(no subject)

[necessary]

A lot of people have been posting about bailout issues. Hell, it is essentially the most important thing happening in our world today.

As some background, one of the reasons that a great many people think government action is necessary is that the problem is potentially that bad. The issue, though, is what the problem is. I could actually blame it all on an accounting rule called "mark to market." But I think that's only part of it.

Mark to market essentially requires banks to list assets (loans) on their balance sheets at the value at which those assets could be sold. When subprime mortgages or other loans that depended in part on the ability to quickly flip collateral started to have repayment problems due to the realization that we jsut don't need that many houses, other banks started not wanting to buy those loans. Normally, one would think "well, then don't buy those loans." But then they bundled all sorts of loans together, split them up (so that anyone buying is actually buying a 100th of each loan or an interest in the pool of loans as a whole), and sold that. Now, each loan was no longer identifiable.

Thus, the problem started to be that there was no market for any type of loan. As demand to buy loans on the "secondary market" slacked, prices went down (look at your demand curves). When prices go down, each of the banks has to say taht their assets are worth less.

Now, we have shrinking assets on paper, even if there is no indication that the income streams and future value of those assets will not be the full amount they were previously valued at. On a blanace sheet, shrinking assets also means shrinking equity/capital: assets = liabilities + equity. When liabilities get to be more than assets, a company is deemed insolvent. bankrupt. on paper.

So, under the accounting rules, when no one wants to buy something for a short time because they're afraid of it, the business goes under, even if the business is not depending on the sale to stay afloat.

So, there's that. But what is the real problem that started all of it? And what's the problem that makes it so that the problems perpetuate?

I again come to value in value. I come to reality. And here's the kicker. Each of us is the problem.

I've had people say to me in the past week the following:

• that they are planning to stop paying their mortgage so that they can get a workout deal from the bank to pay the bank less, since the banks don't want to take a loss on the mortgage as a whole;
  
• that they are thinking about quitting working for a living, since it appears to be too hard to and then they have to pay taxes, so they might as well see if they can't get disabled somehow.

I know that there are people out there who have said, "where's my bailout?" I know that people continue to say that they are worth more, and have thought that they would also be willing to take too much money for doing a job, just because someone else also got that much money. I might be guilty of that one as well.

Here's the problem more commonly, via Calvin and Hobbes: http://gregmankiw.blogspot.com/2009/02/classic-calvin.html

So what do we do? Stop the thoughts of entitlement. Profit motive? Yes. Good. But stop trying to get away with something. It's not a race to win by getting the most stuff or having the highest number. Rather, it's a race to win by doing the best job you can, being honorable, living a good life.

I know some cowboys out there who might agree, and we know all sorts of people who live by this. But I don't hear people blaming others for it.

And really, others will only change if there's a stick to it. A great many people will only control those impulses when controlled by the scorn of society. And a loud, value based movement toward behavior based on value, responsilibity, and reality.

Yes, it all relates. See prior posts on the subject.