Bogus Bailouts Benefit Only Bozo’s

Bogus Bailouts Benefit Only Bozo’s
10 Reasons we should abolish bridge loans to bankruptcy, bailouts, and revoke TARP

I explained in another blog post tonight why I'm not so worried about unemployment and that is one of many cases I can make for why we should not bail out the auto makers. It is vital to keep perspective in context for this to all make sense.

A friend of mine recently said that the greater the obstacles (I'm paraphrasing and taking this a bit out of context but I believe it applies) to some outcome the greater its value or its “wonderfulness” if or when an outcome is achieved. I have a reflex tendency to disagree with most people (for a few minutes anyway), but applied to business, he may well be right. Obviously my initial knee jerk reaction has changed, since it’s the introduction to this blog. Not everything can come down to costs and benefits – sometimes you just do what you want to do and hope all the cards fall into the right places because you follow something deeper within than cost-benefit analysis. Business owners all over the country are using their gut to make the tough decisions and make it through this market turmoil without bailouts, handouts, and without the pathetic demoralizing groveling required to get either.

The bailout bunnies and bridge loan to bankruptcy buddies have the opposite view; they believe that the only way to “save” companies is with intervention due to the “drastic times” theory – drastic times call for drastic measures. Drastic measures must come from within the free market enterprise and innovation within private companies, not moron politicians or specific Treasury Department people with very precise histories quite used to throwing money at a problem to make it go away.

So why won’t the bailouts work?

1. There is an inherent sense of self worth brought on by how hard you fought for something. When you fight for something, it has value to you. If your business means something, you fight for it. I would hypothesize that these automaker CEOs and bank CEOs etc etc don’t care about their companies; they care only about their own asses. Small business companies aren’t groveling; they care.

When we bail out companies, people want their share of the pie, too – at least those with no self dignity.

2. There is moral hazard in bailing out companies and it trickles all the way down to the individual level. I'm starting to see this more in housing as well. People who CAN afford their mortgage just fine becoming delinquent on purpose, throwing their pride, moral obligations (and credit scores) out the window simply because the banks will negotiate with them only if they are late. Cry me a river, you people are pathetic. Quite a bit of my housing portfolio is “upside down”. I took risky loans to leverage the heck out of properties that lost some value. I get how that feels. Tough shit. Markets go up, markets go down. You have to work harder to compensate and eventually, you’ll be fine.
We are also seeing people buy and bail, turn in their keys screwing their neighbors’ values when they can afford their payments just fine.

3. There can be NO REAL success without the opportunity to fail. The universe if created in such a way where every action has an equal and opposite reaction; every “thing” has an ‘opposite’. If you are only given an option to succeed, what pleasure is there in doing so? If you don’t risk something, then when you get it all, it’s value is nothing. I believe that is why those born with a silver spoon value their wealth far less than those who worked their butt off for it.

4. Quite simply, bailouts don’t work. Banks hoard the cash “just in case” and to meet reserves, BofA takes $25 billion it didn’t even ask for and then lays off 35,000 workers anyway, auto makers need the money to sustain themselves “just for a couple of months” with salaries that make them unable to compete and union bosses unwilling to sacrifice anything to make it work (why should they? Their leaders wont sacrifice either – see blog about unemployment!) and companies will continue the exact same business practices that they had before the bailout that got them into deep water to begin with. Ultimately, they’ll either go bankrupt – or need another bailout.

5. This isn’t company’s money or earned revenue; it is the tax payer’s money. There is little to no oversight, and who would trust government oversight anyway? Taxpayers have shown in polls overwhelmingly (including in the case of Detroit) that they prefer NOT bailing out companies. It’s our money, listen to us.

6. We must revoke TARP immediately. This is a nightmare. The White House and Treasury think they can bend the rules and do whatever they want with the money. Well unfortunately our Congressional leaders granted them the power to do so. Now they need to take it back. Last I checked survival of the fittest is still at play in all aspects of life – business included.

7. Perhaps most importantly of all, useless companies and companies that cannot adapt to change eat up the resources that good, viable companies need to survive. This includes human capital, motivation, grant money, small business loans and so on. The faster the bad eggs get out of the system, the quicker we will be on the road to recovery. People are left with little capital to start up businesses to innovate if they’re paying more in taxes and banks won’t lend to pay for idiots that didn’t run their businesses well and think it’s the tax payer’s job to bail them out.

8. Markets correct, but only if they are allowed to. We, unfortunately, need a significant recession – the 9th I believe since the end of the last World War, to get ourselves out of this. And we will – if government does its job and stays out. You don’t give a guy trying to quit smoking a pack of cigarettes and expect him to quit.

9. Bailouts are creating new scams. Don’t believe me? Read up on the new FHA scams that look all too much like the Subprime scams of the 2004-2006 era; even the same mortgage brokers are re-filing with the FHA to sell mortgages – it’s the same fraud with a new name (all including faking W2s and so on.. just like we saw in the last setup for disaster) and the government is granting these people licenses after revoking them for fraud the first time. If this continues, in 5 years it will cost taxpayers about $500 billion in yet another round of FHA-backed foreclosures.

10. Under pinning the capital markets is a deflation in house prices. Throwing money at companies won’t fix housing – once prices in housing stabilize, banks can value assets, and we will be on a road to recovery. For now, banks will pass their worst loans onto the tax payers; not loans that will recoup money for Americans.

How to Recession Proof Your Life!

In today’s turbulent economic times, we can lose 2% of our 401k value in a day; 5% in 6 months in our homes; the instability requires a solid plan of action to recession proof your life!

About 40% of economists surveyed today believe a recession is likely in 2008. So what can you do to be prepared:

1) Secure any income. If you have income streams, document them and be sure they’re safe for the next few years.

2) Start getting your financial house in a database, literally. Use a money tool like Quicken or even Excel to help you keep track of things like mortgage balances and credit card debt. Sometimes seeing how much you are in debt can help curb spending, too.

3) Prioritize your debts. You get an $8000 tax return right? You owe $7500 on your car; so it would be nice to remove that payment! But what if you’re paying 6% on your car and 15% on your credit card? Even if the $8000 won’t make much of a difference in your balance, it will make a difference in how much of your money goes to interest each month. Pay the debt that has the highest interest rate first!

4) Transfer balances. Lots of us get the balance transfer offers from credit card companies and ignore them. This is easy to do. But, simply shifting money from one card to another, even if it buys you 6 months with no interest, can save thousands in a year.

5) Begin saving if you haven’t already. It’s very easy to feel insecure right now with fluctuating markets.

6) Take stock in your stocks. Figure out what is in your 401k. Don’t just put it in and forget about it. Look at the balances, re-balance your portfolio, and make sure you are invested wisely for the future. Most investment planners will have you invest based on when you intend to retire or when you need the money.

7) Look for all the tax incentives you can find! There are lots of ways to save money on taxes; 401ks, IRAs, and some not-so-common savings plans such as college funds and donations. Talk with a tax planner and save your money instead of giving it to Uncle Sam.

8) Have 6 months savings. In otherwords, if your bills cost you $3000 per month, you need a minimum of $18000 in liquid capital. This should be something secure, like a six or twelve month CD.

9) Finally, get spending under control. Throughout the early 2000s, many were using their homes as ATMs, feeling the market would continue to increase. We know how detrimental that can be! Figure out where your money goes by keeping track of it for 2-3 months. You will know what you can cut out, and where to save some extra money.

Let the Spin Begin - the Media and the R Word

As late as mid January of 2008, economists surveyed by leading financial publications resulted in a prediction that the US had less than a 50% chance of going into a recession in 2008.

If you listened to the media, you'd think the world was ending. Who are the worst offenders?

I did a search to see how many hits I got on web sites noted below, with hit rates indicated:

Fox News 1530
CNN: 1692
ABC (approximately) 3760
and MSNBC an astounding 23,200!

I wanted to take this into the newspaper arena, and found the following:

The far left leaning San Francisco Chronicle in 2008 alone mentioned a recession 464 times according to their web search - already more than the entire 2007 year! (which came in at 329)

The New York Times.. also left leaning.. 420 in 2007, and already 311 since January 1, 2008.

Compare this to the Washington Times (considered more conservative) which mentions it 149 times in 2007 and 77 times in 2008.

One could speculate on the motivations behind using the R word. Perhaps it's pure drama that drives viewers.

But the media has a responsibility here, and it seems very few are holding them accountable. The more they mention the word recession (whether we are in one or not), the more people assume we are.

ABC, CBS and NBC reported in the first two weeks of 2008 negative stories about a pending or looming recession 32 times. The positive? Mentioned in 8 stories. (Source: Business & Media Institute)

What are the facts? Well a study conducted by Bloomberg of 62 economists released January 9th showed economists predicitng a 1.5% GROWTH in the first half of 2008. This is most definitely weak expansion, but it is far from a recession! The Wall Street Journal reported similar findings, predicting growth of 2% or less, and a 42% chance of recession. The same type of issue holds true for unemployment, also exaggerated by the media. Take the Today Show reporting on January 5th that unemployment moved up to 5% last month, the highest rate in two years. Really? In September of 05, unemployment was also at 5.1%. The 5% rate is the highest in SIXTEEN months, not two years. It's also below the 5.4% 10 year average and the 6% 30 year average. (Source: Business and Media Institute)

I can only speculate on why the media would choose to report the news as they do in an election year or when circulation at some aforementioned newspapers are down (you can guess which ones), but the media owes it to the public to talk about the facts and not use scare tactics, selectively choosing the data it wishes to represent.

Dani