Saturday, December 29, 2007

Freedom from Debt = Freedom from Slavery

I've been asked by a couple folks in email why I'm talking about the cost of space. Here is why:

Your freedom inversely correlates to your participation in our mass consumption society.

What do I mean by this? The more consumer goods you own, the less free you are. You are ensnared, lured, or tricked by the mass media to purchase shiny things which trap you into a life of debt slavery or work slavery so you can support the acquisition of more shiny things.

The reason I do my back of the envelope analysis is to help you understand that the system is rigged to help the rich get richer. By your willing participation, you give up your god given freedom for a life of comfortable (if desperate) slavery. The American Dream is a dream of working for the people who loan you money to buy the house that is housing your "stuff".

By removing unnecessary stuff from your life, you can increase your freedom. You can work less hours, spend more time with people or ideas that you find important, have the freedom to walk away from something that is wrong.

A nice side benefit is that you consume less stuff. You have a smaller home, a smaller vehicle, and fewer things to keep clean. You have less of an investment in things that don't matter much longer than a few months.

It's a sound principal. After 9/11, the President of the United States said "Go shopping". Why is this? Because people looked up from the yoke they live under and realized that there are things more important than DVDs or the next season of Lost. And the rich suffered, so they gave marching orders to the government to get out there and pile on the debt.

And we piled on debt so large that our system became unstable. The subprime loan mess was a direct result of the easy money poured into the economy after 9/11. Now, the payment for this debt is falling directly on the taxpayers. We will have to work harder to keep the rich richer and enslave ourselves even more to keep things on a stable balance.

This is why I talk about simple things like not watching TV, not going into debt, not keeping your money in the banking system. By choosing TV, Debt, and check free banking, you empower the slavers to capture your mind, your very life, and use it to their ends. The slavers dangle the trinkets in front of you, and you snap them up, further enslaving your self and your children into debt bondage.

It's not worth it.

Thursday, December 27, 2007

The meaning of terrorist act

When I talk about terrorist events proceeding a financial collapse, I do not necessarily mean a 9/11 type attack. I mean that a terrorist, like the one who killed Bhutto, will conduct an operation that will act as the trigger. This act could be be small, like the assassination of Archduke Franz Ferdinand, which started World War One. The act could be big, like the 9/11 attack. It could be something in the middle, such as the kidnapping of Israeli soldiers in Palestine.

The fact is that our world is so interconnected that any tipping point can be easily exploited causing the entire world to rock from the ramifications. Why should the US stock market react at all to the death of Bhutto? In the short term, oil prices. In the long term, stability of the region.

So, when you hear me say terrorist event, the event can be small to large. The biggest indicator of it's effectiveness is going to be the amount of media coverage it gets. When my ex-wife talked to me about Bhutto's death, I realized that it was the media that effects us more than the actual event. How many of you really care or are effected by Bhutto's death? I doubt many of us are directly, or even indirectly.

Chinese threatens the dollar

"Chinese officials have said that cutting the rate could encourage investors to move money to Asia or elsewhere in search of better returns, which could depress the dollar."

Well, duh. The real question that you should be asking is why would they say this? It is a polite threat. They are telegraphing the intention that if the dollar continues to drop, they will move their currency reserves to Asian countries.

What is interesting to me is they made a direct comment about the reserve currency of choice. Why would they do this? They must feel that the currency is in jeparody of losing it's status as the reserve curency. This would be a major blow for the US.

http://money.cnn.com/2007/12/27/news/international/bc.apfn.as.fin.china.us.dollar.ap/index.htm?postversion=2007122707

Savings and Loan debacle Redux

People are discussing the possibility of creating an agency for the Subprime market collapse. Great, another official rip off like the Resolution Trust Corporation. Expect to have an agency formed next year that starts buying back loans from the FHASecure and banks and auction them off to the lowest bidder, most likely foriegn banks and rich investors. This will take the homes out of the hands of the individual bidder, because that's too messy and too out of control for the finanical markets.

http://money.cnn.com/2007/12/24/real_estate/mortgage_crisis_next_moves.ap/index.htm?postversion=2007122411

The big bank selloff - Reverse neocolonialism

The financial industry is going to have to re-construct their balance sheets in the next several quarters. The reason is simple, the subprime based structured investment vehicles have to get removed from the balance sheet or the banks will collapse. You can see this as the banks sell off portions of their company to remove the debt based. This way is a slower collapse of the financial system than we discussed in August.

http://www.bloomberg.com/apps/news?pid=20601103&sid=aXbl5O3.C3Pc&refer=us

Big investments by the Chinese banks are a smart move by the Chinese. By owning the financial industry in the United States, they can cripple the US economy at any time. Alternatively, they can control our policies by making fund easier or harder to get. It's reverse Neocolonialism.

It's interesting Bhutto assassination is being cast as a Terrorist event instead of a political event by the State department. Massive protests have broken out because the local people know it's a political event, so they are protesting the lack of democracy in their country.

Friday, December 7, 2007

What do you think about Gold and Precious metals?

I mentioned, briefly in my last video, that I think that precious metals were over priced. I got a well informed landslide of information that I might be wrong.

What I am interested in is why you think the precious metals are so important for investing in the coming times. I’d like to see your thoughts, articles, and other information so I can make a better informed decision.

I’ll be traveling without my videocam or Skype this week for work, but shall return on Friday. Of course, you can reach me by email, the blog, or at my Total Force Simulations number.

John

My financial qualifications… I am not a financial advisor.

Here is a question that I was asked in email. I thought it would be a good blog posting:

“Hi John, I’ve been following your videos for a while and I find them quite interesting. I know you say in your videos that you are not a financial adviser when you give out advice that people might act on.

I was just wondering what accomplishments you have in investing? Do you have a large trading account? A high net worth? I apologize if I’m getting too personal, but I think that some of the others are also curious about your personal financial accomplishments.”

Hello “curious about my personal financial accomplishments”,

I have no accomplishments in investing. I have never traded stocks, but it looks really interesting. I have a 401K, but it’s just beginning after losing it all to my ex-wife in my divorce. I’m as far down the socio-economic scale as you can and still own a computer. My ex-wife will own a great majority of everything I ever make for the rest of my life. Unless I win the lottery, I’m never going to be able to dig myself out of that hole. My net worth is less than most people’s monthly take home pay.

I rent a studio apartment in the poorest part of Long Beach, 1 block from South Central LA. I barely make it from paycheck to paycheck. I shop at the local stores, farmer markets, and generally stay away from chain places. They are very expensive.I do not have a girlfriend or any prospects of one. I did buy a used bicycle a few weeks ago, which is the most significant purchase I’ve made this year. It costs me 86 bucks and a couple of hours to set up the guy’s network.

I am interested in the financial system, as a system. That’s why I tell everyone, I’m not a financial adviser and they should check with one before doing anything I say. It’s like when I worked for DreamWorks SKG. I was the only person who had absolutely no interest in being in the entertainment industry. It was just an interesting problem. If you know of any jobs that let me look at the financial markets and talk about them, I’d be pretty happy to get one. It’s an interesting problem to follow.

I’m very frugal, but that’s only because I have to be in order to get by from paycheck to paycheck. I’m of Scottish ancestry, so it’s natural for me not to spend a penny unless you are getting more than penny’s value from it.

I’ve done a lot in my life, been all over the world. I do have a Bachelors of Science in Business. I was a “Big Six” consultant. I’ve seen more things than I wanted and I’ve done more than I’ve wanted. On the balance, it’s not a bad deal. My ex can’t take my life away from me, only my money.

These videos are my hobby. I find them relaxing and they sooth my stress. That’s most likely more information that you ever wanted to know.

But more importantly, your guess is as good as mine.

The struggle between finanicial institutions and currency/oil values…

There was a good set of questions that Talktal asked on my November 19, 2007 Youtube video which I’d like to discuss here in more detail.

” as far as i can tell, we have a struggle between the financial institutions and currency/oil values. my question is this, what if the feds raised the interest rates in order to strengthen the dollar and drop the price of oil. What’s more important to the American economy, a secure financial system with free flowing money or cheap energy resources and a strong currency?”

The answer is: Cheap energy resources and free flowing money are the result of a secure financial system. However, our financial system is not secure because the subprime market found a loophole in the assumptions of GAAP, and the money is now unable to flow freely. Debt based securities have removed the liquidity from the financial system and have called into question our financial systems. We can not have a strong currency unless these two fundamental problems are addressed, and quickly. Other countries are losing faith in the value of our dollar.

The explanation takes a bit more time:

If our bank system was solvent, the current problems would merely be a struggle between the financial institutions and currency/oil values. It would be a simple balance expressed by the value of the dollar buys a certain amount of oil. If the dollar is worth less (lowering interest rates), it buys less oil. If it’s more expensive (higher interest rates), it buys more oil. However, that’s not the core problem with the fiscal crisis of 2007.

The core problem is that the balance sheets of US financial systems, retirement systems, and even the government is based on the value of debt backed securities. Bonds, structured investment vehicles, derviates form the basis of institutional balance sheets. And these debt backed securities are beginning to default. The defaults calls into question the balance sheet values of companies that are publicly traded.

Because the debt based securities can not be accurately valued, institutions are not as willing to use them as assets or buy them. This forces companies who normally used debt based securities (like Mortgage bankers) to use alternative sources of cash, such as the corporate Paper market, the federal discount window, and even the depositors in banks. The huge volume of debt based securities that have been artificially keeping the economy going are now sucking all the rest of the liquidity out of the market. This happened in August, when the lack of liquidity almost caused a banking failure. The banking failure is coming, but it’s been delayed by the huge injection of *poof* money (money created from nothing) by the central banks of the world.

Nobody can accurately value the balance sheets of companies, because the possibility of repayment of the debt based security can not accurately determined.

Mortgage securities are significantly higher in risk than the are valued, caused by the loose lending in the subprime mortgage problem and the inability of borrowers to repay the money.

Generally Accepted Accounting Principals (GAAP) can not be accurately applied to the valuation of mortgage based securities due to the unpredictability of repayment.

GAAP makes four assumptions (http://en.wikipedia.org/wiki/US_GAAP), and two are not being met in today’s market. These are the stability of the currency and periodic reporting. The problem with debt based securities being counted as assets is that it can not meet the constraint of Conservatism and Materiality. The interest should be an estimate of the risk of the debt, but the problem is that the risk changes as market conditions change. Therefore, the value of the debt based instrument should change also, but in our current accounting systems, the value does not. That’s why we have a lot of financial institutions declaring huge profits, and then a week later restating the value into huge losses. It’s a loophole that we should be screaming that they close.

Generally Accepted Accounting Principals are the basis of the United State’s accounting practices. it’s not a law, but the agreed on way to conduct business in the United States. It’s controlled by the FASB. The basic premises of US accounting are being called into question. You’ll see this at the year end when the accounting firms will not sign off on publicly traded companies (Thanks for all the fish Sarbanes-Oxley and Enron!)

So, no matter what the central banks do about the interest rate, it’s not going to have much of an effect. They have shot their bullet, raising interest rates are not going to solve the debt based security problems, it’s only going to accelerate the failure of the banking system. Lowering interest rates are going to destroy the economy and hurt the people more. So, the central bank is going to sacrifice the economy and people for the solvency of the banking system.

Sad story, hmm?

The Land of Artificial Plenty

We are living the fantasy land of our parents on the money from our children’s future. Our economy is in shambles, our money is becoming worthless, we are beholden to foreigners, and our way of life that grandparents worked so hard to build is being corrupted before their aging eyes. We are living in a land of artificial plenty, built on the upward draft of our money being sucked out of our pockets and into the pockets of people who use it against us.

Today is Thanksgiving in the United States. It’s a time of getting together with family, going to church, watching football, and eating until our bellies bulge and cause us to slump happily in front of the television. Our forefathers worked hard to provide us with a free country to do this wonderful holiday. They gave us the freedom and social mobility that allowed us to make money and rise out of the social class that we were born. They escaped the societies that held them firmly in place and came to the unploughed lands that are now the United States. From nothing, they built the most powerful, freest country in the world.

But it was not always the richest country. While there were riches to be made, it was not this that made our country the greatest. Our land was built on the fundamental values:

  • Hard work
  • Frugality
  • Free speech
  • Responsibility

We have abandoned our fundamental values in exchange for cheap electronic trinkets, like the Indians trading Manhattan to the Dutch. We gladly exchange our frugal ways for a life of debt slavery to repay fiat money we borrow at usury interest rates. We fill our minds with trivia about sports and artificial celebrities while ignoring the basics of education. We ignorantly consume resources while we trade our children’s future away. We are sitting at a table that we can not afford, and the waiter is coming with the bill.

The land of artificial plenty is crumbling. The small cracks in the land are opening up, swallowing the slow, the ignorant, the lazy, and the irresponsible. We will struggle to pay for the expensive programs built in times where money was plentiful. Our society will become vunerable to corruption and evil. The little guy will be crushed in the rush to stay above the rising tide. We will sell our children’s future to maintain the status quo today. The resulting chaos will crush most of those who have abandoned the core values that built our nation.

However, those who maintain the basic values of Hard work, Frugality, Free speech, and Responsibility will adapt and overcome the coming troubles, for their personal choices will keep them out of the land of artificial plenty.

Welcome - Department of Homeland Security readers

An odd title for a blog posting. I’ve been monitoring my blog and my message board, and one of the neat features of Yahoo’s hosting system is that it does a reverse lookup of the person who is reading, posting, or even just browsing my system. It’s a built in feature of the Yahoo hosting system. No, tinfoil hat crowd, it’s not domestic spying. It’s just standard IT management stuff to keep the hackers off of our hosted system. Put away the conspiracy theories, I’m just an engineer who enjoys talking about financial stuff and has a personal interest in security sensor integration.
What came to my attention was that we have some readers who are hosted at dhs.gov. They come by regularly and even have sent some email. I think that’s great! You are welcome to visit my board and post comments here. I am working on my homeland security Master’s degree at American Public University for fun. It’s good to have some fellow compatriots checking out my blog from work. Don’t let the IT security folks catch yah, no private browsing on Uncle Sam’s time.

Drop me an email if you are from one of the counter-terror groups, I’d love to trade some tips with you. I’m sure you know my background and position, so let me know if you think I’m a problem. I don’t mind, I’m sure my stuff about finance has nothing of professional interest to you. That’s why I’m glad you are here.

Speaking of which, drop me an email no matter where you work. I’m an open book. You can even call me at (562) 219-3321 anytime.

Gold and Eurobased securities.

I get asked a lot “How do I, as an individual investor, buy gold and eurobased securities?” First off, I’m not a financial adviser. I recommend talking to a licensed financial adviser instead of listening to me. Here is what I did.

Like most of you, I have a 401K. I checked out all the options and moved my money to the international fund. Luckily, there was an option in my company to have stable investments (bond heavy) for the international funds. So, that’s what I did. It’s making some pretty good returns.

It’s hard to purchase eurobased securities as an individual. Nothing beats having things in hand. Certificates are pieces of paper that don’t have any value by themselves. So, buying gold or having euro in hand is most likely better than having a piece of paper that represents those assets.

Gold, I think, is over priced by 5-7%… it’s the fear factor. Gold should cost, if it was matching the devaluation of the dollar, around $700. I’d wait on precious metals, people are now speculating in them in order to recover losses from two years ago when gold went down.

Check into storable food. Prices are going out of sight on food these days, but it’s not making the news. Just yesterday, my grocery bill (I buy almost exactly the same thing every week) went up by over 20%. It was a great surprise. Food is a better investment, in my opinion, than precious metals. The problem with precious metals is that the general public in the United States doesn’t know how to deal with it.

In any case, good luck. The next three weeks should be interesting. I hope you prepared over the summer.

Freedom from the Financial Crisis - A howto guide

LORD POLONIUS:
Neither a borrower nor a lender be;
For loan oft loses both itself and friend,
And borrowing dulls the edge of husbandry.
Shakespeare’s Hamlet, 1603:

Shakespeare’s plays have as much to-do about today as they did yesterday. Throughout his writings, you will find wonderful advice to today’s people as they struggle against tyranny. In a single statement, Lord Polonius outlines the plan that will overwhelm the powers of tyranny providing the key to unlock the shackles that bind you.

These 10 steps to steps will help you break free from the trap set by our society. With little effort, you can have a huge effect on the power the powers that enslave you. Simple non-participation in the system causes them to lose power over you, and moreover, decreases their power exponentially.

Before we start, I am not a financial adviser. I’m in no way qualified to tell you what to do with your money. You have common sense, use it. My Ouija board is as good as yours, so take this as a way that someone could break free of enslavement, not customary financial advice. Consult a financial adviser of your own choosing. (Article continues)

1. Hold your own money
2. Lender or borrower be
3. Buy locally made goods
4. Eat local
5. Buy used
6. Around the house
7. Get off the grid
8 Barter
9. Avoid the use of oil
10.. Use paper currency to pay your taxes, child support, court ordered payments, and debts.

1. Hold Your Own Money

For every dollar you allow to sit idle in bank accounts and other financial instruments, you provide between 10 and 500 dollars of debt based securities to fund operations of those who keep you enslaved. The fractional reserve banking system takes your money and use it as collateral for loans, which in turn create more money. By removing the currency from the system, you reduce the amount of loans they can make by 10 - 500 times. This, in turn, removes the amount of revenue they can generate to pay the muscle that keeps you under control.

How do you do this? Take your money out of the banking system. Hold three to six months of expenses aside for bad times and take the rest and convert it into items that will hold value. My suggestion, in order of preference is at least three years of food, silver coins, gold based jewelry, gold coins, other precious metals. Make sure it is in your control, do not place it in a bank or financial institution. They have laws that will prevent you from taking your money out when they don’t want you to.

Keep a single checking account. Deposit the money into the account before you write your checks. Make sure it’s an account that do have have fees and minimize your banking costs. Credit Unions are ideal for this type of transaction. This will provide you with the minimum entry into the system in order to get transactions done, while maximizing the assets under your control.

If you get paid by direct deposit, which many people must do now, go down each pay period and collect your pay from the bank. Take it in cash and coins. The removal of cash from the bank costs the bank money and also, by taking coins, this increases the amount of money it costs to remove it from the system.

If you get a paper paycheck, check with your employer if you can cash it on the spot. Otherwise, your local grocer or other local business may be willing to cash your paycheck. But this is good, it supports the local merchant and allows them to stay in business, keeping money in your local community.

2. Don’t watch the media

Today’s media is a conduit into your mind. It uses manipulation to warp your common sense. It places impossible images in front of you and says you should be this way. It shows impossibly nice homes, handsome men, beautiful women, and other things we just don’t have in our lives. It’s fantasy.

First, get rid of your television. It’s a time waster. You don’t need to be constantly entertained by something. Cable, satellite TV, etc.. out. You don’t need it. It will take a while to get away from television, especially if you have used it all your life. But try it. If you really need your fix, check eBay or other used places for DVD copies of your favorite shows.

Use the internet and radio for your education. You can see, hear, read, everything you need in this way. From breaking news, financial reports, and documentaries, to the latest in popular culture, the radio and the internet are your conduit into what you need. The best part is that you can selectively filter out those things that you don’t want or need, such as advertisements.

And while you are on the internet, cross reference things you hear. Especially if they sound too good to be true, such as the official inflation rate. By using the internet, you have access to information from around the world, which allows you unprecedented information accuracy.

3. Buy locally made goods

Corporations are the backbone of the financial system. It is through corporations that social and economic policy is carried out. From the Honourable East India Company to IBM, the corporation has been the visible vehicle of social and economic exploitation. Today’s huge multinationals have power beyond belief, and in such, must be avoided.

To do this is remarkably easy. Find out what is manufactured locally in your area. It was a big surprise when I found out how many firms manufactured different goods locally that I could use for my home. Buy doing business locally, you keep your money out of the banking system and the profit within your local area.

There are many type of local businesses you can do business with. Instead of shopping at the local chain grocery store or mall store, by from local farmers markets or small businesses. Generally, the quality is better and the money stays out of the hands of the multinational corporations.

Alternatively, you could join a local co-op. Co-ops are where people join together to get better purchasing power by cooperating. Find a co-op that specializes in local goods and products, which will provide a ready market for local goods. This has a two fold effect, it keeps money in the local area and also simulates the growth of local employment.

4. Eat Local

For most of time, people have eaten the local produce and meats of the area they lived. It was not until the last 150 years, have portions of the world been able to eat food that was not locally grown in their area. This is an excellent way to break the hold they have over you.

The first step is to avoid supermarkets. They are filled with food that is centrally manufactured. There are many non-foods inside of supermarkets, and they will get you addicted to items from around the world. Don’t buy processed foods. Processed foods are less nutritional for you and introduce significant costs in both your health and the transport of your currency to other parts of the world.

Join a Co-op, use a Farmer’s Market, find local vendors of foodstuff. An amazing array of goods are available within your local area, supporting local people, and keeping the cash out of the hands of the multinational corporations.

Plant a food garden. Until the 1950s, it was common to have a large garden and to keep a few animals for your own needs. Canning was done in many homes, preserving the goods for those times when they are not available.

Eat in season. There are certain foods that are naturally available during certain seasons. Take advantage of these foods, as they are less expensive and available in greater quantity. Supplement these with your own garden or your canned goods.

Use simple ingredients. Many excellent foods can be made from the simplest of items. Keep stores of these items on-hand, along with your canned goods and your garden. Not only will you be taking power from the multinationals, you’ll be eating better, and maybe even living longer.

5. Buy used goods

Some goods can not be purchased locally, either due to weather or lack of manufacturing capability. This is where you can really get things under control. Buy used goods. It’s nice to have that big shiny toy and be the first on the block to have it. However, you enslave yourself in order to have it. Let someone else go into debt slavery.

A rule of thumb I like to use is called “Do I really need it?”. Any time I get the hankering for a item, my personal weakness right now is Big Screen TVs, I ask myself, do I really need it. I think about the computer monitor I have right now, which can show the videos without a problem. So, I don’t buy it. This prevents my money from going into the system. If you need a good, try to find a used one that fits the bill. Ask yourself, is this enough to satisfy my need? Do I need a 46 inch LCD screen in a 400 square foot apartment? No. A 19″ used computer monitor found on the street works just fine and saves a couple of thousand dollars.

There are many places to purchase things used, or even get them free. Check out the free options first, I use Craigslist and Freecycle. Garage sales are a great source of goods. You can also purchase from thrift stores, second hand stores, or pawn shops. And, of course, there is eBay. eBay is a great location to get used goods of any type from.

You’ll save money and keep power out of the hands of tyranny.

6. Around the house

Most homes I’ve visited have more consumer goods than they know what to do with. Garages, sheds, and closets filled with unused goods, just gathering dust. This represents a huge investment into the tyranny that oppresses you. Get rid of it, sell it on eBay or in a garage sale. Turn it back into dollars and take them out of the system.

I use a 1 year rule. If I haven’t used something in about year, I sell or donate it. This allows you to have a smaller home, cleaner, and easier to maintain. Of course, you can maintain sentimental items, but not to an extreme. Each material good you have represents dollars that you have invested in the system to keep you oppressed.

Plant food gardens. The plants are quite attractive and will also help you get through rough times by providing an alternative food source. The more foodstuff you can plant, the better off you can be. You may live in an area where the homeowners or renters agreement prevent you from planting an garden. If so, join a community

7. Get off the grid

If possible, get off the grid. You can make your own energy, draw your own water, and even dispose of your own trash. Look into how your are hooked into the grid. Most of us are using electricity, water, sewer, natural gas, telephone, internet, cable, satellite. Each of these are dependencies that we need to remove to break the shackles of tyranny.

There are many ideas on how to do this, I personally like the use of Solar power. Solar panels are becoming extremely inexpensive and can be used to generate power to the grid. Instead of being enslaved to the utility company, you can use your solar power to force the generators to pay you.

Be as self contained as possible, and you’ll remove the power the tyranny has over you.

8. Barter

Barter is a wonderful way to remove currency from the system. It’s the exchange of goods or services for something you want. There is usually a local small business barter exchange in your area that will allow you to barter your services or goods in exchange for a local goods. You can do it informally, or you can use larger Barter Exchanges.

Many businesses are willing to barter for goods and services. Not only does this process remove the currency from the system, it keeps local people employed and promotes the local economy.

9. Avoid the use of oil when possible

Oil is a significant tool used to control you. Reduce it’s control over you by reduce it’s use. While this may sound like some eco-nut rant, it’s really the major tool used to control your behavior. So, examine your lifestyle and your use of oil. Do you really need that SUV or would a smaller vehicle meet your needs? Do you need to drive somewhere or can you get a ride or even bike.

Oil is also used in all facets of consumer goods and food production. By doing the other steps above, you can reduce your dependency on oil.

10.. Use paper currency or checks to pay your taxes, child support, court ordered payments, and debts.

By using paper currency or checks, you are forcing the financial market to spend more money to process your checks. Perhaps you’ve noticed the trend towards electronic banking. It’s not for your convenience, it’s for lower the cost of operations for the system. So, when you can, use items that need to be physically handled when dealing with taxes, child support, court ordered payments, and debts to multinational companies.

Financial Freedom or enslavement, it is your choice

Seneca (5 BC - 65 AD) said “The most onerous slavery is to be a slave to oneself.’ The choices you make every day will further enslave you or will break you free. You have the choice to feed the system or withhold that which will break the system. The simple steps outlined above will give you a solid first step to breaking free of enslavement of your own choosing.

Here is the forewarning… Banks pool Billions to avoid Security Selloff - NY Times

October 14, 2007
Banks May Pool Billions to Stop Securities Sell-Off
By ERIC DASH

Several of the world’s biggest banks are in talks to put up about $75 billion in a backup fund that could be used to buy risky mortgage securities and other assets, a move designed to ease pressure on a crucial part of the credit markets that threatens the broader economy.

Citigroup, Bank of America and JPMorgan Chase, along with several other financial institutions, have been meeting to come up with a plan to create a fund that could prevent a sharp sell-off in securities owned by bank-affiliated investment vehicles. The meetings, which began three weeks ago, have been orchestrated by senior officials at the Treasury Department, and the discussions have intensified in the last few days.

A broad framework for an agreement could be reached as early as tomorrow, according to people with knowledge of the discussions, but many important details still need to be hammered out. Another round of discussions is taking place this weekend, and it is still possible that the parties will not reach an agreement.

“Treasury is very serious about getting some solution in place to take away the fear hanging over the markets,” said Alex Roever, a credit analyst at JPMorgan Chase who has been following the discussions but is not involved in them. “It is a very challenging thing to do. There are so many parties involved and they all don’t agree.

The proposal echoes the 1998 bailout of the hedge fund Long Term Capital Management, when a group of big banks came together to prevent the fund from collapsing after it made a series of bad bets. And the current round of crisis-driven collaboration illustrates the heightened level of concern among both government and financial players.

While there are signs that the broader credit markets have begun to stabilize after the Federal Reserve lowered interest rates last month, a pocket of the commercial paper market remains under siege: structured investment vehicles, known as SIVs. The fear is that problems with these vehicles could infect the broader economy.

SIVs, which issue short-term notes to invest in longer-term securities with higher yields, are often organized by banks but are not actually owned or held by them. They are supposed to be financed through the issuance of commercial paper backed by pools of home loans and credit card debt, but the loss of confidence in the quality of subprime mortgage bonds has also tainted these securities.

Analysts say that investors have all but stopped buying SIV-affiliated commercial paper, and the worry is that the 30 or so SIVs will unload billions of dollars of mortgage-related assets all at once. That would put intense pressure on prices. As Wall Street firms and hedge funds mark value of similar investments they held to their new lower values, they face potentially huge hits to their profits.

Still, the impact on the biggest banks is even more severe. In times of crisis, they are committed — either legally or to maintain their reputations — to stepping in to buy those securities. Banks have already been buying significant amounts of commercial paper in recent weeks, even though they did not have to. But if they are forced to bring those assets onto their balance sheets, they might be less willing to lend to businesses and consumers. That could set off a credit crunch and thrust the economy into a recession.

The proposal being floated calls for the creation of a “Super-SIV,” or a SIV-like fund fully backed by several of the world’s biggest banks to provide emergency financing. The Super-SIV would issue short-term notes to finance the purchase of assets held by the SIVs affiliated with the banks, with the hope of reassuring investors.

But whether the banks would buy the assets directly or just buy the short-term debt is still unclear, according to people briefed on the situation. So are other aspects, like the amount of capital each bank would need to contribute, how it would be administrated, and the fee structures and cost burdens.

The effort to create a backup fund began about three weeks ago, when the Treasury secretary, Henry M. Paulson, called a meeting in Washington that included the chief executives of Citigroup, Bank of America, JPMorgan and other big banks. With Wall Street firms having almost no luck finding buyers for mortgage-backed securities and derivatives, Mr. Paulson wanted to see what could be done to relieve the bottleneck.

Several rounds of discussions followed — in Washington, New York and on conference calls — led by two senior Treasury Department officials: Robert Steel, the under secretary for domestic finance and a former Goldman Sachs executive who is a close adviser Mr. Paulson; and Anthony Ryan, a former investment banker who is now assistant Treasury secretary for financial markets.

Besides hearing from senior executives from each of the big banks, the group also sought ideas from others. Several big international banks, including Barclays and HSBC, have been asked about their interest in participating. The group also reached out to several of the major structured investment funds, as well as big institutional investors in the commercial paper markets.

Edmund L. Andrews contributed reporting.

Fiscal Crisis of 2007 - How did we get here?

In any analysis, it’s good to go back and restate the problem. This post goes over the high level activities that put us into the financial condition we are today.

The economy was sputtering after the dot.com pop of March 2000.

After 9/11, a year later, there was a free fall drop in the financial markets. Greenspan injected a lot of cash and nearly free credit into the market, which “saved” the markets.

The cheap credit made it easier to make home loans. Cheap credit for mortgages caused homes to go up in price, because there was more money chasing fewer houses. All the new home loans caused a growth in “debt based securities”, using the mortgages as collateral.

Institutions started to back other investments with these securities as collateral: they made a lot of money. Eventually, the housing industry ran out of prime loan candidates, so they loosened their lending standards and made Sub prime loans. Sub prime loans are loans to people who may, or may not, be a good credit risk. Sub prime interest rates were higher than prime rate loans to account for risk

The high interest rates made sub prime loans more attractive to investors. In order to spread their risk, the financial markets created a new product that mixed prime and sub prime loans. These loans had a “Layer of Gold” (prime loans) over the nails of sub prime loans. Speculators and Hedge Funds started to borrow money to buy the debt based securities.
As long as home prices went up, everyone made money. But, the balloon popped, and it was impossible to sell sub prime loans The hedge funds, who had been over invested in the mortgage based securities, began to default. This caused ripple effects into the housing and banking industry.

Finally, the markets wouldn’t buy debt based securities based on homeloans, causing the market to seize up in August of 2007. This had effects on every company and corporation, because they couldn’t get money to run their operations. This started a mini-panic in the market, causing the Dow Jones to drop almost a thousand points. Additionally, trade indicating a massive drop in the Options market caused additional fear of market losses or even terrorist actions.

In Sept 2007, the Federal Reserve debased the US currency by dumping hundreds of billions of dollars into the market and decreasing the interest rate by 5%. This caused the dollar to drop by 5% in less than a month against other currencies. The additional effects are asset flight to other currencies, higher prices, inflation, foreign folks purchasing US real estate, and perhaps, a complete failure of the dollar.

This is where we are today… tomorrow will be interesting.

Your new overseas landlord

One of the consquences of a devalued dollar is cheaper prices for overseas investors in the United States. While it’s not currently happening, it should start in within the next six months. As the dollar devalues and the institutional investors get out of dollar based securities, they need to show a return on investment. This means they will be looking for undervalued assets and ways to create more dollars.

The increase in foreclosures and increased volume of homes and industrial parks on the market caused by the failure of the subprime market will provide the overseas investors a fertile market for purchasing property. Remember back in the 1980s when people were very concerned about the Japanese purchasing major US landmarks? (Think: Die Hard…) We are entering a similar period in the next couple of years.
You might say, so what. Well, when the overseas investors buy your apartment complex, they will want to get a certain return. As the dollar falls, they will jack up your rent and not invest in the building. Can you say “Slum lords”"?

Video Summaries - June 23rd - August 9th

Here are the summaries of each of the videos I did betwen June 23rd and August 9th. Check the dates of the videos against the major news sites. I picked this period because these videos were done before the subprime market failure became big news. The people were still talking about how great the housing market was, how great the economy was going, and generally were riding the same bubble they had ridden for the last several years. However, our back of the analysis videos seem almost on the mark, looking back.


The coming economic failure
June 23, 2007

http://www.youtube.com/watch?v=SfEYcXuWkk8
Predicted a major collapse due to:

  • Rampant property speculation
  • Overvalued property
  • People are overextended
  • Expensive property financed by Odd loans
  • Creative financing getting people in trouble
  • Property worth less than the loans
  • Default rates going up
  • Caused by:
    • Hedge funds (heavily leverage)
    • Big firms (Bear Sterms) having problems
    • Overleveraged into subprime loans

Failure of the sub-prime market
June 23, 2007

Corporations borrowing money to stay solvent

  • Get out of stocks
  • Get your money in cash
  • Purchase gold and commodities

15 year high in available home = Fiscal Crisis
June 25, 2007

http://www.youtube.com/watch?v=uFJgWJYDRLQ
With 4.4 million houses on the market

  • Hedge funds are vulnerable
  • Implosion of liquidity of the united states
  • Dollar will be devalued against the Euro
  • Get out now

What to do?

  • Commondies have to buy
  • Gold
  • Food aside

Economic Crash in Fall 2007 - Repost to correct video sync
July 27, 2007

http://www.youtube.com/watch?v=kZRjsDiptq4

  • Market getting scared causing a slide in the market
  • Recovery due to large institutional investors

What to do?

  • Liquidate vulnerable shares
  • Flight of capital to Europe, Asian markets
  • Bonds and stable investments
  • Market will recovery, but really capital flight

When will it happen

  • End of third quarter/fourth quarter
  • Large correction in the market
  • Major terror event (UK/US)
  • Maintain value of EURO
  • few day before or after correction
  • Major hositilities in middle east
  • Oil prices up

Big investors fleecing the little guy
August 01, 2007

http://www.youtube.com/watch?v=by8nUdtCHygHarvesting of dollars, but now market down, int eh 11th hour

  • Large institution buying a lot of stock quickly
  • Drawing in people (the bigger fools) to buy stocks from the investors
  • Safest investment - Eurobonds

Short term actions - Financial Crisis 2007
August 4, 2007

http://www.youtube.com/watch?v=RNfCl4GreXs
What to do

  • Have 3-6 months of expenses in hand because banking systems will fail
  • Keep your assets out of where they can be seized
  • Transfer Dollar based securities to investments with a non dollar basis
  • Stay away from Asian currents pegged to the dollar
  • Euro based securities are a good bet
  • Oil exporting nations switching away from dollars
  • Hold your money close.

Drink the Kool Aide - No problem here, just move along.
August 04, 2007

http://www.youtube.com/watch?v=7RUhBQXvWx4
Mortgage Lenders start to fail

  • You will see happy news, great time to buy
  • Small investors, a fire sale
  • China visit by high level delegation, lenders of last resort
  • Convince the Chinese not to get rid of US Treasuries

A discussion of how liquidity works

  • Faith in the system
  • Money disappearing from system
  • Terrorist attack in 90 days Israeli ambassador
  • Unable to fund government programs
  • Devalue the dollar
  • Jim Cramer reference

Re: Financial TV host flips out over the state of the economy
August 04, 2007

http://www.youtube.com/watch?v=8iFdDCcV9w4

  • recap of previous videos for Jim Cramer’s video


Re: How will the sub-prime mortgage market effect purchases?
August 04, 2007

http://www.youtube.com/watch?v=KKU35N2Nxb8

  • Discussion of another video as an example of happy talk


Fiscal crisis milking investors as China threats to nuke USD
August 08, 2007

http://www.youtube.com/watch?v=1gyL9yFd0xI

  • Fed happy talk about the market
  • Large investors getting out
  • Description of how they are getting out
  • How people are being suckered in
  • Euro securitys are good investment
  • Oil more expensive
  • Imported goods more expensive
  • Market collapse
  • Bonds going up
  • Housing market imploding
  • After third quarter, the big event will happen

Liquidity drying up - Central banks drop 350 billion
August 09, 2007

http://www.youtube.com/watch?v=6Ow2ro48i-Q

  • Liquidity disappearing quickly
  • Markets trying to prevent panic
  • Liquidity drying up
  • Economy on its way down, we just don’t know it yet
  • Rocky ride with a sudden drop
  • Hedge funds were the cause of the failure
  • Can only solve problem by adding liquidty

What do to?

  • Get currency in hand
  • Silver, pre 65 coins
  • Food

Feeling poorer? You’ve lost between 2 and 5% of your value in three months.

Hi Everyone.

I’m putting together my end of the month discussion, to see where the back of the envelope analysis went right and where it missed the mark. Here are some interesting stats:

  • Dollar value vs. Euro: -5%
  • Existing Home Sales: -4%
  • Dow Jones +3%

If you had followed my suggestion, you would have lost 5% on your cash on hand and gained 5% on your euros..

If you just invested in a money market, you would have only lost 2% of your value, even though the amount of dollars you had would have gone up by 3%.

This is in ONE QUARTER. Pretty amazing slip in value of cash in such a short period of time.

How do you feel that you are having to pay for the greedy financial institutions and the reckless financial people?

…”but please don’t lose the quality.”

“One’s first step in wisdom is to question everything - and one’s last is to come to terms with everything.”– Georg Christoph Lichtenberg (1742 - 1799)

I get a lot of questions from folks who have watched my Youtube videos. Here is the question that started this blog:

“Hey, you should put more thought into your videos. I think you are losing quality and trying to produce quantity. I like to see more videos, but please don’t lose the quality.”

You are right, I’ve been rushing my Back of the Envelope analysis. A back of the envelope discussion is a simple affair with two people discussing what they should do over coffee. Yet, it should be a discussion that is based on good solid evidence and have traceability to other sources.

It’s hard to convey websites in a conversation, so I thought it would be good to begin a blog. This way, I can take more time to explain things, provide links, and generally convey more information. It also gives me a venue to explore the questions I get.

Thirty minutes is a long time to “cut and paste” Youtube emails into a text editor. I’ve not even started on the comments in each video. I’m hoping to get a nice set of questions to add to the blog. If someone knows a way to export Youtube email and or comments to another client, I’d love to hear from you.

Here are the steps I’m going to try to improve the quality of information:

    1. Blog (you see it here)
    2. Provide some links to the background information, so you can research things yourself if you are interested
    3. Spend more time explaining the background.
    4. Answering your questions
    5. Going back and showing what I got right and what I just missed
    6. Frequently Asked Questions document

Here are the steps that I tried but didn’t get a favorable outcome

    1. Higher production values - Takes too long and not really in the right format
    2. More reactive videos - Posting to news stories lower the quality of the response

I might try these again in the future, once I get better at this hobby. It’s a lot of fun doing this!

This Year’s bank failures

http://www.fdic.gov/bank/historical/bank/index.html

2007

The list of Bank Failures and Assistance Transactions is updated through February 2, 2007. Please address questions on this subject to the Customer Service Hotline (telephone: 888-206-4662).

February

Metropolitan Savings, Pittsburgh, Pennsylvania, with approximately $15.8 million in assets was closed. Allegheny Valley Bank of Pittsburgh, Pennsylvania has agreed to assume approximately $12.0 million of insured deposits. (PR-9-2007)

September

NetBank, Alpharetta, Georgia, with approximately $2.5 billion in assets and $2.3 billion in total deposits was closed. ING Bank, fsb (ING DIRECT) has agreed to assume $1.5 billion of the failed bank’s insured non-brokered deposits. (PR-81-2007)

October

Miami Valley Bank, Lakeview, Ohio, with approximately $86.7 million in assets and $76 million in total deposits was closed. The Citizens Bank Company has agreed to assume $62 million of the failed bank’s insured deposits. (PR-83-2007)

Open letter to the Chairman of the FDIC

I am writing to complain about the FDIC Chairman Sheila Bair public remarks about freezing ARM rates. Her remarks are outside of her scope of responsibility and detrimental to fundamentally good banking practices.

The ongoing credit crisis in the United States is the logical extension of the loose lending practices and lack of financial responsibility by the debt securities market and irresponsible individual home purchasers.

Such a remark punishes prudent investors, people who are financially responsible, and the value of the US Dollar. It appears that Chairman Bair is trying to protect the FDIC institution at the cost of other responsible Americans.

If she has any questions, please have her contact me by email.

Thank you for your consideration in this matter

Watch the dollar fall….

“Prefer loss to the wealth of dishonest gain; the former vexes you for a time; the latter will bring you lasting remorse.”
– Chilo of Sparta

The Spartans had the right idea about wealth. Instead of taking the loss, we have dishonestly inflated our currency and exported our problems overseas to those who will let us collapse. The gains in the stock market were caused by a dishonest decision to sacrifice the dollar for the Dow Jones. And we will suffer remorse for a long time.

This chart tells it all:

http://finance.yahoo.com/currency/convert?from=USD&to=EUR&amt=1&t=5y

8 things each of us did to cause the Fiscal Crisis of 2007.

We all have allowed the Fiscal Crisis of 2007 to happen. Our lifestyles lead us to make decisions that have led to the devaluation of the dollar. Each of us need to look at what you are doing with your dollars. The core of the problem is how we earn and spend our money. By our own inaction, each of us enables the bankers and fiscal hucksters to make bad loans and devalue our currency. About now, I’d be thinking… what? Why me? I didn’t buy some property I couldn’t afford or make sub-prime loans. You’d be right by conventional wisdom. Yet, the financing of our economy has nothing to do with conventional wisdom.

How did I cause this problem? In a nutshell:

1. Making your money available for uncontrolled lending
2. Buying non-local goods and services
3. Owning more than you need (and storing it!)
4. Paying interest and banking charges
5. Renting instead of owning
6. Owning goods above your earning abilities
7. Convenience goods
8. Being careless with our money

I’m personally guilty on all counts. I’m sure that we all are, unless we happen to be extraordinarily good at managing our finances or outside the fiscal grid.
I remember reading a story about the one of the wealthy families. Every week, each of the children was given their allowance. They would be encouraged to write everything down that they bought. At the end of the week, they would compare to see who had spent the least. Praise was given to the one who had the most money at the end. This simple lesson, which for the life of me I can’t remember which family did this, is one we should all embrace. If you have a reference, please post it in the comments section.

You have to look at yourself and see how you are giving control of the economy to forces who will break it up.

Act locally and you can save yourself from the horror of the depression. Act now.

Resistance to the Fiscal Crisis of 2007

Mayor Turkey Lurkey: Well, aside from the penny, this whole night was a wash. - Chicken Little (2005)

Sometimes it sounds like the sky is falling when we discuss hard subjects like the devaluation of the dollar or the liquidity crisis. It all seems so far away or so big we can’t do anything about it. Yet, you can do something about it. Through simple choices, you can have an effect on your personal environment and in concert with others, a big effect on the Fiscal Crisis of 2007. I’m not a financial planner nor do I stand to make any money off this opinion. Use your own financial planner to make the best plan for yourself.

Simply put, every dollar you take out of the system reduces the money for the central bank to devalue. You might think, a dollar? How does keeping a dollar out of the system do anything? Well, through the leveraged banking system we have, each dollar represents from 9 dollars to 400 dollars of leveraged buying power. So, when you remove a dollar from the system, you actually remove at least 9 dollars from the banking system. This is because of the fractional reserve banking. There are some good videos on this subject on my Youtube page. Check out the links at http://www.youtube.com/jpalme2000 in my Favorites section.

It sounds easy to do, but when you actually try to apply it, it’s a bit harder. Over the next couple of posts, I’ll go into how you can put yourself in a place were you can resist the effects of a devalued dollar.

Saturday, December 1, 2007

Under construction

Construction is finished. Welcome to the new Back of the Envelope Financial Analysis hobby blog.