Roughly the TRUTH

Violence flares, various parties battle for political control, and with a one-way ticket to the U.S. in hand, Al Qaeda waits patiently in the screening lines of Baghdad airport. A scary scenario? Hold on to your seat, but this isn’t what happens if the U.S. pulls out of Iraq, it’s happening right now.

However, there are some results of a U.S. draw-down we can confidently predict: increased dialogue in the region (similar to welfare reform in the 90’s), increased focus on developing alternative energy (in conjunction with the increased oil prices), greater wealth for the poor people in oil-rich nations (in conjunction with the increased oil prices), a dramatic cut in U.S. casualties in Iraq (duh) and a drastically improved budgetary picture (duh).

As Iraq spirals deeper into chaos, at what point will the crazy man quit doing the same thing and expect to get a different result? With elections drawing near, the U.S. congress will finally recognize the need to reign Bush’s policy in. With the start of a significant withdrawal, don’t be surprised to increasingly see headlines reading: peace & stability, prosperity, clean-energy and balanced-budget. Stories that are in high demand and short supply these days.

Then again, WWIII might be just around the corner.

I’m illiterate, but should an English teacher really fail me? A growing number of Americans say no…

…At least when it’s the banks doing the grading. An informed public keeps the wheels of democracy and capitalism greased. However, financial illiteracy still plagues many in the “middle class.”

Underlining the need for reform in schools, disgruntled and desperate borrowers are turning to the courts for help in an effort which should serve as a warning; and if in doubt, just look south of the border where a wave of socialist reformers have recently been swept into power:

“Across the nation, anger and litigation are growing against the tactics of subprime lenders, who offer easy credit for homes that are turning out to be too expensive for millions of Americans now that mortgage rates are going up.”

The King of Consumption or the Queen of Denial
The recent run up in asset values was largely influenced by the easy money atmosphere which prevailed following the economic downturn in 2001. It’s really just a result of basic supply and demand:

1. Cheap money and loose lending standards flood the housing market with buyers (many of whom were never truly fiscally viable)
2. Multiple bidders compete for limited goods (homes) and prices rise
3. Builders struggle to keep pace, resulting in a supply glut once rates rise and standards tighten

A simple analysis by anyone looking at the loan types these “boom” buyers used, could’ve concluded with confidence just when all this trouble would begin.

Some of the most popular loans during this period were ARM’s. Such mortgages typically have rate adjustments (per terms of the note) based on some index plus prime after a fixed period of time (frequently 2 to 3 years). 2007 is the year during which many homeowners will feel that pinch according to various reports.

Coming to Terms
You could argue that many believed rates would stay low, but this is major folly at best. The simple fact that interest rates were at all-time lows should have given many pause. It wasn’t just laymen who fell into this trap; as the WSJ noted in an article last year; Lenders Try to Keep Mortgage Boom Alive:

“More than $300 billion of ARMs issued to borrowers with good credit will begin resetting over the next two years, according to Lehman Brothers Mortgage Research, with $718 billion more of these loans resetting in 2008 and 2009. An additional $507 billion of ARMs issued to borrowers with poor credit will reset over the next four years.”

This over-exuberance may just be a cultural thing, but the best way for government to impact culture is through our public school system, not with laws and regulations limiting democracy and capitalism.

Back in 2005, it could be argued, that even Greenspan got in on the irrational exuberance:

“Lenders are now able to quite efficiently judge the risk posed by individual applicants and to price that risk appropriately,” he argued at the height of the housing boom.

While Mr. Greenspan may have been right about the ability of lenders, I guess that when a final decision is left to human beings, reason and reality aren’t always the best of friends. It must be said, when enough demand exists for something, you can be sure that some go-getter will be right there looking to make a quick buck; even to the detriment of others.

Strong Minds Break Chains
If you take the loan of your own volition, sign up for the class, the lender has the right and the responsibility to hold you accountable for your financial literacy, or lack thereof. Even with these challenges, we should not be deterred - Demand for things that society agrees are “unhealthy” can be minimized, but only to the extent we successfully use our resources to educate the public. In the end, it’s the responsibility of the individual to make the right choice - it’s society ’s responsibility to provide access to the tools for making that choice.

“Yet without a well-informed public, our liberty itself is in peril.”
- Thomas Jefferson

Related Resources
- Real Estate Finance In-Depth, a retrospective (.pdf)
- Annenberg Institute for School Reform
- TIME.com: How to Bring Schools Out of the 20th Century
- Federal Reserve | Personal Financial Education
- The Wall Street Journal Classroom Edition
- State of the Nation’s Housing 2006 | Harvard JCHS
- Residential Mortgage Market in 2007 | MBA
- The Fed’s Consumer Handbook on ARMs

[UPDATE - 3.22.07]
Debating government intervention on Kudlow & Company tonight was Robert Reich, former labor secretary under Bill Clinton. The falseness of his heart was abundantly clear; if not outright frightening - especially given the position he held…I suspect this may have had something to do with Hillary’s comments on the mortgage market.

Watch the debate between the Dynamic Duo.

Bye, bye Net Neutrality…

From the article: FTC chief warns against ‘unnecessary’ Net rules | Tech News on ZDNet

For proof, look no further than a situation in September in which hundreds of thousands of people who use the popular social-networking site Facebook rebelled against a new feature that some charged was Big Brother-esque, Majoras said. Within days, the site’s founder had quieted some of the fury by giving people the option of turning off the “minifeed,” which shows people whenever someone in their network makes a change to their relationship status, favorite music or other profile information.

An aweful analogy; comparing Facebook to an ISP.

It’s like comparing a car maker with a toll road operator.

Check out the FTC hearings webcast and form your own opinion, but remember, it was a “free market” which produced Hitler’s Nazi party.

Dont’ count on government to save for your future…

The U.S. government is threatening the financial future of todays youth. Like a group of dis-jointed heroin addicts, our apathetic congress has ignored record budget deficits, America’s spiraling debt and has effectively shunned an entire generation in favor of temporary, quick fixes. This article, Your free financial report card on MSN Money, provides provocative evidence for this thesis. For instance, the future of Social Security, remember that old debate? Liz Pulliam Weston, the author, has compiled some interesting numbers to help you sort through all the political banter surrounding this issue:

The farther out your retirement and the more money you make, the more you may want to discount the estimated benefits on Page 2. (Higher-income workers may see their benefits cut more than lower-income workers, if Congress decides to preserve the safety-net aspect of the retirement system.) What this means:

* If you’re in your 20s, you might not want to include the estimates at all when calculating how much you want to save. If you do include them, figure on getting 25% to 50% of the amounts on Page 2.

* If you’re in your 30s and 40s or make more than six figures annually, you might figure on getting 50% to 75% of the promised benefits.

* In your 50s, figure on receiving 75%.

Everyone’s entitled to their own opinion, just not their own numbers.

Liz also explains a very simple and easy way to get a snapshot of personal earnings growth over your entire working life - something the government is actually capable of providing us with. Read this article not only for eye-opening insights into our countries welfare system, but also benefit (or at least find some extra motivation…for you competitive types) by comparing your own finances with others in your demographic. Here’s a sample of the stats for those aged between 60-69:

Net worth by age
60-69 Age
$209,200 Median
$647,200 Top 25%
$1,429,500 Top 10%
5.8% Negative

Enjoy the read and if you’re among the younger generations (you’ve probably heard this before, but) remember, plan your own retirement - don’t be fooled into thinking the government will (or even can) do it for you.

Update (11.07.06):
Another article from the good folks at MSN Money.com to help you see how far behind (or ahead) you are of your peers; Your 20s: See how your wealth measures up

The inconvenient truth of rapid economic growth: Third of China ‘hit by acid rain’

Natural law tells us that for every action we take, there is a consequence…problem is, common sense isn’t always common practice. Just last month the Chinese government and it’s citizen’s were probably most optimistic about their new agenda to offset a brewing environmental catastrophe with a $175bn protection plan - unfortunately, there are cumulative effects from our actions as well.

Emissions of sulphur dioxide - the chemical that causes acid rain - were double the safe level, the report said. In some areas, rainfall was 100% acid rain, it added.

If there’s a silver lining to this, hopefully it will be a renewed push towards alternative, clean energy sources. The industrialized nations have been stoking this fire for decades - only recently it’s helped to create disasters like Hurricane Katrina, global terrorism and an economy which hangs by a thread - unless change is made quickly, I’d hate to see what’s ahead.

I just hope we learn our lesson before it’s too late.

Framing this issue as “more federal regulation” is a clever tactic…

This week, Senator-R Jim DeMint gave his take on Network Neutrality – I was especially amused at the assertion he has made below:

Perspective: Why Net neutrality means more federal regulation
By Jim DeMint
Published: June 27, 2006
“It would be commercial suicide for any network provider to limit the ability of their customers to access any site or receive any service: Their customers would simply go elsewhere! Consumers have a growing number of choices of networks, and this competition will force networks to continuously upgrade their services. Federal regulation, on the other hand, would only reduce the quality and access of Internet services for all Americans.”

Telco’s & industry advocates have poured hoards of money into lobbying this issue. Translation: many well compensated senators & consultants working overtime on their behalf. Information - necessary for efficient free markets – is fortunately still available on congressional members; although with such freedoms being handed over to profit driven companies, this may not long be the case.

What Motivates a Senator
Monetary incentives tend to influence many of the views which