Wednesday, September 14, 2011

Jobs, jobs, money, jobs

Here it comes, another bill to create jobs and save the economy.  Corporate banks and really dumb insurance companies destroy the economy, devastate the job scene, and wreak havoc on our dollar's value in the global economy - all while tearing apart our country's AAA credit rating.  Our government's response over and over and over again?  Let's use taxpayer money to pay for their mistakes.  Interesting approach.  Let's look at this deeper and we might get an understanding of how this policy became the go-to strategy.


In order to understand what is happening, we have to look at a concept known as Politico-economics.  This is something that I have not seen a lot of people talk about but I believe that this is the only way to explain what we are seeing right now.  It is what it sounds like:  The influence of politics on economics, and vice-versa.  Let me explain, because it sounds like a migraine when you first look at it.

In our current situation, we had a political decision made in the 90's.  This decision was an attempt to get more people to own houses.  Not a bad goal and I truly believe that the bill was passed with good intentions.  It essentially gave incentives to free up credit for people who's credit was not perfect.  This section of people (called "sub-prime") was not necessarily poor, they just had some trouble at one point in time with paying bills on time.  The idea was to get companies to lend to more people and then more people could buy homes, driving the price of real estate up.  This is where the economics of it come in.  Companies started lending to more and more people.  These mortgages were earning good interest rates (for the lenders) over long periods of time (30 years or sometimes even more).  In the end, a $100,000 house would cost a person $250,000 (not necessarily a real number, but these guys were making some serious cash - I know from my own experience during this craze).  This is a huge profit margin (150%) and could be used to get the money back in the pocket of the bank to lend more money.  They did this by selling the mortgage to other companies who happened to want the steady monthly income for $150,000 - $200,000 a pop.  Because of the profit margin on these, more and more companies (mostly investment banks) wanted more and more of these mortgages.  Lenders started packaging hundreds and eventually thousands of these "sub-prime" loans together and selling them.  The insurance companies (especially one that won't be named but has three letters and starts with "AIG") saw all the money being made and wanted to get in on the action.  So, they insured these sub-prime mortgages.  Basically, if the lendee (the person receiving the loan) defaulted on the loan, the insurance company would pay for the default.  This freed up the lenders to make more and more loans because they no longer had to worry about if the person could pay or not.  So, on it went.  Credit was flowing free and the economy was growing at record rates.

The Crash

Then, the exact thing that everyone said would never happen but the financial world knew that it would be detrimental if it did, happened.  The prices of houses collapsed.  People who could afford the "teaser rate" (the initial rate given out to sub-prime lendees) could not afford the regular rate.  Or the people that couldn't afford the "balloon" (a system in which the payment stays low for a while, but gets expensive after a set period of time) were struggling when it came around.  Whatever it was, people couldn't afford their payments.  When those same people couldn't sell the house, they had no choice but to default.  At first, the lenders weren't concerned.  It wasn't their problem.  The insurance companies were the ones taking the hit.  Lenders kept lending.  The insurance companies were taking quite a loss and said they couldn't insure the loans any more.  The lenders racked up massive losses on sub-prime mortgages that they could no longer sell.  The companies who were buying those loans were collapsing under the strain of these things they purchased that were now worth nothing.  At the same time, their share prices were dropping to next to nothing.  In essence, their multi-million (some of them billion) dollar companies were now worth about as much as my checking account right now - nothing.

In September 2008, the credit markets froze.  No one had money to lend, and investors were pulling out left and right.  The financial came as close to collapse as it had ever been.  Without action, a system that was producing $14 trillion per year was about to no longer exist.  The next steps where driven by politico-economics.  We (the United States taxpayer) bailed out the financial system.  We (everyone who lost their house, job, lives) took the brunt of the screw-ups of others.  The government had to have a response.  That response was TARP.  Most everyone has a good idea of everything that happened between then and now (although I may talk about that in a future post).


Now, 3 years later, we still haven't recovered.  President Obama took over in an economic situation that was awful.  He is now facing another election in a year, and the latest polls show that 58% of people don't feel like they are in a better position now than they were at the worst of the economy problems.  It is tough to get re-elected in that environment.  So, we go back to politico-economics.  Try to use the politics to drive  the economy.  We propose a bill to create jobs in the short-term so we can get re-elected.  Trying to make a long-term economic plan is almost impossible because our politicians are so focused on the next election.  We are spending money we don't have to pay for jobs that we won't sustain.  But, our economy will see relief for a couple of years.  Just enough time to get re-elected.  For some people, that couple of years will be a much-needed respite from a nightmare that has crushed everything they worked for.  I am not saying that is a bad thing.  But at the same time, can we continue to afford to put short-term bandaids on a long-term problem?  The President says that this jobs bill is already paid for.  That is not true.  If it were true, then how come we still have a $1.5 trillion deficit?  Shuffling money around is not the same as paying for something.  That mentality is how we ended up here in the first place.

In the end, I still wonder how it is that we haven't put the economic bill on the companies that caused the problem.  We don't want to hit them with the entire bill all at once, but we just need to let them know that the money we have spent on stabilizing them is now considered a sub-prime mortgage.  They need to make the payments, or we, as taxpayers, can foreclose.  I would love to see a politician who has the guts to get that done.  That would be the "Change I Believe In".

Monday, September 5, 2011

The Defense

Hello Everyone,

Thank you all for your patience as I work through everything going on.  I hope to be on here more, but it seems like every time I sit down, something else happens.  So, here I am about to talk about my next topic - something that's on everyone's mind right now - at least those of us in the military.

What is and What Should Never Be

For those that don't know, Congress is proposing packages that are aimed at taking away benefits from us military folks to try to reduce our country's insane spending habits.  It is a process that seems hazardous at best and detrimental at worst.  To understand what is going on and what it means, we must start with perceptions and realities.

Perception 1.  The military budget is ridiculously huge and the wars in Iraq and Afghanistan are going to break this country financially.  It seems like politicians in the last few years have been throwing out a lot of stats talking about the military budget.  Gigantic numbers are being used, and tactics like talking about how much the military spent on a hammer are trying to change public perception on how those tax dollars are being spent.  Many politicians have tried to blame the military budget for our deficit spending.

Reality 1.  The military budget is huge.  We do sometimes spend money on stupid stuff.  There are inefficiencies and things we could do better.  The reality is, though, that when you put it in perspective, the military budget is not what is breaking this country.  For those of you who read my "Your Kids are in Danger" post, you know that we are talking numbers that are ridiculous.  Like along the lines of $120 trillion ridiculous.  The military budget yearly is $600 billion right now.  When the obligations we have coming up come due (2050), SSI, Medicaid, and Medicare will cost us about $1.4 trillion (inflation not taken into account).  That is the annual projected budget for health care spending (according to the Congressional Budget Office).  By 2082, it will be half of this country's annual budget.  The military budget is pretty steady, and does not move that much.  There are no projections for it becoming half of our budget at any time.

Perception 2.  The retirement system in the military is broken and unfair and that's where the real spending is.  I have heard this come out a couple of times, and I cannot believe that anyone is saying it, much less listening.

Reality 2.  We spend approximately $50 billion per year on paying our retirees, and this includes those that were medically retired after being injured in the service.  I don't know how that is causing all of our budgeting problems, but someone seems to believe it.  Even with VA plugged in there, we spend $389 billion total.  Not exactly a deal breaker here.

Perception 3.  The current retirement system is unfair and changing it wouldn't change accession or retention rates.  This is where we get into what should never be.

Reality Bites

Congress is considering ways they can save money.  That is a good thing.  We need to be in that mindset if our country is to survive.  We are looking to save money in the military.  That is a good thing as well.  We do have ways we could improve systems, make things easier, and save money all at the same time.  We are looking to save money by taking benefits from those who protect us.  Now there are issues.

Reality 3.  The current retirement system is amazing.  There is not a single person that I have met inside the military that in any way thinks it's unfair.  Many people who sign up stay in because of retirement.  We retain most of our experience and senior leadership because to the retirement.  Take that away, and we have no incentive to stay in more than a couple of years.

For example:  Say I am a fairly intelligent 18 year old kid who has no idea what I want from my future.  I sign up for a 6 year contract with the Air Force.  I go in as a RF Transmissions technician (I use this because I know that career path intimately - there are other career fields that end up getting you more).  In less than a year, I have gained basic technical skills on equipment.  In 2 years, I have a pretty good working knowledge on equipment and could work on it by myself.  If I am a good study, then I could make my way into lower management by 4 years.  I could easily have an associates degree by then.  By the time I have finished my 6 year enlistment, I have a bachelor's degree.  I have 2 years of management experience.  I am a technical expert on several types of equipment.  I have a security clearance.  I could get out and get a job working with a company making 6 digits per year doing the same job I was doing in the military.  So what is keeping me in if our retirement system doesn't reward me for staying?

The legislation that is currently on the table is trying to set us up on a 401k type plan where the military matches a certain amount of money that I put in.  This makes it so that if I do my enlistment, I can get out without retiring, and transfer my retirement benefits to wherever I go.  No reward for staying in until 20 years any more.

Also, when I ask new Airmen why they joined, I get one of three answers (the first two only if they are single):  1. Retirement.  2. Education.  3. Health Care.

The bill they are proposing wants to change retirement and education.  The single people coming in don't care about health care.  So, why join if you are straight out of high school?  The education benefit they are proposing will still be better than 90% of what is out there.  The retirement benefit is decent and probably better than other ones you would get right out of high school.  But there is one question that will destroy all of those arguments.

The Final Debate

Those reading this may just think that I am upset about my benefits being taken away (which probably won't happen - there is discussion about "grandfathering").  They may think that I just want to cause a ruckus.  But those who have been reading me for a while know that I just want to make sure that we are doing the right thing.  I want to ensure that our military that protects our great country is able to be as big as needed and as well-equipped as necessary.  So, with that, I have a question:

The benefits they are proposing are decent, but are they worth risking my life for?  The reason we need to keep the big benefits is because the military is riskiest job on the planet.  Even if you aren't killed or wounded, you have the stress of watching your buddies fall in combat.  Or you may not see combat, but you must have your bags packed and ready to go see that combat.  They could come to me today and tell me they need me to go halfway across the world to fight an enemy we barely understand.  They could tell me that they don't know when I'll be coming back.  And they could tell me that I'm leaving tonight.  That has it's own kind of stress.  I have worked 72 hours straight with almost no sleep.  I have seen people who were coming back with some intense injuries.  Not every military experience is the same, but there is a great deal of stress no matter where you go in the military.  And it is a stress that is not associated with any other job.  If you want to get people into that and retain those same people in that environment, then you better offer some good incentives.

This proposal has the potential to really mess up the way the military operates.  I don't know exactly if it will completely cause problems or if it will just be minor disruptor.  I think that it will cause some major issues with accession and retention.  Not only that, but there are definitely many other areas we need to look at to save money before we take from the ones defending our country.  There is much more money to be saved in other areas.  If we can't find a way to get a long-term view for policies, then there will be some major issues ahead.

At least now, we are having a conversation, and that's a step.