Are we a little confused?

Of course no one reading this (I like to pretend that people besides my wife read my blog) is unfamiliar with our current crisis. What I find absolutely sickening is the complete confusion going on in our nation's capital. I have recently skimmed through the budget proposal (its 146 pages long) and quite frankly I am rather scared about our nations future and there are a number of reasons why.

1- The Obama plans of late have pushed for big spending and even bigger government. While outwardly they have advertised these plans as a way to help the poor and middle class, they will in fact hurt them. The government is making clear that they want to be the ones distributing wealth by taking it from not only the wealthy, but from businesses. They are increasing the taxes and fees on all larger corporations under the guise of needing that money to foot the environmental bill and to help the poor with their health care. I'll post my health care concerns in a future blog. There is a fundamental principle that the government seems to have forgotten (though ironically hasn't quit pursuing itself) and that is that everyone wants to get ahead. The smarter ones are able to do it because they focus on profit. If that profit is cut into because of greater taxes then does our government honestly think they won't pass those costs on? They will have to pass those costs on by either cutting costs (cutting employees and spending is a great way to do that) or by increasing prices. Does the government think it can make up for those losses through spending of its own? I honestly don't think they have thought that through.

2- The last time the government tried to add a windfall tax on oil companies (yeah, you guessed it, Obama has it in his budget) it was during Carter's administration. How did that work out for them? Others could probably point to more of the problems than I can, but at the very least we can see that government's revenues on that tax went effectively to zero before it was finally ended so it didn't even meet its purpose. Which administration is consistently ranked among the worst in history again? Why on earth would we want to follow the same path?

3- While I totally agree that something must be done about our schools and our health care system, spending was not the right answer. Now before any teachers (again I'm pretending someone reads this besides me and my wife) get upset at me here, let me explain. I know that our schools do not have the materials that they need. I know that they are way underfunded. I bet, however, if you really stopped to evaluate all of the problems you see with meeting your job's objective - I believe that objective is to give the students the education they need to succeed - then you would probably rank materials lower on the list. I would be willing to bet we could put one word down that would cover most of the top problems: Responsibility. Parents have at increasing rates removed themselves of the responsibility we have to teach and guide our children. If parents took that responsibility seriously then I bet a significant portion of the problems would be removed. Now, what about the responsibility of the students to commit themselves to learning and to really be involved in what their life is going to look like based on what they do in school? Wouldn't it be great if they didn't blame all of their failures on anything but themselves?

How is increased government spending and increased government handouts to the poor going to fix that? Honestly, how is getting better computers in a classroom courtesy of the government going to increase responsibility? I realize that if a school is fixed up and gets new things a certain pride comes in that might get people involved, but I have seen what happens to a community when it comes together without its government and spent their own time and money to clean up and re-paint their local school. As a missionary in Ecuador I helped them repaint and I was proud too. I'd be willing to bet that those students who participated in that school project with their parents did a lot better than those schools who waiting on the government to send someone in to fix their school.

4- I totally understand that free markets come with a lot of risk and a lot of people want to avoid that risk. Trust and Responsibility have to actually exist in a free market system. Whenever there is a failing of either of these in a free market system really bad things can happen and people will get hurt. Is the solution to that problem to give all of the responsibility to one entitiy? That question is quickly answered by looking at the results of that poor thought throughout history.

Everything in life has risk and reward. You can't have one without the other. You also can't have no responsibilities but get all of the reward. That is not just unlikely, it is impossible. If our nation is to improve then we must realize that reward will only come through trial and error (yes that's right, error), hard work and innovation.

As an aside, it would be nice if we could put a warning label on this budget stating: Warning! Prolonged exposure to government run programs will take away not only your ability but your will to improve your position. Side affects might include: a feeling that any problem you have could and should be solved by someone else, sudden loss of self-esteem, a bleeding economy, and unexplainable headaches after listening to political speeches.

What Change?

Why is it that we forget so easily the hard lessons we learned so recently?

Our government officials ran campaigns based on enacting change. They pushed that the administration and conservatives in congress had caused all of our current problems and if they were elected they would bring change to Washington.

Where is that change now?

In early 2000 there was a big push to get more people into homes. Several members of congress (most of which got re-elected) wanted more people to be able to achieve the American dream and so they pushed for lenders to do whatever it took to get people into their homes. The way many lenders were able to finance these loans was based on the assumption that the borrowers would be able to refinance before payments got too large thereby dropping the principle and the payment (theoretically).

Yeah, how did that work out for us?

Now we are back at it. Yesterday Obama announced his housing plan. Basically they are setting it up so that lenders can do what it takes (short term) to get people caught up again and able to make their payments (short term) under the hope that home prices will go up. By the way, it's also interesting to just do some basic math on the numbers he touted in that press conference, I am not a math wiz (ie, I struggled in remedial math for monkeys), but even I could figure out how those numbers don't add up.

Any guesses on how this new plan is likely to work out for us long term?

Personally I think the government walks the line of creating moral hazard with anything they do. Later I'll post my thoughts on the health care industry, but that industry is the prime example of moral hazard. Basically anything that the government does which removes individuals from the basic formula of action = full consequence (good or bad) is a moral hazard. In other words, when the government steps in because they want people to be able to own a home and they make lending easier and payments smaller (short term) than they otherwise would be, it encourages individuals to sign on to purchase something that is out of their ability to pay long-term. Normally the consequence of not making those payments is they lose the home and their credit is destroyed. Now the government wants to step in again and delay that consequence for many (it will help some who are just a little behind and who, if given a little bit, would be able to get back on track). Why do we think that this is change? It seems to me to be more of the same old.

Since when has the government become responsible for removing difficult consequences from individuals? How does it decide which consequences will be removed and which ones won't? If it removes the consequence for one individual, how does that affect others?

These seem to be questions that many of our current representatives don't ask themselves. It seems that many current elected officials want to force everyone to live the middle class dream whether they were poor or upper class and deserving or not.

For this reason, I am hereby starting my campaign.

I am going to begin campaigning as it gets closer to election time to remove everyone but the few true representatives who are in office (I personally think Senator Burr here in NC has done a great job). If we can get rid of everyone who is currently in there and elect people who will actually represent what we the people want and what we value, then I believe we really will see some change.

Why the Bailout?

As our government racks up trillions in debt many wonder why our tax dollars are being spent to “bail out” large corporations.

Really there are many sides of the debate and it is based on our current capitalist system. Capitalism is the belief, both economic and philosophical, that individuals and corporations have the power to buy, sell, set prices, and profit from whatever business they choose. Of course, this system only works if a government system exists that protects the freedoms and rights of individuals and corporations. Rather than debate whether or not capitalism is the “right” system, we’ll focus on why it appears that the government is bailing out the very individuals and corporations who got us into this mess.

By now we all have a basic idea of the many things that caused our current crisis. It was a combination of bad policy, poor judgment, and over-leveraging. All of these problems culminated into a crisis due to the ignorance of the risks.

Those problems originated because our current capitalism functions based on leverage. Individuals borrowed to make purchases. That lending was made based on that individual’s assets (a home, future earning ability, etc.) Businesses borrowed based on assets, future assets, etc. Banks borrowed based on their ability to collect on loans and assets. All made the decision to borrow in hopes to better their position. Many borrowed foolishly. These individuals, banks, and corporations over-leveraged to the point that when their leveraged assets diminished in value (remember that value is based on the judgment of others), the system crumbled.

The collapse of many banks and the significant drop in value on one of the most largely used asset, the home, has caused the system of lending to suffer. Many banks, that had become over-leveraged, are in a seemingly never ending process of trying to get some value out of the assets they do have. Because these banks’ assets have a currently unknown true value, other banks, who hold similar assets are being forced to mark down the value of their assets. This mark down has caused many banks to stiffen lending practices.


With lending more difficult to come by, individuals and companies (regardless of how good they had been with their finances), are not able to make purchases or even make payroll. As I have mentioned before, the velocity of money (or the rate at which money moves through the system) dropped significantly last year.

So, why should the government “bailout” these corporations and individuals who made poor decisions? Because what they did caused money to slow significantly in moving for the rest of us. What is at the heart of the debate, or at least should be is: What can be done to get money moving again while doing as little as possible to help these individuals and corporations?
The government, in following with its role of protecting the rights and freedom of individuals and corporations, has been pushing many different ideas to help get money moving through the system again. Like everyone else involved though, the government is far from perfect, and in hindsight hasn’t made all good decisions.

The latest plan, the Financial Stability Plan, (see the fact sheet at http://www.financialstability.gov/) introduced by Secretary Geithner, makes the attempt of throwing water on all of the fires currently in the financial system. Will it work? I don’t know, but this is the first plan that targets all the problems and not the manifestations of those problems (I know, how come we didn't have this several hundred billion ago?). One question with these plans, is how involved will the government remain once growth returns? If they stay too involved then capitalism is hampered where they stay.

This current crisis and its many problems are precisely why, in a capitalist society, the debate will always rage on how individuals can pursue their dreams and how the government can “protect” the rights of everyone in those pursuits.


As for our current problems; if we can get money moving through the system again; then individuals and corporations will be able to pursue growth again. That growth will likely take time because it will take some time for the money to move through the whole system.

Poor Communication

Sometimes it would be better for government officials to keep their mouth shut and just post information or read it. Cut out the attempt at blowing smoke and just give the facts.

I say this because yesterday Secretary Geithner made the announcement of their plan, but didn't give any real details to the plan. The market interpreted that in many different ways but gave the same reaction: Sell!

I was dissapointed to say the least with their announcement, but then today I read the fact sheet about their plan and found that the plan is actually really good. I like it. In fact, I like it so much I think it will be all we need to get out of this crisis. I do think it will take some time still, with this plan, but we will get out of it. We don't need the stimulus bill the legislature is finalizing with this plan, in my opinion.

To read the 7 page fact sheet: http://financialstability.gov/docs/fact-sheet.pdf

Blowin' Smoke

I can't wait for the day, which I believe is soon coming, when the majority of Americans will stop being so enamored with politicians and they will see through the smoke and mirrors acts. Politicians are just people. They make mistakes, but it seems that most Americans don't see through that to even look at the mistakes (unless of course it is from the other party).

I watched the "Town Hall" meeting President Obama held in Indiana yesterday and I was amazed that no one in that whole room really picked up on the problems with this plan that President Obama even mentioned in his speech. For those that missed it; here are quotes from that speech (minus the smoke he blew around them):

1- This isn't a quote, but Obama talked about how bad things had gotten in this town in Indiana. It is very true that things are horrible for them and I honestly feel bad not only for them, but for everyone that lost their job. I couldn't help but wonder what those companies Obama mentioned did though. They are, all three that he mentioned, makers of RVs and Campers. The majority of the town was employed to make huge gas guzzling, luxury items. Can someone please explain to me how the Administration and Legislature are going to save those jobs, and why?

2- "We have inherited an economic crisis as deep and as dire as any since the Great Depression." First off, contrary to popular belief among republicans, Obama did inherit the problem. Not from who he insenuates here, but from his colleagues in the Legislature. He inherited it because for the years he was supposed to be in the Senate, he was running for President. How come we all so easily forgot who enabled the housing crisis in the first place? How on earth did we let the media and our politicians move us to think it was the Bush Administration that did it all by themselves, (they most certianly didn't help it, and I am not sure government can help it)? To his second point: By most measurements the current recession, while different than the others we have been through, is no worse or better. It is just aggravating that our politicians keep comparing it to the Great Depression in order to incite panic so that we'll agree with bigger government ideas, when this recession is no where close to the Great Depression.

3- "We can't posture and bicker and resort to the same failed ideas that got us into this mess in the first place." Of course the audience applauded after that one. So there hasn't been any posturing from either side during this bid for the stimulus bill? Isn't hosting a town hall meeting to say that you are doing great, it's those darn republicans in Washington who are screwing things up; isn't that posturing? See the above note as far as whose failed ideas got us into this mess, but in regards to this bill. How come we have already forgotten the opposition Bush got for his $700 billion deal because no one was sure it would work, no one really understood what was in there, and it sure seemed like a lot of money (sound familiar to our current stimulus bill?)?

4- "Now - now, let me be clear. I'm not going to tell you that this bill is perfect. It's coming out of Washington; it's going through congress." That was met with laughter... Didn't he just say though that people wanted change? Wouldn't this have been the change we were looking for? Wasn't that the problem at the end of Bush's presidency (President banging heads with congress because they were the ones at fault)? Also, if it's not perfect, don't you think that for this amount of money we should fix it? If there is one part that is perfect, then pass that. I am not sure why there has to be a whole bill full of stuff and we have to vote for the whole thing regardless of whether or not several of its parts are ludicrous.

5- "I - I can't - I can't tell you with 100 percent certainty that every single item in this plan will work exactly as we hoped." No need for comment here.

6- "Even with this plan, the road ahead won't be easy. This crisis has been a long time in the making; we're not going to turn it around overnight. Recovery will likely be measured in years, not weeks or months." There really is so much wrong with this statement I am not sure where to begin. I will ask one question: We are being asked to support a bill, that if we don't support the economy will fall further apart and not likely come back for years, and this bill might not work because it isn't perfect, but it's supposed to get everyone jobs - though we are not sure if that will work and none of this will fix things for several years? Maybe I missed it, but why are we spending $800+ billion again?

Now, of course, President Obama seperated these little quotes with a lot of fluff about how the folks in Elkhart are going to get their jobs back (though I am not sure how someone who used to make RVs is going to be a lot of help building that road Obama talked about) and how things are bad but we voted for him so we must agree with his way of doing things. All of that smoke apparently caused those in that High School to applaud and celebrate the hero Obama who was saving them, but I certainly hope that soon enough Americans will not be so easily blinded.

Interesting Bank Fix

I read the following article as a prosposed fix for the banks and I like the fundamental idea of it.

http://online.wsj.com/article/SB123388681675555343.html

The problems, I see, in trying to solve the banking crisis this way is that, while these banks would try to lend, the lending standards would be so strict that few would want to borrow. In fact lending is down significantly for that reason and for the reason of how companies and individuals always operate during major economic downturns.

During major downturns companies and individuals "clean house" in a way. They save more, they clean out inventory (I know that inventory is what kept GDP from dropping even lower in the 4th quarter but that wasn't a good thing), and individuals clean up their debt to asset ratios. This is a good thing, but it causes major economic problems. In all, they don't borrow more, they don't spend more and they take a while before they get back into it.

Personally I am for a review of mark-to-market accounting and maybe even a "holiday" of sorts from those accounting practices. That could stop this perpetuating cycle of asset and credit destruction without having to create more major government entry to the private sector.

Stimulus Update

It looks like Americans are gaining steam in opposing this bill. Even the President is now putting pressure on to remove a lot of the pork and other spending in the bill that isn't directly related to stimulating the economy.

I have seen some interesting alternative ideas regarding what the bill should look like. Here are they are, in order of what I think is the best at the top:

1- Put more money on defense spending. http://www.nber.org/feldstein/washingtonpost_012909.html

2- The Reuters Proposal based on the GOP Proposal. http://www.cnbc.com/id/29020945

3- The GOP Proposal: http://uk.reuters.com/article/worldNews/idUKTRE50R71P20090128

Regardless of which plan you choose, it looks like it will cost less, and actually do more. I love the line in the top option that Mr. Feldstein wrote because it fits exactly with what our government has been missing for a while, accountability:

"On the spending side, the stimulus package is full of well-intended items that, unfortunately, are not likely to do much for employment. Computerizing the medical records of every American over the next five years is desirable, but it is not a cost-effective way to create jobs. Has anyone gone through the (long) list of proposed appropriations and asked how many jobs each would create per dollar of increased national debt?"