Financial Mess

Hey Dave Ramsey

You keep telling people what a bad investment it is to buy gold. Let’s take another look at the numbers:

Dow in 1971: 868
25 ounces of Gold in 1971: 875

Dow in 2010: 10,067
25 ounces of gold: 27,200 (1088 per ounce)

Dow today:10,862
25 ounces of gold: 44,550 (1782 per ounce)

So, since January of 2010, the Dow has increased at an annual rate of 5%, but gold has climbed at an annual rate of 40%. Since 1971, the Dow climbed at an average of 28.8%, and gold at a whopping 124.7%.

Of course, the Dow is adjusted, and the stocks on it are dropped as they become worthless, so the actual return on the Dow is much lower than that. Thanks Dave.

By Divemedic, ago

Fiscal Budget Math

The Obama administration is claiming that S&P made a $2 trillion error when they projected the spending of future years and downgraded the nation’s debt rating from AAA to AA+, saying that S&P has “shown a stunning lack of knowledge about basic U.S. fiscal budget math.”

Let’s take a look at that, and at what the government means by cuts, and why they complain that S&P got it wrong. like most people, talking about trillions of dollars makes things a bit hard to understand, because most of us cannot imagine what a trillion dollars is.

To put things in simpler terms, let’s say that we have a household budget of $3,000 per month, but we only make $2,000 per month and we borrow the other $1,000. We are planning on increasing our spending by $300 per month, but our income is projected to remain the same.

We are already $10,000 in debt, so I get in an argument with my wife, and we reach an agreement that we will cut our planned increase six  months from now, and only plan on spending the following:

Plan……Now ….. 1 month out …… 6 months out ……. 1 year out
Old …… $3,000… $3,300 ………… $4,800 ………….$6,600
New….. $3,000…$3,300 ………… $4,700 …………. $6,000

We congratulate ourselves because we have managed to save $2100 over six months, because we “saved” $100 the sixth month, $200 the seventh, and on until we reach the $600 “savings” of the twelfth month. That is what government budget cuts mean: cutting the rate of increase. Never mind that that we will have to borrow $50,000 on top of the $10,000 we already owe to make ends meet. Never mind that we will argue about the budget next month, and completely rewrite it.

So, the bank that is going to loan me this money looks at my budget and lowers my credit rating. Instead of fixing the problem, I accuse the bank of not understanding how I do my budget. It’s the bank’s fault. Yeah, that’s it- the banks. I don’t think that S&P has failed to understand budget math. I think that the US Government has failed to understand basic arithmetic.

Of course, I can always “print” money to pay my debts by tearing all of my dollar bills in half, and thus doubling my money. That will fix it.

By Divemedic, ago

The downgrade is near

From the Wall Street Journal:

Medicare, the program for the elderly, was supposed to cost $12 billion by 1990 but instead spent $110 billion. The costs of Medicaid, the program for the poor, have exploded as politicians like California Democrat Henry Waxman expanded eligibility and coverage. In inflation-adjusted dollars, Medicaid cost $4 billion in 1966, $41 billion in 1986 and $243 billion last year. Rather than bending the cost curve down, the government as third-party payer led to a medical price spiral.

According to the most recent government data, today some 50.5 million Americans are on Medicaid, 46.5 million are on Medicare, 52 million on Social Security, five million on SSI, 7.5 million on unemployment insurance, and 44.6 million on food stamps and other nutrition programs. Some 24 million get the earned-income tax credit, a cash income supplement.

By 2010 such payments to individuals were 66% of the federal budget, up from 28% in 1965. (See the second chart.) We now spend $2.1 trillion a year on these redistribution programs, and the 75 million baby boomers are only starting to retire.

On Monday night Mr. Obama blamed President George W. Bush’s “two wars” for the debt buildup. But national defense spending was 7.4% of GDP and 42.8% of outlays in 1965, and only 4.8% of GDP and 20.1% of federal outlays in 2010. Defense has not caused the debt crisis. 

By Divemedic, ago

The point of no return

One thing that I have always been interested in is the page in the instructions for your income tax form that tells you where the money comes from and where the money goes. I use the instructions for the 1040EZ here (pdf warning) and all you have to do is look at page 37 to see what I mean.

According to this page, the government, for fiscal year 2009, took in $2.105 trillion in taxes, with personal income taxes equaling 26% (or about $547 billion) of that. We spent $3.518 trillion, meaning that we borrowed $1.413 trillion. We borrowed three times what we collected through income taxes. This tells me that taxes have nothing to do with revenue. After all, if we can borrow $1.4 trillion, why can’t we borrow $1.9 trillion and simply eliminate income taxes altogether?

This is irresponsible spending at its worst. The Democrats think that the answer is to tax the income of the rich is the answer. However, according to the IRS (excel file- 2005 numbers) the top five percent of income filers made slightly less than $145 thousand per year. That means that the top 5% of earners make a combined total of $2.6 trillion per year. Even if we established an income cap of  $50,000 a year, and confiscated every dime that everyone in this country made over that amount, we would not be able to pay for the government we have now.

The Republicans think that the way to fix this is to cut spending. The size if the cuts that are needed is incredible. A 40% across the board cut is needed to balance the budget. The problem is that we cannot cut the interest that we pay on our debt. Our elderly will not sit still for any medicare or Social Security cuts, but those programs account for over a third of our spending. If we leave them alone, we need to cut Defense, welfare, prisons, and every other expense by 60%. Any politician who suggests the cuts that are needed will find his or her political career cut short.

We owe more money than currently exists. There is no way that we can pay it back, no way that we can stop borrowing, and no way out, except default. The system is broken, and we lack the will to fix it. We will soon lack the ability. Soon, the decision will be made for us. People will refuse to lend us money, and the people will become restless. The government, and the political masters who run it, will become increasingly desperate to maintain their power, and dictatorship will be the inevitable result. In my opinion, we are past the point of no return. We are witnessing history, the fall of the mightiest empire the world has ever known. I wonder if a thousand years from now if we will be studied like the Roman empires, or largely forgotten like the Achaemenid?

Prepare.

By Divemedic, ago

Mortgages and politicians

More evidence that politicians of all parties are corrupt and lacking in morals. This article shows that the Republicans in general, and attorney general Pam Bondi in particular, were taking bribes campaign contributions from the mortgage industry in exchange for overlooking the fact that the banks were committing fraud and forging legal paperwork, so that they could steal foreclose people’s homes.

If you look at campaign contributions to Bondi, a certain address comes up a lot: 601 Riverside Avenue in Jacksonville. It’s the home of Lender Processing Services, its subsidiaries, and the company it recently spun off from, Fidelity National Financial.
Altogether, those companies gave $6,500 to Bondi’s campaign directly. They also gave $78,000 to the Republican Party of Florida – which was itself a major funder of Bondi’s campaign
Finally, Lender Processing Services recently hired a new senior vice president for government affairs – Joe Jacquot, who until recently was an assistant attorney general for Bondi.

In exchange for these “contributions,” Bondi fired the attorneys who were investigating claims that the banks were “creating” documents out of thin air and using them as evidence in foreclosure proceedings.

People were signing documents with fake names. They didn’t have the required witnesses. And they weren’t reading the documents they were signing.

Even though they were sworn statements, that the signing party has personal knowledge of the facts. So much for investigating.

It’s OK, it was just legal technicalities, anyway:

By Divemedic, ago

Dollar weakens further

Gold is up nearly $100 an ounce since the beginning of the month. The dollar is falling, because the government is printing dollars like they are going out of style, and if China is to be believed, they are. Gold was just about at $1275 an ounce in January, and it is now running over $1572.

People keep blaming the oil companies for the high price of gasoline, but everything is getting more expensive because the dollar is tanking. Granted, the Euro is falling at a higher rate than the dollar, but that only means that we suck a little less than they do.

Oil is up, food prices are up, gold is up. Are prices getting higher? No. As Einstein proved, it is all relative. As the dollar weakens, it is worth less. When you are standing there with a pocket full of dollars, it appears as though prices are climbing. When you are standing there with a warehouse full of oil, gold, or food, the value of everything appears steady. That is, 12 barrels of oil is worth about the same as 1 ounce of gold.

Don’t blame business for rising prices, blame the government for falling currency. Every time they create money, the money that is already in circulation is worth that much less (supply and demand, anyone?). So every time money is printed, the powers that be have just stolen value from you by making that money worth less.

If you have a lot of assets valued in dollars, like savings and other bank accounts, this is bad for you. If you have a lot of dollar denominated debt, this is good for you, as your debts can be paid more easily by selling physical items for more dollars than you paid for them, and paying off debt. The largest debtor in the world is the US Government. They stand to gain the most from a devalued dollar. I can remember reading about the inevitable devaluing of the dollar as far back as 1990, when daddy Bush was President. People told me I was one of those conspiracy survivalist nutjobs.

It doesn’t look nearly as nutty from 2011. Things are going to get worse. Much worse. Bread lines worse. and when people begin going hungry, they become restless. Restless people are hard to keep in line. Then comes the inevitable government crackdown, as the powers that be fight to regain control as people scream for someone to step in and make things right. This is how dictatorships are made: by popular demand.

By Divemedic, ago

Free house!

This past week has been a busy one. I went to court to continue my fight against my old mortgage bank, and it was a harrowing experience at first, because I was acting as my own attorney against one of the largest banks in the country. This whole affair was a mess.The bank had royally screwed things up, and faked and falsified paperwork to cover their tracks. I caught them at it, and filed a lawsuit. The foreclosure that I have been fighting for two years finally has a conclusion, as we had a hearing just a few days ago.

I am now living in a house that is paid for. The case was dismissed. Now, there is nothing that will stop another case from being filed, but it is highly unlikely that such a case will be successful, as the bank could not produce the note after a two year fight, so it is unlikely that they will be able to do so in any future case.

It has been twenty-two months (as of next week) since I last made a mortgage payment. I will not make another on this house.

By Divemedic, ago

Who do I pay?

Nineteen months. That has how long it has been since I last made a house payment. Some would tell me to pay, and to those people, I ask one simple question: Who am I supposed to pay?

I signed a mortgage with a company we will call Mortgage Trust Company*, and paid on it for two and a half years. It turns out, the mortgage was sold by Mortgage Trust Company, to Fannie Mae just 4 months after I bought the house. Mortgage Trust Company was the servicer. The problem is, Mortgage Trust Company didn’t tell anyone that it had been sold. Actually, not only did they fail to tell anyone, they even testified in court, producing (faked, forged) documentation to say that they still owned the note and mortgage. Fraud. Perjury. Forgery.

I sued them for that. They paid me a 5 figure settlement amount to keep that out of court.

Then, it turned out that Mortgage Trust Company had actually sold the note and mortgage twice. Not only to Fannie Mae, but to Nationstar mortgage. I don’t know how that was legal, since the note and mortgage had already been sold to Fannie Mae, but Mortgage Trust Company hasn’t seemed to care a whole lot about the truth.

There are now three different banks who claim to own my note and mortgage, but none of them can produce the original paperwork. Since the original note is a negotiable instrument much like an endorsed check, anyone wishing to foreclose must either produce the original, or be able to testify that the original was in their possession when it was lost or destroyed. Since no one can do that, I have thus far been in a free house.

Even if I had a desire to pay, or to turn the house over to the bank, which one do I compensate? This is why we are in the mess we are in now.

* Names have been changed to comply with the terms of a settlement agreement

By Divemedic, ago

Ponzi Schemes

A Ponzi scheme is an investment that promises large returns on investment, and accomplishes this by paying current investors using the money of subsequent investors. The perpetuation of a Ponzi scheme depends on a constantly expanding set of new investors. For this reason, all Ponzi schemes are destined to fail as the ever increasing amounts of money needed to maintain the scheme outstrip the ability of the scheme to attract new investors.
Since the money in such a scheme is used to pay previous investors, it is never invested in monetary vehicles that expand the money pool. For this reason, growth in the funds can only be executed by growth in the pool of investors. That is exactly how the Social Security system functions. The money that is in the Social Security trust fund must by law be invested in Treasuries. For this reason, there is no money in the Social Security Trust fund, just a file cabinet filled with government bonds. Trillions of dollars in IOUs. 
This works well until the incoming “investors” begin to inevitably be outnumbered by the recipients that need to be paid. The only reason that the Social Security system has lasted as long as it has is simply due to scale, but even this has run out. For the first time since its inception, Social Security is being paid out in greater amounts than it is taking in. The collapse of this Ponzi scheme, as with all such schemes, is inevitable, and in this case, imminent.

Simply stuffing these funds into a figurative mattress by loaning the money to ourselves, and then spending it on social projects makes as much sense as a man standing in a bucket and attempting to lift himself off the ground by feverishly tugging on the handle.

By Divemedic, ago

Free house?

Probably not, but here is my story:
I bought my home in April of 2007 for about $240,000. I was intending to live there once I married my fiance. Together, we were making $110,000 a year, and we could easily afford the $1800 a month payments. The problem was that the bottom fell out a year later.

Being an employee of local government, my income is based upon an employer who derives income from local property taxes. Since property values were falling like a stone, our hours were being cut. By September of 2009, we were making $20,000 a year less than we were when we bought the house. Worse, the house was now worth less than half of what it was when we bought it. To make matters worse, my wife’s student loans came due, and she lost her job a month later. Stuck with a falling paycheck and a depreciating asset, we made the decision to declare bankruptcy. During the bankruptcy, my mortgage bank provided copies of my promissory note and mortgage, stated that they were the owner of the mortgage and the note, and asked the judge for permission to begin foreclosing on the house. This is where things get interesting.

I had intended on returning the house to the bank as soon as they foreclosed on it. I figured that would take six months, at the most. They filed a foreclosure suit against me, and provided me with copies of the note and mortgage as proof to the court that they were entitled to foreclose on the house. The only problem? The note in the foreclosure was a different piece of paper than the one they gave the bankruptcy court. It turns out that my note and mortgage were sold to Fannie Mae in 2007, and my mortgage bank was just servicing the loan- that is, taking my payments and forwarding them on. Who knows which mortgage company Fannie Mae sold it to after that, no one knows. In other words, they committed perjury. (For my Republican/Conservative readers: Remember that perjury was considered to be enough of a crime to impeach President Clinton, so don’t lecture me on how requiring that a mortgager not fabricate things in court is just a “hyper technical” legal loophole.)

I sued my mortgage bank, and they have agreed to settle out of court. It looks like they are going to write me a large check. The rub here is that no one knows who owns the rights to foreclose on my home. Until someone can prove that they are the one with the right to foreclose, I live here for free. We are at 15 months and counting.

By Divemedic, ago