Sunday, September 28, 2008

Financial Crisis - Addendum

In my tirade yesterday, I left out one part out. That of the mortgage issue. Billions upon billions for 'poor helpless home owners". There is a simple truth here;

If you borrow more than you can afford and go down in flames, tough shit.

When did our lives loose all responsibility? If your house gets trashed by a hurricane because you built along the pictorial Florida coast, the government fixes it. If your house is destroyed by a tornado because you chose to build in tornado alley, the government pays to fix it. And if you buy a house three times more than you can afford to pay for, then the government blames the lender and bails you out. WTF?!

For more than a century our federal government did MOSTLY what it was intended to do. It handled treaties with foreign nations, maintained a national defense, and made sure the states didn't blow the shit out of each other. Along comes the worst president in history, Abraham Lincoln. Separatists on both sides fractured our nation and this president in his wisdom spilled the blood of some 700,000 Americans. Not a civil war, by definition a war of independence. Put the slavery issue aside, it was only a sidebar in this war. The federal government had been becoming more and more heavy handed with the states and the southern states finally said; 'go to hell' and left the union. By the articles of our nations formation, they had the right. Lincoln didn't like the idea, and thousands died.

That was the beginning of the end for our republic. The states had been served notice. Do what the central government says, or we will use military force to pound you into submission. More and more nails have been driven into the coffin. The 17th amendment (passed by the crazy 'progressives') of 1919, the 1929 firearms act, the New Deal, the Great Society, trillions of unfunded federal mandates. Two hundred years ago we were a republic made up of the 'several states'. The states were a sort of quasi-nation unto itself, the federal government only ensuring that certain rights were maintained (bill of rights), and that they didn't attack each other. Religions, laws, taxes, etc varied widely from state to state. Never has this been less so now, the all powerful central government now consumes almost 1/5 of every dollar generated in our nation and runs roughshod over all our laws, elections, and proceedings. A lot of this can be blamed on two events. The civil war, and the 17th amendment that stripped the states of their last true power. That being the direct appointment of US Senators.

A lot of you don't realize that our central government was a lot more ingeniously created than you thought. Varied levels of protection were built in to our three branches of government. The judiciary (don't get me started), the executive, and the congress. The congress is the only branch that was segmented even further. The house of congress to be composed of representatives of districts within the state directly elected. The senate composed of two representatives from each state, to be appointed by that states own government. What? Are you serious? Yes, the founding fathers realized that the entities of states needed to be protected from the tyranny of the majority. Everyone loves democracy, except most of our founding fathers. They knew how dangerous a democracy was, which was why they created a constitutional republic. That republic is all but gone now. I wouldn't be a bit surprised to see the average moronic voter allowed to cast an uniformed vote through their xbox in a few years.

So here we are. The states are emasculated. People are no longer expected to demonstrate and individual responsibility. And the federal government is so far in debt that were it to seize every dollar made this year, it would only barely be able to retire the nearly $10 trillion dollar debt.

Just so you know, I do have a horse in this race. I own two houses, one in Indiana, one in Kentucky (which I live in). The house in Indiana has been empty on and off the last four years and more than once pushed us hard enough into debt that I became concerned. Never once has it entered into my mind that I must somehow seek relief from the federal government. I will not seek it, nor accept it if offered. We signed both mortgages with our eyes wide open. It is high time we stop subsidizing STUPIDITY! If a loan is given illegally to knowingly unqualified lenders, then punish the lender. But the person who took out the loan is at fault too. Sorry folks, but if your too stupid to read the paperwork and understand interest rates, points, balloon payments, your just too dumb to own a house. I recomend renting. But maybe you should have a friend read the lease for you. The government won't bail you out on that one...yet.

Saturday, September 27, 2008

Financial Crisis - Through Different Eyes

Well, the financial market is in deep shit, and potentially the entire world's economy. At least say some. I don't know if I can swallow that. Is there some risk? Oh possibly, but this bailout insanity represents a clear risk, and furthers us toward and ultimate disaster that will be unavoidable. I'm talking about a crash in the US currency.

I'm 3/4 through with my 5th reading of Atlas Shrugged over the 30 years since I discovered this wonderful opus of Ayn Rand. Objectivism segways with my own libertarianism in so many ways it sometimes frightens me. Well, frightens might be a bit strong. For the 10 or so in the world who might read my blog and have never read any of Rand's work, she immigrated from the Soviet Union as a young woman and upon seeing how our society was 'progressing' realized we were in very real danger of going down that some road less traveled. She wrote Atlas Shrugged to tell the tale of a world where the men of the mind go on strike, as apposed to the blue collar strikes of our modern world. Imagine all the inventors, industrialists, true philosophers, and the rare neutral (unpolitical) jurists just leaving our society to wait for its collapse into self consuming anarchy. A compelling story. Ayn Rand is often wordy, to say the least. The key character, John Galt, at one point delivers a 60 page monologue. Yes, 60 pages.

So in reading this seminal work by Rand once more, I'm moved to realize just how far down the road of the Rotters and Looters we have gone. But I'm sure Rand would be amazed to see that these beasts of the oblivion have discovered another way to destroy our great society. Not through the taxing, confiscation and anti-business laws she imagined, but a much more insidious proposal.

Let me digress and discuss the current crisis. Through no fault of the majority, trillions of the money that drives the nations economy have been misdirected and outright stolen by greedy monsters. Don't get me wrong, greed is a good thing in and of itself. Someone who works to invent something that will put a competitor out of business is greedy, but in a true and natural way. In all the ways that matter to humans in the purest form, if he succeeds he benefits himself and mankind. Without that action, there is no technological competition, or improvement. Our evolution to the current age would not have been possible without this sort of behavior. But these politicians and monsters from Wallstreet are not exercising this basic nature, they are in essence looters. They have created no wealth, in fact in many cases they have perpetrated acts to strip away wealth others have made. This act produces nothing new, no new product, no benefit to himself other than pure material greed. They are monsters.

This extends to the Fannie Mae and Freddie Mac situation, but in worse ways. These entities were created by the federal government, democrats to be precise, for the sole (and admitted!) purpose of giving loans to people who could not afford them! How does this action make sense? It doesn't, but it sure helps get people to vote for your. People who live to 'help the under privileged' and people who get those loans.

After years of functioning, it became obvious that these two entities were in deep trouble. They'd ignored their already nearly non-existent rules and made horribly risky loans, called 'sub-prime' by many. Now many of those who worked for them are gone, and millions richer, while the companies fail. Tens of thousands of loans with billions are going to fail, and the government is going to step in to fix the whole problem.

Wallstreet trading companies are 'too big to fail'. Fannie Mae and Freddie Mac are 'too big to fail'. Auto manufacturers are 'too big to fail'. We used to deride foreign nations for funding their companies which were considered unfair competition to us (read Airbus). Now we're doing it. Rand was right, we're becoming more socialist by the day.

We have to save these companies (Wallstreet, Freddie and Fannie, etc), at least this is what they say. The costs ESTIMATED at $700 billion. No, I didn't make a mistake. That is nearly 3/4 of a TRILLION dollars. The total military budget for 2007 for $699 billion. This bailout will cost us as much as it takes to run the most powerful military in the world for a full year. The entire budget was only $1.7 trillion with another half trillion in off budget items. I don't want to get into the entire disgusting budget process at this point. That's another post. On to debt.

Our country is currently $9 trillion dollars in debt. There is no reason be believe that this bailout won't climb to a trillion. So in one fell swoop, we're going to vault over the $10 trillion dollar mark, especially after you add what we're going to run over budget for FY 2008.

So what you say? What does this have to do with Rand? What I say is this is the way Ayn Rand didn't consider. Destruction of the nation through debt. She never even touched on it in her book. The national debt was all but non-existent back then. Well, it sure is now. That debt itself is not a deadly thing, in fact it is arguable that our debt helps run the world economy. But what happens when your debt exceeds your overall income?

The US gbp (gross domestic product), the sum of all the money we make, is roughly $16.5 trillion. The world gdp is about $55 trillion. Yeah, we make about a 1/3 of the worlds money, and by far the largest over the EU (not one nation either) by 10%. Our founding fathers would be proud (on a note, the smallest is Kirbati at $67 million). But that debt thing? Yeah,
well, that debt is largely financed through letters of credit, also known as bonds. These bonds are bought by everyone, literally. People, businesses, states, even countries buy our bonds. We're the strongest, richest, power money rich nation on the world! Who wouldn't buy our bonds. The answer is someone who doesn't think its a good risk any more.

Our debt is going to top $10 trillion this year, more than half our gdp. Will this be the tipping point? That magical point when someone or some entity stops buying our paper? Probably not, but it is a HUGE leap in that direction. There has to be a point, there must be. It isn't possible to have a free economy and have endless debt. The results of being unable to sell our bonds is a melt down. Our only choice will be to wipe away debt, pretend it never existed. Our currency crashes, foreign markets nose dive, nations who lock their currency with the dollar follow us down the whole. In a few days the Japanese Yen is worth more than the dollar. Bye bye.

Atlas hasn't shrugged, he's just done the Hammer Throw.

This bailout is reckless beyond belief. I have a great deal of respect for those few republicans (lead by John McCain) who stormed into Washington and put the kibosh on this insane plan. Now they're talking about some kind of loan. Well, not what I'd like, but better, I guess. The end result if Washington does anything other than shrug in this mater is that we have lost our capitalist society. This is pure socialism. The government is rescuing these businesses for the social better. Think about this, is that the smartest thing? It's like a lion ignoring the weakest gazelle because the herd would feel bad about it. When you encourage bad behavior, you get more of it. "Let's do whatever we want in business! We're huge, the government will have to rescue us if we screw up!"

This is a slippery slope we ride. I'm no fan of John McCain in many things, but I sure hope he's got traction control and 4x4 if he's taking this path.