Entries from September 2008 ↓

By now I am sure most of you have heard that the $700 billion bailout bill failed to pass the House of Representatives. Probably everyone’s portfolios took a hit today, but I think that is temporary and the markets will recover eventually. Right now, the Republicans are blaming Nancy Pelosi for a highly partisan finger pointing speech she made to the House that made some House Republicans vote against the bill. Even though her speech was quite inflammatory, I don’t think that’s the reason why so many Democrats also voted against the bill. I think many of these congressional members voted against the bill because of self preservation, and some of them really grew a backbone and shrugged off the fear being marketed by Paulson and the rest.

We are obviously in some tough economic times, and whenever there is disaster there is an inherent sense of self preservation. For the members of congress, all 435 of them are up for reelection in 38 days. Guess what? They want to keep their jobs and they are getting a deluge of pissed off emails and phone calls from their constituents to stop the bill. According to BusinessWeek, “in many Congressional offices, the phone calls and mail against the Paulson package is running 100 to 1 against the plan”. Voting for the bailout bill now is a very unpopular thing to do for a politician so most of them actually chose to listen to the people they represent. That is rather refreshing, but I think understandably it is out of self preservation since neither the Democrats or Republicans can afford to lose seats in congress right now.

Besides politics, this entire bill is based on the fear that there will be a total and complete meltdown of everything if it isn’t passed. I am very familiar with the idea of selling fear since I work in a security software company. When you try to sell anything related to security, you have to tell your potential buyer the worst things that could possibly happen if they don’t buy your system. That’s just good marketing, but once a company buys a security system, it is still up to them to implement it and roll out best practices all over the firm to get the best results. I think this $700 billion bill is marketed in the same way with a lot of fear mongering. There is so much panic and uncertainty in the air now and Paulson and Bernanke were simply pouring fuel on the fire in order to reach their agenda of passing the bill. However, even if the bill were passed it wouldn’t be a magical pill. If the same fools that created this mess are still in charge of the money and do not change their processes, then nothing good will come of it. It would be like a company that buys our software for a million dollars and just let it sit there and waste away.

So even though I am poorer today, I am glad that this bill as it is now has been defeated and more discussion will be done. I think ultimately many congressional members feared losing their jobs more than a total financial meltdown. In fact, right now there are grass root campaigns to throw out all of the members of congress who voted for the bill. Even without this bill, we are seeing market forces at work and small inklings that things will be okay. The stronger firms are swallowing up the weaker firms and becoming stronger, and the Federal Reserve just keeps on injecting money into the system anyway. I really think that the market overreacted today to this vote because as I have said, even if it were passed, there is no guarantee that a simple infusion of money would fix everything. It is up to those in power to implement a new process to prevent something like this to happen again. That takes time and careful planning, not a piece of legislation that’s hastily slapped together and pushed through with fear.

Share This

I finished only fourth grade in communist China, but I still remember that my second grade teacher taught us that capitalism is evil, and that a socialist society like China is the ideal society. With this string of bailouts and more bailouts on the way, some commentators are saying that the United States is becoming socialist or communist. I really think that they have no idea what communism or socialism is and what America is planning to do now isn’t exactly socialism.

Socialism has many forms, but the basic principle is that the government owns the means of production and pretty much all citizens work for the government. Whatever the nation produces as a whole gets spent on its citizens. The current $700 billion dollar bailout plan being discussed now does not address how Americans citizens will be provided for. Additionally, there is no talk of the government actually owning equity in the banks it helps so the government will not be owning the means of production. Instead, the government will own the mistakes of countless individuals in the form of bad debt. It is basically a plan to shove financial diarrhea down the throat of American taxpayers while telling them that perhaps there is a nugget of gold in there somewhere. This is not socialism or capitalism. It is pure and sheer madness.

Now having said this, I must say that I believe that individual accomplishments should be recognized, and a capitalist society like America allows the best to shine. However, these bailouts are really rewarding the worst instead. Currently the Democrats are arguing that the bailout should include cuts in executive compensation, but why would that even matter if the government doesn’t own a single piece of these companies? Additionally, the money these executives are earnings are peanuts compared to the amount of bad debt the government wants to bail out. What congress should ask for is huge amounts of equity in the companies they help out like the way they took nearly 80% of AIG’s equity. Do what the Swedes did in the early 1990s and take a pound of flesh from these irresponsible bankers. Only then can taxpayers see a possible return on their money and then I would call the United States the United Socialist States of America. If the $700 billion bailout passes as it stands now, this country will be forever known as the United Stupid States of America.

Share This

This is a continuation of my family’s immigration story originally written by my dad in Chinese. For more of my dad’s narrative see the category marked Fifteen Years in America. If you can read Chinese you can read the original at my dad’s Yahoo blog. He is currently working on chapter 9. Enjoy!

—

After I attended Kapiolani Community College for a year, I started thinking about getting a job that is related to my major of accounting.   As I have mentioned before, American employers always want to employ someone with experience, so it is especially tough to find that first job related to your field.  This is the reason why many people want to go to the most famous colleges because students from these schools have an easier time finding the first job.  However, after you have worked at a job and collected experience, employers would look at what you have done and what you can do for them instead of where you graduated.  So now when friends in China ask me which American school their kids should attend, I would tell them that if they have the money and skills they should go to the most prestigious schools.  However, if they can’t get into the best, they shouldn’t be discouraged, because college lasts for only four years, and the road of life is very very long, and a college degree will not determine their entire destiny in life.

After I learned some accounting basics in America, I was determined to find a job related to accounting.  Since I didn’t have any experience, I emphasized that I had a 4.0 GPA, but this first off campus job was still very difficult to find.  After trying for a while, I found a job as a cashier at a store in the famous Ala Moana Shopping Center.  The store was owned by a Japanese American woman and I worked there for about four months.  However, I have to honestly say that these four months were the darkest and most unfair days I have ever experienced in America.  These days made me truly experience the ugly side of capitalism that was taught in China’s Marxism classes.  This capitalist that hired me forced me to work very heavy labor, overtime, and refused to pay.

“Where there is oppression, there will be resistance.”  I think this Japanese American woman underestimated international students from China.  She thought that we were uneducated, and that she could easily control immigrants from China, Vietnam, and other “third world nations” because none of us spoke English well.   She didn’t think that Chinese students my age were educated with the message of revolution since we experienced the Cultural Revolution.  She didn’t know that we were taught the message of, “there is endless fun in fighting with the sky, there is endless fun in fighting with the ground, and there is endless fun in fighting with class enemies”.  The most important thing is that in China I have had some education in law, and I knew that what she did was not only unfair and cruel but also broke the law.  Even though my English was horrible at that time and I couldn’t express myself well, I managed to team up with another student she hired and fought with her in court.  Even though this happened more than a decade ago, I still get angry when I think about it.  Recently I went back to China and heard on the news that a foreign capitalist was beating Chinese workers, and that also made me very angry.  I thought that this type of abuse rarely happens in a capitalist country like America, but now how could a socialist nation like China let it happen?  This chapter will detail my story of fighting against oppression.

To be continued!

Share This

This week has been an emotional roller coaster ride for all of us who have investments of any type.  It seems like nothing is safe haven for your money anymore.  Even if you hold your money in your mattress you would lose it due to the high inflation.  The scent of fear is really overwhelming in the air.  I have been really busy at work but I think everyone seems to be frustrated and sobered by what is happening.  It seems that every single day the government comes up with a new scheme to do something or the banks “inject” money into the system.  Here is what it really means and why we as individuals can only go with the flow.

American Dollars and much of modern money is based on a fiat system, which means that the money we earn is a type of credit declared by the United States government to be legal for paying back debts and buying things.  There is really nothing backing the money other than the word of the government.  Central banks around the world control much of the money systems and they can technically  create or destroy money at their whim because they do not need to produce anything to create money.  Since money is basically a legal instrument, banks and governments are intrinsically involved with each other.  It is actually really easy to conjure money out of thin air, all that needs to happen is for a government system to say so.  So when Paulson says that the financial system is sound, what he really means is, “Trust us, we will print more money and make people believe they have wealth to spend!”

The financial industry understands that they are not actually producing anything and they are just playing a giant numbers game so they have nothing to lose.  Afterall, banks are just trading promises between a variety of folks and I really think that intangible quality of money made a lot of people more irresponsible than they should have.  When the numbers game failed and promises were broken,  quite a few banks ended up with actual assets such as foreclosed homes, but most of them find these homes to be a liability because they don’t want to play with actual property, they just wanted to play with balance sheets.

Now money only has value when people are willing to accept it.  I could have a $100 yuan bill in America and people will probably treat it like a piece of garbage, but in China I could buy a bunch of groceries with it.  Why would a grocer in China accept a piece of paper that’s useless in America?  Is he daft? The fact of the matter is that we are all already too deep in this system where we accept a certain currency even though at its core it is just a piece of paper.  This is why the governments and banks want our trust.  They want us to believe that the money they are creating by the stroke of a pen is good and acceptable.  They want us to know that we can continue to work hard and produce goods and be compensated in ephemeral numbers.  They want to continue the game.

Money is an illusion, and I don’t even mean that in a metaphorical way.  It literally can be conjured up from thin air by those in power.  This is also why I’m not too worried about our financial markets.  As long as the banks and governments are in control, they will continue to tweak the game for their own survival.  So pick up an index fund and watch those little numbers swing up and down, but remember that it really means nothing until you have to use it and actually buy something tangible.  This may seem like you should spend everything and go in debt, but remember, most of us are not in power and we can’t make money magically appear.  Most of us still have to pay taxes and debt interest to those who control the global money game, and that can get very frustrating, but that’s life. Don’t worry about your portfolio too much and enjoy the sunshine and don’t be a workaholic because the time you have on this earth is more precious than a few numbers.  That’s all we can do.

Share This

So by now I am sure all of you know that Lehman Brothers has filed for bankruptcy and Bank of America purchase Merrill Lynch. Additionally, one of the largest insurance companies, AIG, is in deep financial trouble and was just bailed out by the government. In reaction to the news, the Dow Jones industrial plunged more than 500 points yesterday and regained more than 140 points today. It all sounds quite unsettling and volatile right now, but I really think bad things need to happen before things can get any better, and this is my reasoning.

First of all, I think most of us have had the experience of eating something horribly uncouth and falling ill. What usually happens is a bit of a stomach ache, and then full blown diarrhea, but once the last bit of toxin is out of your body you start to feel better. I think the financial markets is basically in the middle of a cathartic bowel movement right now. As many commentators have said, the debt and mortgage backed securities were “toxic” and these securities poisoned many firms and it is only natural that we’re seeing death and destruction. As a result, the more prudent firms are surviving and becoming stronger. For example, Bank of America has snapped up Countrywide and Merrill in the midst of this, and their position as a financial services company has been strengthened.

The problem I see with the current situation is the string of bailouts being handed out by the United States government. Last week it was the bailout of Fannie and Freddie, and today AIG just got an emergency $85 billion loan and the government will be receiving a 79.9% equity stake. This pretty much means that the United States government is now the largest insurer in the world. The problem with this is not only that the government is throwing good taxpayer money after bad, but that the United States is taking on enormous amounts of financial risk.  If the government left these companies alone and let them perish or be gobbled up by competitors, then the resolution to their failure might come quicker and the government will not have to borrow countless amounts of money that have to be paid off for decades.  Right now we are seeing policies that mirror the policies that possibly extended The Great Depression and that’s what’s truly frightening.

So in conclusion, I guess I am saying that 500 point stock market drops do not really bother me all that much because I am a long term investor, but these hundred-billion dollar bailouts are really disconcerting.  How many of these bailouts can we taxpayers really afford?  How many years will America be slave to its lenders?   It is hard to know the future, but Washington should really let the financial markets work itself out without prolonging the current pain.  I hope that people would remember what happened to lead up to the current financial crisis, and learn something from it, but unfortunately I think history  tends to repeat itself over and over again.

Share This