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Do you know what a Balikbayan Box is?

Do you want to do something good for someone today?  Let me tell you about how you can help.  First let me tell you a story.

For many different reasons the Philippines, is very poor in general.  It is a country of over 80 million people, in an area smaller than the state of Arizona.  About 2-3% of the people are what you would call rich, and another 10% or so would be middle class, leaving over 85% that are poor.  It is not the type of poor that we see here in the US, this is real poverty.  Not knowing where your next meal will come from, not owning any new clothes.  Less than 10% of the population owns a car, only about 20% own a computer.  Millions live in large “squatter” towns which are little more that lumber and some tarps.  Families of 8 or more live in 200 square foot cement shells with a tin roof, and they feel luck to have that.

In most countries people go to school and get educated so that they can do better for their nation, but in the Philippines people go to school so that they can leave and lead a better life in other countries.  Over 4 million people, born in the Philippines, now live and work in the US (Read the source), of these over 80% have become US Citizens.  Across the globe over 20M have left.  But the Filipinos are very hard workers, you need to be just to survive there.  So in the US they are one of the richest groups of immigrants.  Because so many Filipinos earn large amounts of money, and they want to support their families back home they send record amounts of money back home.  The Philippines receives the 4th largest total amount of money, from friends and family abroad.  In 2010 it was 21.3 Billion Dollars, contributing 13.2% of their 161.2 Billion Dollar GDP.

In addition to money they send things.  There are companies all over the world that take boxes, load them on pallets, then load then on cargo containers and ship them to the Philippines where they deliver them directly to the receiver.  These are called Balikbayan boxes.  (The word is Tagalog for “Return Home”.)  These boxes are a blessing to these people who just can’t get ahead in life.  They usually are about 6 cubic feet and can be an unlimited weight, and door to door is about $75, but it takes about 6 weeks.  We like to include clothes, shoes, shampoo and soap, candy, school supplies and such.  Many of these things can be bought on sale here in the US for very cheap, our current box has over $900 worth of stuff, but because most was bought on major clearance sales or back to school sales, or using extreme couponing, we have only spent about $220.

If you would like to help some very deserving people in the Philippines have the basics to live then please consider helping me send more boxes.  We already have one box paid for and almost ready to go, but we would like to send a second box.  I am asking my social networking extended family to help us provide more by donating to us on paypal. Just click here and donate any amount you would like.   The main family we are helping this year lives in a 12×12 foot slat wood “house”, which used to be a chicken coop, with 2 adults and 7 kids, they have a small tin roof that has large holes, and they don’t have very much when it comes to clothes, furniture or anything else.  Because the walls are just slats of wood they have no privacy, and they put up a few sheets to try to gain some.  For each $200 we receive we will send one box.  I know that a lot of my friends could easily send $10 or $20 to help out.

If you donate to me to help send these boxes it is NOT tax deductible.  If you would like to directly send money to help out people in the Philippines and you would like it to be tax deductible please donate to Extreme Mercy International.  Matthew, the one who runs it is a friend, heck I even built their blog/website.  They do a radio show and have an outreach Refuge Youth Center where they hold church services.  You even can set up automatic monthly payments.

The story of freedom and I

So why do I do this.   Why do I want to be in the tea party and why am I involved politically.  Why did I take time and money away from my family for office.  I think it all really boils down to one principle.  Freedom.

When I was growing up I was told time and time again that we live in a free country.  I went to private school and I was not there to be indoctrinated by the public school system.  By the time I was in high school it was too late for me.  I was already a staunch conservative.  I remember during high school staying up late each night to catch the Rush Limbaugh show.  I grew up living a fairly free life, a life with few rules, but I had morals so I did not stray away from the proper path.

I went to the business school at NAU, and in business school they teach you to be creative and to be a business leader, they teach you that the world is yours if you just go out and grab it.  The funny thing is that in the management track of business school they never tell you about the Government and how they control business, how the restrict business.  I graduated and was eager to start being an Entrepreneur, start my own business and get the success that I was promised, and right away I was hit with Government.  Many pages of paperwork needed to be filled out and many different government offices.  And along with this paper came so many rules that they offered free classes on how to follow all of their rules.  I ran across a few rules when I was in school about running a business out of my dorm room but now I needed to file reports each month to 3 different government offices telling them about all of my sales, if I paid someone to do something for me then it was much more paperwork, all in this free country.

After a while I moved to Phoenix, and my business got larger and larger, I rented a store and started hiring people.  Soon the paperwork was so much that I started to just ignore it all, believing I lived in a free country I figured that the Government was not entitled to this information.  I still got larger, opened up a second store, and even had a huge area at the state fair.  And for this success I was rewarded by being audited.  Nothing much ever came of it but it shocked me at how much control our government has over us.  That you must do what they say, no matter how stupid or unproductive, or else they could eventually go so far as take away your freedom. All just for doing nothing more than seeking your happiness by offering a service that people want and giving people jobs, without letting the government be your business partner.

After all of this I was just depressed by it, burned out I sold my business and move on.  I had a friend who invited me to see the world with him so I did and left the united states.  Soon I was in the Philippines, and I saw a level of freedom that surprised me.  They have the freedom to do what they want to be successful with limited influence from the government.  The government is very weak there, with most of the power in local government not federal.   With the freedom to have success they also had the freedom to fail, and many more failed than succeeded.  It was not total freedom, there was still some fairly major places that the government made it hard, but at least you knew all of the rules, they were simple, and mostly fair.

Photo I took in Hong Kong

Then I went to Hong Kong, you know, the former British enclave that is now owned by China, and for the first time I saw what I would call real freedom.  Success was everywhere, I never seen a place with so many nice cars and buildings.  By almost any measure it is the most successful city in the world, and they did it by making business easy.

I came back the US, and by that time the business I built was gone, so I decided to rebuild it, it was the easiest thing I could do to earn a living.  I started to educate myself more on Freedom, and what makes a culture flourish.  I quickly came to the conclusion that we have lost our freedom.  I became active trying to talk to people and try to wake them up to this fact that we don’t have freedom in the United States.  I watched the presidential race with passion, and I was always telling people who I would vote for.  I was very unhappy with the person that my party chose, but after seeing the other guy I was very afraid for our nation as to what would happen if he won.  I spent months talking about it and telling everyone I could of the dangers that our nation was facing.  The people then chose the worst of the two of them.  Who would blame them, it was able bodied, charismatic and most people never really knew where he stood.

Joe and I at a tea party meeting.....
Joe and I at a tea party meeting.....

Soon after this I was shocked at the direction he and his congress were taking the nation and I decided to become very active with the Republican party.  I was really inspired by Glenn Beck and I educated myself on the real history of this nation and about all the freedoms we once enjoyed. After a while the tea parties started up and I quickly joined them also.  And a bit later I found out that I could run in 2010 for city council in Peoria.  I figured that it was time for someone with my views to be able to win.  What I did not count on was an unemployed, charismatic and much more liberal opponent who would use my non compliance with our unconstitutional and overbearing government against me.  It was a very close race, and we actually technically tied the first time and had to run a second time.  I had 100’s of people telling me I was on the right track, and that I was just what was needed for this time.  My opponent took huge amounts of money from special interest groups and unions and was able to spend twice as much money attacking me as I spent on the entire race, by the end of it he spent over 20k to my 3.5k, and he won by a few hundred votes.  The unions and special interest groups bought him the seat, and I wonder who he will owe when he takes it.

I was depressed about this and how I felt that it was so unfair.  For all my work trying to make the city a better place I was rewarded a week later with an audit of my business by the city.  This made me almost lose hope in the system, there is no fairness in our government.  At least the guy at the city who was auditing me was nice and said he did not like this audit and would make it very easy on me.  It really made me feel bad about the future of our nation, that even if you stand up and try to do the right thing there are more people trying to preserve the status quo, and block you.

The Governor and I

I decided that I needed to keep trying but on a much different level.  It will be very hard to change government, and I don’t see that we can go down this path much longer.  I decided that now is the time to talk to people about how to prepare for the future that is likely to come.   A week later the chance game, the leader of my tea party group got a job in a different state, and basically it was up to me to lead the group or the group would be disbanded because no one else would take the role. I took it, I am excited by what will happen.  I also decided to change my business and actually develop some ideas that I feel are really good.  And I decided to focus on services so that I don’t have to deal with any future sales tax audits.

From here I think the future for me is bright.  I have a great skill set, great connections and even if everything falls apart I am confident that my family and I will be able to endure it, even if we have to move back to the Philippines.

The rebirth…

Jason Dragon in front of the Capital

For about 2 years I have been blogging.  At first it was really fun and exciting.  But as time went on I started to feel more and more confined by my subject matter.  It was a business blog, but I wanted to have a nice and in depth look at business.  I soon started making each entry very long and very in depth and it became much more like work and less fun.  Back in August I helped someone else create a blog, but I did the mistake of doing it with my account on wordpress.  They did some things on their blog that made the people at wordpress unhappy.  So they shut down all of my blogs.  This one, the ones for a few of my clients and even my wholesale computer blog.  I quickly got this one back up and running, and re-branded it “The Biz Guy”  But then I decided to take a break from blogging for a bit, relax and come back with something fresh.

The break is over, and I am back.  I have tons of fresh ideas, fresh content and I would really like to you subscribe to my blog.  I will strive to create something interesting a few times a day.  I have also decided to be much more real.  Before I often tried to be politically neutral, and neutral on many different controversial topics, and that HAS ENDED.  You will get my opinion, how ever wrong you may think it is.  I will point out the idiots and the business blunders as I see them.  Everything will still be written from the perspective of me, an entrepreneur, an über geek, a Christian, a right-wing constitutionalist, a world trailer, an avid reader, and a patriot.   Hang on it will be a fun ride.  Subscribe by clicking a link up there in the top right.

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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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