Wednesday, October 22, 2008

Bankers, Beanie Babies, Leverage and Liars

Q: How do you know when a banker is lying?

A: He publishes his quarterly financial statements.

The Institute For Economic Reality, a think tank based in Poulsbo, Washington, has been watching the "credit crisis" unfold for a few years, and has concluded that bankers are dumber and more dishonest than airline executives - a feat that was previously thought to be unassailable.

Many have asked me if there is any way for the banks to be able to "hold" their assets and survive by getting relief from being forced to mark their assets to market. In other words, can the banks just agree to all lie on a grand scale, and pretend all is well?

No. In fact, it will make the matters worse. If they stay this course, we will have a systemic failure of the entire world-wide banking system.

Why? Because the entire credit economy is based upon this little thing called "trust."

Trust is the basis of credit, which is the basis of our monetary system. The dollars, francs, yen, rubles, euros, kroner, pesos, and rupees you hold are all based upon the belief that people will execute contracts faithfully and will transmit truthful statements when negotiating those contracts. Should people lose faith in their counter party to perform on their contracts, money will cease to flow. The less faith, the more the markets will freeze.

If you go to a farmer's market, and a farmer had several bags of produce for sale, but you couldn't examine the produce, you would need to trust that farmer in order to buy what he was selling. If the farmer tells you that there are two kilos of fresh apples in the bag, and you buy them, you expect to get two kilos of fresh apples. Should you open the bag and find two kilos of rotten, worm infested apples, are you going to buy more apples from this farmer?

Only if you are Fannie Mae or Freddie Mac.

If most of the farmers conduct their business in this manner, how much money will flow at the farmer's market? Money will flow proportionately to the amount of trust, which in this situation is zero.

What happens to the farmers that actually have fresh produce, but still sell them in the opaque bags that all the dishonest farmers use? They fail too.

You can see the problem; our politicians can not. It is costing you trillions of dollars, and it is about to cost you even more.

So, what does this have to do with mortgages, and why do the banks want to continue to lie? Because their alternative is to die, and their executives will probably get the Ken Lay treatment.

The reason the banks can't tell the truth is because of the leverage they have used to get them into this Gordian Knot. Banks like to keep things complex, because they believe we can't figure out what they are doing if they use complicated terminology and talk about really large, spooky figures. However, as we have already stated, bankers are the sleaziest animals in the business community, so they like to masquerade as High Priests of a goofy, New Age religion in hopes that we just leave our tithes and hope the God of High Finance smiles upon us.

Banking is actually pretty simple. Bankers go out into the community to borrow money from people with more money than debt at a low interest rate, repackage it, mark it up, and sell it to people with more debt than money. They pocket the difference (aka "spread"), pay their bills, and call the remainder profit. That's it. That is what they do.

So, if it is so easy, why are they in such trouble? Greed + lack of vision = bankruptcy.

Let's look at another example that we can understand without having to break out our Banking Rosetta Stone.

Back in the early days of "Operation Enduring Bubble," we had lots of speculative playthings. Yes, housing was moving right along, but the real action was in esoteric tech and Internet stocks, Pokemon cards, and Beanie Babies. Americans were simply enamoured with colored socks that were half filled with plastic beads and given a cute name. With the advent of eBay, we had people that made a living buying Beanie Babies at a high price, marking them up, and selling them to a love-starved population at an even higher price.

One such such enterprise that consulted with The Institute For Economic Reality was named "DRECK's: Purveyors of fine American schlock." Dreck's came to the IER with quite a story, and they have agreed to share their story so others don't make the same mistake, or at least if they do, they will feel really bad about it.

Dreck's started out on a limited budget and had a sales volume of $1000/yr in Beanie Babies. They would buy about $800 worth of BBs and sell them for $1000, netting themselves a sweet 25% profit. Then, as the Beanie Baby craze hit its stride, the owner of Dreck's got a bright idea. He could borrow money, expand his business, and really rake in the dough. The interest rate was fixed, Beanies were cute and would "always go up" in price, so this was a "no lose" situation. In fact, the only way to lose was not to be fully leveraged to the never ending Beanie Baby craze.

Dreck's went to a friend and borrowed $9000, combined it with his own $1000 and now had $10,000 worth of half-filled colored socks in his mother's basement. Dreck's friend, the lender of the $9000, made the loan without collateral, as he trusted Dreck's to make good on the loan.

The risk paid off, and paid off big. Beanies were up 30% in that period, which brought the entire gross sales amount to $13,000. Dreck's paid back the $9000, plus $50 in interest, got his original $1000 back, and still had $2950 left over. His return on investment (ROI) was 295%!


Now, Dreck's was a real business. The owner went out and took his sweetie to a monster truck rally, and got a lift kit for his Toyota 4x4. He also bought shares in in late 1999.

Dreck's did it again. He took $1000, and borrowed $19,000, because he calculated that he would get a 50% return on the sales, and he could then move out of his mother's basement and get real office space. He placed an order for $20,000 worth of adorable bean bags. The lender was happy with the previous investment, so he thought it would be prudent to extend the credit line.

Bubbles have a funny way of popping when the maximum damage will occur, and this would be no exception. Rather than appreciating 50%, the Beanies were now deflating 15%. Dreck's couldn't move his Beanies at the prices he used to justify the loan, and was afraid to put them on eBay at a lower price, for fear the lender would see and call his loan.

That $20,000 order now had a market value of $17,000 and the trend was for it to continue to decline even more.

Dreck's original $1000 was gone, and $2000 of the lender's money was also gone. This is where it gets bad. Dreck's decided to pay the interest and "roll" his loan. He cooked up some false financial statements stating that his Beanie Baby inventory was worth $25,000, rather than the $30,000 he had anticipated, but he was still solvent at $25,000. The lender didn't think otherwise. After all, the lender trusted Dreck's.

The petty cash at Dreck's was drained to pay the $100 interest payment and then the next thing was to find new investors to keep the money coming. Occasionally, some Beanies would be sold to fund the interest payment, but they would be done discreetly, as not to alert the lenders to the crashing market.

No other investors could be found, so the owner of Dreck's hit up his mom for a loan, and she blithely obliged the request.

Eventually, the lender called up Dreck's and asked about the market for Beanie Babies. Dreck's was in debt to his mother, was behind in his UPS bills, and still had a mountain of half-stuffed socks that he couldn't move. He needed to wait until the market recovered, or he was ruined. If the existing inventory was marked-to-market, he would be instantly out of business, and so would his lender, as he couldn't take a 10% hit.

They all agreed that they would lie and say that the Beanies were priced high enough to keep them from being shut down, and hopefully, they would attract other lenders to extract their money from this brier patch.

The other lenders asked to see their books, and when Dreck's said their Beanies were at the theoretical value, the lenders looked at the market and decided that Dreck's could not be trusted, so they refused to invest.

Every Beanie Baby that was sold went to pay off the loan, and Dreck's owner realized that he could never sell enough to get out from under the debt. His stake was completely gone. What money he had to operate came from his mother that was taking Beanies as collateral against the money she loaned.

Now, the mother's rainy day money is gone, and all she has is worthless Beanie Babies. The hair salon doesn't take Beanies as payment, nor does the piano teacher or soccer coach.

No matter what happens, Dreck's can't recover his money. His investors are also in trouble, as their loan was unsecured. Nobody else wants to invest, because they don't trust the numbers that Dreck's uses. Holding the assets won't help, unless another frenzy develops that takes prices higher than what they were before, but with all the Beanies on the market, coupled with the reluctance for people to speculate in bean bags, the price outlook is grim.

Meanwhile, interest payments and overhead need to be paid.

This is why the banks can't just "wait it out." Their leverage killed them, and by lying about their assets, they have guaranteed they will not get the funding to continue. If Dreck's had marked their inventory to market, they would have been bankrupted, but their Beanies would have been sold to "Second Hand Sam's" at auction, and Sam would have marked his new assets at market, gone out for a loan, and sold them for a profit. The lenders would have been paid back with interest, and the cycle would repeat. The lenders are not afraid of Sam, as they know his assets are marked at a true value. Sam cycles loan after loan, and moves Hula Hoops, Tickle Me Elmo, Pet Rocks, Rubik's Cubes, Pokemon, Beanie Babies, and parachute pants at market prices.

The denial is killing us. Lying is for poker, not for banking. This is a multi-trillion dollar bluff that will be called.

Tuesday, October 07, 2008

Blast From The Past: Rent vs Own

Because I have been too preoccupied with the financial self-immolation of our nation, I have not been able to continue the unending string of high-quality postings that Clearcut Bainbridge readers have come to expect. So, in lieu of doing actual work, I thought I would just warm up some leftovers and throw them out for general consumption.

Hopefully, this keeps me in the good graces of all the eco-hip-n-trendy on Bainbridge that really think recycling is next to godliness.

The following is an article I wrote for a friend's blog, Seattle Bubble, back in March of 2007, which was 6 months prior to the national acceptance of a problem in our banking sphere. It is a comparison between renting and buying, and examines a common hypothetical scenario that is used by those in the REIC to justify paying above-value prices for homes.

The comments are at Seattle Bubble, should you wish to read them.

For extra credit, could someone run the numbers on what the ROI was for renting vs purchasing in this example? Use -16% as the capital appreciation for owning the home for the previous 18 months.


Buy If You Must. Why Must You Buy?

by guest poster Eleua (with contributions and spreadsheets by Tim)

Click here to download the Excel Spreadsheet that the numbers below are based on.

I need to take a step back and insert a personal note. While I disagree with the motives and actions of the faceless Real Estate Industrial Complex (REIC), there are genuine, honest, intelligent and wonderful people that work as RE agents, mortgage planners, title agents, contractors, appraisers, granite counter fabs, etc. It might be difficult to find one of these in an sub-prime boiler-room, or on a CNBC interview, but there are those out there making a living that are just as much of a victim as their customers. Please separate my disdain for the high priests and the overall entity from the honest people that believe they are trying to help someone achieve a dream. Second, difference of opinion does not constitute condemnation. I enjoy a healthy, spirited, raucous discussion more than most. At the end of the day, drinks are on me.

With that said, let’s get on with the flogging.

I will be the first to say that buying is a good idea if you intend to live in the house for the bulk of the mortgage period, you can afford it, and it is viewed as your nest, rather than your nest egg. If you are a transient, or you are trying to save for retirement by living in your 401(k), you might get lucky and you might get ruined. Houses are homes. They should not be investments.

200-7! You Crapped Out.
For the past several years, we have been living in a speculative economy. During the late ’90s, this was manifested in stocks, and now it is takes the form of residential real estate. Everyone wants in on the fun. Why not? Real estate, like stocks, always goes up in value. It is a great investment, and the way for normal people to build wealth. At least that is what the Real Estate Industrial Complex (REIC) wants you to believe. They don’t make as much money if you are skeptical.

At first glance, it sure seems like a dynamite investment. Everyone has a grandmother that bought her $600,000 home back when it was $60,000, and if you live in California or Seattle, you can’t go 15 minutes without running into someone yammering on about how much their home has gone up in value. Some idiots treat a daily visit to Zillow like they would a call from their stockbroker.

By Your Lease, My Landlord

The new homeowners are buying into the idea that America does, in fact, have a class system: the Landed Class, and the Perpetual Renters. The Landed Class have unlocked the secret to passive wealth, and the Perpetual Renters are condemned to the outer darkness of blowing their savings on their landlord’s mortgage - a double insult.

All current living generations in America have been force-fed the idea that home ownership is absolutely essential to financial freedom. It is an article of faith in the national religion. Question this and you are branded a heretic. Somehow, through an Orwellian twisting of the language and a corruption of the educational system, debt became wealth. The last two generations that would have disputed this have passed on.

Morons + Money = Lumpeninvestoriat
The REIC sells homes as investments to the Lumpeninvestoriat. Homes are more expensive if the parties attach a high speculative premium. The higher the speculative premium that accompanies a property, the higher the price will be. This reinforces the validity of the speculation. Normally, this is called a bubble. The REIC makes a lot of money fomenting a bubble.

Is a home a good investment? If by investment you mean that it throws off the dividend of a place to call home, then yes. Renting provides the same benefit. If you are seeking a “forced savings program” and capital appreciation, you might be better off with payroll deduction and a quality, value oriented, contrarian investment portfolio.

Pay No Attention To The Details Behind The Curtain
Let’s examine a common exercise that many in the REIC like to conduct to shore up their position that your home is your nest egg.

A gracious local mortgage planner responded to my stunned disbelief that someone would refer to a mortgage as a “forced savings plan” by posting a comparison between a hypothetical renting scenario and buying the same house. This is her example that shows how a house can be a great savings plan.

Owning a home is not right for everyone. There are certain benefits to not owning the home you live in. If something goes wrong with the property, you simply ring up the landlord and they get to fix it. You pretty much know what your cost are going to be month to month (unless your landlord decides to sell the property, increase rent, convert the condo, etc.). On comments from last Friday’s post on interest rates, there is a discussion debating if one could consider having a mortgage as a forced savings plan. I know I’m going to seem biased since I am a Mortgage Planner…and I fully expect all of the number-crunching-junkies out there to have a heyday with what I’m about to post…but here goes!

I found two similar homes, both in the north Seattle area. The rental property is available for $1850 per month. The home for sale, with close square footage, rooms, area, etc., is available (actually, an offer is pending) for $499,995.

With the comparison, I’m going to assume someone has 20% down to either invest in the stock market or to buy a home. The current rate for a 30 year fixed is 5.75% (APR 5.904%). Principal and interest is $2,334 plus taxes and insurance equals a total payment of $2623. First year monthly tax benefits are $606 (mortgage interest benefit will decrease, property tax benefit will most likely increase).

The prospects are in the 28% tax bracket; they have a gross income of roughly $8000 per month and can have $700 in monthly debts with credit scores at 680 or better. The investor will receive 11% from the stock market and the homeowner will benefit from an appreciation of 7% on their real estate.

The first five years with the mortgage provide an average monthly principal reduction of $482.47 per month. Taking out any appreciation factors, the principal paid each month is a forced savings plan. With that said, home equity does not earn interest. And I would probably encourage most clients to consider not using the entire 20% for the down payment to stay more liquid (depending on their entire financial picture).

For many Americans who do not have a savings plan (and the statistics show that many do not save), owning a home is as good as it gets for building savings…and it ain’t so bad.

Let the games begin!

This is a very common proof put out by the REIC to keep the Lumps feeding from their trough. I’ve seen it in a dozen different forms. If it was posted on a billboard, and you drove past it at 70 mph, on a crowded freeway, it would make sense. Fortunately for the REIC, the flashbulb attention span, in combination with the economic and historical illiteracy of your average homebuyer makes this work.

Is This Apples-to-Apples, or Salmon to Mullet?
Using the provided example as the basis for comparison, we will take out our pencils, calculator, green eye shade, and a case of Mountain Dew and hammer out a valid side-by-side look at renting vs. owning.

Rent is $1,850/mo. I guess if you show up looking like you just crawled out from a flophouse in Pioneer Square, you would pay full price. In this market, if you showed any semblance of responsibility and wanted to negotiate, you could knock 15% off that price. However, we will go with the $1,850 to keep as close as we can to “apples to apples.”

Our poor, pathetic loser renter is on the hook for $1,850/mo + 3% hikes per year. Over the first 5 years he lays $117,863 on the altar of his landlord’s good fortune. In 10 years it amounts to $254,498. This assumes that rent tracks at 3%, which with all the building and speculating in real estate is a pretty bold assumption.

Over the same time our budding noble is also shelling out money for his living situation. He paid $100,000 for the down payment, and (according to Rhonda) currently pays out $2,623/mo in principal / interest / taxes / insurance (PITI).

Up until now, I am in agreement with Rhonda. We now need to look deeper into the realities of home ownership to find the true value of each living situation.

Real Estate Always Goes Up - It’s In The Constitution
Perhaps the biggest flaw in the classic “Rent vs. Own” comparison, as put out by the REIC, comes in the form of assumed appreciation of the underlying asset. It is given as an absolute certainty that real estate always goes up. Yes, in the past few years that has been the case. Will it happen tomorrow? Nobody knows - nobody. To assume this is, at best, irresponsible. Capital appreciation is never assumed when assigning value to an investment. Capital appreciation may be estimated for speculative purposes, but not investment purposes.

I am not against speculation - I do it all the time. However, it is speculation; it not investing, just as meaningless sex is not love. There is a huge difference. It is very important not to have expectations of one when engaging in the other. Assigning a value based upon the dividend or benefit an asset provides is investing. Assigning a value based upon someone else’s view of the price is speculation.

It’s Clear Sailing In The Rear-View Mirror
I wonder how anyone in the REIC can so confidently forecast an appreciating market? How do we know the market will not shift into reverse? We don’t. Yes, we can guess, but we don’t know. I would submit that after the breathtaking run in real estate over the past few years, and the problems that we are facing in the mortgage finance space, a very strong argument can be made for a precipitous drop in real estate prices - even in Seattle.

If you run the appreciation at +7%, you would be well served to run it in reverse to give a range of expectations. Back in 2000, many stock bulls (especially those on Wall Street that profit from high priced stocks) believed in the “New Economy.” This New Economy was based upon the absolute fact that certain, high quality stocks will always go up in price. Microsoft, Yahoo, Intel, Cisco, Juniper, Qualcomm, eBay, Lucent, Corning, etc. were all touted as fail safes. Seven years later, these predictions look foolish and self-serving. Had speculators prepared for a significant rollback, the pain may have been alleviated to some degree. Going “all-in” at the wrong time is devastating.

Removing the miracle of perpetual appreciation, the 5 and 10-year numbers for owning would have to be reduced by $201K and $438K respectively. If we reduce the appreciation by the same amount as we assume it appreciates, the owner’s position is reduced further by $126K at 5 years, and $240K by 10.

This is a pretty wide differential for something we don’t know. A prudent analysis would be to not factor in any appreciation. Such was the example in Northern California from the late ’80s to the late ’90s.

Show Me The Money! - Well…Let’s Hold Off On That.
In addition to the folly of just assuming that an asset will appreciate, it is incumbent upon the buyer to understand why an asset appreciates. Home prices track incomes as well as the ability to find easy money. Without easy money, homes could not appreciate beyond what incomes could support. A house is not a bank account that accrues compounding interest.

Unfortunately for our prospective home buyer, both sources of rising home prices are under attack. Mortgage lending has been a festival of economic irresponsibility since 2003. Up until early 2007, anyone could qualify for just about any amount of money with absolutely no documentation or lender vetting. The finance industry made billions selling high fee mortgages and chopping them up for sale in the secondary markets. It was a fundamental blunder to build a business model (or an entire industry for that matter) on lending money to questionable borrowers with lousy collateral. That business is now disintegrating right before our eyes. Lending standards will be increasing dramatically (driven by both government and investors), and rates will certainly rise. The go-go days of insane lending are in the rear-view mirror.

Global wage arbitrage with Mexico, India, China, Russia, and Brazil are keeping a tight lid on incomes. Incomes have been stagnant over the entire duration of the housing bubble, and show no sign of any broad-based increase. Other considerations include rising taxes to pay for the increasing scope of government, immigration pressures, and the retirement of 77 million Mouseketeers.

Comparing With Four Hands Tied Behind Your Back
While Rhonda was generous with her assumptions of the ROI of the renter’s investment portfolio, I wonder why this investment wasn’t treated in the same manner as the appreciation on the house? Why can’t the investment portfolio also include 4:1 leverage? Why assume 11%? If we are in the business of forecasting good things by looking in the rear view mirror, why not use a real example from another investment that took place over the same time period as the latest housing bubble? A 4:1 leveraged investment on silver bullion would have returned $1,120,000 on a one-time buy-in of $100,000 over the past 7 years.

Tax Benefits Need A Tummy Tuck
The tax benefit is overstated. Yes, itemizing mortgage interest and property taxes is a great benefit. If you make $96K/yr, you can do quite well come tax time. The problem comes with the “standard deduction,” which is the tax deduction that you get without itemizing. The standard deduction is less for a single man, than it is for a family. Rhonda assigns $35,293 of tax benefit for 5 years and $67,893 for 10. If we correct for the standard deduction for a family, that tax benefit is reduced to $20,873 and $39,053.

Oops, Your PITI is Slipping
The PITI was probably too low. $288/mo for taxes and insurance is probably more like $550. Tax rates are considerably above ½%.

It is doubtful that the county would keep property taxes stable. Even in a period of decreasing values, it is very easy for local governments to keep their bloated budgets going on the backs of the local citizenry. Even if you assume the tax rate holds steady, if your property is increasing in value, so is your property’s government-assessed value, right? 5 to 10 % property tax increases are certainly well within normal assessments. Let’s say the assessment increases at the same rate as the assumed appreciation, but with a 5-year lag.

So, What Are You Doing This Saturday?
Houses are also maintenance intensive. Rhonda assumed that our homeowner never needed to repair his castle, nor make a visit to Home Depot. If the homeowner spends 1% of the value of his home on maintenance and improvements (what’s a trendy Seattle home without granite, stainless, and bamboo?), we need to add another $400/mo to the equation.

The Highest Fee Brokerage
Finally, the REIC never likes to bring up that a hefty fee exists for cashing out of the home ownership money machine. You need to pay them a minimum of 7% of the gross sale to get at all that wonderful equity. Assuming the home price remained constant, that is another $35,000 out of the piggy bank.

The Bottom Line
Now that we have a more complete picture of the situation, let’s take a look at the financial bottom line for rent vs. purchase in few possible scenarios. We’ll use Rhonda’s given purchase price, down payment, investment return (11%), and rental price, varying only the assumed appreciation in each case. “Home Value” refers to the total amount of money you pocket upon the sale of the house (since that is the only way you can get the money).

The Million-Dollar Taffy Pull
So, did we answer the question of it being better to rent versus own? Not really. It is all based upon how congruent your assumptions about the future are with the reality. Nobody knows what will happen next week, much less 10 years from now. I would say that wildly optimistic assumptions of owning compared to a watered down forecast of the economic flexibilities of renting is not a valid comparison.

People always forget that using borrowed money for investing (whether it is a brokerage margin account or a mortgage) is leverage. Leverage works both ways. It amplifies your success or failures. What turns 4 walls and a roof into the American Dream is the same mechanism that makes it your financial coffin.

Yes, if you get enough appreciation of a home’s value, it makes sense to buy. This is true on any investment. However, if the home stagnates in value, or falls, the damage is magnified by the mortgage, taxes, and illiquidity.

Home ownership brings certain benefits like some level of sovereignty over the use of the property and any ephemeral value from “pride of ownership.” It also brings other pitfalls, such as illiquidity, maintenance, acts-of-God, or even your overweight, aging hippie neighbors that insist on walking around naked as they oscillate between the hot tub and the “herb” garden.

Renters may need more than just the consultation of a sledgehammer and a case of Mickey’s Big Mouth to knock out a wall, but if a heavy-metal band moves into the house next door, they can give notice, pull up stakes and move into a nicer home. If a renter gets transferred, they don’t have to put up with the agonizing process of selling a home in a squishy market, and then paying 7%+ to the REIC. At worst, they lose their deposit and move on.

Lending While Intoxicated
As the mortgage finance industry scraped the bottom of the barrel to find new suckers buyers to put into homes, they swerved head-on into the world of the financially illiterate. Many of these buyers did not have sufficient savings to pay the standard first/last/deposit as required for most rental contracts. Many did not have sufficient income to qualify to rent, yet the finance industry was able to qualify them for a home. This was done under the pretense of getting them into a beneficial financial situation. Rhonda summed it up as follows:

“For many Americans who do not have a savings plan (and the statistics show that many do not save), owning a home is as good as it gets for building savings…and it ain’t so bad.”

Yes, I guess you can refer to the principal paydown on a house as a “forced savings plan.” It is true that most Americans do not have any form of savings, other than their aging Beanie Baby collections, so I guess this is better than nothing. It also presupposes that most Americans are idiots. With that, I agree, but would like to add that allowing an idiot to juggle a half-million dollar, highly leveraged, speculative savings plan is a recipe for an unmitigated disaster in their personal life. Set this against the backdrop of tens of millions of the very same, and you have the certainty of a national financial disembowelment.

Given the recent activity in the sub-prime mortgage finance companies, this hypothetical is now a reality.

Saturday, October 04, 2008

Inslee Wins Immunity!

On Friday, October 3, 2008, America was sold out to foreign bankers by the United States House of Representatives in a 263-171 vote.

There were few bright spots in this disaster, but among the brightest for people in North Kitsap, Bainbridge, Shoreline, Kirkland and Edmonds was that our Congressional Representative, Jay Inslee, kept the faith with his district and voted "NO" on both occasions. As I had pointed out in an earlier posting, Inslee displayed incredible courage as he went against the tide of the House, his party, and the Banking Lobby. For this, we should be very proud.

Also included in the Clearcut Bainbridge "Roll of Honor" are Congressmen Dave Reichert (Bellevue), Doc Hastings (Yakima/Tri Cities), and Cathy McMorris Rodgers (Spokane). Senator Maria Cantwell also voted against this act of treason in the Senate vote on Wednesday. Seattle Representative, Jim McDermott, voted against the bill on Friday largely on the tax provisions, but voted for it on Monday.

It is not the purpose of Clearcut Bainbridge to engage in partisan politics, but when someone displays unusual courage to do the honorable thing and not sell out his fellow citizens to foreign bankers (or even domestic bankers), I believe recognition is in order.

I make no apologies for being a conservative that has voted Republican my entire adult life*. This vote does not change that.

As for the other four unmentionables that voted to put our tail between our legs and lick the boots of foreign bankers, I would encourage everyone in those districts (2nd, 3rd, 6th, and 9th) to vote for the challengers (Rick Bart - 2nd (Bellingham/Skagit), Michael Delavar - 3rd (Kelso/Vancouver), and Doug Cloud - 6th (Gig Harbor/Bremerton/Olympic Peninsula). The challenger for the 9th District (Federal Way/Tacoma/Puyallup), James Postma could not be reached for comment on the Bailout Bill. His website is not clear on the matter. He is likely a better alternative to the incumbent.

In the 6th District, Doug Cloud, is challenging "Congressman For Life" Norm Dicks. I have had two separate conversations with Cloud on the issue, and he is passionately against the Bailout and advocates the banking reforms that will create a healthy, stable, and functional banking system for American commerce. I highly encourage all in the 6th District (Western Tacoma/Bremerton/Olympic Peninsula) to help get the vote out for Cloud and send Dicks to a well deserved retirement.

* I did not vote for Bush in 2004. I wrote in a candidate that actually envisions greatness for America.

Thursday, October 02, 2008

Maria Gets It Right; Patty Sells Us To China

Yesterday evening, the US Senate passed this abomination of a bill, called a "rescue package" by a 74-25 margin. Among the provisions includes a law that allows the Treasury Dept to buy foreign debt from foreign banks and stick it on the back of the US taxpayer. Both Cantwell's and Murray's office were well aware of this provision, as I, and many others, had faxed and called. Senior staffers at Murray's office were well aware of this, per a phone conversation I had with them on the day of the vote.

The fear mongering and lack of public review in these matters is simply breathtaking. We were told on September 19th that if this didn't pass by the time Asia opened on 9/22, that "our economy could end" "payroll would not be met" "and credit would freeze solid."

As of October 2, 2008, all still seems to be functioning normally. Please submit a comment if you hear of any widespread economic collapses.

The purpose of the bill is to give in to economic extortion. We are paying a ransom to keep the Chinese and Dubai money flowing to the US Treasury. Without this money, we would be paying more for credit, which reduces asset prices - the basis of the US economy since 1982. Let's see how long it is before the next ransom payment is due.

That's the trouble with bubbles - once you start blowing, you can't stop. Eventually, the bubble breaks.

Please take the time to call/fax Senator Cantwell and express your appreciation for her courageous vote in a losing cause. She deserves the backing of grateful Washingtonians for her vote.

As for Senator Murray...

Senator Cantwell: 202-224-3441

Senator Murray: 202-224-2621

[Edit: I found this YOUTUBE of someone who "gets it." I assure you this is not me. The clip is not overly profane, but is definitely rated PG]