The 6 Pack Economist

Ok its not like corruption ever stopped, its just has  a lot more to feed it now.  And larges pots of money feeds corruption.  I knew the stimulus would attract the flies like a pile of dog crap. 

I look at obama and his crew and see a typical academic arrogance with the stimulus bill and the extra spending bills.  Arrogance may be too strong of word but what I mean is they seem to think that while other governments have failed to spend the money properly they will succeed.  They are making a very good go at it with the media.  The speechs about holding people accountable for where the money gets  spent are all well and good but it won’t get spent correctly.  And I can’t think of anyone who really did a good job of spending our money. 

But what will happen is that after about a year the bulk of the spending money will begin to hit the local governments and by that time americas attention will be on the next great thing.  Perhaps the budding adult movie career of Britney Spears will captivate us at that point I don’t know.  Part of me thinks the reason for so much of the stimulus money being spent so long after it was signed may be because by then (a year from now) they will be able to do as they please with it.

I need another beer.

In one week Obama and his crew managed to alienate a staunch US ally (churchill sent packing too) and look like an ass to a world rival not once but twice.

Even Bush is watching this and thinking, that was some dumb strategery.   Part of me wonders if Obama goes ape shit over these things.  If this guy was football coach his team just fumbled the ball twice, jumped offside and then ran the wrong-way after catching the ball.  I imagine Obama gathering all of his advisors and staff into a room and just letting them have it.  Who the hell advised him that a letter to the Russians was a good idea or giving the Prime Minister Brown a DVD collection?  I can’t believe that he really thought these were good ideas.

Then again perhaps he still thinks that everyone can be reasoned with.  Unfortunately the world is not full of reasonable people.  This tends to be the mistake of over educated people.  They (those who are over educated) spend too much time with other very educated people who are generally reasonable people (notice I never said smart people this is because I do not believe that educated and smart are synonymous).   Unfortunately for Obama the world and its leaders have more in common with the biker bar in the ghetto then a Harvard cocktail party that he is used to.  It would be nice if the world was reasonable and world leaders acted rationally but it just is not the case.  Aside from Canada and some western European countries the rest of world leaders are like jackals.  They will attack if they smell weakness.  The combination of a quid pro quo letter to Russia and then making Prime Minister Brown  look like a some rube accepting a bag of crap as a prize has made it seem like this administration put on a big ole bottle of weakness cologne.

I think there is already a divot in the desk at the oval office for the amount of times Obama has hit is head against it already.   I hope he does not get a concussion before his first 100 days are over.

 Side Note:  Can anyone make another version of the Hitler Raving mad clip from downfall, but with Obama complaining about the tax problems of his staff and foreign policy blunders? 

It seems that after europe threatened a trade war the clause was removed.  This clause was more extensive then I previously thought.  Basicly it stated that all products that were to be purchased for work done with the stimulus package money must be american manufactored.

I guess someone told Obama that this will make the europeans pissed off at the US faster then invading a dictator’s country.

 A baby of the protectionist in the US is raising tariffs or restricting what can be imported.  I am not against restricting products from some crazy dictator or murdering nut job but usually it restricts stuff from a country like Canada. So is this Smoot-Hawley part 2? 

I know that most people’s understanding of history is on par with their understanding of particle physics in a singularity but something similar happened during a past round of economic turmoil.  This was brought by republicans in the 30’s.  It was called the Smoot-Harley Tariff Act and a bunch of protectionists thought it was great to just kill all imports. 

Let me preface this by relating a rule of life “Never screw people who can screw you too”.  This held true through the cold war.  The US and USSR never shot their Nuclear ICBM at each not because they were buddy-buddy but because they knew the other guy would shot back and everyone would lose.  Large tariffs against other-wise descent trading partners work the same way. 

The current economic “stimulus” package has some rule about only buying US steel which means it is not a tariff deal per-say.  But this spending package is the GDP of many other nations.  So by keeping other countries out of the deal it is working like a tariff.  In addition other countries are going to be doing their own stimulus packages and US goods will be restricted from theirs.  In the end it may just have a very similar effect of smoot-hawley tariff, although not nearly as devastating.

Why is the left (as in the political spectrum) so infatuated with “cults of personality”.  Even Castro at 82 years old is still shown to be vibrant in his jogging suit.   Although the only thing I can think of is a Saprano with bad hair.  I can sort of understand a little bit of the cult of personality for Obama.  I don’t agree with it, I can only understand it.

When was the last time a leader with cult of personality status said “With me in office, you will be free to fix it your damn self”. They haven’t for a very long time.  The cult of personality leader usually says something along the lines of “With me in office, I will fix it for you”.  How do you expect to get anywhere telling people that you will do less for them then the next guy?  It is a wonder that any real conservative gets elected but that’s another post entirely.

In the book Don’t Think of an Elephant! by George Lakoff (I will put it on my book list soon) he comes up with a theory on why people have liberal or conservative view points.  And I have to agree with him despite being on the other political isle.  Liberals tend to come from strong maternal role households or those that value nurturing.  Conservatives tend to come from strong paternal role households or those that value self reliance.  Think of it this way.  Your mom would tend to the scraped knee while your father would “tell you get up and stop crying”.  Using that understanding it becomes very easy to understand why the left values cults of personality so much.  These leaders are mommy promising to fix stuff for them. 

I don’t know about you but I left my house and parents so I could make my own decisions.  I did not exchange a personal relationship with my real mother for an impersonal relationship with a government acting like a mother.

I enjoy reading conspiracy theories because they tend to be such cool stories and when they are read as stories people can keep their heads.  But this batshit story truly boggles the mind.  So I am to believe the CIA made a copy of Bin Laden so the war could continue?  Do I think they are that evil, sure but they are not that competent.  Seriously they are more concerned about the FBI getting credit for a bust then actually doing a bust. I believe that this will become a recurring theme.  BatShit links.

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.