Personal "Good Consumer; Bad Consumer" Bailout Plan

Even more snow all day and all night yesterday. There is really no place to put it anymore! All this shoveling is not too good for my back. At least the rest of the week looks to be snow free.

NFL Conference Championships
After a great post season run, the Baltimore Raven's rookie quarterback finally had a rookie like game. Joe Flacco looked lost at times and the Pittsburgh Steeler defense was almost airtight for the whole game. Congratulations to the Steelers on another Superbowl trip.

What can one say about the Arizona Cardinals? The Cards started fast and dominated to halftime. In the second half things went bad for them as the Philadelphia Eagles got hot. Facing a one point deficit in the late stages of the 4th quarter, I thought the Cards were done. They instead went on a sustained touchdown drive led by the ageless Kurt Warner that showed grit, resolve, and real poise. The Eagles never recovered from that drive. Huge congratulations to the Arizona Cardinals on their first trip to the Superbowl.

Asian Bird Flu
Loyal reader Watchtower inquired about if I had thoughts on the Asian Bird Flu (Influenza A virus subtype H5N1). My thoughts are that the virus that causes it scares the heck out of me!

Two things cause me to have some concern about it:
1.) The large base of primary producers (all those chickens!) means the sheer biomass of virus is huge. Because chicken is a major food base, that rich target population will always be available to some degree.
2.) This virus had shown a terrible ability to mutate very quickly. The virus seems to be a hyper gene shuffler which allows it to constantly change properties. The virus has even been shown to mutate to be able to infect more than one type of cell receptor in humans. That is not good.

Overall, the response has been pretty good, but it can be hard to know full details when dealing with a country like China. A global pandemic is unlikely, though that sentiment comes from the good old "it's never happened before" camp. Sadly, there is not a whole lot you can do personally except to avoid countries with infections being reported.

Banks Cannot Let Go of the Gambling Mindset
One would think that after bets on mortgage paper went about as wrong as they could have the banks would be more risk averse and try and repair some core business that was less volatile. Perhaps if the banks had to go it alone that would be the case. When you are stuffed to the gills with bailout cash though, you have to try and make some money! Consider this Bloomberg item:

Goldman Sees ‘Swift, Violent’ Oil Rally Later in Year
By Grant Smith
Jan. 19 (Bloomberg) -- Goldman Sachs Group Inc. commodity analyst Jeffrey Currie said he expects a “swift and violent rebound” in energy prices in the second half of the year.
Oil prices may have reached their lowest point already, after falling to $32.40 in mid-December, and are expected to rise to $65 by the end of this year, the analyst said. There is scope for a “new bull market” in oil, Currie said.
A recent tactic of using supertankers to store crude oil to take advantage of higher prices later this year is “difficult” to profit from and is “near the end of this process” anyway, the Goldman analyst said.
New York crude futures for delivery in December, trading near $56 a barrel, currently cost some $15 a barrel more than March futures, a market situation known as contango, where prices are higher for later delivery.
Morgan Stanley hired an oil tanker to store crude oil in the Gulf of Mexico, joining Citigroup Inc. and Royal Dutch Shell Plc in trying to profit from the contango, two shipbrokers said in reports earlier today.

The process of filling a supertanker with oil and planning on selling it later at a higher profit sounds great as long as those "higher prices" manifest themselves. Was it not the banks like Morgan Stanley and Citigroup that were so sure "higher prices" in real estate were such a sure thing? Good to see taxpayer funds going to work on a commodity bet. I am sure this will work out well.

Personal "Good Consumer; Bad Consumer" Bailout Plan
Between the English/Scotish/Irish banks pulling a flatline today and the continued talk of creating "Good Banks" and "Bad Banks" here in the US one cannot help but be confused. If banks can just state that the poor assets do not impair them anymore, then why all the fuss? If all that notional money can be ignored, then did it really exist in the first place? If a subprime mortgage default falls in the forest and nobody noticed, did it happen?

Here at Economic Disconnect I would point you toward setting up your very own "Good Consumer; Bad Consumer" divestment plan to repair your balance sheet and promote the "stability and well being" of your own finances. If the banks can do it with your tax money, surely you can do it with the little money you have left.

So how to do it? Transfer all of your credit card balances to one card; pick the one you think has the worst artwork or the worst color. Charge up any outstanding debts you can fit on that card. Try to get all you can onto it. Car loans, school loans, home equity loans, anything at all that can be charged. Set up a post office box and have the address listed as:
Bad Consumer Holdings for John Smith
PO Box 1234
Fantasy Land, Massachusetts

Now stop any payment when the bills come due. After a while you should get some notices in the mail about your non payment. Send the credit company a letter with your "Bad Consumer" letter head and state the following:

"To whom it may concern,
I, John Smith, have recently divested my debt into two groups: Bad Consumer Debt and Good Consumer Debt. I regret to inform you that your credit extension to me has been deemed to be "Bad Consumer Debt" and thus will be ignored. I suggest you reflect the disappearance of that debt on your balance sheet, as I have on mine. May I also suggest your company get in line early as the TARP money is going fast and would be terrible for you to miss out. Thank you."

The next issue will no doubt be an angry phone call from the attack dogs at the credit company. You will need to navigate that call and here is a sample to follow:

Credit Card Company (CCC)
Yourself (YOU)
Phone rings.....
CCC: Hello mr Smith, this is the credit card company. We received your letter and while we appreciate a good joke you must start paying your bill immediately, tacking on fees and late charges of course.
YOU: This is no joke. Your credit debt has been deemed "Bad" and must be ignored. I am sorry but there is no other way for me to meet minimum balance sheet requirements.
CCC: OK, ok. Enough jokes. You entered into an agreement in good faith to pay that money back sir, and now are legally bound to that contract.
YOU: When I took out that credit I had a model that I would win the lottery and be able to pay it back this year. As I have yet to hit the jackpot, we will have to ignore the debt until my model is proven correct.
CCC: Sir, thinking you are going to win the lottery is crazy and a poor financial decision.
YOU: Maybe, but my model said otherwise.
CCC: We will have to start collections sir, and that will ruin your credit rating.
YOU: Not so, Moody's and Fitch just reiterated my "AAA" rating and it was insured by AIG so you have no recourse there.
CCC: We will start collection process and your assets will be targeted to repay your debt sir.
YOU: You seem to still be a bit confused. The assets I have are all notional and their current market price is low due to "risk mispricing" and thus I choose to not sell into this environment. You will have to wait until the right price is offered to me on my car, my home, and my collectible Disney plates.
CCC: Sir, this is serious. Are you refusing to pay what you owe to this company?
YOU: Try not to think of it like that. Have you ever heard of "Systemic Risk"?
CCC: Is that the top number on a blood pressure reading?
YOU: No! "Systemic Risk" is when an institution is "too big to fail" and thus cannot be allowed to go under because it could hurt everyone. As a consumer I am responsible for 70% of the US GDP, well not personally, but as a whole. Therefore I must not be allowed to fail as it would pose great risk to the economy. Ben Bernanke and Hank Paulson have said as much.
CCC: Sir, really this is your last chance to try and make arrangements.
YOU: You have my "Bad Consumer" information, I suggest you try that avenue.
CCC: Click of hang up.

See, now even you can hide behind the veil of systemic risk! Imagine if we all made our own "Good vs Bad" asset pools! That would be fun.

Note: OBVIOUSLY A JOKE; This is not personal financial advice,
unless you are C, BAC, JPM and the like then it is ok.

Have a good night.