Indebted = Rich?

Hah! This is precisely the kind of headline I would expect for this story from those indefatigable class-war mongers?

Of course it's inaccurate. Just because the default rate on jumbo ($1 million plus) mortgages is now greater (at 14%) than that of other, lower mortgages....that doesn't necessarily mean it's *rich * people who aren't paying the mortgage.

For example, consider my landlord. That scumbag deadbeat had, and defaulted on, mortgages on three homes in my old neighborhood: $1 million, $1.2 million (on my house), and a $1.8 million note.

Of course he also had several hundred thousand in credit card debt and sundry other liabilities. Recall his bankruptcy filing where he declared only owning a $400 watch and having $10 *cash on hand*.

But according to the agitating New York Times....he must be counted among the reviled *rich* - three times to boot!

Attention NYT - Genuinely rich people don't have mortgages!

'Open Season' On Morons - I Guess I Have To Hunt

First, watch this video:



Apparently Bill O'Reilly is *for the bailout* and isn't tolerant of rich guys on "right wing conservative talk radio" who dare stand against it. According to him they are "Kool-Aid drinking idiots", "liars", "right wing liars", and "they're not looking out for you".

Okay.

Then Mark Levin comes on and fires back, "Moron", "you jerk", "you paid more in hush money for your little phone sex than I've ever earned.", "the Non-Factor who doesn't know crapola about economics, history, or law", "another mainstream Moron phony journalist", and "jealous like hell of Rush Limbaugh".

Levin's final shots: "Your ratings suck" and "you'll be gone soon".

Okay, he can bust on the guy's radio ratings, but c'mon, Bill O'Reilly has knocked the cover off the ball on television.

Anyway, I wanted to point out what's really going on here. Yeah, Bill O'Reilly may genuinely think his opinion on the *bailout* is unimpeachable gospel; and there may be more than a little bit of professional jealousy.



BUT, anyone who's ever studied Bill's tack would know that he considers himself, or markets himself a populist - a basher of the elites on *both sides*. Frankly, I can't stand this dichotomized construct but admit that is does have a rough basis in fact - if only because so few people today can think for themselves that everyone has decided to self-pigeonhole. For years Bill has been exposing so-called left wing loons on his show: would-be marijuana legalizers, San Francisco inverts, *restorative justice* advocates, etc. But he's always strained to find marketable wackos from the other *constructed* pole. Usually he's been reduced to bringing in some obscure Protestant clergymen; or non-orthodox Catholic priests in favor of Amnesty for illegal immigrants; and making very much ado about them. The fact is, in this country, 90% of the clowns are on one side; and that's because that side dominates our culture: the media, the courts, government, education, etc. These *LLL* Morons are allowed to act out with absolute impunity; heck they're encouraged.

In other periods of history - say when a hidebound Catholic Church reigned supreme - the polar balance of wackos was completely reversed. It is simply empirical history that:

Cuius regio ejus religio - "whose region, his or her religion" or "the religion of the ruled must be that of the ruler."

Bill HAS to blow up at *right wingers* on any particular issue he can in order to keep (transparently) chiseling his image as a moderate, as an independent. This is his MO and he's sticking to it!

Now, to speak more generally on this *bailout* that everyone and their mother has a fanatical opinion of:



A friend of mine yesterday tried to frame his *pro bailout* perspective thusly - he said that "when the extreme right and the extreme left are against it....you know it's the correct, practical thing to do."

"Okay," I said conceding that specious premise, "but will it in fact 'work'??? Will it stimulate the economy in any meaningful, sustainable fashion???"

Of course it won't. The government has already spent $700 billion to date on ailing financial institutions and various real estate bubble-exposed entities. Home prices have kept dropping and will continue to do so for another 20%-30% - until they equalize with personal incomes. Look at that chart again from my recent post - and the other one where I put the bailout cost of higher gasoline alone at $109.5 billion already.



Now again, I don't care for the puerile dichotomized framing of issues; and I haven't done any real research on which *categories* of people voted for or against the DOA *bailout*. BUT, I will say this:

If it's the diehard communists and the diehard libertarians who voted against a taxpayer funded extension of this Ponzi scheme, I have to say, IMNSHO, they are both correct and true to their ideologies.

This bailout is a complete boondoggle, a complete *bailout* of Wall Street, of wealthy investors, and of foreign governments. Any clear-headed, consistent socialist could see that. Hardly a soul on Wall Street has had to return a bonus or been charged with a crime. Not a single official from the SEC or from government has had to resign or admit blame. Apparently this tide of bankruptcies following a tremendous (if fleeting) boom is absolutely no one's fault - at least in the quadrants of finance and a government (which seems perpetually staffed by Goldman Sachs partners). If it weren't for bogeymen, there'd be hardly a soul to blame. Heck, Fannie Mae's head crooks are paid advisers to the frontrunning presidential candidate!

Furthermore, there is no way that anyone with a bona fide understanding of and appreciation for the free exchange of goods and services could ever endorse the overnight nationalization of the banking industry (and housing, and insurance). This *bailout* is the culmination of decades of statist economic meddling, of voter apathy, and the nationwide epidemic of econo-illiteracy. Even supposed capitalists like Steve Forbes and Don Luskin have forsaken their principles for the fantasy of hope; for the pipe dream that even though government can't teach kids to read, manage the retirement money of Americans, efficiently build roads, deliver universal healthcare, enforce the law, protect us from terrorists and hurricanes...that this fumbling entity can indefinitely suspend *prices* above *economic value*. You see, as the air departs this credit bubble, reality is torturing the souls of perma-optimsts and paper-wealth tigers. The fact that extremely wealthy people losing a mere 15% of their net-worth are going ape-sh*t is a frank admission of ignorance and impiety; it's proof they have an unhealthy, idolatrous lust for a currency *they can't take with them*.

True believers in free-market capitalism would be relishing this *buying opportunity*; they'd be celebrating the pruning of weak industry; and would be unshakably confident in the economy's ability innovate and regenerate its way back to prosperity.

But no. People with soft assets - real estate (YES), stocks, and bonds - are petrified because deep-down inside (since apparently not upstairs) they know they've built their livelihood upon a house of cards,

THEY'VE TAKEN AN ADJUSTABLE MORTGAGE ON IT,
AND ALL OF A SUDDEN THEIR BONUS AND THEIR WAGE SLAVE PAY ISN'T SO SECURE...

The idea that a bunch of bought-and-sold, ignorant lawyers in Washington can wave a wand and convert popular self-delusion into reality, well...

In that case the *bailout* bill may as well commence:



Devil's Advocate - You just want the market to tank and the bailout to fail so you can profit from your shorts and perhaps scoop up a house on the cheap...You're as biased as anyone.

Wrong. I made my bets AFTER assessing the future. The others placed theirs BEFOREHAND. Go read my last 700 or so posts!

By the way, I'll NEVER buy a house - if I can. I would say that based on the flux in my wife's firm, there's at least a 20% chance now we'll have to move, AGAIN, back to the NYC/NJ area. Notwithstanding the six month winter I happen to really like this oasis of Boston's South Shore. Regardless, I've grown too BIG to ever be defined or confined by geography.

Sorry to have condescended to *politics*; but I was taking heat from Taylor for too much "social commentary". This anti-social post was for him.

In Search Of New Agitprop

So a friend of mine emailed me an article from the NYT and asked for my "rebuttal". Here it is:

Is History Siding With Obama’s Economic Plan?

CLEARLY, there are major differences between the economic policies of Senators Barack Obama and John McCain. Mr. McCain wants more tax cuts for the rich; Mr. Obama wants tax cuts for the poor and middle class. The two men also disagree on health care, energy and many other topics.

Whoa!!!

The poor and middle class don't even pay income taxes. Something like the top 50% of income earners pay around 95% of all Federal income taxes. Right here, in the first paragraph, this Princeton economist is asking readers to swallow a sophistical premise.

Meaningful tax cuts can only be offered to those WHO PAY TAXES.

Of course, symbolic rhetorical tax cuts can be offered by class-baiters to the entire gamut of gullible Morons.



Poor people do pay disproportionate taxes on things like State lotteries and gasoline. Of course those are voluntary tax contributions. The lottery funds are mostly jobs programs for Obama's cronies in Big Education. And gasoline taxes, heck, statists like Greg Mankiw and the New York Times crowd actually want to RAISE them.

Do I really have to read the rest of this free verse agitprop?

This garbage carries on, focusing mostly on two items:

1) Economic performance during Democratic administrations versus that during Republican administrations.

2) Trends in "Inequality" during both types of administrations.

The first is childishly argued and then, to top it off, Professor Alan Binder completely self-rebuts with this:

Such a large historical gap in economic performance between the two parties is rather surprising, because presidents have limited leverage over the nation’s economy. Most economists will tell you that Federal Reserve policy and oil prices, to name just two influences, are far more powerful than fiscal policy.

Now as for the second point, "Inequality", well, I have covered that a few times already on Marginalizing Morons. Here's something I wrote three years ago:

The Gini coefficient measures wealth inequality in a given society. In this country, it has been rising steadily for 30 years – implying a widening gap between the richest and poorest. Propagandists love to pounce on this stat to show how “unfair” capitalism is, yet countries with narrower gaps (lower Gini coefficients) suffer higher unemployment, lower growth, and lower standards of living.

This vaunted Princeton professor concludes with his *surprise* ending:

The two Great Partisan Divides combine to suggest that, if history is a guide, an Obama victory in November would lead to faster economic growth with less inequality, while a McCain victory would lead to slower economic growth with more inequality. Which part of the Obama menu don’t you like?



You know, in the old days agitprop sold well during periods of economic hardship.

But today, the New York Times is blowing up; its revenue is simply evaporating.

I guess one could say that the market for propaganda is stagflating - just like everything else these days.

Calling All Granny Bashers

These are excerpts from an alarming article on the cost of senior entitlements.



Senior benefit costs up 24%
'Health care crisis' leads to 8-year rise
By Dennis Cauchon
USA TODAY

The cost of government benefits for seniors soared to a record $27,289 per senior in 2007, according to a USA TODAY analysis.

That's a 24% increase above the inflation rate since 2000. Medical costs are the biggest reason. Last year, for the first time, health care and nursing homes cost the government more than Social Security payments for seniors age 65 and older. The average Social Security benefit per senior in 2007 was $13,184.

"We have a health care crisis. We don't have an entitlement crisis," says David Certner, legislative policy director of the AARP, which represents seniors.

He says seniors shouldn't be blamed for the growing cost of government retirement programs.

The federal government spent $952 billion in 2007 on elderly benefits, up from $601 billion in 2000. It's the biggest function of the federal government. States chipped in $27 billion more in 2007, mostly for nursing homes.

All three major senior programs — Social Security, Medicare and Medicaid — experienced dramatically escalating costs that outstripped inflation and the growth in the senior population.

Benefits per senior are soaring at a time when the senior population is not. The portion of the U.S. population ages 65 and older has been constant at 12% since 2000.

The senior boom, however, starts big time in 2011, when the first baby boomers — 79 million people born between 1946 and 1964 — turn 65 and qualify for Medicare health insurance. The oldest baby boomers turn 62 this year and qualify for Social Security at reduced benefits.

•The cost of senior benefits is equal to $10,673 for every non-senior household.

•About 35% of the federal budget is spent on senior benefits, up from 32% in 2004.

Eugene Steuerle, a senior fellow at the non-partisan Urban Institute, notes that the full cost of senior benefits goes beyond Social Security, Medicare and Medicaid. A complete estimate would include other programs for retirees, such as military and civil servant pensions and medical benefits, he says.




And now, here's the last incredible line from that article:

Economist Dean Baker calls it "granny bashing" to focus on the cost of senior benefits. The elderly paid a designated tax for Social Security and Medicare taxes during their decades of working to support these programs when they retired, says Baker, co-director of the liberal Center for Economic Policy and Research.

It's a tough call - that being which is a more outrageous statement, that from Communist Dean Baker above or the AARP statement that "We have a health care crisis. We don't have an entitlement crisis"???

Personally, I prefer to bash *grandpas* because they at least put up a small fight.

The tragedy is that young people have no clue that they are, and will indefinitely, be working for old people.

There will be no Social Security and probably no Medicare for me when I am 65. My peak earning years will be long past. How high will my quality of life be for my last 3-4 decades on this planet? It's a scary thought.

This is why young people today need to live WELL BELOW their means and save as much dough as they can.

Question - Who's really getting bashed here?

Answer - The young Morons with iPods jammed in their ears.

Goldman's Money or Yours?

Why doesn't anybody talk about interest rates?

I played golf a couple of weeks ago with a general contractor who asked me if interest rates were going to go back down. I said, "What?"

Higher interest rates have "killed" his business over the last 6-9 months or so he insisted.

The only interest rates that have gone up this year are those of very short term duration. Either the guy doesn't know his business or his customers are re-doing their kitchens based on short term loans; either way I told him his business prospects sucked for the foreseeable future. I said to him, "You probably made good money for the last ten years, didn't you?"

"Yes", he confirmed. "Well, it's over. Be grateful for the good times and move on, or at least recalibrate your expectations", I lectured him. (His business is suffering because the housing bubble is deflating.)

Every fool can tell you the exact price of gasoline at local gas stations or how many points the Patriots scored yesterday, but hardly a soul around could draw a basic graph of oil prices or interest rates. I have news for you people, you should know this stuff!

I rehash this interest rate subject because today I want to talk about Goldman Sachs. Why are they making so much money these days and drawing the ire of class warfare mongers?

It's very easy for me to learn the prevailing agitprop without consuming any of it - I just go to an extended family gathering.

At Christmas, two separate (but equally misguided) relatives complained to me about the average pay at Goldman Sachs being six hundred thousand bucks in 2006.

Aha! That must be a prominent socialist talking point these days, or so realized CaptiousNut.

Is that a lot of money? Of course. The average pay actually ended up at $521,000. Basic math dictates for every secretary making 50k, there has to be someone making around $1 million. Or for every two secretaries, there must be someone making $1.5 million, etc.

Now I could care less about how much Goldman employees earn. First, I don't own any of their stock. Second, I don't believe in zero-sum economics whereby every dollar Joe Blow earns is a dollar out of my own pocket. Third, I am not a deadly sinner.



Envy was listed as a deadly sin long before Marcus Goldman founded his firm in 1869; it's in the Old Testament, Proverbs 6:16-19.

Of course none of the kvetchers think themselves envious. In fact, they contort the entire issue into a crime of greed on the part of Wall Street, corporations, hedgefunds, and sundry other bogeymen. One of my relatives in fact referred to Goldman Sachs as "the moneychangers".

It just so happens that greed is also a deadly sin. So their moral transgression ought to be excused by another's?

As Greg Mankiw would say, how elegant!

I submit that my newspaper-addicted relatives are in fact quagmired in envy. Look at it this way, if they had a son or daughter that worked at Goldman, would they be appalled at the child's take home pay? No, their kid would have earned it. In this case, would they be rooting for Goldman and Wall Street to have a bad year and slash bonuses? Of course not. Would they be ashamed that their child worked at one of the most profitable and powerful banks in the world? No, they'd be quite proud of it.

Sorry, that's not hypocrisy; that's pure envy.

As for the greed, what do people expect Goldman to do with all of their earnings?

Goldman's earnings set an alltime high for investment banks in 2005--then grew 76% last year to set a new record. In 2006 revenue rose 50% to $38 billion (net of interest cost). Its dealmakers handled an industry-high $1.1 trillion in mergers and acquisitions; its wealth managers raked in $94 billion in new- customer money. Its stock climbed 55% to hover near $200.



As you can see, the stock has gone from $150 to over $200 per share just since the summer. Overall, the stock is up 100% in the last two years so shareholders aren't exactly complaining.

Don't think that if Goldman paid smaller bonuses and banked the money or paid it out as a dividend that the stock would necessarily have performed even better. That would be indulging in unquantifiable conjecture and defy certain business realities.

If I were ever going to start the ideal investment bank or trading firm I would try to situate it far from Manhattan. Though it's the financial capital of the world and much of my firm's business would reside in and derive from the Big Apple, the City presents a major problem for employing labor. There are so many jobs and opportunities there that when the labor market gets tight, every employee becomes an unrestricted free agent.

It's not just the econo-illiterate but also most people that haven't lived in the New York Metro area that don't understand this phenomenon. New Yorkers change jobs like others change their underwear, or thereabouts. In a good job market, firms lose employees left and right. Furthermore they have to throw all sorts of money at the employees that do stay just to keep them happy.

If Goldman issues smaller bonuses or paid out their profit swell through dividends, they run the risk of hemorrhaging valuable traders and bankers who are already itching to jump into more lucrative ventures like hedge funds or other investment banks. Losing talent en masse would hamper future profitability AND preclude any theoretical stock price gains. At the end of the day, Goldman knows better than newspaper columnists and your big-mouthed relatives how best to spend their money.

You can read that cover story on Goldman in Forbes but it won't tell you what I am going to tell you. Forbes runs through a rather boring litany of successes for Goldman: Kinder Morgan buyout, NYSE equity trading, hedgefund services, etc.

I submit that Goldman is knocking the cover off the ball simply because of low long term interest rates. Allow to me explain.

As an investment bank, they traffic in businesses and assets, right? Well following simple present value discounting, low interest rates make all income bearing assets worth more. When interest rates drop from 8% to 6%, your house is worth more, taxi medallions are worth more, stock exchange seats appreciate, as do gas stations, consulting firms, and every other business or asset.

Why would a gas station worth more?

Well, say it pumps out 100k in yearly income and the market presently values it at around $1 million. That's a 10% yield. But if one can borrow the money at 5%, as is likely in today's market, investors will buy the station, pay 50k a year in interest and pocket the other 50k profit almost risk- and work-free. This doesn't really happen too often; more likely the station will cost closer to $2 million - approximating a 5% yield. The gas station, and just about every other business under the sun, will always have its price dictated by the cost of money, i.e. interest rates. Cheap currency always leads to high prices.

Consider those slimy real estate agents. Today they sell a house for 500k and divy up a healthy 25k (5%) commission. Five years ago they were selling that same house for 300k and only reaping a 15k commision. Clearly, the higher the asset prices, the more lucrative the real estate brokerage biz.

The same goes for Goldman but on a more massive scale because the assets they transact in (like shopping malls and oil pipelines) have more zeroes in the price tag. Remember, at the most cynical level, finance is but the largest skimming operation there is. There's simply more cream to be had when the cup runneth over.

I am short the bond and cash laden so I'll do fine should interest rates rise from here - as will Goldman Sachs since they are diversified into commodities (however average pay may fall to 400k).

I hope one day people envy my earnings as they do Goldman's.