Here is my absolute first post on the 2008 Financial Crisis, which I wrote on my first blog. (I later updated this piece in a two-part piece for Swift Economics here and here.) Enjoy:
Watch five minutes of coverage on the financial crisis and you'll come across one general theme: the markets are to blame. We need more regulation. Go ahead, turn on CNN. How about that, huh.
With the presidential election closing in fast, both candidates, but especially Barack Obama have been pushing for more federal oversight, regulation and assistance. John McCain is less enthusiastic about the regulation, but went ahead and joined Obama in supporting the 700 billion dollar bailout among other measures. And plenty of polls have been showing that people are losing trust in the free market and believe more regulation is required.
Well is this what we should do? Did capitalism fail? Did the markets let us down like they always seem to do? Do we need our benevolent government to step in and save the day? Well if you trust the government to fix this mess you might as well ask the guy who just stabbed you to perform the surgery.
First let me start with a disclaimer, a big one at that. I do not mean to absolve Wall Street of its responsibility. On the aggregate, they screwed up badly. Some, such as Wells Fargo and Bank of America, did the right thing. They played it conservatively when housing prices were skyrocketing and now they're the one's with enough money to buy up all those who got caught up in what Alan Greenspan called "irrational exuberance." However, most of the major firms and CEO's behaved irrationally, irresponsibly and sometimes criminally.
What started this train a rollin' were the flood of sub prime mortgages made by financial institutions to borrowers who had no business buying a home. Many of these loans were interest only or negatively amortized, which basically means that the owners were relying on continued appreciation or otherwise they would be upside down (owe more than the home was worth). Many banks accepted stated income, which boiled down means the borrower simply states how much they make and that's good enough. The stupidity here needs no further elaboration. In addition, many mortgage brokers would do anything and everything they could to get people into these loans because the risk didn't matter to them, they were just in it for the commission. Finally, these mortgages were packaged into mortgage-backed securities that were then sold to investors thereby infecting the entire financial system with garbage loans. Here's a nice little primer on how the whole process worked.
Anyways, when the real estate market finally and inevitably started to take back some of its ridiculous gains, the whole deck of cards collapsed. So again, Wall Street deserves plenty of blame, especially AIG, who after being bailed out is now spending $140,000 on a party for their "top sellers."
Given all of this, you may ask how is not the market's fault you ask? Well gee, where should I begin?
Let's start with the Federal Reserve and its ridiculous monetary policy during the real estate boom. After the dot com bubble burst, the Enron and World Com scandals and the 9-11 attacks the markets looked shaky. Alan Greenspan and the Fed thought that dramatically lowering interest rates could help avert a recession. They lowered the discount rate to 1% and kept it there for about two years! This is a stupidly low rate for a ridiculously stupid period of time. It probably prevented a longer recession after 9-11 (there was still a short one) but the prosperity was all an illusion.
What such a monetary policy did was push floods of liquidity into the market. With people scarred of a tumbling stock market they turned to real estate and the bubble began to form. Housing prices and starts accelerated at record paces and builders built far too many homes and apartments. Why did they do that? Simple, they supplied what demand told them to. Unfortunately the demand was artificial, pumped up by the low interest rates. In turn people started refinancing their newly found equity and used it for all sorts of things (like big screen TVs, new cars, etc.). This spending was what made the economy run. Unfortunately, that money was not only borrowed, it was borrowed against equity that shouldn't have existed in the first place! When the market finally adjusted people found themselves with what amounted to unsecured credit card debt. And predictably the foreclosures started coming en masse.
Unfortunately, this was not the only mistake the government made. Thomas Sowell made a pretty good list, but I'll highlight a couple of the other ones for you. First it was the goal of both the Clinton and Bush administration to increase home ownership. It sounds great, but like most political inventions, these great sounding goals come with unintended consequences. One of the major ways they attempted to influence this trend was with the Community Reinvestment Act. What this program did was push lenders to make loans in poor communities. Sounds altruistic and all, but these lenders need to justify risky loans with higher rewards. So whereas politicians used to be praising banks for making risky, higher interest loans, now they are condemning them. Say what, politicians can be hypocritical... who would have thought?
Then there's the whole Fannie Mae and Freddie Mac thing. These are both government created firms that have made it easier to make home loans. Again nice sounding, but it has lead to a steady and artificial growth in real estate prices for a long time. And a little digging will expose how again the politicians cheered Fannie Mae when it made it its goal in 2002 for every American to own a home. Same old goal, same old political cheering and same old unintended consequences. Now look where we are.
There are a litany of other government offenses, but I'll stop there. The main question is do we need more regulation now? There are probably some helpful regulations here and there, but going back to a strictly regulated economy is not the answer. Whenever that temptation befalls you, just remember the airlines used to be heavily regulated and now they are not. If they still were there would be no Southwest or Jet Blue to give you cheap flights to one of the few other countries that we still have a good exchange rate with. Same goes for many other industries. In addition, we would be regulating to prevent this crisis, not the next one. As the famous military slogan goes "we must be prepared to fight the first day of the next war, not the last day of the last war." Unfortunately, the best medicine for this whole mess is probably just time. Time for the market to liquidate the bad debt so we can get back to some sense of normalcy. Then hopefully our government can maintain some semblance of a reasonable fiscal and monetary policy. Damn, good thing you can't see me because I couldn't even write that with a straight face.
Somehow I missed this rather sarcastic piece I wrote for SwiftEconomics when republishing many of its old articles last year.
No one will deny that our country is in a deep and severe recession. Major banks have failed, the government has unwisely bailed out large financial institutions to the tune of 700 billion dollars, the Dow Jones is about half of what it was a year ago, housing prices have drastically fallen, foreclosures have skyrocketed and unemployment numbers are up to 8.1%. It is unquestionably getting ugly out there.
So isn’t it nice of our leading energy companies to come along and offer us such charitable prices at the pump? Last year at this time, gas was hovering between $4.40 and $4.60 in Salem, Oregon, where I live. Salem is a boring town unfortunately, so each weekend I wanted to leave for Portland or Eugene (each an hour away). But with those kinds of gas prices, I weighed the pros and cons very carefully each time. Sitting alone in my apartment on a Saturday night isn’t that bad compared to purging my wallet at the gas station.
Nationally, things were a little better as the average price hit a record $3.24 a gallon in May of last year. But then Christmas came early. Apparently the oil executives felt guilty about their record setting profits and felt like they should give some of it back to us less fortunate. This massive outpouring of altruism has lead gas prices to plummet. In Salem gas has been around $1.85 a gallon, the cheapest I’ve seen since I was in high school. And this hasn’t been a short lived phenomenon, it’s been that way for many months. Nationally gas prices have fallen to $1.96 a gallon. For those of us struggling to pay rent on time, the oil companies may be all that’s keeping us afloat. Thank you BP. Thank you Exxon. Thank you Chevron. And the thanks shouldn’t end there. Oil, which was close to $150 a barrel, has plummeted to $52.77. Apparently OPEC has gotten into the giving spirit too. Thank you OPEC.
Now unless you are on a record setting pace for denseness, you realize I’m joking around. The oil companies are still as greedy as ever. It’s simply they can’t charge as much because of good old supply and demand. Honestly, think about it: why did the oil executives all of a sudden start to raise prices around the turn of the century? Did they just up and become greedy? Of course not, they’ve been greedy the whole time, they were just restricted by the market. The greed explanation for price fluctuations is nothing more than circular reasoning. The real explanation for the lower gas prices is our inflationary boom has collapsed (financial crisis, housing bubble) and the deflationary adjustment has come. This is bad, but it does have a silver lining. Sure investment and wages will go down, and unemployment will go up, but prices should go down as well (that is unless the government tries to keep prices from adjusting, like they did in the Great Depression). Eventually (again under the delusional, and now incorrect, assumption that the government stays out) the economy will stabilize and everything should return to normal relatively quickly.
Now remember before the financial crisis and bailouts and change talk and all that. Remember back to last summer when all the talk was about the housing crisis and oil prices. The oil companies were gouging us! Hang the CEO’s from the gallows! The hysteria was completely out of control. It should be no surprise that those leftists at the DailyKos jumped into the muck, but so did Bill O’Reilly and many other outraged social conservatives and right wing populists. Congresswoman Maxine Waters even, to her eternal shame, threatened to nationalize the entire oil industry!
Well what now Maxine? What now Bill? What now left wing nuts at the DailyKos? Will you thank the oil companies for their collective generosity? Will you take a quick break from your current outrage over the supposed lack of regulation in our financial markets, to apologize for all the bad things you said about them? You know what, save the apologies and save the gratitude. Here’s another idea, why don’t you all just realize you don’t know the first thing about economics and shut up!
On this episode of The Good Stewards Podcast, we dive into choosing a market niche. In real estate investing, there are a ton; buy and hold, BRRRR, flipping, wholesaling, AirBNB, apartments, office, retail, industrial, luxury flips, etc. But how do you choose and should you ever add another? Well, take a listen to find out:
An old piece from my first blog where I describe what it's like to go on a seven day water fast. (Spoilers: Your stomach hurts.)
Many cultures through out time have placed fasting in high esteem. To many fasting is a spiritual thing. Some Buddhist monks basically fast their entire lives and even Moses did some fasting among others the Bible references. Today people do it for spirtual or medical reasons or simply to lose weight.
The question is, does fasting actually do anything? Supporters say it detoxifies the body while helping people build discipline and lose weight. Wikipedia cites a study by Berkely that suggests fasting can decrease the risk of cancer and extend one's lifespan. On the other hand, some mainstream sources say it does nothing and can actually be harmful (and messy too if you use laxtives in the process, although that's kinda expected).
Fasting undoubtedly puts the body into starvation mode, which basically means that once you start eating again your body will store everything as fat until your metabolism gets back up to speed. So ironically, fasting can actually cause you to gain weight.
So when I got the strange impulse to do this, I was nervous about a couple things (going into hypoglycemia not surprisingly was the highest on the list). However a friend of mine had just done it with positive results and the idea got stuck in my head to go for it. For me it was about discipline. If I can go with out food, I can do anything (or not do anything).
So I decided to do a five day water fast. However, I quickly started to doubt my wisdom in this chosen endeavor. After the end of the first day the hunger pain was awful. Day two was almost unbearable. The hunger pain was so bad that it was actually hard to go to sleep even though I was exhasusted. In addition to that, I couldn't focus very well and my tongue started to turn a gross white color. It was also a little awkward when my stomach started growling whenever I was around someone (I didn't tell many people I was doing it). I'd always say it must have been something I ate (or didn't eat, ha ha).
Luckily, the third day felt fine and so did the fourth. I guess my body got use to not having food. Like an annoying, little kid begging for attention who finally just gave up. The hunger pains did come back on the fifth day, but I got through it. To celebrate, I bought a pizza and wow, it was easily the best tasting thing I've ever eaten!
Overall it was something I'm very glad I did. I felt like I achieved something and have been much more disciplined ever since doing it; working out consistently, getting my work done, not smoking, eating healthy and all that. I also lost 13 pounds in five days which was nice. And oh yeah, I didn't die. Given all that, I'd have to recommend it.
Nothing will run your business into the ground faster than not having systems. There's only so much you can do, so much you can keep in your head at one moment and so many times you can reinvent the wheel. On this, the tenth episode of The Good Stewards Podcast, we take at systems; why they're so important and how to build them in your company. Check it out!
Episode 1: The BRRRR Strategy Overview
Episode 2: BRRRR Rehab
Episode 3: BRRRR Refinance
Episode 4: BRRRR Rent
Episode 5: Investing in a Recession
Episode 6: Creating a Scope of Work
Episode 7: Acquisitions
Episode 8: Due Diligence
Episode 9: Leasing and Screening
Episode 10: Long-Term Financing
So on my old blog, in early January of 2009 (and this is still only mid January of 2020), I wrote down why New Years Resolutions usually fail and how to change that. While my answer has changed a bit (more into systems) my answer from 11 years ago was better than most.
Making New Year’s Resolutions and then proceeding to break said New Year’s Resolutions seems to be an annual event for Americans and many others around the world. One survey of over 100,000 people in 16 countries found that 98.7% made one or more resolutions and only a shameful yet darkly humorous 3.1% actually kept them.
Aside by making fodder for bad stand-up comics, this embarrassing statistic begs the question; why do people still do this. A common definition for insanity is doing the same thing over and over again and expecting different results. Well this one almost answers itself. No one is completely happy with himself, and so we want naturally want to improve. The New Year symbolizes a new beginning (although really it really represents nothing more than passing go with out the $200 of course), therefore it’s a chance to start anew more literally. To fix those problems we all know that we have.
Well unfortunately, people rarely change and never change easily. Alcoholics don’t just stop drinking, fat people don’t just lose weight, hippies don’t just start making something of themselves, it takes a lot of hard work and dedication. A simple resolution will provide nothing more than a week or two of motivation.
Any serious attempt to improve requires time, goals and dedication. The best way I’ve found to do this is to create a plan. Compliment that plan with a schedule and goals and then meticulously keep track of your progress. For example, I looked to get back into shape so I created a work out plan. Then I created a schedule with goals for bench press, weight and run time. And so for I’ve had great results.
Now obviously this is no guarantee, but a plan and a schedule can help focus your effort unlike some vague resolution. In addition to the plan, involving a friend or at least telling people what you’re trying to do helps keep yourself accountable. You can really start this at any time, so the New Year might as well be it. But given the statistics, I wouldn’t call your goal a resolution.
Recently I wrote an article for BiggerPockets criticizing Zillow's Zestimate feature and noting it probably relied too much on the list price for listed properties; which is why it's Zestimate is usually pretty good for such properties whereas not so good for unlisted properties. I compared 12 appraisals we had to their Zestimate and found,
Overall, there’s quite a range with the Zestimate, including half being over 10 percent off the appraisal and two being over 20 percent.
I can think of no better example of this than a recent property I looked at. It was bought in August for $193,000 and then relisted in October (with what looked like nothing more than paint and carpet) for $325,000. Here's what the Zestimate did:
Yes, the Zestimate is a good place to start. But don't ever take it to the bank!
On the tenth episode of The Good Stewards Podcast, we take a look at long-term financing (one of Joe Fairless' three immutable laws for how to be successful in buy and hold real estate, which I fully agree with). You just can't make buy and hold real estate work without good long-term financing. Check it out!
This is a slightly late post on what I consider to be a particularly legendary year-end tweet. While Trump's talk of "fake news" seems to just include anything he doesn't agree with or like, there is a serious problem of fake news. And while there are really big examples of fake news from to the Covington Catholic kids hoax, most of the media's dishonesty comes down to what they focus on.
Libertarian comic Dave Smith sums up 2019 as well as it could be,
These four stories--the Mueller Report/Russia Hoax, The Afghanistan Papers, the OPCW whistleblower (showing Trump bombed Syria for nothing and our media is made up of incompetent or totally corrupt hacks) and the IG Report (where a lawyer changed the contents of an email to make Carter Paige look guilty)—are absolutely huge stories and the media underreported them or was on the wrong side of them.
I would add a fifth big story to Dave Smith's list; which the media was right about this year, but wrong about the last 10;, and that was Jeffrey Epstein.
Regardless, it is quite obvious that our government and media are extremely corrupt and it goes well beyond Trump. And had Clinton won, it would have gone well beyond her. Unfortunately, it's systemic.
As might be expected given Qaseem Soleimani made much of his career fighting Al Qaeda and ISIS, there has been a lot of celebration about his death. And no, I'm not talking about the neocon traitors here, I'm talking about ISIS. From The Daily Mail,
ISIS has claimed the death of Iranian General Qassem Soleimani was an act of 'divine intervention' and that it will benefit their jihadist cause.
Yes let me not the obligatory "Soleimani was not a good guy" bit and point out that he killed innocent people (although the claim he was responsible for 600 American deaths in Iraq is false and the claim that he had anything to do with 9/11 is a farcical lie). But perhaps killing effective enemies of the worst people that have ever lived is not a good idea. But then again, neocons have a 0.000 batting average when it comes to ideas, so what should we expect.
Perhaps you should stop listen to them Donnie...
Oh, and three years CNN was crediting Soleimani with the defeat of ISIS, for what that's worth.
"Every day is a new life to the wise man."
The Righteous Mind
Star Slate Codex
Consulting by RPM