"The principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale." --Thomas Jefferson

Friday, September 19

12 Zeros?

In a world so quick to place blame, I would like to know why are the names of the CEOs and investment managers of failing investment banks not front page news? They grossly mismanaged, over-valued and leveraged themselves right out of business and have brought the global economy with them. Why have you not heard of the Lehman Brothers CEO that took home $34 Million dollar salary last year? Curious. His name is Richard S. Fuld, Jr. He's probably not hurting for money but I sure hope he finds it hard to find another job. In a country where money is now controlled by the government, maybe we could lobby the IRS to garnish his pension. He will probably go to the race track a leverage his earnings 30-1 on the slowest horse in the field. Oh I forgot it is all Bush's fault for letting these men be so greedy.

So it looks like the masterminds have hatched a plan to rescue the failing financial system in the United States. I have spent a lot of time myself trying to understand the plan and think most are in the same position. I will try to put it in the simplest terms possible because I think it is important for us to understand. The details are not out yet but should be next week if Harry Ried and Nancy Pelosi can postpone their vacations for a week or so.

First thing is to understand that the guy you signed your mortgage with and the credit card company who's logo graces your card is probably not the company that cares whether or not you make your payments. These companies make the transaction and then sell these mortgages and credit cards as securities on the markets. For the last 5 years, a lot of people have got mortgages and credit cards that shouldn't have and are now defaulting on these loans. These securities that were once so good have turned sour very quickly. The investment banks and other financial institutions that bought them were okay as long as this housing market stayed hot and rates low. They are now stuck with a security that is worthless right now because no one in their right mind would buy them. Thus the financial crisis you see on the news.

Is this the only cause? No. But it's a big one.

So our government has said to these big investment banks with a lot of bad debt (Lehman Brothers filed chapter 11 with $618 Billion dollars worth of bad debt) that the American taxpayer will be the buyers of these worthless securities and exchange good money that they just printed for bad securities so that these bad mortgage securities don't appear on their balance sheets any more. The government will then hold these securities until they are again marketable and sell them when the markets come back. I would hope there to be some tangible asset behind these dead securities.

The dollar amount has yet to be disclosed but is thought to be at least $500 Billion and maybe as much as a Trillion. That's a one with 12 zeros. Put that into perspective-If our treasury scattered that much money on a football field in $100 bills, it would take a person picking them up at an average on one bill per second 1180 years to pick up that much money. We are talking 20 times the net worth of the richest man in the world. I have my doubts that this will not cause a "bit" of inflation.

All being told, I find myself torn. I understand the devastation that this debt could cause our financial markets if nothing is done. At the same time, when the government is now involved in essentially a state run economy, I see something that resembles communist China where all the banks are controlled by their central government. I believe in the free markets but it scares me to know that if our government, who is already in debt $9 Trillion dollars, can write a check or extend phantom credit to whom it pleases, they can.

If i remember correctly, the problem stemmed from when people who had no business buying a home or were no good at managing their money in the first place were granted this debt. Now the federal government is extending credit in the same way. These companies can neither manage nor are they trustworthy in their "credit past."

I am not claiming to have the answer here. I will leave that to the experts. I am merely stating my claims that it seems to be a completely ironic situation that resembles a very socialist country.


Anonymous said...

100% agreed; equally concerned. I'm in search of a copy of I.O.USA, the Movie on DVD locally for greater understanding in addition to the media. And I'm in prayer for our nation's security on many fronts - for the next President! H Morgan,FIC, and Financial Advisor, Northern Colorado

Anonymous said...

That's sure a lot of zero's! I wonder who actually writes the checks out to all the creditors on payday.

It certainly seems unjust for a handful of greedy CEOs to walk away from this mess with their worlds relatively unscathed, and taxpayers are left holding the bag for generations to come.

Truth be told, I want to join you in pointing my finger at others, but I have to wonder if we're not all to blame.

An overwhelming number of American's worship possessions and riches more than God. All but the wise few have tolerated debt with reckless apathy for too long. For vanity, we've convinced ourselves trade stability for immediate satisfaction. We thought the day would never come when we'd have to pay our debt and the sleepless interest that encumbers it.

True, financing companies enticed people to buy and leverage their belongings while convincing many that ARMs, balloon payments, interest-only payments, and borrowing against all your equity were worth the risk. Loan officers were compelled to disregard ethics and sell borrowers loans that would bring the biggest commission. Nonetheless, the Devil can only hand us the rope, but we have the choice whether to hang ourselves with it.

Why are we hanging here gasping for air today? Partly because greedy lenders threw caution to the wind and put debt in the hands of irresponsible people, and partly because hundreds of thousands of American's gambled our futures on big homes, flashy cars, and bling when we really couldn't afford it.

This week, we were faced with a lose/lose situation. That's life sometimes. If adding another trillion dollars in debt helps us avoid plunging into the next great depression, I probably would have done the same thing the Fed and Treasury did this week.

Yet I worry that it was a risky move in futility. Every action has a reaction, and in this world economy there are no minds or machines keen enough to anticipate every scenario. We are completely left to God's mercy. The sooner everyone sees that and drops to their knees to ask Him for help, the sooner we'll start making the right decisions.

After we've prayed for that help, we need to get back on our feet and start working. I think this is a horrible time for congress to go on vacation. In my eyes, they are turning their backs on America. Traitors.

We need to become energy independent to avoid the further pitfalls of relying so heavily on oil imports. The people and businesses that still have money (and I'm talking real money, as opposed to borrowed money), need to continue purchasing goods and services, wisely investing in stock, real estate, and other tangibles, and spending money on research and development. This is the time for the wealthy to start flooding the market with their bargain buys. We're all co-dependent. If everyone's wallets stay clamped shut, we're doomed.

We don't need justice to help us get up in the morning and live our lives. We would all like to "stick it" to the corrupt CEOs and send our politicians on a long walk off a short plank. But where would it get us? We need to dust ourselves off and keep moving. Let Wall Street take it's fall, but Main Street is gonna stay open.

I'm telling everyone that will listen: Keep that food storage handy and get out of debt as fast as you can. If you are prepared, you will not fear what's ahead. We're probably in for a really bumpy ride, but it will be okay in the longrun.

I read your bit about patriotism, and I think it's still very much alive for the right reasons. We all have our own definition of what it means to be American. Do we define America as a greedy society that needs to be brought to it's knees; or a productive, God-fearing country that stumbles once in a while but won't let a few hurdles take us to the ground?

I still proudly fly my flag outside my home almost every day and have tried to do so ever since I bought my first home. Back then (2002), I thought the world was falling apart...but it didn't.