My Unanswered Letter

Below is a letter I wrote to an Illinois Senator. I wrote it on Saturday, November 1st, a mere three days before the Presidential Election. I wrote it to vent. In fact, this letter is the genesis for this website. To I'm sure nobody's surprise, I received no answer. Perhaps it's because, there is no answer.

The letter is my attempt to simplify economics, to personalize it so that people see the very real ramifications of "distribution of wealth". At first glance, you might say, "he's bluffing". I'm not bluffing. These are the measures I now need to take. And make no mistake about it, another government program, stimulus, tax, subsidy, you-name-it will result to deal with the ramifications about which I speak. It is inevitable. Simply read history.

Letter to an Illinois Senator on 11/1/08. A few words have been changed to protect the innocent.

Dear Senator,

My name is Brian King. I am the founder and owner of a small business in Chicago, Illinois. It is structured as an S-Corporation, which as you know, means that the Net Revenues of the company “flow through” to my 1040 Tax Return. Keep in mind, I don’t treat these revenues as “my money”. I view them as corporate holdings for future purchases, payroll during economic downturns, etc. Between my payroll income and the S-Corp revenues, my household will be one of the millions of Americans impacted by proposed tax increases. But rest assured Senator, I will NOT be the only one impacted by the tax increase imposed on ME. Below are some of the additional impacts:

1. My employees will receive smaller year-end bonuses, thereby reducing their income and of course, the income tax they pay.
2. To compensate for my lost income, I will no longer use the luxury of the dry cleaners for laundering and ironing. I will do it myself.
3. To compensate for my lost income, I will no longer use the cleaning service that comes to my house once per month. I will do it myself.
4. To compensate for my lost income, I will no longer use the “handy man” service that comes to my house once per quarter. I will do these tasks myself.
5. To compensate for my lost income, I will no longer use the landscaping service that manicures my yard. I will do it myself.
6. To compensate for my lost income, I will no longer dine out as regularly as I once did. I will cook more meals myself.
7. To compensate for my lost income, I will no longer travel as regularly as I once did. I will stay at home.
8. To compensate for my lost income, I will no longer donate the same amount of money that I used to donate to March of Dimes, United Way, American Lung Association and my alma mater.
9. I presume that other income earners similar to me, as well as my employees who will receive smaller raises and bonuses, will also need to take similar actions.
10. The dry cleaners, cleaning service, handy men, landscapers, waiters, waitresses, restaurant owners, travel agents, airline pilots, hotel managers, etc. will all be working for companies that take in less revenues because of the actions above. Some may even lose their jobs.

Did you intend this? Probably not. But I ask you this. What letters of apology will you write to these impacted people? What taxes will you raise to support the increase of Americans on unemployment? What government intervention program will you create next, to offset the debilitating impacts your tax policy will have on the American people? When you figure it out, let me know.

Sincerely,

Brian King

Why All The Anger Over Misuse of Bailout Money?

It's been a strange and wild ride since we first learned of the acronym, TARP. Then Treasury Secretary Henry Paulson and his successor Timothy Geithner have thrust economic and industry terminology such as TARP, bailout, AIG, Citigroup, GM and stimulus into dinner table conversation. And the once least observant of political events are now "expert" in the subject. And the old "experts" and the new "experts" are all angry right now. It seems as though republicans and democrats, conservatives and liberals, libertarians and greens, and socialists and capitalists are all in agreement on one thing. They are all angry. How can companies like AIG who have received incomprehensible billions of taxpayer dollars be justified in using those dollars to pay offshore counterparties and executive bonuses? I ask a different question. Why all the anger?

When a teenager returns home after curfew seven nights in a row, and after each indescretion, the parents decide to make the curfew later for each subsequent night, what do you think the teenager will do on the next night? When a child throws his cereal off his high chair each morning, and the parents cheer and praise the child and give him more cereal, what do you think the child will do the next time he gets cereal? When a dog bites the postal carrier every morning, and the dog owners reward the dog with a meaty bone after each bite, what do you think the dog will do when the postal carrier comes the next day? When so-called domestic automotive companies decide to build worse cars than their so-called foreign competitors, charge more for them, pay more for their labor, PAY many of their employees to STAY HOME, negotiate assembly line stoppages for all union members even if their line was not impacted, and the government gives each of those companies $25,000,000,000, what do you think those companies will do with the money? When AIG makes terrible investments, abysmal decisions time and time again, essentially gambles away money with reckless abandon with the equivalence of "putting it all on black" on the roulette wheel and laughing when it comes up red, and the government gives them $180,000,000,000, why are people angry when they give some of that money away in bonuses? Why are people angry when they use more than half the money to pay counterparties, many of whom are foreign banks?

The bottom line is simple. When you reward idiocy, stupidity, insubordination and recklessness with billions of taxpayer dollars, one conclusion should be made. You will get more idiocy, stupidity, insubordination and recklessness. What would make you think otherwise? It has been widely said and widely agreed, "if you want less of something, tax it. If you want more of something subsidize it". The lesson here is clear. Our government has assessed the performance and behaviors of General Motors, Chrysler, AIG, Citigroup, etc. and has concluded, "hmmm...I like that. I want more of that". They have chosen to take MY money and YOUR money and invest in companies that have a proven track record of failure. If you want more of something, subsidize it. So again, why are they now angry that they got more of the same?

We got into this mess because we as a nation (individuals, companies and our government) borrowed money we could not afford to pay back. Our government's conclusion? Borrow more money. Brilliant. I repeat the point from above, if you want more of something, subsidize it. If you like being in debt, as an individual, company or government, borrow more money. Again, brilliant.

Let's get back to AIG. Think of what could have happened had we let bankruptcy run its course. The very contracts Mr. Liddy says could not be broken (i.e. paying back all the counterparties) would have been broken through bankruptcy. Lessons would have been learned, through the restructuring of AIG and the bankruptcy debt negotiations with these counterparties. Risk-friendly financial institutions who got burned and felt the pain would reduce their risk. I repeat, lessons would have been learned. And behaviors would have changed. Instead, we get more of the same.

Curious. In 2008, did you invest in AIG? Did you invest in Citigroup? How about GM? I didn't either. Even though we as individual investors wanted nothing to do with putting our money in these companies hands, our elected officials decided that we don't know best. They decided to take our money anyhow, against our better judgement, and reward idiocy and recklessness. Worse, they borrowed money from China and told them "don't worry, future Americans will pay you back". And what did we get for our investment? Idiocy and recklessness. And an angry government wondering how could this have happened.

In subsequent Novembers, I hope you as a voter teach our government what is supposed to happen to idiocy and recklessness.

Housing Bubble Stays Afloat

Whenever prices surge for a particular product, others try to jump on the bandwagon and produce the same product. Additional supply rushes to the rescue. That's what markets do. When housing prices were exploding, developers were turning out new homes, new subdivisions and new communities in droves. I repeat, that's what markets do. Because of the explosion of housing activity, people who never before could afford a home (and frankly, still couldn't in true financial terms) rushed to the buying scene before prices climbed too high.

And risk-friendly lenders were willing to take on the risk, because they were backed by the federally subsidized Fannie and Freddie. "It's not MY money", they thought. When the government is willing to back these mortgages (thanks to my favorite Reinvestment Act, they had to, since no bank wanted to hold onto these toxic mortgages), the lenders thought "heads I win, tails the taxpayers lose". No wonder they took on more risk. There was no downside.

Well, here we are. It is what it is. Now what? People realized soon after moving into their new homes that they couldn't afford to live there. So they needed to sell. Supply side started to surge (see new development comments above). Demand waned. And prices dropped. Soon, people who put 0% down and were paying interest-only loans owed more than the home was worth. The same could be said for people who put 3% down and had sub-prime mortgages. Etc. Etc. And prices continued to drop. That's what markets do.

Meanwhile, there were people on the sidelines ready to benefit. A recent article on CNN.com titled "For one man, foreclosure a shot at his housing dream" (Linked Here) told a wonderful story of a young man and his family on the verge of closing on their first house. It would not have been possible had it not been for the depressed housing market. Depressed? This guy was ecstatic about the housing market. As prices dropped, demand came to the market. That's what markets do.

And there's more demand out there. There are young couples with high school educations, a couple of children and one of the parents working two jobs. They are living modestly, renting and saving their money, hoping that they may have the opportunity to do something that just 18 months earlier, they never thought possible. They are hoping to buy a home. Prices have dropped 40% in their neighborhood. And if it comes down just 5% more, they will be ready to afford the home they always hoped to own.

But there's a problem. A certain bill was just passed to help keep people in "their homes". The expression that our president uses "their homes" is kind of funny. FYI....if you put 0% down and pay an interest only loan, you don't own the home. You don't own it until you own it. Simple math. Anyhow, we have a government that defies that math, chooses to defy that common sense. And that government, the very leaders that the aforementioned young couples helped elect, is now PREVENTING them from buying a home. That's right. They are artificially keeping home prices higher by allowing the guy who decided to throw caution to the wind and buy a home he could not afford, to stay in "his house" that he doesn't own. And our government will take money (higher taxes) from the people who did everything right (i.e. entrepreneurs, market makers, 60 hour/week workers), to pay for the people who did everything wrong, including that guy who is still in the home he couldn't afford. And to make it worse, we'll refer to the home in question as "his home".

Just think of what could have happened. We could have rewarded the young couple who did everything right (working, saving, renting, etc.), and allow them to buy a home at the true MARKET price. But instead, we come up with a plan to keep that guy in "his home" (which as I cleared up before, isn't his since he owes more than it's worth). And further, we let him refinance at a better interest rate than the people who did everything right can get, and not to mention, at a price point that artificially inflates the market. So now, the people still paying their mortgages ontime have a higher rate than the guy who faulted. And the couple hoping to buy a home can't, because prices haven't come down enough for them to afford it, due in large part by our saving the guy who faulted.

Whenever the government comes up with another program to bail out someone or some company or some industry who clearly did some things very poorly, ask a simple question about that program, specifically about where the money is coming from. At whose expense? At whose expense will we bail out banks? At whose expense will we bail out people who borrowed more than they could afford? The answer is in your mirror. And once you've come to grips that it's your money that's being used, consider who's distributing your money, and consider who's receiving it.

I have to go. I need to write a letter to my bank letting them know that I've ceased to make payments on my mortgage. I'm going to refuse payment until I get a better rate. Wish me luck!

The Plight of the Individual

I am a believer of the inalieanable rights as depicted in the Declaration of Independence. I am a believer that government's true responsibility is to protect the fundamental rights of "each and every" individual. Unfortunately, I am also a believer that my governments here in the United States of America, in my state of Illinois, in my county Cook county and in my city of Chicago are in violation of my rights each and every day.

And so, I will write about it. As an individual, I will exercise my right to free speech. And as individual readers, I hope you will exercise your right to decide what you will read and what you will discard as folly. I am eager to write about a number of topics, from our country's culture of enablement and entitlement to state competition for residency of businesses. I am eager to write about tax policies and subsidies. I am eager to write about government spending, public education, social security and the state of healthcare in the United States. I am eager to write about the two-party system, career politicians, religion, lobbyists and earmarks. And I am eager to write about the state of mind of the American worker.

I hope you read. You don't have to read my writings, but of course, I hope you do. Regardless of which paper, which site, which blog, diversify your knowledge and expand your inbound channels of information. And certainly, make your choices yours.

My hope is that our great nation resumes its role as a global leader of brilliance. My hope is that our great nation resumes the spirit of enterpreneurialism that made us so great. And my hope is that we reverse the dangerous trend upon which we are riding at too furious a pace, a trend where fewer and fewer individuals are producing and greater and greater numbers are idle, reaping the benefits of the producers.

In my eyes, it begins with me. And when I say "me", I mean "us". Not as a mass. Not as a collection. Not as a majority. Not as a minority. Not as a society. I mean ME the individual, and YOU the individual. And all the other individuals that comprise this country. It is time that "you" and "me" and the rest of "you" out there begin to communicate about "your" rights. I will no longer tolerate someone telling me that something I cannot choose is "patriotic" of me. Only I can choose to be patriotic. Only you can choose to be patriotic. Someone should not tell you to be so.

And so, through the spirit and memory of the true Patriots, I declare my Independence. It begins here. It begins now. I look forward to the path this will lead.