The Meltdown

So everybody has been affected by the meltdown, at least everybody with either a mortgage or investments in the stock market. And we all wonder, "what is the root cause?" I believe one gentleman from a financial forum I read pins it to the special interest lobby of Fannie Mae and Freddie Mac:

Fannie [Mae] and Freddie [Mac] had such powerful lobbyists that no attempt to reform or regulate Fannie and Freddie could make it through Congress. In all fairness, there were a number of Republican Senators and Congressman who have been sounding the alarm for at least 15 years. They knew it was only a matter of time before the taxpayer would have to bail them out. They were voices crying in the wilderness. There was no way to stop such large special interests. Fannie and Freddie spent tens of millions of dollars lobbying congress. Is there something inherently wrong with that? Government sponsored enterprises spending millions to lobby the government?

So, who were the lamebrains obstructing reform?

Since 1989, 534 individual legislators recieved money from Fannie and Freddie. Who recieved the most? Chris Dodd, Democrat from Connecticut, Chairman of the Senate Banking Committee and the Senator who had a couple of special arrangements with Countrywide, Fannies biggest customer. Who was second in line? A newcomer, who had only been in congress for three years, the junior Senator from Illinois, Barack Obama, who now blames Bush for the problem, and says he's going to run a different kind if Washington, free of special interests. There's a sucker born every minute.

Change you can believe in? So long as you believe, "The more things change, the more they stay the same".

Daily Mutterings

Let me state for the record I'm not a huge fan of mortgage bailouts. I could be made to understand why the government feels the need it has to "do something" about this pressing concern--because the chattel (voters) are clamoring for relief from "predatory lenders" who took advantage of them. "It's not our fault," they cry, "We wouldn't be in this position if it weren't for the big, bad wolf with huge eyes, and big teeth, and 0% down mortgages. Besides, it's for the good of the economy."

What a fairy tale.

Defaulting borrowers and lenders alike are equally at fault for low lending rates, bizarre mortgage products, and fast 'n easy money. It's not solely on the shoulders of the lenders. They made the money easy, but somebody reached into the cookie jar and took far more than they could eat--"Their eyes were bigger than their stomachs."

Borrowers and lenders made their bed, they should be made to lie in it. Many families could have emulated the neighbors (now in danger foreclosing) and taken out variable rate loans with 0% down to buy their houses; many could even have used such techniques to buy "more". They did not. Fiscal prudence forced them to accept the reality they could not (should not?) afford "more" where their neighbors pretended the economy would supply their desires. Historical insight reminded them of the adjusted maxim, "Whatever goes down, must come up." Too bad the neighbors didn't look to the past.

What part of cyclic economies did the neighbors not understand?

Economies run in cycles and grow in spurts. The incredible growth in recent years must inevitably result in a time where the gears of the nation must rest and catch its breath. 'Tis natural. It's like pruning a tree, the deadwood--the inefficient companies, the bad fiscal decisions, the poor lending practices--must be cut away and burnt. Hence, I see no reason why the government should bail out greedy corporations or greedy borrowers. The problem with a bailout is that the welfare of the greedy lot will be forced upon those of you who were fiscally conservative, or smart enough to know when to refinance.

Here's an Idea...BUDGET

So, California finds itself in another budget deficit brought about by a combination of a declining economy and increased spending. So obviously, the answer is to raise property taxes by reassessing businesses benefiting from Prop 13. In the article, the union-backed California Tax Reform Association calls assessment of business property under Prop 13 "poor fiscal and land-use policy". The gist of the article is to flog the idea for yearly property reassessments of businesses for the purposes of taxation.

Wrong-headed move my friends. This just shows the problem of the public mindset towards government spending.

The liberalists intend for you to believe the woes of a budget deficit are brought by the underpayment of taxes by businesses and, although not explicitly stated but certainly meant, those citizens in certain tax brackets. After all, it is a truism in American politics that "faceless" corporations and the "rich" are getting away with robbery. In short, the CTRA wants us to buy into the idea "not we're spending too much, it's that we're not making enough".

How many of us have fallen to that line of argument in our own personal fiscal operations? I'll raise my hand as long as you raise yours. But the first rule of mastering your personal finances is not getting a higher paying job or winning the lotto. The first rule is to control your spending.

The solution to California's fiscal problems is to spend less. Don't create additional programs. Don't allow the status quo to drain the treasury. Don't raise taxes. When there isn't any money in the checking account, don't charge up the credit card. What's true for the kitchen table budget is true for public government.

Thursday Update

US military shoots down separating missile in test

And they said it couldn't be done. Good job America. Yes we need it unless you want to trust our survival on the kindness and rational behavior of North Korea or Iran.

Another increase in Federal spending. Only $845 billion over 13 years or $65 billion per year or $197,000 per person in the US per year for additional foreign aid to be spent by the United Nations. I don't know about you, but don't we have things we could do with this money at home or better yet, not spend and let our kids have a lighter debt load?

New Update

Three stories to share with today.

1. Florida needs energy (as does everyone else), but doesn't want to have oil rigs off its coast. Its ok for other States or countries to have them but Florida should be spared the sight of them.

Actually, replace Florida with California and the story could just as true here. But with $5 a gallon gasoline, maybe that view will change.

2. Oregon has depended upon the Federal Government for timber payments for much of its budget. Now those payments are ending and the local governments are crying. Here is a solution, allow more economic activities on your land and the budget problem can be solved.

3. A female Christian reporter wrote an article critical of some of the cultural practices of her community. The Christian community has denounced her saying she as a Christian woman has a duty to defend the faith and not say or write anything that may bring the Christian community into a bad light.

Of course if the above was true, the ACLU or the Canadian equivalent would be up in arms along with many secularists to protect this woman and the paper that dared to print the story.

However, replace Christian with Muslim and the above paragraph is true. However, I don't hear anyone coming to the defense of the reporter or the paper. Do you?

Nutcase

Chavez continues his war against capital as he sets a 60 day ultimatum for cement companies to strike a deal over the nationalization of their assets in Valenzuela. Mexico based Cemex, Switzerland's Holcim Ltd, and France's Lafarge SA would become minority owners in the units they built in Valenzuela. Generously,

the companies could negotiate over continuing as minority partners in their units and over compensation for the loss of their assets

How nice.

According to Hugo, I can barge into your house, demand you sell it to me, and then allow you to negotiate to keep part of what you already own. If Chavez is so hot to own these companies, why doesn't he go out and tender an offer to buy shares? This is not an issue of eminent domain and the public good--unless you deem that it is in the public good for the government to monopolize industry--it's an issue of deprivation of property. It's easy to deprive faceless corporations, despite the reality these corporations are really a collective of thousands of employees, myriad suppliers, and customers that are as personal as you or me. In the end, all corporate entities boil down to people. Where will it stop?

Maybe today it's a company, tomorrow it may be the individual.

About time

South Dakota county of Union approved a rezoning ballot measure to allow a new refinery to be built in the county. The measure won 58% to 42%. This will be the first new refinery built in the US in 30 years. Of course those who opposed the measure have vowed legal action to void the election, and failing that to fight the permitting process to delay and hopefully cancel the project.

Can the oil companies play hard ball with those people and refuse to sell them gasoline since they don't like refineries or anything to do with the oil industry?

Cost of Oil and Ethanol

The use of ethanol made from corn has helped increased the cost of food to consumers. The corn used for ethanol is feed corn, not sweet corn humans eat, and by corn being diverted to ethanol, its not available to feed chickens, cattle or other animals. Even when the plant waste from ethanol plants are used as feed stock (which it is), the cost of feed has been increasing for the last few years.

But before you run off and invest in farming, it is still a risky investment, one bad storm or harvest could ruin the crop and the farmer is out of business.

But if you really want to reduce the cost of oil, reduce the cost of gasoline, reduce our dependence on imported oil, then we need to start drilling. Its as simple as that. Decisions made 10 years ago are coming back to haunt us now. Will we continue to compound the problem or will we fix it by allowing more drilling now so prices will be lower in the future.

Make Ethanol and the cost of food increases

If you use food crops for fuel and a farmer can make more money turning food into fuel, guess where he will sell his crops to make fuel and not food.

Well now with the increase in wealth around the world meaning more meat is being eaten, it means more grain is needed to feed the animals and with more crop land going to ethanol and with bad harvests in Australia for the last two years, it means there is now a food shortage.

Suddenly, global warming isn't as important as feeding people.

Even here in the US, people can't get as much of the type of rice they want. Which causes hording which makes things worse. There isn't a food shortage in the US (unlike other countries) but there isn't as much of the type of food some people want so people will panic. Each cheaper rice instead of the premium rice and you will be fine.

More on the law of unintended consequences

Most of Columbia's exports to the US enter duty free (no tariff on them). Most of the US exports to Columbia have a tariff (tax) on them making them more expensive.

The free trade agreement between the US and Columbia would remove most of the Colombian tariffs on US products thus making US exports cheaper there and so we can increase the sale of US products there. See how much the tariffs are costing US manufacturers.

The DEMOCRATIC Congress is opposed to the Colombian Free Trade Act because it will hurt American jobs.

Wait, increasing US exports to Columbia will hurt US workers??? Are these people that ignorant, stupid or blind? Enquiring minds want to know.

More problems with the 787

Will Boeing please fix this plane and get it flying? Don't turn the Dreamliner into a nightmare please.

Ethanol

The promise of ethanol is fading as the laws of supply and demand are starting to be felt.

Also the law of unintended consequences such as the rise in all food costs because farmers grow more corn which means less wheat, rye, soybean etc. are grown. This causes all grains to increase in price which increases the cost of animal food (chickens, turkeys, cattle, etc all eat corn).

The extra corn being grown is turned into fuel so it also isn't available for food stuff so the food available is shrinking and the cost of food through out the economy is increasing.

So ethanol is contributing to the inflation we are seeing. Is it worth it? That is a question we as a society need to answer.

Another one is biting the dust

Borders bookstore has basically run out of cash, even though it make money last quarter.

Amazon and Barns & Nobel are likely to be quietly celebrating or rather celebrating behind closed doors at the fall of their rival.

Sweeden a Cold War Ally?

Sweden may start competing with the US in the area of fighter sales to Norway and other potential JSF customers. Will the US allow that, given much of the technology in the Swedish fighters comes from the US? And if the US doesn't allow Sweden to sell its airplanes against the JSF, what will that do for US-Sweden relations?

Economics can have an important impact on defense policy.

More trouble for Citi Bank

The bank is having more trouble with its loans and now some investors are saying the bank may not be able to be saved.

King Dollar . . . . . .

Larry Kudlow over at NRO says we must make the dollar king again and make it strong. His argument is the dollar has been falling against the EURO and other currencies and this has lead to an increase in inflation in the US. It has also made imported commodities (read oil) more expensive since the countries that sell oil will demand more dollars to get the same purchasing power when the dollars are converted to their local currencies.

There is a problem with making the dollar king quickly.

You have to make people (foreigners) want dollars by giving them better returns on their investments. That means raising interest rates. Currently the US government is trying to head off a recession by lowering interest rates.

Kudlow says we should do what we did back in 1981-1982 to make the dollar strong. I'm not sure I want to see the government raise interest rates to 18% for US Treasury bonds. That will drive us into a deep recession for sure.

A longer but better way in my opinion is we have to decrease our imports and increase our exports. That means we have to cut spending so our government deficit is less (thanks to the tax rebates the deficit for the current fiscal year is expected to be almost $500 billion instead of about $100 billion). We also need to import less oil. That means drilling in Alaska and off the coast of Florida and California. We also need to promote more manufacturing jobs in the US so we do not have to import as much stuff but can export more. We can do all of this but it will be a slower process then just raising interest rates and will take more political capital. However in the long run it will make the US a stronger place.

If McCain (or Clinton or Obama) want to make the dollar king again, lets hear how they will do it in a way that will strengthen the country instead of hurt it.

Subprime Mortgages

Vulture Fund Deals With Delinquent Homeowners Lost by Subprime.

The market will find a way to make money out of this yet.

Time for Wall Street to Pay

Steven Pearlstein is gloating that Wall Street is having financial difficulties. Well that isn't too unusual, many of us are not unhappy to see Wall Street be taken down a peg or two. But Pearlstein is happy not because WS made mistakes that the MARKET is correcting, but because he hopes it will lead to more regulation to "protect" us and main street from the evils of WS.

Who is Pearlstein? Well he is a business columnist for the Washington Post who has just proven he is ignorant of the subject he covers and doesn't understand Markets, Capitalism or what personal freedom is and means.

The Grasshopper and the Ant and their 401(k)s.

I am startled by some figures quoted by Selena Maranjian at the Motley Fool. She quotes from a 2006 Retirement Confidence Survey (RCS) that shows across all age bands of working aged people, almost 53% have less than $25,000 in retirement savings. It gets worse, broken down by age, almost 42% of those 55 and older have less than $25,000. Of course, some of those people have defined benefit plans that may not be included and perhaps even assets not defined as retirement savings. However, those contributors have got to be insignificant compared to the big takeaway from the study: Americans are not saving enough to fund their retirements.

Social Security will not be enough, even if Social Security as we know it survives to my probable retirement, people are still counting on it. What also stands out is the alarming number of people, over 60%, expecting retirement benefits from an employer although only 40% actually participated in a plan. Somebody needs a reality check.

The study quoted (emphasis mine):

The RCS continues to find that one-quarter of workers are very confident about their financial security in retirement (24 percent), while more than 4 in 10 are somewhat confident (44 percent). However, at least some of those who say they are very confident may be overconfident. Twenty-two percent of very confident workers are not currently saving for retirement, 39 percent have less than $50,000 in savings, and 37 percent have not done a retirement needs calculation.

Clearly, America is not realistic.

Now, of course, we all could look at our own 401(k)s or pension plans and feel comfortable about where we are heading, if we are like the ant in the fable. But I'm not here to worry about my retirement account.

The grasshopper and the ant. The problem, I think, will arise when those who, like the grasshopper in the fable, did not save and will be in want for retirement. Lawmakers (mostly Democrats) will hue and cry about the "social contract with America" and the broken Social Security system, and the greedy few who hold all the money. At some point, these cries will demand action from their government, meaning increased taxes to fund benefits from those "ants" who worked hard and saved (that's probably already in the cards anyways).

I'm fully expecting that the younger generation of ants will have Social Security benefits taken away; certainly those who were exceedingly thrifty are probably out of luck in any event. I can see a day where qualification for Social Security will be tied to total asset base rather than your current means of earning, in effect commandeering your 401(k) as part of the Social Security system--the only benefit being that YOU are guaranteed to receive what you put in (up until lawmakers decide to start figuring out how to take that, too).

Let's just do away with this farce right now and allow workers to opt out of the Social Security system--in exchange for no more tax payments on my part, the government will no longer have to worry about me or the rest of the ant colony.

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$25 and Nothing in His Pocket...

...ten months later, Adam Shepard had an apartment, a pickup truck, and some money in the bank. An interesting exercise in how one man scratched his way from almost nothing to self-sufficient living. Adam:

...I set very realistic goals: $2,500, a job, car. This isn't a "rags-to-riches million-dollar" story. This is very realistic. I truly believe, based on what I saw at the shelter...that anyone can do that.

Excellent interview with the Christian Science Monitor.

I'm trying not to get on my soapbox to spout on an on about experiences I have limited knowledge of, but I know this means something--I just don't know to what extent. Let's leave it to you to decide what it means.

(h/t: In the Agora)

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