Post From Landon

Well, I guess it's time for me to chime in with my two cents worth on what's going on with our current financial crisis. Let me prefice this by saying it's just my opinion! Hopefully this will bring some insight to you as I explain my position on this interesting situation.

Point 1 - Politicians are incapable of making these decisions.

I've come to the conclusion that most of the politicians trying to work this entire deal out on our behalf don't have the skills to really do what needs to be done. Seriously, I've come to the conculsion that most of them are incapable idiots. For instance, take a guy like Joe Biden. For the record, I'm not using him as an example because he's a Democrat. I'm using him because he's the first person that happened to come to mind. I'm sure there are Republicans just like this example.

Joe Biden has really done nothing in his life except be a politician. That's it. He's lived in the fantasy world of Washington DC for the last 30 years. He's never built a business, ran a company, led an organization, or made a decision that he directly had to be accountable for. He gets to "vote". He's one of 100 votes. He might be totally inept at making good decisions, but because he's never really "flying without a parachute", we have no idea if he's truly an excellent and informed decision maker. The only skill we know Biden and others like him posses is an ability to get elected to a job that I doubt the sharpest people in America would ever take.

Point 2 - Why the people we elect aren't the sharpest knives in the drawer.

Who the hell would really want to be a politician? Think about this for a minute. The best, brightest, and most capable people would never consider running for senate or congress. To get elected, you go out and beg for money making promises to people along the way you may or may not keep. Then if you're lucky and make it far enough to get on the ballot, you get to spend a few months hearing how crappy of a person you are on television and radio ads. Oh, but you get the satisfaction of saying crappy things about the other person vying for your job. Then, if elected, your job is in Washington DC. Most likely far away from where you call "home". But don't worry, before you know it you have to start the process all over again to keep this job.

All for 160k a year. Let's be honest...that's not much money. I believe there are a small portion of politicians that get in to it for the right reasons, but I believe there's a larger number of them that do it to fuel their need for self importance. I think most of them would fail miserably in the real world. Seriously, when's the last time you saw a help wanted ad that said -

"Wanted: A kiss ass glad hander that is capable of talking out both sides of their mouth. Must be loyal to one way of thinking (insinuating Republican or Democrat here) whether it's right or not. Must feel free to criticize their coworkers when things do not work out, but be willing to take all the credit with success. Company will never ask the successful applicant to make a decision and be held accountable; because all decisions in the company are done by a vote."

See my point here?

Let's throw a bunch of men and women in a room that probably are incapable of running even a simple business and allow them to figure this mess out. Have you ever sat around and watched CSPAN and listened to some of these politicians talk? It bothers me.

Point 3 - The truth about the "bailouts"

There are very few people that either...

1. Are describing what is going on accurately. Or...

2. Actually understand what these bail outs entail.

First, let me say. Our country should never be in the position it's in right now. Period. I beleive there is only 3 things that truly motivate people in our world. Sex, Greed, and Fear. I think if you stop and think about that for a minute you'll find that's true. Greed has caused the problem we are facing. Why it happened is an entirely different blog. Let me just say it shouldn't have happened, but the reality is it has happened. This blog is about what's going on now.

I'm sick of hearing the media and politicians talk about this bailout as a "burden to the taxpayers". That's the media playing the fear card to get more ratings.

As for why the politicians are saying it's a burden - I'm not sure if it's because they don't understand business well enough to know what is really going on, OR if they are just playing politics.

Folks, the government got a great deal on AIG. For the record we taxpayers BOUGHT an equity stake in the company. We now own 80% of it. Purchased at a depressed price. The time to be a buyer in business is when everyone else is selling. Ask Warren Buffet. He's rich because of that philosophy.

The reason for the bailout is simple. A tremendous amount of money is tied to real estate backed loans. Let me explain how this process works...

You go and borrow money from a bank to purchase a home. The loan is backed by real estate that's considered to be worth a certain amount of money. You agree to pay the bank a certain interest rate over an agreed to amount of time. Because of all of this, your mortgage has a certain "value" to an investor. Your loan is then packaged up with lots of other loans and sold on Wall Street to other institutional investors. AIG for instance, would be a company that might by notes like this. This process is called "securitization".

This process works because actuarians (smart math people that calculate risk) know what these notes are worth based on many calculations. There is an accepted value to these bundles of mortages. This value is as real to the investor as the money you have in your wallet.

What's happening is because of past greed corrupting the process, everyone is now unsure of what these bundles of mortgages are really worth. This was caused by overly optimistic real estate appraisals, lending policies that weren't based on common sense, and other factors. Oh, and by the way...before we start crucifying these banks for making these loans let me say that they were all hailed as heros for making affordable loans available to the masses.

That's another thing that really pisses me off and makes me shake my head. These banks were criticized for being "predatory", but now it's looking like the banks should have charged A LOT higher interest rates doesn't it? Higher interest rates help the bank offset risk. These loans obviously held more risk than people realized.

To finish the above thought - A person I respect a great deal and is much smarter than I am about economics and fiance said something recently that I believe to be true. He said, "Some people are just not cut out to be homeowners. They simply don't posess the life skills to be responsible enough to own a home." The fact is folks, nobody twisted people's arms in to accepting the loans these banks are being blamed for. Just like nobody twisted the banks arms in to extending the loan offer.

Anyway, back to my explanation. The situation we are now faced with is we need someone to come in and say - hey, we believe these notes are worth "xyz". When the notes were sold, they were sold for 100% of their face value. (They weren't exactly sold for that...but for the sake of this explanation they were), but now we need to establish a "corrected value" of these notes. The problem is, there isn't a single investor out there large enough to help establish that amount....except for the government.

I've talked to trusted people in the industry that are telling me that some banks are selling off these notes for as little as 25% of the face value. This is why the system is failing. Nobody knows what they are worth and it has caused an over reaction. I can tell you this, they are certainly worth more than 25 cents on the dollar.

The governments "bailout" isn't a gift of money to these companies. It's creating a buyer for these bundles of mortgages. They are helping to create a new value so the notes can be traded with confidence again.

As taxpayers, we'll own these mortgages or a portion of the companies that have own these mortgages. Let me ask you a question. Go outside and look around at the houses in your neighborhood. Almost all of the houses probably have a mortgage. If you had enough money, wouldn't you like to own all of the houses for say....50% of the amount owed on the current mortgage?

Of course you would. That's all we are doing with these "bailouts" that the media and the politicians keep howling about. It also illustrates why these people shouldn't be trusted with this decision.

I think that's the biggest injustice being played out in this whole "bailout". The average person thinks this money is just being pissed away. The truth is quite the opposite. If it's not screwed up by the politicians, this will be one helluva real estate investment. I swear on Waylon's grave to that statement. Hopefully we can take the profits from this and pay something down on our national debt.

Point 4 - What I would do

If it were soley up to me, I wouldn't let the politicians sort this out. I would create an executive board of real world business people with experience in these areas. I would also make sure the executive board's number one criteria for admission would be character. People like Warren Buffet. Let them hammer out a couple of different solutions and then demand the politiicans approve one or the other. That's it...no changing. You get one of two choices...now take your pick because we know you'll screw it up with politics if you go changing it.

It will be interesting to see what happens in the next few days with all of this. I hope as you watch it unfold, you'll think about some of what I've said in this blog. I hope it helps you keep it all in perspective as the politicians over complicate it and grand stand for their own puffery. It's a serious problem no doubt, but one that can be simplified and managed if we remove politics and would just allow honest business minds to make the decisions.