List of Previous Titles

Sunday, February 22, 2009

Too Much!


Greed is not Good!


I have an idea of how the United States, and the entire capitalist world has come to get itself into so much trouble. That doesn’t mean that I also have the solution to our problems. Far from it! If my theory of where things went so wrong is correct, making things go right will not be easy or instant.

I can sum it up in two words: Too Much!

I can tell my side of the story in five million words or just a few. I elect to take the latter approach, although the situation is as complex as it is simple. I will use just one bank as an example.

There was a time when our bank held few assets, say, 10 million dollars. Their customers asked them to invest their savings with the dual mandates of conserving the capital and providing a reasonable rate of interest. The bank said that it could do that, and it did because it could find enough blue chip companies to invest in.

Through its success more people came to trust it and its assets grew to more than 100 million dollars. As well, some of the bank’s customers asked for part of their money to be invested in safe situations, and part could go into something called “venture capital” where the returns could be much greater, but also the risks would have to be greater.

The bank had to enter into an investment market that was risky where the swings were wild in order to go after big gains. The more success they had the more money they were given to produce results. It is a truism that if we commit $1,000 to a new idea that pays off well we wish we had put $1,000,000 into it. So, the second time we get serious and the bank is given ever more money to manage. Now, finding the hot items that come up winners begins to get difficult.

This is the culture of greed, and as Gordon Greco said, “Greed is Good!” Not! Greed is what brought more than three million customers to Bernard Madoff and that let him alledgely swindle them of more than 50 billion dollars. It is said that he made-off with all that money by engaging in one of the oldest con games known to man. In among his distinguished clients are a long list of bankers who bloody well should have known better.

Now, let’s switch to the bank’s mortgage market. It does a moderate business in lending money to well vetted borrowers. Along comes a builder and asks that the bank back it in a small building programme. The project gets completed and the builder sells all the properties thereby returning five dollars for every dollar borrowed. So, the builder now wants to enter into a project that is massive and the bank is keen to back them. They repeat the first example, and everyone is happy.

Everybody also gets greedy, and they go again with a project that is huge and not well thought through. When it comes time to sell the units they find that well qualified buyers are few and far between, so they start to go out on the margins to pick up people who just might be able to handle a mortgage, and they give them a bigger mortgage than they should. The stage is set for an unavoidable collapse. When the collapse comes everybody is surprised, except the people who were active in promoting the disaster, but who enjoyed lots of commissions and bonuses along the way.

Ever heard of a 100% mortgage? This is where the buyers have no money at all to buy a home, so all concerned engineer the situation so that the bank gives the buyers all the money they need to sign on the dotted line. How do they do it? The bank’s assessor goes out to view the property, and if the buyer and seller have agreed on 100, the assessor increases the value to 120 and the bank then takes off the 20 as it’s margin of safety and gives 100. The hope is that the market will continue to rise and the buyer will pay on time, and all will be well.

What has happened is that we have built too much real estate inventory for which there are no buyers. The building boom has had to stop, and the person paying the mortgage has lost his job, and the bank has had to foreclose on a property whose value has fallen like a lead weight, and the bank has had to show losses which are then reflected in the value of it’s stock price, and the bank is unable to pay out money demanded by it’s savers who no longer have jobs and are consequently not able to pay any of their bills, etc, etc, etc.

We started with just one bank, but it’s easy to see how interlocked everything is, and the global financial system rises together and it falls together. No business or country is an island in the financial sense.

We have tried to do too much in too short a period of time. Now we see millions upon millions of people around the world losing their jobs with no prospects of finding anything other than whatever their governments can do to put them back to work. Government funded emergency jobs are intended as short-term opportunities. The private sector is where careers are made and entrepreneurship can flourish. This will be very difficult to accomplish.

The alarming thing about all of this is that the experts are suggesting that the answer to an economic comeback is more of the same.

Copyright © 2009 Eugene Carmichael

Sunday, February 15, 2009

The Happiest Couple in the World








Miguel and Maria

Miguel and Maria are our neighbours. He is a giant of a man, and Maria is as tiny as a fairy. She once had hair so long that it draped almost to the ground. As a result of living side by side with them, my family and I are all the more blessed. We may try to carefully pick the people alongside whom we live and interact on a daily basis, but sometimes it doesn’t quite work out. Of our four closest neighbours three range from good to very excellent. It’s best I make no comment regarding the fourth.

We have had the good fortune to observe, without being deliberate or intrusive a match apparently made in heaven between Miguel and Maria, for these two wonderful people personify the dream that we all have at the beginning of our marriages, that of having a special someone to spend the rest of our lives with; someone to grow old with in a life marked by peace, love and harmony.

I’m sure you have your own candidates to wear the title that I have given this piece. In our world of serial marriages or no-marriages, it’s important to look for examples of how it’s supposed to be. That is why I want to tell the story of this lovely couple because it is a good news story, one to lift our spirits, and it celebrates Saint Valentine’s Day so well.

Miguel and Maria have been married for 41 years, having tied the knot in 1968. Their story began in a time when Spain was a whole world apart from what it has become in these modern times.

Miguel was born in 1945 in a pueblo called Benelup Casas Vieja, located inland in the general vicinity of Cadiz on the South Coast of Spain. These were the days during the dictatorship and times were very hard indeed. Miguel remembers mostly the ever-present hunger and fear. It was hard to know which was worse. Those were the days where if you let slip the wrong word they would come for you and you were taken away and never heard from again. It was also a time when old scores were settled even though a person might have been entirely loyal to the government.

Sometimes the government agents didn’t even bother to take those chosen away, as in the time the soldiers came to his village and lined up a group of men who were suspected of being Communists. They were herded into a clearing and summarily shot to death, then set ablaze with petrol poured over their bodies.

Living conditions were not unlike those in Northern Africa. Houses were built in the round from clay and roofed with thatched grass. Naturally, all industry was agriculture based, but in spite of growing food the distribution was strictly controlled and that often led to the very people who grew the food being denied sufficient to feed their own families.

1960 was to be a turning point for both Miguel and Maria. That was the year that they met in the town of Manises, Valencia. Fate had brought Maria from Andalucia, and Miguel from Cadiz, and they have hardly been apart ever since. Somehow, they manage to share in most activities of every day and maintain a relationship that is evidently first and foremost, friends and soul mates.

Saint Valentine, the Patron Saint of all lovers, must surely have had in mind these two lovely people as examples for young folk to follow. They are proof that it is possible to make a success of marriage, and that the fairy tale of "happy ever after" can be true.



It is important to keep uppermost in one’s mind the fact that nothing comes easy, and if it’s something of great worth, it will require tenacity, determination to make it work, and the realization that life together is about sometimes giving and sometimes getting.

One more thing: we must first accept the fact that our family deserve our utmost respect. Seems like a simple enough statement, but how many of us accept that as fact? Respect, and loyalty among the family is the cement that bonds us together. Add genuine love to that and a promise not to provoke or hit, and all the elements will be in place for a long life together.


Happy St. Valentine’s Day, Everyone!

Copyright © 2009 Eugene Carmichael

Sunday, February 8, 2009

Theft on Wall Street ?


Rewarding Incompetence?


Many banks, both traditional and investment found themselves in a great deal of trouble to the extent that if the US Government had not come forth with a whole lot of money to bail them out, they would have become bankrupt. Then, it was discovered that at the end of the year the executives awarded themselves and their staffs some 18 billion dollars in bonuses.

CNN asked their viewers whether they thought that this was correct, or whether these bonus payments must be returned? That opened a floodgate of responses and among them there was not one "No" to be found.

President Obama upon hearing the news said that he thought the practise was “shameful!”

“Bonus: An unsought or extra benefit. A seasonal gratuity to employees beyond their normal pay. An extra dividend or issue paid to the shareholders of a company. A distribution of profits to holders of an insurance policy. Bonus: a good thing.”

Those are the descriptions of a bonus given by the Oxford Dictionary.

In my working lifetime I have been a recipient of the year-end bonus at Christmas that was well appreciated. It happened only in those years where we exceeded profit projections and was given as a part of the extra profit and an incentive for us to repeat our performance the following year. In those years where we came in on profit target, or below expectations there was no bonus, for there was no basis on which to award one. We all understood!

So, considering that the 18 billion dollars was given out by companies that were about to fall off the edge into bankruptcy begs the question: how can a bonus be justified? Especially in the light of those companies receiving taxpayer’s dollars to fund such preposterous spending, it seems to me that quite possibly a crime of theft may have been committed.

One CEO of a bank is reputed to have said that if he doesn’t pay his best people well they will leave. He seems to be talking about the very people who got his bank into the mess that it’s in, so not only should they leave, they should be fired! They certainly should not be rewarded.

If President Obama has said that in his opinion what has taken place is shameful, we can be sure that he is directing the Justice Department to look into whether it was also illegal. What America needs is for everyone to be at the head of the line pulling one way to get itself out of the mire that it is in. The example of some people doing things that are counterproductive is like having them on the opposite side pulling backwards, and that simply just cannot be tolerated. What a tough job the President has taken on!

Copyright © 2009 Eugene Carmichael

Sunday, February 1, 2009

Waiting to be Fired



Waiting to be Fired

I am a retired person who wonders what life for me would be like were I gainfully employed. How would I feel if my work was in an industry that was susceptible to recessionary or depressionary forces? Being retired doesn’t make me exempt. If anything it’s probably a worse situation because I am at an age which is beyond me being hired even if there was work.

I imagine that were I an employee of any one of the industries at risk, and that includes most, I would find it very difficult to concentrate on my work. Most people give in to temptation and mortgage their future paycheques because that is how we live. The stress levels among employees must be sky high, and that does nothing to improve job performance.

I was seriously affected by the very recent news story of a couple in America who both worked at an hospital, and were both laid off. They had a family of five children, and I suppose they had completely run out of money and hope. The man first shot his wife as she slept, then systemically went to each child and shot him or her dead, and then turned the gun on himself.

That’s not the first time in recent memory that has happened, and unfortunately I think it will happen in the future many times. In America, where guns are so easily obtainable, and in these impossible times it really is a very easy way out. A final solution! As I write this I am getting goose bumps, but I really do think that it will be part of the cost of the disaster that the American economy is going through.

I am a professional accountant, and in that capacity I worked as a manager of proprietry insurance companies. My clients were Fortune 500 companies and the work we did for them was vital in controlling their losses, so I think perhaps I may have been secure for some time to come. Some businesses are recessionary proof, such as undertakers, doctors and other branches of the medical world, and insurance, among others.

What happens in times like these, which are unprecedented? Firstly, it seems that every company of substance are announcing layoffs by the thousands. In America, during the last three or four months of 2008 layoffs totalling more than 2.6 million were announced. That means major companies, so we have to guesstimate a number in addition to those for small companies that have gone out of business. And it continues in the present! These are not just numbers. They are the loss of dreams, ambitions, hope, and of course, private education, homes, cars, etc.

If you are enrolled in a social insurance programme that pays loss of job benefits for a period that will give you a cushion while you frantically search for something else. However, when all around you are downsizing the sense of depression and outright fear must be overwhelming.

There are some people who actually try to live within their means. By that I mean that if they don’t have the cash for it, they don’t buy it. Businesses think that this is a ridiculous way to conduct one’s affairs. We get credit cards filling our mailboxes, and all sorts of tempting offers to go into debt. Business needs for us to spend today and not worry about the long-term, because in the long-term we are all dead. It’s that type of thinking that has got the world in so much ca-ca.

The banks are saying that they cannot loan any more money. Well, that’s the way we have been doing business and without credit we all go back to basics. Can we do that? Haven’t we come too far to go back? The talk is about re-building, but on what basis. We surely can’t re-build on the same sandy patch as we did before. Our house will simply fall down again. So, what’s the answer?

The cold hard situation is that no-one knows anything, and that’s enough to chill me to the bone. So, those who opt to take the, admittedly cold hard way out just won’t be around to see how it all turns out. Personally, I’d like to live to be one hundred, or at least long enough to see whether President Barack Obama can make any difference at all. I know that he is determined to do so, but remember, no-one knows anything!


Copyright © 2009 Eugene Carmichael