Was the Banking Bailout of 2008 a Bad Move?

by fwhagen Thu, 16 June 2016

Ok, I am not an economist.  I think I might have been if the computer industry didn’t exist, but I am not.  I'm not a historian, either.  This is all my personal opinion.

In 2007 – 2009, Trillions of U.S. Dollars were spent to “bailout” the U.S. financial system.  Many, many people thought this was a terrible way to spend taxpayer money in order to save banks, insurance companies, and mortgage brokers.  Most still do.  Sure banks make mega-millions in profits and few people hate mandatory insurance as much as I do.  “Let ‘em fail!” I have heard many times.  “Why do my taxes have to go to pay off fat-cats.” as well.  “Where’s my bailout?” was my favorite.  (Yes, sarcasm on my part.)  But was it so bad?  I’m not so sure.

Let’s go back a few years.  1929:  The start of the Great Depression.  Ask yourself, what caused the Depression?  If you’re like most Americans, as I was not so long ago, you will answer:  The Stock Market Crash of 1929, Black Tuesday.  But that’s actually not really true.  It was a trigger, certainly, but not the cause.  The thing that really pushed everything off the cliff was panic.  Panic over the banking systems.  People no longer trusted the banks and wanted all their money out, and now.  Back in those days, nearly all money was real.  And since much of it was tied up in investments, loans, etc., when millions of customers showed up and wanted their money, the bank locations didn’t have it.  Obviously.  That is still true today.  You wouldn’t expect your local BofA to have $Billions in the vault at every location.  So when bank clerks said, sorry, we’re all out, people freaked.  Of course, nobody panicked and paid back all their loans too, right?  So banks crashed too.  And suddenly, because the dollar was tied to the Gold Standard, and there was no money, the price of gold fell.  Less cash means the amount someone is willing to pay for it falls as well.  This had a larger cascading effect that impacted the entire world economy, which is the reason why most governments have rejected tying money to physical commodities.  And thus started the Great Depression.  BTW, inflated real estate pricing was a primary factor back then too.

Back to today, almost.  We could go back to the ‘90s and note that the Clinton administration (hopefully, the ONLY Clinton administration), persuaded Congress and/or the banks to make it easier for less… (uh, hard to find a good word to go here.  “capable” comes to mind) …qualified (?) people to get mortgages.  And sub-prime mortgages became a thing.  Banks were forced, or coerced, or agreed, to give out loans to people who were traditionally considered high-risk.  This radically increased demand in the housing markets.  And prices began to rise.  I was actually very lucky to get in early with a mortgage I should never have qualified for, but I made good on it.  After 10 years or so, the peak hit and now some lendees were unable to keep up with their really bad contracts and started to default.  This is normal.  Pricing started to correct, and more houses were on the market.  This is also normal.  And then there were more defaults and prices fell and banks were left with properties with loans that were much higher than the value of the housing.  And the bubble burst.

So in 2008, there are many banks that are left with assets they are unable to liquidate and obligations they can’t meet because of it.  So what do you do?  Let them fail?  Sure, why not.  I certainly never bought the “too big to fail” argument anyway.  But consider this: 

Let’s say I have $100,000.  What is my net worth?  Easy, $100k.  Now, you would like to buy a house, so I lend you $100k because I know you have a job and will pay me back with some interest.  So, what is my net worth now?  $0?  Well, no, you owe me $100k, so technically that money belongs to me.  $100k?  Actually, no, I expect that you will pay me interest on that, so I should be ahead in the end, and if you don’t pay, I get the house and whatever you paid so far.  Looks good for me, right?  Ok, now let’s say that you wanted to buy a house for $150k, but I only have $100k which is mine, but I am holding money for Jim long-term, in order to keep it safe for him, for a tiny fee, of course, after all my big vault is pretty nice and very safe.  So Jim stores $75k in my vault and wants access to some small amount of it at any time.  Ok, so I tell him I am going to use some of that money to help you out, so I give you a loan for $150k and keep $25k for Jim when he wants it.  Everyone is happy.  Until you lose your job.  Now you can’t pay me.  I can’t operate without rent and payroll, so I have to do something.  I could use Jim’s money, but he won’t be very happy about that, so I have to take the house and try to resell it.  So what is my net worth now?  Harder, but I have a $150k house and $25k of Jim’s cash, but I owe Jim $75k, so I am right around $100k again, right?  Suddenly Jim loses his job too, but it’s Ok, cause he has $75k saved up in my safe vault.  So he comes by and would like to have it back, please.  Of course, Jim, but I only have $25k right now.  Now what?  Jim needs his money but I don’t have it.  Jim blames me.  He says I should never have lent you the money, but the Fed said I really should or else.  So I have to liquidate whatever assets I have to pay Jim, which is only fair.  Now what’s my net worth?  And what if I can’t raise Jim’s money?  I will be ruined!

That’s the situation the U.S. financial industry was in by 2008.  Multiplied by millions in size and complexity.  By the way, I am not saying the banks were blameless.  ARM loans are just plain wrong.  I don’t normally mind preying on the stupid, but there must have been some shady deception going on with some of those.  In the super simple example above, my net work is still actually $100k, even though it’s all tied up in a bad investment.  The bank would sell the house eventually, and probably take a loss.  The hope is that the loss is less than the amount paid into the mortgage before the default.  And the 3rd party would get their money as promised.  The problem comes when the 3rd parties cannot wait for the physical assets to be liquidated and start to panic.  The Fed recognized this in 2008 and did something about it.  They made funds available to the banks in order to be liquid and not cause a panic.  The actually learned from the 1929 Crash.  BUT, and this is where I blame the news agencies, these were NOT gifts.  They were short-term loans with interest, albeit very large.  I need to look it up, but I believe they have all been paid back to the Fed (Us, the taxpayers), with interest.

So in the end, the banks took a loss but were not destroyed.  The housing industry eventually settled for the most part.  No panic ensued, although I suspect some people were disappointed by that (*cough* CNN *cough*).  And the Fed actually made a profit.  Unfortunately, a lot of people were hurt by buying houses they shouldn’t have and ruining their credit when they defaulted, and many more ended up with houses they will probably never profit from.    Many bank executives lost their jobs over this too, which no body is upset about, I imagine.  And, I don’t think the Clintons were hurt too bad.  It’s not like they’d try to run for public office again or anything….  *sigh*

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Filed Under: Life | Politics | Rant

Reboot Me

by fwhagen Tue, 18 February 2014

Well, it's been an interesting year.  I'm not comfortable with the why just yet.  One fallout is that I am no longer a FiOS customer, unfortunately.  My servers have been down, or rather blocked, for a few months now.  But I have the site back online as of today.  I decided to try out GoDaddy's free web-hosting offers to see how I like it.  So far, pretty good, but it is early.  The great positive is the allowance for ASP.NET.  When I completely remodel the frontpage of the site (which it desperately needs), I may resurrect my MVC version.  Built in blogengine.net was nice too.  The only down so far is that I hate this theme.  I haven't discovered how to load up my customized one yet, but I will.

Here's to a better 2014 and some interesting adventures ahead!

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Filed Under: BlogEngine.NET | Life

Star Wars For a New Generation

by fwhagen Mon, 01 June 2009

This past weekend, I sat down with my 6 year old daughter and watched Star Wars.  It was her first time, certainly not mine.  She really likes the Clone Wars series on Cartoon Network, so I thought it was time.  It was an interesting experience.

Star Wars came out when I was 7.  I never saw it in the theaters in its original release; my parents seldom took us to a theater, and then only for "kids" movies.  I did see it years later, but never the original cut.  My first exposure was a VHS tape that our uncle gave my father.  I watched that tape over and over until it wore out, literally.  I bought the trilogy on VHS when it was released as a boxed set later on, and again when it was remastered with THX sound.  And I got a copy when the whole set was reworked with new CGI content.  Oh, I have seen Star Wars a few times...

The version I showed my daughter was in HD.  Obviously the latest remastered, cleaned, reedited, Greedo shot first, equatorial shock wave edition.  It was beautiful.  After the attack on Leia's ship, I remarked to my wife, "I don't believe I have ever seen this movie look so good!".  Funny, the version I always remember was grainy and almost smoky; it was thick with atmosphere.  This version was crisp and clean, clear and sharp; it looked great, yet somehow lacked something.  She loved it. 

It's funny how 32 years has changed so much.  The impact the film had on me was dramatic, even life changing (OK, I was only 7).  Not so much for her.  That old tape was a treasure to be handled carefully and saved for the future.  The copy from this past weekend was just so many bits on our DVR.  It is marvelous to see the world through her new eyes, yet make my own feel that much older.

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Filed Under: Life

I've Been Wondering...

by fwhagen Tue, 10 February 2009

Why are Unicorns hollow?

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Filed Under: Life

Goodbye, Mr. Clarke

by fwhagen Wed, 19 March 2008

He was one of the greatest people of our time.  More than just an author.  More than a great scientist.  More than an engineer, physicist, humanitarian, advisor, prophet, philosopher, and more.  He helped define the world we live in from the positive side.  He helped define who I am today through his stories.  He had his hands in most of the great information technologies we enjoy today.  We all owe him more than we can know.  And now he is gone.  Goodbye, we will miss you.

From the BBC:  Writer Arthur C Clarke dies at 90

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Filed Under: Life

Confirmation of Godliness

by fwhagen Thu, 28 February 2008

Not that there was any doubt, and of course, answered honestly:

NerdTests.com says I'm an Uber Cool Nerd God.  What are you?  Click here!

Respect the score.

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Filed Under: Blog | Life

Cooking for Nerds: Super-Quick Ballpark-Style Hot Dogs

by fwhagen Tue, 26 February 2008

Ok, no amazing technology or code hints here.  But when I get a good idea, I want to share.  Take Quick and Good, add some Lazy, and I have a post.

I love hot dogs.  I hate cleaning up or firing up the grill for just myself.  And have you ever tried microwaving a hot dog?  ugh.  But in a eureka moment, I found the answer:  Take a dog, or two, and drop into a glass.  Fill the glass with water, preferably higher than the dogs (yes, they will float a bit).  Pop it all in the microwave, and if you have it, hit the button for 1 cup of hot water (otherwise, 90 seconds?).  Let sit another minute or so, then pour out the water, some, all, doesn't matter.  Throw in buns, add mustard, and Viola, you have hot hot dogs ready to eat!  Don't you dare put ketchup on them puppies.  That's just wrong.

The water protects the dogs from the microwaves so they don't burst during the heating.  Also the water gets hot which helps warm them too.  You can actually see the difference where the dogs float out of the water.  In three minutes, you have a good ballpark style dog from fridge to bun.  Not perfect, but easy, quick and lazy.

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Filed Under: Life

SE440BX-2 RIP

by fwhagen Tue, 12 February 2008

My home server finally died this week.  Even my daughter was inconvenienced.  The old PII on a SE440BX-2 has been a faithful, long lived servant these many years, but finally passed on.  I bought this board a long long time ago and have been running it 24x7 as my home server for over 5 years now.  I don't remember exactly how long, as it was 3 major upgrades ago.  BTW, you can still run a nice server on 256MB RAM for file, print, Web, and FTP with Win2003.  I believe the failure was with some component of the BX2 finally wearing out.

On to newer hardware!  I purchased a 35W Celeron to run the server on now.  Going to put it in a quiet Antec case with a Hi-Eff PSU.  Should be a simple and low-cost build.  Only spent $200 so far including the case (most expensive part), PSU, CPU, motherboard and optical (SATA).  I happen to have 1GB of DDR2 from a mistake purchase last year that I will use.

Yes, the comic feeds are down and will be for a few days.  Sorry.  I will get them up first thing.  *Heavy Sigh*

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Filed Under: Life | System

Disaster!

by fwhagen Mon, 07 January 2008

Delivery for the Beast was delayed until Monday.  So no glory for me.  Heavy sigh.

Then on Saturday, the SCSI subsys on my server went south, knocking out the system volume.  Everything is backed up, but I had to spend the weekend rebuilding.  The machine is almost 10 years old, so I'm not complaining, but all of my feed builders were interrupted.  I will get them re-initialized tonight, so there will only be a day or two missing from them.  Sorry.

Maybe I will get to buy some new server hardware this spring....

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Filed Under: Life | System

The Beast Stirs

by fwhagen Fri, 04 January 2008

Finally, after dreaming of the Core2 series of processors, I am upgrading my system.  Well, I have been since August, anyway.  I finally bought the CPU/MB/Memory combo this week.  They should be here today!

Here is the plan (in the order purchased):

Case   Antec P182 Advanced Super Mid Tower Case
PSU   Corsair VX450W Quiet High Efficiency PSU
Optical   LITE-ON 20X DVD±R DVD Burner with LightScribe Black SATA
Motherboard   Asus Maximus Formula - LGA 775 Intel X38
CPU   Intel Q6600 Core 2 Quad 2.4GHz
Memory   Crucial Ballistix 2GB (2 x 1GB) 240-Pin DDR2 1066 (PC2 8500)

Last will be the video card.  I am leaning toward the ATI HD3870 in a Saphire or Diamond Viper configuration.

The case is excellent!  The P182 is the finest case I have ever worked with.  The walls are thick, heavy and absorb vibrations very well as they were designed to quiet the system.  Rubber gromitts for drive mounts, very nice airflow and great cable management technique make this a joy to work on.

I chose the Corsair PSU because of its efficiency and noise ratings.  It is based on the Seasonic designs and should be very quiet.  Also, my choice of size is controversial, but on metering my Prescott at full load, I never saw it cross 280Watts*.  If I bought a kilowatt PSU, I would waste a lot of energy and heat from the inefficiency at the low end of usage.

I wanted to get a SATA optical, but don't care about Lightscribe.  I may get a second later....

The Maximus Formula is an expensive drop.  I did not intend to spend $270 on a motherboard.  But the X38 chipset is the only one to support PCI-E 2.0 and it is supposed to be compatible with Penryn when it comes out.  I don't anticipate replacing this board for a very long time.  And the 2.0 spec has shown some dramatic gains for the HD3870 cards in reviews.  So, ouch, but I think a good buy.

The Core2Duo E6600 is considered the best over-clocker in years.  It's price is $229.  The Quad core Q6600 is very similar and is only $50 more.  It was not a difficult decision.

Memory is memory, from what I hear.  I still went ahead and spent the extra $20 for 1066 for the lower latencies and OC ability.

I will post more as the system specs out and I have a chance to play more.  But I am very excited.  Should be a fun weekend!  Total spent so far (including the anticipated $200 for video):  Under $1000.  Great time to build PCs.

*EDIT:  Updated to 280 from 250.  Mistake at time of post.

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Filed Under: Life | System

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