Posts made in October, 2008

Dads, lets understand what is really the problem with the economy

Posted by Dad on Oct 15, 2008 in The Blog | 0 comments

Government bailouts, multinational programs, tax credits galore, emergency jumper cables for the economy…when will it end!

Well, my fellow dads, don’t get fooled. Recession, credit freeze, gloom and doom are all only the symptoms of what truly ailes the US and even the world at this point- mortgage foreclosures. Plain and simple. And, up to this point, I have not seen any bailout, program or plan that truly addresses this issue. The sad part is that, perhaps, that is the correct course of action.

Please read Ms. Olick’s quick summary of the situation. Of course, she’s absolutely right. Think of it this way, when your kid hasn’t popped in a week, you immediately panick and start to think about an obstruction in the intestines. The course of action is to get that obstruction moving so that the plumbing can get back to doing what it’s supposed to do. Right? Well, in this case, the banks are the obstruction.

You see, the banks approved all these mortgages for people that really couldn’t afford them but were merely looking to flip them for a quick and easy buck. Now that the housing market has stalled, these people find themselves unable to pay the mortgage. They took a gamble and lost. It’s sad.

The banks took that gamble along with the “investor” holding the mortgage because they too thought it would be flipped. The banks lost too but now they don’t want to admit it. They are holding assets (a.k.a. the mortgages) that they recorded on their books at the value it was then, say $100. Now that repayment of that mortgage is in doubt and the value of the collateral (a.k.a. the house) is sinking, they don’t really know the value of their asset. It certainly isn’t $100.

There’s this little accounting rule that banks must follow (for now, anyways) called “mark to market.” Perhaps you’ve heard or read about it? It merely states that banks must adjust the value of their assets to their market value rather than keep them listed at the value they paid for it. This rule has forced banks to take “write-downs” that have amounted to billions of dollars (that’s billions and that’s per institution, folks). As they must maintain certain asset to debt ratios to be a bank, banks are now going out of business because the value of their assets is way below the required ratio (e.g., Lehman Brothers). It’s a vicious circle because banks keep adjusting values down because foreclosures are increasing and property values keep going down but foreclosures are increasing and property values are going down because the banks keep taking losses and the economy is stalling.

What do the banks do?

They stop lending! The CREDIT FREEZE! They’re even afraid to lend to each other for fear that they other will fail to pay back even overnight! This is evidenced by the London Interbank Overnight Rate (Libor) go through the roof as it’s the rate that banks use to lend to each other. Unfortunately, many adjustable rate mortages are tied to the LIBOR so the rates on those skyrockets causing even more foreclosures.

But wait! Aren’t the governments pumping a gazillion dollars into these banks in order to get them lending again? Wouldn’t it be better for banks to do some work out with homeowners instead of letting them go into foreclosure? Would a bank prefer to do a short sale rather than keep a depreciating asset (a house) on it’s books?

Well, remember my previous post on greed? Banks are not doing what they should be doing to help homeowners because they are waiting to see if they can get a better deal with one of the government programs. After all, if they renegotiate a loan or make a short sale they must recognize a true loss on their books. If they wait and sell it as part of a government program they may end up with less of a loss. Who knows?!

Well, my fellow dads, how do you feel about this?

All the best

Two additions to The Definitive Daddy Blog List

Posted by Dad on Oct 12, 2008 in Dad Bloggers | 1 comment

I had the pleasure of discovering two daddy blogs recently- LiteralDan and Always Home and Uncool.Â I’ve added them to The Definitive Daddy blog List as they are excellently written and honorably represent us dads on the internether.

Dan writes an award winning blog focused on his family and what it means to be a dad.Â He says he’s an aspiring writer and stay-at-home dad of two.Â I enjoyed going through his posts and found them to be very insightful and thought provoking.

He had a great following of readers that actively comment on his musings and, obviously, appreciate his dry wit on daddy subjects.Â I particularly liked his post on Corporate Intelligence. Hilarious!

Kevin is a stay-at-home Gen-X dad who says he’s been rocking the suburbs of New England his whole life.Â He’s married with two kids, boy and a girl, and seems to have a great sense of humor.Â He writes for Dadcentric too.

You gotta love anyone who posts up Colbert Report quotes on his site like Kevin does.

I’ve added these blogs to my reader and you should too.Â The list now stands at 191 daddy blogs out there.Â Please send me any that are not on the list.

Keep up the good work, boys!

All the best

Seven lessons a dad should learn from these turbulent times

Posted by Dad on Oct 8, 2008 in Dad Issues, The Blog, Uncategorized | 7 comments

The stock market is crashing, banks are failing, house prices are plunging and your employer is wondering whether your position is critical.Â Things are pretty bad.

In the midst of these financially turbulent times, I thought it would be wise to give some thought to lessons we should learn from it.Â I’ve come up with seven- so far.

1. Greed is NOT good!

Yes, I’m speaking to you, extremely high paid executives of extremely big financial company! Gordon Gecko was WRONG!Â Wash the gel from your hair, take off that $5,000 suit and apologize to the American public for your part in this mess!

BUT, I’m also speaking to my fellow Americans that tried to take advantage of the system and irresponsibly (nay, incredibly) thought they could double and triple leverage themselves to purchase houses valued WAY, WAY above their means.Â Â

Unless you are over 70 years old and suffering from some sort of senility, you have no excuse!Â You tried to take advantage of the “always increasing house prices” by purchasing today and flipping the next day without thinking that you would get stuck if prices came down.Â I mean, come on folks!Â 100%-120% mortgages on property??? What were you thinking??Â I know, dollar signs.

I’m also speaking to you, “mortgage brokers”, who more then earned your title of “predators.”Â Your predatory practices just stoked the fires of greed in average earning folks who, blinded by potential profits, believed your schemes.Â You knew full well these people shouldn’t be qualifying for these properties, but you didn’t care because you just wanted your commission.Â Well, I hope they were big enough to last you through the next few years of bust…

I certainly don’t want to forget the “banks” that were more than happy to look the other way and believe that a mailman can afford seven condominiums. Why not?Â You didn’t care because all you did was package up all these mortgages and sell them as “security pools” for big profits and bigger bonuses for your executives.

Nor can we forget the larger institutions that took these mortgage packages and designed all sorts of arcane ways to use them in the financial markets. Hey, lets get our buddies in the rating agencies to assign a wonderful AAA rating to this pool of sub-prime mortgages. Then we can use it to artificially prop up our balance sheets, sell them to our clients and use them as collateral to get even more cash. Brilliant!!Â Build a house of cards! Guess you never heard that one.Â All in the name of greed!

My fellow dads, this whole situation just stinks of greed.Â We let it blind us and we went along for the ride as everyone was making money. Now we must pay the price for our greed.Â No, greed is not good.

2. The value of the stock market, or any asset, can and WILL come down. Be prepared!

If nothing else, use this chaos to understand what diversification means.Â You know, “don’t keep all your eggs in one basket.”Â Don’t rely on your house to be your only investment.Â Â Don’t only put your savings into the stock market.Â Spread it around different forms of investments that typically move in opposing directions.Â

You may not make the very large returns but the risk you are not taking on should let you sleep at night. And, as dads, you know the value of sleep.Â Over the long haul, you and your family will be better off for it.

3. You don’t invest for the short term.

If you invest, and I think you should be investing, you need to always be a long term investor. Don’t invest and think that asset won’t go down in the short term.Â If you invested because the fundamentals of the asset, company or deal are strong, then let it ride.

An example of this is Apple, my one stock investment. Now, I purchased Apple stock with a small amount of money I had and understood I was going to risk it in the stock market.Â If it tanked, I would not be bankrupt.Â Well, guess what? It’s tanked.Â It was as high as $202 per share.Â Now it’s $88 and way below what I purchased it for.

Am I panickying? Well, yeah, a little. But I’m holding on to my stock because I strongly believe the fundamentals of the company are strong and that it will come back once the market recovers. So, I’m willing to wait it out as you do in the middle of a hurricane- hunker down and wait for it to pass.

4. The world IS a small place and getting smaller. That’s a good thing.

Guys, what I said in point 1 above is true for the rest of the world!Â The global economy is sputtering and faltering not just the US.Â If the US goes down, it will bring all other economies to their knees.Â Add to that the fact that similar sub-prime crises exist in most other developed countries and you begin to see the real scope of this mess.

The world is extremely interconnected now and any stone dropped into the global economic ocean will send ripples through the world’s financial markets.Â What happens in China really does matter to us not to mention what happens in Europe.

However, understand that this is a good thing.Â Yes, we all share the pain but we will all help ourselves recover FASTER.Â Our combined global strength will come through in the end.Â This is something we didn’t have during the great depression.Â

Lets all thank Al Gore for inventing the Internet.

5. Teach your kids about the economy and the value of a dollar.

Your little ones will feel this recession.Â You will not be able to buy them some of the things they want and, perhaps, deserve.Â You will need to put off that vacation you were planning, just in case.Â You may even lose your job that would cause drastic changes in your home life.Â Don’t keep your kids in the dark.Â Talk to them.

ExplainingÂ the economy to small kids is not easy.Â Heck, I feel I don’t understand it that well myself.Â Nevertheless, give it a try. Be open with them. They will understand and, frankly, probably won’t care very much which is a good lesson for you. See point 3 above.

6. Don’t measure yourself by your job but by your relationship to your family, your friends and your community.

The unfortunate reality of this mess is that some of us will lose our jobs.Â It doesnâ€™t matter at what level you are, youâ€™re at risk.Â My company has laid off executives at all levels.Â This is reality and you must face it and prepare.

Part of that preparation is to understand that you are not defined by your job. Your are defined by the people you love and love you.Â You are defined by the good deeds you do in your community and by how much you help others.Â Donâ€™t fall into the trap of thinking you only have worth if you are brining home a good paycheck.Â

So, go look at your family and give them a hug.Â Spend some time with them this weekend.Â Focus on them and what you do with them. Forget the golf, yard work, housework, hobbies, etc. Do something with your familyâ€¦.

7. No matter how bleak things look, you can always have faith.

Take that how you want to. Religious faith? Yes. Non-religious faith? Yes. Itâ€™s up to you. Whatever will help you to see and believe the truth that things will get better.Â That it will be ok in the end.Â The crisis will pass. They always have. This isnâ€™t the first time nor the last time we will botch things up good.

Have faith.

Keep fighting the good fight, my fellow dads.

All the best