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Friday, September 19, 2008

Back in the USSA

We, the U.S. of A. seem to be rapidly heading towards socialism. Our efficient, well-managed, totally ethical government in one week has taken majority ownership of the world's largest insurance conglomerate and the two largest mortgage lenders. We have added billions upon billions of potential debt, and no small measure of real current debt to our burden as taxpayers. Although I understand the reasoning behind all three moves, at a base level I abhor them. Free enterprise involves both reward and loss. It appears now that there is expected to be only reward in any investment. Risk is inherent in all speculation. In a free market (or as free as we historically have ever been) the potential reward was scaled in relationship to the degree of risk. Low return equalled low risk - think U.S. Savings Bonds or a passbook savings account. High return equalled high risk - think "junk bonds" or a venture capitalist providing start up dollars for an inventor. Mortgages have traditionally been a relatively safe haven for investment. Houses historically have risen in value over almost every decade versus the previous one. Therefore, even in default a lender could recoup a delinquent loan by repossession and selling of the property at a higher price than the loan was made for. With some careful vetting of applicants and weeding out those willing to "bite off more than they could chew", this system worked for decades, helping the American economy to become the envy of the world. Somewhere in the 60s bleeding hearts noticed that not every American had a home. The government under Johnson started requiring lenders that wished to participate in government sponsored loan programs to make loans to "marginal"(read - unqualified) applicants in lower income (read - ghetto) areas. These loans defaulted more often and when they did the properties did not/had not appreciated in value as much (if at all) as properties in more affluent areas. This caused lower returns on mortgages in general and more reserve dollars to have to be held by lenders that could have been used to make money (by lending it) for the companies versus just sitting or even worse, being spent to bail out bad loans. Ole Peanut Boy (aka Jimmy Carter) expanded the program even more. Aided by the civil rights "activists", it became mandatory for any lender to have a certain percent of their mortgage portfolio in "sub-prime" (read - bad debt, or loans that should have never been written) loans. Any mortgage writer that did not have enough "low-income" (read - unqualified) loans would be penalized by the government and chastised publically as racist by the civil rights people. The one "good" (read - scary) thing about this program was it started an unprecedented run up in the prices of homes. With prices constantly rising, this covered the inherent problem in the program of excessive defaults by providing a cushion when the houses were foreclosed on. With a ready body of new customers waiting in the wings for "sub-prime" loans, these homes could be rolled over to the next defaulter. This philosophy has continued and grown to a point that Jesse Jackson and his ilk will protest any builder or lender that does not arrange for a proper percentage of their homes to be "sold" (read - given) to people that otherwise would not be able to buy a home. As hard as it is for some to realize, some people are not fit for home ownership! The other problem in this system is the lenders themselves. With the run up in housing prices, they started seeing themselves in a no loose situation. If they could just write enough paper to enough qualified people their exposure to the marginal paper would be mitigated. This led to more and more loans being written for more and more houses. Competition began to get the "good" mortgage customers. Then came the speculators; investors that really did not want to live in the house (or in some cases - multiple houses) they were buying. They just wanted to buy them, hold them long enough for the price to rise and then sell them to the next in line. (a note here - I know the proper people would never read this blog - but to stop this all that has to be done is eliminated the mortgage interest tax deduction on any home not lived in by the tax filer at least 50% of the time. You could also "charge back" the deductions if the home was not held for at least five years or more. This would cause apoplectic gnashing of teeth from the real estate people and multiple home owners, but would have prevented a lot of what we are seeing now.) Lastly we had the "over achievers". These people wanted the latest "McMansion" without regard to the price. Getting a loan that was WAY over their ability to pay was OK as long as the value of the house was "guaranteed" to rise. Then you could refinance later with a higher base value and make it all right. People that should have qualified for a $200,000 loan were being written loans for $400,000 homes. Sometimes short-term mortgage paper was written with an adjustable rate mortgage to make the payments work, knowing the house would be sold or refinanced before the rate climbed to a reasonable level and the owner "blew up" in their ability to make it work. I have no sympathy for a person that took out a loan knowing they could not pay it unless they refinanced later with a more advantageous loan. The problem with these scenarios is analogous to water skiing. As long as the boat is going at a proper speed, a skier can ride the water. If the boat slows or the rope breaks, the skier sinks. Well even though our economy is the most prosperous in the world, sometimes the boat slows or even stops for gas. Our skiers sunk. Bottom line - people that make dumb, unwise, or risky financial decisions should pay when those decisions prove to be wrong. Lenders and politicians that allow the risky behavior should be jailed or penalized severely. Remember - THERE IS NO GOVERNMENT MONEY!! JUST YOUR TAX DOLLARS!! You bailed out the guy with the $500,000 mortgage and the management of AIG! Marx would be proud.

Sunday, September 14, 2008

Apocalypse by Lemmings

I have always known we are on the verge of anarchy and chaos. Just go to a grocery store in N.C.(or most other southern states) when the first snowflake is forecast. Bread is treated like true manna from heaven and milk is like liquid gold. People will fight to the death over a half-gallon. Don't even get me started on toilet paper - you would think it was made with $10 bills..("isn't Jackson snuggly soft today?") Chicken Little would be proud. Friday, with Hurricane Ike pounding the coast of Texas/Louisiana; someone, somewhere said - "gas will be going up!?!" The rallying cry started - "Gas will be going up $1 at noon" - "Gas will be $10 by Saturday" - "Aliens are probing our *SS" (sorry, I lost it a minute - that one is ALWAYS out there). I was told by many people Friday morning that they heard from someone that heard from someone that ate a bagel next to the CEO of Exxon that gas was going to go up $5 by dinner-time that very day! People were leaving work to get their tanks topped off. I asked one if they were out of gas and they said no they had almost a full tank, but they didn't want to take a chance. I had a little less than a half a tank, so I decided to not worry about it. I had brought my lunch with me, but needed a drink. So, I rode to the Sheetz gas station up the street to buy my customary Tub-O-Soda (you know the drinks that need a porter to get to the car - but that is another blog). When I got near I saw cars EVERYWHERE! It was after the magic hour of 12 noon, and gas was the same price as that morning, and as the day before; but people were in line to buy it. LOOONG lines! Work trucks, cars, boats (on trailers), SUVs, etc were all lined up like we were getting the hurricane. I parked across the street (didn't want to put my life in peril and make someone think I was cutting as I headed for a parking space) and went in. I got my garbage can of soda and when I got to the counter I was met by a guy with a name tag that identified him as a "Manager" (my shoes were older than him, but that is also another blog). I said something about them being busy and he said "You wouldn't believe it". I asked if they were told that morning that they were to raise prices that day. He said no, but the office had called a number of times wondering why they were pumping so much gas. (if you do not know Sheetz, they are based in Pennsylvania, and evidently the histeria did not get that far north that fast). They had told him to raise the price by ten cents (which they did while I was there) just to see if they could slow things down a bit. He told me at the rate they were going, they would be out of regular gas by the late afternoon and could not get a delivery until the next day (as they had just filled up the day before). He said "People are crazy! I don't understand it." He said they raise their prices when they get a wholesale increase, and none was announced. As I went back to the office, I saw two other gas stations (again with prices the same as earlier) with lines into the street. It was amazing. When I got back to the office, there was still that buzz in the air about prices being "at $5 in Charlotte" or "gas is at $4.89 on the north side of town". The people that had not fallen in with the earlier histeria, all went to fill up. I told them that the prices I saw were all the same except for Sheetz which had gone up a dime, and told them my story. As I was being watched with eyes wide with fear and desperation, I knew that the only words of my story that were heard were - "Sheetz" and "up". The gnashing of teeth was tremendous. As I left that day, I passed stations with lines still into the streets. I saw prices had gone up, most by ten or twenty cents, but a few to $4.00 or more (we started the day at about $3.55). The fear and panic was palpable. I turned on the radio and heard some guy with the N.C. independant gas retailers saying there was no problem with supply and prices were not going through the roof. When he finished, the announcer guy could only say "The lines are long, and some stations are already out of gas!". You could smell the fear through the airwaves. Lemmings are lucky, they go wild and get mass hysteria once - then it's over the edge and into the water. We have snowstorms to look forward to.

Tuesday, September 2, 2008

Memory Lane

I did not realize how long it had been since the last post - apologies. I forgot one got "eaten" by the internet one night in a hotel. I thought some more memories might be in order - "Give ya a quarter for a peek at those." Man if I had a dime for every time I heard that one. Another memorable summer was the one I spent with my uncle Pierce. He was a strange little man that was quite disagreeable. Of course some of that angst may have been from his job. Pierce was a chicken sexer. (yes, even in the age of computers, that is a real job - look it up) Pierce spent his eight working hours looking at chicken butts. Through some magic of prodding and observance he could tell if the chick was Al or Alice. This "talent" was of no use in the real world and made uncle Pierce a bit mean and cranky most of the time. (he also had a bad habit of taking babies and looking in their diapers - hey, thinking back on that - he was weird!) Not much happened that summer. There was not much I could do to help uncle Pierce in his job, so I just hung out. We were in a small town in Arkansas. There were millions more chickens in the county than people, so not a lot was going on. I caught lightening bugs, fished, threw rocks at stray dogs, etc. (all the cool small town Arkansas stuff). It was pretty bland. Until "that day". One day a man came into the chicken house with a shotgun. He started shooting. Uncle Pierce took two direct hits to the chest and died instantly along with about six hundred chicks. Wow, what a mess. We never did know why the guy did it as the six dobermans that lived behind the barn pretty much ate the guy. I took my unicycle and left Arkansas forever.