Dr. Sung Won Sohn - Where Are We Now?

Okay, a brief introduction of Dr. Sohn. Like you see there's detail in your packet. He came to the US from Korea and did his undergraduate education in Florida and his graduate education in Pennsylvania and he was a tenured professor at Penn State, worked in the White House and was the Chief Economic Officer for Wells Fargo for quite a few years and just before he joined us, he was a CEO of a large bank in Los Angeles. Here at Channel Islands, we feel very fortunate to have him. He's-- Dr. Rush recently appointed him Director of the Institute of Global Economic Research which is a vehicle we've built in the business school frankly to use his talents and to promote his work. He teaches in the MBA and also the undergraduate. I want to mention that because we're building a course in the fall that will be open to the public. Right now we're running a course on microfinance, a series of lectures and another one on entertainment studies. We're gonna do something on special or what do we call them? Current events. Current events in economics and Dr. Sohn will head it up and he'll be bringing the expert speakers and like I said, we'll open that to the public probably every other week like we're doing in microfinance. He's widely quoted, if you were at the dedication in April you-- I counted up that day, he was quoted 25 times in the paper, helps us a great deal in terms of publicizing the Smith's School, publicizing university and I always end with this tag before I get him up here. The Wall Street Journal and Bloomberg on several occasions had said that he is the most accurate economist in the United States. So my pleasure to introduce Sung Won Sohn. Alright, can you hear me? Yeah. Okay, great! And-- [ Pause ] Remember a year ago, we are talking about 2008 financial crisis and let us go back there and then see what it was like even though things had improved quite a bit since then. Things were so bad, the 3M decided to change their name to 2M. [ Laughter ] And Xerox was running out of ink so that they have to change their corporate logo and Dell was becoming wobbly because they were loosing one of their legs. Goodyear Tire Company became bad year and then Citigroup was hit by a lightning and then broken up in half almost. You know, looking back, what went wrong? It was not just one thing that went wrong, it was a confluence of events. You know, the subprime, the securitizations, CDOs and CDS, you know, many things went wrong. And again we should not exclude the governments, not only the US government but also the international governments. For years and years and years, the US government promoted a so called affordable housing. We built the Fannie Mae and Freddie Mac and subsidized housing. That was one of the reasons why housing and mortgage markets became a problem because we subsidized a great deal. When money went overseas through our trade deficits to China and Korea, Japan and Germany and et cetera, what did those countries do? They sent those money right back to us and that capped interest rates low, mortgage rates low. As a result, we're able to buy houses at very low attractive rates. For a while, we thought we could have cake and eat it too, right, see? We send all these US dollars oversees and then we get shiny goods for paper and then one day sent our money back to us that keeps our interest rates low therefore we could buy houses with very low interest rates, what a good deal. Well in hind site, what, it turned out to be a bad deal for the US economy, see? I mean today, we all realize how important the international economics is. Twenty or 30 years ago, what mattered was the US. We could dictate monetary policy, physical policy, economic policy, the dollar policy. Today, that is no longer the case. Today, I don't have the time to talk about it but value of the dollar has been plunging. Today, the Euro is well, 1 Euro is $1.50 and China, they are an economic power and they are so strong economically and probably eventually militarily. We have to pay a lot of attention to them. Did you know that America today, we are borrowing 3 billion dollars every single day, a significant portion of them from the Chinese and the Arabs who sell oil to us? Pretty soon we are going to be approaching the holiday shopping season and we better be nice to the Chinese because, you know, they've got a lot of power over us. Did you know that about 85 percent of all the toys that we buy come from China, 85 percent? If they decide to punish us during this holiday shopping season, you know, they could stop selling toys to us and then we would have to play with our own children, see that-- [ Laughter ] So, you see the government has had a significant role in really promoting this economic crisis. Again, looking back at the financial crisis and then what went wrong, looking back, really we weren't paying attention to fundamentals. Let's talk about some of the fundamentals. Many institutions from the Bank of America, the Citigroup, Lehman Brothers, Bear Stearns and, you know, the great rock in United King-- Northern Rock rather in the United Kingdom. They went through a lot of difficulties, right? Well the first thing generally, we tend to look at is capital. US institution, how much capital do you have? That is supposed to be a buffer, a quotient against the possible contingencies like an economic shock or a financial crisis. But the problem is capital is procyclical. During good times, you got a lot of capital; economy turns sour, you end up with a lot of bad loans that is subtracted from your capital and then all of a sudden you find that you don't have enough capital. So really, so called the capital ratio or regulatory capital ratio during good times that is not a very good indicator of how safe you are. Again, let's talk about the British banking gang called the Northern Rock, they went under, they went bankrupt. You know what happened? Before the crisis, they thought they were doing so well. In fact, the regulator said, you are doing so well, you can increase your dividends by 20 percent and well shortly after they went bankrupt they were supposed to announce the 20 percent dividend hike. Of course, the economy went sour, house prices went down, and they found out that they didn't have the capital they thought they did. So you see what I mean by capital being procyclical, so that in itself is not a fool proof quotient for economic and then financial contingencies. That's why you need liquidity. If you don't have liquidity, you are in trouble during financial crisis. That's what happened to Bear Stearns and then of course Lehman Brothers. What do we mean by liquidity? Again, during good times, we say, you know, I've got a lot of loans. I can sell these at 110 cents on the dollar. I can, you know, get them out and then get cash in within 2 minutes, see? I've got mortgages, I got bonds, I've got a lot of liquidity because there are a lot of people anxious to buy those assets from me so I've got liquidity. But during bad times, during economic down turns, can you sell them? Heck no, you cannot sell them, no one wants to buy them, see? And the price is not an issue. During the financial crisis, we-- you know, people simply could not sell these assets at any price and that's why Bear Stearns and then that's why Lehman Brothers went bankrupt. So when you talk about liquidity, you know, the liquidity in the current situation during good times, it really doesn't matter all that much. Can you get cash, can you get liquidity during tough and bad times and then during tough and bad times, the only liquidity that you can count on is really government guaranteed, a government supported liquidity and that's what a lot of banks found out, right, see? So, I think it's important to have liquidity but also the right kind of liquidity, see? Good times as well as bad times and also the leverage. You know, when I was a bank CEO Fed Reserve which regulated us, they said, well if you have a dollar in capital, we will allow you to leverage 10 times so you could make 10 dollars in loans based on a dollar capital so 10:1 leverage ratio. But companies like Lehman Brothers and Bear Stearns, they raise the leverage up to 40:1 not 10:1, 40:1, see, okay, alright? And then as you see, you thought, you know, things are going so well, they shouldn't have any problem, see? Again, you know, they've got liquidity, I mean, you know, they've got mortgages and real estate, there a lot of people wanting to buy, see? So leverage in it is not issue. Well later on we found out that that is an issue, see, okay? And when you leverage up to 40:1, you have to borrow money to buy assets, right? And that money dries up very quickly and then again you get into this liquidity problem. The concentration. Again, let's talk about the Lehman Brothers. In the case of Lehman Brothers as I pointed out, their leverage was 40:1 and then they borrowed mostly short-term money from businesses, not government guaranteed liquidity. And when the Lehman Brothers went bankrupt, the total assets were around 600 billion dollars and the vast majority of those assets were in real estate around the world, see, okay? So speaking of liquidity, speaking of leverage, speaking of a capital, speaking of a concentration, in hind site now we know why Lehman Brothers went bankrupt. As a quality that's very important and crucial. Again, when I was a bank CEO, I used to tell my officers, pay attention to asset quality. If you make 100 dollar loan, if all goes well, maybe the bank would net out $1.50 return on assets so called the dollar fifty after taxes if you do very well. But if that 100 dollar loan goes bad, then you have to make an awful lot of a good loans with a dollar fifty returns to offset the 100 dollars that you are losing. In fact, to be exact, you have to make 77, 100 dollar good loans to pay for one bad loan, see, okay? So you can see why asset quality is so important but again, we didn't pay attention to that. I mean, you know, asset quality was given. Things are going so well, everybody wants to buy, prices go up, you know, prices don't like to go down, price of a bond, price of house, price of real estate. Anything goes up and up and up and never goes down, therefore, let's not worry. Well, you can see, you know, when we look back at the crisis it wasn't anything miraculous, anything special or anything different. The problem was simply, we weren't paying attention to the fundamentals that I'm talking about. But now, let's move on to better times. Things are looking a bit better, stock market is up quite a bit and I'm gonna talk more about that later on but when you look at the stock market, the peak was reached in the October of 2007 as you can see and then we dropped quite a bit and then since then, market has gone up about over 50 percent so the market is doing quite well even though it will take a while to get back to where we were before and that's not gonna be right away. Also consumer confidence. We are saying that, you know, I feel better about the economy. Actually, when you talk about consumer confidence, they ask you 2 questions. 1, how do you feel about the economy today? And number 2, how do you feel about the economy tomorrow? Many consumers you and I, we're saying that, you know, we feel lousy about the current situation but I do feel about-- feel better about the future. So consumer confidence is going up not so much because things are rosy right now, it isn't but because they feel that in the future things will get better, there will be more jobs, the best indicator, predictor of consumer confidence is really jobs. More jobs, higher confidence; no jobs well, no confidence and that's the situation. But it is true that we do have more optimism in the economy right now especially in 2 areas, manufacturing and then housing. These were the 2 areas which have been obviously badly hit among others and, you know, this is kind of a busy chart but let's talk about manufacturing such as consumer durables. It could be cars, appliances or furniture, anything that last for a while. If you look at the red line, you can see that is production. Production has fallen a lot faster than the black line which is the sales of cars and appliances which means that production went down so low, so rapidly, we we're running out of inventories. We did not have merchandise on the shelves to sell. And so sooner or later, we have to start producing, right? When you start producing you create more jobs, income and then hopefully spendings. You can see that manufacturing is rebounding including Detroit. We went down so low, we are now rebounding in part because we don't have enough goods on the shelves to sell. Manufacturing is rebounding. Let's talk about car sales. You see the auto sells were very low April of 2009. It was at the rock bottom and then February, March, April, those are really pretty bad times, and then in August went up, July and August it went up because of so called the cash for clunkers, right? And then in September auto sales are going to be down quite a bit. But the point is that it looks like we had hit the bottom and we are beginning to come back up. You know, I drive a foreign car myself but I often wonder, why couldn't Detroit produce, you know, cars. I mean Toyota is a very good car, Honda is a very good car and you ask people, why do you buy Toyota or why do you buy Honda? They say, well because of, you know, it's good quality. And, you know, I think in America, we can produce good quality cars as well. You know, one of the first car that I ever bought when I was in graduate school was in many years, they use to-- Ford used to sell a car called a Ford Pinto, does anybody remember Ford Pinto? [Laughter] So I bought, you know, a used one because that's all I could afford and then it was really a clunker and one day I was driving that car and all of a sudden the car stopped and I'm not a mechanic and I couldn't understand why car stopped so the only thing I could do was I went outside and looked around and kicked the tires a couple of times and then actually lo and behold, I discovered the reason why my Pinto stopped. What happened was this, someone spit out a piece of chewing gum and my Pinto got stuck on the chewing gum and couldn't go. [ Laughter ] >> Well, thank God, we produce hopefully better quality cars today and I think the bottom is up and then we are looking ahead and then that is evidenced by Detroit's auto production. If you look at this-- the dark green line that tells you Detroit's production schedule. They are saying that we are gonna crank up production. In fact, you know, during this cash for clunkers program, we we're running out of many hot selling cars and therefore that was one of the reasons why they could not sell. In September, they are saying that we cannot sell cars because there are no cars in inventory on the lot. The other area that we are very thankful that things are bottoming is of course housing. Housing is so important in America. Did you know that 1 out of 8 jobs in America depends on housing, 1 out of 8 jobs? Not only construction but also, you know, think about housing, you know, the finance and insurance and title insurance, water, sewer, shrubs, drywalls and, you know, I mean many things go into a house so that 1 out of 8 jobs depends on housing so that's very important. First of all, let's look at the history of the homes a little bit okay? This is kind of a busy chart but this goes all the way back to-- you can see 1890. This chart has been put together by a Yale economist called-- Yale economist, Robert Shiller and now the first shaded area that you see, that is World War I and as you can see before World War I, these were the prices after adjusting for inflation so this would be what economists call real prices, real house prices. House prices were kinda volatile but basically kinda moved sideways and then after the first war, you can see the house prices in real terms went down dramatically. The reason was technology. The technologies to build homes improved dramatically therefore the cost of home building went down. As a result, the price of homes went down so that's what happened. And then that's, you know, house prices remain low for quite sometime through the great depression and then the 2nd World War. And then as you can see, after the 2nd World War, house prices went up dramatically. Why, because GIs came back from war and they got married and they need houses, see, and so the price of houses went up dramatically based on supply and demand. And then for many, many years as you can see through the 1970 booms and the 1980 booms and house prices basically remained about the same even though, you know, we had some ups and downs until what, last boom ahead, went up dramatically, right? When house prices were going up, I mean, now we say, you know, it was so obvious, see. I mean it didn't a PhD in economics to figure out the-- does it take a dean of, you know, the university to figure out, you know, this is unusual, that it cannot last. But when it was going up, we said, well, aha, oh no, it's gonna last, see? It's gonna last and then, you know, it will go up and up and up and pretty soon, you know, it'll be up here, see? And then those was what a lot of people thought. Of course it didn't, it crashed, right, see? And now, of course, that's history. One of the beneficiaries of this crash is the former President George Bush. You know, he paid 2 million dollars for his house when he retired, well if he didn't crash for the same house, he would have paid about 10 million dollars so that he was one of the beneficiaries, good for him. As I mentioned 1 out of 8 jobs in America depends on housing. Let me also tell you how important housing is in terms of dollars and cents. On the bottom axis, these are incoming wealth percentile. On the left hand side, these are the poor folks, and on the right side, these are the rich people like yourselves and in the middle are poor college professors like myself here. [ Laughter ] And then so now the-- let's go to the middle income folks here and then go up to 50. If you go up to the blue line, this is the-- your share of net worth coming from equity, stocks and bonds, stocks, okay? And then you go up to the orange line that is the share of your net worth coming real estate. Now this is before the financial crisis during good times and normal times. You can see during the normal times in America about 65 percent of your net worth came from real estate. And in California it was not 65 percent, probably it was more like 80 to 90 percent, see, okay? You have to get up to about 90 percentile, 95 percentile of income distribution before the blue line which is stocks and bonds becomes more important than orange line which is real estate, see? Okay, and so you see how important real estate is for the average Americans. In fact this was the doctor dissertation topic of Chairman Greenspan when he was a PhD candidate at New York University. In the 1970's, in his doctorate dissertation he wrote that when house prices go up the average Americans spend more, why? Because he feels richer, he feels better and later on the economist figured out that every time your house price goes up by a hundred dollars you end up spending 4 dollars in consumption. Well back then no one paid attention to Chairman Greenspan. Well, since then he turned out to be right. Housing is so important. You can see why it is important for the American economy. The good news is that housing affordability index has gone up dramatically. This is published by the National Association of Home Builders in Washington and that they are saying that today, housing is very, very affordable. Remember when I first came to California, some of the headhunters would say "You know house prices are so expensive. We cannot afford to bring anybody from outside. In fact, you know, the person has to earn minimum of 250,000 to be able to move from other states into California to afford a house. Well, today that is no longer the case. Housing affordability index went up dramatically as you can see. Now why did it go up? It's not surprising. Mortgage rates had near record low, thanks to Chairman Bernanke. Today, housing and mortgage markets are on life line. Chairman Bernanke is providing the blood transfusion, the liquidity, the low interest rates and so that has really helping out the housing market. Mortgage rates are very low and then he said he's going to keep that rate down for quite some time to come. The other one is house prices. Yeah, I guess it is a kind of interesting busy chart but I'm not gonna talk about all of them but if you look at the shaded area that is the US average so that as you can see in every chart the shaded red areas are the same. That's the US average okay? And then let's go to your hometown like L.A. As you can see in L.A. house price went up quite a bit a higher than the US average and then came down dramatically. The same thing happened to Miami, it went up quite a bit and came down quite a bit and so now as you can see since January of 2000, well we are almost back to where we were in January of 2000, see and so that's what happened to house prices in LA MSA. The worst area here is Detroit, Michigan. Did you know that, this is a true story? The average house price today in Detroit is 7,100 dollars today, 7100 dollars. So if you want to buy a cheap house you know where to go to, okay, so I told you so, okay. Alright. So anyway-- housing affordability is going up because of a low price at homes and low mortgage rates, therefore home sales are going up. But this is somewhat of a misleading figure because as you know in California, we have so called the conforming mortgages, right? A banker like when I was a banker. We made mortgage loans and then we sold the mortgages to the government, Fannie Mae and Freddie Mac, I got the money out and then earned a fee income and then made the loans again. So you do that, you know, everyday and you earn a lot of fee income and then that's what banks want to do. Well, today you can sell those mortgages to Fannie Mae and Freddie Mac, is actually to the government if your mortgage is below 729,000 dollars. If it is above that, you can't. A bank can make a mortgage but then you have to keep them on your books and many banks don't wanna do that. If I were a banker today, I would wanna do that. You don't wanna you know get stuck with this so called jumbo mortgages. And as a result many expensive homes are not selling, see? In LA there are you know, 1, 2, 3, 4, 5-million dollar homes. They're not selling, they're not moving, see? Many home owners they're not even putting them on the markets because they know they cannot sell them. If you have cash, if you have 2-million dollars in cash and try to buy those expensive homes you can probably command, you know, 20, 30 percent discount, see, if the sellers are desperate. So really today there's a kind of a dichotomy between expensive homes and then low price homes. So even though we are saying home sales are going up, home prices are going up. They're somewhat misleading again because that's only half of the market, not the entire market so that's the point I wanna try to make. The other thing good about the housing market is distress sales are going down. Distress sales, this includes of course foreclosed homes and then short sales. In March of 2009 right here, that was about 50 percent, now down to about 30 percent. Still very high but I think the fact that more and more non-distress homes are selling, I think that's a good news. The bottom line is that the economy in 2009 will contract quite a bit, 2.6 percent. In 2010, we think it will expend about 2 percent. Let me tell you what this means. Well, first of all what economists call potential economic growth rate that is about 3.5 percent. In the long run the economy will grow in the average about 3.5 percent. So, of course in 2009 we didn't-- we missed the target by a wide margin. In 2010, well we are going to be falling below the potential long term growth rate of 3.5 percent. We're gonna be managing only about 2 percent so you can see it is creating gaps and this is one of the reasons why the unemployment rate is not only high but it'll keep going up because we're not growing as rapidly as what the economic potential is, and I'll talk more about it later but we all agree that the economy is growing. Economy has bounced and is growing, and then reasons for that is really not all that difficult to understand. One was of course 787 billion dollar economic stimulus program from Obama administration, right? And again, we all know about that and the other I think important reason is really Chairman Bernanke. I think he had done a very good job and I say you know he's been somewhat revolutionary. For almost 100 years, the Federal Reserve was a conservative, stodgy, institutions. They didn't want to make loans essentially and they made only good loans to good banks with good collateral that's what they did, but Chairman Bernanke came and said I am gonna use so called doorknob policy. In Economics 101 I used to talk about in money and bank, I used to talk about so called a doorknob policy. It is not really in the textbook officially but in monetary policy circles they do talk about so called the doorknob policy at the Fed Reserve. What they simply means is that during bad times like a financial crisis, they want to put money into the economy and but problems is that you don't have good collaterals, see. So, the Fed Reserve actually says to you well go back to your house. You have a bedroom, bring the doorknob from your bedroom and then I will use that doorknob as collateral to lend you the money, see. Okay and then so you know essentially that's what they did. They weren't concerned about getting money back. They were more concerned about putting money into the economy so that economy does not fall off the chair going into great depression and that's what Bernanke did. I think he's done a wonderful job and he well deserves reappointment. Even though we are bottoming but the next issue is how strong will economic recovery be? Unfortunately we're not out of the woods yet and one of the reasons is of course the jobless rate. The jobless rate is now 9.8 percent in the United States and 12.2 percent in California and it is headed higher. I'm quite confident that we will see the US jobless rate hitting 10 percent some time soon and it will not bottom right away. Probably, it will continue to rise at least through the first quarter of 2010 and this is a problem. In fact the jobless rate is, you know getting to be so high. Well, you know actually do you know that Mexico wants to build fence on our side of the border. [Laughter] They're afraid that Americans are going down to Mexico to find jobs, see? When you talk about consumers, you and me, you know we account for 70 percent of the economy, 70 percent of the economy and when there are no jobs, we cannot spend, see? And when there are no jobs we don't have confidence to spend, pretty soon you will see a chart which says that we are borrowing less, consumable credit is falling. You know, why? There are many reasons, but one of the reasons is because we don't have confidence, see. We don't feel confident about the economy and jobs to be able to buy big ticket items based on credit. You look at the highest versus separations. Even though we say the economy is growing. The economy is bottoming, not in the job market. If you look at the dark green line that is higher and then the light green line that separation, still what? A lot more people are losing jobs than being hired, see and so, that's the situation which will last temporarily. If you read the Wall Street Journal, the Financial Times and CNN. They tell you, you know, things are beginning to stabilize. The worst financial crisis since the great depression is now behind us and we can see the light at the end of the tunnel. Bonus on Wall Street is going up and things are looking up, but that's about Wall Street. When you talk about Main Street, the local grocery store, hardware stores, restaurants, and strip shopping malls they're not doing well at all. Main Street they are suffering, see. You look at the number of banks on FDIC so called the problem list. It's about 400, see? So far this year in this economic cycle about 100 banks failed and then if we assume that half of this are problem banks would fail that's 200 banks. No wonder the FDIC is running out of money, see? And so they may have to-- well, they decided to raise fees and then ask Congress for support and so, you can see what's happening to consumer loan charge offs. Today, consumers can't get credit from banks for credit cards, car loans and even to buy houses. Why? Because loan charge off rates are very high. You know, you can't really blame the bankers and if I were running a bank I will do the same thing because when you make a bad loan that's your problem, see and you've got to get the money back. If you don't get the money back again, we go back to what I talked about earlier. Capital, liquidity, leverage, concentration and all those issues so that loan charge offs are going up. Bank lending is kind of a credit, it's kind of like oxygen for the economy. If you look at the dotted line that's the GDP growth rate and if you look at the solid line that is bank lending standards. As you can see when bank lends money, economy grows faster. When banks are tighter, economy does not grow, why? Because we're not getting oxygen, right now we're not getting enough oxygen, see. We are starved of oxygen and as a result consumers are not spending money. Businesses are not spending money. Many small and medium size companies, they cannot borrow money from the local banks therefore they are going out of business. Again, as I've said I'm not blaming the bank, if I were the bank today I will do exactly the same thing because they've got to get their money back and after all they are lending out depositors money, your money, and my money, see. So, we are bottoming. What kind of economic growth are we gonna get? V-shaped, U-shaped, W-shaped and you know you have many different shapes. And here you see views of three. We had many economic ups and downs like you know, the 2001 recession that was kind of U-shaped or sausage-shape some people say. And once in 1960, 1953, 1957, 1974, you know those all were V-shaped when you go down sharply, you come back up rapidly, but in 2007 we went down rapidly, right. So, history would suggest that ensuing economic recovery should be a V-shaped one but I don't think that's what's gonna happen, see. We went down rapidly but we may go up sideways, see, okay? And we may even get into so called the double debt economic recession. Remember back in 1980 and 1981 and 1982? In 1980, we had a recession and then while a short time later back in 1982, we had the worst recession during that post war period. Are we in for another double dip recession? And that's what people are concerned about, and that's what people in the stock market-- they are concerned about. Are we running into another double dip recession? Now, why do people worry? I mean, you know do they like to worry? I mean, are there too many, you know, people worrying in the stock market, in the economy. I think they are some legitimate concerns so let's talk about some of the reasons that why people already worry about the possibility of a double dip economic recession. Number one is, let's face it. Today, economy is doing better, in the United States and China, Korea, and elsewhere why because government has put in lots of lots of money-- economic stimulus program. Again, as I pointed out, 787 billion dollars so a lot of that money is working and then of course low interest rates and Central Banks have flooded the economy with money. In 2009 as you can see from this chart, we are benefiting very nicely. In 2010, well the shot in the arm, the effect of the shot in the arm is going to fade wear out. In fact, compared to year ago, stimulus will become a drag because we are running out of it, running out of money. See so, that's one of them. So, when you have a situation like this, economy is doing better primarily because of the stimulus and the shot in the arm. That is a running out. Well, the juice is running out that means economy may actually suffer as a result. The second reason is monetary policy. To some extent what the Fed Reserve has done is more important than what President Obama has done, because monetary policy, when you talk about interest rates and liquidity that's immediate, see, okay? You know, now Congress is beginning to find well, you know during this financial crisis Congress found out how powerful the Fed Reserve is. If President Obama wants to spend some money, he has to get approval from Congress, right? Not Chairman Bernanke. He's got the printing press and he makes money the old fashion way. He is simply prints it, see, okay. [Laughter] And that's what he did, see, alright. And he does not need approval from anybody, see. And then so, that's what he did. So you could see how powerful the Fed Reserve is because they've got the printing press and they do not have to get an approval from anybody. And now, congress is-- you know, they found out about it and they're saying that, you know, maybe I don't know watch over them more carefully, see because they are too powerful. And so that's what they're doing. But, you know, we have a lot and liquidity in the economy. And firefighter's rule-- first rule of survival is "know your way out." And I'm sure Chairman Bernanke is thinking about that, talking about it. Here, you see a busy chart and it tells you lot of different ways that Fed Reserve put money into the economy. They lend money to investment banks, commercial banks. They bought back securities. They lend securities. They did a bunch of things to put in a lot of money into the economy. In fact, before the crisis their balance sheet was less than a trillion dollars. Today, it is over 2 trillion dollars. And that's one of the concerns people have. Well, we have too many dollars out there. And that's one of the reasons why the value of the dollar is depreciating today. Again, today, I'm not gonna talk about the value of the dollar. But, you know, at the end of the day the value of the dollar is matter of a supply and demand. If you create more dollars, price goes down. If you've mop up excess of liquidity, the value of the dollars goes up. Today, we've got so many dollars over 2 trillion dollars. No wonder the value of the dollars is going down. So anyway, you could see we got a lot of the dollars and then-- you know, but I think this concern is overstated. The reason is so-called the velocity. Not only liquidity in the economy matters but also how rapidly that money turns over what economists called velocity. That's important, see, okay. So one of the reasons why Chairman Bernanke put all the liquidity into the economy is because of the velocity is going down. So he is looking at both things, okay. So if the velocity goes down he puts in more liquidity. If the velocity goes up for whatever reasons, banks begin to lend more money. Then he would do what, huh? Mop that-- Mop up that excess of liquidity. So it's not just like the liquidity that you wanna look at but also you wanna be looking at the velocity as well. Right now, velocity is going down in part because we, the consumers, are cautious about spending and banks are cautious about lending. Money is not turning over. The credit pipe lines are clogged, see. And so until they opened up, you can see where velocity will be low. The other key measure of monetary policies, of course, interest rate, so-called Federal Funds Rate. The shaded areas that you see, those are the recessions. And then you can see the Federal Funds Rate controlled by Federal Reserve goes down rapidly during and after the recession. And then at some point it begins to go up. Let's see what they pay attention to. What they pay attention to is the jobless rate. They wanna make sure that the jobless rate peaks and the begins to-- begins to think about hiking the interest rate. And you can see sometimes they'd take about a year, see, before they even begin to raise interest rate. So as I said, the jobless rate will continue to go up. And let's assume that jobless rate bottoms in March of 2010, okay. And then you go forward about a year from 2010, if you look at past historical experience it might be March of 2011 before the Federal Reserve begins to raise the interest rate. Well, that's what they did historically. But some people are beginning to worry. We've got so much liquidity in the economy. There are so many dollars outstanding. Maybe this time around, the Federal Reserve will begin to raise the interest rates probably sooner rather than later. And then when they do raise the interest rates they all be raising it probably in a faster pace than they did before and that is quite possible. So here if you look at in this chart some people are saying that, you know, the Federal Reserve may begin to raise the interest rates as early as maybe the first quarter of 2010, and that is a possibility. But again, I suspect that sometime in 2010, we will begin to see higher rates from the Federal Reserve and when we see that the high rates, well, the economy better be strong because right now economy is not all that strong. Again, as I've said, we are concerned then worried about the double-dip economic recession. The other concern that we have is the consumers. You can see what's been happening to retail sales. Again, that 2.7 percent increase that you see that is because of the Cash for Clunkers Program. If you take that out, retail sales are not doing very well. I mean today, consumers are only spending money on necessities and when they do buy necessities they want to buy them on sale. They do not want to pay full price, you see. And so, it is a very, very difficult environment. And if you look at the consumer credit, consumer credit is going down for two reasons. >> Number one, many consumers they are not willing to include credit to buy things. If I can not pay cash, I'm not going to buy it. And number two as I pointed out, many banks, they are reluctant to lend money. Why? Because situation is not all that great, and the job picture is deteriorating. So you can understand why. They are cautious about lending money. This is the home equity loan withdraw. And if you look at the black line, remember what we did in the 1990s and then the early part of year 2001, '02, '03, '04. You know, we went on spending spree based on home equity line of credit, right, see. And that was our piggy bank, see. You wanna buy a car. You wanna buy a new suit. You wanna buy a pair of shoes. No problem I've got a piggy bank, see. And the piggy bank has unlimited resources because house price would go up and up and up, see, okay. In fact, during the good times some of the banks they give you home equity line of credit and every months they will send you a note saying that your house price went up therefore, now your piggy bank limit went up, see. So we can go up and spend more, see. That's what they did, alright. Alright? And so-- But obviously you can see the line coming down dramatically, we can no longer do that. Many banks are canceling home equity line of credit, see. And certainly reducing home equity line of credit. And so, today, even if you and I the consumers wanted to spend their money, we cannot spend, why, because we cannot get credit. That was in the savings rate. If you look at the dark green line, that is net worth. If you look at the light green line that is the savings rate, and the scale is inverted so that these two go together. Essentially the story here I'm telling you is this, our net worth has dropped dramatically because of lower house and then equity prices. When net worth goes down we typically try to replenish it by saving more and that's what we are doing. You know, at one point our savings rate was negative, see. We were spending beyond our means. And today we're not saying that. We are saying, you know, I'm scared, I'm worried, see. I'm concerned about my children's college education. I'm worried about my retirement, so I'd better begin to save more. And when you begin to save more, well, obviously that it means what, you're not spending as much. People asked me, what kind of a holiday shopping season are we gonna have this year? The best indicator of holiday shopping season is so-called the "back to school sales." And the back to school sales that was not very good at all this year. As a matter of fact though, you know, some of the mothers went to 99 cents stores and try to use coupons, huh, and they trying to get better deals. And since it was not a very good deal-- very, very good season, the chances are-- we are assuming that the holiday shopping season will not be all this spectacular. We will be lucky if we had the same dollar sales in 2009 and 2010. So about the same as last year. If you subtract inflation, not much inflation, but still some inflation. If you subtract inflation chances are in real terms, in value terms, it could be actually declining. Now, I'm listing items that we worry about and why people are concerned about a double-dip recession in the financial market, in the stock market, in the economy. The other one is of course the commercial real estate. And this is really the next shoe to drop. And if you look at the commercial property loan delinquency rate, you can see what's been happening. It's been going up and up and up. Let's look at the top. Top is hospitality. We're talking about hotels, see, hotels. During the good times, you know, hotel business was a great why? Because what? They could raise rates and lots of people are traveling. Today, people are not traveling and then they're not willing to pay. They're pinching pennies. They are going to low priced hotels and motels so that the delinquency rate on hospitality that is the highest followed by multifamily apartments. And, you know, there a lot of apartment delinquencies, followed by retail. Actually delinquency rate has been going up but the best one is down below, office. Offices are relatively better off. So again, here-- this is kind of the next shoe to drop because typically commercial property real estate likes the economy. Economy was up or down first and then with a lag of about two years or so commercial property goes up and down. So right now this is something that we need to worry about. If you look at the price index this is put together by Moody's. Moody's are real commercial property price index. So that is after adjusting for inflation. You can see it has already dropped quite a bit. And then a lot of times commercial properties are refinanced. And today as you can imagine, it is virtually impossible to refinance commercial properties because no one wants to lend money, see, okay? What about inflation? Should we be concerned about inflation? One of the reasons why the dollar is going down today and then last couple of weeks, is because Americans and especially foreigners are concerned about inflation in America. They are saying "That you Americans you've got too much budget deficits. You have too many dollars. And I don't see the light at the end of the tunnel. So that is going to cost more inflation." More inflation means lower value of the dollar. That's what they're saying. Well, I think they are wrong. It's true that in the marketplace, inflation expectation has been going up. But, you know, compared to where we were, it's really not that high. And then when you look at the value there, that was like in March of this year. Back then, we thought we are going into a great depression, you see. The reason why we don't have to worry about inflation is that excess capacity. If you look at that dark line that is the employment population ratio not too many people are working as result that ratio is falling. If you look at the light line that is the capacity utilization rates at America's plant. And many factories are operating a low capacity. And so, you see we got plenty capacity in terms of labor, in terms of plan capacity. And again, we talked about the jobless rate. Jobless rate will continue to rise probably exceeding 10 percent. And this is what economists called the output gap. Remember I said earlier, in the long run we talk about-- economists talk about something called the potential economic growth rate about 3-1/2 percent a year. If you look at the straight line going from lower left to upper right, you see the straight line that slope is about 3-1/2 percent and that's what is known as the potential economic growth rate. So, we were going, you know, nicely along the line. But now we are in recession as a result. We've got a kind of bulge, see. And then it will be probably around 2014 before we close that bulge. Until that time we got a lot of excess capacity. We are not going to have to worry about inflation. And you can see jobless rate, as long as we have that gap, unemployment rate is likely to go up and not go down, see. And when it goes down it's not going to go down very rapidly. So, you say well, it's a nice to talk about the economy and the double-dip and all that, but what about the stock market. I've lost so much of money. I need to make some money back. And that's why you are here, right? [Laughter] And so, well, you are in luck because I've got the answers for you. [Laughter] You know, I worked many years at Wells Fargo so for awhile I felt like this little baby and, you know, I mean, I never-- all the years I accumulated Wells Fargo's stocks and I never sold anything and then so of course when price went from 44 dollars a shares to 7 dollars a share, I thought that my world was coming to an end and I felt like this baby. Actually this baby, this is in Istanbul, Turkey, actually the apartment building has caught fire. So parents are throwing down the baby. Hoping there someone would catch them. So what do you think happened to the baby? Well, luckily the baby was caught so he's safe. And then so luckily the Wells Fargo stock has-- rebounded somewhat and but the stock market, again, as I showed you earlier has hit the bottom and then is moving out nicely. And that people are asking this question. Is the stock market going up so rapidly, too rapidly should we worry? And I guess one thing good about the stock market is inflation. Remember I said earlier, I am not concerned about inflation because of all that excess capacity. There is a very good correlation between the price earnings ratio and inflation. If you look at the inflation and the price earnings multiple for S&P-500, you'd see, generally lower the inflation rate, higher the multiple to price earnings ratio. You know what we mean by multiple, right? You generate a dollar of earnings. What kind of a credit does the market give you? So, if there're 18, they are saying that we will give you 18 dollars in price for every dollar of earnings. If it is greater than-- inflation is 7-1/2 percent which is very high, well, the recognition that you get is not 18, but what, 8.6 the market is saying then, you know what, I don't like that. Inflation is too high. For every dollar of earning you generate, I'm gonna give you recognition only about 8.6 dollars. Well, if I'm right, the inflation rate is going to remain low. The chances are, multiple is going to be high, so that will be good for the stock market. The other thing that I want you to look at is this set of bars. If you look at the first bar it explains what this is. The light bar that you see that is a total bull market. We've had many bull market so during this particular bull market, how high did the stock market went up, 48 percent, 94 percent, 121 percent and et cetera. Then within the bull market, we just look at the first six months. Now how much did the stock market go up? Out of that 48 percent, 38 percent came within the first six months. Out of that 94 percent, the first six months came 53 percent. Now, if you look at the current one, beginning March of 2009, the last bar, you can see in the first six month, you went out by 46 percent. Now we don't know when this is gonna end. Hopefully, will not end for a long time. But it's pretty clear that it has gone up quite a bit. In fact, if you look at the speed of increase. This has been the fastest increase in the stock market since the great depression. The fastest increase in stock market was back in 1982. The daily average gain was 0.12, daily average gain. So far, in this recovery about last six months, daily average gain was 0.31, see more-- almost three times the previous record. So you can see why people are concerned. We are going up too rapidly. We like it. It's okay to go up. But if we go up too rapidly it's getting dizzy, see. Maybe we're gonna crash. Now, do we have a lot of room to go up in the future? Again, if you look at the price earnings ratio and this is what that is. You can see right now the price earnings ratio is about what, right, historical, see. You cannot make the argument that the P ratio is too low. You cannot make the argument that the P ratio is too high. We are about where it should be. And so, you know, where do we go from here? We've been kind of, you know, moving 100 miles an hour, 120 miles an hour. There are people concerned about secular bear markets. Let me explain what I mean by a secular bear markets. A bear market is by definition, if the market drops by 20 percent that's called a bear market, right, okay. And usually and hope you can come of it and then you do better. So bear market does not last forever. A secular bear market is a bear market which goes down for years and in this-- in the last 100 years so we've had the four secular bear markets if the current one is one of them. In fact the first one lasted 15 years. The second one lasted 12 years. Third one, beginning 1966 lasted 16 years. And the fourth one assuming it began in the year 2000, lasted so far nine years, right, okay. Let's go back to the second one, you know, the great depression. See what happened? Well, in October 1929, the stock market peaked, we all know that, right? And then stock market of course fell dramatically, see. And then in 1933 when President Roosevelt came in, stock market staged one of the most remarkable recovery that we have seen on record so far. It went up dramatically as you can see. And the people said, "Well, you know, good days are here and the stock market will keep going up and up and up." Well, it did not. It fell off again, right, see. And it fell off again and then that's why it became a great depression. You see what happened in 1996? That thing went on for 16 years beginning February of 1996-- 1966 to August of 1982. What about the current situation? You know many people who are-- you know, many including Wall Street houses they are saying that we have a long term bull market once again. And so, you could be happy and joyous and start spending money and buy stocks. And-- But, you know, I'm not sure. I'm not sure. I'm not that really confident. And again, I think, you know, maybe the probability is not that high. I hope I'm wrong but there is a possibility that this could be a long term secular bear market. And if that's the case, you don't want to have a so-called buy and hold strategy. Go back to year 1929. Go back to year 1906. Go back to 1966. If you had the so-called buy and hold strategy you would have lost your shirt, okay. And so, if you really think that we are in a bear market long term secular bear market, you don't wanna trade everyday but what, huh? You do want to make some intelligent trading from every once in a while. So, what is it? I wish I could say I know what the answer is and I've got the answer right here and I could give them to you. I don't. And if I have the answers, I wouldn't give it to you anyway. [Laughter] Now let's talk about the Ventura County a bit and since that we are in Ventura County and, you know, at Smith's School, we do like to pay attention to what is happening in this county. So let me just spend a few minutes. In Ventura County, you know, in Southern California, three counties, Ventura County, Orange County and then Riverside, San Bernardino County. We were some other worse off. So that, you know, we did not do very well in terms of economic ups and down. You'll see the jobless rate in Ventura County and you see that purple that is the Ventura County and then whatever that color is, yellow or whatever that color is. That's the National Unemployment rate. And as you can see in Ventura County our jobless rate went up faster than the US. And then so, that is not that good. So, you know, it's been pretty tough in Ventura County. If you look at the non-farm job growth in Ventura County, we kind of mirrored the US average, so that we didn't do much better, we didn't do much worse either, okay. And if you look at the construction jobs, so in this case again, we've kind of the mirror the US average, construction jobs for obviously housing, that would be most important, as well as some of the commercial construction, and then so you see some ups and downs. If you look at the retail jobs, in retail jobs actually we were worse off. Small shopping centers, you know, restaurants and barber shops, and all these areas in Ventura County, we have not faired very well. In fact, we were a bit worse off than the US average as you can see. If you look at the professional and service jobs and this would be everything from doctors and lawyers and, you know, et cetera and here in this case actually was slightly better than the US average and we are in the process of recovering but not recovering as rapidly as the US is. If you look at the office vacancy rate, you can see actually our office vacancy rate was very low. But you can see we just went up dramatically and we caught up with the US, see. And the US vacancy rate was very high. It went up but not as much as it did in Ventura County. So that we really through some tough times in Ventura County and then now, we're about as bad as, I guess, US average. And if you look at the manufacturing job but here we are clearly worse off than the US average. As you can see manufacturing jobs have been lost. And in the US it is coming back because a lot that is related to cars and then housing. We don't have too many manufacturing job related to cars and houses therefore we have kinda still stuck in the bottom and that's the situation. Healthcare jobs and that is one area which is doing better, healthcare and then education. So when you look at the Ventura County, we have these pluses, healthcare, agriculture, military, and infrastructure related to government funding. But even in agriculture 2008 and then 2009 have been kind of tough years. Military obviously that's been a source of stability. And so that's been good and hopefully we will get more money from both federal and state governments. But also we've got some minuses: Amgen and Countrywide that they laid off people and hopefully they will be hiring people in the future but that's been a negative. International trade has been falling as a result, the port has not been doing all that well. Prior construction that has been suffering as we have been talking about, commercial real estate as I said, that-- well, here that could be the next shoe to fall. As I mentioned as Bill Cordeiro, my boss mentioned earlier, one of the things that we're gonna do next term starting January is I'm going to teach you seminar and then we are going to meet every other week and everybody including the community folks like yourselves are invited. And we wanna talk about some of the current issues. It could be-- right now, it could be healthcare. It could be the dollar, it could be budget deficits. It could be social security. So whatever the hot topics happens to be at the time we're gonna cover it. And my hope is that we will invite an expert, a outside guest speaker, and then we will divide the class in to pros and cons and we will have a debate. And hopefully we'll even, you know, invite some of the media and then have them you know cover some of the stories so that how we feel about the healthcare, how you feel about the social security, how you feel about budget deficits. All these issues-- you know, community, so that we can talk about it. So that hopefully you get a chances to think about it and then come to our seminar and you even get the credit but you're not gonna get any food like you did today. [Laughter] But I don't know, maybe-- if-- no food, I guess, yeah. He's got all the money so, alright. You know, I have a website called the drsohn.com. And when I was a bank CEO, I've had people maintaining the websites for me and even wrote some articles for me. But when I left the bank I was all my-- I was on my own. And then so that this summer actually I spend a lot of time learned how to update my website and then remodel my website and it was a lot more complicated then I realized but now I know how to do that. So I feel good about that. And so, I do it all by myself. And so come to my website, drsohn.com. I know I-- not only do my economic forecast, but many of the things I've talked about including the stock market, the interest rates, the foreign exchange, and many other issues are discussed in my website. And at one point, some years ago, I used to get about 300 hits a month-- 300,000 hits a month. Right now, we're not anything anywhere near that. But I wanna get it up to that. So, why don't just come to my website and then click on it so I can say that I have 100,000 hits, okay? [Laughter] The last thing I wanna do is, you know, as I pointed out the-- even though we are talking about the economic growth and stabilizing, things are kind of, you know, still pretty tough. And when I, you know, talk to the people more and more people ask me about how bad things rather how good things are. And so I thought that will be good for you to kind of see a little clip and let me see [ Music ] [ Background Music ] [ Foreign Language ] My name is Nick Vujicic and I love traveling around the world, fishing, golfing and swimming. I love living life. I am happy. [ Music ] [ Background Music ] When I was 8 years old, I did wanna end my life. I just felt hopeless, broken, alone, it was like it was pointless. There's no point to my life. There's no point to go to school. It's-- I didn't even think I was even gonna be able to go to university, you know. When I-- cold. I don't know how to describe it-- but it's bitterness as well. [ Music ] [ Applause ] Thank you very much. Nice to see you. My name is Nick Vujicic and it's a pleasure to be with you. So I have no limbs but I have my little chicken drumstick. And-- [ Laughter ] [ Drum Beat ] [ Background Drum Beat ] So it's like-- [music] oh, yeah like that? Now it'd be really cool if I could get this and get some techno going like here we go 1-2-3-4. [ Music ] [ Cheering ] There you go, you like that? Was that cool? [Cheering] Beautiful! But honestly along the way you might go down like this, ready? [ Whistles ] [ Laughter ] So what you do when you fall down? Get back up! Everybody knows you get back up because if I start walking, I'm not gonna get anywhere. But I tell you there are sometimes in life when you fall down and you feel like you don't have the strength to get back up. Do you think you have hope? Because I tell you, I'm down here, face down, and I have no arms, no legs, it should be impossible for me to get back up but it's not. You see, I will try 100 times to get up and if I fail 100 times, [background music] if I fail and I give up do you think that I'm ever gonna get up? No. If I fail I try again and again and again but I just want you to know that it's not the end. It matters how you're gonna finish. Are you gonna finish strong? And you will find that strength to get back up like this. [ Music ] [ Applause ] [ Music ] Do I pray for arms and legs? Do I still desire them? You know what, I actually do. You know, I am not discouraged if He doesn't give it to me. And it's not that I'm not content, 'cause I am content, I'm fine, I am-- it's such a big, big ministry that God's given me, and such a beautiful thing to witness people's hearts being changed and transformed because of the testimony that we bring of God's glory, grace, and affection. But, you know, I still-- I'm still believing for the miracle. [ Music ] [ Singing ] You might want to sing it note for note. Don't worry be happy. In every life we have some trouble, when you worry you make it double. Don't worry, be happy. Don't worry be happy. Don't worry be-- [ Music ] Questions for Dr. Sohn? [ Applause ] Well things could be-- things are tough but, well, you know, oh still-- again, still I just turn this thing off here. Well, the moral of the story of course is that, you know, things are pretty tough all around but could be much worse. We should have the strengths to get up and then move ahead, right? So as Bill pointed out, are there any questions or comments or disagreements. [ Inaudible Remark ] Yeah, okay, why don't I give the microphone maybe, yeah? [ Inaudible Remark ] [ Pause ] You mentioned and showed the chart of how the stimulus package would affect the economy in the future. I saw in the news today they were going to - they were thinking about doing another stimulus package. Do you know how that'll affect things? Washington is talking about the possibility of another stimulus package but let's understand what it is. They're not taking about another 787 billion dollar package so we simply just don't have the money. We can't afford it. What they are talking about is putting more money into unemployment insurance programs, paying some of the employers to cut the cost of hiring new employees so that they want to have some of these individual programs primary related to jobs. And so it is not going to be an across the board the general program which will cost hundreds of billions of dollars and so that is not what they're taking about. So when they talk about another stimulus program my understanding is that it's the latter not the former. [ Inaudible Remark ] Thank you for coming. I like that video it's kind of interesting, that more depicts main street rather than wall street as us individuals that are having to pick ourselves up and go forward. What is-- who do we have in the government that is standing up and that is being accountable for their lack of, you know, their lack of direction, their lack of holding people accountable. The-- You know, I actually think so far the government has done as a reasonably good job. And the reason why I say that is because if we hadn't done things right this could have turned into another great depression. The fact that we were able to avoid another great depression was a quite an accomplishment. A deeper session, a great depression has a lot of economic, social, and political cause and we were able to avoid that. And so that's one of the reasons why even though no one likes budget deficits, no one likes inflation, I believe what we did in the past was the right thing to do. What's important is really looking ahead. Again, you know, today the value of-- the dollar is going down and then just before I came in, I-- you know, the LA Times called me and then we did a long interview about the dollar situation. And so basically the question was, you know, what's wrong with the dollar? Why are people around the world concerned about the dollar? And my answer was, you know, we all understand why we have budget deficits, we understand the current situation, but our friends overseas and Americans, you and me we have concern about not having a program to really cutback budget deficits. Let's talk about health insurance and healthcare. You know, I am for, you know, of taking of our fellow citizens without health insurance. And probably it's gonna cost more. I don't believe that it's gonna be revenue-- revenue neutral. So if it's going to cost more, you know, so be it but at the same time we find that we should find ways to cut expenses some place else rather than simply saying, you know, we have cake-- cake and eat it too, we will do this and this and this and this and everyone of the revenue neutral, therefore don't you have to worry about budget deficits. And, you know, no one is believing that. I don't and then our friends overseas they're not believing that. And so, you know, to some extent I think Washington is kind of Alice in Wonderland and I think they need to get out of that. So I would say really I don't wanna, you know, pin blame on anybody because there are a lot of people in Washington but in-- on balance what they have done so far I think has been very good. They've done a very good job. I am concerned about really our lack of our plan, action plan in the future as to how to really arrest our budget deficits and then put our economy back in order. And, you know, there's a lot at stake because we are borrowing, you know, three billion dollars every single day, 365 days a year to fund our deficit, budget deficits, and trade deficits. And so, you know, how much we pay and what are we willing to or able to borrow money that is very important. Go ahead. Yes. Dr. Sohn, in light of sort of tenuousness of the recovery and I think some of the assumptions you mentioned with regard to economic growth and inflation, seems to me that if the fed were to take action to start raising interest rates as early as the first quarter, that could have some fairly adverse consequences couldn't it? Yes, it would. And I hope they do not. Again, you know, that was not my focus but some people are saying that the Fed Reserve could raise interest rate as early as-- early next year. As you know, the Central Bank of Israel and the Central Bank of Australia, reserve bank of Australia, they have already raised interest rates. I think, you know, those are kind of special cases. But if we were to raise interest rates as early as first quarter next year, that to me would be very detrimental to the sustainability of the economic growth. And one area which would be hurt very badly would be housing and mortgage markets. I've said several times how important housing and mortgage and markets are in the US economy and unfortunately right now housing and mortgage markets are doing better primarily because of the lifeline to the government. And if they were to restrict that flow of funds and then raise interest rates, then housing would not be doing very well and then that would really hurt the US economy. So I would tend to agree with you. So if I got a chance to talked to Chairman Bernanke and tell him which is which. [Laughter] Okay? Alright, thank you. I would like to know what the implications are of the FDIC running out of money. The-- not really not that great. The FDIC is literally running out of money. But FDIC also has two avenues of funding. Number one is they can raise insurance fees. And so they are going to, you know, triple the insurance fee. So they are going to be collecting more money from the insured banks. So that's one. But that will take time. FDIC also has a 500 billion dollar line of credit to the US Treasury. So congress, the US Treasury can lend up to 500 billion dollars under the current statute so that they are not going to run out of money. Now in the-- unlikely event that they need 500 billion dollars, they need more-- more than that I'm sure congress will, you know, appropriate more money. So I'm not concerned about FDIC running out of money. What are your thoughts about the government taking, you know, bailing out some of these large corporations and how do you see that in the future in terms of the capitalist environment where now the government stepped in and gotten very involved? I think it's important to look at the purpose. The purpose was not really to so much to bail out AIG or Bank of America or Citigroup but that's what economists call systemic risk. That is, you know, if these institutions go down it will bring down the entire economy. So that you wanna help out to bale out these companies not so much because you love their shareholders, but because of this impact on the overall economy. We saw what happened to Lehman Brothers. You know at that time lot of people felt including myself that, you know, let the free market system some work. They made the made big mistakes and let them go down. While they go down and one he did that, you see the fireworks that we saw around the world, around the financial markets, now in hindsight including myself, probably in hindsight it was a mistake to allow Lehman Brothers to go under. And I say not because I love the shareholders because, you know, they shouldn't have gotten hurt. And-- But because the impact it has had on the-- on the US and the global economy. And, you know, even though the economy stabilizing, even though things are going to be improving, but repercussions, the cause of death, its impact on the value of the dollars inflation. This will linger on for many, many years to come.