundreds of millions to help those who have been displaced. And that is why we are providing more than $2.8 billion to help Afghans develop their economy and deliver services that people depend upon.

Let me also address the issue of Iraq. Unlike Afghanistan, Iraq was a war of choice that provoked strong differences in my country and around the world. Although I believe that the Iraqi people are ultimately better off without the tyranny of Saddam Hussein, I also believe that events in Iraq have reminded America of the need to use diplomacy and build international consensus to resolve our problems whenever possible. Indeed, we can recall the words of Thomas Jefferson, who said: “I hope that our wisdom will grow with our power, and teach us that the less we use our power the greater it will be.”

Today, America has a dual responsibility: to help Iraq forge a better future – and to leave Iraq to Iraqis. I have made it clear to the Iraqi people that we pursue no bases, and no claim on their territory or resources. Iraq’s sovereignty is its own. That is why I ordered the removal of our combat brigades by next August. That is why we will honor our agreement with Iraq’s democratically-elected government to remove combat troops from Iraqi cities by July, and to remove all our troops from Iraq by 2012. We will help Iraq train its Security Forces and develop its economy. But we will support a secure and united Iraq as a partner, and never as a patron.

And finally, just as America can never tolerate violence by extremists, we must never alter our principles. 9/11 was an enormous trauma to our country. The fear and anger that it provoked was understandable, but in some cases, it led us to act contrary to our ideals. We are taking concrete actions to change course. I have unequivocally prohibited the use of torture by the United States, and I have ordered the prison at Guantanamo Bay closed by early next year.

So America will defend itself respectful of the sovereignty of nations and the rule of law. And we will do so in partnership with Muslim communities which are also threatened. The sooner the extremists are isolated and unwelcome in Muslim communities, the sooner we will all be safer.

The second major source of tension that we need to discuss is the situation between Israelis, Palestinians and the Arab world.

America’s strong bonds with Israel are well known. This bond is unbreakable. It is based upon cultural and historical ties, and the recognition that the aspiration for a Jewish homeland is rooted in a tragic history that cannot be denied.

Around the world, the Jewish people were persecuted for centuries, and anti-Semitism in Europe culminated in an unprecedented Holocaust. Tomorrow, I will visit Buchenwald, which was part of a network of camps where Jews were enslaved, tortured, shot and gassed to death by the Third Reich. Six million Jews were killed – more than the entire Jewish population of Israel today. Denying that fact is baseless, ignorant, and hateful. Threatening Israel with destruction – or repeating vile stereotypes about Jews – is deeply wrong, and only serves to evoke in the minds of Israelis this most painful of memories while preventing the peace that the people of this region deserve.

On the other hand, it is also undeniable that the Palestinian people – Muslims and Christians – have suffered in pursuit of a homeland. For more than sixty years they have endured the pain of dislocation. Many wait in refugee camps in the West Bank, Gaza, and neighboring lands for a life of peace and security that they have never been able to lead. They endure the daily humiliations – large and small – that come with occupation. So let there be no doubt: the situation for the Palestinian people is intolerable. America will not turn our backs on the legitimate Palestinian aspiration for dignity, opportunity, and a state of their own.

For decades, there has been a stalemate: two peoples with legitimate aspirations, each with a painful history that makes compromise elusive. It is easy to point fingers – for Palestinians to point to the displacement brought by Israel’s founding, and for Israelis to point to the constant hostility and attacks throughout its history from within its borders as well as beyond. But if we see this conflict only from one side or the other, then we will be blind to the truth: the only resolution is for the aspirations of both sides to be met through two states, where Israelis and Palestinians each live in peace and security.

That is in Israel’s interest, Palestine’s interest, America’s interest, and the world’s interest. That is why I intend to personally pursue this outcome with all the patience that the task requires. The obligations that the parties have agreed to under the Road Map are clear. For peace to come, it is time for them – and all of us – to live up to our responsibilities.

Palestinians must abandon violence. Resistance through violence and killing is wrong and does not succeed. For centuries, black people in America suffered the lash of the whip as slaves and the humiliation of segregation. But it was not violence that won full and equal rights. It was a peaceful and determined insistence upon the ideals at the center of America’s founding. This same story can be told by people from South Africa to South Asia; from Eastern Europe to Indonesia. It’s a story with a simple truth: that violence is a dead end. It is a sign of neither courage nor power to shoot rockets at sleeping children, or to blow up old women on a bus. That is not how moral authority is claimed; that is how it is surrendered.

Now is the time for Palestinians to focus on what they can build. The Palestinian Authority must develop its capacity to govern, with institutions that serve the needs of its people. Hamas does have support among some Palestinians, but they also have responsibilities. To play a role in fulfilling Palestinian aspirations, and to unify the Palestinian people, Hamas must put an end to violence, recognize past agreements, and recognize Israel’s right to exist.

At the same time, Israelis must acknowledge that just as Israel’s right to exist cannot be denied, neither can Palestine’s. The United States does not accept the legitimacy of continued Israeli settlements. This construction violates previous agreements and undermines efforts to achieve peace. It is time for these settlements to stop.

Israel must also live up to its obligations to ensure that Palestinians can live, and work, and develop their society. And just as it devastates Palestinian families, the continuing humanitarian crisis in Gaza does not serve Israel’s security; neither does the continuing lack of opportunity in the West Bank. Progress in the daily lives of the Palestinian people must be part of a road to peace, and Israel must take concrete steps to enable such progress.

Finally, the Arab States must recognize that the Arab Peace Initiative was an important beginning, but not the end of their responsibilities. The Arab-Israeli conflict should no longer be used to distract the people of Arab nations from other problems. Instead, it must be a cause for action to help the Palestinian people develop the institutions that will sustain their state; to recognize Israel’s legitimacy; and to choose progress over a self-defeating focus on the past.

America will align our policies with those who pursue peace, and say in public what we say in private to Israelis and Palestinians and Arabs. We cannot impose peace. But privately, many Muslims recognize that Israel will not go away. Likewise, many Israelis recognize the need for a Palestinian state. It is time for us to act on what everyone knows to be true.

Too many tears have flowed. Too much blood has been shed. All of us have a responsibility to work for the day when the mothers of Israelis and Palestinians can see their children grow up without fear; when the Holy Land of three great faiths is the place of peace that God intended it to be; when Jerusalem is a secure and lasting home for Jews and Christians and Muslims, and a place for all of the children of Abraham to mingle peacefully together as in the story of Isra, when Moses, Jesus, and Mohammed (peace be upon them) joined in prayer.

The third source of tension is our shared interest in the rights and responsibilities of nations on nuclear weapons.

This issue has been a source of tension between the United States and the Islamic Republic of Iran. For many years, Iran has defined itself in part by its opposition to my country, and there is indeed a tumultuous history between us. In the middle of the Cold War, the United States played a role in the overthrow of a democratically-elected Iranian government. Since the Islamic Revolution, Iran has played a role in acts of hostage-taking and violence against U.S. troops and civilians. This history is well known. Rather than remain trapped in the past, I have made it clear to Iran’s leaders and people that my country is prepared to move forward. The question, now, is not what Iran is against, but rather what future it wants to build.

It will be hard to overcome decades of mistrust, but we will proceed with courage, rectitude and resolve. There will be many issues to discuss between our two countries, and we are willing to move forward without preconditions on the basis of mutual respect. But it is clear to all concerned that when it comes to nuclear weapons, we have reached a decisive point. This is not simply about America’s interests. It is about preventing a nuclear arms race in the Middle East that could lead this region and the world down a hugely dangerous path.

I understand those who protest that some countries have weapons that others do not. No single nation should pick and choose which nations hold nuclear weapons. That is why I strongly reaffirmed America’s commitment to seek a world in which no nations hold nuclear weapons. And any nation – including Iran – should have the right to access peaceful nuclear power if it complies with its responsibilities under the nuclear Non-Proliferation Treaty. That commitment is at the core of the Treaty, and it must be kept for all who fully abide by it. And I am hopeful that all countries in the region can share in this goal.

The fourth issue that I will address is democracy.

I know there has been controversy about the promotion of democracy in recent years, and much of this controversy is connected to the war in Iraq. So let me be clear: no system of government can or should be imposed upon one nation by any other.

That does not lessen my commitment, however, to governments that reflect the will of the people. Each nation gives life to this principle in its own way, grounded in the traditions of its own people. America does not presume to know what is best for everyone, just as we would not presume to pick the outcome of a peaceful election. But I do have an unyielding belief that all people yearn for certain things: the ability to speak your mind and have a say in how you are governed; confidence in the rule of law and the equal administration of justice; government that is transparent and doesn’t steal from the people; the freedom to live as you choose. Those are not just American ideas, they are human rights, and that is why we will support them everywhere.

There is no straight line to realize this promise. But this much is clear: governments that protect these rights are ultimately more stable, successful and secure. Suppressing ideas never succeeds in making them go away. America respects the right of all peaceful and law-abiding voices to be heard around the world, even if we disagree with them. And we will welcome all elected, peaceful governments – provided they govern with respect for all their people.

This last point is important because there are some who advocate for democracy only when they are out of power; once in power, they are ruthless in suppressing the rights of others. No matter where it takes hold, government of the people and by the people sets a single standard for all who hold power: you must maintain your power through consent, not coercion; you must respect the rights of minorities, and participate with a spirit of tolerance and compromise; you must place the interests of your people and the legitimate workings of the political process above your party. Without these ingredients, elections alone do not make true democracy.

The fifth issue that we must address together is religious freedom.

Islam has a proud tradition of tolerance. We see it in the history of Andalusia and Cordoba during the Inquisition. I saw it firsthand as a child in Indonesia, where devout Christians worshiped freely in an overwhelmingly Muslim country. That is the spirit we need today. People in every country should be free to choose and live their faith based upon the persuasion of the mind, heart, and soul. This tolerance is essential for religion to thrive, but it is being challenged in many different ways.

Among some Muslims, there is a disturbing tendency to measure one’s own faith by the rejection of another’s. The richness of religious diversity must be upheld – whether it is for Maronites in Lebanon or the Copts in Egypt. And fault lines must be closed among Muslims as well, as the divisions between Sunni and Shia have led to tragic violence, particularly in Iraq.

Freedom of religion is central to the ability of peoples to live together. We must always examine the ways in which we protect it. For instance, in the United States, rules on charitable giving have made it harder for Muslims to fulfill their religious obligation. That is why I am committed to working with American Muslims to ensure that they can fulfill zakat.

Likewise, it is important for Western countries to avoid impeding Muslim citizens from practicing religion as they see fit – for instance, by dictating what clothes a Muslim woman should wear. We cannot disguise hostility towards any religion behind the pretence of liberalism.

Indeed, faith should bring us together. That is why we are forging service projects in America that bring together Christians, Muslims, and Jews. That is why we welcome efforts like Saudi Arabian King Abdullah’s Interfaith dialogue and Turkey’s leadership in the Alliance of Civilizations. Around the world, we can turn dialogue into Interfaith service, so bridges between peoples lead to action – whether it is combating malaria in Africa, or providing relief after a natural disaster.

The sixth issue that I want to address is women’s rights.

I know there is debate about this issue. I reject the view of some in the West that a woman who chooses to cover her hair is somehow less equal, but I do believe that a woman who is denied an education is denied equality. And it is no coincidence that countries where women are well-educated are far more likely to be prosperous.

Now let me be clear: issues of women’s equality are by no means simply an issue for Islam. In Turkey, Pakistan, Bangladesh and Indonesia, we have seen Muslim-majority countries elect a woman to lead. Meanwhile, the struggle for women’s equality continues in many aspects of American life, and in countries around the world.

Our daughters can contribute just as much to society as our sons, and our common prosperity will be advanced by allowing all humanity – men and women – to reach their full potential. I do not believe that women must make the same choices as men in order to be equal, and I respect those women who choose to live their lives in traditional roles. But it should be their choice. That is why the United States will partner with any Muslim-majority country to support expanded literacy for girls, and to help young women pursue employment through micro-financing that helps people live their dreams.

Finally, I want to discuss economic development and opportunity.

I know that for many, the face of globalization is contradictory. The Internet and television can bring knowledge and information, but also offensive sexuality and mindless violence. Trade can bring new wealth and opportunities, but also huge disruptions and changing communities. In all nations – including my own – this change can bring fear. Fear that because of modernity we will lose of control over our economic choices, our politics, and most importantly our identities – those things we most cherish about our communities, our families, our traditions, and our faith.

But I also know that human progress cannot be denied. There need not be contradiction between development and tradition. Countries like Japan and South Korea grew their economies while maintaining distinct cultures. The same is true for the astonishing progress within Muslim-majority countries from Kuala Lumpur to Dubai. In ancient times and in our times, Muslim communities have been at the forefront of innovation and education.

This is important because no development strategy can be based only upon what comes out of the ground, nor can it be sustained while young people are out of work. Many Gulf States have enjoyed great wealth as a consequence of oil, and some are beginning to focus it on broader development. But all of us must recognize that education and innovation will be the currency of the 21st century, and in too many Muslim communities there remains underinvestment in these areas. I am emphasizing such investments within my country. And while America in the past has focused on oil and gas in this part of the world, we now seek a broader engagement.

On education, we will expand exchange programs, and increase scholarships, like the one that brought my father to America, while encouraging more Americans to study in Muslim communities. And we will match promising Muslim students with internships in America; invest in on-line learning for teachers and children around the world; and create a new online network, so a teenager in Kansas can communicate instantly with a teenager in Cairo.

On economic development, we will create a new corps of business volunteers to partner with counterparts in Muslim-majority countries. And I will host a Summit on Entrepreneurship this year to identify how we can deepen ties between business leaders, foundations and social entrepreneurs in the United States and Muslim communities around the world.

On science and technology, we will launch a new fund to support technological development in Muslim-majority countries, and to help transfer ideas to the marketplace so they can create jobs. We will open centers of scientific excellence in Africa, the Middle East and Southeast Asia, and appoint new Science Envoys to collaborate on programs that develop new sources of energy, create green jobs, digitize records, clean water, and grow new crops. And today I am announcing a new global effort with the Organization of the Islamic Conference to eradicate polio. And we will also expand partnerships with Muslim communities to promote child and maternal health.

All these things must be done in partnership. Americans are ready to join with citizens and governments; community organizations, religious leaders, and businesses in Muslim communities around the world to help our people pursue a better life.

The issues that I have described will not be easy to address. But we have a responsibility to join together on behalf of the world we seek – a world where extremists no longer threaten our people, and American troops have come home; a world where Israelis and Palestinians are each secure in a state of their own, and nuclear energy is used for peaceful purposes; a world where governments serve their citizens, and the rights of all God’s children are respected. Those are mutual interests. That is the world we seek. But we can only achieve it together.

I know there are many – Muslim and non-Muslim – who question whether we can forge this new beginning. Some are eager to stoke the flames of division, and to stand in the way of progress. Some suggest that it isn’t worth the effort – that we are fated to disagree, and civilizations are doomed to clash. Many more are simply skeptical that real change can occur. There is so much fear, so much mistrust. But if we choose to be bound by the past, we will never move forward. And I want to particularly say this to young people of every faith, in every country – you, more than anyone, have the ability to remake this world.

All of us share this world for but a brief moment in time. The question is whether we spend that time focused on what pushes us apart, or whether we commit ourselves to an effort – a sustained effort – to find common ground, to focus on the future we seek for our children, and to respect the dignity of all human beings.

It is easier to start wars than to end them. It is easier to blame others than to look inward; to see what is different about someone than to find the things we share. But we should choose the right path, not just the easy path. There is also one rule that lies at the heart of every religion – that we do unto others as we would have them do unto us. This truth transcends nations and peoples – a belief that isn’t new; that isn’t black or white or brown; that isn’t Christian, or Muslim or Jew. It’s a belief that pulsed in the cradle of civilization, and that still beats in the heart of billions. It’s a faith in other people, and it’s what brought me here today.

We have the power to make the world we seek, but only if we have the courage to make a new beginning, keeping in mind what has been written.

The Holy Koran tells us, “O mankind! We have created you male and a female; and we have made you into nations and tribes so that you may know one another.”

The Talmud tells us: “The whole of the Torah is for the purpose of promoting peace.”

The Holy Bible tells us, “Blessed are the peacemakers, for they shall be called sons of God.”

The people of the world can live together in peace. We know that is God’s vision. Now, that must be our work here on Earth. Thank you. And may God’s peace be upon you.

Missing Call Letters

Bone marrow receipents dancing to 'I Will Survive.'

A couple of weeks ago I went to the 33rd annual Celebration of Life at the City f Hope Hospital for bone marrow recipients and donors. I’ve gone the last five years since my dad received a bone marrow transplant there.

The event always has good food, good music, and a bounce house and games for kids. I enjoy going every year becasue it’s always humbling to talk to people who have stared death in the face and gave him their right hook…really helps put things in perspective.   There is usually a great speaker too, and the program closes with a group picture of all the survivors. Inside the hospital, you can see all the group pictures starting from 1976 and can literally see the number of survivors grow and grow each year.

None of these survivors, including my dad, would be here today if it weren’t for all the doctors and donors who have saved countless lives. My dad was fortunate enough to have a match through his sister, but others aren’t so lucky.

Thousands of patients with leukemia and other life-threatening diseases need a bone marrow or umbilical cord blood transplant to survive. These people depend of the “Be The Match Registry” to find someone like you that can give them the gift of life. 

Matches aren’t that easy to come by either. Because the markers used in matching are inherited, patients are more likely to match someone from their own race or ethnicity. Adding more donors to the registry from diverse racial and ethnic backgrounds makes it more likely a patient will find the match the need. So people with black and African American backgrounds as well as Native American, Asian, Hawaiian, Pacific Islander, Latino, or multiple races are encouraged to sign up. 

If you’re interested in becoming a donor, check out marrow.org. It’s a pretty easy process and just requires a simple swab of your cheek cells and a properly filled out form. The actual extraction of bone marrow isn’t a big deal either. It’s a surgical procedure you receive while under anesthesia that extracts the marrow with a hollow needle from your pelvic bones. Your marrow is completely replaced within four to six weeks and you only feel some soreness in your lower back for a few days. 

So think about it. For another incentive, if you become a donor you are invited to the annual Celebration of Life party and get free food. Plus, you’d be saving a life. I’ve heard both are pretty rewarding.

Missing Call Letters

Ever since I was a kid I was told to run away from or kill any black widows I saw. That’s not so much the case anymore, because there’s a new spider is town that’s taking the crown.

The brown widow spider — a tropical species unknown in the region just a few years ago — is suddenly all over Orange County. The brown widow has gone from being extremely rare to common in Coastal California. Arachnologist Lenny Vincent of Fullerton College goes as far as calling Orange County the epicenter for these spiders in a paper he published this month.

But don’t fret just yet. Although brown widows have more powerful venom, they release less of their deadly ooze when they bite as opposed to black widows. Becasue of this, effects of their bites are more mild and include soreness and redness as opposed to muscle rigidity from black widows.

“It appears to be less of a medical concern than the black widow,” Vincent told the OC Register. “They’re more attractive, and they appear to be less dangerous.”

No one knows why there’s been such a population boom for the brown widows in Orange County or if they will displace the black widows.

“I don’t know why this would happen – if there’s a competition between the two species for locations to build webs, or of one’s outcompeting the other for food.” Vincent said. “I think it would be a great research project.”

Either way, I’m going to be “un-green” and tell you to just step on them anyway. I’d prefer a dead bug to a sore or red spider bite any day.

Here’s some pics of the spider my cousin found in her backyard in the LBC:

Missing Call Letters

Just felt another earthquake. According to USGS it was a 5.0 at Lennox, CA at 8:39 pm. Check out my previous blog post on earthquake safety tips and how some scientists believe the ‘big one’ may come from small earthquakes like tonight’s.

3/24/2009

There’s been a slew of minor earthquakes the last couple of months and this morning there was a whopping 24 quakes recorded near the Salton Sea with a magnitude of 4.8, including one that could have caused moderate damage. 

The scary part isn’t that there were 24 earthquakes within a 15 minute period, but that it comes at a time when scientists are watching to see if small faults are transferring energy to the more dangerous San Andreas Fault,  inevitably causing the Big One.

Click here to read rest of post.

Missing Call Letters

Swine Flu terrifies me. It has killed at least 68 people and has made more than 1,000 people sick in Mexico City, California, and Texas. Jose Cordova, Mexico’s Health Minister, told reporters that swine flu has been confirmed as the cause of death for at least 20 people so far.  

The Center of Disease Control and Prevention says out of 14 tissue samples tested from Mexico, half were a genetic match with the swine flu reported in eight people in California and Texas in late March and early April of this year.

What’s more scary is CDC acting director Dr. Richard Besser told reporters that it’s likely too late to try to contain the outbreak, by vaccinating, treating or isolating people.

“There are things that we see that suggest that containment is not very likely,” he said.

So what exactly is swine flu, how do you prevent it, and what are its symptoms?

Background

Swine flu is a respiratory disease in pigs. It’s caused by type A influenza viruses, which are ranked “A” because they are the worst of the flu viruses and are responsible for most of the serious flu epidemics in history. People don’t normally catch swine flu, but those around pigs are more susceptible to the virus.

Al Gore vs. Man-Bear-Pig (South Park)

The CDC are analyzing samples of the H1N1 virus from some of the U.S. patients, all of whom have recovered.  The center claims it is a never-before-seen mix of viruses from pigs, birds and humans. It strangely reminds me of Al Gore’s arch nemesis in South Park: Man-bear-pig. 

In the past, severe illness like pneumonia and respiratory failure with swine flu have led to deaths. In September 1988, a previously healthy 32-year-old pregnant woman in Wisconsin was hospitalized for pneumonia after being infected with swine flu and died 8 days later. 

Symptoms

Swine flu symptoms are similar to that of regular human flu symptoms including fever, cough, sore throat, body aches, headache, chills, and fatigue. The CDC says some people have reported diarrhea and vomiting as a symptom as well. 

In children the emergency warning signs that need urgent medical attention include:

• Fast breathing or trouble breathing
• Bluish skin color
• Not drinking enough fluids
• Not waking up or not interacting
• Being so irritable that the child does not want to be held
• Flu-like symptoms improve but then return with fever and worse cough
• Fever with a rash

In adults, emergency warning signs that need urgent medical attention include:

• Difficulty breathing or shortness of breath
• Pain or pressure in the chest or abdomen
• Sudden dizziness
• Confusion
• Severe or persistent vomiting

The severity of swine flu can be anywhere between mild to severe. To give you some perspective, between 2005 and January 2009, there were only 12 human cases of swine flu in the U.S. with no deaths occurring, according to the CDC. A swine flu outbreak in 1976, however, caused more than 200 cases with serious illness in several people and one death in New Jersey.

Also, like seasonal flu, swine flu may cause any chronic medical conditions to worsen. 

Causes

The CDC has determined the virus is contagious and spreads from human to human. At this time, however, it not known how easily the virus spreads between people.

Swine flu can occur in two ways: through contact with infected pigs or their contaminated environments or through contact with a person with swine flu.  The CDC says it’s thought to occur the same way as a seasonal flu. Influenza is said to spread mainly person-to-person though coughing or sneezing of infected people. So just think of it in the same way as any flu. If someone is sick you avoid them and their germs like the plague (except in this case it kind of is the plague).

It’s also important to note that there is currently no evidence to suggest that swine flu can be transmitted to humans from eating pork or pork products that have been thoroughly cooked. The CDC even claims eating pork is safe. But if you’re paranoid like me and believe there’s a first for everything, you just might want to lay off the bacon for awhile. 

Prevention

As of right now, there is no vaccine available to protect against swine flu. There are everyday actions that can help prevent the spread of germs that cause respiratory illnesses like influenza though. Here’s are some guidelines:

• Wash your hands – health officials say the number one way to prevent all sorts of diseases, including ordinary influenza and the swine flu virus is hand-washing. Hand-sanitizers are also your friend.
• Cover your nose and mouth with a tissue when you cough or sneeze. Throw the tissue in the trash after you use it.
• Try to avoid close contact with sick people.

Treatment

As mentioned earlier, there is no vaccine for swine flu in humans. The CDC is currently working on one.

If you do notice you are experiencing flu symptoms stay inside. 

“If you have the flu, then you shouldn’t be getting on the bus or getting on the plane and traveling,” Besser told reporters in a telephone briefing.

The CDC advises you to contact your heath care provider if you live in San Diego County or Imperial County in California, or Guadalupe County in Texas and become ill with influenza-like symptoms.

In any situation, it can never hurt to check with your doctor if you are experiencing any seasonal flu or swine flu symptoms. 

Stay healthy!!

***Note: I am not a health expert or a doctor, information from this blog comes directly from the CDC, flufacts.com, and reports from Reuters, Bloomberg, and LA Times.