Monday, April 14, 2008

Obama's Answer

A quickie here.

I'm watching CNN's "Compassion Forum" and Barack Obama and he was asked what he would do to reduce poverty in our great country.

Before he even opened his mouth I knew where he would go with his answer.

He talked briefly about the banking industry, but quickly went on to the tax code.

He talked about how people at the bottom pay too much and how George Bush's "tax cuts for the rich" were hurting the lower and middle classes. Now, for now we'll forget that Bush's tax cuts lowered not only the top rate from 39.5% to 35%, but also lowered the bottom rate from 15% to 10%.

Let's forget all of that for a second. How does giving people at the top tax cuts hurt poor people? Other than decreased government revenue, how is that directly affecting people at the bottom? It doesn't. The reason that tax breaks for the rich haven't worked in the past three decades was because the revenue cuts weren't met with cuts in government spending.

Let's just make this clear: Making the rich poorer does not make the poor richer.

I just had to get that off of my chest.

Wednesday, April 2, 2008

People make stupid decisions.

It's a fact of life that people are inevitably going to make stupid decisions. Kids do it, teens do it, adults do it, and seniors do it. Republicans do it, Democrats do it, Socialists do it (a lot),
and independents do it. Every race does it, every religion does it, every government does it, and every meteorologist does it. There is no way around making stupid decisions.

But the mistakes I'm talking about today were made by people who are on the news all the time and yet are never named. They are the people that are facing foreclosure because they got into a house they couldn't afford.

Now before I get the liberal smack down argument that the predatory mortgage lenders are at fault, let me say that I halfway agree. The mortgage companies are like a good portions of Americans; they think about the short term, not the long term.

The problem that many people are facing these days with their homes is a big one, and apparently one that the government thinks they need to solve. More on that later.

***Let me make it clear that the "crisis" only pertains to sub-prime mortgages. Foreclosures are up for people who borrowed sub-prime loans, but not for regular, traditional mortgages.***

I've heard many arguments about who's at fault for the sub-prime mortgage crisis. The lenders, the government, the Fed, and I've even heard the nation's rich people are to blame because they make the people who don't have as much money envy them.

Like I said above, the blame partially resides with the unethical lenders, who in order to make a quick buck lent money to people who couldn't afford the payments or the principal. But the main blame resides with the people who borrowed the money.

They weren't forced to borrow the money, they were just mislead by what we many call the "right" of all Americans to own homes.

Owning a home isn't a right in America, it's a privilege for those who earn it and can afford it.

We've become a nation of "gimmees" and takers. A good portion of the population it seems thinks that everything needs to be handed to them by the government and that rich people should foot the bill for their wants. I, of course, am completely against this way of thinking.

I don't see why people think that the government needs to intervene with everything. People think they need to stop the recession and that they need to stop the mass foreclosure. I just can't help but wonder why. Why is it the government's responsibility to help people that made stupid decisions? IT'S NOT! It's that simple.

I'm sure if you ask around you can find many people age 25 and older who got themselves into deep trouble and had their parents refuse to help them., and I guarantee you that whatever that experience was it made them stronger, more responsible, and more apt to deal with their problems themselves instead of relying on other people to bail them out. There should be more accountability with people that make stupid decisions.

I know it sounds mean, but people need to face the consequences of their actions, and if that involves losing their house and having to start from scratch then so be it. It will make them stronger, more appreciative of things they have, and much smarter about how they go about it the next time around.

I think that Americans' collective idea that we
deserve everything is partially to blame for this problem of buying things we know we can't afford. That's why the average American has around $9,000 in unsecured credit card debt.

We Americans have lost sight of the old way of doing things. We used to buy frugally. We used to pay for things with cash only. Hell, people used to save up and buy houses with cash! Imagine how many people would make fun of you if you did that today.

"Well that's stupid! Why are you doing
that? You'll lose your tax break! C'mon, lemme show you how it's done..."

America, here's a piece of advice that a very smart and responsible man once told me: Don't take money advice from broke people.

Okay, so Dave Ramsey didn't say that just to me, but it's a good message nonetheless.

Just because you work hard doesn't mean that you deserve a house. You deserve it when you can afford it. And if you do make a stupid decision, you should deal with the consequences, not have the government bail you out.

Here's a little example of how one decision in your life can either make it great or make it regrettable.

In an economics class I heard the story of a 22 year old whose dad recently passed away. His son was the sole beneficiary of his $250,000 life insurance policy. Now what do you think would happen if you received $250,000 when you were 22?

He had two paths in front of him.

Path 1:

He could keep his job and continue school and take out$30,000 to pay for the rest of his college education.

250,000 - 30,000= 220,000

He could move out of his apartment and put a half-price down payment on a nice $150,000 house.

220,000 - 75,000 = 145,000

He could put $15,000 in a money market account or CD ladder as an emergency fund, reinvesting the interest.

145,000 - 15,000 = 130,000

He could then invest the remaining $130,000 in safe, growth stock mutual funds at a very realistic average of 12% until he retires at the age of 65.

130,000 x (1.12)^43 = 16,994,888

That's $16,994,888 that he'll have when he retires. If he continues school, gets his degree, at age 24 and finds a good job he could contribute $400 a month into mutual funds until he retires.

((400 x (1.01)^(41 x 12)) - 1)/.01 = 5,307,809

5,307,809 + 16,994,888 = 22,302,697

He would have $22,302,697 at age 65 before taxes just for making good decisions.

Unfortunately he didn't choose that path.

Path 2:

He chose this path.

He took the $250,000 and right off bought a $60,000 Ford Mustang Shelby GT500.

250,000 - 60,000 = 190,000

He then bought a $175,000 house.

190,000 - 175,000 = 15,000

Then, by the time he was done buying video games, booze, computers, and iPods, he only had about $1,000.

But don't worry. He did what he thought was the smart thing to do and put the rest of the money in his savings account with a 1% APY. So in 43 years he'll have $1,043.92. Boy, that's smart.

My point is that we all make stupid decisions. Whether it's turning what was meant to be a blessing into a bunch of useless things or buying a house that you can't afford, you shouldn't expect the government to bail you out for your stupid decisions.