Category Archives: Politics

Is this the end of the credit markets again?

The world as we know it is over, unless something drastic happens in the next 24 hours or so.  For the entire history of our nation business has been the engine that has spurned our growth.  And the engine of big business has been the ability to raise and borrow money.  This has been done by selling bonds, basically chunks of debt.

This is how corporations work.  A corporation is a business owned by the stockholders.  Most companies sell stock to raise money to start out with, this is called an IPO.  But after a while if you keep selling stock you dilute the amount that each person owns.  It is basically like taking on more and more partners in your company, meaning you own less, and you control less, and these partners share in the profits.  So most companies find it much cheaper to borrow money by selling bonds.  These stakeholders do not share in the profits or any upside in the company, but they also are the last to be hurt by and failure in the business.  As the business operates they also accumulate other debts, to vendors and to employees.  If a company fails it is just like a small business that fails.  The owner equity is wiped out first, the assets are sold and the bond holders get paid first and in full, and then if there is any money left over the other debts are paid.  Only after all of this is paid does the owner get anything.

In the history of large American business many companies have gone bankrupt, and it has always worked this way.  Almost every time the stock is wiped out.  Some companies survive by getting bought out, others simply restructure and are able to get out with little pain.  But here is the big change.  In recent times the government has gotten involved in being the largest bond holder of many companies, but the government does not look our for the best interest of US the tax payers, they don’t mind taking a loss.

Supreme Court ChryslerSee a few weeks ago Chrysler declared bankruptcy, and their stock was wiped out.  The company basically had three large creditors; The Government, the Union for future pension and health insurance payment, and the bond holders.  Lucky for Chrysler they found a buyer in Fiat for 35% of their restructured company, the problem is that this buyer is only willing to pay much less than what the company actually owes.  The Government is not really looking to get their money back so they are willing to take a major loss, the problem is that the Government used TARP money to invest in Chrysler and that was illegal, but that is a mute point now, they are just rolling over.  But the problem is that the Government and Obama have decided that the BULK of the money should go to the Union, heck Unions are the ones that put democrats in office.  So the Government decided to write the plan in such a way to pay only 29% of debt owed on the 42.5 million of debt of the bond holders, the people who should be first in line.  While the unions are getting 55% ownership in the new company, and the federal government is getting 10%.  A group of the bond holders spoke up and rightly said that they were not being treated right, that they should be first in line, not last.  The one Justice of the Supreme Court of the US saw it this way also and decided to stop the sale to Fiat under this current plan.   A huge amount of pressure came from the White House to allow the Fiat sale to go on, and the Court caved today and let it go on.

Now what this does is it creates a terrible precedent in US law that bond holders are no longer first.  This means that the people who invest get in bonds get none of the upside and much more of the downside risk, all for very little return.  This move will freeze the bond markets even more, in a time that we need them very much.  This also sets up the precedent for when GM finally gets done with their restructure.  The correct thing to do would be to wipe out the Unions.  These unions are the root cause for the failure of these companies.  Line workers start at more than $70 per hour in pay and benefits, many with tenure make well over $100 per hour.  And then they retire with a huge pension and a huge health care bill.   With such a high labor cost the average vehicle made by GM had over $7,000 in labor cost.  Newer, non-union plants owned by Nissan, Toyota and such have average labor costs per vehicle under $1,500.   So if GM wanted to make a vehicle for a cost of $20k (Sales price much higher), they would have much less money to work with to buy materials and make profits, in fact they have not made profits for many years, and now pay thousands per vehicle to cover their debt.  So if you spend only half that as your competition on the parts going into your product then your product can not be as good for the same price.  So during the 80’s and 90’s they just built a lower quality car, and recently they started building a much higher quality car, but at a much higher price.  In both situations it caused a steady march of customers away from these companies, and a vast loss in market share, making it even harder to do business.  The unions were like a boa constrictor, killing the company by squeezing tighter and tighter, but the Obama plan for GM is to give the unions over 90% of what they were promised, and they have taken no real concessions, not even a payout.  While the Government is willing to take only 60% of what GM owes the tax payers, and what about the bond holders.  Well they are going to get somewhere between 19% and 29% of what they are owed.  This is crazy really.  But this is payback to the unions for supporting the democrats, and a step into the much more socialist America that we find ourselves in.
If secured creditors keep loosing their rights then our capital markets will simply fall apart.  I was getting hopeful about our economy recently but this will really put a crimp on things.  It also does that help that the federal government needs to issue over $100 billion in bonds each month just to stay afloat with all the spending that is going on.  How much longer will people keep trusting in these bonds, when you see interest rates start to go up you will know that the trust is fading, and when that happens there will be even more trouble for us.

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Please don't send out stimulus checks…

The entire point of giving people money in the form of a stimulus is to get them to spend the money and actually stimulate the economy.  Many people have argued against the idea of giving people a stimulus check simply because most of the money will just be saved or used to pay down debt, things that don’t stimulate the economy.

I am not sure that having the government give away money is the best solution but it is what the current powers like.  So what is there was a way to basically force people to spend the money, I think that would work much better.  For all of the various stimulation that is planned it adds up to over $10,000 for every household in the US.  They mostly gave it to banks, and these banks did what was in their best interest, they saved it.  The government is trying to figure out a way to force the banks to lend out any new money they receive.  I predict that this will also fail.

The government knows it needs to spend money to stimulate the economy.  I think that this is correct.  They are planning on spending some money on some infrastructure projects, that is nice but not enough.  So they have the option of giving money to the banks or mailing out check.  Both options will not have a large effect.  So here is my idea.  DON’T give people check, and DON’T give the money to the banks.  Just simply change the format of the money, send out the stimulus in the form of Debit Cards.  This means that they have to spend the money, they can’t use the card to pay off their debts, they can’t save it because it will expire in 120 days.  Also the money will not go the massive hidden black market, they won’t gamble with it, they won’t spend it on drugs.  They will buy stuff with it.  This helps the legit businesses stay afloat, and they will pay taxes on the sales and profits.

This idea even has more benfitial effects.  First people with out bank account will be able to use it with out having to go to a check cashing store.  It also allows the government to track where the spending goes.

This is not a new idea.  I first heard about it because of a story about the stimulus in Hong Kong, they used this method and it wored really well.  After writing half of this blog I did a search for it and found out that Glenn Beck on CNN also talked about.  Even FEMA used debit cards to help the katrina evacuees.

Of course people may spend it on stupid things.  And I am sure some landlords will quickly figure out how to collect rent from a debit card, and of course some people will simply pay 3% and transfer the money to their PayPal account and then transfer it back to their checking account and use the cash, but the majority of people will simply spend it normally.

So the bottom line, is if we must be sending money out in bulk to the population then this is the best way to do it.  I still think that this is not an effective stimulus and really should not be done

The Auto Bailout…….my idea

Well they have been talking for a while about trying to save the auto industry.  The problem is that people just stopped buying cars for obvious reasons, no money/no credit/focus on more important things.

The car companies are very far in debt, this is from loosing money for decades, mostly due to high legacy cost.  This means that they are paying billions each year to pay for health insurance and give money to people who no longer even work for the company.  They also pay more for the ones that work there.  All of this make is very hard for them to compete

Basically it all came down to the Unions, and they know that if they wait they will not need to give up nearly as much.  The car companies will be more desperate and they will have more friends in Washington come January.

So what is my idea.  Well the problem is not enough sales, so lets just fix that problem.   Give people “down-payment” assistance from the government.  Say $4,000 if you, your company or your local government buys a new car from the big three by the end of March or so.   And also get the government to buy cars, lots of them.  They could use them for police work, give them to cities that need them and give them to charities that need them.   If you put $4 billion, into the first plan that would move 1 million vehicles, resulting in about 30 billion of sales for the industry, reducing inventory and solving their main problem.  If the government purchased another $10 billion in vehicles, of course only from the big three, and divided up by 2007 market share, it would basically solve their crisis for the time being.  There would not be any messy loan that would not be repaid, and the government would solve this problem while getting something of value out of it.

The next step to help cut costs is to have the government make labor come to the table and renegotiate terms so that they are more like Toyota, Nissan or Honda, so that our big three can compete.  If we could to that and cut these costs we could save this thing.

Tell me what you think…please comment.

The SOLUTION to the mortgage mess!

The other day I was watching the nightly local news like I usually do and they said that the city I work in was just given over 6.5 million dollars from the Federal Government that is earmarked to help stop foreclosure in the city.  This is a city of 400,000 and is in Arizona, the state with the third most foreclosures.  I figure the city of Glendale has had a bit under 1000 foreclosures this year.   (Yes we were the city that hosted the Super Bowl this year, if you were wondering.)  The thing that made this meeting pop out to the local media was the fact that the city council had NO idea what to do with the money so they were asking the General public to think of ideas and to go to the council meeting on Nov 25 to present their ideas.

For me this was a challenge.  I have been thinking about this for a long time, now there is a forum where I can actually be heard.  Very cool.  So I have been thinking about it for a week or so now, I will write down in this blog all of my ideas.

The federal government has mostly been focusing on the banks and helping them by buying bad loans or doing other things that really have not worked much so far.  For all this effort they have spent billions and the rate of foreclosure is still going up.  Some banks have stopped putting many clients info foreclosure simply because they can not afford the write downs.  The best hope of stopping it is really focusing on the people who are going into foreclosure.

Foreclosure happens for two main reasons.  The first reason is that a house is too far upside down, and the owner simply makes a business decision and walks away, willing to let the bank take the loss because then he does not have to. Many of the houses that fit into this reason are owned by investors who simply are making a business decision that is hurting all of us. There is little we can do in these cases, for these people it is simply a numbers game.  The best thing we can do is find a way to help this person sell this house through a short sale.  The best buyer may be the tenant that is currently living in the house.  As a city we could help these tenants with their down payment and get the bank to lower the amount of the loan enough so that their new payment will be the same or lower than what they have been paying in rent.

The second main reason for foreclosure is because the payments are more than the home owner can afford, this is either because the payments went up or the income went down.  There has been a lot of focus on loans that have “Adjusted” and spiked to a much higher payment amount, but only about half of foreclosures are this type.  In many cases the home owner has had a change in income from a business failure or job loss and can not afford the payments at this time.  Remember it only takes 90 days of missed payments to be put into foreclosure but it takes much longer to replace a job or a business.

So what is the solution?  It is in everyone’s best interest to avoid the foreclosure process and banks are very willing to work with customers that ask for help.  The best way to help people is to help them take action and to give them the tools to help themselves out of the situation.  I would propose that some of the money would be set aside to create an office where people can come to and help writing a hardship letter to their lender, this office would also give advise.  There would also be a city website where this information could be accessed.  This office could also hold seminars for the public and market these events.  All of this should cost well less than $250k per year to run.  Once a hardship letter is written most banks will apply 3 months of payments to the account and simply move them to the end of the term.  Also many banks are also willing to lower interest rates, reduce payment amounts and even reduce the total outstanding balance.  By writing these letters alone it could stop as much as 50% of the foreclosure in the city.

But then we need to go a step farther, I would propose that once the hardship letter is submitted that the city would help would help these people get a loan.  Most of these home owners are good hard working people and they will find a way out of their situation soon by either starting a new business, getting a job, or solving their problem another way.  By the time people pay late on their house they usually have already paid late on everything else and in our current system that means they can not get a loan to save their house.  Miss a few credit card payments, or a car payment, then get a bit behind on your mortgage the only loan you can get it either a short term payday loan or a credit card for $500 at 24% interest, and both of these help little to stop foreclosure.  The loan that these people need would be a line of credit that is easy to qualify for, has good terms and is long term so that they don’t need to worry much about it until after they have fixed their problems.  In most cases a loan in the amount of 10-15k would be enough to ensure that that household would not go into foreclosure.

Of course the City is not in the business of giving loans to its citizens.  But financial institutions are not willing to give loans to these people who need them the most because of lack of credit or income.  The solution is a guarantee by the city to pay these loans.  I think that the best idea would be to select one financial institution, that already has at least two offices in our city.  I would also go a step further and look for a locally owned institution.  It should also be a credit union because these non-profits give back to the community more than out of state banks do.  You then deposit $5,000,000 of the funds into a CD at the financial institution and make that the guarantee for the loans.  With long term, loans that are fairly easy to pay back the defaults could be quite low, well under 20%, and the financial institution could loan out 15 or even 25 million dollars and still not loose a penny on these loans because the first losses will be taken from the $5,000,000.  The financial institution also stands to gain because they will only have to pay 1-2% interest on the $5,000,000 but will receive 9% interest on the loans.  This interest will allow them to pay for the marketing and administration of the program while making a fair profit.  You should select the financial institution based upon the criteria above but mostly on how much they are willing to lend out to Glendale citizens once this $5 million security is in place. Most any financial institution would be willing to write 20 million or more in loans based on a government guarantee of covering the first 5 million in losses.

So who should qualify for a loan? If we give out loans to the wrong people it will not be as effective.  Well the plan is to stop foreclosure in Glendale so they first would need to be a homeowner of a house located in Glendale.  Next they should actually live in the house, investors should simply do a short sell and give the house to the tenants.  Next they should be people who are at risk of default, people who are at least 60 days past due on their mortgage.  They also should be people who can not afford their payments, people with payments more than 40% of their household income.  Right now there are probably less than 2000 home owners in the city who meet all of these requirements, and if they all received loans for $10,000 it would total only $20 million.  There should be no check of credit history or income sources.  A credit check could be done but only used to establish that they are using a valid SSN and that they live in Glendale.

So what should the rules regarding this loan be? We should create a system that helps people stay in their house so this is what I suggest.  The loan can only be used for making mortgage payments, homeowners insurance payments, property tax payments, and to cover electrical bills and city service bills.  When the loan is originated the homeowner would provide a list of these companies.  Money can only be withdrawn by going to the financial institution and getting a cashiers check directly payable the company, or by using the financial institutions bill pay service.  The loan would be a line of credit with a set limit.  People could choose to pay down the loan at any time and even pay it off.   For the first 3 months there would be no payments required.  After that and for the first 3 years a payment of only 2% (Or $25, whatever is more) would be required.  After that the customer must pay 4% (Or $50 whatever is more) each month until it is paid off.  The homeowner would only be able to withdrawal for the first 2 years under this program.  Using this system all loans that are paid on time will be paid off in under 8 years from the date withdraws stop.  These loans would also have a clause that if the house is sold or refinanced some time in the future these loans would be paid off in full from that sale.  If a payment is made late there will only be a late payment fee equal to 10% of the missed payment amount or $10 whatever is more.  The customer would then have to make up this payment by paying extra on the next two months.  In the case of the first mortgage still going into foreclosure in the future this loan would be paid by the security (The $5,000,000).  If there are any clients who are more than 90 days past due then the minimum payments for these accounts will be paid for by the security until the homeowner starts paying again or until the loan is paid off.   The security would still retain the right to collect funds from any future refinance or sale of the property.  An added benefit for the homeowner would be the reporting of this larger loan on their credit reports, for most of them this could be the largest non mortgage they have and if they pay on time could give them a needed boost.

With such a system it will be easy for the financial institution to manage, easy for the client to get a remedy to their problem and it would be the best use of the governments money to help as many people as possible avoid foreclosure.  After 10 years the program will be over and there is a very good chance that the city will still have much of the $5 million left, allowing other programs to be done at that time.  This system will help between 1,500 and 2,500 household, a number higher than the amount of foreclosures in the past year, putting a stop to most avoidable foreclosures.  This is a total win win situation, the city win, the home owners win and even the financial institutions win with lower foreclosure rates and for our partner institution new customers and income from the loans.  We also must act fast because every day the situation is getting worse and our fix should not be kept on hold.


Is it ok to steal?

I own a computer store.  It is fairly small and not so profitable recently.  In fact as our products have turned into a commodity it is very hard to make money any longer.  But there are other places that sell computers, CostCo, Dell, Best Buy. These companies are big, they make tons of money and are very rich.  They have tons of extra inventory just sitting there on their shelves.  Now if I went out and decided to take some of that inventory from their store and put it on my shelves, it would help my employees keep their jobs, it would help my store make more money this month and it would be totally illegal and immoral.  It is there stuff, I have no right to it.

But this is exactly what our government does but on a much grander scale.  In fact if you are the big store, and you don’t them steal from you Joe Biden calls you unPatriotic.  Yea if you are one of the people who will benifit from this plan I can see how you may support the Obama/Biden plan of taking more from the people who really make this economy work and giving it to the people who are middle class, or even those who choose not to work.

If you have any ethics you must see that this is simply another form of theft, the problem is that we have lived with it for about 63 years and people have become so used to it that they have become dependant on it.  If you make more than 120k per you, or maybe even less you should expect your taxes to quickly go up.  Obama says 250k in many speaches, 200k during his infomercial, and biden said 150k a few times last week, but now other written items from they say 120k.  Once he takes office, if he wins, I think it will quick drop to 100k or 75k.

On a side note Bush made some tempoary tax cuts that were fairly large and they expire in 2010.  When Obama says that he will not raise taxes to the middle and lower class he simply means that he will not add any new taxes BUT he is fully intending for the Bush tax cuts to be allowed to expire, in effect raising taxes, but HE did not do it….it has long been set in motion.   This slick concept is not caught by most people.

Social Security is the worst kind of theft.  It is a huge program that simply will NOT keep working much longer.  Basically you have a shrinking group of hard working young people who are mostly working pay check to pay check hardly getting by.  Then you have a growning group of older people who have had 40 years of high income earning, they mostly own a house and they have on average 10 times the assests of the first group.  Who should give who money.   Well, you guessed it, our government has it backwards, the hard working poorer working people give their money to the retired people who sit around and lead a life of leasure for the most part.  The worst part is that they feel entitled to this life because that is what they have been told for decades, it is illogical and is the main cause to our problems but there is little that can be done to fix it.

The Election is Close, the world is on pause.

I have noticed that the last two weeks have really been slow.  I have talked to many other people who are in business and they are all slow.  Basically everyone is focused on the election.  I think that many people are also just waiting to see what happens.

I saw that on TV Gun sales are up 3 fold in Texas, simply because people belive that if Obama wins that he will quickly try to put restrictions on guns and the prices will skyrocket.  I also feel personally that if Obama wins we will see one of the largest sale offs in the stock market ever.  People who bought stock long ago and still have a gain will sell now to pay the current capital gains tax because who knows how high it will be when 2009 starts.  I think that at least 1000 point of the decline is due to this pressure.

At this point there is a lot of momentium going towards McCain but I think that it may be too late.  I do think that the election will be closer than anyone thinks.  I still hope, for our nations sake that McCain gets elected but in the history of our nation when the economy is bad the Party that is office looses.  For McCain it is like getting down to the river and you are holding an gut shot straight draw, while the other guy already has a made hand, McCain really needs to get lucky to pull this one out.

Back when the depression started Hoover was in Office, everything that caused the depression happened before he got there, but it hit.  He was the first highly successful business person that was president and he did a lot to get our nation back on track, but they still kicked him out, and replaced him with FDR, a guy who could not even walk by himself and knew almost nothing about economics.

McCain knows MUCH more than Obama about how to fix this nation, and about the economy.  But it does not matter, many of the voters don’t care who is more qualified, they simply want to elect something different.  Of all the republicans in that ran McCain was the MOST liked by the left, until this year when it started to become clear he was the choice of the republicans, they then started to find reasons to not like him.

I take comfort in the knowledge that no matter who wins the president will have the power to do very little.  If Obama wins the election his hands will be tied during his term and there is little chance that even a small amount of what he wants to be done will be done.  You can’t roll out huge tax cuts, huge new programs and still balance the budget, expecally in a down turned economy.  No one can.  If he gets elected this will be the years we will all look back to where our contry really goes down the wrong path.  The only solution is smaller government, and Obama does not want our government to be smaller, he wants it to be much larger.  To control much more, to be taking your freedoms all over the place, and to be stealing your hard earned money to give it to someone else.

Go vote, and when you do think about who you are voting for.  Just that person and what they want to do.  Do you want freedom or do you want big government?

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.

Thanks for reading, if you liked this blog entry, please leave a comment, I read all of them, and also please subscribe, you will then get all the nice future entries that I make.  Thanks.

Obama doing something that hurts us badly.

I usually don’t talk politics on this blog because this is a business blog,  but Obama did something that for me is unexcuseable.  The main stream media is not talking about it because if people on the left knew about this there would be outrage from manyand they want Obama to win.  But the media in the middle east is talking about it .  I also found it in the NY Post and I first heard about it on Fox News

I think that every American should hear about this.  It is on the verge of treason.  Basically here is the gist of the story.  Obama went to Iraq on his tour there.  During a meeting with the Iraqi Foreign Minister Hoshyar Zebari he basically presented himself as sure to be the next president.  He then went further to tell the Iraqi leader to NOT make a deal with the Bush adminisration and to wait until the election is over.  The reason he did this is clear, the Iraq war is almost over and if it ended or if there was a major event that was the sign of the end many people would not Vote for Obama.  Getting us out of the war is one of his main positions and if the war was over they may not support him.  

I think that this may be the first time in US history that a presidential candidate under minded the state departments policies by going to a foreign nation and counterdicting the current government.

If you read about it anywhere, you will find that the source of the story is the Iraqi Minister himself.  This delay would add at least 6 months to the war. At the current rate that would cost us about 70 billion dollars and about 70 American lives, all this for one man to be elected.  What ego.

Please click on the links to the news story above,  or do a search for “delay iraq obama” and make up you own mind.