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.

A Recommendation…

Bringing to light international issues of the day (ex-Iraq) is often a struggle in todays profit driven news environment. Although, the need is greater now than ever before - with the advent of technologies that have effectively shrunk our planet, it becomes an ever more complicated place to live. That’s why I’m grateful to people like this…

FOREIGN EXCHANGE: Where America Meets the World is a show broadcast on PBS stations and hosted by Fareed Zakaria, the editor of Newsweek International.
I find it endlessly interesting and it consistently broadens my perspectives on a vast myltitude of subjects.

Watch all episodes free online or on your local PBS station.

Here’s the shows trailer:

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.

After getting my pants scared off by this article, a search for a Survival Guide yields some great returns…

New Yorkers need to be ready to evacuate: experts | Reuters.com

“You don’t want people in an emergency situation, a life or death situation, to do something for the first time — that’s a recipe for disaster,” said Galea, who is heading a study of the World Trade Center evacuation after the September 11 attacks.

This unsettling reminder of our vulnerabilities has motivated me to try and do a little good. With the fifth aniversary of 9/11 right around the corner, aggregating the best safety preparedness resources from around the web seems like a good idea. Five resources stand out, but many more are out there. So, without further adieu, here they are:

1) Scout’s Honor…A Guide To Safe Scouting
(Sections V.Emergency Preparedness & VI.First Aid are the most helpful)

2) In case King Kong ever shows up again in midtown…Safety Tips from NY State

3) The RAND Corporation researched and compiled this report on Preparing For Chemical, Radiological, Nuclear, and Biological Terrorist Attacks - They’ve also provided a nifty little PDF pocket survival guide…Saying that this would suck does it little justice

4) Kind of random, but some guy who writes the Urbach Newsletter asks, “Are You Ready for the Big One?” - There are some useful checklists and some bothersome product pitches, but all-in-all it’s a nice peice he’s written.

My Favorite:
5) Wikipedia NEEDS us to survive or it would be so lonely and empty - Here are the entries for “Survival Kit” & “Survival Skills”…buyer beware though, you never know who’s putting this stuff out there; could be the bad guys.
(The external links found at the bottoms of these two entries are required reading too; it might just mean the difference between life and death!)

That about wraps it up. Stay safe and if you know of other great resources out there, please share!