Wednesday, February 11, 2009

Odds and Ends

58 degrees here today and tomorrow. It is very welcome, but winter still has plenty of time to run this year. The past couple of nights I have had zero time to write and used mostly short quick hits. Tonight I have plenty of time to write, but I am drawing a complete blank! Go figure.

Good Reading Material
I picked up the novel "Patriots: Surviving the Coming Collapse" by James Wesley, Rawles. The book is a work of fiction that chronicles the collapse of the American economy due to factors such as too much debt, dollar devaluation, and hyperinflation. While the book is not very detailed about the mechanics of said collapse (just a few notes on signs to look for) the bulk of the book is an in depth strategy and preparations study. If you like longs lists of guns, rations, fuels, knives, locations, and farming you will like this book.

I am about 3/4 of the way through after starting last night. The book is scary! I have to say in all honesty that if "the world came to an end" I do not think I have the energy nor the interest in becoming a "survivor". Everything is so tough, and even worse the kind of people that will populate the USA should a collapse happen are best shot on site without any interaction. Not much as a way of life, really. Now if we could melt all the guns and ammo and be left with just swords and our bare hands, I am all in! Still, a fascinating read.

Foreclosures: An Infection, An Accident, or Failure to Pay?
"We need to help families struck with foreclosure"
"50 Billion tapped to combat foreclosures"
"Prevention of foreclosures is very important"


You have all read these types of lines many times. How exactly is one "struck" by foreclosure? Does that happen at a 4-way stop sign when foreclosure hits you from behind? Do you get whiplash as well as a notice of foreclosure?

Will there be a "War on Foreclosure" like the "War on Drugs" or the "War on Smart People"? How does one combat a piece of paper? Scissors I suppose.

Is prevention of foreclosures as key as prevention of 12 years olds having 3 kids? Is there a notice of foreclosure condom to stop transmission?

It seems many in government, as well as many writers, bloggers, etc think a foreclosure is something airborne. Like the flu virus. Or they feel it is just plain bad luck that some get foreclosed on while others do not. Almost purely random in selection it would seem.

To aid others in their time of need here is what you need to know: A foreclosure happens when a mortgage holder does not pay what they are contract bound to pay. These days with all the backlogs this process may not even start for 6 months or more of non payment. That is it. That is all.

Do not even bother with the comments like "I know a women who's husband died suddenly last year and then she was struck by lightning and cannot work and then her youngest child of age 4 was diagnosed with leukemia". For every one in a million stories like that there are literally 1 million other foreclosures where somebody has just stopped paying.

There are many reasons somebody may be foreclosed upon, but they all boil down to one basic fact: they are either unable or unwilling to pay what they agreed to. There need be no other discussion.

As far a trying to refinance people into loans they can afford, you will run into major issues that would seem to preclude any action, but since when does the government care about being fair or doing right. 2 sticking points with foreclosure work outs are:
1.) By rewarding poor behavior, you encourage others to do the same thing
2.) The Taxpayer will have to eat the difference in home price due to the workout. How do you ask someone paying their bills to add on even more bills form people that are not paying?

There will be 50 Billion dollars handed out to flippers, mortgage cheats, illegal aliens, and other fraudulent fools that overpaid for homes. It will do nothing but delay for another 6 months what was always going to happen: FORECLOSURE. But this way we get to pay for even more waste, so i guess it accomplishes something.

Three Generations and then Splat!
Mish has a thought provoking post up today. The piece blends economics with sociology. I must say the concept presented is very persuasive. I will take a fairly long excerpt, but you should read the whole piece with Mish's end thoughts. I am excerpting so that you at least see this section:
It's rare the wealth of a family can last for three generations (the 2nd may see the value of hard work, the 3rd, forget it).
[Mish Note: The following example is based in the South African currency of the Rand, but that does not detract from the message.]

Year zero: First generation: Wealth creation
Starting capital: Zero. The family income generators (2 parents) are hard-working and manage to invest 10% of their after-tax income equating to R30/month into the South African stock market. (Yes, this was pre-Union, but we did say "equating to"). Remember this is the sixties and an income of R300 is a very decent monthly wage.

Year 45: Second generation: Wealth preservation
The parents ensured that their three children didn't have to experience hard times. The children attended decent enough schools and were fortunate enough to mix with similarly privileged friends. There is general unease in the family however, as the second generation gain independence.

The pressures of wanting to keep up with the lifestyles of their wealthier friends, coupled with an unfortunate down-turn in the economy, results in a halt in savings and as a result the R10.5m family wealth no longer enjoys any debit order increases. In addition, the capital base is required to maintain an income for the folks who have now retired.

Year 75: Third generation: Wealth destruction
The second generation finally inherit the family wealth and it is split three ways. By this time the R45,000/month comfortable family living has ballooned to R600,000/month as a result of inflation. Each family now only enjoys income from a capital base of R110m and, because they themselves are approaching retirement they opt to de-risk their portfolios, which results in the capital invested unfortunately realising a more sedate 3% real rate of return.
After a torturous revelation later on in life, one of the 3rd generation children decided to carve out a career as a financial advisor. She made the following insightful observations:

1. Her grandparents did a fantastic job of consistently placing 10% of their monthly income into an equity investment over a 45 year period.
2. As they had generated sufficient capital to live off the dividend income there from, her grandparents had stuck with their equity investment throughout their retirement.
3. Unfortunately, her parents had failed to adopt a savings ethic and they had relied optimistically on their inheritances to generate their own retirement income.
4. The 3rd generation children (herself included) failed to comprehend the importance of generating an income and as a result were unable to adopt a savings plan or meet their own costs.

Time to start again.

Makes sense. My family was poor and has been for as long as any of my relatives can remember. I guess that is why I am such a money watcher. Now that I have been able to elevate to a better level I hereby promise that if I have children I will leave them exactly nothing so that they do not fall prey to easy street thinking. Sorry junior!

Have a good night.

9 comments:

Anonymous said...

GYSC

I read that generational article on Mish's and this has been one of my view points of the current downturn. The other problem is this is a structural problem and throwing money at it simply will not fix it. Service based, outsourced, cheap imports due to slave labor, mercantile vendor financing is coming to an end.
The problem with restructuring loans also isn't going to work if the loss is simply thrown back on the government. The problem is to much debt.
http://www.youtube.com:80/watch?v=FwqA6hD7k5U&eurl=http://benbittrolff.blogspot.com/

Kevin

watchtower said...

Kevin wrote,

"The problem is to much debt."

Kevin, not to put you on the spot (intentionally that is) but do you see a "Minsky Moment" in America's future and if so would you care to venture a guess as to when that might take place i.e. weeks, months, years, decades (I'm talking about the Chinese refusing to buy our debt or something equally cataclysmic)?

Lisa said...

GYSC, if this was "drawing a blank"...LOL Great article! Loved the part about being struck by foreclosure, that is genius!

Anonymous said...

Watchtower

China and the US are like two guys handcuffed together and each has a light stick of dynamite in their hand. It is quit possible that China may break out into a civil war. The leaders of China are far more worried about that then our treasuries at this point. Global export from China are falling but global imports too China are falling even fast, this is dragging down the other Asian countries that also buy our treasuries. The main problem is that there is only so much capital in the world and our government is competing for a bigger slice. The biggest threat of a "Minsky Moment" come from the actions of our own government. The path we are in is the one Japan used with government spending making up taking the place of consumer and business spending while they repair their balance sheets. In Japan you could not walk away from your mortgage. That is what the problem with that approach is and why transferring bad debt to the governments balance sheet will make this worse. It is also why they are probably not spending enough for it too work, the bad debt is out pacing the government spending.
This is gonna get ugly.
Kevin

Anonymous said...

GYSC
"in depth strategy and preparations study. If you like longs lists of guns, rations, fuels, knives, locations, and farming you will like this book."

I'm making a list, checking it twice........
Top 100 Items to Disappear First During a National Emergency

http://baconreport.blogspot.com:80/2007/07/top-100-items-to-disappear-first-during.html

Kevin

watchtower said...

Wow

Thanks Kevin

GYSC is right, you should have your own website (not taking anything away from GYSC's site, I am not saying that at all, I love GYSC's site here, in fact it is the first place I check out when surfing the net) where you could expound on your thoughts.

I looked up the book GYSC spoke about on Amazon and plan on checking out the website you listed for "Top 100 Items to Disappear First During a National Emergency".

Once again thanks.

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