Dave and Blarney Discuss the Bailout

Blarney: Well, the Senate is acting where the House flopped.

Dave: You mean because they passed a bailout bill?

Blarney: Exactly. Now if only those stubborn Republicans in the House will get on board.

Dave: Blarney, can I ask you a few questions?

Blarney: I suppose so.

Dave: Does this bill have anything to do with money?

Blarney: It has everything to do with money.

Dave: Does it have anything to do with raising revenues?

Blarney: Well, it does address taxes.

Dave: According to the Constitution, where do bills about revenue originate?

Blarney: Well, everyone knows that: the House of Representatives.

Dave: So, you don’t have a problem with Senate originating this bill?

Blarney: Oh, but it originated in the House.

Dave: But the House killed it.

Blarney: No, they didn’t. They suspended the vote before it was final. That allows the Senate to modify it.

Dave: That seems a little sneaky, doesn’t it? By the way, how many votes would it take to pass the bill in the House?

Blarney: Everybody knows that, too. With 434 or 435 members, it takes 218 votes to be a majority.

Dave: How many “No” votes were there in the House?

Blarney: Er, ah, 228.

Dave: Sounds to me that it failed.

Blarney: No, no, the vote was suspended. That was to give the Republicans time to change their minds.

Dave: How many Democrats are in the House?

Blarney: Uh, I don’t know. Maybe a couple hundred?

Dave: Would you believe, 235? If the Democrats think this is such a great bill, they could pass it all by themselves.

Blarney: But that wouldn’t be fair.

Dave: So 95 Democrats voted against the bill just to be fair?

Blarney: well, …

McCain, Obama, and the "Credit Crisis"

OK. Let's review the bidding.
1977 - Jimmuh Cahtuh and the Community Reinvestment Act (CRA) - Encourage banks to make loans to risky clients.
Enter ACORN

ACORN is a non-profit, non-partisan social justice organization with national
headquarters in New York, New Orleans and Washington, D.C. To maintain
independence, ACORN does not accept government funding and is not tax exempt.

Since 1970 ACORN ( Association of [originally Arkansas] Community Organizations for Reform Now) has been pressuring banks to make loans to high-risk clients. In 1990, they launched the first challenge to block a merger based on non-compliance with CRA.

2004 - Republicans want to investigate Freddie Mac and Fannie Mae. Democrats oppose.

2008 - The bad loans begin to default. Freddie and Fannie hold a huge portfolio of bad paper.

2008 - President Bush, Pelosi, Reid, etc (including both McCain and Obama) push for a $700 billion bailout which is widely opposed by Main Street America. It fails in the House and the finger-pointing begins. McCain calls it a failure to act. Congress did act. They REJECTED the bailout, as the majority of Americans wanted them to. It was Bi-Partisan, with nearly 100 Democrats voting against it. Even ACORN opposed the bailout, even though a staggering amount of the funds would have gone to ACORN (in direct opposition to their statement above).

2008-Sep 29 - The market (Dow Jones Average) falls over 770 points in one day, the largest single point loss in history. As a percentage of the Dow, however, it is about 6.5% and would not make the list of the ten largest drops.

2008-Sep-30 - The market rebounds with the Dow gaining 485 points. Meanwhile, the media and the political talking heads decry the tragedy of not getting the bailout pushed through.

Let's see what happens tomorrow. And visit here for more information.

Tax Cuts For the Rich

Local politics is pretty interesting. It is a microcosm of the national politics. One contestant for Governor complains that the incumbent raised taxes in spite of a pledge to lower them.

What is interesting about this to me, is that she is from the "No Tax Cuts for the Rich" party. The governor did, in fact, lower income taxes. He raised property taxes. Now, income taxes are taxes on the working families of Alabama. Property taxes are taxes on the people who own property. Normally, that would be the "rich". So we have a tax increase on the rich and a tax decrease on working families and the Democrats are upset by it. Aren't they supposed to be the ones in favor of helping the poor working class?

And then there is John Kerry. He thinks President Bush should apologize to the troops in Iraq. The troops think Kerry owes them an apology. You have probably seen the picture of the sign "Halp us Jon Carry, we r stuk in Irak"

Tomorrow we vote.

Things to Ponder

I was going to do a Dave and Blarney, but right now I am just in a random musing kind of mood. This post was triggered by something I heard on the radio. The weather forecaster said something about the "normal" rainfall for this time of year. Followed by a remark about the temperature being "higher than average" for this time of year. For some reason, I actually thought about what he said, instead of just filing it away in the recesses of my mind.

What exactly, is "normal" and "average"? Well, if you followed the links you see that one definition of "normal" is "average". And of course, you know that to determine an average, you add all the values and divide by the number of values (that, strictly speaking is the mean as opposed to the median). Anyway, the whole concept of mean and median is that some values are above and some values are below. That is, on any given day, the high temperature is either higher than, equal to, or less than the "average" high for that day. And this is somehow "news"?

That set me off on another silly phrase: "trade deficit". Or "balance of trade". The whole concept of "trade" as opposed to "theft" is that I give you something I value less than the item you have if (and only if) you value my item more than the one you already have. In any other instance, one or the other of us would have to resort to force, the threat of force, or deception. The whole concept of trade is that both parties are satisfied with the outcome. So then, how can you have a "trade deficit"?

Of course, what is usually meant is that we are buying more things than we are selling. In that regard, I have a deficit of trade with Wal-Mart. They have yet to buy anything from me (with the possible exceptions of items I returned because I already had one or wanted something else). And yet, I am not deprived. My stuff has increased. Stuff has value. I traded my money for it.

OK, that's all for now.

What is a Fair Tax?

Critics of both the Flat Tax and the Fair Tax seem to think both are unfair. Mainly they think they are unfair because the "rich" should pay more than anyone else. But on the other hand, the poor should "contribute something".

Generally, the critics support either no tax at all (good luck with that), or a graduated tax like we have now. Some people refer to this as a "progressive" tax. And it is. Not that it fosters any kind of progress, but because the rate progresses from low to high the more taxable income a person has.

And for the liberal, that is as it should be. What escapes their thinking is that under either system, the really poor get to keep all they earn, and the more a person earns, the more he pays in taxes.

Let's say that we have a flat tax of 15%. Let's further say that every person living in a household gets to exempt $10,000 from taxation. So then, a family of four earning $40,000 would pay zero (0%) tax. A family of four earning $80,000 would pay $6,000 (7.5%) in taxes. A family of four earning $2,000,000 would pay $294,000 (14.7%) in taxes. Notice that the percentage is graduated even under a flat tax.

Sounds fair to me, but the rub is that the first family only winds up with $40,000, the second family winds up with $74,000 and the third family winds up with $1,706,000. To the liberal, that is grossly unfair. Never mind that the third family probably employs a staff and so contributes to their well-being also. Never mind either, what amount of productivity each family has. Only equality of results matter to the communist - er, socialist - er, liberal.

Walter Williams focuses on a different fix: Limit spending to 10% of GDP. (Good luck with that, too.)

About taxes again

Received the following poem from the Heirborn Ranger. He says he did not originate it, but got it from Dick Sauer who got it from Hank Barlas who got it from Bill Hefner. It is probably in the public domain by now.

Tax his land, tax his wage,
Tax his bed in which he lays.
Tax his tractor, tax his mule,
Teach him taxes is the rule.

Tax his cow, tax his goat,
Tax his pants, tax his coat.
Tax his ties, tax his shirts,
Tax his work, tax his dirt.

Tax his tobacco, tax his drink,
Tax him if he tries to think.
Tax his booze, tax his beers,
If he cries, tax his tears.

Tax his bills, tax his gas,
Tax his notes, tax his cash.
Tax him good and let him know
That after taxes, he has no dough.

If he hollers, tax him more,
Tax him until he's good and sore.
Tax his coffin, tax his grave,
Tax the sod in which he lays.

Put these words upon his tomb,
"Taxes drove me to my doom!"
And when he's gone, we won't relax,
We'll still be after the inheritance TAX

You might want to contact your "Congress Critter" (tip to Ms Right Wing) about supporting either the flat tax or the fair tax.

My personal favorite has become the fair tax, which

Abolishes the IRS

Closes all tax loopholes and brings fairness to taxation

Maintains our current Social Security and Medicare benefits

Brings transparency and accountability to tax policy

Allows American products to compete fairly

Reimburses the tax on purchases of basic necessities

Enables retirees to keep their entire pension

Enables workers to keep their entire paycheck
However, some folks disagree. I report, you decide.

Mortgages Clarified (?)

Here is a typical amortization schedule:

Monthly	Remaining	Principal	Interest
Payment	Owed	Paid	Paid
$0	$100,000	$0	$0
$599	$99,900	$99	$500
$599	$99,800	$100	$500
$599	$99,700	$100	$499
$599	$99,599	$101	$498
$599	$99,497	$101	$498
$599	$99,395	$102	$497
$599	$99,293	$102	$497
$599	$99,190	$103	$496
$599	$99,086	$103	$496
$599	$98,982	$104	$495
$599	$98,877	$104	$495
$599	$98,772	$105	$494

Notice that you could double up payment 1 and Payment 2 by simply adding $100 to payment 1. Adding another $101 to payment 2 takes care of payments 3 and 4.
Adding $102 to payment 3 takes care of payments 5 and 6.
and so on. In fact, you could simply add $105 to the payment for six months to knock six payments off the end of the mortgage. You invest $1,260 to save $3,594.

You can add principal at any time, without making any special arrangements with the mortgage company.

About Monthly Payments

This may prove useful in discussions with your children about money. Let's allow me some license with my early figures. Say you find clothing on sale for 20% off. Say further that you decide to buy $1,250 of clothing for the amazingly low price of only $1,000. Whether or not that is a good deal depends on where the $1,000 originated.

For the sake of argument, let's assume that your monthly discretionary income is exactly $1,000. If the money you spent on clothes came from that, no harm, no foul - unless you want to buy something else this month. Suppose you had other things you wanted to buy. Reach for that handy store charge card and we'll pay for it next month - out of next month's discretionary income. Aye, there's the rub.

In this scenario, you have just obligated income that you don't have yet. You have just guaranteed that you have NO discretionary income next month, because you have already obligated it. You spent next month's income before it actually came in. Now, if you control your spending and your income continues, no harm, no foul. After next month, you will return to having discretionary income. Suppose you had a sudden illness (like a heart attack, maybe) that stopped your income. You now have to pay money that you don't have. Of course, things like that probably won't happen.

What is more likely is that you will find something you want to buy next month as well. But you owe that pesky $1,000. Well, lookie here: The nice store will let you pay less than the $1,000, so you can still buy something next month. As long as you pay the minimum payment, everyone is happy and you still got a great deal on those clothes. Ya think?

I was going to give the name of a nationally known clothing store, but decided against it. The following figures are taken from an actual revolving credit account: Minimum Finance Charge per Month = $1. This rarely comes in to play, but if the finance charge computed to less than $1, they will still charge you $1. The reason that rarely happens is the Annual Percentage Rate is 22.8%. The only way the finance charge would calculate to less than $1 is if your balance were only $4.38. Update: Finance charge is $1 when the balance is $52.63. (Sorry for any confusion.) The minimum monthly payment works out to 5% of the outstanding balance, or $50 the first month.

You figure you can live with only $950 in discretionary income, so you decide to pay $50 a month until the balance is zero. You can verify these figures in any spreadsheet. Simply add the interest (22.8% / 12) per month and subtract $50 until the balance is zero. In a mere 26 months, you will have achieved your goal. You will have paid a total of $1,270.08 (that, by the way, is $20 more than the non-sale price of the items). But you can do better. The minimum monthly payment for balances under $200 is $10. Suppose you paid only the actual minimum payments. In a mere 76 months (that is six years and four months for those without a calculator), you would have paid a total of $1,532.98 for the $1,250 worth of merchandise that you charged for $1,000.

Let's say you decide to devote 10% of your discretionary income to paying this bill. After paying $100 for 11 months, you would owe $20.35. You pay that in the 12th month and in a mere year you have paid $1,120.35 for the items.

By now, I hope you get the idea. Those monthly payments can add up to quite a bit. That's why the car commercials no longer tell you what you will actually pay for the car, they tell you what your MONTHLY PAYMENT will be. That's why the "interest only" mortgages emphasize the amount you "save" each month over a conventional mortgage. Never mind that a conventional mortgage will eventually have a zero balance, while the interest only loan will always have the intial balance.

Oh, on the subject of mortgages (or any long-term loan), you can cut the number of payments (and therefore the amount you actually pay) substantially by making double payments early in the loan. You have an $800 mortgage and you are thinking "I can't pay $1,600 on this note each month". You don't have to. Look at your amortization schedule. You are probably only getting $150 of that $800 applied to principal. To double the payment, you simply include an extra $150 (Total of $950 in our example) with your normal payment.

Or, you could calculate what the payments would be for a 15-year instead of a 30-year mortgage. For example a $100,000 mortgage at 6% would have payments of $599.55 (principal and interest) for a 30-year mortgage and $843.86 (principal and interest) for a 15-year mortgage. The 30-year motgage will cost $215,838.19 and the 15-year one will cost $151,894.23. You do the math.

So THAT's Economics

For those of you (like me) who struggled through economics in college - wondering why it was a required course - let me recommend two excellent books on the subject: Basic Economics: A Citizen's Guide to the Economy, and Applied Economics: Thinking Beyond Stage One, both by Thomas Sowell.

I wish my professors had been able to put the definition ("The study of allocating scarce resources that have alternative uses") and principles (starting with the role of prices) of economics so succinctly. Mr. Sowell not only makes economics understandable, he makes it almost fun. You will enjoy his many expanations of why high-minded policies for example, rent control) result in unintended consequences (like a shortage of affordable living space in New York and San Francisco).

Realizing that the incentives created by public policy trump the intentions of that policy, helps explain many apparent anomalies, like how lower taxes (wthin bounds) generate higher income to the government, or how wage and price controls contribute to a shortages and long lines. Why a centrally planned economy cannot match the efficiency of a market economy (We all saw the demonstrations of that in Russia, but some think it was the conduct of planning, rather than the idea of planning that was the problem).

About Those Taxes

Yesterday I read an editorial talking about taxes and why we should change the tax code to make it simpler. So far, so good. Then they proceeded to complain about a flat tax and a tax on consumption as being unfair to the poor. They almost echoed the "tax cuts for the rich" screed of the Democrats. They actually said that a flat tax would hit the poor more than the rich. And they said it with a straight face.

During the Presidential campaign, I kept waiting for the Republicans to interject a little sanity to the discussion, but it never happened. Rich and poor are generic terms, but they are descriptive of what people have. The only tax that is determined by what you own is a property tax. The discussion was about income tax, which taxes what you earn, not what you have. Moving from an income tax to a tax on consumption would be a dramatic shift in tax policy and, since it taxes what you spend, not what you have or what you earn, could hit poor people harder than rich people.

But let's look for a minute at the flat tax. It would have some level of income at which the tax kicks in (let's say $20,000 for a family) and some rate at which all income above the threshold would be taxed (let's say 15%). So, here is the low income family, scraping by on $20,000. Zero percent of the income goes to taxes. Or let's look at a family earning $50,000. They would pay $4,500 or 9% of their income on taxes. How about the really productive family earning $300,000? They would pay $42,000 or 14% of their income in taxes. Notice that for those three families, the one earning $300,000 pays in 90.32% of all taxes, the medium income family pays in 9.68% of all taxes, and the low income family pays no tax at all. Does anyone really think that this system favors the rich over the poor?

Obviously, this is a simple example. How do we establish the income below which you get a free ride? How about $10,000 per wage earner and $5,000 per non wage earner in a household?
what do you think?