Thursday, October 30, 2008

As Rome Burns...

The Chinese are making friends in Rwanda, Kenya and Spain.

It bothers me to see so few, if any US businesspeople at the major trade fairs in China. It is all, especially the young, people from South America, Africa, Eastern Europe, Asia...

I think one reason the government is free to abuse the system is so few people know how to run a business, so they are trapped. Whaddya gonna do? Well, at some point, you'll need to do something. Better now.


Start The Business Now!

Having seen a mild version of this meltdown a couple of time before, and knowing that certaiin custoemrs get into trouble, I was asked "How can you tell who is in trouble, any red flags?" Yes... Two dead giveaways, 1. they start to pay slowly, so watch your aged trial balance, Indeed, maybe a new software product can be developed that tracks payments from customers and predicts who is going under. 2. The customer suddenly orders a large amount. Iin this case it is likely they are loading up the store and intend to blow it out the door on a "going out of business sale" with no intention of every paying you.

So is it too scary to start now? No, you can get plenty of free help here on how to check credit and collect on slow pays. But on the other hand your competotors may not survive this downturn. The key issue is "can a business service its debt obligations from the revenue the operation brings in?" If the answer is "no" the business will go under, like a homeowner who cannot make his payments.

Such businesspeople are disoriented after the fact, and their credit is shot,. so they believe they cannot restart afresh. You know better, so you have an advantage.

Right now infrastructure and other capacity is cheap and getting cheaper. I was offered a no-cost deal oon office space with participation in the rents if I could attract otehr renters. Good deal! It will get better later, so I will wait.

Since exports are dropping suppliers are eager. The key of couorse is that you have the names of retailers who said "it is a good idea and does not exist." That is simple and natural to get, so go get it.

Alaska Airlines started 1932, in the worst of the depression And it's corporate culture has developed a winning ethic. United Airlines started in the roaring 1920's and has a boom ethic, it is regularly in trouble and bailed out. Southwest in the 70’s. Perhaps there is something more resilient about a business that is founded during bust times.


How In Hell Did We Qualify?

As the mortgage meltdown spreads because of the government actions, one young husband and father whose hopes and dreams are unravelling asks "How in hell did we qualify?"

Well, you didn't.

The govt lowered interest rates and expanded money and the bankers took the lead, causing the massive misallocation and malinvestment. The bankers were happy to create and extend these toxic loans becuase the fannie mae and freddie mac were happy to buy them. Also, everyone was confident that when it blew up, the govt would bail thgem all out. Almost all (goodbye lehman and wamu) and the govt is in fact trying, but the bailout will not work. it will get worse, far worse.

The problem is leveraging debt. There is a first principle: You cannot prosper through debt. . You prosper through savings.

The Hamiltonian central banking, and leveraging debt leads to fantastic results. 42 inch plasma screen TVs! Jet flights to Aruba! McMansions and stuffed self-storage units. Most people can and will give their allegiance to such a system.

With the government controlling the economy through inflation, there is no money to rebuild New Orleans, but plenty for war in Iraq. There is money to grow more corn than we can consume, and money to ship it overseas, wherein is destroys local farmers wherever it shows up, and then money to send in troops when the region becomes a “failed state.”

The concomitant poverty and the wars can be blamed on others. What we do not see, the good things that are not to be due to starvation from misallocation and malinvestment, well we do not miss what we never saw.

Free marketers know we’d see a more organic, just and peaceful society. Something of a cross betwewen a hong kong and irish countryside. The good of both, not the bad. Not terribly exciting in sensual terms, but something good. We like the growth and improvements of our right wing bretheren, but they hate freedom. We like the concern for the environment of our left wing bretheren, but they hate responsibility.

in self-employment we decide the field we work in and the custoemrs decide what we sell. It is human level organic, and draws on all of our humanity and capabilities. We are happy with our portion.

Employed by others the corporation is a govt-sanctioned entity whose purpose is aligned with the central banking and what opptys in malinvestment and misallocation that precipitates. The corp demands you work in a narrow function, and overpays you for what little it requires of you, but you are unhappy with your poprtion. The focus is on retirement, yet by retirement you learn your muse was chimera.

I did not get stuck in this mess personally because it was clear it was wrong. In fact, the people I read knew it was wrong and I based my reactions on their advice. I’ve shorted this market down from 14,000 to 8,000. I am waiting it to go back up, as it is, until the last drop that will inevitably arrive. Or maybe I am wrong and will lose it all.

This will sort itself out if the govt gets out of the way and stays out of the way. let this go bankrupt. Then it will clear off the junk. Do not bail out the bankers and speculators behind this. Then stay out of the way so new innovations can come forth to lead a recovery. If the govt whishes to see things get better, they could and should deregulate something. Anything. Education. medicine. hell, radio! any thing. The people will do the rest.

Such deregulation is not going to happen. the govt is in fill regulation mode now. So the only hope is for you to start your own biz.


Wednesday, October 29, 2008

Moral Hazard

There is in economics the term Moral Hazard, wherein you do not want to arrange matters so that there are unintended detrimental results. The classic moral hazard is welfare payments, wherein the more generous the payments, the fewer able bodied people will work.

This mortgage mess may be setting up an unintended consequence. We have no military draft yet, but who needs one when no bank can foreclose on a home of an active duty military.

The relevant part:

Am I Protected against Foreclosure?

"Mortgage lenders may not foreclose, or seize property for a failure to pay a mortgage debt, while a service member is on active duty or within 90 days after the period of military service unless they have the approval of a court. In a court proceeding, the lender would be required to show that the service member's ability to repay the debt was not affected by his or her military service."

So is there an age limit to when a bread winner can join the military?

No military site will state age limits, but ancillary sites state 42 years old (was 29 before we invaded Iraq.)

That is not to say there are no preparations being made for a draft. For example, the Selective Service has plans for medical workers... to wit:

"Draft a very small percentage of America’s health care providers into military service. Impact on the availability of civilian health care would be minimal. Those health-care workers whose absence would seriously hurt their communities would be deferred on the basis of community essentiality."

You can find much more over at http://www.sss.gov, such as plans to

"Begin a mass registration of male and female health care workers between the ages of 20 and 45."

This is nothing new, this too from teh site:

"In May 1994, President Clinton asked the Secretary of Defense to update its mobilization requirements for the Selective Service System and, as a part of the effort, "continue to review the arguments for and against continuing to exclude women from registration now that they can be assigned to combat roles other than ground combat." In its subsequent report, the DOD position remained "that the restriction of females from assignments below the brigade level whose primary mission is to engage in direct combat on the ground, provides justification from exempting women from registration (and a draft) as set forth in the decision of the U.S. Supreme Court in Rostker v. Goldberg (1981)." However, the report also recognized the vastly increased role being played by women in each of the Armed Services who, in Fiscal Year 1994, comprised 16 percent of recruits. "Because of this change in the makeup of the Armed Forces," the report observed, "much of the congressional debate which, in the court’s opinion, provided adequate congressional scrutiny of the issue...(in 1981) would be inappropriate today." While maintaining that it was not necessary to register or draft women, the DOD review concluded "the success of the military will increasingly depend upon the participation of women."

And who must register right now?

"Almost all male U.S. citizens, and male aliens living in the U.S., who are 18 through 25, are required to register with Selective Service. It's important to know that even though he is registered, a man will not automatically be inducted into the military. In a crisis requiring a draft, men would be called in sequence determined by random lottery number and year of birth. Then, they would be examined for mental, physical and moral fitness by the military before being deferred or exempted from military service or inducted into the Armed Forces."

How come the changes? If there will be changes, why not consider going to hiring private companies to fight our wars?