Thoughts on Geithner's Bank Plan

It's basically the worst possible "investment" for taxpayers, and the best possible deal for banks.

It's sort of complicated - I need to be a bank investor now to hedge against all the long term damage that is being caused.

Imagine your friend came to you with an opportunity:

"I have this mortgage portfolio I think you should buy, if you put up $1,000, I will match it with $1,000. If the investment makes money, you and I will split the gain, which is expected to be $2,000+. If the investment loses money, you could lose a maximum of $150, I will assume the rest of the loss."

This is about the best possible deal for banks I can possibly think of! Anyone would be crazy not to take this deal - I wish I was being offered this deal!

Hence the huge rally yesterday.

However, you cannot create wealth by printing money. Even if you stamp "Change" and "Hope" on the bills and put a picture of Obama on it, it still won't work. Its really amazing how many intelligent, Harvard educated economists do not understand this fundamental law that has been in existence since currency was invented.

In some regards, it is difficult to predict the repercussions of this unprecedented spending. However, one thing is certain: there will be inflation and higher interest rates in the future. If you do not own a house or are considering upgrading I would do so - when inflation hits you will want to own hard assets.



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AIG & How the Government has Failed

The liberal mantra dictates that you need government to protect society from evil large corporations. As applied to AIG, many believe the company was simply "too big to fail", and that allowing it to fail would have guaranteed "the greatest crisis since the Great Depression" (how many times have we heard this). To this, I say... hogwash.

The reality is that there are plenty of well capitalized, non-bankrupt insurance companies that would be interested to buy parts of AIG's business. This happens all the time in the FREE-MARKET. Will some parties lose money? Of course, again this is normal in the free market.

Do you know where the $165 Billion went? Well over two thirds of it was given to FOREIGN banks, who were paid 100% on the dollar for their investments with a company that went bankrupt. Explain to me how paying back foreign banks in full, that would normally receive pennies on the dollar, benefits the US economy?

For all the mistakes AIG made, consider that those who make investments with them are responsible to conduct their own due diligence and accept risks for making investments. It's silly that the US government bailed them out just so that foreign investors could be repaid. The alternative was that their assets would be sold off to other, healthier companies. This is the natural flow of business and it is how wealth is created.




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Why Wealth is Concentrated Among the Few

I often hear the argument that the wealth gap is widening, which is used as a criticism of the Bush administration. Well, the poor may control a lower percentage of the world's assets, but their standard of living has never been higher! Amenities such as air conditioning, automobiles, televisions, and telephones were not available to most just a few short decades ago. People have reacted to advances in technology and the availability of cheap goods in different ways, but one thing remains constant: The rich purchase assets, and the poor consume goods.

Wealth will always be concentrated among a small minority of people. There is nothing you can do to stop this and it has nothing to do with our laws or public policy. The reason few people control most of the wealth is that the vast majority of people never learn the skills to create wealth! This even includes many highly paid people who still own very little. It is up to each person individually to decide whether they want to be wealthy and then take steps to accomplish this. There is absolutely nothing government can do to create this situation - government can only destroy wealth.




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Marxism I Said.... "Can you hear me now?"

Honestly, I think we conservatives/libertarians need to check our stuff at the door and and let this thing play out. It sure is a bummer, but lets look on the brite side... Only 1469 days left of the "Obama Mania". There is no doubt in my mind that Capitalism is the way. It will not take long for people to see that the liberal agenda is going to be focused on the destruction of capitalsm over the next 4 years.

But for now, let the cup runneth over and allow government to provide for all. Watch how quickly America declines, and watch as people in other nations no longer strive for citizenship in America. After all, what will make America different than say, Sweden? Barack Obama is not a Democrat, nor is he a socialist. Barack Obama is a MARXIST, it is woven into his thinking and belief system. He has been indoctrinated by his father, his professors, and his mentors. Take a look at this....

" Workers of all Lands Unite. The Philosophers of the world have only interpreted the world in various ways. The point however is to CHANGE it.." - Karl Marx's tombstone...

"And as our economy changes, let's be the generation that ensures our nation's workers are sharing in our prosperity. Let's protect the hard-earned benefits their companies have promised. Let's make it possible for hardworking Americans to save for retirement. And let's allow our UNIONS and their ORGANIZERS to lift up this country's middle-class again." - Obama Feb 2008

"Theoretically, there is nothing that can stop the government from taxing 100% of income so long as the people get benefits from the government commensurate with their income which is taxed," ... "I do not see why the government cannot tax those who have more and syphon some of these revenues into savings which can be utilized in investment for future development." - Barack Obama Sr.

The apple does not fall far from the tree...

Now all I need is a guard shack to be erected at the entrance of my neighborhood. Then when I drive by it, the government employee inside the shack can justify his existance by asking to see my, "papers please... papers"??

Seig Heil... You are witnessing the rise of the 4th REICH.




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UAW - In denial to the bitter end

I could write a lot on this subject, but in the interest of time I'll keep it short.

I find it amazing that the UAW continues to live in denial, down to the very end. Are they are so convinced that their $78/hour wages & benefits are justified that they would rather see the Automakers be shut down than concede any compensation?

They will reap what they sow. Hats off to the senate Republicans for at least doing one thing right in 2008 and making the deal contingent on UAW concessions.

Imagine if the company you work for was bankrupt and out of cash. Can you imaging being able to keep your job and continue earning your same pay? Of course not. For the rest of us though, we would pick ourselves up, go out, and find another job.

The reason the UAW is holding on to their comp structure for dear life is precisely because they know their skills aren't worth that much on the open market. Otherwise they would simply go find other work.

http://money.cnn.com/news/newsfeeds/articles/djf500/200812121429DOWJONESDJONLINE000912_FORTUNE5.htm

* the hourly "salary" is around $26/hr for an experienced worker, the rest is benefits and legacy comp! The fact that benefits and pension expenses cost GM $50-60 / hour really make a statement!!!




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I Guess Twice is Nice....

Lots of "hub-bub" going on lately about the auto industry bailouts. I haven't heard anyone really come up with a great reason why we need to bail them out. However, I have the best reason as to why we should not. We will be paying twice for this mess.

The first time we pay will be when we supply the big three with a 34 billion dollar "bridge loan". Then we will pay a second time when they inflate the cost of their vehicles to pay back that loan with interest (profits need to be made somehow).

The bottom line is that the big three are not profitable, and on their current course it is doubtful they will ever be profitable. Especially profitable enough to pay back the loan. So, it is more likely they will need to change everything including their pricing packages on their vehicles. Just as corporations do not pay taxes (i.e. they flow through to the consumer), corporations do not pay interest. All of the principle and interest for the "bridge loan" will get channeled into the cost of each vehicle. Even if the loan does get paid back, it is not likely that we the tax payers will ever see a benefit from the proceeds. Just as the proceeds from the repayment of the Savings and Loan "bailout" in the 90's did not yield the taxpayer any substantial benefit. One this is for sure. If they get federal funds, I certainly will never purchase a new vehicle from the big three again! This is a capitalist society, not marxist.





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Who's on the New 10,000 Bill?

The other day, while listening to Glenn Beck's Moron Trivia, Glenn asked the question, "What denomination of US currency should Barack Obama be on"? As funny as this question may be, people actually did answer in a sincere way. As I began thinking about it, it is very possible we will soon need a new denomination of currency in the USD. My prediction is if these "bailouts" continue into the retail sectors of our economy, the US dollar will basically be worthless. As more and more dollars are pumped into our system, the value of each dollar in circulation decreases. So maybe we should start printing the 10,000 dollar bill again. We can even put Barack Obama's face on it. The basic principles of capitalism are under siege as we speak because government "bailouts" force a non-equilibrium state of the economy. Finally, President Bush has arisen from his coma and come to his senses about funding the "big-three" autos with government rescue money. However, the 'messiah' has commented that he will in fact send tax-payer dollars to help the US Auto Industry stay afloat.

I think we need to let the free market find new equilibrium in labor markets, retail markets, financial markets, and manufacturing markets etc... Implementing factors outside of the principles of supply and demand disrupt the money supply, and ultimately inflation. Anyone see gas prices lately? ($2.08 / gallon) Using the voice of Bill Lumburgh, "Yeah... its called supply and demand!"



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Stop the MADNESS...

Enough is enough! We need to end all of this "bailout" activity currently taking place in the U.S. economy. Lately, GM and Ford have stepped up to the welfare window for their handout , and it is not looking good. Did I miss the class in Business Management that taught, "grow your company big enough and the government won't let you fail."

Let's take a walk into history for a moment and look at what happened in the late 70's and 80's with US automakers. Prior to the mid-70's, bread and butter (non-luxury/daily driver) import vehicles were a rare occurrence for the average automobile owner here in the US. Early on, the American auto industry revolved around the idea of "planned obsolescence". Basically, they built cars that required maintenance, repairs, and eventually become obsolete and need to be totally replaced. We had a great model for perpetual repeat business on our hands. When imports such as Honda, and Nissan came into the picture, Americans began demanding longer lasting more fuel efficient vehicles that were readily available in foreign markets. As a result, demand for domestic vehicles began to decline and U.S. automaker profits began to dip. Did the government step in and to help out then? No! Instead, the realities of free market competition took place, and US automakers figured out how to re-acquire their market share by building better cars that lasted longer (Today, GM has a 100,000 mile warranty on their vehicles) . We need to do the same today.

GM, Ford, and Chrysler make good vehicles, but I think the labor unions have really undermined the natural competitive edge that is inherent with domestic autos. Rather than placing the blame on corporate executives, perhaps we should point the finger at labor unions for pushing wages, salaries, benefits, and pensions to unsustainable levels in this highly competitive worldwide industry. Let's face it, the Japanese do it so well because their costs are less.

The 'Big 3' need to be revamped, not bailed out. Why delay the inevitable by giving GM a government loan to continue doing business as usual? Adjustments need to be made, so let's let it happen automatically through layoffs, reorganization, and innovation. Also, let it be sooner rather than later.

There is no doubt that the fallout of a bankrupt GM or Ford would result in massive layoffs (estimated to be 1/5th of the U.S. work force), but Americans work best under pressure. I have full faith in the American worker to seek new opportunities to earn a living in the wake of an industry collapse. If the US automotive industry collapses, the government's only role should be to stay out of the way, and ensure that the barriers to entry into other free market industries are kept to a minimum. When the Steel industry collapsed here in the US (also caused by powerful labor unions), those people found new career opportunities elsewhere. My father was part of the steel bust here in Pittsburgh, PA (the Steel capital of the world in the 1970's). No he is not still collecting unemployment 30 years later. Instead, he started his own business within months of being laid off and went from unemployment to providing jobs for himself and for others. Don't spread the wealth, spread the opportunity!


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Change What?

I totally agree with my esteemed colleague regarding the race issue. It is a tremendous affirmation of the opportunity that exists here in America when a person can campaign on "hope" and "change" and win a Presidential election. Why am I the only one that has a problem with that? I have had 4 days to recover from the madness of election day, and have come to the conclusion that nothing is going to change! Follow the money trail left behind the $650 million dollars spent in the Obama campaign. That should give you an idea of where his interests will lie.

So far not a whole lot of change. Obama's first pick, Rahm Emmanual, as cheif of staff (this guys doesn't even pay his own property taxes). What is next, Charlie Rangle as secretary of labor? So I guess we can look forward to more of this kind of "change" Mr. Obama. Or wait... I get it! This whole time you were campaigning for "hope" and "change", you really meant "vote for obama so you can hope for change". That is about all we can do, "hope" that you are going to take us in the right direction.

With that said, I have no confidence in Barack Obama's ability to run this country. All he knows how to do is run for public office. I hope for our sake that I am wrong, but only time will tell. To all you libs out there, be careful that you wish for!





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Election Aftermath

As you know, I am quite disappointed with the outcome of the election.

Let me start by saying that as a proud American, I respect and support President elect Obama as the leader of our country, despite our many differences (this concept is foreign to many liberals, who use hate and slander against any differing viewpoint). There are also a number of positive things that will result from him being elected.

I'm glad that the race barrier has been crossed. This alone has caused significant interest around the world. It's great that anyone really can rise to the top of this great nation - the American dream fulfilled. With that said, I hope now that we have reached this important milestone, the next election will be about the issues rather than the race of the candidates.

A number of people told me that if Obama was not elected, Americans are racist. Let's admit it - America wanted to elect a black candidate to show that we could. I say this because Obama was never forced to take a firm stand on most issues. "Hope" and "Change" was enough for most supporters, who never asked him to explain what exactly this meant.

Congratulations to the Democrats, who ran a more effective campaign and capitalized on the unpopularity of George Bush. I'm glad you have control of both the executive and legislative branches of government -use this opportunity to put through every policy and law you want. Just remember that 2 years or so from now, there won't be anyone else to blame (I'm sure you will try).

Personally, I will heed the advice of John McCain "We're Americans - we always fight, we never give up... we don't run from history, we make history!". His concession speech showed grace and class that is very rare today and should serve as a model to others.

The pendulum will swing back again.

-Justin





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