Silly analogy for mortgage backed derivatives

Easily Understandable Explanation of Derivative Markets

Heidi is the proprietor of a bar in Detroit. She realizes that virtually all of her customers are unemployed alcoholics and, as such, can no longer afford to patronize her bar. To solve this problem, she comes up with a new marketing plan that allows her customers to drink now, but pay later.

Heidi keeps track of the drinks consumed on a ledger (thereby granting the customers' loans). Word gets around about Heidi's "drink now, pay later" marketing strategy and, as a result, increasing numbers of customers flood into Heidi's bar. Soon she has the largest sales volume for any bar in Detroit.

By providing her customers freedom from immediate payment demands, Heidi gets no resistance when, at regular intervals, she substantially increases her prices for wine and beer, the most consumed beverages. Consequently, Heidi's gross sales volume increases massively.

A young and dynamic vice-president at the local bank recognizes that these customer debts constitute valuable future assets and increases Heidi's borrowing limit. He sees no reason for any undue concern, since he has the debts of the unemployed alcoholics as collateral.

At the bank's corporate headquarters, expert traders figure a way to make huge commissions, and transform these customer loans into DRINKBONDS, ALKIBONDS and PUKEBONDS. These securities are then bundled and traded on international security markets.

Naive investors don't really understand that the securities being sold to them as AAA secured bonds are really the debts of unemployed alcoholics. Nevertheless, the bond prices continuously climb, and the securities soon become the hottest-selling items for some of the nation's leading brokerage houses.

One day, even though the bond prices are still climbing, a risk manager at the original local bank decides that the time has come to demand payment on the debts incurred by the drinkers at Heidi's bar. He so informs Heidi.

Heidi then demands payment from her alcoholic patrons, but being unemployed alcoholics they cannot pay back their drinking debts. Since Heidi cannot fulfill her loan obligations she is forced into bankruptcy. The bar closes and the eleven employees lose their jobs.

Overnight, DRINKBONDS, ALKIBONDS and PUKEBONDS drop in price by 90%. The collapsed bond asset value destroys the banks liquidity and prevents it from issuing new loans, thus freezing credit and economic activity in the community.The suppliers of Heidi's bar had granted her generous payment extensions and had invested their firms' pension funds in the various BOND securities. They find they are now faced with having to write off her bad debt and with losing over 90% of the presumed value of the bonds.

Her wine supplier also claims bankruptcy, closing the doors on a family business that had endured for three generations, her beer supplier is taken over by a competitor, who immediately closes the local plant and lays off 150 workers.

Fortunately though, the bank, the brokerage houses and their respective executives are saved and bailed out by a multi-billion dollar no-strings attached cash infusion from their cronies in Government. The funds required for this bailout are obtained by new taxes levied on employed, middle-class, non-drinkers who have never been in Heidi's bar.

Kind of silly.

Need for separation / secession?

Some people seem to think that secession is no longer acceptable, which seems odd to me since our country was founded on secession. The only instance that is taught in school is the civil war and because of the association with slavery, secession is painted as racist, and no mention is made of the North Eastern states threatening secession on more than one occasion. I wonder if it is going to take states threatening secession to get some needed changes in our federal government.

"The problem that our nation faces is very much like a marriage where one partner has broken, and has no intention of keeping, the marital vows. Of course, the marriage can remain intact and one party tries to impose his will on the other and engage in the deviousness of one-upsmanship. Rather than submission by one party or domestic violence, a more peaceable alternative is separation. I believe we are nearing a point where there are enough irreconcilable differences between those Americans who want to control other Americans and those Americans who want to be left alone that separation is the only peaceable alternative. Just as in a marriage, where vows are broken, our human rights protections guaranteed by the U.S. Constitution have been grossly violated by a government instituted to protect them. The Democrat-controlled Washington is simply an escalation of a process that has been in full stride for at least two decades. There is no evidence that Americans who are responsible for and support constitutional abrogation have any intention of mending their ways. ... Americans who wish to live free have several options. We can submit to those who have constitutional contempt and want to run our lives. We can resist, fight and risk bloodshed and death in an attempt to force America's tyrants to respect our liberties and human rights. We can seek a peaceful resolution of our irreconcilable differences by separating. ... The bottom-line question for all of us is: Should we part company or continue trying to forcibly impose our wills on one another? My preference is a restoration of the constitutional values of limited government that made us a great nation." --economist Walter E. Williams

Results of Tort Reform in Mississippi

Found this article by the Heritage Foundation interesting.

Downsizing Government

Site put out by Cato on Downsizing Government. Interesting reading. http://www.downsizinggovernment.org/

Government employees earning more than private sector equivalents

From http://www.usatoday.com/news/nation/2010-03-04-federal-pay_N.htm

"Overall, federal workers earned an average salary of $67,691 in 2008 for occupations that exist both in government and the private sector, according to Bureau of Labor Statistics data. The average pay for the same mix of jobs in the private sector was $60,046 in 2008, the most recent data available.

These salary figures do not include the value of health, pension and other benefits, which averaged $40,785 per federal employee in 2008 vs. $9,882 per private worker, according to the Bureau of Economic Analysis."

So counting benefits, government employees earn $108476 versus $69928 for private sector employees, so 55% more. Infuriating.

School budget problems in a recession

So the value of the funds supporting the pensions have gone down, just like our 401k's, but then they need to increase the contributions to the pensions, in a recession. That's going to go over well. An article Even More on the Coming War Over Public-Sector Pensions shows the problem showing up in Fairfax, Virginia, as well as the dishonesty going on in selling the public on the $90M tax increase they want to pay for this.

On the problem of leaving national debt to our children

http://dailyreckoning.com/america-2030-why-we-must-act-now/

So the average child born "inherits" almost $50,000 of debt, but what does that mean? Basically that they have higher taxes to look forward to, and as such less money to spend as they choose, a lower standard of living.