Sushi Money

So who’s going to be better for the country next year? How will Republicans or Democrats affect the economy or your portfolio? Asking those questions is a little like opening pandora’s box, but I can’t go into that voting booth without really looking at the candidates. Yet when it comes right down to it there’s a likeability factor that has to be there too. If I can’t identify with a candidate in some fashion, then it’s really hard to try and understand their views or beliefs on the issues.

Right now for example, a lot of folks have been swept away with the Obama movement. But are they really looking at the issues? Personally, I don’t think so. And neither does Matt Gonzales who writes The Obama Craze: Count Me Out. His expostion is one of the best examinations of Sen. Obama’s views and voting history that I’ve read to date. And I find myself appreciating his conclusions:

“Once I started looking at the votes Obama actually cast, I began to hear his rhetoric differently. The principal conclusion I draw about œchange and Barack Obama is that Obama needs to change his voting habits and stop pandering to win votes. If he does this he might someday make a decent candidate who could earn my support.
For now Obama has fallen into a dangerous pattern of capitulation that he cannot reconcile with his growing popularity as an agent of change. I remain impressed by the enthusiasm generated by Obama™s style and skill as an orator. But I remain more loyal to my values, and I™m glad to say that I want no part in the Obama craze sweeping our country.”

I just figured out today why he has shared those thoughts, considering Ralph Nader has asked Gonzales to be his running mate.  He sounds like a very principled individual however, and I appreciate his views.

Honestly, I do want to know what “change” means, not only for the economy but also personally. I want to understand how a potential candidate will affect my family’s future financial well-being over the next decade as much as the nation’s economic strength.   And admittedly I want to know how my portfolio could be affected by changes in tax law.

On the investment side, Mick Weinstein put together a brief summary of viewpoints on how investors might fare under the next White House leadership. Lots to consider but the comments were pretty interesting too. One reader named “Gianni” writes:

“I think Obama represents hope and change. Fidel Castro represented hope and change. He got the change part alright, but he ruined Cuba. President Jimmy Carter represented hope and change, and sure enough he changed a lot of things for the worse. The American economy was in the toilet while he was president and it took Reagan a few years to straighten things out. So hope and change sound good, but think carefully before you invest in hope and change. And consider the possibility that those big evil corporations are doing a fine job of providing us with our high standard of living…”

Think I prefer a more analytical approach to the issues, but I also agree that if the Democrats are elected we’ll probably see much higher taxes on both income and capital gains. Tax law just isn’t clear for 2009 and beyond. Will the next administration be investor friendly? Will individuals and families pay a lot more taxes? Of course any legislator thinking of raising taxes when the country is on the verge of a recession, inflationary pressures and housing bottoming out would be asking to be voted out of office.

Tax increases are on the horizon for a host of reasons including social security and medicare funding shortfalls as thousands of Boomers enter retirement for the next two decades. But if we think economic conditions are challenging right now, just wait until congress decides to raise individual and corporate taxes. It would be far better to do everything possible to make investing and growth favorable for business here in the U.S.A.

Whichever political party wins the election this year, they’ll also have an incredible opportunity and responsibility for affecting the nation’s economic future. All things being equal I favor a conservative approach to business and tax climate.

But change is certainly in the air. I’m just not sure what all that change means at this point.

We need an administration that constructively supports investment and growth over the long term. If the Democrats are elected, I only hope they think long and hard before saddling the nation with an enormous tax burden that will take years to overcome.

Whichever candidate takes the helm in 2009 will face an enormous balancing act. If they can succeed with a balanced, functional approach over the next few years, then that will be a real change. Who knows… we could even see the launch of a new bull market that will bring incredible opportunity for a decade or more.

Famed author Toni Morrison endorses Barack Obama in a letter to the Senator, citing “something not seen in other candiates.” She continues saying, “That something is a creative imagination which coupled with brilliance equals wisdom…”

“Wisdom is a gift; you can’t train for it, inherit it, learn it in a class, or earn it in the workplace ” that access can foster the acquisition of knowledge, but not wisdom.”

Did I understand that correctly? Wisdom is only a gift, and not something one can acquire through their lifetime? Only knowledge can be gained? If that is so, then I submit that most of the world’s human population is doomed to a life of knowledge without wisdom and its accompanying virtues.

Which of course I do not believe for a moment. Wisdom most certainly may be a gift to some, but it is also something borne of experience, learning, judgement and reflection. Of this I agree- Knowledge does not equal wisdom.

“Knowledge and wisdom, far from being one, Have oft-times no connection. Knowledge dwells In heads replete with thoughts of other men; Wisdom, in minds attentive to their own. Knowledge, a rude, unprofitable mass, The mere materials with which wisdom builds, Till smoothed, and squared, and fitted to its place, Does but encumber whom it seems to enrich. Knowledge is proud that he has learned so much; Wisdom is humble that he knows no more.” William Cowper, English Poet, 1731-1800.

I firmly believe knowledge, shaped and gained through experience may lead to wisdom. Hence wisdom is more than a gift to an individual. I think it is a gift obtainable by most, and recognized through the journey of life and time should one choose to abandon the limits of fear and ego, and to embrace humility while examining the limits of mere knowledge.

And wisdom, according to the Merriam-Webster dictionary, is defined in part as:

• 1 a: accumulated philosophic or scientific learning : knowledge b: ability to discern inner qualities and relationships : insight c: good sense : judgment d: generally accepted belief

• 2: a wise attitude, belief, or course of action

Perhaps I interpret too literally the prose of the author in speaking of wisdom as a gift. I would certainly not disparage Ms. Morrison’s letter to Senator Obama, or the wisdom with which he may be gifted. But I do believe that many, many others are equally gifted, and have the capacity to possess wisdom at some point. Someday, I hope that may include me… especially when it comes to financial matters.

     Personal finance involves many considerations… especially during an election cycle when whomever is elected may have a great influence on our pocketbooks in terms of taxes and government spending.  But I was bothered by this news bit yesterday and wanted to comment.   Remember during the 1990’s when someone famously said, “That depends on what the meaning of the word is is…?”   Now we’re not talking about the same, well, life passions perhaps.  But when it comes to politics, few things stir the passions of voters as much as candidates who are funded and run by lobbyists (which many of them are on both sides of the aisle). Yesterday, in the middle of a speaking to reporters at an office supply store in South Carolina, Romney says “I don’t have lobbyists running my campaign…” and was shortly interrupted by an AP reporter who challenged that comment.  It seems Romney does have lobbyists riding around with  his campaign, on his jets and as an  advisor.  Oh, and maybe as a friend.  But not someone actually running his campaign. 

“Did you hear what I said? Did you hear what I said, Glen?” Romney asked. “I said I don’t have lobbyists running my campaign, and he’s not running my campaign.” 

Uh…. okay.  If you say so.  It’s hard to understand how someone can criticize so many others for having lobbyists running their campaigns, but it’s perfectly alright to be surrounded by them, and to have them as advisors?  And in this case, his advisor (not lobbyist mind you), is Chairman of a communications firm called Dutko Worldwide.  Which, among other things, has been reported as being a federal lobbying firm for Citgo… the U.S. based company from Venezuela?   How much money has Citgo paid to Dutko over the years?   Something else that bothered me… the way Romney challenged the AP reporter.  Easy to get defensive when you’re caught with your hand in the cookie jar.  And I guess it depends on what the meaning of the word lobbyist is?

So this is how it’s going to be… the markets start the year off with steep losses. Many analysts predict we’ll see a 10% correction (or more) before the market regroups, and we’re well on the way. Obviously a lot of factors influence the market action, and it’s not simply “jobs data” or the recession bogeyman. Even oil at $100 a barrel was a fluke by someone out to grab a piece of history. Of course we may see oil at $100 again, but its effect on the economy is not as large as some may think. It does however show how there’s a host of traders and specialists sitting on the edge of their seats waiting for news- mostly negative news. And you know what? It seems like Emerson’s quote: “Be careful what you set your heart upon, for you will surely have it.”

I’m not saying that a bunch of investment professionals really want the market to crash per se… but I think a whole bunch of folks wouldn’t mind a little clarity. If we’re going to have a recession… then let’s have it and be done with it. If the market’s going to correct, then let’s get going. And if the credit markets are all screwed up, then… well, uh… Oh. Maybe we just don’t know if all the bad news is out there, and that’s part of the problem. Once we identify problems, our nature is to fix them. So far there has been little progress in identifying and “fixing” anything regarding the credit and subprime mess. The market indeed hates uncertainty, so that’s the biggest issue even in the face of challenging real estate markets across the nation.

By the way, Briefing.com has written an excellent Market Outlook for 2008 with a clear-minded view of the issues the economy faces. It’s a cautious view overall, but I appreciate the pragmatic approach taken by Dick Green in weighing the challenges ahead.

My view is much the same- I think it just takes time. With time, we’re going to get tired of the negative news… it’s going to fade and change will happen. And a whole bunch of people and companies are going to look for ways to make more money than they’re making right now. Best of all, this is an election year! A few of the presidential hopefuls are going to make a real impact on the hearts and minds of Americans. And that’s not a bad thing… a little hope and idealism goes a long way. Huckabee and Obama? Sounds like a pretty good race to me.

** Oops… CNN or You Tube pulled the video so it doesn’t seem to play. I’ll leave the embedded player up, but it stopped working after a lot of public interest yesterday…??? If anyone can find a video of that press conference I’d love to re-post it! **

This is a great interview with former Gov. Mike Huckabee on CNN. His answer to a reporter’s question about Christmas at the 2:10 minute mark is excellent. I don’t know who I’m voting for next year, but I really appreciate his sincerity and direct approach.

     In a not too surprising move, the major Democratic Presidential candidates have begun to make political hay out of the mortgage and subprime lending issues.   This article discusses how Senators Dodd, Clinton, Edwards and Obama have all made statements or introduced legislation to try and “remedy” the mortgage lending system.  Why is this not surprising?  Because quite simply it speaks of more government regulation and intrusion into individual and business owners lives in America.  Increased government regulation is often the Democrats answer for “fixing” perceived problems in society.  Unfortunately I think they are making too many assumptions, most of which involve the belief that mortgage brokers are primarily responsible for the problems we are facing with subprime loans.  First of all, the subprime lending mess is only a tiny fraction of all mortgage lending in this country.  Of that tiny fraction, only a portion of borrowers are defaulting on their loans.  There is no question that lending standards have been too lax for too many years, and that loans were made available to people who shouldn’t have been approved for them. What about a borrowers responsibility? If there was outright fraud and deceit in the loan processing, then absolutely… go after those lenders.  But do we need to “overhaul” the mortgage lending industry simply because of lax lending standards and a few predatory lenders? 

    The article cited also shows how it’s not only the lending industry that is at fault here.  Wall Street and the financial industry have embraced these loan products as investments.  Much of the subprime mess is related to hedge fund investments gone bad also, and that’s why we’re seeing such market volatility and panic among investors around the world.  So overhauling the mortgage lending industry will solve these problems too?  I don’t disagree with all of the ideas or calls for action by our political leaders.  Senator Dodd’s ideas for example involve tightening underwriting standards on loans and reducing the “no doc” or “low doc” loans that many borrowers have been presented with.  I’m all for improving lending practices and providing increased clarity for potential borrowers.  But I disagree strongly with his call for requiring lenders to escrow for taxes and insurance.  So the government wants to become the “big parent” and ensure that borrowers pay their taxes and insurance on time?  I don’t know about you, but I don’t need the government telling me how to manage my money.  With my current mortgage for example, I pay my own taxes and insurance payments, and that flexibility is very important to me.  Instead of putting my money in an escrow account, I can keep it in my own savings account earning interest.  I can plan my insurance and tax payments for the optimal time of year based on my savings and household expenditures.  With escrow accounts, one often has to put in far more than necessary, and well in advance, simply because the lender requires it and federal regulation says they can do so.  I don’t want the government telling me I have to do that.  How can I pay my taxes and insurance myself?  Because I have a good credit rating.  With an excellent credit score, you can often request from your lender that you pay your taxes and insurance yourself.  Some lenders or loan products will not allow this, but many do.  It pays to shop around and ask first. 

     Senator Dodd also wants to get rid of all prepayment penalties on loans.  At first glance this sounds like a great idea… I cannot stand prepayment penalties and will never take out a loan that has one.  But again, why should the government decide for the financial institution how they should do business?  There are valid reasons for loans with prepayment penalties, most often involving loans with really good (low) interest rates.  In exchange for a really low rate, a mortgage company might include a prepayment clause to help make up some of the difference on the interest rate, etc.  It depends on the loan product, and it may also be tied to credit standards and risk. These are businesses, and they are not in business to give money away.  Some people want the choice of a specific loan product, even if it does have a prepayment penalty.  I don’t, but if someone else does, that’s their choice.  I don’t think the government should have a hand in it. 

     Ultimately, I believe with more government regulation we will see increased costs and interest rates for borrowers on average.  Why?  Because there is less flexibility and choice for consumers, and less incentive for financial institutions to develop anarray of lending and investment products that satisfies both borrowers and lenders needs, as well as attracting investors (aka Wall Street) to provide the liquidity that makes the world go round.   Less choice is not a good thing in terms of business and saving money.  We want competition and choice, and with less government intrusion we achieve those goals. 

     That being said, I’m all for improving mortgage lending to help improve consumer choice and opportunity as well as requiring fair practices by lenders.  Ambiguous perhaps, but Senator Edwards for example has talked about banning “certain fees” (I’d like to see what fees he’s talking about), and establishing uniform broker licensing requirements with a national database for disciplinary infractions.  Hmmm… who’s going to pay for that “national database”?  Yep… taxpayers and borrowers.  I like the idea of uniform broker licensing, but believe the States should have the primary authority in that regard.  After all, it is at the State and local level that people take out mortgages for homes… we live in communities and often those communities have unique needs and cultural approaches to conducting business.   Don’t we have State requirements for licensing and lending anyway?  

   Finally, I have to make a comment about the choices and actions that we, as borrowers, make in the lending process.  No one forces us to sign on the dotted line.  The problem for too many people is that we are not smart enough or educated enough to know what we are signing and how to manage our financial lives.  Increased clarity and knowledge about the mortgage loan process is always a good thing.  When someone takes out a loan, they don’t do so with the intent to default or give up their home in foreclosure.  That is a traumatic and life-changing event that no one desires.  Many financial institutions are currently working with customers who have problems making payments to ensure they keep their homes and continue paying on their loans.  The bank certainly doesn’t want our homes and a defaulted loan.  But as borrowers we are legally and financially obligated to pay on that loan.  We must do our homework and make our financial decisions rationally based on our income and lifestyle needs.  Don’t buy more house than you can afford.  If you can’t afford a 30-year fixed rate loan for the house you want to purchase, then you can’t afford an adjustable rate mortgage for that same house… especially down the road.   Maybe not always true- but it’s a good rule of thumb.  How can the financial world function without legal requirements for borrowing and lending?  It can’t.  I’m also a strong advocate for financial literacy education.  Many states are now including financial management education as a requirement for high school graduation.  It’s about time… and we need to do more.  That’s something I’d like to see our political leaders talking about.