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					As we all know, the economy is in the dumps right now. How bad is it? Well,
the following headlines should pretty much sum things up:

                                              Aloha Airlines’ last flight, No.
                                              261, from Kahului , Maui to
  Aloha air goes                              Honolulu was on 30 Mar 2008.
 OUT OF BUSINESS                              1900 employees lose their jobs.
                                              There was no Government
                                              bailout for Aloha.
                                              There have been at least 30
                                              bank failures this year.
     BANK                                     Washington Mutual Bank's
                                              closure is the largest bank
   FAILURES                                   failure in US history. The
                                              government has taken over
                                              IndyMac Bank operations.
  DHL to close its                            Shipping giant DHL to cut
                                              9,500 jobs in downsizing U.S.
  domestic ground                             operation.
      hubs
                                              The U.S. government seized
                                              control of AIG -- one of the
   $85 Billion                                world's biggest insurers -- in an
                                              $85 billion deal to prevent a
    Bailout                                   collapse and the damage it
                                              would cause to our financial
                                              systems.
                                              The government pulled the plug
   The largest                                on Lehman Brothers, allowing
bankruptcy in U.S.                            the big investment bank to go
                                              under instead of giving it
     history                                  financial support.
                                              Citigroup let 17,000 people
Citigroup to lay                              go last year. The company
  off another                                 said it was gearing up for
     10,000                                   more job cuts and rate hikes
                                              for cardholders.
                                                IBM plans to lay-off 150,000
       IBM                                      people and bring them back as
                                                consultants or move the jobs to
     RUMORS                                     Asia.

Sun Microsystems                                The company's struggling
                                                software business causes Sun to
  lays off 6,000                                lay off approximately 18
    employees                                   percent of its workforce.
                                                The government takeover
The Fannie Mae                                  comes as the mortgage industry
                                                continues to deteriorate due to
and Freddie Mac                                 tightening credit and the
Bailout Is Official                             continued downturn in home
                                                values.
                                                The CEOs of Ford, General
  US Car Makers                                 Motors and Chrysler have
                                                begged Congress for a $25
 Plead for Bailout                              billion lifeline. So far, the
                                                request has been denied.
                                                The plan calls for the
                                                Government to spend up to
   Congress                                     $700 billion to buy distressed
                                                mortgages. If you are bullish on
approves $700                                   America, in the long run, there
  Billion Wall                                  is reason to hope that the tab
                                                will be less than $700 billion.
 Street Bailout                                 After the Treasury buys up
                                                those troubled mortgages, it will
                                                try to resell them to investors.
                                                This was the headline in the 1
                                                Dec 2008 newspaper as I’m
Hawaiian Tel Files                              writing this column. How in the
  Bankruptcy                                    world can my telephone and
                                                Internet Service Provider be
                                                broke?

Hundreds of stores plan to close after the Christmas Holidays. Nearly 40% of
all remaining U.S. businesses are poised to implement hiring freezes and/or
lay off workers. Most companies polled said that they planned budget cuts
across their entire organizations including wage freezes and smaller bonuses.
Job losses have already begun to mount, with employers slashing more than
240,000 positions in October causing the unemployment rate to hit 6.5%—its
highest level since March 1994.

How did we get into this mess? Is our country in a RECESSION? What is the
difference between a DOWNTURN, a RECESSION, and a DEPRESSION?
I will tell you what I think. We got into this mess because of personal and
corporation OVER SPENDING. When you spend more than you make and
when banks and mortgage companies give you more money than you can pay
back, there is going to be trouble. Most people in the United States have too
much credit card debt, too many expensive cars, too big of a house and not
enough money in the bank. When the price of housing took a dive downward
and people could no longer refinance their homes because their mortgage
was higher than the value of the home, things got bad in a hurry.

Here is how this mortgage mess came about. Back in the 1990’s, Fannie Mae
and other mortgage companies come under pressure from the Clinton
Administration to expand mortgage loans among low and moderate income
people and felt pressure from stock holders to maintain its phenomenal
growth in profits. Mortgage brokers were giving loans to almost anybody
who could make a minimum mortgage payment. This practice continued into
the mid 2000s. The mortgage and credit crisis was caused by a large number
of home owners unable to pay the mortgage as their low introductory rate
(sub-prime) or interest only mortgages reverted to regular interest rates and
regular principle plus interest loans.

Here is an example. A newly married couple finds a great new house that is
being sold for $300,000. They contact a mortgage broker who tells them that
they can get into that house on a first 5-year interest only loan where they
would only have to pay $1500 a month. They ask the broker about what’s
going to happen after five years when the regular interest plus principle rates
kicks in and the monthly mortgage payment goes up to $2400. He tells them
that the house is bound to go up in value and they could just refinance the
house to keep monthly payment low. This couple makes a combined income
of only about $40,000 a year, but they really want the house and they think
they can afford the monthly payments – so they buy the house. Well, five
years goes by and they seem to be getting along okay but then one day they
get a new mortgage bill for $2400. They call up their mortgage broker to see
if they can refinance and that’s when they get some more bad news – their
home is now worth $200,000 and they cannot refinance. They still owe the
mortgage company $300,000 and now they cannot afford the monthly
mortgage payments. What can this couple do? They have no money in the
bank, a large credit card debt, a huge SUV car payment, and two kids to
feed. This family’s only option was to walk away from their ―dream‖ home
and give it to the mortgage bank. This is called FORECLOSURE!! They will
have to find a place to rent. This situation is currently happening to
hundreds of thousands of these low-income home owners. What a shame! So
now the mortgage banks own all these empty houses and have no money
coming in. Result? You are seeing the result.

Before I tell you my ideas for fixing the economy, let’s clarify where we stand
at this point in time as far as being in a downturn, a recession, or a
depression. Look at the little chart at the top of this column and you will see
the downturn started in late 2006. Downturns and upturns are normal in
our economy business cycle but each event usually only lasts a short period of
time. A recession is a downturn or a significant decline in economic activity
spread across the economy that lasts more than a few months. A recession
has many attributes that can occur simultaneously and can include declines
in overall economic activity such as employment, investment, and corporate
profits. A severe or prolonged recession is referred to as an economic
depression. Although the distinction between a recession and a depression is
not clearly defined, it is often said that a decline in GDP of more than 10%
constitutes a depression. We are currently in a recession but if we remain in
a recession long enough, it could turn into a depression by the year 2011.

What can you, me, businesses, and the government do to get the economy
back on track? Are these government ―bailouts‖ for failing companies the
answer? Let’s face it - the government cannot bailout every failing company.
I agree with most of the bailouts so far because they address the root of the
problem – the millions of foreclosed and about to be foreclosed houses. I
usually don’t like to see ―big‖ government step in and tell us how to spend
our money but I’m going to make an exception in this case because it is
apparent that a lot of people cannot control their own spending habits. Here
are some more things that I think needs to be done:

Everybody in America cannot own a house. If you are lazy or have little or
no money, you cannot expect the government to help you buy a house. Banks
and mortgage lenders must ensure that you have enough income to make
your monthly house payments. I think the rule should be – you can’t buy a
house unless your monthly ―net‖ household income is at least 3 times the
monthly mortgage payment. I also think that these interest only and special
introductory interest rate mortgage loans should be outlawed. For current
home owners having trouble making their mortgage payments, banks and
mortgage companies must make every effort to reach an agreeable payment
schedule so owner can stay in the home. It does nobody any good if a house
is foreclosed and sits empty. We may need a special Government ―bailout‖
line of credit for some homeowners to accomplish this task.

The average person has too many credit cards and too much credit card
debt. Credit card interest rates are way too high and once the credit card
companies get their hooks into you, it is almost impossible to pay off your
credit card debt. I think that the Government needs to control credit card
interest rates at no more than 10 percent. I also think that if you can’t pay
your entire monthly credit card bill, your credit card should be suspended
until you do. Your bank, gas, and department store credit card limits should
not exceed the amount of money you have in the bank. People should be
encouraged to save more money and to stop spending more money than they
earn.
Most CEOs and company executives are paid way too much. Broke or
struggling company CEOs should not make millions of dollars in wages and
bonuses. Let’s take a closer look at GM, Ford, and Chrysler CEOs who
recently flew their company private jets to Washington D.C. to beg Congress
for $25 Billion bailout money. Yes, the big three Detroit car manufacturers
are broke!! But wait - let’s check the CEO pay for these companies. GM's
top CEO (Rick Wagoner) has received so far this year about $14 million
dollars including salary, bonuses, and restricted stock awards. Ford’s new
CEO Alan Mulally received $28 million dollars for just 4 months work.
Chrysler’s new CEO Robert Nardelli is silence about his pay but he did get
$210 million severance pay from his previous job at Home Depot. Hourly
wages and benefits for GM, Ford and Chrysler union workers are estimated
to be around $72.00 per hour. In 2007, both GM and Toyota sold about the
same number of cars (9.3 million) – GM lost $38 billion (-$4,055 per car) and
Toyota made $17 billion (+$1,874 per car). No wonder these companies are
going broke!! Something is wrong with the way our car makers are doing
business since other car manufacturers around the world are making money.

Since the auto industry accounts for one in 10 US jobs with the three
manufacturers employing 239,000 people directly and lot more than that
indirectly, it would be very bad for our country and our economy if one, two
or all of these companies go out of business. I don’t think that executives of
failing companies should be making more money than the President of
United States – in fact, some of these clowns should be fired. U.S. car makers
need to get CEO and executive salaries down to a reasonable level and then
re-structure and re-negotiate contracts with the union. They need to stop
making these giant gas-guzzling 8-cylinder SUVs and monster trucks. They
need to build smaller more gas efficient, electrical, or hydrogen fueled cars.
They need to be more progressive and reduce our country’s dependency on
mid-east oil. They need to take a closer look at the Toyota’s and
Volkswagen’s model for success.

President-elect Obama is smart (after all, he went to Punahou High School in
Honolulu) and he has some good ideas on how to create new jobs and how to
keep our current jobs in America. He is working on a plan to make the
necessary corrections in order to get the economy back on track. I wish him
all the luck in the world because he is going to need it. I predict that the year
2009 will be one of the worst years in our country’s history.

Did you see where the most looked up word on the Internet On-line
Dictionary is ―BAILOUT‖? Things must be pretty bad when ―BAILOUT‖ is
the year 2008 word of the year.



                           bigdrifter@aceweb.com

				
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posted:12/19/2011
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