Today was supposed to be a historical day in Politics for a “good reason.” The Congress was supposed to pass a bill that would help the government buy up to $700 billion in distressed assets and bailout the US economy from another potential depression. Given the grave alternatives – it was suppose to pass with flying colors. But, it didn’t. Because, put simply, inefficient bad politics.

What upsets me the most is when you ask the average person about this bill they have an incorrect understanding of it. The media and bipartisan politics have labeled this as a “bailout for Wall Street’s billionaires” – but little do they know – this has a direct effect on the economy to everyone (whether you own a single stock or not). Except, all we hear is “Oh my god – $700 billion of taxpayer money going to save the Wall Street boys” – when it should be characterized as a bailout to get the US Financial system back on track. Let me break it down in plain English – the banks have frozen credit. Right now, it’s so hard to get a loan – even a person of my financial background would go through several levels to get approved, and the chances are given how tight things are – I wouldn’t get approved. So, what other ways does this affect the “real world”?

•    An 18 year old student trying to get a loan for college – will likely get denied

•    A small business owner who has to do payroll – and borrows money from banks for cash flow reasons – will unable to do payroll and will inevitably either shut down or layoff employees. (This is actually a “real example” that’s currently happening across the nation).

•    A family who actually wants to buy their first home and has good credit with a down payment – will likely get denied.

•    Entrepreneurs trying to start businesses and increase employment – will not be able to do so due to lack of capital.

•    Your credit cards will either get cancelled by the banks that issued them or they will likely drop your limit substantially.

•    Cost of day-to-day goods will skyrocket. We already know how expensive gas is? But – all indicators are showing that cost of food is now also skyrocketing.

Here’s the simple way to understand it. We run on credit – the US economy runs on credit. We need credit to survive day to day. When credit is frozen – the cycle stops. And that’s what’s happening now. We have reached a precipice. Today’s demise on Wall Street was a great indication of what is yet to come. The Dow Jones dropped 777 points (worst ever in history) – and tells us if we don’t do something, Armageddon in the world economy could be near. So, this package put forth wasn’t to bail the Wall Street rich – it was too free up bad assets on the banks – so they could now let people like you, me, the student, the small business owner, etc. borrow money again. That way – the cycle – the economy continues to operate in its normal course. Without credit – we’re pretty much screwed. In effect – we are already at a 6.3% unemployment rate. If a bill like this doesn’t pass soon – we’re estimated to hit a 20% unemployment rate soon.

I think the media and most importantly politicians have a fiduciary responsibility to get on camera and educate the average citizen how this fundamentally will affect them. That way, people don’t think it’s only going to save the rich guys on Wall Street. We’ve failed to do that. Heck, if people in America have lost faith in George Bush – they should have hired George Clooney to perhaps give an Economy 101 lesson on what this really means for everyone. A basic education on the merits of this plan is badly needed to change its current perception.

Before, the voting started today, the speaker of the house – Nancy Pelosi gave a bipartisan speech attacking the President and the Republicans for putting us in this mess. After the voting ended, the bill didn’t pass. The vote was 205 for and 228 against the legislation. The Democrats supported it while the Republicans didn’t, which is shocking since – The President and the Secretary of Treasury who brought this bill together are both Republicans. The Republican leader later went on the record and said they didn’t have their parties vote because Nancy Pelosi attacked their party in the beginning of the voting session. This is pretty pathetic. We don’t hire politicians to think with their feelings – we hire them to actually do a job. And today, they absolutely failed. While this bill was going to provide credit back in the economy and stimulate it back to its course – it failed. The Stock Market crashed today and erased $1.4 trillion in value (that is 2 times more than the actual value of the current bill) in just one day. Does Congress want to do the math here and start doing their job rather than playing high school games on who can be the bigger bully? This congress and governmental system is starting to have the similarities of a circus rather than a governing body. And, that doesn’t exude the confidence that we desperately need.

Every day of negligence from our government is costing us money. Today it wiped off $1.4 trillion of hard-earned equity created by us all Americans. I just hope we come to some solution here and a bill is passed soon – otherwise our economy is in danger of hitting another depression, forget about just a recession. I maybe too young to know what is like to be in a depression – but the history books leave me with enough information to educate me and tell me – that this is something we’re not ready for or want to take the chance of getting into.

Over 100 million Americans own stocks. So, if you watched any of the local news, national news or business news this week – you probably noticed that this will probably be the most memorable week for the stock market this year.  By the end of Tuesday, hundreds of billions of dollars were wiped out of the market. That same evening, the government stepped in to stop a world economic crisis by saving a global financial company (AIG) from bankruptcy. If the government didn’t step in – the entire global financial system/stock market – would have simply crashed.

If you read my previous blog below – you’ll understand how in some cases, this week became a complete crisis for every publicly traded company. Hedge funds and short sellers took advantage of the fact that fear existed in the market. Therefore, rationalism was out of the picture and fear resonated in everyone’s mind. The lack of governance and rules in the financial system are largely to blame.

Hedge funds began to create pessimistic views about the economy and individual companies by massively shorting their stocks. This caused the average stockholder to begin making decisions on emotion rather than fundamentals. People started to wonder if their money was even safe and millions of people began to lose sleep with endless questions. Is the world going to crash? Where was the economy going? What can we do to actually revive it, and how do we finally move forward?

To put things in perspective, the stock market is down 26% this year. That means if you were “diversified” in an index fund – you lost 26% of your money. But, if you were heavily invested in “banks and financials” – you basically lost your shirt. In some grave instances, if you were a shareholder of AIG, Lehman Brothers, Bear Stearns, Freddie Mac, and Fannie Mae – you saw your entire investments hit either zero or close to zero.  A very big scare to any type of investor.  What’s even scarier? If you were an employee for 10, 20, 30 years in any of these companies, you even saw your retirement go to zero. It was definitely a sad day for many New York Wall Street employees. Many even lost hope.

In the last 24 hours – the government finally stepped in. If they would have acted a few weeks faster on these initiatives, things could have been a lot less fatal for these companies and the market. So what did the government do? In the 1990s we faced a similar type of crisis. So, the government decided to mirror that strategy and begin discussions to create an RTC (Resolution Trust Corporation) type bail out. In this case, the government will create a new entity that will house the bad mortgage back securities from all of the banks – and allow the banks to start getting their fundamental business back on track without having bad assets in their balance sheet. This was a much needed move – as this basically gave a big “reset” for the entire financial system.

The second initiative, which I applaud (finally) – is that the US government copied a strategy that the UK government began on Thursday. Basically, they posted a ban on “short-selling” for all financial related stocks until October 2nd. The hedge funds and the individuals that began driving these securities downward – are banned from doing it further. I’ve always had a negative feeling on short-selling, I guess live in an imaginary world – where I don’t think you should profit from someone else’s demise.

Hopefully, in the coming weeks, we can rekindle the hope lost in many Americans and begin to get our economies and world financial system back on its feet. Only time will tell.

Today was the worst day in the stock market since the decline of the market after 9-11. I was fixated all this week on trying to understand how and what happened to our economy so quickly. We keep hearing the headlines about how much the subprime market has hurt us – but how bad really is it and what else is to the story? So, here’s what I’ve learned. In short – I believe we have a lack of “governance” problem rather than just an “economic problem.”

•    Commercial and Investment Banks need to borrow money in order to leverage themselves against the assets they want to buy.

•    All banks and companies have a credit rating. The higher the rating – the cheaper it is for them to borrow money. The leverage ratio is determined based on the investment grade of their paper through third party agencies that exist: S&P, Fitch, and Moodys.

•    Commercial banks have a cheaper way to borrow money since they have deposit accounts vs. Investment banks. Investment banks and other Companies have to borrow from the outside markets based on their credit rating.

•    Most Banks have been hit hard due to holding poor performing mortgage backed securities (subprime). Thus, causing a liquidity problem in some of their assets.

•    Now here’s how the “bear raid” begins and takes down these companies:

1.    First – there is a market called “credit default swaps” (CDS). It is a credit derivative contract between two counterparties, whereby the “buyer” or “fixed rate payer” pays periodic payments to the “seller” or “floating rate payer” in exchange for the right to a payoff if there is a default or “credit event” in respect of a third party or “reference entity”. Until recent, you only needed to put 5% of the money when making a specific bet in the CDS market. It’s now just recently changed to 50%.

2.    Hedge funds have basically come in and made bets that caused a huge spread in the CDS for individual companies to cause speculation that these companies may go out of business. Some of them have been exacerbated since some of them like AIG have solvent businesses.

3.    This volatility then transcends to the equities of that particular stock. It causes people to short sale a specific company to drive the stock price down. And, until recently has caused people to take advantage of naked short-selling – where the person does not need to borrow the actual stock before they sell it.

4.    With increased naked short-selling and the no “uptick rule” in place this causes the stock to get slaughtered in a very short period of time (much faster than just a normal short sale). The uptick rule was in place in 1938 to regulate short selling in the financial market. A listed security may be sold short at a price above the price at which the immediately preceding sale was affected, or at the last sale price if it is higher than the last different price.

5.    Next, the volatility from the CDS and the naked short-selling of the stock – drives the value of the stock down like a roller coaster.  Then, the independent third party agencies begin to evaluate the credit worthiness of the Company and make a decision to downgrade the debt of that firm – causing a “capital call” for that Company. For, AIG’s case – forcing a Company to raise capital overnight or look into filing for bankruptcy protection like Lehman did.

6.    This was generally the strategy used to bring down Bear Stearns, Freddie Mac, Fannie Mae, Lehman Brothers and AIG in a short period of time. This is what is called a “bear raid” – where all the short-sellers took advantage of the process and loophole in the system. Some may argue the above Companies deserved it based on the assets they held – but this process allowed them to have a shorter lifespan rather than to react to the market changes they faced. It was done by force. The economy thrives when the stock market goes up – it doesn’t thrive when it goes down. But, with this tactic – people still profit. That’s not what being a true capitalist or being an American is all about.

Today, the Dow fell 449 points and the NASDAQ fell 109 points after the Fed was forced to bail out AIG and stop a world economic crisis. We’re now seeing the next phase of a “bear raid.” It a tactic now being used on good companies that are profitable, making money, with little or no exposure to the credit crisis that are becoming victims of this loophole. Goldman Sachs and Morgan Stanley are two companies that reported positive earnings and today got dragged into a bear raid.

Their volatility in the credit default swap markets skyrocketed – causing the hedge funds to naked short-sell the stock today – and hoping that causes one of the three independent agencies to lower the credit rating for Goldman Sachs/Morgan Stanley – thus forcing them to find capital overnight or also eventually file for bankruptcy.

It’s worked for Bear Stearns, Freddie Mac, Fannie Mae, Lehman brothers, and AIG – where the short sellers milked huge profits and caused these companies to become illiquid too soon.

We can also blame the independent agencies (S&P, Moodys & Fitch) for too quickly causing these companies to be downgraded. Had they waited – rather than react to the noise – Lehman and AIG could have shored up enough capital from selling their assets and saved each other from their demise. Or could have avoided the Fed from needing to step in and loan $85 billion to AIG. In all of these situations – it eliminated jobs, diminished the equity that employees spent a lifetime creating, and wiped out all of the equity from stockholders.

It’s also shocking that the SEC Chairman, Christopher Cox, decided finally to do something about the “loopholes” today.  He put a ban on naked short selling (finally). Now, only if he would have imposed this several weeks ago – you can imagine that the above securities mentioned above could have still been surviving. As, it would have given them time. He also needs to bring back the “uptick” rule to provide further stability against the “bear raid.”

What’s worse – our politicians are playing the blame game – in a time of despair. We’re in a election year – Republicans hate Democrats – and Democrats hate republicans. No one can put their party hats aside and focus on creating rules and regulations that can save us from situations created by “bear mafia” and avoid further ruin in our financial system.

What’s worse? Remember that $600 stimulus check that we received – it was financed from China. And looking at what we saw this summer in oil prices – it looks like the $150 billion stimulus package went from China to America and then back to the Middle East. I sincerely, hope the government does get its act together as we do live in this great country but we deserve a lot better governance from it.

Yesterday, I was invited to attend the Fox Fall Premiere event in West Hollywood, CA at the London Hotel. It was to help kickoff the season for Fox’s new and returning fall lineup. All of the stars for their upcoming scripted and reality shows were present at the event. Another cool part of the event was it was an “eco-friendly” theme. So, mostly everyone including myself came to the event in a Prius.

After the press circuit – I went into the event and was allowed to get on stage and spin a wheel. The wheel had numbers ranging from $100 to $5000 – and whatever number came up – we were allowed donate it to one of the 3 eco-friendly charities. When I took the spin – it landed at $200 and I selected the Nature Conservancy.

I had an amazing time and met some great people. I am excited about the premiere of Secret Millionaire more than ever. As you may know, I was approached late last year for a new show that Fox had just ordered (Secret Millionaire). I had an incredible journey being a part of the show. In my opinion, the show’s premise takes philanthropy to another level since you become emotionally attached to the people you want to help. It personally gave me a newfound appreciation for how blessed I am, reaffirmed my faith in humanity and gave me a hint that philanthropy will be a big part of my future.

The show premieres on December 3^rd 2008 on Fox with a 2 hour special at 8pm. I hope you all tune into it.

For those of you that want to know more about the show – you can visit:

1. Secret Millionaire Trailer
2. Secret Millionaire Homepage (yep that’s me in the Green Jacket)

Here are some pictures from the event: