Category Archives: blogs

Why do you do what you do?

Today I have been thinking about WHY I run this business.  Most people spend so much time on how they are going to do things, and What they are going to do.    Today, I wrote this and printed it out and posted it on my office wall, “Focus on Why we do what we do, If you do it for the right reasons What you do and How you do it will fall in line and success will follow.”

When I moved my business to its much bigger location I have only a rough idea of what we would be doing.  I had a few basic ideas of areas where money could be made, because I was already making money in those areas and my old business made money in those areas, but I was open to doing something else.  It turns out that now my most profitable part of my business was something I never did at my old shop.  It now accounts for 60% of sales and over 80% of profits, that is recycling computer products.

Once you know the what the “HOW” is very simple and obvious.  But I am here to talk about the Why….why do I do what I do?  Why am I a business owner and don’t have a job, why do I choose to work with technology?  For me that “WHY?” comes down to a few key things that I believe.

First I loved technology, it is always amazing to find out what is new, and to be able to actually play with it, not just read about it.  By owning a computer store I get the ability to design and build things for clients, forcing me to become an expert many different tech issues.

Next, I must have adventure  I also have found that I don’t like to spend much time on things once I figure them out, and technology is ever changing, allowing me to always be engaged.  For example here are some things I have done in the last month, I took apart a top of the line new Asus ultra-thin laptop to see what was inside, it was amazing how it is more like a Cell phone than a laptop.  I have explored new database ideas for WordPress, and how to import from XLS files to make carts on something that was designed for blogs.  I have had time to play new games. I played a lot with running windows 8 on a big screen TV with wireless keyboard, touchpad.  And the list goes on and on.  Every day is a new adventure, always learning and always teaching.

Next I love to share my passion for tech with others.  Spending time showing someone the new gadget, or the next big thing in the tech world is something that I love.  I also love to help people, to give them tools to make their life and their business better, then I love to see them a few months later and how what I did really changed their life.

Next I love a good deal.  I love to find good deals, I love to share them and I love to give them to others.  It is so fun when I can do something for someone better than they thought it could be done and under the price they thought it could be done in.  The side effect of this is that we have never been highly profitable.  I am always giving people deals and slashing prices.  For me it is often more about the sale than the profit, I have sold many things well below cost to make someone happy.  Recently I have been forced to charge most people a bit more to cover costs.

Those are the reasons I am in the IT industry, but now I think “WHY?” did I do it on my own instead of working for someone else.  Well I really enjoy my freedom, I also highly value spending time with my Family and friends.  I love to be able to sleep in a bit, knowing my shop is taken care of, then spend some time with the kids while they are still kids, and then be able to take them and my wife to work with me.  It is nice to be able to take time off when I need it.  I also like it when people count on me, when I can show someone…”Yes I built that”.

I guess it all comes down to the fact that if you love what you do then it never seems like work.  Most of the time it does not feel like work, it feels like fun.  There are there rare times where I told a client Yes to something I should not have because it is something I don’t like to do or don’t want to learn, and in those cases I have found that subcontracting is a great idea.

So what is your “Why”?  If you are in business, why are you in business, why did you do what you do, and why do you do it the way that you do it.  If you have a job, then why do you work where you work, does it fit in with who you are?  If the main answer to your “WHY?” is money then you will likely never live a very happy or fulfilled life.  Now-a-days there is also a large part of our population that lives off the government, why do you feel entitled to do that?  If you served in the military, or if you are retired after 45 years of work I can see why you would feel that way, but many feel entitled who need neither of these.  Do you feel that you could have somewhere else to serve, to make this world better?

You should work to make the most of your short life here, and doing things with no reason why is one of the easiest ways to waste your life.  Here are some questions that really helped me focus on what is important…Why do you surf the internet so much, do you really need to read Facebook that many times per day, do you really need to watch that TV show, what will you get out of playing that video game.

Watch what you do and see if it lines up with your why.

A Special thanks goes to today’s episode of the Glenn Beck show for getting my thinking about this again.


My take on windows 7….

Today I got my hands on Windows 7.  I have used it a few times in the past just to do a task and it always worked just like Vista.  Today I had the chance to install it on a computer that I own.  Here are my impressions.  

The install was almost exactly like Vista, many of the screens were exactly the same except a different background.  It seems to have taken about the same amount of time as Vista to install.  The installed size was 6GB smaller than when I install Vista.  When it came up it looked almost like vista, except the icons on the QuickLaunch were larger.  But then after more examination I noticed that it is a hybrid sort of QuickLaunch, putting programs that are running and those that are not on the same bar.  Basically you see the icon and when the program is running it draws a box around the icon.  If you run more than one it draws more boxes out to the right.  If a program is running and you click the icon again it minimizes the application.  You can right click and select the program name again to launch a second copy.  If more than one is running and you click on the icon it will show you a thumbnail of each copy that is running.  Not a bad way to do things, but will take some getting used to that is for sure.  I am not sure that I really like this idea, and there is no option to do it the old way.

The major thing I noticed is that it was almost exactly like vista.  Almost every menu is exactly the same.  The Gadgets that come with the OS are all the same, except they added a launcher for Media Center, and you can zoom some gadgets to make them bigger and provide more info.  The games that come with the OS are the exact same group that comes with Vista, and the screen saver list is even shorter.  I was really looking for a really nice new screensaver or game idea, but alas there is not one.

Some really nice things I noticed about the OS is that is DOES seem to be quite a bit faster.  AVG installed much faster.  Also when it connected to a network it automatically started to set up sharing.  No more having to turn on sharing in 5 different places in Vista to get it to share something.  Also it has a really cool feature where it changes the background every few minutes, really making it seem alive, and it was very easy to download themes online.  There also was a large amount of great sound themes installed from the get go, much nicer than vista.

Another feature that I have been wishing that windows had for many years is the ability to simply make EVERYTHING bigger.  Before windows 7 if you wanted to make everything bigger the only real way to do it was to use a lower resolution, but this was so bad, especially on LCD monitors, it would make things blurry and such due to not having a 1 to 1 ratio between the resolution and the native pixels on the screen.  If you wanted to make things bigger you had to do things in many different location.  And vista and xp considered the resolution part of the hardware, so if one user changed it, it would be changed for all users.  Now with this zoom you can and should simply set your monitor to the highest resolution that it supports and then zoom for each user that needs it.  I did notice that some legacy gadgets that I installed did not scale, but everything else did.

Wireless was also easier to connect.  In vista you have to right click on the wireless, and choose to open the connection window, and there you can connect.  Now when you right click it shows a list of wireless networks and a connect button next to each one, so easy.  I also liked how all of the buttons were only white…I am not sure if I will still like that in a few days.  There are also many other minor changed that I have seen.  One thing it does by default now, something that I have been telling people to do for years, is that it puts all of the music, videos, public photos and such in a “Library” a place that all users have access to and it sets it up automatically for network shares, and such.  Very nice that it finally is automatic.  And to make it even better it even installed some modern codecs so that the videos actually play.

After installing a few progams I also noticed that there are many less confirmation dialog boxes, also the put all of those taskbar notifications together so that they bother you less.  3rd party notification are also put all in one area with no more annoying balloons.  I am sure many of the people I help will really like this.

Conclusion. This OS is basically the same as vista with a few nice and useful enhancements.  If you are installing an OS on a new computer I would go for Windows 7 for sure, there is no real down side at all.  But if I had a computer that was working great with Vista and I had to pay to upgrade I would really think twice, that the benefits are not enough for all the trouble.  All and all it is a good and stable OS, because it basically vista with a new interface, so no one should be afraid to upgrade like they were with vista.  If you still use XP, then WHAT ARE  YOU WAITING FOR, get windows 7, it should run on your computer and it MUCH better.

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Evony, a great distraction.

So many people have been wondering why I have not been blogging for a long time.  Well one of the main reasons is that I have been totally distracted by a game that I found called Evony, it is really interesting.  It is a game where you build a city, you create the economy, then you build up armies and fight other people.  evonylogo

It is a lot like Age of Empires, even with similar graphics, but it takes place in “Real Time”.  Everything takes hours and hours to build, and some research things can take two weeks.  At first I did not like how it was so slow, then I started to like it.  It does not give people a major advantage by how many hours per day that they play, it is more designed for the person who wants to log on every day for 30 minutes and relax, just like me.  Some days I use it for more than 30 minutes, but other days I know I can set all the things to build and then spend a day or two away from the game.  Also because I fix computers and design websites most of the day I can sit here and do a few clicks on the game while waiting for software to install, or when I am on the phone.  It really is quite relaxing.

There are two nice things that make the game really interesting.  First is the market.  You can buy and sell resources with other players.  But what is really cool is that it is a true market, it works just like the stock market.  In fact the market interface is like E-Trade in the Nasdaq level 2 part.  You can see what other people are selling and bidding at and you can choose where to set your price.  You can even play the market and move prices up or down by moving huge volume, and then reverse the trend a bit later to make money.  I tried it a few times but it was too much work to do that.

evonymarketThe next really cool thing is that you join alliances, and your alliance will team up with other alliances and you organize to war against other people.  You also get to chat with your alliance members and after a while they start seeming like friends.  I have played a few other online multiplayer games but none of them really got me into it like this.  Our alliance has leaders and also people who think they can lead but fail, it is really a good microcosm of the business world.

So if you ever play you can look for me.  I am on server 7.  My username is AzDragon, and my towns are in a place called Lombardy.

There also is a good business lesson in Evony.  Basically that success comes from daily activity towards your goal, just like in business.  Every day for my business I place ads, make and receive phone calls, research the industry, and hopefully make sales.  In Evony, you build armies, upgrade buildings, and attack computer and human players.  But in both over time you get stronger and stronger, you start to have more and more success, and eventually you reach a point where you would be considered successful.

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My new blog…

Well I have moved my blog to my own server.  I have actually wanted to do this for a while because it is much more flexible and more powerful.   But on tuesday it become necessary because wordpress decided that my blog was just advertising.  I am sure they did not read it, because as most of my readers know there is very little advertising on here, and tons of great content, IMHO.

So I went off to recreate my blog.  I was able to install on my server with ease, took under a minute.  Then I found the theme I used before.  Then I started to look for my old blog entries, I was able to find over 100 online, and I have been reposting them into this blog using the original posting date.  For most of the entries the old cached version did not have the photos so they are missing now.  So far I have taken about 25 of my most recent entries and a few of the older more popular ones and put them back up.  It will be a long process to put them all up, and some older,  less relevant ones will not be reposted.

With the new location I decided to go with a new name, more of a brand name…. “The Biz Guy” is great, because that is what I want to be about business, but I wanted a more edgy name than the “The Business Blog”  I was able to update all my feeds to reflect the new location.  I will no longer get the 100-200 people a day I got from google, maybe google will find the new location, but I doubt it.

If you have linked to my blog, please update your links.  I really need the traffic now.

Thanks for the 2 years of readership.

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1 Year Blogging

Well this year is now exactly 1 year old.  My first entry was on the date back in 2008.  It has been an interesting year.  I expected to blog much more than I actually did.  I have so many ideas but many of them are already written by someone else much better than I could do it.  Then other times I have a great idea for something that I want to share with the world, but I either don’t completly form the idea and I figure that I would rather wait, or else I forget about it by the time I get to a computer.  I have tried to bring up interesting topics, such as my series on MLM‘s and my series on computers.

I have found some interesting stats while I have been doing this.  First off my article on How to select a laptop, is by far the most popular one I have ever wrote.   It has been the most popular article EVERY week after I wrote it.  Other entiries also have stayed popular for months, such as my article about Gold Prices, and one about a new Nigerian Scam that they tried on me.

If you do not subscribe to this blog I hope that you would.  I have a lot of ideas and I am also working on blogging about my new business I am working on.  I would love for people to follow along tell me what they think.

Thank you to all of my readers, I hope nothing but success for you in the next year.

A change is coming.

For a while now I have not been blogging very, much.  The main reason for this was my leg injury which really limited the amount of time that I could sit at my computer.  I used the laptop but the letter O was missing until I just got a new keyboard for it.  This made my time on the computer much more limited and work took the highest priority.

I now know that another main reason for that was because of the feeling I had that my blog was restricting me.  Basically i started this as a business blog, but recently my thoughts have not been too much about business, it still all comes from a business perspective.  I feel that I have a lot of good things to say that people are interested in.  I am often wrong, and I also often come up with new ideas, and follow them to see where they go. I also felt that often other people did a much better job than I ever could do and they covered the topic I want to talk about better than I ever would so I then decide not to post on that topic, I will change that and just point out their brilliance, and tell my readers to read their articles.

I have noticed that the blogs entries that I liked they most, and the ones that were the most popular are the ones where I tried to explain or simplify a complex topic.  By far my blog entry on “How to buy a laptop” is the number one entry, followed by “How to Buy a Computer Monitor” and “The Mortgage Crisis in Plain English“.   So I have decided that I will post many more entries where I simply take a complex subject, analyze it, and put my opinion.  In some areas I am an expert but in most I am not, but one thing will stay true, I will try to focus on every topic from the perspective of an Entrepreneur.

So from this day forward I will strive to post on this blog much more often.  My leg is feeling better now, and I also now have the keyboard so I can post from the laptop also.  This will make it much easier.  With the new topic I feel that I will have much more to say, in fact I have a huge backlog of topics I want to write about.

New eBiz started, great so far.

Hello.    I am working on a new and exciting entry into the world of eBiz right now.  I have been putting much of my attention on this project.  So far the results have been great.  I have built a simple site that talks about what we are doing.  We then hired a few commission only employees, gave them a stack of leads and a phone and they have been out killing it.  We have been operational now for 4 days and so far the sales have totalled over $1900.  We also have almost $2000 more in pending sales where people have said yes already.

With a 30% payout to the sales force, and a 20% cost for what we provide this looks like it will be a good deal for all of us.  I also feel that we are providing something that people really need.

More on this later, I have so much that I want to blog about but my time has really been limited.  The main factor is that about 10 days ago I injured my leg and it is very hard to sit at a computer for more than an hour or so, and when I do I usually focus on the most important work that needs to be done.  I am used to being on my PC about 10 hours a day and my recent average has only been 2 hours a day.   It is ok when I sit on a sofa but I simply don’t have a laptop I like right now, sold them all.

14 Choices

My Choices and Why.

You have the freedom of choice, you can choose who you do business with, where you shop and what you think and believe.  Every dollar you spend is a vote for the way that company does business, are you rewarding a company for having good prices or good policies.  The choice is yours.  The important part is the WHY, why do you choose to do these things.  It is very interesting to see what people pick and why they pick it.

Please post your what who and why on these following subjects.  If you pick more than one please state them.  Some are very important and some are trivial but will shine insight on how you think.

My Choice of Political Party (If none state why)
My Choice of Operating System
My Choice of Religion
My Choice of Grocery Store
My Choice of General Merchandise Store
My Choice of Vehicle
My Choice of Housing Type
My Choice of Primary Bank
My Choice of Brokerage Account
My Choice of Gas Station
My Choice of ISP
My Choice of TV Service (Bonus Entry)
My Choice of Wireless service
My Choice of Cell phone
My Choice of Drinking Water
My Choice of Browser (Bonus Entry)

If you fill this out and make a post with your answers please post a comment on the blog where this all started, at so that everyone can read it, if you don’t have a blog of your own then put your whole answer as a comment on that blog.  Simply copy and paste the above section to start your blog, then copy the subjects again and answer them.  Also use the tag “14 Choices”.

My Choice of Political Party (If none state why)
Republican.  I generally think that government should be smaller.  I think that the republican party still stands for smaller government.  Democrats stand for more services but more taxes, which is why people who need more services often vote democrat.  In general both parties mostly are the same on most issues.

My Choice of Operating System
I choose Windows Vista.  If you asked me a year ago it was Ubuntu, and before than windows xp.  The reason I use vista is because it is more stable than XP, able to run more things than XP, and simply works better than XP.  The reason I don’t use Ubuntu any longer is because I needed to be compatible with windows to run all the software I need for my business, and the games I like.  Too many things still did not run with Ubuntu, but as an OS for stability, and fun/ease of use Ubuntu was by far the best OS.  If I was making a computer to for office us and the internet I would go with Ubuntu for sure.

My Choice of Religion
I am a Christian. I have been my whole life, I grew up in it.  Mostly I still choose to be because I think it is the right choice for my life.  I think that it is true, and that Jesus actually did die for my sins.  It also gives a good way to live and a great community to be a part of.

My Choice of Grocery Store
This is complex for me, I choose different stores for different reasons.  I like a local store called LeeLee’s for asian food.  I also shop often at Fry’s (Owned by Kroger) for the sales, but the stuff that is not on sale is often too much money.  I also buy some items from walmart but often they are not a good deal on food.  My favorite store recently is Fresh and Easy.  They have great quality and they make home made meals you can just microwave, and if you use the coupons they always give out they really are cheap.

My Choice of General Merchandise Store
Well we find ourselves at Walmart at least 4 times a week.  The main reason is that they are only 200 yards away from our house.  I like target a bit more but they are simply too far, and they have too small of a food section, there is no super target near where I live.  Walmart seems to have at least 80% of the items I am looking for and usually at a good price.  They also usually have a good amount of stuff on clearance, I have noticed that prices change a lot there and there are a lot of things that are usually too much.

My Choice of Vehicle
The Vehicle I drive is a Pontaic Aztek.  It is an odd vehicle.  It is what is called a cross over.   I originally bought it because it had huge cargo space, good gas milage and it was high profile so I could see over all the cars out there.  I also really liked how unique it was and it was very comfortable for me to drive.  It has been, by far, the best vehicle I have ever owned, but it is getting older and I should replace it soon.

My Choice of Housing Type
I live in a nice large house, in the suburb of a Major US city.  I love close enough that I can go downtown is under 15 minutes yet far enough that it is nice and yuppie.  I bought a house larger than I needed so that I could rent rooms out if I wanted, and also have room for a large office and a workshop.  I don’t really care for houses too much because there is no community, no one here talks to each and I have only talked with my neighbors a few times.

My Choice of Primary Bank
My primary bank is really a Credit Union.  They are cheap, no fees and such, and they usually have no line or a very small line.  I also banks with Wells Fargo, US Bank and B of A just to have flexibility but none of them are my main bank.

My Choice of Brokerage Account
I have tried a few out there but I have stuck with eTrade for quite a while.  They have great software that gives you a ton of information.  Some other places out there have been advertising better prices for trade, and also have built great software tools so I may try them.

My Choice of Gas Station
By far I like QT (QuickTrip) the best.  They usually have good gas prices but the reason I like them is that their gas seems to work better in my Aztek.  I get better mileage when I use their fuel vs most other brands. I also really like their drinks, they have a ton of unique and very good drinks, including a Horchata shake, and a Hot Milk drink, both only $1.09 for a very large cup.

My Choice of ISP
Again the choice is clear, I choose Cox, they have the best service, best uptime and best prices.  Internet over Cable is always much better than DSL.

My Choice of TV Service
For this I also use Cox, they have a fairly good Digital Converter with a nice list of HD channels.  I have been looking into Dish Network recently, they have even more HD, and more channels for an even better price, the problem is that I have three other TV’s on analog that may not work, I will find out soon.

My Choice of Wireless service
I use T-mobile. They have far and wide coverage, great customer service and a plan that perfectly fits my lifestyle.  I have a family plan with 4 phones, that has unlimited texting, unlimited nights, unlimited weekends, unlimited in network calling, and each phone can pick their 5 favorites and call for free but the killer feature is that when I am near a hotspot (such as at home) my phone will connect using the Wi-Fi and all those minutes are free.  Because of so many free minutes I am on a plan with only 700 any time minutes, and we have never used more than 400 of them.  I get all of this for only $140 including taxes, and I have sub leased two of my phones for a total of $80 per month so my out of pocket cost is only $60 per month.   Quite nice.

My Choice of Cell phone
I have chosen the Samsung Katalyst, I have been a huge fan of Samsung phones for a few years now, they simply are much easier for me to understand.  I also love the slide feature, and the Wi-Fi compatibility that is a must for my service.  It has a nice crisp 2.1 inch screen, and has a great camera and a great music player with good sound.  Call quality and battery life is also excellent.

My Choice of Drinking Water
I choose Reverse Osmosis Water.  I like the clean taste.  I also like the fact that there is no fluoride in it.  I think fluoride is really a bad thing.  I get it from the local water store down the road and they charge only $1 for a 5 Gallon refill.  They have filters that are larger than my car and the taste is great.  I often fill up bottles with it and take it while I drive.

My Choice of Browser
I have chosen Firefox, it works great, and is much more stable than IE.  It also shows the websites better.  It has a ton of features I can set and generally work well.

Thanks for reading, be sure to post your answers also.

Freedom of speech and religion in the US.

I often post long comments on a variety of subjects on other blogs.  Today one of my good friends Matthew posted a very good blog entry.  (See the photo to the right, taken on one of the few days when I had more hair them him.)  Here is his blog entry, if you could read that first it will make mine more logical. I mostly agreed with him and the subject of business came up in my answer so I will repost my reply here for all my business readers.

I once heard a quote that one who believes in freedom of speech “Will defend someone who is yelling at the top of their lungs their ideals in a public place, ideals which you would yell at the top of your lungs to oppose.”  I have thought about this often.  We live in a nation where we should have freedom of speech, and even if that speech is against what I say and think I will support that freedom.

Now it comes to appropriateness of the time and place it is a whole different mater.  I think that there is a huge difference between public and private events.  I thought it was shameful for those few democratic protestors to sneak into the republic convention and protest during the peaks of the speeches.  It was NOT their place.  I also think that if someone goes through all the trouble and expense to put on a parade (Such as a famous church does each St Patricks day.) they own that parade and they should be able to pick and choose who is allowed to be in their parade, not forced to allow a group of Homosexual rights people to basically have a protest in the middle of the parade as a court recently forced them to do.  If the Gays want to have their own parade, I have no problem with that, they can pick a different time or place.   Also if a pastor wants to say something to his church about who to vote for, he should be allowed, unlike todays laws.

On Friday I went to the state fair, there were two different church groups who rented a space there, they decided that they would try to tell people about God.  I also have no problem with this, they used their money, and they were following the rules.  Now was this the best place, I think not, will they actually do any good for the Kingdom of God, maybe they will make a few people think.  For years I have thought that relationships were the best way to win people to Christ.  You simply invite them to events, show them the community and tell them the Gospel and let them decide.  But any decision that is forced is NOT lasting or sincere, and so many Christians like to force such decisions.

If you notice in the quote you have from Thomas Jefferson he says sect.  As you know this is a difference within the same religion.  He could not imagine that our nation would be anything but Christian.  He just did not want one denomination to be favored over another.

I do totally agree that we should not force our Christian ideals on non Christians as a form of law.  There are too many laws in our nation.  We are NOT a free nation.  Anyone who leaves for a year or more and comes back will tell you that.  There are others that are less free but also others that are far more free.

You also had the point of the “Merry Christmas” greeting.  I have found that it is used far less.  The other day I went to Costco they had two isles of “Christmas” stuff, so I decided to look really closely, there was not one item that was Christian based, and not one location did it say the word Christmas.  They are a business, they can choose what to put on their shelves, but me, as a Christian can choose where I will buy my decorations, and even if they have the best price it will NOT be from them.  Two years ago I heard that Macy’s decided to make bring back Christmas and in all of their ads they stopped all of the holiday stuff that others do and actually, to the shock of the left, mentioned Christmas.  And you know what, their sales went way up and they had their best season ever.  These are all private originations, they can choose what they want to say, they will be held accountable by the general public for what they do and say though.

To me the fundamental thing is that we have LOST the conversation in this nation.  People are divided and in most ways very close minded.  The force of the debate on both sides has caused people to become callous to the point that they are stuck in what they think.  A hard attack will just cause people to put the shields up and resist, only a slow, over time conversation based on logic will ever convert most people in this climate.  (This is for every issue, religious, political and even for choice of OS.)

The Mortgage Crisis in Plain English

Hello, my name is Jason Dragon.  You may be a long time reader of my blog, or like many people you may have found this simply by doing a search, if that is the case then welcome.  I plan for this blog entry to be one of the largest in scope of any entry that I have every done.  We are going to talk about the current Mortgage Crisis.  I will talk about it in 4 areas.

  1. The Boom
  2. The Bust
  3. The Current Situation
  4. The Way Forward

If you are wondering, I do have a degree in Business and I spent a lot of time studying economics. For a short time I even sold mortgages.  I will try to keep the text as simple as I can, I want you to not get bored and to read the entire things. Some of this will be my educated opinion, but most is simply fact.

The Boom

At the start of 2000 there was a bust in the stock market, millions of people pulled out a total of billions of dollars.  When 9/11 came they did so even more.  All of these people needed a place to put the money and the new trend was to put it into Real Estate, housing prices started to rise.  By 2003 and 2004 many real estate gurus arrived on the scene, showing common people how to make money in real estate.  It was a great time.  Prices were going up each month.

To add to this information, for the first time, was easy to get and compile.  It was easy to find a good deal on a house online, you could even find out the estimated value of your house or any other by going to sites like Zillow.  It was also easy to get a loan.  Because home values were expected to keep going up you could get a house for $150,000 and get 100% funding because by the time you get close to closing it was already worth $175,000.

The housing market was a great investment, it is one of the only investments that you can get almost total leverage in. Figure this, you buy a house for $150,000.  You only put $10,000 as your down payment, you get a tenant in the house and they pay for all the expenses giving you a zero cash flow but no expenses.  Now you sit, wait a year in this market and the price of the house goes up by 10%, BUT your return was not 10%, because the price goes up on the whole value of the home, not just your down payment.  You now have $25,000 equity in the house, a return of 150%.  This is the reason that investors flocked to houses, huge returns.

For many people, the more passive kind who usually invest in bonds and such this was way too risky for them, so they decided they would simply buy mortgage backed securities.  100’s of billions of dollars flew into these.  What these were was baskets of mortgages, and you could buy shares in this basket just like a stock, they had sold and predictable returns.  If you were used to getting 2% on your money in a CD or government bond, now you could get 5% on your money by buying one of these.  It was great for pension funds and foreign banks to sock away money because it had a higher yield and was still considered very safe.

The reason it was considered so safe was because of the very low default rate in mortgages caused by a booming housing market. Most people would simply sell their house for a nice profit before they went into foreclosure.  The investment banks reduced the risk even more by bunching 1000’s of mortgages together.  They would then break them up into different levels.  If there were any defaults the investors at the lowest level would be wiped out first, and the investors at the highest levels would still receive their full returns even if 20% of the mortgages defaulted.  It was a great system.  The investment banks bought up over a 100’s of billions of dollars worth of mortgages using this process, and they charges a hefty fee for all of it, making them some of the most profitable companies in the world.

For almost 70 years there was been a set of two companies, founded by the US government to facilitate the flow and resell of mortgages, these are Freddie Mac and Fanny Mae.  Basically these were huge companies that would buy mortgages from banks.  If a bank could not resell the mortgages they would need to get deposits to cover all the mortgages that they wrote and that would be nearly imposable.  About 92% of all mortgages are resold.  Freddie and Fanny purchased over half of them.  They would buy them from the bank, the price was set by the value of the house, Credit of the home owner, zip code of the house and a few other factors.

This created a great system for the banks.  They would sit there and advertise that they can get you a great deal on a mortgage, they would help you with all the paperwork, they would send your information to underwriting, where they would basically see what was needed to make your loan sell for the highest price to Freddie/Fanny.  They had some rules such as the first mortgage could only be 80% of the value of the house, or else the homeowner would need to buy PMI (Private Mortgage Insurance).  The bank would then take your entire mortgage packet and find out how much they could get.  On a $200,000 loan at 6% there is someone making $12,000 in interest every year.   The buyer of the mortgage would pay a premium for the loan, but they wanted to make sure they would get their money back.  So what the banks did was to get the home owner to sign a pre-payment penalty clause.  Basically this was a clause saying that the bank would get 2 years worth of interest from the customer, that the customer would still have to pay 2 years of interest even if they sold or refinance the house before 2 years was up.  So on that $200,000 mortgage at 6% interest the holder of the mortgage was guaranteed $24,000 in interest payments.  Because this $200,000 mortgage was really worth $224,000 for the first 2 years they would offer to buy it for $215,000 from the bank.  The bank where you got your mortgage made $15,000, paying some of that out as a commission to your mortgage broker.  They also usually would agree to service the loan, meaning they would send out statements and collect the money on behalf of those who owned the mortgage.  If a loan had a longer pre-payment penalty the bank would get more money, if they sold it for a higher interest rate they would also get more money.  The more income they could show for the client the more they would sell the loan for.  The interest of the bank and mortgage broker was to get as much from the client as they could so that the resell value would be as high as possible.  A few banks even started to lie about some of the details to drive up the price.

Mortgages were sold almost instantly.  This allowed banks to generate mortgages as fast as they could.  It was a great deal, get someone to come in and fill out some paperwork, show that paperwork to the mortgage buyer, get the buyer to agree to fund the deal and then you close on the whole deal and walk away with huge profits.  Do this a few times a day and a little office with a handful of people can make millions per year.  And that is exactly what happened. The banks had every incentive to get you into a mortgage, and they would do whatever was needed to do so.  It was easy to get a loan, even if you had no money to put into the deal, they simply would do a 20% second mortgages, or even if you really had no income, you could just do a stated income loan.  People were buying houses who could not pay for them.  Their main plan to pay as little as they could each month, and refinance when that 2 years was up and they would have a ton of money due to the value of the house going up.  It was a great system that worked for millions of people.

All of this easy money was causing housing prices to sky rocket.   I live in Phoenix Arizona and between 2003 and 2006 prices for most of the city doubled, people were bidding against each other in attempts to get houses, simply because the house was a good investment.

Where was this money coming from?  Well as I said much of it came from people who got out of the stock market, and needed a new place to keep their money, a large chunk came from foreign companies.  Remember we are buying at least 700 billion dollars more of stuff each year than we export.  So many nations, China, India, Saudi Arabia have billions of dollars that they need to invest somewhere.  They want us to keep buying to they make it easy for Americans to buy things on credit, then we buy more and they sell more.  It is a great spiral that put America in huge debt while at the same time sending millions of jobs all over the world.  The is the greatest transfer of wealth in the history of the world, but more on this in another blog.

The Bust

In mid to late 2006 the prices started to get very high, and there were signs of problems.  Some of these no money down investors who bought on stated income loans started to not pay their mortgages and the prices were not going up fast enough to still leave the buyer of the loan with a profit.  The buyers of these loans started to change their guidelines on who they would give money to, they started to make it harder.  This was a sign to many investors to start to sell, and the number of houses for sale started to go up.

Some of the hottest housing markets were Southern Ca, Phoenix Az, Vegas Nv , Atlanta Ga, and Miami, Fl.  These markets saw some of the largest gains, they were all nice warm places to live and people have been moving here for decades.  But they also had something else in common, they were all major places where Illegal immigrants would flock.  In late 2006 and early 2007 there was a huge national debate about Illegal Immigration,  and many of those here illegally owned houses but decided to simply leave, they dumped their houses, many others just borrowed as much as they could and walked away.  And the prices in these markets started to fall.

Once prices started to fall it changed all the numbers for the banks and the buyers of the mortgages.  If you get that same loan for $200,000 the buyers have more risk now, they don’t have a security of the house itself because the value will likely be less than $200,000 if the customer defaults.  So they said that they would only take the best and most qualified borrowers.  No more stated income loans, no more loans to people with sub-prime credit.  Suddenly most Americans could not qualify to buy a house.   All of these people were pushed out of the market, demand for houses plummeted, and when demand goes down price is soon to follow.

To make matters worse some of the Sub-Prime loans started to default.  Many were from investors who were upside down on the loan, they borrowed in a corporate name so there was no ill effects to them to simply walk away and give the house to the bank.  So thousands of them did just that, it was smart for them to do so.  The people who used the system the most were mostly the smartest and best at it, and when things started to go down they were the first to get out.

Most of these banks only put a 1-3% budget in for losses and some are getting much higher losses than that.  These foreclosed houses had to be sold so the banks simply dumped them on the market.  But banks are not in the business of selling houses, and they do a very poor job of selling houses.  They are risk adverse so they only want buyers who they feel will actually close the deal.  For the most part they sell the house as-is.  They do nothing to make the house look good and nothing to try to sell it.  For most buyers, buying a REO (Real Estate Owned)(Bank Owned) house is not appealing.  People with good credit who can buy a nice house want that house to be ready, and come with a warranty.  So these houses sat on the market for a while and the only choice for the banks was to keep slashing prices.  This was the main cause for housing prices to plummet.  This caused even more people to realize that they are upside down on their house and more of them simply walked away.  From the middle of 2007 until now this process has been happening, and it keeps getting worse.

These banks then saw their stock start to melt down.  Imagine a company that has 250 billion in mortgages but they owe 200 billion in debt on those mortgages, lets call them Mega Bank.  It was great for them in the boom time, they borrow money at 3% and loan it out at 7%, making 4% on 200 billion dollars, or 8 billion per year.  They had every inventive to do this as much as they could.  This company would have a value of 50 billion dollars or so in book value, the stock market almost always prices your stock well above book value so the Market Cap (The total value of all stock of the company) may be 100 billion or so.  With earnings of 10 billion or so it would be at a Price to Earnings ratio of 10, something that wall street loves to buy.   This company would be a star.  Now what happens if there is a ton of risk in the mortgages that the company owns, the company figures out that 5% of their loans are defaulting, but for one loan that is a total loss it wipes out the profits from 10 other loans.  So their accountants do figure out on average how much are all of the loans that they company owns worth.  If that number is lower than what they currently value the loans at they restate the value of these loans and do a write down of these impaired assets.  If you have 250 billion of loans on the books your accountants may feel that they are only worth 200 billion.  50 billions dollars, on paper, just disappeared.  Some companies bought insurance for such a thing to happen, the largest company that sold such insurance was AIG, they have as much as 300 billion dollars of insurance losses out there that may be paid.   So if you are Mega Bank the value of your company just went down by 50 billion dollars, but in reality all the rest of your assets you owe so your stock crashes, your market cap is no longer 100 billion but maybe more like 10 billion, or even 1 billion.  Investors on the stock market don’t know what to do, all they know is that they can’t value your stock.

The Current Situation

At the start of 2008 there were 5 major investment banks in the US, and three banks acting as mortgage clearing houses.  These were the banks that were selling mortgages to investors.  The investment banks took most of their profits by keeping some of the most high risk and high profit mortgages for themselves.   4 of the 5 investment banks saw huge losses, and all three mortgage clearing houses saw major losses.  1 of them went out of business, Indy Mac, they simply took so many losses that they could not pay depositors any longer.  Freddie Mac and Fanny Mae lost almost all of their stock value and had to be propped up by the government to stay alive.

Of the 5 investment banks Bear Sterns was the first to fall, they went from a 100 billion dollar company one week to being bought out by JP Morgan Chase for only 1.1billion the next.  The next to fall was Lehman Brothers.  They lost billions in sub-prime mortgages.  Their book value was negative.  They has a lot of really good assets though and tried to sell to a bank in Korea, but it did not work and in September of 2008 their stock went almost to zero.  They declared bankruptcy On Sept 13th, and are being sold in pieces to different companies, stock holders will probably get nothing.  On the same day the third Investment, Merrill Lynch was purchased by Bank of America for $50 billion.  Bank of America stock fell 15% that day because investors thought that they had over paid.   That only left two Investment banks,  Goldman Sachs and Morgan Stanley.  On September 22nd 2008 these two bank, under new government requirements converted to traditional banks.

None of this was helped by the hedge funds, these are basically large pools of money that often bet that something will fail.  These hedge funds helped drive the price down of many of the companies I wrote about today.  But many hedge funds also lost money on the mess.

The government has decided that for the most part they are going to bail out many of these companies, they are also considering a new govenment agency that will, for a short while, buy up this bad debt for pennies of the dollar, allowing the banks to write off these losses and move on.

During this whole time it has gotten harder and harder to get a loan, basically unless you put 30% down, have perfect credit and tons of income you are not getting a loan.  The government put in a program to help some home buyers which helped out a bit.

Even with all of this going on our economy is still fairly sound.  Employment levels have only gone down a bit, and many other parts of our economy are still stable.

The Way Forward

I have always been a free market guy, I think that the system works best when there is freedom to be successful and freedom to fail.  The government is really taking the failure and greed of these companies and helping them out.  They are doing this to save the normal people and the economy as a whole and to fix our broken mortgage system.  The government, and our President have seen how large this problem is and that they only way to fix it is a huge government bail out, and I AGREE with them.  The bail out will put stability into the system, it will prop up all the banks, and it will resolve the credit crisis allowing money to start flowing again.  They are looking at up to 1.5 TRILLION dollars in loans, and buy outs.

I think that we need to do this, if we don’t our economy is sunk, but this is NOT a progam that I think will cost the taxpayer any money, in fact I think it will make our government the highest profits that we have ever made.  Think of it this way, they are not just giving money away, they are going to be buying mortgages at the low of the market, the current talk is to buy them for 50-60 cents on the dollar.  If they do that they will set a low in the market, these mortgages are still backed by the actual real estate and the economy will turn around.  So one of three things will happen to each of these mortgages.  They will either get forclosed on and the government will sell off the house, most houses are still valued at over 60% of the value of the mortgage so they will still make a bit of money.  Option two is that later on they may sell back the mortgage for a profit, maybe 70-80 cents on the dollar.  The last thing that will happen to some of these loans is that the home owner may sell or refinance the house, and the government will get 100% of the value of the house, basically doubling their money.  I think that if the government does this that they will make at least a 20% profit on the money.  They are talking about buying 700 billion in mortgages, making them about $150 billion.

For AIG they are giving them a 2 year loan for $75 billion.  In the termns of the loan the government gets a 11.25% return each year AND they get stock options where they can buy 80% of the company at a very low price.  The company was worth over $200 billion last year.  If it goes back up to even 100 billion the government will make almost 80 billion from their stock options, and still make about $17 billion from the interest on the loan.  This bail out could make the government almost 100 billion dollars.  The owners of AIG see how much they will loose if the Government loans them the money so they are still looking for other lenders to help them out.

Almost everything that they are doing is set up in such a way, this whole bail out system as a whole, will probably cost out government nothing and make us at least half a TRILLION dollars in the next 2-3 years.  This could wipe out our deficit and radically change our government balance sheet.   It is not enought to totally wipe out our deficit but it will reduce it a lot.  If the economy really picks up so will taxes and the government has a good chance of being in the positive.  Of course this positive change will not happen until 2009 and if a democrat wins as president will probably say that it was them that made this change and that they are the reason that the government is suddenly so profitable, but we know the truth.

On a side note the President does very little to effect the economy.  Most of what is done is done by congress or the treasury department.  Also anything that the president does do takes 2-3 years before it really goes into effect.  Such as the losses in 2000 were not caused by Bush, he just took office.  All I know is that I would never vote for someone who thinks that raising taxes in a time like this is a good idea.

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