Bailout A Positive? Shhh...

Bailout, an evil, insane idea. The very reason for the economic fiasco right? Not convinced yet, see copious political cartoons showing the pure idiocy of these government loans. The media spoke against them, rallies were held, in fact they are even partially responsible for the formation of the Tea Party! What on earth was this government thinking?

So I need to preface this next part with this: please don't shoot until you finish the article. Maybe all the bailouts weren't a bad idea (cringing waiting to hear the gunshot in my general direction). Let me explain a little so I can stop looking over my shoulder for someone to come at me with a baseball bat. The majority of the bailouts were unbelievably awful, terrible economically suicidal bailouts. However there was one bailout that needed to happen, AIG.

Let's put AIG into perspective as compared to the other bailouts. The auto bailouts were idiotic. Why were they and AIG not? Well, what caused the automotive companies to go broke? Terrible management and the unions. The unions are killing this country, and the automotive industry is a prime example. People continued to demand higher wages for a job that they were lucky had not been given to robots, then they demanded higher pensions. With every year companies like Ford and GM were going more and more into debt with every employee who retired and every new person they hired. A terrible business model that has not been fixed. The conclusion, the money sent to them was completely wasted.

I could next go into Fannie May and Freddie Mac. However, there's really only one thing to say about them. They were ran by criminals, idiots and morons and should be thrown in jail. That's all I care to say about them.

So, let's discuss the reason AIG was in such financially troubled waters because a lot of people really don't know the truth. See, AIG was not a company that was hurting for money, they weren't a gigantic corrupt organization from top to bottom that stole money and spent it thriftlessly. No, what happened with AIG is something very simple. Their credit score was lowered below "AA" level. There's no need to get into the fine details of what that means but here is what you do need to know. At the highest credit level (which is what they were at) you do not need to post collateral when trading with other parties. However when they dropped just below that level things changed. Collateral is required, and when you are doing deals as big as AIG that collateral is massive, so massive that AIG was forced to put up millions and millions of dollars to continue to do business. The result, AIG went into a liquidity crisis. The kicker to this part, who put in the requirements for collateral in businesses, the government. Thats right, the government is what forced AIG into a downfall and then subsequently bailed them out.

Ok, so maybe the drop in credit score means they were doing something wrong right? Maybe they deserved to struggle and to some of the extremists out there a drop in credit score means they should go under (of course everyone has perfect credit and never dropped a single point in their life). Here's a bit of info for you. In 2005 a man named Greenberg was the CEO for AIG. Unfortunately he was not the best choice. He was a corrupt man who committed fraud and put a damper on the company. AIG promptly replaced him when his actions were discovered. However the damage was done. It should not be a big surprise that, despite resolving the issue, their credit score took an initial hit. While I will not attribute all of the credit drop to this point, it did play a large role.

By now we have a general idea of what nearly caused AIG's collapse. Some may be convinced that their crisis was not entirely their fault and they are not criminals for it, others may not care either way and still think the bailout was a terrible idea. That's ok because there story doesn't end there, hold off on the beating with baseball bats for another minute.

Next let's get something straight. The bailout was not the government simply giving away this money. Far from it in fact. If anything, the government stood to make a huge return on their investment, which is what it was, an investment. The numbers: an initial loan of $85 billion (lot of money, yes, but not when compared to the grand scheme of things) but in return they were granted an 80% stake in the company! That's huge. You cannot get better than that in a business deal.

I realize there are plenty of people out there who do not care in the slightest about any of this and say "The government is investing our money without our permission and ruining the country". Fine, allow me to now demonstrate why the AIG bailout was necessary.

AIG is (or at least was at the point of my knowledge and research) the largest underwriter of commercial and industrial insurance as well as American General Life Insurance in the United States. Not to mention they have a staff of 116,000 United States citizens. What does that mean to you? It means that statistically either you or a family member have some tie to AIG through investments, your insurance or your job. In other words, if AIG goes down in flames, like some people begged the government to allow to happen, it would have destroyed you or a family member. I'm not talking having your stock go down five points. I am talking all the money you have paid towards insurance, invested for the future and for 116,000 people their entire career going up in flames. The stock market is a gamble, Las Vegas is a gamble and for all intents and purposes even flood/fire/home insurance are gambles. Something like life insurance is not suppose to be, you're going to die, face it. And for the gambles on all your other insurance purchases, the gamble is suppose to be will you ever need fire or flood insurance not will company will be bankrupt should you need to file a claim.

The biggest gamble we could have taken would have been to not bail out AIG. To allow millions to lose their insurance, jobs and everything they have worked so hard for. While AIG is not a perfect company, it's become a vital part of our society because of the millions it affects. For all those people who wish we would have let them burn, I ask that you realize just exactly who gets burned by AIG going down. The top level employees were still going to be rich, would have left heads held high and pockets full. It's people like you and I that would have been burned and left in the gutter.

Federal vs. State: The Battle for Economic Powers

This segment comes from the request of one of my readers markfadden. He (and I assume it's a he based on the name, if you're a she I would apologize but that's what you get for having a screen name that just screams "I'm a man") suggested I look into an article called "The Breakup of the United States" which can be found by following this link: http://www.lewrockwell.com/rozeff/rozeff328.html

I don't want to get too much into the article as I think it is something everyone should read as well, but for the purposes of this blog I will give a quick summary. The article talks about the economic crisis that we are in (yes, we are in a crisis who knew?). The author focuses on the idea that a lot of the crisis exists because of decisions and moves our federal government has made. I personally agree with this idea as do most Americans I feel. Anyway, he goes on to discuss the possibility of a shifting of power and control to the states rather than the current system we are in. As per markfadden's request, here is my opinion. Thanks for the request and I encourage others to ask or request any topic they wish me to discuss as well. Just leave a comment on one of the posts. Bare with me on this one, it starts off political but ends on pure economics I promise.

I remember the simple times. The times we were young, taught something and were able to take it as fact. Those years in elementary school where we learned about checks and balances, a free country with free markets and democracy. A time when I was told that's what America is and could accept it as fact. But as we age we realize, our third grade teachers do not know all, the world is not full of candy and rainbows and the federal government is not this agency doing anything and everything it can to help out its people. I am not sure when the federal government amassed the power it has now and when states became simply a place to closer identify what part of the country you live in.

America is a HUGE place, third largest in the world by population and by area in fact. A large area for a government to rule all the economic decisions that take place. Once upon a time the leaders of this country understood this and delegated power and control to states so that we could all live the most prosperous lives possible. However this is no longer the case. Every day there is a new federal bill proposed that seeks to govern our rights and the economy of this country. Right now there is this "fantastic" idea of cyber security (formally known as net neutrality). A way for the federal government to control the Internet. It would grant large businesses sole power of where bandwidth is directed and even give a "kill switch" if the president decided the Internet needed to be shut down. Now I am not sure what situation would require that, perhaps "Rickrolling" staged a national comeback or Paris Hilton's blog started to gain readership. However, I don't know about you, but I still find the occasional "Rickroll" funny and I don't think Paris knows how to even turn on a computer, let alone post a blog that people would read so I am pretty sure we're safe.

On to my point. Currently we have a small group of people in the federal government controlling more people and area than they can even begin to handle. Bills are 20,000 pages long (not an exaggeration either, look it up) because the have to encompass all of the states but the federal government has no idea whats actually going on in a majority of our lives. Picture it like this. The federal government is our grandparents. Without them we would not have our parents and thus we would not exist. They are a necessary step. However, the closer relationship is that of us to our parents, the parents representing our state government in this scenario. My question is: Who is more likely to know about the fine details of your life, the people who you live with and raised you or the people you see a few times a year? Who would be better at making decisions to really help you flourish and expand on everything that you have going? The grandparents are older, they may have more wisdom but the do not know the intricacies or all the situations going on in your life.

We currently have 50 states in this country (I know, I counted) which means we have 50 individual groups of government set up to help the group of people within their borders. Why? Because those governments know what their people need, they live with them, pay the same taxes, deal with the same social issues, eat the same food, drink the same water, breath the same air. People in Maine do not have a full grasp of what its like in Texas or Hawaii, nor does the federal government. Each state is different and deals with different economic issues.

I grew up in Michigan, home of the automotive industry, iron ore mines and logging. The economy there in no way relates to that of, say, Texas. I don't know about you, but I think someone from Michigan would be more adept at running its economy than someone from Texas who knows the oil industry and cattle farming. "Hey Bill, cars ain't sellin, think we should start cutting down the trees and raising some longhorns?" is not the best way to go about dealing with the economic crisis in my home state.

One of the ideas in "The Breakup of the United States" is that of nullification. To learn more about it check out a book under the same name written by Thomas Woods. Basically nullification is a right of a state to refuse to recognize or enforce federal legislation within its borders. In other words, states could go back to running themselves in the way they best see fit. Unfortunately it is seen as a radical step despite being completely legal. Many states fear the backlash that they would draw from the federal government if they chose to enact it. I personally think it's a fantastic opportunity that certain states should be taking advantage of. I mean how much more suffering do places like New York, Michigan, and California have to go through before the people make a stand?

To be clear many people think that we are on the verge of financial collapse. They believe that within a mere year or two we could become bankrupt and be the next Greece. Here's a word of comfort, that's not going to happen. Don't get me wrong, we are in trouble, serious trouble. We are in a downward spiral that will take same serious digging to get out of. However we remain one of, if not the most important country in the world financially. If we had complete economic collapse the world economy would fall. Look at what the collapse of Greece did to the world economy and that was just Greece. The world cannot afford to let the United States go into chaos and turmoil because it would mean their downfall as well. I don't mean you can sit there and be comfy thinking our country will be the next group to get a bailout because while we will not completely collapse we can go into a deep depression. Things can get much worse before they get better and they are trending that way as we speak.

I do not think a complete dismantling of the federal government is necessary or even a good idea. In fact quite the opposite. A federal government is a necessity. However, it needs to be in a basic form. The economic decisions need to be left to the people who know them best, the states. The governments are already in place, they just need to be utilized. A state can decide for itself what the schools need, what needs to be done to fix unemployment and so on. If a state screws up people will move to a state that is flourishing. States are part of the free market. If a state has to compete for its citizens you know damn well that they will do whatever they can to attract people and bring in more money.

Power lies with the states. And in that power is at least a partial solution to the economic disaster we are currently enduring. If we can states to start utilizing the power they are granted by The Constitution an upturn is inevitable.

People or Party?

All right, I know I promised to try and keep this about economics, however, this topic has weighed so heavy on me and relates directly to my last blog so much that I have to post it. That in mind, here it is:

Simple question. Do you support the people, the better good, and so on, or do you support your political party? Many people claim both but here is the proof that this is far from the case.

"ObamaCare." We all know what it is by now. Many people hate it, myself included, but some people do like it. What does this mean? Absolutely nothing, at least not by itself.

In what I can only see as being the worst display in the history of the United States of political groups voting only for their parties and not for the people, a bill was turned down offering aid to those who responded to the terrorist attacks that rocked this country to its core on 9/11.

These men are heroes - they risked life and limb, climbed into crumbling buildings in what was a suicide mission for many, all in the hopes of saving at least one more life. Few can argue that these men and women deserve more credit than any of us. Unfortunately, those who made it out alive were far from alright. Many are now dealing with complications from their heroic efforts.

Thus a bill was proposed by the democratic party. This bill aimed to give free health care to these brave souls. People who are now suffering and dying because they selflessly threw themselves into the fire so others may live. Wow, the Democrats are doing something great, right?

Well that depends. Some may say we need to stop government spending, and by God do we ever. However, if we can pass health care that will help illegal immigrants, denying these heroes health care is far from acceptable. This is still not the main issue.

In a move that we can have come all but expect from the Democrats they put in a clause, BIG surprise, right? The main clause; a suspension of the rules. This means that Republicans would be unable to offer amendments to the bill. What the...well I don't feel the need to finish that.

If the Democrats really care so much about those this bill would help, then why would they make it so controversial and difficult for Republicans to pass? Once again the Democrats display an obvious hidden agenda. If they could get their heads out of their left-winged asses and work for the people like they are HIRED to do, this bill would likely have passed.

However, all blame is not to be placed on the Democrats here. The Republicans, in almost no time at all and in an overwhelming majority instantly shot down the bill. Their reason was not for anything in the bill. It was merely that they could not offer an amendment. OK, damn those Democrats for trying to tie your hands. But really? You will get your stupid right-winged panties in a bunch over this so much that you will deny the bravest and most honorable people in this country the ability to get the care they not only need, but deserve more than the president himself ever has? How dare you care about your tiny ELECTED group so much more than the people you were elected to protect and serve?!

Both parties gave these amazing US citizens a gigantic F.U. but we have no problem offering health care to those who do nothing but leech off society. It's a sad day to be an American and an even sadder day for those denied the benefits they deserve. America will not get better until we abolish political parties.

On another note,I will always take requests on topics to cover here. If you have anything you would like me to discuss just let me know!

Introduction, Basic Advice and a Shot at Pelosi

And so it begins. Let’s quickly start with a brief explanation and a little validation because, while I can’t speak for you, I feel there is nothing more annoying , or off putting, than listening to a person speak on a topic when they have no credentials at all.

The name is Luke Balbo and at the point that I am commencing this blog I am preparing to start my senior year at a small liberal arts school in Western New York (the state not the city, yes, believe it or not, not everyone from New York is from New York City) called St. Bonaventure University. I am majoring in marketing with a minor in economics partly because a. I was pulled into the marketing program by one of the professors and a friend and b. as hard as it may be to believe, the school does not offer a degree in economics. However, that’s a story for a different time. Instead, let me explain where the inspiration for what is to come in this blog came from.

At the end of my junior year I was offered an amazing opportunity to complete my required internship hours for my degree. A woman by the name of Beth Powers got invited me to spend the summer with an organization she was starting. It was called Liberty in America (libertyinamerica.org, hooray shameless pitch). The organization was going to consist of five people that were going to spend the summer and beyond traveling the country and living in a 40 foot bus. During the trip we were going to be teaching the citizens of the United States about liberty and the teachings of the founding fathers. To put it simply we would go from city to city handing out “citizens kits” and offering education seminars about the constitution, economy and so on. I was in charge of the marketing and economics for the group (surprise surprise). However, since that’s not what this blog is about, I will encourage you to go check out the website which, once again, is libertyinamerica.org. The important part of that story for this blog is that in our travels I have had the opportunity to meet an amazing array of people. Amongst them where some of the top economists in the country that had work for all sorts of companies and groups such as the Cato Institute. It was through these experiences that I decided I should start this thing and hopefully reach a few people in time where it is most needed. We are after all in the worst economic downturn in my life and in decades for that matter.

So that’s me, that’s where I come from, my roots, my inspiration, my muse. I promise to do my best to keep this from being overly political and so on. I will try to stick to economics and marketing as much as possible but you must understand that in today’s society a lot of these things are intertwined, which in fact leads me to my first point.

My number one rule for making sure you can do your utmost in all aspects of your life, especially economically, be an independent! I don’t care what your views on abortion, international affairs, war, gay marriage or what you can legally do with a flute are, picking a political party is the worst decision you can make. By choosing to be a democrat, republican, libertarian, communist and so on you are restricting your ability to think and make future decisions without political bias. It has become common place for people to vote for whichever party they view themselves aligned with no matter who the candidate is or what they actually stand for, or what they will do for both the national economy and your wallet, case in point: Nancy Pelosi being elected in San Francisco. Remaining independent it allows you to properly analyze each candidate without bias. You can look at their economic policies. See what they will do that will affect your job, taxes and financial well being because, like it or not, here in the good ole US of A the government plays an enormous role in what is going to happen with the economy.

I believe I can leave it there for my first entry. A brief introduction and word of advice seems suitable to me. If it’s not enough for you well then suck it up. It’s my blog and besides it leaves you coming back for more. And, as any marketing or economic mind will tell you need to keep people interested if you are going to sell them.