Monday, September 29, 2008

The US of A socialist style?

So Congress is voting on a financial bailout plan that has been written in the past week in attempts to avert the economic collapse that has been charging towards us. This plan is on top of the other legislation that has been passed in the past month including a bailout for mortgage holders (providing means for people foolish enough to buy houses they couldn't afford to stay in them), a bail out for Fannie Mae and Freddie Mac (providing them the loan up to some huge amount and of course they took the maximum amount), nationalizing Lehman Brothers Inc. (or something like that) (correction; Fannie Mae and Freddie Mac were fully nationalized whereas previously they were only partially controlled by the goverment, Lehman Brothers just went bankrupt) which I only thought happened to oil companies in communist countries (nationalize meaning the government takes over the company), and I think I heard about some $30 billion loan to companies not even in the US that was decided on over night without the common public finding out until after the fact. The most recent bail out plan being voted on today is for $700 billion, and some people are saying the funds won't stop there. Glenn Beck (a staunch conservative prone to far right views I concede) said on his radio show that his contacts are suggesting that this legislation could cost easily up to $1.3 trillion. The legislation is designed to buy high risk debt from the institutions that currently hold them. This includes mortgages, credit card debt, and car debt. Then the government will collect on that money. Obviously the tax payer will be hit hard for this legislation but I wonder what the government will do will the debt the do succeed in collecting on, or maybe only debt deemed as uncollectable will be purchased. (It should be obvious that I have not studied extensively on this but I just wanted to get some of my thoughts on paper, so to speak, I'll continue).

And all of this is happening because people have bought things they couldn't pay for. I remember in my Macro Economics class at BYU my professor said, when talking about how the economy grows, that people spending money grows the economy and people saving money shrinks the economy. The more money in circulation the better. Henry Ford understood this and started paying his employees more money so they could have enough money to purchase cars of their own thereby increasing revenue for Ford Company. This discussion was actually just after a CES fireside (or maybe a devotional or a talk in conference) by one of the Twelve, I want to say Elder Oaks in which he said we shouldn't be spending so much money, that we need to have an attitude of saving rather than spending. It was funny because he brought that up and said something like "now I'm not contradicting the Brethren, it is better to save in your personal lives, but for the economy is better to spend money; so you don't spend money but hope that everyone else does so the economy grows." The country at that time had a negative savings rate, meaning the nation as a whole was spending more money than they were making. Another factor was back in the Clinton administration there was a large push to put every American in a home. There was a lot of talk about how everyone deserved to own a home and there was legislation passed to require mortgage companies to fulfill quotas when giving mortages. In essence it was affirmative action for the housing market. Sub-prime mortgages came into existence as these companies greatly increased their high risk mortgages. People kept buying larger and larger houses with the intention of selling in a couple years and cashing in on huge earnings from a perpetual housing boom. Now that people have come to their senses and the housing boom has ended people are stuck with huge mortgages which will only get higher as their adjustable interest rates increase. With some many mortgages going into default mortgage companies and losing billions of dollars on bad debt.

Anyways, the question remains what needs to be done to fix the problem, if anything? Do we allow the goverment to step and make very socialist decisions in regards to the economy in order to try to curb the destruction of the economy? Or do we allow market forces to run their course and cleanse out the economy of these lenders and borrowers who made poor decisions? President Bush said that the cost of this bailout plan will in the end be less than if no action is taken and the economy collapses.

I guess in restrospect we should have had the forsite to realize that what is good for an individual is good for a nation and what is bad for an individual is bad for a nation.

In the end all I can think of is this Demotivator.
(30 minutes later)
So apparently it doesn't look good for the legislation to get pass Congress, I still don't know how I feel about it.

I was thinking more about how we got into this mess. I mentioned earlier that a lot of the problem is people living off of credit and getting into bad mortgages. A lot is being said about how this disaster is a result of "8 years of failed Bush economics". It seems to me that liberals and the media (the same thing most of the time) are just trying to place the blame on the easiest target, George W. After 9/11, the claim is that Bush urged everyone to start spending to save the economy; that is not how I remember it. I remember him urging everyone to live life the same way you have been, to not panic. (granted I was in Italy during that year, but still...)

Things are a mess but if we practice good financial principles, live conservatively and don't buy things on credit, we should be fine.

Monday, September 22, 2008

Cheating Olympics

If I had a choice to win a gold medal by cheating and never get caught I would not do it. There are a number of reasons why I would not cheat and the guilt factor is certainly one of them, as well as the honesty factor, the reason I want to bring up right now is the competition factor. I ask myself why would I be competing in the first place? A large part of why we compete is to pit our skill, preparation, and determination against the competition. That being the case then why would I want to alter the competition to give myself an unfair advantage? I just thought of one of my wrestling matches in high school. It was my sophomore year at the Sparks High School Invitational Tournament and I was got matched up with one of my friends on the team. He had beat me in the past and we were evenly matched in practice; however, about 30 minutes before the match he told me he would let me win that day and sure enough I won the match. Now I can't know for sure if he really let me win but I do know it was easier than I thought it would be and because of that doubt I didn't have the same amount of satisfaction from the victory than if I didn't have this uncertainty about the level of competition he brought.

Another example, albeit not from my personal experience, is when the referee is paid off and makes calls to allow a certain team to win. Now I have never been in that situation (although in the moment sometimes I felt like I was on the team the ref was trying to make lose) but I wonder how satisfied the other team could be with that win, I must admit that this is not as good of an example because the team still has to play good enough to win but the point is they had an unfair advantage.

If I used performance enhancing drugs and won a gold medal I would not get much satisfaction out of the victory because I didn't really win based on my own ability. I would not use performance enhancing drugs because to do so would undermine the spirit of the competition.