What to do with your money

My usual day includes reading 10 to 12 articles about the economy and business news.  Today I read the best advice from Liz Pulliam Weston on MSN.com.  

Liz gave 10 pieces of advice about what we need to know about the financial crisis we are dealing with after the government failed to pass the bail out package.  Her advice was pretty good, but it was actually number 11 that grabbed my attention.

After giving all the advice about banks, investments, etc., she said the best advice she could give was "to take out your wallet and give to the Red Cross".  We have many victims of hurricanes and other tragic losses in America and around the world that will have much greater losses that any of us will have with the mortgage/wall street crisis.  

Wall street hasn't caused any of us to die, deal with disease, lose our pictures and valued possessions, or anything worse than "some" asset reduction.  Maybe you have to lose the house you are in because of being over mortgaged or because of job loss.  It could be worse.  We could live in Nicaragua and never have had a house.  Or, we could have lived in China and been devastated by the earthquakes.

We are melting down at Wall Street and we may have a difficult time obtaining credit.  We may have to be careful shopping for food, budget a little tighter, not drive as much, not purchase as many luxury items, and maybe not go to the movies and buy extra butter on our popcorn.  This is probably good for all of us.  

As for me and my family, we are going to write a check so someone else can eat, have shelter, avoid disease, and extend life.

We Have Not Addressed the Real Financial Problem

Who is to blame for our current financial crisis?  Greedy homeowners?  Real estate agents? Is it builders, mortgage brokers, bank lenders, wall street businesses, congress, Al-Kida?

Let's look at the free enterprise model.  

Individuals are given incentives to own business that sell products to individuals.  By owning or working for one of these businesses, people gain wealth and have the buying power to buy products from other businesses.  The entire process is built on a core fundamental of supply and demand.

So, the businesses create product to sell to the public.  The competition for product sales drives businesses to create marketing strategies to motivate people to buy.  The buyers are given visual and audio stimulation to choose different products.  

Sounds simple and it is.  But let's look at where the problem exists in this model.

Business are motivated to "sell" and therefore do not have the ability to be a moral conscience for the buyer.  They do not have the ability to think for every buyer to help them know if they can really afford the product they are buying.  So, consumers buy based on what they are allowed to purchase.  If they can get a loan for a tv, car, home, clothes, or anything else, they have the freedom to purchase it.  This is what the sellers are hoping.

Our current crisis is because consumers purchased more than they can afford.  We consumed beyond what our paychecks and balance sheets could absorb.  If we don't buy what we can't afford, banks don't overextend themselves in lending.  The credit bubble (lending beyond what the balance sheets of consumers can handle) is the problem right now.

Ok, still haven't told you anything you didn't know.  Well how about this.  The problem goes deeper than the consumerism purchasing decisions.  I think the problem is lack of education. When was the last time your kid came home from school and asked you to help them with mortgage calculation homework?  What about check book balancing?  What about investment strategies or stock market short selling?  We don't teach these things to our kids but we let them loose in a world that will attack them that has no moral conscience.  

Our education system is to blame for this crisis.  The majority of American's are "starting" to learn about these issues in the newspaper and on the internet.  This is a little late.  Unfortunately, the majority of them still don't understand it because they don't know the fundamental financial basics.  So, we will continue to repeat this type of problem.

The rest of the world hates us because of our gross consumerism attitudes.  Even my best liberal Democrat friends, who hate the American free enterprise system, are deep in debt and can't help themselves when it comes to buying.  We teach that people are entitled to an American Dream of having "stuff" and having it NOW.  We teach the dream but we don't teach how to get it.  We inspire people to entitlement and only those who are lucky enough to get educated on the process end up winning.

McCain and Obama - Address this issue and you will make a difference.  Otherwise, we will see this problem raise its ugly head again.  American's have a very short memory and a terrible basic moral compass.  We think we are owed something for nothing.

History Still Repeats when we don't pay attention

Alert:  Banks get competitive pressure to perform and improve stock value and begin to loan money for real estate to people who can only afford the mortgage if the property values continue to increase.  The real estate market takes a down turn and the banks are left with a crisis.  People can't pay their mortgages, foreclosures become rampant, bank stock values decline, public confidence goes down and people start pulling money out of the banks.  The stock market has huge declines in daily trading.  The banking system looks to go into complete failure and the economy will not be able to survive.  So, the government steps in.  They provide a cash infusion to the banking system with loans that will impact tax payers for many years to come.  The public has to bail out the poor decision making of risky real estate investors and bankers.

I know, you have all heard this and are tired of reading about it.  But, what you don't know is this is a factual account of Japan in 2002.  Yes, they did the SAME things we have just delivered to the U.S. and global economy.  Our impact might be larger, though the global banking system was at risk when Japan's economy was hit in the stomach with a baseball bat.  Our problem is escalated because of the increase in the volume mortgage backed securities.  This simply makes the problem a little further reaching.

15 months ago I spoke to a group of people about where our economy was heading.  My "guess" was exactly correct.  But, I told them at that time that England and Japan had done the same things in the past and it was going to take some time to repair.  My advice to the group I spoke to was to get out of the credit world (quit borrowing money for a period of time), and make sure you are living your life in a way that does not require increased credit.  I was correct.  

My being right is not because of a great prophecy, it was because of an awareness of history.  The banking systems in England and Japan did the same things we are doing now and credit became a hard thing to get.  Credit card usage went up because people couldn't pay bills or get credit anywhere else.  Then they were unable to pay the debt they had accumulated on the cards and large bank write offs continued to put pressure on the banking system.  This is still happening in our system today.

THE BAILOUT:  Japan's government stepped in and did exactly what our government is doing today, they are letting the tax payer bail out the banking system and real estate crooks for the bad decisions they made.  I don't like it but it is the only way we will get out of this problem.  The good news is it took Japan four years to become profitable and healthy again.  That means about 3o months before life seemed to be back to normal.  I believe we will be 24 to 30 months.  We may go faster because American's have shorter memories and will be  more creative in building the next over risky proposition.

So, if you want to understand economics better, just look at history.  Not too many new things will be created, just an embarrassing repeat of the past when we don't pay attention.

Its the Presidents Fault

I must say that as an ex Midland Texas boy that actually received help from President George Bush Jr. on homework when I was in high school, I am very disappointed in him as President.  I don't know what I don't know about the war.  That is a difficult thing to understand.  American's REALLY don't want to know what goes on in the world and how "at risk" we may be every day.  But, I find it difficult to believe we made all the right decisions in this war.

Let me get to my real purpose.  In the upcoming election we need to look at our arguments and be consistent.  If you are saying that the economy, the war, and the overall direction of the country is bad, the entity with the most influence and power in those areas is Congress!  It's not ALL the Presidents fault.  I am amazed that people in congress are actually pointing their fingers at the President and saying we need a change in President because the economy is bad.  Congress initiates policy, they write laws, they agree on tax programs, they drive the U.S. Policy.  The President can simply sign it into law or veto.  The President can make suggestions and introduce legislation but Congress has to decide if they are going to address something, or not.  The military is the only exception to this argument (and most of the military decisions still require congress approval).

So, if you think change needs to take place for the sake of change, CONGRESS needs to go back to Republican.  Don't let either of these POLITICIANs tell you different.  They are both going to represent change.  It will not be the same with either of them as President.  

What I worry about most is having any party in government with too much power.  If the Obama wins, the democrats will be able to drive any policy they want through the system.  Do you really want that?  If McCain wins, we will go into government deadlock.  That means nothing will happen.  I LIKE IT.  When was the last time the government made things better.

Aren't they the ones that created FINRA to watch over the securities world to make sure we were being protected?  Where was this government entity when crooks were selling off mortgage backed securities that had unqualified buyers in houses they couldn't afford? 

Our PRESIDENT (Republican) and CONGRESS (Democrat) put us in war, have extended our mortgage problem by giving a two to three month band aid to homeowners who will now go into foreclosure three months later, have stopped good wealth advisors from giving good advice while crooks took down our banking system, and have created a global hunger problem by driving incentives to farmers to stockpile corn and other agriculture for future fuels to "solve" our fossil fuel problems.

I say either keep em in deadlock or fire them ALL.  If you are going to vote for Obama because of "change", then your principles should have you replace your favorite Democrat in the House and Senate.  Keep em in deadlock!