The “Tanking” Economy, the Housing Bubble, and What Happened

         The New York Stock Exchange has been down a lot over the past couple of months.  It’s down about fifteen percent from its high of just over 14,000.  Many people are wondering why and how far it is going to fall.  This is my attempt to explain why it has been falling.

            Our story actually begins in the housing and sub-prime loan markets.  As many of you know, mortgage companies don’t actually have the millions and millions of dollars they loan to homebuyers.  What they do instead is make a loan, say for $250,000, and try to find some investor (generally a bank or some other financial entity) to buy the mortgage.  The company serves as a middle man between the homebuyer and large financial institutions. 

            What has begun happening recently is firms have been buying large numbers of mortgages of all different sizes and interest rates and rolling them into one package, kind of like a mutual fund.  They then began to sell shares of this “fund” to investors and investment banks.  This has never been done before.  People on Wall Street have never been able to buy shares in a mortgage security because mortgage securities didn’t exist.

            Now investments are rated based upon their safety as an investment.  For example, a triple AAA rating means that the stock or mutual fund you are buying is pretty safe and unlikely to fall far in value – wiping out your investment.  It also means the return will probably not be as high as other investments.  A single A rating means that the stock isn’t as safe as the triple AAA, but could potentially have a higher return. 

            Well the various companies that have created the rating system needed to rate these mortgage securities.  In some cases they gave triple A ratings, in others double and single A ratings.  Then the mortgage securities were marketed based on these ratings.

            So like any bubble, there was far too much exuberance in the market for these funds and they were overpriced and overrated.  That was one problem.  The deeper problem, however, is that mortgage companies began making lots of bad loans (e.g. requiring no down payments from the people they were lending to, not checking credit history, proof of income, etc.)  This was not a big problem until the housing market started to slump. 

When the values of houses started falling, those people who had taken a $400,000 mortgage out on a $400,000 house found themselves with a $400,000 mortgage on a house that was now worth $350,000.  Not a good place to be.  So they just walked away (that means the bank foreclosed on their house.)  But no one is in a good situation here.  The bank is left with a house worth less than the loan it made and these people are down a home.  There were a couple of other issues about variable interest rates that I won’t go into here.  The point is that there was a huge increase in the number of people defaulting on their mortgage loans.

            So big picture, these mortgage based securities that were being doled out like mutual funds, started collapsing.  All of a sudden people began to realize that these securities were not as valuable as they had initially thought.  So the price began to plummet.  And to make things worse, no one really knows how to evaluate the worth of these securities.  The fact that they are so new and the rates of defaults on loans are variable makes people afraid to purchase the securities; even after they have fallen substantially in price. 

            Here’s where it affects the credit market.  Some of the chief buyers of these securities were giant investment banks, Merrill Lynch, Bear Stearns, Morgan Stanley, etc.  The investment bankers at these firms made varying degrees of stupid decisions.  At Bear Stearns, for example, the investment bankers bought the securities on margin, which means they were borrowing money against their current assets to buy more shares of the securities.  Though always a risky idea, if your investments are good it’s not a problem.  Once these securities started crashing though, the market froze.  No one was willing to buy but everyone wanted to sell.  So Bear Sterns went from having 800 billion dollars worth of securities in its investment branch to 300 billion dollars worth in a week or two (Note, these are not the literal numbers but they are characteristic of the idea).  And, because they had bought on margin, they still owed the hundreds of billions of dollars they had borrowed.

           This is why the market is unhappy.  Hundreds of billions of dollars have just disappeared.  These are not literal paper dollars, but electronic dollars in the credit market.  This is one of the reasons why it is difficult to take out new loans.  The Federal Reserve has stepped in to try and fix the problem, but that is a completely different story.

            What does this mean?  Well, credit markets are in turmoil.  No one knows how to value these securities.  A number of lending companies have gone bankrupt.  These financial problems affect the economy by limiting business’s and individual’s ability to borrow money for various projects.  Don’t panic, it’s not the end of the world.  Give the market time to sort itself out.  We tend to overly concerned about the immediate present rather than the future.  So what if one quarter has slow growth, or even negative growth?  There will be hardship for some people, but the market will come back if left unhindered by government intervention.  Also, it will come back quicker if consumer’s had more confidence.  Consumer confidence tends to be a self-fulfilling prophecy as to the performance of the market, at least in the short run.  So be patient, things will get better. 

Predicted: Spectacular Failure

In the Cleveland Plain Dealer Blog, V. David Sartin lays out differences in the two Democrat candidates health-care plans.

Can two practical failures, moral evils, and spectacularly bad ideas be compared?

Hillary Clinton and Barak Hussein Obama can claim as many times as she pleases that their plan will only cost X, but when the plan is applied, there is no telling how high the actual cost will go.

A key fact of every other socialized health-care plan across the globe is that the actual costs far exceed the proposed cost.

And is it really going to be cheaper? In my current insurance setup I (a single, healthy person) am paying about $40 from each paycheck of $1200 (or 3.5%) every two weeks. Meanwhile I am paying about 15-20% in taxes from that same paycheck.

The most conservative estimates of the increase in fees due completely to taxes will be about double, with an expected load of 30-40% in taxes alone, most of this going to pay for the increased costs involved in Government shouldering the burden for health insurance.

Government is not efficient, it is really the antithesis of efficiency. If you were to give the government and a private company each a dollar, the private company will accomplish more with their dollar than the government. Much more, even with the corporate salaries and such. A business which does not use it’s dollars well fails.

Government has no such check. It can use it’s dollars as wastefully as it pleases and there is nothing to stop it besides oversight by you and I. And government does not like us watching it, despite it’s own desire to watch us and our business more and more closely.

Even beyond the obvious efficiency issues though, is a constitutional and moral issue: Is it the governments responsibility to provide health-care to each and every one of it’s citizens.

Individually we are each very much for personal freedom: allow us to do as we please, please.

If we surrender control of our health choices to the government, are we not giving an extremely powerful entity control over our lives to an unprecedented extent?

A private health insurance company can ask us to live more healthily, can raise our rates based on our risk factors and history. But it cannot compel us with force of law and punishment besides increased costs and denied service.

The government can.

And as the government seeks always to expand it’s grasp in every way: say as much as you like that it will not abuse it’s power. Government will compel us, with force of law and real punishment, to live according to it’s ideal of health.

Now is that freedom?

Or is having universal, expensive health-care really worth that cost?

10,000 Lies

Does the truth we find in this humor scare anyone else?

I’ve had the following images floating around on my computer for a while, waiting for me to actually post them. It seems to me, in their attempt to paint the liberal and Democrat as the loving, caring, truly human leadership, anybody with a mind will recognize the fallacies and dangers of the blanket statements made in this children’s book.

Children reading this book will be cursed with the feeling there is actual truth to be found in the ideas. They will accept without thinking the lies of socialism and liberal socio-political theory and practice.

Read and weep for America.

What parent wants their children to hurt?

What parent tries to protect the children from the pains of life?

What parent can?

Laudable.

But given the current state of Political-Business relations, wouldn’t it be more accurate to say: “Democrats give the Police Officers’ and Firefighters’ Unions the tools they need to keep dead weight and stupid policies in place hampering the heroes efforts, abilities, skills, and desires to serve as they are called”?

And I would want my children to go to those war-zones, indoctrination facilities, stupid-makers, great-levellers of the people they call schools?

I know what they mean is that we can all go to college. But 1) where is that a constitutional right or a universal requirement, and 2) aren’t there plenty of great colleges for cheap?

There are plenty of jobs in which one can work their way up to a comfortable level of pay which require no college. And the government has neither interest nor right to take money from those who aren’t going to college to give to those who are.

Maybe if there were less “free” money floating around from the government, the cost of education would come down, and only those dedicated and intelligent people would stay in teaching as it became less of a lucrative career option.

Democrats are government, not Mommy. This is a legitimate role for Mommy, not government.

To the extent that Democrats seek to usurp this role, they confuse the nature of society and culture. This is immoral.

Pompous, self-aggrandizing, megalomaniacal do-gooders!

Show me someone who believes this and I’ll show you someone certifiably insane.

First, there is no proof the Earth is “sick” with Global warming. There is proof there are regular and natural cycles of warming and cooling, and there is not proof we are even in a warming cycle.

Second, the temerity of the writer and those who agree with him in assuming a political party which has existed a mere 200 years has the might to enact significant change in an entire planet which they believe has existed 4.5 Billion years.

Someone call the nice men in white coats.

False.

The truth is, Democrats make sure schools cannot fire bad teachers. Democrats make sure children know all about condoms and how to have sex with each other, leaving it to the parents to teach reading and writing and true morals.

Individually, Democrats are generally caring people. But are they busy loving people to hell?

UPDATE:

These are not parodies, these are selections from one of two books for children:

Why Mommy Is A Democrat & Why Daddy Is A Democrat

Who Owns The Money?

McCain may not be with conservatives on many social issues, but he’s definitely with us on fiscal issues. He’ll at least work hard to keep America from going broke.

Three articles across the internet today highlight the heart of this issue: the willingness of the candidates to spend money which you’ve given them in self-serving pork projects.

Buying votes with your cash.

First, from the Washington Post: Candidates Earmarks Worth Millions:

Working with her New York colleagues in nearly every case, [Sen. Hillary] Clinton [(NY)] supported almost four times as much spending on earmarked projects as her rival for the Democratic presidential nomination, Sen. Barack Obama (Ill.), whose $91 million total placed him in the bottom quarter of senators who seek earmarks, the study showed.

Sen. John McCain (Ariz.), the likely GOP presidential nominee, was one of five senators to reject earmarks entirely, part of his long-standing view that such measures prompt needless spending.

In the Boston Herald (winner of todays Most Absolutely Annoying And Alliterative Headline: Blustering Bubba Blasts Barak for Babbling Baloney) editorial, The Race For Earmarks, the editors note that Hillary sent $342 million to her own constituents, putting her in the top ten porkers. McCain, on the other hand, was against earmarks before that was even beginning to become popular.The porkers which inhabit Washington desire power. It is not altruism which drives them, but instead a compelling desire to get as many people subscribing to their ascendancy by giving them money.

But whose money do they use? Yours.

If it were their money there would not be an issue, except for the ethical implications of graft and cronyism and what they say of the character of the individual engaging in them.

Further insight into the candidates philosophies can be seen in who they get money for:

As a campaign issue, earmarks highlight significant differences in the spending philosophies of the top three candidates. Clinton has repeatedly supported earmarks as a way to bring home money for projects, while Obama adheres to a policy of using them only to support public entities.

McCain is using his blanket opposition to earmarked spending as a regular line of attack against Clinton, even running an Internet ad mocking her $1 million request for a museum devoted to the Woodstock music festival. Obama has been criticized for using a 2006 earmark to secure money for the University of Chicago hospital where his wife worked until last year.

McCain, for his seeming contempt for many social-conservative causes, respects the citizenry enough to protect their investment in government.

It reminds me of the story of Davy Crockett, who, when a disaster struck his home state while he was a member of Congress, and his constituents begged that he send federal money to help the stricken area, said that he would not.

He stated that money spent by the government can only be used in ways which benefit ALL citizens equally.

If only more in the current crop of public megalomaniacs servants would espouse this truism.

But the porkers currently running for the Democrat nomination do not.

The Scheming Communist Operative, Hillary, does what is best for her and only, ever, what is best for her. If this involves giving your money to someone she thinks can pave her way to power, that’s what she does.

The Idyllic Communist, Obama, only gives to “worthy causes”.

The problem is, people (you and I) are much more efficient and effective at getting money to worthy causes:

• We are better at choosing those causes which are actually worthy.
• We’re less likely to be duped in significant numbers and for substantial amounts of money than the government with its fat-handed largess.
• And it doesn’t cost as much for us to get our money to those causes which are worthy, so more money gets to them overall and less is wasted in the endless iterations of bureaucracy.

Hillary is a smart (not intelligent, just smart) and conniving operative with one goal, her own supremacy.

Obama is an intelligent and misguided idealist. He wants to solve all the world problems, but everything he claims for his plans have all been tried before, and failed. Over and over again.

The picture which comes to mind is that of Kranzy October, the Russian Revolution in “Red” October of 1917.

The idealists, mostly young Russians, many of the Jewish Russians seeking a Utopian society free of the perceived inequities of the Tzarist system followed headlong into the dismal black of Communist Russia. The smart ones saw chance of personal aggrandizement and turned coat. Spying on their idealist brethren and reporting false crimes until they were the only ones surviving. Lenin rose to power in this era not through altruism and idealism but through corruption and power-lust, scheming and buying his way to the top.

Hillary is a Lenin-type, while Obama is a type of the dead idealists.

Both are dead wrong in their goals, but each have their own reasons, methods, and paths to achieve the death of our Great Nation.

Obama is not naive, but he is not a leader.

Check his closet for skeletons.

Quotable: David Limbaugh

From today’s column:

Reagan conservatives (and Libertarians) recognize that conservatism through liberal means is still liberalism. They strongly reject that they must abandon their fealty to fundamental constitutional restraints on government.

Huckabee: Our Hope From Hope?

Responding to the article “Huck-a-bust Not Just Romney’s Drumming“, Ryan Scott asks why not Huckabee:

I mean seriously who would want a christian, honest,genuine man to run this country wouldn’t we be a wreck? Plus you provide no proof, but general fallacies that don’t prove anything. I am a christian, and maybe you should rethink your christian stance!!!
May God speak to your heart.
Actual brother in christ,
Ryan Scott

A fair and entirely justified question.

Essentially, in light of the current political landscape: It was one thing, for me, to support Romney. Now, we’re faced with McCain or Huckabee. Given that significant change, why not support Huckabee now?

My response:

I would love an honest genuine Christian man to step up and run this country. That would be amazing.

“You shall know them by their fruits”

Huckabee has history. He’s been around as a public person for a long time. This is a good thing.

We know he is consistent and principled, that he’s been pretty much the same his entire political life.

The problem is, his philosophy of government is incorrect, both by God’s law and America’s Constitution.

God has clearly set up various spheres of responsibility and influence for his various authority structures: State, Church, Family, Individual, etc…

Huckabee does not understand this or has pragmatic reasons, in his own mind, to ignore them.

As such, a government under Huckabee would grow and take and spend more of yours and my money.

Government is rarely, if ever, the answer to societal ills. Government is unwieldy and prone to corruption and deception.

Unscrupulous people are drawn to government because of this.

Huckabee intends well, but his stated intention is wrong and the result will be even worse.

That’s why I do not support Huckabee for president.

Super Duper Election Linkfest

From Doug Ross: Gomer Melts Down - Huckabee claims there’s a conspiracy against him, and proceeds to lose the facts left and right. Such as the fact that Clear Channel and Sean Hannity are not affiliated. Hannity is syndicated by ABC Radio.

Come on Huck, give it up already. You’ve damaged God, America, Arkansas (on top of the damage the Clintons have done to that (otherwise) fine state), and now you’re just hurting yourself.

WorldMagBlog asks Christian liberals to reexamine the nature of their belief: Evangelical Liberals Rejection Of Reality (link invalid):

If you set government policy based on bad economics — i.e. policies based on economic principles that do not correspond to the way God created the world to operate — they will be counterproductive and bring unhappy results. They won’t “work.”

Hugh sees Romney surging and talk radio leading:

Once the score was clear after Florida –a McCain or Romney nomination– the Republican base quickly began to rally to Romney because the Republican base cares deeply about the issues that bind the Reagan coalition –tax cuts, originalist judges, free markets, and of course the value of unborn life and traditional marriage.

And WorldMagBlog tells us what to watch (link invalid):

Super Tuesday will be key to deciding the presidential nominees but don’t expect the race for the nomination to end today — especially for the Democrats. McCain’s lead over Romney is widening, and if he captures the most states and delegates tonight he should emerge the clear victor. Obama has narrowed Clinton’s once-wide lead and Democrats award victory based on a combination of popular vote, delegates won, and states won. Expect some spin once the votes come in.

Now, stop reading and GO VOTE!

End Of January Election Links

Obama and Clinton being children:
There’s a bold line between idealism and fantasy,
neither of them have grown enough to know the difference.

With big thanks to Sweetness & Light.

McCain is the front runner, but he’s not won yet. America’s Mayor has endorsed him after ending his own bid to become America’s President. The Governator is expected to endorse him as early as today. (Politico)

McCain will be a “hold-your-nose-and-vote” nominee because even he will be preferable to any alternative.

It is telling that, following exit polls, we know that liberals and moderates voted for McCain in Florida, while conservatives voted for Romney.

Speaking of Romney, he has some tough choices to make: Will he write the big check?

Huckabee needs to get his personal vendetta against Romney out of his eyes, drop out of the race, and endorse the one man who will support a real conservative agenda who still has a chance of winning.

Liberals Anonymous is looking for new members:

Liberals Anonymous (LibAnon) is a nationwide organization of current, former, and recovering American liberals and Democrats. Its sole mission is to establish and maintain recovery programs designed to help similar individuals overcome the plethora of congenital illnesses inherent in postmodern American liberalism with which they are embittered. Liberals Anonymous accomplishes this worthy goal by making the idiosyncratic elemental disease nature of liberalism self-evident to the afflicted individual.

(From the American Thinker)

Back to Romney, and Hugh Hewitt. Ace of Spades apologizes for not getting it right…

I can’t keep knocking Hewitt for being a bit overly enthusiastic about being, ultimately, right. If some of us had seen the lay of the land as well as Hewitt and supported Romney as the best realistic consensus conservative candidate, we might not be in the position we’re in now.

…and endorses Romney.

Jay, do you truly think the media darling candidate is your candidate? Come on, you’re better than that. I know it.

And Orson Scott Card thinks religion may play a bigger part of this than we realize:

After the Iowa caucuses, an African-American friend of mine from Los Angeles wrote to me, scoffing at the idea that Obama’s victory there meant that a black man could now be elected president.

I thought he was too pessimistic. But then came Hillary’s “comeback” in New Hampshire.

I keep hearing about how the pollsters “got it so wrong” and how Hillary’s victory came from the Democratic regulars getting out the vote for her.

And Mitt Romney’s defeat was also laid at the feet of many causes, none of which sounded particularly solid to me. Yes, McCain is something of a “favorite son” in New Hampshire now. But he also has another “virtue” that Romney and Huckabee both lacked: He’s not openly religious.

I suspect that racial and religious prejudice are both playing more of a role than anyone is willing to admit.

Read Card’s latest WorldWatch.

Riehl ponders:

Has anyone stopped to think that if McCain gets the GOP nod, there will come a time when the party has to draft a platform with an obstinate, if not defiant, McCain - an often angry man with a history of holding conservatives in disdain?

We need speeches like this more often. Bob Corker, Senator from Tennessee, in debate on the tax rebate checks said:

“What I see in this package is nothing but a political stimulus,” said Corker. “It’s a stimulus to make the American people think that we, as a body, are doing something to actually cause the economy to be stronger.”

(From Copious Dissent)

My chief argument against this package is that it is not tied to taxation. Those who pay no taxes will get as much as those who pay taxes. That is wrong.

This will tie economic stimulus and government largess together irrevocably. Government is a burden. A necessary burden, but a burden nonetheless. The way the government to affect the economy meaningfully is to lighten itself, not to quixotically throw money back to us who were compelled to surrender it to them in the first place. That is adding insult to injury.

Back to Romney. American Thinker asks why the other candidates hate Governor Romney. Some of the answers:

• He can win
• He isn’t beholden to special interest groups
• He believes America’s best days are ahead of it

And once more, from the American Thinker: What does that ACU score really mean for McCain?

So where did McCain differ from the ACU?  The big areas were taxes, campaign finance reform, the environment and, most recently, immigration.  There was also a smattering of support for trial lawyers; federal intervention in health, education, safety or voting issues; internationalism; and some social issues.

Public Service Annoucement: Tax Scam

To all y’all who just may think the IRS will voluntarily tell you how much they owe you, be careful. Somebody else thinks you exist.

Things that should tip you off:

1. The IRS does not contact you by email
2. The email address is not a government address. IRS addresses would end with “@irs.gov”.
3. Government emails use more graphics. All your tax dollars have to pay for more bandwidth.
4. The website the link directs you to is not an IRS website.
5. No legitimate business ends their communication “Regards, <their company name>”
6. There is not a copyright on email communication any more than there is a copyright on letters you write.

So just in case you get one of these emails, kindly do the whole world, and especially yourself, a big favor. Just delete it or report it as spam so your email service provider can improve their filters against such scams.

Hat tip to thatmarkguy.

“its no the ppls fault”

In comments following the video I found this observation:

“its no the ppls fault its the roads not being salted fault”

Obvious schooling and literacy issues aside, this is a supremely immature reasoning and conclusion. But I fear it is all too commonplace today.

To read the comment literally, we see the fallacy of blaming an inanimate, amoral object. But to take the apparent, obvious, or implied meaning, the government is to blame.

Because the government wasn’t there to plow and salt the roads, these people have suffered damage to their property and cars. That’s what is being said.

What about life requires that the government be responsible for such things? Sure, the government owns and is responsible for maintenance of the roads. But are they required to avert any “act of God”, preventing them from hampering the free exercise of stupidity on the part of the citizens of that government?

I would argue that the government has a reasonable obligation to work to maintain the safety of those things it owns and maintains for specific use and benefit of it’s citizens. If inclement weather is expected and normal, reasonable foresight should be employed to allow an efficient and orderly clearing of the snow or ice. But the government bears no responsibility beyond reasonable protection.

These people driving, and every person engaging in the fruits of freedom and/or liberty, take their safety and security into their hands. Each person is responsible for acting in a manner which minimizes risk to themselves and others on their own. Not because the government requests or requires them to, but because it is the right thing to do.

The government does not have the power in and of itself to say that speeding is wrong. Instead, it has the responsibility demanded by ethics to set reasonable restriction to promote the maximal good to each individual while not inhibiting the liberties of all.

So these people in the video went out on a snowy day with the responsibility to be aware their cars would not operate in the way they are used to them operating. They should have driven at much slower speeds and operated generally with much more caution.

As technology builds up, shielding us from elements of nature, we tend to forget that nature is a much more powerful force than technology and operates on rules much more established and concrete.

Drive at your own risk.