EnduringSense

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Archive for the ‘Business’ Category

Good Debt, Bad Debt

Posted by Steve Markowitz on April 6, 2014

CoverJPGMy life has centered around an organ business started by my father over seven decades ago, an experience offering me a long-term perspective of business.  I have reflected why it survived, how it continued manufacturing in the US and also how it maintained a stable employment environment with more than 10 employees each having over 50 year’s tenure.  That stability went beyond a desire to maintain local employment and cannot be disconnected from a financial philosophy focusing on long-term goals, instead of short–term financial gains.  This led me to do what other aging Boomers have done, write a book.

Good Debt, Bad Debt and a Better Way Forwardoffers a company history starting with its leadership in analog sound technology, through introducing the world’s first digital music instrument, through today’s uniquely different (challenging) business environment.  It reviews a corporate history of being privately owned, then going public, and more recently being private again.  Throughout these changes there was a constant philosophy relating debt, a philosophy that has long been out of favor in business and within governmental organizations.

The book also places into context the problems within the financial services industry, its loss of ethical practices, which in part is derived from the industry’s promotion of debt for its profit.  Finally, I review how the use of leverage has damaged many industries.

Writing the book has been a cathartic travel.

Posted in Business | Tagged: , , | Leave a Comment »

Bailouts for Mortgagees: Here We Go Again

Posted by Steve Markowitz on March 25, 2010

When the President signed the healthcare reform bill this week he instituted historic changes to America’s healthcare system, about one sixth of the Country’s economy.  Anyone who thought that Obama and his Progressive friends in Congress were finished were dead-wrong.  Even before the ink was dry on the bill they are on to the next major realignment of capitalism.

The New York Times just reported that the Obama Administration will introduce a major initiative offering substantial assistance to those behind on their mortgages or even if they are merely underwater, owing more on the mortgages than the current value of the homes.  According to the Times, the program will include:

1. The government encouraging lenders to write down the loans.

2. The government repackaging millions of loans for borrowers whose home values have gone below the amounts owed on the mortgages.

3. Holders of the affected mortgages will be asked to take losses, but less than if foreclosures were forced to occur on the homes.  The newly repackaged loans will then be insured by the Federal Housing Administration; i.e. taxpayer guaranteed.

4. Lenders will be cajoled into reducing payments for unemployed workers for some period of time.

The Obama Administration’s wading into the mortage market with what is another bailout is a further march down a path that is destroying capitalism.  First, we bailed out the banks that created this mess in the first place.  Then we rewarded auto companies who produced cars that consumers did not want with a bailout.  And now we will bail out people who barrowed too much for houses they could not afford; yes others who helped create the housing bubble.

The bailouts are all justified by Progressives as saving us from far worse disasters.  This argument has proven fallacious by the fact that each bailout is succeeded by yet another one.  We are traveling down a slippery slope of never ending bailouts.  But, they will be forced to end at some time, unless you believe in perpetual motion.

When the government gives a bailout it can be funded in two ways.  Taxes can be used in which case the government charges the people who do not receive bailouts.  In other words the government taxes those who used prudent behavior to pay for those that were imprudent.  The alternative is to barrow funds and charge the next generation for this generation’s foolish behavior.  Neither choice can be morally or economically justified.

Capitalism, while imperfect, is the most efficient system for regulating a complex and dynamic economy.  It accomplishes efficiency by rewarding individuals who produce things of value; i.e. goods and services, better than others.  However, it is equally important that capitalism punish those that make poor decisions that are not productive, often referred to as the moral hazard.  Bailouts remove or lessen the punishment for bad decisions, leading not only to inefficiencies in the economy, but more significantly to more imprudent behavior by capitalist as the fear of the consequences of failure fades.  Without punishment, capitalism will not work, period.

President Obama is fully aware of the negative consequences of bailouts.  His continuance down the bailout trail can only be because of: 1) a lack of political courage to correct our economic problems that will require pain, or 2) because this trail leads to socialism, the Holy Grail for the Progressive movement.

Let us recall the words of Peggy Joseph shortly after Barrack Obama was elected (video below).  This was the young lady that with tears in her eyes said “I won’t have to worry about paying my mortgage” referring to the result of Obama’s election.  It seems Ms. Joseph understood the President-elect better than many who voted for him.

Posted in Bailouts, Business, Capitalism, Mortgages, Progressives | Tagged: , , , , , , , , , , , , | Leave a Comment »