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Sep

26

Financial Bailout: Bad for Everyone

By admin

There is absolutely no segment of society or business which will benefit from the utterly ridiculous $700 billion (with a b) bailout package that our idiotic legislators are arguing out. And I mean nobody. Usually at least the politicians benefit from this kind of thing, but this time the public as a whole is even against it. So the politicians don’t even get credit for trying to save some group of people somewhere, because nobody is buying it this time. Everybody already knows that all we are doing is reimbursing large corporations for gambling losses, billing the taxpayers for it, and as a result inflating the national deficit beyond any hope of ever getting a grip on it again.

But if we don’t do this financial companies will fail. That’s what they say to the criticism. What they don’t understand is that it’s necessary for failing businesses to fail. That is a critical part of capitalism. Throwing billions of dollars at a sinking ship is a gigantic waste of time and resources.

We could be looking at a 1930’s style depression if we do nothing! Yes, we could be. But it’s a huge mistake to try and stop it by putting a $700 billion (with a b) bandaid on a corpse. That money could be used for something good and productive – like say not tacking $700 billion (with a b) on to the federal deficit. You can’t stop financial market cycles, you can only prolong the agony of them and make them worse as a result. Every single time in history any world government has done something to try and influence natural free market cycles it has failed. You are simply better off not interfering.

Think of it like removing a bandaid. You can pull it off in one quick motion with an initial burst of pain that is quickly over, or you can slowly and agonizingly remove it bit-by-bit. Government bailouts are the latter method. If the housing and credit markets were allowed to simply crash (as they were meant to), we’d be at least halfway through the down-cycle by now. Instead we are still sitting at the tip of the iceberg nearly two years into it, burning through unfathomable piles of money in a vain attempt to prevent the inevitable.

Papa Riah knows what he is talking about, by the way. I spent the first six years of this decade as a subprime mortgage lender, a very successful one at that. I started predicting the downfall of the credit markets in 2004, about 2 years too early. Now I collect unemployment checks and write a blog.

The runaway real estate market of this era was only propped up by the exotic financing we were offering. Anybody who could fog a mirror could get a $600,000 home loan with zero down, was not required to show any proof of income, and was given an interest only payment (or even less). So this is how everybody financed their homes, because nobody could actually qualify for the loans on these property values if they had to show their actual income. Now keep in mind that if 50% of your gross income (gross, not net) is going to your house payment you qualified for the loan! But nobody could even do that – so they all went stated income.

Should you now be responsible for making the house payments nobody could ever afford? That’s what your government wants you to do. We all need to come together and make each other’s house payments, otherwise there might be a depression. Do you see what madness this is?

Papa Riah went to lunch with a mortgage broker friend of his last week. I asked him about alternative finance lenders and he replied: What alternative lenders? Fannie, Freddie, and FHA are it now. And at the end of the year the Fannie/Freddie max loan amounts drop back down. (As they should, I might add.)

Get ready for a housing market crash folks. You ain’t seen nothing yet. Nobody can qualify for loans on current home prices. There is no more stated income, no more interest only, no more 50% max debt ratio, and only very high credit scores can get 100% financing now. Bank-owned properties are becoming a larger and larger percentage of homes on the market. In order to sell them the banks must take huge hits. This is killing their bottom line, and $700 billion (with a b) isn’t going to save them because they will be operating at a loss for years to come.

Let the markets crash if they need to. It’s healthy. Trying to manipulate free markets is unhealthy and foolhardy. Letting them correct by themselves gets it over with quicker (and we can then start the silly process all over again). If a depression is due then so be it – seems like once every 100 years or so that needs to happen and we might be just about ready.

The bottom line is: Somebody has to pay. The federal government doesn’t have the money so they’ll have to borrow it from their ever-more-questionable future. If we want to painfully drag out the housing market correction by tacking $700 billion (with a b) on to the deficit then there will come a day when that comes home to roost.

Think a severe housing correction sounds unappealing? Think a 1930’s style depression sounds bad? If we keep putting all of this off into the deficit then when the day comes that we finally have to pay it all off at once things will be much worse than you can ever imagine. How are you going to be set when the U.S. dollar becomes completely worthless and your bank accounts are all suddenly up in smoke? Got any real assets like chickens and pigs to trade?

Papa Riah

Sep

20

Bad Ideas in Society

By admin

Lets face it – the laughable condition that our society is devolving to is spurred by bad ideas. Much of the stupidity that Papa Riah writes about is the direct result of a really bad idea which somehow got much further than it ever should have. It’s amazing to me that this can happen. Somewhere along the way somebody with the power to squelch the misconceived plan must have given it the approval stamp, probably more than once. How does a stupid idea gather steam and start snowballing, and why am I apparently the only one to see these things and call them out? The idea should have died in the conception stage!

Perhaps I am not the only one who notices, but rather I am the only one to say something about it. This reminds me of the story of the emperor’s new clothes. People tend to be more concerned with fitting in and being like everybody else than standing back and calling out the obvious, especially if it goes against popular opinion. This is how really stupid trends not only get started, but spread like wildfire – especially when it comes to fashion. It’s a real problem in society.

Lets take the case of women’s low-rider pants (also known as hip-huggers) as an example. This was a terrible concept that has taken over in America and has somehow found staying power for a ridiculous number of years. The only women who look good in these things are so thin as to be borderline sick with Anorexia. Any normal healthy female looks fat in them, and that’s the plain truth. This fashion trend reinforces the abominable idea that women should be starving themselves to unhealthy levels in order to be attractive.

There is another type of bad idea that fits into this category, and that is simply a bad decision. Often when you really screw up at something a friend will tell you (afterwards of course) that whatever it was you set out to do was a bad idea. Most of these incidents can be traced to a bad decision made at a critical point.

Papa Riah is an expert at risk analysis and management. That means I make good decisions in all areas of my life based on proper risk vs. reward assessment. Another way of saying this is that I am a smart gambler. This comes naturally to me, so I tend to be a little tough on people who have trouble in this area. Not managing risk properly is the core of bad decision making in your life, no doubt about it. I highly advise at least thinking about the concept for a bit, as that can only help.

Take the game show Deal or No Deal as an example. Contestants make terrible decisions on this show on a regular basis. Note that the bad decisions are always in the direction of going further, not stopping. Some of them get the idea stuck in their head that they are destined to win big and give up life-changing amounts of money as a result of this self-induced blindness. Others can simply never accept any offer that is lower than their highest offer was, and go down the tubes as a result.

I encourage you to go through life with your eyes open and not being afraid to ask questions. Quit worrying about what other people think of you, especially strangers. Drop the idea of your image entirely. Nobody is watching and nobody cares, so there is nobody to impress. Even if there were, impressing other people is not a worthwhile pursuit. Even if it were, the way to impress them is likely to be counter-intuitive. Believe me, people will actually respect you more (not less as most people suppose) for admitting when you don’t know something and wanting clarification in order to make a better decision.

Papa Riah