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Thought for Friday, Dec 21, 2007

Golden Oldie

Don't like my driving?
Call 1-800-NO GIFTS

-Bumper sticker
Santa's sleigh

As reported by Penny Pennington


This tftd will be the last for 2007. tftd is taking an extended
Christmas Holiday. tftd will return on or about January 2, 2008.
The message above is Noel.

Thought for Thursday, Dec 20, 2007

Golden Oldie

What if it had been Three Wise Women
instead of Three Wise Men?

They would have asked directions
Arrived on time
Helped deliver the baby
Cleaned the stable
Made a casserole, and
Brought practical gifts!

-tftd assumes From the Internet

Thought for Wednesday, Dec 19, 2007

Updated Golden Oldie

****** ****** ****** ****** ****** ****** ****** ******

Please accept with no obligation,
implied or implicit our best wishes for
an environmentally conscious,
socially responsible, low stress,
non-addictive, gender neutral,
celebration of the winter solstice
holiday, practiced within the most
enjoyable traditions of the religious
persuasion of your choice, or secular
practices of your choice, with respect
for the religious/secular persuasions
and/or traditions of others, or their
choice not to practice religious or
secular traditions at all . . .

a n d a fiscally successful,
personally fulfilling, and medically
uncomplicated recognition of the onset
of the generally accepted calendar
year 2008, but not without due respect
for the calendars of choice of other
cultures whose contributions to
society have helped make America great,
(not to imply that America is necessarily
greater than any other country or is
the only "AMERICA" in the western
hemisphere), and without regard to the
race, creed, color, age, physical ability,
religious faith, or choice of computer
platform of the wishee.

(By accepting this greeting,
you are accepting these terms.
This greeting is subject to
clarification or withdrawal. It is freely
transferable with no alteration to the
original greeting. It implies no
promise by the wisher to actually
implement any of the wishes for
her/himself or others, and is
void where prohibited by law, and is
revocable at the sole discretion of
the wisher. This wish is warranted
to perform as expected within the
usual application of good tidings
for a period of one year, or until the
issuance of a subsequent holiday greeting,
whichever comes first, and warranty is
limited to replacement of this wish
or issuance of a new wish at the
sole discretion of the wisher.)

****** ****** ****** ****** ****** ****** ****** ******

Thought for Tuesday, Dec 18, 2007

Anybody who doesn't cut his speed at the sight of a police car is
probably parked.

Here is Your November Mike Gasior Newsletter

November 2007 Newsletter


Issue Five, Volume Eight




Yes.  You read the title of this newsletter correctly.  In keeping with my love of music I've quasi-lifted the lyrics from one of my favorite Beatles tunes "Back in the U.S.S.R.".  The only thing is that I'm not back in the U.S.S.R.  It seems I suddenly am living in the United Socialist States of America.  I now living in a country where elected officials can arbitrarily change the terms of signed contracts and keep people who weren't creditworthy in debt longer.  Combine this sort of action with the recent and expected steps taken by the Federal Reserve and we now have the perfect recipe for an even more catastrophic and ugly future than the one that I'd already imagined.  This is the most pressing topic I want to address in this edition along with a couple of others.


With regard to my inconsistency with the writing of this newsletter this past year, I will stop my self-flagellation and vows of catching up and simply try harder to put aside the time for it in 2008.  If I'm happy for anything, it's that the cause of me having so little time was the result of the busiest year I have had in the past 18 and it was not due to some illness, accident or other tragedy.  It also has not been for any lack of something to say, since we have all certainly lived through quite a fascinating 2007.  But let me begin to move forward and stop lamenting the past.




We are currently in the process of locking in all our regional training sessions in New York, Bermuda and Grand Cayman for next year and I will make certain you get those dates the moment they are final.  They will also be available on the website at that time.


I have had several of our larger clients schedule in-house sessions for their staff already and as of January 1st our calendar is going to be in excess of 80% sold out.  If your organization has any interest in holding in-house training for your staff, I encourage you to contact my offices at (860)347-6568 soon so that you will be assured of securing dates that will work for you.  You can also view a complete catalog of our standard course offerings by going to the following link.  Please remember that we will assemble custom seminars that will perfectly suit the needs of your audience for no additional cost:






Several clients have approached me of late for help in making determination of pricing conventions for the application of FAS 157, which takes effect on January 1, 2008, as well as identifying securities that may have subprime exposure and risk.


For those of you that are unaware of the impact of this new accounting requirement, FAS 157 will require investors to begin to group their securities holdings into three categories with regard to how they arrive at "fair value" for the investment.  Although the new regulation takes effect in just a few weeks, many investors and their auditors are still not comfortable with the determining what "level" of inputs are used to establish market pricing for a huge universe of securities held by large investors.


To explain this to those who do not have intimate knowledge of arcane accounting rules or the financial markets, your typical insurance company, pension fund, or other such investor will often have extremely large holdings of securities that trade very infrequently.  For most people on "Main Street", their vision of the investment markets is what they observe on CNBC where there is a live ticker of stock quotes streaming across the bottom of their television screen and they would wonder how you could have a problem establishing, for example, the price of IBM stock.


The problem is that a gigantic proportion of the bond and derivatives markets (which trade primarily over-the-counter) often have very little, or no, trading activity associated with them.  An insurance company or pension fund will own many bonds or derivatives that haven't traded for months or even years.  Yet they are required to develop market values for the purposes of their financial reporting and this is often done using comparisons or mathematical modeling to estimate the value of any given holding.


Now while this is gross oversimplification, what FAS 157 will require these investors to do is group their holdings in a way that will show what level of certainty and dependability is associated with the prices that they are reporting for valuation.  Those securities in the lowest category of certainty will no doubt draw the most attention by auditors and regulators.


This might seem to be a straightforward process when explained simply, but can be a horrifying exercise in application for the people who are being asked to perform this duty and this is where I would like to offer some assistance.


Very few people on earth have the insight that I have developed over the past 27 years with regard to the duties, responsibilities, problems and weaknesses of the broker-dealer, trade/portfolio manager, accountants and auditors and the systems and IT department.  I'm acutely aware of what everyone does and also what everyone can't do, as well as where everyone has their bodies buried.


With this in mind, if your organization could use guidance with respect to decision-making regarding FAS 157 or any other investment department related issues I am always available to consult with you on these matters.  My schedule is very full as already mentioned, and I only accept engagements that I feel are interesting and where I can make a substantial impact and improvement in your processes.  In usually just a few days I can identify weaknesses, improve approaches and share knowledge that can vastly reduce wasted time and bad decision-making.


If you would like to discuss the possibility of engaging me to help your organization please call my office at (860)347-6568 and they will coordinate time for us to discuss your needs.






Let me begin by making as direct a statement I can before beginning this conversation, which is that this homeowner bailout is simply a horrible idea.


It seems that the Bush administration's idea to fix the subprime credit mess is by keeping people who were never creditworthy in the first place in debt even longer and rendering signed contracts meaningless to the investors who bought the securities containing these mortgages.


Many of you have listened to me lament the antics and actions of politicians for years now, but now it appears that policymakers have decided the cure for a crisis created by too much cheap credit offered too long is very simple: Extend the terms, encourage even more borrowing and then stick someone else with the tab for all of it.


Back in August I railed about what a mistake I felt it was for the Federal Reserve to cuts rates in such a hysterical manner to simply appease the financial markets.  They have continued down this path and now the markets are expecting another big cut next week.  The irony of all this is that with the exception of the housing market, the economy is actually looking fairly decent.  Not fantastic mind you, but decent.  I assure you that if the Fed's decision was made on straightforward economic data and not the begging and whining of investors they would have not cut rates even once.  I can also assure you that these rate cuts by the Fed will only serve to exponentially make this subprime bailout plan even more damaging to the U.S. economy in the very near future.


It seems that we have completely lost our common sense.  I have been speaking to audiences on a weekly basis since the "credit crisis" began in August that the problem we are facing is actually very easy to understand; it is simply that far to many people and companies were lent money during the past seven years who should have NEVER been lent the money.  Period.  Paragraph.


So is it really desirable to keep providing easier money to people and companies that got into trouble by abusing their access to money in the first place?  And is it really a good idea both to cancel mortgage bondholders' contracts for the sake of an adjustable-mortgage-rate freeze and to provide a couple of years of grace period for maxed-out home borrowers who are EXTREMELY likely to eventually default anyway?  Do you notice any sort of irony here also?  President Bush is not going to be in office in five years when these mortgages will finally reset and these borrowers ultimately get blown out and foreclosed upon.  It may be President Clinton, Guilliani, Obama or Huckabee who will be pursuing reelection in 2012.  I am very confident that whoever ends up president will be thrilled that President Bush left them this ticking time bomb that will be blow up in their face while he's cutting brush down in Crawford.  It's not that I even dislike Bush that much really, but it is just the classic behavior of politicians to pass the buck of any nightmare to a future class of politicians.  Typical really.


What is tragic to me is that it's as if the Federal Reserve and U.S. Treasury believe the best way to treat heroin addicts is through long-term, government-supplied heroin.  Certainly keeping their interest rates artificially low will ease borrowers' pain temporarily, but they do absolutely nothing to solve the root cause of our problem or their bad habits and without any doubt launch a new cycle of abuse and dependence.


Sadly, this is pretty much the history of U.S. economics during the past decade.  We call ourselves a free economy but repeatedly let the government intervene to make sure that no one who votes gets seriously hurt.  As a result, individuals who make bad choices, from Gulf Coast residents who build homes in the path of hurricanes to low-income citizens who take out expensive loans for overpriced real estate, are rescued time after time in well intentioned but misguided programs such as the one the Bush administration has cooked up for foreclosure-facing mortgage holders and their lenders.


What irks me particularly is the disparity between who wins when things are going well and who loses when things go in the toilet.


When banks and brokers make tons of money they suck down the profits by giving their executives and boards outrageous pay packages worth tens of millions of dollars, justifying their actions under the premise of entrepreneurship.  And when the opposite happens?  They beg taxpayers for a handout.  Please remind yourself that right in the middle of so many banks and brokers announcing multi-billion write-downs on their subprime holdings, Wall Street was announcing record bonuses for the investment bankers and brokers who underwrote this garbage.  So basically, the employees are out shopping for new homes in the Hamptons and Aspen while the shareholders of their employers are left holding the bag.  Nice work when you can get it.


The veteran economic observer Satyajit Das has disdainfully called the financial industry's attempt to patch over its problems with taxpayer funds the "socialization of losses."  It's an approach that may sound good to politicians in an election year yet is not only morally bankrupt but will also merely delay the ugly final reckoning for companies, individuals and policymakers alike.


Postponing the unavoidable pain and suffering involved in making participants own up to debt-fueled losses is exactly why it took Japan more than a decade to shake off the bursting of its own credit bubble back in 1990.  Interest rates were cut essentially to zero, but because moribund banks and real-estate tycoons were given government stipends, they drew funds and attention away from more-productive uses, and the country entered a recession (depression actually) that haunts Japan to this day.


The program proposed by U.S. Treasury Secretary Hank Paulson and hammered out in round-robin meetings with mortgage lenders and borrowers' representatives in the past few weeks would freeze interest payments on hundreds of thousands of adjustable-rate mortgages for three to five years.


That sounds like a nice enough idea, but here's the catch: Rising interest rates were contractually promised to the mortgage lenders, which then passed along that promise to the investors that bought the loans as part of asset-backed securities and associated derivatives.


Though the rate freeze will be wonderful for a homeowner in Sarasota, Florida who bought a terrific house they couldn't afford thanks to low, teaser interest rates because they'll be able to avoid losing their home for a little bit longer.  I can assure though that it sounds like a terrible plan for a pension-fund manager in London who isn't going to get the income stream he or she paid for when they purchased the asset-backed or structured security that is supported by that homeowner's mortgage.


I've shared these two statistics with you in previous newsletters, but I will remind you of them again today:


--Between 2000 and 2006 the U.S. Government issued $1.3 trillion of brand new debt.


--During that same time period U.S. based investors (pension funds, insurance companies, mutual funds, etc.) lightened their net holdings of U.S. Treasury securities by $300 billion.


What these statistics point out is that not only have foreign investors purchased EVERY single dollar of debt that the United States has issued during those six years, but they also bought $300 billion of outstanding debt too.  Americans do not appreciate in a robust fashion how dependent the U.S. has gotten on foreign investors lending us money.  And it's not just U.S. Treasury debt, but also a host of corporate, mortgage & asset backed products as well as all kinds of structured securities.  Without that demand for our debt, prices will fall and long-term interest rates will rise.


So the breaking of these subprime obligations will not be free.  These foreign investors will demand a higher "risk premium" to invest in U.S. instruments, which will make it more expensive for future borrowers to get loans.  And you can be guaranteed that many of them will sue to get the payments they thought they were owed, which will drive up mortgage banks' expenses even further.


Moreover, the courts and bureaucrats will be tied up for years in a struggle to define exactly who deserves loan forgiveness.  People who are making payments on time will naturally demand to get something out of the deal since why should they essentially suffer for being responsible?  As the cost of the bailout goes up, there is little doubt that state and federal governments will float bonds to pay the refinancing fees and, of course, the interest payments on those obligations will be paid by all citizens.


Economist Martin Feldstein, a former Reagan administration official, told Bloomberg that among other problems, the plan would forever change foreigners' perceptions of U.S. investments.  "What are they going to think about investing in American securities in the future if the government can say, 'Well, you thought these were the interest rates and the contract, but we're going to roll that back now, and you'll just have to settle for less'?" Feldstein asked.


Since this whole fiasco began back in August I have been telling audiences that it is going to take a fairly long period of time to work through this debacle.  Things can move very slowly in the credit markets and debt that was created, distributed, leveraged and re-leveraged by a factor of up to 30-to-1 over the past 10 years by financial Dr. Frankensteins has wormed its way into every corner of our lives and will alter the way we do business in ways we are only beginning to understand.  Without this stupid intervention by the government it still might have taken another 12 to 18 months for investors to feel comfortable enough about the direction of the economy, housing market, interest rates and losses on these products to venture back into the water and invest money in these things.  Now that paralysis has been extended to five years.


Indeed, everywhere you look now is evidence that the subprime-debt crisis is morphing and expanding like a creature in a horror movie.  Just this week, we learned from hearings in Congress that strapped credit card companies such as Capital One Financial and Bank of America had begun to soak customers by jacking up interest rates on balances for the slightest changes in their credit profiles.


If you so much as apply for a new credit card, according to testimony gathered at the hearing, your current card provider can increase your card's interest rate by as much as 30% per year.  This isn't the kind of fee-generation method that card companies would normally like to pursue, but they have been pushed in this direction by losses elsewhere on their balance sheets.


In another twist, individuals scrambling to pay rising mortgage rates on houses that are declining in value are also bailing out on their auto loans, student loans and home-equity lines of credit.  According to a Lehman Brothers survey, 4.5% of auto loans issued in 2006 to well-qualified borrowers were 30 or more days delinquent through the end of September, up a whopping 3% from the previous month.  Lehman also said that was the largest single-month delinquency leap in eight years and that auto-loan delinquency rates are now the highest in a decade.  Meanwhile, 12% of subprime auto borrowers are delinquent on their 2006 loans, according to Lehman Brothers, which is the most since 2002.


Going back to my friends at the Federal Reserve and their actions in the midst of all this, it is my opinion that any solution that attempts to solve these issues by cutting rates further to allow people to borrow more will only drag out the nasty effects caused by the past seven years.  It will also force solvent taxpayers to foot the bill for their less responsible siblings and neighbors, a divide that will cause political strife we cannot yet begin to comprehend.  All of this may ultimately work itself out in the fullness of time, because Americans are generally a forgiving and generous people.  But in the meantime, financial stocks are likely to continue to suffer, so I would personally continue to avoid them even as they fitfully rally over the next weeks.  They are likely headed much, much lower, as their fundamental value recedes with their profitability.


The year 2008 is setting up to be another interesting, but perhaps painful year and I encourage you to stay agile and defensive in where you keep your money.  There was a very interesting research paper issued by Jan Hatzius, chief economist at US investment bank Goldman Sachs last month that shocked many people with his predictions of a nightmare scenario.  Understand that banks must maintain certain levels of capital for every dollar of loans they wish to make to borrowers.  With banks involved in the mortgage business standing to lose up to $400 billion in capital, they may be forced to cut their lending by up to $2 trillion beginning as soon as next year.  "It is easy to see how such a shock could produce a substantial recession...or a long period of very sluggish growth," wrote Hatzius.  Even in an economy the size and scope of the U.S., the sudden removal of $2 trillion from the lending pool is going to hurt, and Mr. Hatzius made this prediction prior to this latest proposal.  I suggest that this Bush "freeze" plan will most definitely have a chilling effect on the situation too.




We all remember back in the 1980's when we'd hear stories of the Pentagon spending $600 on toilet seats and $400 on hammers.  More recently we have a $223,000,000 bridge to literally nowhere in the middle of rural Alaska.  But these were simply wastes of money and the result of bureaucratic red tape and the pork barrel behavior of politicians.  At the very least they weren't things that might make Americans unsafe.


There is a wonderful little establishment that I am personally familiar with in Berne, Indiana called "The Amish Country Popcorn Factory".  It is indeed a lovely place that I encourage you to visit if you are ever in the area.


It recently came to light that "The Amish Country Popcorn Factory" was designated by the Department of Homeland Security as a "national asset" and is now included in their anti-terrorism database.  Now while it is possible that there are absolutely terrorists out there with a deep hatred of popcorn and the American, capitalistic pigs who eat this western delicacy, I struggle to believe that "The Amish Country Popcorn Factory" is in imminent danger of an attack.  One would suppose that Osama Bin Laden, sitting in whatever cave or hole he currently calls home, is unlikely to have ever even heard of such a place.


The problem I have is that the amount of federal funding that is received by states is driven by how many "national assets" are located within the respective state.  I will confess that I have several clients and many friends in Indiana and I truthfully really love the Hoosier state, but even I was surprised to hear that Indiana is home to 8,590 of these critical "national assets".


What might surprise many of you is that New York State only has 5,687 "national assets" and California less than half of Indiana with 3,212.  Actually, I'm not only surprised but shocked.


Both New York and Washington D.C. saw their federal funding to combat terrorism fall by 40% during 2007 because the Department of Homeland Security determined that there were not enough targets in those areas.  Huh?


When the New York Times contacted the public relations person at DHS to ask what they had to say about this list and the seeming absurdity of it, the spokesman said bluntly that the agency didn't find the list "embarrassing".


As a fairly substantial payer of U.S. taxes, I can assure that spokesman, whose salary I contribute heavily toward, is that I am quite embarrassed.  And angry too.




This month's brainteaser was surprisingly difficult for me since I went in the wrong direction multiple times in search of the correct logic to solve it.  I'll be honest in telling you that at first glance it didn't look like it was going to be that tough, but it took me a heck of a lot longer to solve than I expected.  See what you think.


Here it is:


The signpost read:

Springfield - 43

Boston - 22

Hartford - 32

Singac - ?


Good luck, and when you can't take it anymore you will find the answer at the following link:






Copyright 2007, Michael Gasior. All Rights Reserved


AFS Seminars LLC

500 Chamberlain Hill Road

Middletown, CT 06457-5564



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Thought for Monday, Dec 17, 2007

Brontosaurus Principle:
Organizations can grow faster than their brains can manage them
in relation to their environment and to their own physiology: when
this occurs, they are an endangered species.
-- Thomas K. Connellan

Thought for Friday, Dec 14, 2007

One nice thing about egotists: they don't talk about other people.

Thought for Thursday, Dec 13, 2007

If all else fails, immortality can always be assured by spectacular
-- John Kenneth Galbraith

Thought for Wednesday, Dec 12, 2007

Where there's a will, there's an Inheritance Tax.

Thought for Tuesday, Dec 11, 2007

It is always safe to assume,
not that the old way is wrong,
but that there may be a better way.

-Henry R. Harrower
Beliefnet: From the Masters

Thought for Monday, Dec 10, 2007

Once again, we come to the Holiday Season, a deeply religious time that
each of us observes, in his own way, by going to the mall of his

In the old days, it was not called the Holiday Season; the Christians
called it "Christmas" and went to church; the Jews called it "Hanukka"
and went to synagogue; the atheists went to parties and drank. People
passing each other on the street would say "Merry Christmas!" or "Happy
Hanukka!" or (to the atheists) "Look out for the wall!"
-- Dave Barry, "Christmas Shopping: A Survivor's Guide"

Thought for Friday, Dec 7, 2007

I also have a rule of never donating money
or buying anything from anyone that calls
my house. I don't care if you are selling
the greatest product/service on the planet
or your organization is only a hundred
dollar donation away from curing cancer.
I will not reward any organization or person
that harasses me by calling my house.


Thought for Thursday, Dec 6, 2007

Fortune's Office Door Sign of the Week:

Incorrigible punster -- Do not incorrige.

Thought for Wednesday, Dec 5, 2007

Committee Rules:
(1) Never arrive on time, or you will be stamped a beginner.
(2) Don't say anything until the meeting is half over; this
stamps you as being wise.
(3) Be as vague as possible; this prevents irritating the
(4) When in doubt, suggest that a subcommittee be appointed.
(5) Be the first to move for adjournment; this will make you
popular -- it's what everyone is waiting for.

Thought for Tuesday, Dec 4, 2007

Why did the Roman Empire collapse? What is the Latin for office

Thought for Monday, Dec 3, 2007

People who say you're as old
as you feel are all wrong, fortunately.

-Russell Baker
[writing-tips] Writing Tip #487
30 Nov 2007

 Huanga @ cafenite - Thought For Today