A synopsis of the "bailout"

This was written by my brother, Juan. I've edited a little to clean some stuff up but I have not changed any of his points. Bascially just spelling and grammer, but only where I thouhgt I must.

Take a look and tell me what you think.

The History

People have to start by looking at the root causes. In the late 90s, Alan Greenspan went crazy trying to "eliminate inflation" and cut rates to the bone, to get more money out to the country. We created wealth, and encouraged investment, which worked and spawned a technology boom and we saw big expansion in America. Things were by all accounts good - too good. It was a boom, rather than steady growth. But it is starting to seem like he went a little too far. Imagine blowing a bubblegum bubble - if you blow on it slowly, it grows. If you blow too much too fast, it pops. This had the unintended consequence of removing a good portion of the leverage the Fed has on the economy. (Generally, the Fed controls the money supply and interest rates. Lower rates encourage investment, and higher rates generally encourage savings). Well once you cut rates to the bone, you have no new incentives to make people spend, or stimulate investment.

Then we had George Bush's Admin in power. They got into office as the bubble burst. Now this is not to say that the bubble popping was Clinton's fault, or even Bush's. It was unsustainable growth. Then as the air went out of the market (NASDAQ, the technology company index, went from 5200 to 1500. - that is a whoopin' in anyone’s book) we had the second shoe dropping - the terrorist attacks. Again, not a fault of any administration. It’s not like GW and his policies were the reason for this, as the terrorists started planning under a more internationally popular administration. This essentially can be blamed on every admin definitely to Truman, and possibly all the way back to a time when the US was buidling ships to take on the Barbary pirates (thats the "shores of Triploi" reference in the Marine Corps hynm). Anyway, as the economy takes a beating on both fronts, the one area that props up the economic indicators is the housing market.

Now you have the change in the government. Up until the attacks, we figured we were all safe. I did. The attacks showed us how we were vulnerable. And then we created the "Homeland security dept.", and tried to revamp the immigration dept., and did all of these things that increased the size of government, not by choice, but as many saw as necessity. Unfortunately, there were no spending cuts to make up the added amount. Now we add in the war. Everyone was all gung ho about going in and blowing up bad guys. However, I doubt many were prepared for war like we are experiencing. Or the duration, or the cost. I believe the government was, but the American people turned when we didn't win and leave in 100 hours so to speak. And of course, there were things that were mishandled, and plans went drastically awry. But generally, it is another cost that derives no growth in the economy.

Congress now decides that the American dream is for everyone to have a home, in this great social Democrat dream of universal prosperity, and for more people to get credit. The administration looks and says hey, we are going out there and helping people own homes, so this MUST be good. Everyone of every party is in agreement so they go about helping boost homeownership. The congress voted for against a bill which would have limited the portfolio size of the Fannie Mae. I guess this was voted against on a party basis by the Deems. So Fannie gets bigger, and makes the future problem potentially larger. And like many people who don't understand what the real world is like, the people who agreed to all of this loosened policy all assumed wrongly that people who got credit and bought these houses outside of their means would live up to their responsibilities. Guess what happened? People around here who lost their jobs, and couldn't find work that could pay for their homes, or had to move to get work. I feel for those people... I really do. In those cases, foreclosures are not really due to bad decisions, and in many of those cases, I can see how it can happen to a lot of people. But that isn't the bulk of our foreclosures. Then there are the people who were given mortgages that were either too dumb to know that they couldn't afford them, had no intention of paying for them to begin with, or figured that they would get the benefits of great run ups in the market, and flip the house, or refinance it later when the value went up. Now, because there is a HUGE influx of buyers, housing prices start to rise and people take notice. Boomers buy real estate like crazy to prey on Gen X - like always. In 2006, almost 70% of the houses purchased were second houses, by boomers. People notice the money to be had, and decide to start to flip houses. It becomes so popular they make freaking TV shows out of it. A general rule of investing is that when everyone is in the market, it is time to get out. As loans went bad, banks and companies increased those lending standards again, and now you had far less money going into the housing market. Then you ran out of buyers, and these prices that were blown well in excess of fair value started to sink. Now suddenly, people who had bought were screwed, and rather than take the cash losses, they walk away.

Up to this time Fannie Mae is buying up all of these mortgages, and packaged them into collateralized mortgage backed securities which as essentially huge bonds based on mortgages. In a new shocking twist, I was told these things were rated AAA which is the highest credit rating you can get for a company, presumably because it was a quasi government agency. Well, the underlying value of these things collapses and Fannie's portfolio is devastated. So the government bails them out. However, a lot of banks had bought these types of investments, though not packaged by government, to park investments and monies. And the private ones fall apart too, and banks that used to have all of these assets start taking massive losses, and they collapse. Notice, the companies in the most trouble are investment banks, which packaged and held these assets, and banks that did a lot of mortgage work in California. Have you heard of PMI? Mortgage insurance? A lot of people who don't put down 20% have to pay insurance on their mortgages in case they fail. Well, the actuaries (the dudes that calculate the risks and the cost/benefit analysis to price insurance) gave them a potential risk. Not knowing just how bad these things could go, they underestimated, and the massive underwriters were now liable for up to 40 times their normal losses in the same circumstance. So now the insurance companies are screwed.

The Present

Foreclosures are ridiculously high, banks own properties that are worth significantly less than the loan that was defaulted on, and the broader economy is solid on a regional basis. This means that there are diversified areas of the country (Dallas and others) are doing well while places with a basis on manufacturing are in deep trouble - like here. And the government wants to bail out the companies that took the losses. The form of the bailout is in question. Some (Obama) call for reviewing each mortgage, and forcing the lenders to reduce the amount of the loan to an "affordable level" for the people. Some (more liberal jackasses) think we should add car debt and credit card debt into the package to give ordinary individuals a "break." Which is ludicrous. They also want to attach stipulations on any company that takes bailouts that will let the government decide who gets paid, and how much. While I see some of the bonus and pay craziness of some of the top execs, it goes against everything I believe in to allow the government to dictate what anyone should or shouldn't make. There doesn't seem to be a clear answer as to how the rest of the bailout is structured.

The Consequences

I will tell you, the other bailouts have good and drastically bad points to them. Fannie/Freddie and AIG are about the same - a boat load of cash is loaned to the company at a prohibitively high interest rate, plus a warrant for 80% of the value. If the warrant is not ever exercised - like pulling the trigger on the transaction, the government never gets that share and the shareholders get bailed out too. Now, considering that AIG is a large insurer, if they go under, the people who have non-mortgage policies, like life insurance, home-owners, you name it, get wiped out. So in some senses bailouts generally will protect those people who are completely innocent in all of this. And of course, on the other hand is the gross cost. If done as loans above the market rates, then the government earns on this deal, but it doesn't seem to be what they are talking about.

But as hard as I look, all I hear about is where we are in pushing the bill through, but no details. Sadly, the best details out there came from George W who said that government would buy up all the bad debt. When I hear that, I would imagine that means people who were in foreclosure would now owe the government, and the government would own the property. Sounds like a huge got auction and slumlord activity is on the horizon. Goodbye once nice neighborhoods.

However, if you tighten up the credit markets, and prevent people from gaining access to money, that is a bad thing, and could greatly hurt the broader economy. In some circumstances, I think it would be better for most people to have tightened credit, considering how poorly they did with more credit. In others, less credit than currently, means less money is spent, and the economy comes to a grinding halt.

Suffice it to say, that I don't like the direct bailout idea at all. The only people who should really be bailed out are people and companies that bought highly rated CMOs only to find out they were worthless - which is essentially a fraudulent sale. Essentially, bailing out the goofballs who didn't pay their bills angers me greatly - mainly because I was the sucker who did pay his bills, and went without because that was the responsible thing to do. And in truth, all a bailout really seems to do for most banks is keep them in business. It doesn't make housing prices go up. It doesn't protect people from assets declining in value. It doesn't really strengthen the market. It puts a band-aid on a sucking chest wound. But that is just one man's opinion.

Off the Tracks

Plan your work, work your plan. If you don’t know where you're going, any road will get you there. Make “to do” lists. Set goals. Be the ball.

Some days I love a good axiom and some days I’d be happy to take an axe to an axiom.

I had a plan (or at least a general idea) for today. I figured I’d do some administrative stuff and figuratively clean off the old desk and have a nice easy paperwork day.

I got into the office a little late because we got out of the house a little late. Since Mona is hourly I take her to the office first, then drop off The Peanut and finally go in myself. I started by day about ten minutes to nine. I was reading my daily comics and checking the news and eeeaaasssing into the morning when a guy from another slightly related group came by my desk and asked if I’d heard about the passing of a mutual friends (and coworker) father last Friday.

I hadn’t, but since he gave me the heads up I went to the funeral mass to pay my respects. His father was 91 and had a bunch of children and grandchildren to mourn his passing. It was a good long life so not nearly as tragic as too many other funerals often are. But good gravy it was a long affair. It was a full Catholic mass along with a short VFW honor guard ceremony and a military flag presentation (he’d served in the Second World War). I left the office before Ten and got back to pick Mona up for lunch at One. So I didn’t get back to my desk until about Two.

And once I got back here I just couldn’t get my act together. I hemmed. I hawed. I surfed the internet.

I got a couple of calls returned and sent a couple of emails but that was it. For some reason I just could not get it into gear. My sense of urgency, such as it is, was lost and not to be found again today. The worst part is that I don’t know why. I don’t think it was really the issue of the funeral, I think it was more about the unplanned and somewhat abrupt change in the days plan. Once I was off track there seemed to be no going back. Sure I’m easily distracted and prone to going off on tangents, but this degree of inability to get back on course is extreme.

What happened? Does this ever happen to you?

My Story

Over at The West Virginia Surf Report today, Jeff talked about how he met his wife at work and thought that it seemed like it was a pretty common way for spouses to meet. Then he asked people for their stories.

Here's what I said-

I’d never found fishing off the company pier effective.

Nope. I met Mona on eHarmony. She and I work in the same office now, but I don’t it counts.

My brother met his wife (plastic surgeon) on eHarmony and now that rat bastard is loaded.

3 of his buddies met their wives on eHarmony. And 2 of those guys… woof.

One of Mona’s cousins met her husband on eHarmony.

One of Mona’s close friends met his wife on eHarmony.

I’m telling you, that stuff works. I want to get all 16 of us together and shoot an eHarmony commercial.

Here’s a story that was written about us in a local paper. It’s reprinted here without permission and if it turns out to be an issue I’ll remove it with apologies. Names have been changed because it seems like the sane thing to do.

Mona framed the original article for me on my birthday this year. It was written in 2005.

***

DETROIT - Talk about life-changing decisions.
A year and a half ago, Jorge and Mona Lipschutz were both Detroit singles trying to figure out where to find a quality date.

Then they posted profiles on the same Internet dating site, met a few weeks later and got married a little more than a year after that.

Now, they're sitting in their Dearborn, Mich., home on a Friday evening trying to keep Hannah, their black Labrador puppy, from gnawing everything in sight.

Jorge, 35, and Mona, 29, look so cute and natural as a couple that they ought to be in one of those commercials for Internet dating sites.

They provide a pleasant contrast to the ABC show "Hooking Up" (9 p.m. Thursdays) where singles juggle, mislead, evade and dump potential mates they meet online.

The biggest drama in the Lipschutzs' lives involves deciding who has to clean up after Hannah. The Internet actually seems to have worked for Jorge and Mona.

"I'm still shocked she would have anything to do with me," says Jorge, who acts and looks a bit like the George Costanza character from "Seinfeld."

"C'mon, she's out of my league," he says, looking at his wife.

Mona, a shy redhead, shoots a "please shut up" look his way.

"That's a compliment," Jorge tries to explain.

"Thanks," she replies.

A few years ago, Jorge and Mona's relationship might never have happened. Initially labeled a last resort for losers, Internet dating has gone mainstream.

As the TV show "Hooking Up" reveals, the Internet is far from a magic answer for singles. In the first episode, Cynthia, a 34-year-old hair-salon manager, meets a guy online who describes himself as a "slim Fabio." In person, he looks more like a burned-out hippie.

The dating sites, though, say Internet dating has paid off for thousands of singles. Dating site eHarmony knows of at least 12,000 couples married after meeting on its site.

Match.com estimates it has helped hundreds of thousands of singles meet. It receives 200 e-mails or letters each month from couples telling about their engagements or marriages.

The age of online daters ranges from teens to seniors, but both eHarmony and Match.com say the prime audience tends to be people in their 30s who have moved beyond their college social network and are still looking for a mate.

More than 26 million people, or 16 percent of U.S. Internet users, visited an online dating site in June, according to comScore, a Virginia-based research firm.

The traffic has leveled off from an initial boom two years ago, but comScore estimates that U.S. consumers spent $470 million last year on Internet personals, making it the largest category of paid online content.

For Mona and Jorge Lipschutz, the Internet provided a better way to meet potential dates. Before going online, Jorge, a corporate rep for A large compay, and Mona, a landscape designer, say their dating lives weren't going well.

"It kind of sucked," Mona says bluntly. "It was frustrating. I was going out with different guys. I'd go out with them a couple of times here and there. I wasn't really clicking with any one."

In late 2003, Mona registered for eHarmony. A friend who met someone online encouraged her to sign up.

About the same time, Jorge saw a TV ad for the site and registered, too. Within a couple of weeks, their profiles were matched.

They met for lunch. Sparks didn't fly at first.

"I thought she was cute," Jorge says.

"I enjoyed the lunch," Mona says.

They agreed on a second date, which happened to be Valentine's Day. Jorge brought an unusual gift - flowers and drill bits.

In one of their early conversations, Mona told him that she received a drill as a Christmas gift but couldn't use it because it didn't come with drill bits.

The drill bits were funny and touching, Mona says. "I knew he was listening to what I was saying," she says.

The more time they spent together, the more they felt they were a match.

On the surface, they have differences. Jorge is conservative. He voted for Jorge W. Bush. Mona is liberal. She voted for John Kerry. Jorge is a scuba instructor. Mona rarely gets in the water.

But at the core, they have a lot in common. They both have independent personalities and enjoy traveling to new places. They prefer entertaining at home rather than going out to bars or clubs.

"For us, it's been very comfortable," Jorge says. "The word we use more than any other is 'easy."'

In September, right before an East Coast trip together, Jorge proposed. They were married in March. Marriage has made their lives better, they say.

"I have someone to share my day with," Jorge says.

"Share your life with, really," Mona adds.

Without the Internet, they say they never would have met. They frequently encourage single friends and family to register online.

Their advice about Internet dating: Sign up, fill out the profile honestly and take the time to thoughtfully consider your matches.

Internet dating isn't an act of desperation, Jorge says. It's a realization that you might not randomly stumble across your future husband or wife.

"For 34½ years, Ms. Right had not fallen out of the sky and landed in my lap," he says. "Maybe, waiting for it wasn't the right thing."