Monday, September 22, 2008

Bail? What happend to spending a night in jail?

Well, I couldn’t agree more, as much as I enjoy disagreeing and have a good debate. I just don’t quite see the need for a government bailout. The sensible banks, that loan money when it makes sense, are still doing well. While they may see a bit of a slow down for a time, these banks will not only survive this, but become stronger as the weak behemoth banks fall on the wayside. People will still have their jobs. They will still make their payments. They will still buy bread, and they will still pay for their cable.

Oh yes, there will be many that lose their jobs over this, and they may not find jobs in their chosen field right away, or ever. So what, There are millions of people working in fields they never dreamed of being in. For good or bad, they are doing it. They have said that this generation will work in 6 or 7 industries during their lifetime. Now they have one more down. The thing about Americans is that we survive. We thrive. For two hundred years we’ve met every challenge and come out stronger than before. To quote President Bill Clinton from a recent visit to the David Letterman show, “for two hundred years, everyone that has bet against America has lost.”

Investing and lending is a matter of risk. Every broker has heard at least a thousand times, there is risk in the market. Every investor should already know that their investments are at risk. Sometimes you win, today… you lose. There is a bull fighting adage I’ve heard, “Sometimes, the bull does not always lose.” Today the bullfighter loses. They should have seen it coming.

For years we’ve been hearing about the collapse of the housing market. Financial analysts said there would be a correction, translated ‘crash’, in the housing market. Did these big banks make any efforts to rebalance their books? Did they recognize that their investments were inflated time bombs and try to defuse them? If they have we’ve not yet heard about it. They had to see this coming for months or even years. Yet what did they do about it? Nothing that I’m aware of.

So how did these loans get made? Let’s take a moment and look at how this happened.

One loan at a time. Mortgage loan officers weren’t making loan decisions based on the customer’s ability to pay back the loan; they were make the loans based on whether or not they could sell the loans to someone else. Only they didn’t have to sell the individual loans, they loans were clumped together and sold in groups. This eliminated the responsibility of making a bad loan by preventing the buyers of these groups of loans from analyzing the quality of the loans individually. Throw in a few really good loans in with a batch of not so good loans, and the numbers as a whole look ok. It’s like the old hamburger trick. When hamburger has been sitting in the cooler for a couple of days and starts turning brown, the butcher will wrap it in some new hamburger and repackage it and people will think the whole lot is fresh. What happens to personal responsibility? It is gone.

The sad part of this is that the people who will inevitably pay if the government does not come through with a bail out are the baby boomers. They are the ones whose entire life savings is wrapped up in the markets and mutual funds. These “investments” take a dive and all of the sudden Wal-mart has a few thousand or million door greeters. Not that I’m cynical. But if the investment you planned on living off of is suddenly gone, you still have to eat, so out the door looking for a job you go.

Unfortunately, they’ve been told for years that they should put their money into the market in the form of a mutual fund of sorts. Not in particular, just put your money in the hands of someone you don’t even know the name of, and let them do what’s best for you. Removing you from the responsibility for your financial future, and leaving the guy who manages the fund without responsibility as well. Everyone is void of personally being responsible. If he performs too poorly he gets sacked, takes his paycheck and finds another fund to manage, while your money disappears with out a trace.

Yeah, that’s it. That’s the ticket. You give me your money. We’ll put it in a basket. You can pick which one. Then we’ll stand back and see what happens. What happens is some guy opens a hidden hole in the basket pulls all the money out while you are sent to get a cotton candy, and when you get back you find all your money is gone. "So sorry. Bad luck chap you picked the wrong basket. Care to take another stab at it? Just put the rest of your money in these baskets, and shake them all up. We’ll see if you can do better this time.” BAH! The chips are stacked against you, the game is rigged. The Carny always wins. The Barker knows that, but he’s not about to let you in on it, because he gets a cut of the take. Millions can’t see this coming and that is why there have been carnivals for centuries. The Carny always walks away with the money. If not they wouldn’t eat and they’d all die off.

To me this seems like a chapter out of a bad Ayn Rand novel. One that never got published. The bureaucrats have created a mess of the economy, using government money, so that they would have a reason to step in with more government money and take control. They make government backed/guaranteed home loans that make no sense. (Not even the mafia would make a loan like these.) Why would you make a loan that you can’t collect on? You wouldn’t unless there was some strategy behind it.

What is severely lacking here is personal responsibility. The people cry out for help, and instead of holding people responsible and letting them pay for their own bad decisions, the government will step in and take more control in the name of saving it’s people. It will further separate the rich from the poor, by taking a few of the rich and making them poor, as an example, and then taking the rest of the cost from the poor making their living situation even worse, all the while blaming the wealthy for the problems.

The main plot of Rand is that the Socialists running the government set out to make things go so bad for the poor that they cry out for help. Then they pit the poor against the rich, blaming the rich for the terrible circumstances and finally seize the assets of the rich in the name of helping the poor. What Ayn argues is that in doing so, they take away the very thing that will save the people. Thus the collapse of Capitalism and the rise of the new Socialist order. Everyone is happy, or miserable as it turns out, and the Elite few rule the world.

The problem I see here is that of a lack of personal responsibility. It is a parent paying the fine for the child. They child doesn’t have to pay for their misdeeds and therefore never learns the lesson. They are removed from personal responsibility, eventually they fail to believe that there are consequences for their actions.

It used to be that you could count on the Republican Party to be the party that advocated Personal Responsibility. Are they standing up for it now? NOPE. They are right in there singing the same songs as the Democrats, offering to Bail everyone out. I say let all of the bankers, mortgage lenders, stock brokers and stupid investors spend the night in jail. Make them roll doubles before they can get out and pass Go to get their $200.

Finally, since this is the season of Presidential Candidates, I would like to say something to all of you who think McCain is a Republican, You are a fool. He’s more of a socialist than President George W Bush. President Bush has done more for socialist causes than the last five Presidents. The problem for the Republicans is that McCain IS a renegade, and that’s why people like him. They like him because he isn’t beholden to any political party. In fact the Republican Party is beholden to him. If he fails, they lose miserably. If he wins they still lose. They lose; because he will negotiate a deal that he likes which will be two shades bluer than they can stand.

The good news is that he is a Renegade who gets things done. He crosses party lines. He puts together proposals and ropes both sides into agreeing to it, even though they don’t want to. The problem for both parties is that John McCain will hold everyone’s toes to the fire. I heard a recent quote, “If your toes are all that he is holding to the fire, you’re doing good.” He will tackle problems. I expect that if John McCain is the next president, you will see the return of the Bully pulpit. And if he is successful, we will see at least progress toward our problems if not resolution to some of them.

If you are an independent thinker, then I believe John McCain is your candidate. If you are a conservative, you are out of this race. We’ll see you again in four years. If you are a Socialist, who doesn’t want to see any progress on the issues that are really facing our country, but want your Party in power, then Barack Obama is your man.

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1 comment:

Jefferson Adams said...

It seems we weren't alone on this issue. The stock market may not have liked the failure of the bailout plan to pass the House, but I liked it.