The 6 Pack Economist

“So you think you can dance?”  no.  I can I turn this crap off.  Unfortunately for me the answer is all no, as my wife loves these damn shows.  The show tonight is the final 20 show.  Basically this is the show they pick the 20 contestants that will be on the regular show.

Tonight’s episode follows the same pattern for each of the contestants who have just spent the last 4 days in Las Vegas being thrown around the stage as 6 self righteous judges play with their emotions.  Here is the pattern each contestant goes through as they come on stage.  If the judges compliment the dancers at first then they are letting them go home.  But if they judges start off with “we think you need to grow some”, pause as the dancer starts to cry, the judges say “and we think we watch you grow over the show, you made the top 20!”  Want an emotional mind fuck for these poor dancers. 

Do these judges go home and hold a piece of steak in front of their dog to watch the poor thing squirm and cry.  Just tell these poor bastards you made it or you did not. Just pull the damn band-aid off and get on with it.

I hate these fucking reality shows. 

I am sure that Black Beard, Blue Beard, and Jack Sparrow are rolling over in their grave watching these poorly styled amateurs pretending to be pirates.  I mean what happened to pride.  These guys are running around in Uncle Billy Bob’s dingy.  I want frilly shirts and Eye patches damnit!

I am happy to see that a ship full of American merchant marines fought off a group of these poor excuses for pirates.  But then you have some jerks stating that they should have just hung around and waited to be ransomed like a bunch of …..  Well place your favorite nationality here.  

The International Maritime Bureau basically wants the crews of these ships not to take any action once boarded.  Even prior to boarding they do not want the crews to take any lethal force just speed up and spray water on the attackers.  Unfortunately the people making the rules do not understand basic animal instinct.  And these guys are just animals.  Rule of the jungle states that “the weak and easy targets are eaten first”.   

I think (for whatever the hell that is worth) they should immediately change the rules.  The crews of these merchant vessels should be instructed in how to repeal invaders.  Ships should be equipped small arms and the crew should be trained in their use. 

This will immediately increase the cost of being a pirate.    Remember I believe in the whole risk and reward ratio.  This pirating business has become such a boon because there is no cost to the pirates.  They show up in a boat that seems to be something you would rent to go fishing while vacationing at the sea shore.  The crews of ships just stepped aside while the pirates took over ship and made the call to the company for ransom.  I think the call went something like this.

Somali Pirate: “Hello, Damnit a god damn machine”
Corporate Computer Answering Service: “Press 1 for English, Pora Espanol dos” (I don’t speak Spanish sorry)
Somali Pirate: “I am going to go with English is just makes everything easier with the banks”
Corp Comp: “If you know your parties extension dial it now or press 1 for more options”
Somali Pirate: “What is that guys extension.  Damn it where did I put that number.  Oh here it is”
Corp Comp: “Now transferring you to:  Ransom Department”
Somali Pirate: “I hate waiting on hold. This is the problem with the ransom business.  So much competition that I have to wait on hold now for 30 minutes.”
Corp Comp: “Your call is very important to us please continue to hold”
Somali Pirate: “What bull shit.  If it was that important you would pick up the phone”
30 more minutes later.
Ransom Department: “ Hello may I help you”
Somali Pirate: “Yes I took control of the ‘We are big Wussies’ cargo ship and would like to be paid.”
Ransom Department: “Do you currently have an account with us?”
Somali Pirate: “Oh yes of course, I am not an amateur.  Account number is  ‘1231######’” (I have to protect the Pirates identity)
Ransom Department: ”Is your TaxId still the same.  And you are aware that this money must be reported as income per the IRS”
Somali Pirate: “Everything is still the same.”
Ransom Department: “And how much should we pay this time”
Somali Pirate: “I am running a special this week.  Since I have two of your ships I will give them both back to you for 15 million”
Ransom Department: “Seems reasonable,  you will see the money in about 12 hours”
Somali Pirate: “Oh thank you very much.  Nice Doing business with you”
Ransom Department:  “Please do not hesitate call for your next ransom, good bye”

These guys have set up a smooth process oriented business around this ransom business.  Well until recently that is.  This small act of defiance, despite the danger, will force the pirates to think twice once it is known that someone might fight back.  It won’t deter many, unless more crews fight back.  The turning point will be when some pirates actually get killed in trying to take over the ship.  The escalation will continue as both groups begin a little arms race and more people will die.  In the end though the pirates will be forced to take more precautions and the gold mine of pirating will decrease.  Those that stay in the business will have to up-gun themselves.

The act of up-gunning themselves will be the undoing of the groups.  Primarily the reason why they could not take these rinky dinky boats out to go do pirating is they would not stand up to the job.  They will have make or modify boats specifically for the purpose of raiding ships.  These ships will be more easily spotted and chased down.  The boats will be spotted at the bases of operations and then one night a squad of SAS or Seals leave a bunch of dead bodies.

This brings everything back to a very simple point of life.  If you don’t fight for yourself you will get walked over.  Once you are known as someone who will not fight back, then everyone else around you will also walk over you too.  On the other hand if you are known as not taking peoples crap then those around you will not give you any crap.  They will even think twice about giving you crap that you deserve.  Why, because it comes with a cost, the cost of you fighting back.

I scratch my head at the numbers that are casually just thrown around in the financial crisis.  The numbers are so large they are essentially meaningless.  We have reached the point that no-one can risk stopping the game.  We have feed the monster so much debt it is now so big we can not anger it by not feeding it.  

We basically have an 800ton gorilla that wants its Twinkies.  Unfortunately it also thinks we taste like Twinkies.  At this point we are at the stage that everyone involved is absolutely screwed.  I have yet to see a winner in this whole mess.  Who is making money on this?  Real Estate? Commodities? Military Industrial Complex? Tech Stocks?  I can’t seem to find who is going to make money on this.

 In way that may be good since nobody is looking to get paid.  Just about everyone seems to be losing. I know the following is tongue in cheek, but perhaps we should just reboot.  Just pretend all of this did not happen.  A Re-Do like playing football when you were a kid and the ball hit a power-line or tree.

Part of me feels that all the bail-outs are nothing more then rearranging the chairs on the titanic.  Or maybe it is just a way for some very rich fat-cats to grab as much money as possible before the ship finally sinks.  Some how I feel the promises of the fat-cats of “We need to take the life boats to go find help” is going leave me in the icy waters. 

 Where is global warming when you need it.

I am sure that you have heard all about the banking industry and its crisis.  If you have not, the cave you are in must not have cable or internet in which case you are not reading this.  In the following post I will go into the reason for this crisis from the basis of a simple economic principle of Risk and Reward. 

 In the beginning god created the mortgage payment (part of terms of the agreement was the last payment was to be personally delivered to god himself).  The person who lent you the money for the mortgage was also on the hook if you decided to spend your mortgage payment on lottery tickets instead of paying him.  So he had a self interest to ensure that he did not lend you money, that you could not payback.  There was a self interest on both parties not take too big of risk.  After living on the street because you paid too much for a home you could not afford was your risk, the reward was some place to go when it rained.

All was right in the world, unless of course you lived in California but then again California is fantasy land anyway.  The rest of the world see periodic increases and decreases in home values but they were generally because of real factors, not because you want to live near where Brad Pitt gets his Starbucks. 

So what screwed this all up?  Well the federal bank, which by the way is not run by the federal government lowered interest rates after the dot com bomb to help jump start the economy.  In addition rules(created by the government to help those less fortunate) in the mortgage industry pushed them to help those that had shady or no-credit.  Well with the low fed interest rates the industry was able to offer lower mortgage rates.  These rates were substantially lower then what they were previously and dramatically lowered the monthly mortgage payment made by the average person (most people judge what they can get by the monthly payment and not the actual price).  They could now afford a bigger home.  Since they could afford a bigger home the demand for a bigger home drove the prices for bigger homes up.  This in turn drove the prices for every other type of home also.  After all people still need to live somewhere.  Caves can get musty after all.

So the price of homes began to move up.  Since the price of homes was going up the risk of the loan was lowered since the home was the collateral.  If you had an outstanding balance of 100K but the home was worth 200K you could get out of loan by selling the home and still have some money to find something smaller or less expensive.  In addition if you defaulted on the loan the bank could do the same.  So in essence the risk was lowered.  No matter what happened everything worked out.

With the risk of the these loans lowered the banks were able to start selling these loans to other banks filling their coffers with the sale and then use that same money to offer more loans that are then quickly sold to the next etc..  And here is where the problem started.

The person offering the loan only had a short term exposure to risk but a large reward.  They held it for a few months and sold it.  Very few people fail to make the first year of mortgage payment.  Soon the prices of houses began to get higher and higher, even with the low rates they became unaffordable.  But with the prices still going up and the advent of the “house flipper” mortgage companies got creative (there were always scams out there, these new ones just got rediculous).

So how creative did they get?  Since they were dumping the loans on someone else after a few months, they began to make mortgage terms that kept the price of the loan low in the beginning so they could get the person the mortgage.  Now that they have someone making payments they needed to get rid of it before the terms of the mortgage made the payments too high for the person to afford and they defaulted.  So they packaged all these bad loans into more traditional loans and sold them to bigger banks that could deal with a bad loan here or there.  The first guy selling the mortgage effectively had a big reward with little risk.  This led to more and more risky loans.  People could sign up with no proof of income or negative amortization of the loan (you had a higher balance each month despite making payments). 

It does not take a genius to figure out that this was set to fail.  It depended on three things; home prices rising, dumb people to sign the mortgage, and dumb banks to buy them.  If anyone of these failed the dominos would fall.  And it did.

Everyone knew the game, and they all went along with it.  Except for a few people just looking for a home they could afford,  but most of them were smoking their cigars and drinking their brandy laughing all the way to the bank.  Of course the bank they were walking to eventually collapsed right after they took out their money.  Falling on the guy who just signed up for a loan.

A whole lot of crap was out there basicly poisoning anything it touched.  The whole sham was about to fall in.  Unfortunately those that benefited from this whole thing the most are not going to take a brunt of this mess. They had golden parachutes.  These were all the executives of the banks that knew this crap was going on and authorized it.  After all one year’s salary for these bastards was enough to live for the rest of your life.  So screw it if in two years it all collapses they were safe.  So they did not have any risk.  See a pattern here.  The person benefiting most held no risk.  Therefore they only looked at the reward and the reward was an incredibly high salary and bonus.  Their future well being was not wrapped in the future of the company/bank they were heading it was in the huge bonus they were set to receive in one year.  Year two be damned.

Now here we are.  A bunch of fat cats have beaten the system.  And we are left holding the bag.  And the bag is full of dog crap.

I will go in what to do about it later.  Good luck and make your mortgage payment.