Thursday, May 17, 2012

Chillingly Accurate Predictions by Paul Harvey April 3, 1965


If I were the devil … If I were the Prince of Darkness, I’d want to engulf the whole world in darkness. And I’d have a third of it’s real estate, and four-fifths of its population, but I wouldn’t be happy until I had seized the ripest apple on the tree — Thee. So I’d set about however necessary to take over the United States. I’d subvert the churches first — I’d begin with a campaign of whispers. With the wisdom of a serpent, I would whisper to you as I whispered to Eve: ‘Do as you please.’

“To the young, I would whisper that ‘The Bible is a myth.’ I would convince them that man created God instead of the other way around. I would confide that what’s bad is good, and what’s good is ‘square.’ And the old, I would teach to pray, after me, ‘Our Father, which art in Washington…’

“And then I’d get organized. I’d educate authors in how to make lurid literature exciting, so that anything else would appear dull and uninteresting. I’d threaten TV with dirtier movies and vice versa. I’d pedal narcotics to whom I could. I’d sell alcohol to ladies and gentlemen of distinction. I’d tranquilize the rest with pills.

“If I were the devil I’d soon have families that war with themselves, churches at war with themselves, and nations at war with themselves; until each in its turn was consumed. And with promises of higher ratings I’d have mesmerizing media fanning the flames. If I were the devil I would encourage schools to refine young intellects, but neglect to discipline emotions — just let those run wild, until before you knew it, you’d have to have drug sniffing dogs and metal detectors at every schoolhouse door.

“Within a decade I’d have prisons overflowing, I’d have judges promoting pornography — soon I could evict God from the courthouse, then from the schoolhouse, and then from the houses of Congress. And in His own churches I would substitute psychology for religion, and deify science. I would lure priests and pastors into misusing boys and girls, and church money. If I were the devil I’d make the symbols of Easter an egg and the symbol of Christmas a bottle.

“If I were the devil I’d take from those, and who have, and give to those wanted until I had killed the incentive of the ambitious. And what do you bet? I could get whole states to promote gambling as thee way to get rich? I would caution against extremes and hard work, in Patriotism, in moral conduct. I would convince the young that marriage is old-fashioned, that swinging is more fun, that what you see on the TV is the way to be. And thus I could undress you in public, and I could lure you into bed with diseases for which there is no cure. In other words, if I were the devil I’d just keep right on doing on what he’s doing.

Paul Harvey, good day.”

Tuesday, May 15, 2012



All my young life, I knew I was going to college. College had propelled my father from a sharecropper’s boy to a clinical psychologist with a Ph.D. by about age 27. That changed the trajectory of our family and greatly influenced my early thinking.

There was just never any doubt about that. College, at that time, represented several things to me:  a “university experience” away from home, lots of friends in a Greek fraternity, and a good job afterwards.

With my academic scholarship, my working, my parent’s college funding and a few student loans, I was able to get through my four year degree at the University of Arkansas, Fayetteville, in just 3.5 years, even while working 40-56 hours a week.  Then I completed law school at what was then called Memphis State University.

I always have wanted the same for my children if they felt led to pursue a degree. However, college has changed a lot in the 25 years since I enrolled.

For one, student loans are no longer an added help for many, but a way of life. It’s worse than most of us realize. Americans' outstanding student loan debt obligations now exceed $1 trillion! (It takes one thousand billion to make a trillion.)  Parents have mostly divorced, which often decimates any savings plan for college. Due to some abysmal public schools, many parents use any extra to get their kids in private schools, which prevents college savings as well.  Or Mom may stay home and homeschool and thus forego another income, which curtails any saving for higher education.  Other parents are themselves facing a bad recession with pay cuts or unemployment. Thus, students borrow more money to pay rising costs of tuition. The average borrower graduating from a public or private institution owes an unprecedented $25,250.00 each.

Rutgers University did a study and found that only 53 percent of recent U.S. four-year university grads were even working full-time jobs. Fewer had jobs where their degree was required at all. In fact, I have heard that many Starbucks employees actually have a college degree.

More than one new source has started to see a striking similarity between student loans and the height of the real estate bubble, yet a student borrower cannot discharge or even refinance his debts in bankruptcy. The Student Loan Forgiveness Act of 2012 has been proposed as yet another federal bailout that is supposed to create jobs.

As drafted, this new law would create full loan forgiveness up to a limit of $45,520.00 for current borrowers who have paid the equivalent of 10 percent of their discretionary income for 10 years or who are able to do so over the coming years. It caps interest rates on federal student loans at 3.4 percent and converts many private loans into federal loans.

Universities and colleges get that student loan money in tuition, which goes up every single year. Some think they play the same modern role as some real estate agents and mortgage brokers played during the housing bubble that burst so violently in 2008.
Since all major colleges were founded as Christian institutions, this slide toward shady business on the backs of debt-ridden students does smack of hypocrisy. If you are surprised to learn that our nation’s oldest and most respected colleges were founded to teach people to best apply the Bible, just look at the
Ivy League’s mottos:

Brown University
In Deo Speramus (In God We Hope)
Columbia University
In lumine Tuo videbimus lumen (In Thy light shall we see the light)
Dartmouth College
Vox clamantis in deserto (The voice of one crying in the wilderness)
Harvard University
Veritas (Truth)
Princeton University
Dei sub numine viget (Under God's power she flourishes)
University of Pennsylvania
Leges sine moribus vanae (Laws without morals are useless)
Yale University
Lux et veritas (Light and truth)

It appears that the “university experience” of these days is different from 1987—lots  of crushing student debt, almost no job options using the degree, and a bankrupt government that will have to do more with less.  There are certain intangibles that going away to a university can provide, and well off families will always be able to pay for those. But, for the more average family, it does not appear so.  In fact, if you look at economics, college may not be such a wise investment these days.

If you get your diploma and serve a two-year electrician’s apprenticeship, at maybe $25,000.00 a year in whatever part of the country is hiring (at the moment it’s North Dakota and Montana), you are paid to learn the trade. You will be earning an average of $43,000.00 in year three.  By year seven, many in the field are making $60,000.00 yearly.

If you get a degree in business, you give up four years of working many true full-time jobs. You might be able work some, but you are likely not to make much during college.  Following college, you will likely be unemployed for a while. You might decide you have to work at an $18,000.00 a year retail job for a year. Then, if you are selected, you might become a branch management trainee for something like a rental car company. That would net you $36,000.00 in years two and three of that job on average. However, if you graduated with $35,000.00 debt, your net worth suffers severely. And remember, the electrician started earning much earlier than you did.

The net spending ability of the electrician after year seven totals $296,000.00.

Conversely, the trainee has had $98,000.00 minus monthly payments with interest that are higher than the electrician’s payment on his new Camaro.  If the trainee paid off the student loan straightaway, he has had only $63,000.00 to spend.

Are we seeing the death of widespread college education? The rise of online courses seems to suggest that the brick and mortar places are fading fast. Branded courses that are tied closely to industries (like aircraft engine maintenance) seem to place many of their graduates.

Is the education bubble the next to burst? What do you think?
Mr. Peel seeks justice for those injured in car accidents, work place incidents, medical malpractice, and nursing homes. He often addresses churches, clubs and groups without charge. Mr. Peel may be reached though wherein other articles may be accessed.

Thursday, May 10, 2012

Financial Crisis Simplified


For years, deposits into your savings account gained about 1%. The bank then made mortgage loans at say, 7% to anxious homeowners.  The banks made 6%, which was referred to as the “spread.”  The bank is loaning $144,000 in exchange for a future monthly stream of payments of close to $1,000 per month for a 30-year, fixed-rate mortgage. The lower the interest rate a homebuyer gets, the higher the price the bank is actually paying for the income stream.

A few homebuyers would lose their home to foreclosure, and that loss was factored in. However, it was rather rare, because homebuyers had to bring a whopping 20% of the purchase price in cash, along with fees, to the closing. (On an $180,000 home, that’s $36,000 plus closing costs).  They were unlikely to walk away from all that, and if they sold for less than market value, they lost only some of their own down payment. It was a pretty stable system.

So what changed?

Lenders made riskier loans to less than creditworthy folks, for one. These are “subprime loans.” Borrowers were even allowed to borrow the 20% down that used to be required in cash! In other words, they buyer walked into a home with “no money down.”

Remember that your local bank often resells your mortgage product (called “paper”) to investment banks.  Your local bank receives the loaned amount back, plus a few fees that make it a profitable deal, and they then do more. Now the out of town bank owns your mortgage and you have to send payment to them, instead of your local bank.

The investment bank will now “securitize” your mortgage. It will be bundled with thousands of other mortgages. It will be rated, based mostly on the credit of the buyers. Your little American dream home is now part of a pool of 10,000 mortgages, with about $10 million in payments coming in from borrowers every month. Investors can buy the right to a part of that pool. The more solid the credit of the borrowers, the more they are worth.

Shares of some pools are treated differently. A “collateralized debt obligation” is a securitization where some slices have priority. They are entitled to the very first payments that come in each month, and hence are the safest. Some slices of the pool only get the last of the monthly payments, so those are the risky ones. These were cheaper, but paid much higher interest, when they paid at all.

If an investment bank paid $2 million for a slice of a pool, it happily lists that as an asset and waits on the money to roll in from you and your credit-worthy neighbors. But things go badly. The investment bank has used many millions of its own money (“capital”) and borrowed much from others to invest.  To borrow, they usually sold “bonds,” which are just IOU’s with a bit of interest to be paid at some future point. These millions bought slices of mortgage pools with the income stream at 7% and it only paid out, say 1%, on their bonds. This was just a larger version of the old saving account plan mentioned in the first paragraph, and proved quite profitable.

But by 2008, housing prices and securitized subprime mortgages plummeted. Others in the same pool started selling these slices at fire sale prices. Maybe it was at only 25% of the value. Thus, the bank’s $2 million “asset” was now only worth about $500,000! The loss of 75% is called a “write down.” These, in sufficient numbers, can really affect the health of the investment bank, because it is listed just like money out the door for nothing.

Remember the bank runs in the movie, It’s a Wonderful Life? The FDIC insures all deposit accounts to prevent such panic. Other banks can also help a bank out if they are now short on assets to borrow against to pay its depositors.  But following 2008, all banks wanted to simply hold onto its cash in case it became the target of a bank run, or the other bank ultimately fails. A self-fulfilling prophecy resulted:  banks wouldn’t lend, therefore banks had no credit, and were subject to a modern day bank run. Some banks did fail, just not as many as some feared.

Companies like AIG that insured so many bonds on what is called “credit default swaps” were famously deemed “too big to fail.” While it is generally agreed that saving the banking system was required, as usual, the government acted in a wasteful and unwise way in doing it. The “bail outs” were often paid at 100% of value, which is unheard of in a fire sale.  Of course--it was not their money--it was ours.

Unfortunately, with foreclosures still sadly occurring at high rates, appraisals are bottomed out and people cannot sale or refinance their house.  Ultimately, the housing bubble popped and will probably re-inflate rather slowly. It was a return to those original rules of lending that has helped the market start the recovery.