Walmart and Visa debit card create big time fail

I generally like Walmart and have done much business with them.  I haven't been caught up in all the chatter about how 'Walmart is evil' which seems to be mostly a hate story merely because of their size.  You can find good and bad policy in almost every corporation in this modern day, it is mostly a matter of what you like to look for.

Bust some days, a mistake is made.  A mistake that lessons the company in the eyes of its customer's.  In this case, an attempt to purchase a couple of gift cards as birthday gifts.  Rather than getting a store specific card it was decided to get them something that could be used at any place they pleased with a Visa debit card that could be used anywhere.  How easy, how simple, how convenient.  Why not?

A transaction fee that amounted to an extra 10%, that is why not.  I was under the gun so agreed to this outrageous and inconcievable excess and am still having extreme buyers remorse for agreeing to this abusive practice.  As I sit here revealing my regrets, I realize that I could have given the original all purpose, all merchant accepted gift card that never has additional fees (hidden or otherwise) attached, never expires, and only loses value over time the same way that all currency does...and that gift card would be cash.

Will I return to Walmart?  Sure, there is still a lot of good found at Walmart, but I feel like something dear was lost...trust.  I will be skeptical about dealing with them.  I will scrutinize anything that appears to be a deal, or even any transaction that I would assume would work one way only expecting to find the fine print hiding somewhere that makes it feel like the proverbial internet scam rather than trusting it too be a straight up deal.  Things change, companies change, people change, relationships change and when they do we go back to square one and have to rebuild from scratch the things that are lost.

Business that works is business that is mutually beneficial to all parties involved.  When business becomes one sided it can quickly diminish into none existence and that is a shame of the highest order.  It happens to the big boys and it can happen to the little ones as well.  Be sure your integrity and those who represent you is of the highest order in all you do and you will have little to worry about.

This is Ed Nef with a view from the Farrwest.

Finding hope for capitalism in a game on my tablet

Roy H. Williams of MondayMorningMemo has talked about an 80 year cycle that takes our society from the extremes of a me generation to an us generation every 40 years.  We are approaching the apex of an us generation which would explain all the political correctness of socialism at the moment.  So I was pondering on how will society change back to something more moderate when it seems that socialism is all that is taught in the schools and talked about in the media and legislated in our governments.  Have the roots of capitalism been abolished and replaced with the entitlement mentality?  Has the drive of the individual to become the greatest individual they can become been weened out and replaced with a submission of will to serve the common good however the overlords dictate it to be?

Socialism along with it's more forceful cousin Communism are some of the least effective economic models for a nation even without addressing the moral issues of abolishing free agency.  Take a moment to think about how "well" this world would run if every aspect of your life operated by the same bureaucracy that runs the post office or DMV.  There would be no incentive for efficiency or innovation and therefore there can be no growth.

My vision of the future was growing rather bleak when I happened to find hope in the unlikeliest of places...the games I downloaded on my newly acquired tablet.  Within those games are the elements of capitalism.

At first the elements went unnoticed as I was still learning how to play the various games but then I realized that they were there and hopefully were instilling themselves on those that took the time to play the games.

I have narrowed my recent game time to three games in particular, The Simpsons Tapped Out, Star Wars Tiny Death Star and My Muppet's Show.  All of these games are considered Freemiumware (a combination of free and premium software) in that they can be had for free and played for free but there are extras that you can buy with real money to advance the game a little faster or gratify your vanity.

Within these games there are usually two kinds of currency whether they are called credits, or bux, or vegetables or donuts.  One of the currencies is easy to get and is the basic measuring unit of the game while the other is much more difficult to get but there is always the opportunity to get more in exchange for real life currencies i.e. you real life wallet.  As an added feature of my gaming experience, I make it a point never to use real money in the virtual world .

The games become an analogy of life as they are played.  You are asked to perform certain task for which you earn credits.  These credits can then be used in the game to obtain the next level, a new character or an extra power or decoration.  These will in turn help you earn more credits and at a faster pace in order to obtain more new things that are better, faster, cooler than the last thing and almost always at a higher price.

These are mini simulations of life played out in a somewhat benign way through a computer screen.  Instead of berating our kids for wasting too much time playing video games perhaps we should be playing those games with them and then having discussions with them to help them see the lessons there to be had, lessons we may have missed or forgotten along the way.  The longer you play the game, and the more games you play, the better you will recognize the rules of the game and learn how to play it well.

As the next generation grows up on a diet of these types of games they will provide the energy to reverse the cyclical societal momentum we face and let the pendulum swing back towards a more moderate approach in our lives.

And with that thought my hope was restored.  I remembered that good can be had even in times of extremes.  It is that hope that drives man forward, to challenge the odds and the mandates and give it a go anyway.  It is that spirit that will overcome the oppressive nature of a collective society.  It is that spirit that we should foster to grow and survive not only in ourselves but in others.

I will discuss further some of these lessons I have seen from playing these games and doing the paid to clicks.  Maybe they haven't been such a timesuck after all.  For now this is Ed Nef with a view from the Farrwest.

Really, a gang of six?

It is time to comment on the state of the nations budgetary affairs. They are pathetic and only getting worse by the minute. Take the Gang of Six for example. A lousy name which means they have already been placed in the discredit category so no matter what the plan is they came up with, it has already been written off by those who wish to eliminate them as a possible contender for solutions.

And that is all right by me. The gang of six plan is really weak. It does not go far enough. Not nearly enough. To talk of cutting 4 Trillion dollars sounds austere but over a 10 year period it is really just more political ramblings designed to give them bragging rights back home, never meaning to be taken seriously. Even if it was honestly considered by anyone, you would notice that it is very vague in application merely pushing political hot topic buttons but doing very little in the way of reforming a very broken system that is on the verge of an implosion.

No one in Washington D.C. is taking the role of a true leader. No one dares stick their neck out and speak the truth and then take action based on truth. Everyone knows that the first person to present any kind of definable plan is the first one to get slaughtered because know the others have a target with which to aim their slings and arrows. Failure by consensuses is a far safer path for the average politician. And sadly we don’t even have average politicians anymore. They are all sub par.

Congress has never been known to ‘win the day’ on their own. They need someone to take charge, providing direction and purpose while providing the salesmanship necessary to placate the American public into non-confrontational acceptance of their new deal. Presidents have traditionally carried that burden or assumed that role. Don’t look for that this time around. This is one lesson that Obama didn’t quite learn from the Clintons and he is paying the price.

I don’t think he will pay the price nearly to the degree he deserves. There are still far too many people that are blindly in love with whatever they think he is. I hope they don’t wake up too late to realize the party is over and they have wasted the whole evening waiting for a prince charming who will never arrive.

As for the debt problem, reality says to me that we have it every bit as bad as Greece, and some of the others, we are just living in denial big time. The deadline will come and go and very little will be noticed by most. The real damage is yet to come as a last minute knee jerk reaction deal will be made that will allow the politicians to take a photo op, slap each other on the back and proclaim victory for our side (which ever that might be). Then the slide down hill will continue until the next masqueraded crisis rears its ugly head causing us all to take anxiety pills will our leaders forestall the inevitable. And all the while we are in our day of reckoning now and most don’t even recognize it.

This is Ed Nef with a view from the Farr West.

Cash for Clunkers program is fiasco

I am of the opinion that the Cash for Clunkers program was and is one of the biggest mistakes this country has made. It sums up and represents all that is wrong with the government’s approach to correcting this so called economic meltdown. Let me explain.

Cash for Clunkers is once again a knee jerk governmental reaction to a problem that would solve itself on its own if left to the natural forces of supply and demand. The idea instead is to follow the plan put forward by Germany and another country that slips my mind at this time and create an incentive for consumers to go out and spend their money. One major difference between our plan and theirs is that they limited the purchase to home grown vehicles, where as we limited it to gas thrifty cars no matter where they came from.

On the surface this sounds great. Haven’t we been told that the car industry was in trouble and then proved it by taking over two of the three remaining original American car companies. This would drive consumers to their doors just drooling over themselves in an effort to buy a car that Uncle Sam was willing to put the down payment on. And what a down payment, $3,500 to $4,500 and for what, my old worthless beater that was just barely running as it was. Besides if I tried to buy the car on my own, the dealer certainly wouldn’t give me anything for it and I would have to try and sell it myself or get a salvage yard to come haul it away.

Besides that, Congress social engineering kicks in and says why not make the deal available only to those that trade that old beater in on something that gets better gas mileage. That way, we can save the planet while helping to reduce our dependence on oil energy. What a deal.

What a deal is right. First of all, free money is never free. It has to come from somewhere and that somewhere is those that pay taxes and from those that don’t in the form of inflation as the dollar continues to tank for fear that the only way out of this excessive spend rate is to start the printing presses. There are some that will understand this but there are far too many yet that don’t. Those that don’t will soon feel the effects but sadly still not understand what happened or why.

The next thing we notice is that the money only went so far and so a second helping twice as big as the first was dished up while Congress patted itself on the back for finally doing something that helped people directly instead of just subsidizing the financial mistakes of Wall Street. Only thing is this big dollop of dollars like those before it does not help all Americans or even most Americans. It only helps those that fall into their specially defined category, namely those with a clunker/beater that is worth less than the amount of the rebate and gets lousy gas mileage. I have a friend that thinks her car is ready for the scrap heap (though knowing the type car it should be far from it) and all the hype has made her interested in trading in to take advantage but she found out she doesn’t qualify because her old steed is already a fuel efficient vehicle.

The other qualifier is that you must be in a position to be able to afford a new vehicle and not later but now. This isn’t always easy even in the best of times, but that is o.k. because you can just take out a loan. (Wait a minute; wasn’t that what got us into this mess in the first place, easily obtained excessive debt?) So if you can’t qualify for a loan or if you are not willing to qualify but you don’t have a pocket full of cash, sorry Charlie.

But who wouldn’t buy a car now; the incentive from the government is just the icing on the calk. The dealers must be dealing like crazy to stay afloat, after all we still remember the deals they were willing to make after 9/11and back then they were selling way more cars than they are now.

If you happened to look at any of the ads for new cars, have you really seen any deals being presented. Most of the dealers are moving cars so fast they don’t seem to worry about making a deal. They know that if you don’t want it they have another one right behind you that is more than willing. Besides they only have a limited inventory of eligible cars and the government is providing the incentive and they don’t even have to bargain on the value of your trade in so why not sell all cars at full retail MSRP? The dealers can’t help but be overjoyed because now they have buyers that won’t even bother to question the price.

And what of these old cars that are being turned in for free money. Well there first thing to do is to make sure they don’t get put back on the street, so they are destroyed with a mixture in the engine to seize it up for good and then off to the smasher to make sure that the vehicle is beyond the use of any mere mortal. The cars are not even sent to a junk yard to scrap the recyclable parts and put them to use on existing cars that could easily use that unscarred fender or rear axle to return an existing vehicle to serviceable condition without the need of going to a new parts supplier that will have to make the new part using new material (even if it is from recently smashed up traded in clunkers) and lots of energy to form that material into the needed part.

For those of us that have had to live on a budget and are of limited means, a used part was sometimes the only means of keeping our cars alive in good repair. That brings up the other hidden cost to this whole program. Used cars support more than just those that drive them. There is a whole industry built up to support those used cars. Used cars are also the means by which many people have been able to raise their standard of living.

As a person trades in their old vehicle and buy a new one, their old vehicle has value and is still useable by someone who is willing to pay money for that use. They themselves might be trading in their older vehicle in an effort to upgrade and in so doing free up another used vehicle to pass on to someone that has a need for cheap transportation. That vehicle is a means for some to get a much needed job, or to deliver a sick mother to a doctor appointment, or deliver children to school. The vehicle creates possibilities that would otherwise have a person do without.

As all of these vehicles disappear, there will be a whole group of people that rely on these most entry level of vehicles that will have to learn to do without for awhile. Their cost of entry just went up greatly because the supply of good serviceable cars has suddenly shrunken.

So who wins with this lousiest of all programs? The bailed out auto industry? Not if you look at the list of the top 10 qualifying cars and notice that not one of which comes from one of those bailed out car manufacturers. About the American car manufacturer and labor? Well if you look at the cars that are being bought and notice that many of those Toyotas and Hondas and the two Fords that made the list are built in America then yes perhaps some citizens benefited. But for how long? Is this just a massive promotional sale that will only last as long as the ‘free money’ but will return to gloom and doom as soon as it is gone? All indications are that the plants are not ready to crank up production just yet as this has just been an easy way to move existing inventory, in other words, things still look pretty bleak over all for the industry.

But what about the economy, won’t this provide the much needed stimulus we have all been talking about? If you were one of the ones that just happened to be in a position to take advantage of this program then you paid full retail for a vehicle that you are now committed to paying for the next 5 years for. This commitment of future cash flow means that the money is spent and cannot be used for any other purpose or purchase. The fact that the government subsidized the purchase, much like a tax deduction for mortgage interest, doesn’t make it any less spent, and unlike the government you cannot spend you income more than once.

As was illustrated earlier, this does nothing for the lower income brackets but steal away from them a sooner opportunity to move up a notch or two. And what about all the cars that will now be getting better gas mileage, doesn’t that help? States are already crying because they don’t receive enough of your money in the form of taxes so how do you think they will feel when you no longer by enough gas to cover their expected gas tax revenue. They are going to want more, mark my words. Also, I firmly believe that the free market would have given us cars and trucks with much higher gas mileage ratings than we have today if they had just been left alone and let the free market help drive demand rather than letting the government set mandates. If you could convince enough people that they really wanted high mileage vehicles, the market would and will supply them. Where there is value and demand there is a market.

So the only ones that benefit from this fiasco even if it is just temporarily are the car dealers that got one last chance to gouge the consumer if they were lucky enough to retain a dealership after the last round of closures. And if they are gouging, as any consumer should readily see, then are they really the dealers that should have survived the last round of closures. I look around and see the ones that made it near my area and definitely wonder ‘what were they thinking’? Come to think of it, I have been asking myself that question about a whole lot of things lately.

This is Ed Nef with a view from the Farr West.

Does anybody want to buy my Chevy?

It is lightly used and in fairly good shape, trouble is, with the changes going on I don’t know how much longer I will be able to keep it that way. Does GM now stand for Government Motors? What has happened to this country?

(As I am slow to get this one published and have since noticed that the August issue of Motor Trend as also used the reference to Government Motors. I may be slow but I am not the only one thinking these things.)

I have said that it was a grave mistake for the financial bailout to happen the way it did and that the government should have only stepped in to help smoothly apply the laws already in place for an orderly application of bankruptcy procedures. Those banks and financial institutions that took the money have either regretted it greatly or were most definitely on the verge of collapse and saw this as the only way to continue to draw an overpriced paycheck for a few more months while they polished up their resumes.

So after seeing this happen, why would any other industry be willing to participate in the grand scheme for the government’s takeover of American industry? Two of the Detroit Three has succumbed to the temptress while Ford is trying for a holdout and now the other two no longer resemble anything of their former selves. Ford will go through its own changes and will most likely not resemble its own former self as it tries to reposition for the new automotive world's future but it will at least be trying to maintain a pretense at independence.

(Also, do you notice how they are referred to as the Detroit Three now instead of the American Automakers? This is done to realize the global nature of the auto business and that there are car builders in America that go by the name of Toyota, Nissan, Honda, Mercedes, BMW etc. that were not part of the original elite designation. Do you suppose that these American jobs are somehow not valued the same way as those originating out of Detroit to those in Washington?)

Chrysler is an old hand at bailouts having successfully completed one in the 80s. Trouble is this time there is no Iacocca to come to the rescue. With a lack of real leadership at the helm and a government that isn’t interested in leaving them as an American car company, they were handed over to Fiat with far too much ease. This move makes absolutely no sense other than that Fiat makes small cars that the government thinks can be rebadged as Chryslers, sold in large quantities to the American public and thereby meet the politically correct Al Gore global warming agenda.

When I said they gave away the company, I meant it literally as Fiat just promised some of their current technology and they walked away with controlling interest (at least so far as the government will allow). This will not work any better than the merger Chrysler had with Mercedes and for the same reason but on a larger scale, namely culture clash. If hindsight for a Benz and Dodge combo teaches us anything it should at least provide a flashing red light warning for a K-car Fiat.

The new Government Motors on the other hand is just pathetic and sad. After Obama forced out existing management before the bailout was complete (bloodless coup anyone?) GM announced that they are appointing Edward E Whitacre Jr. to become the new chairman after the bankruptcy is complete. Whitacre’s former position was head of AT&T. While this brings praise from the government officials that thought to select him as well as those he will be working with, my view is somewhat different. If AT&T is any example of the kind of company GM is about to become then I do not want anything to do with them. AT&T under Whitacre’s care had become one of the most bloated, conceited, arrogant and uncaring corporate entities to service the public and private sectors. The level of customer care sank to the lowest of depths under his reign and the only reason I can think of for AT&T to continue to exist is that the behemoth was so big it somehow carried on in spite of itself. Actually, it had so much free cash from earlier years that it bought out any potential competitors or spent them into the ground if they tried to enter their markets.

Come to think of it, GM has done much the same thing only somewhere along the line it lost its profitability and ran out of funds to buy out the competition. It then had to stand on its own merits (and GM did have plenty of merits to play from) but it didn’t trust itself to do so. How and what will Whitacre do when the government pulls back the purse strings and makes GM stand on its own? Unlike AT&T, GM will continue to face competition in the automotive world and they won’t be able to rely solely on new government contracts to keep them afloat.

Actually they might. How many other corporate or service entities are there that are strongly subsidized by taxpayer funding for an overzealous government bent on political manifestation? The arts, National Public Radio, the postal service and of course Amtrak quickly come to mind. But wait, don’t these also have competitors present that attempt to service the customer’s needs and the competitors do so at a profit? Yes, yet the government sponsored entities continue to exist with much taxpayer subsidy thereby satisfying its one true customer which is government self interest. Should we expect anything less from their endorsement of Government Motors?

The thought of all this physically sickens me. As a car loving guy, I hate to see what is going on more than most and fear that we will be tossed into the automotive dark ages like that which followed the first gas crisis that generated fuel mileage and emissions mandates and produced some of the lamest excuses for autos for over two decades. These were government mandates and not consumer driven desires and that led to innovative stagnation. All signs are indicating that this is the path we are once again headed.

Also, I am an American and a taxpayer. This country is founded on principles of fair play for everyone yet with every passing day I see less and less of it and not nearly enough voices standing out against the changes taking place. Liberty, and freedom are words that have somehow lost their true meaning as have capitalism and free markets; the consequences both frighten and infuriate. Wake up America. Return to the values our fathers stood for or we will never be able to know them again in our lifetime. We need to return the white elephant now before it eats us out of house and home. For those that do not understand, we have only begun to pay the price for this folly. If we hurry, maybe we can still cancel the check and get our money back.

So if any of you are in the market for a new car, do you really want to pay for it twice, once as the consumer and once as a taxpayer? I know we do that somewhat anyway but really we should be expecting something for our dollars. I have an idea instead of buying new; does anybody want to buy my slightly used Chevy? I just don’t have the desire to support it anymore.

This is Ed Nef with a view from the Farr West.

The automakers dilemma

I have been thinking a little bit about the auto industry lately and the mess they have made for themselves. I can't say that I am surprised by a lot of this. I am very disappointed however.

I am a car nut, an enthusiast even and for the car industry to turn to the very establishment that helped put them in this predicament is truly a situation that will create many a business school doctorate thesis for years to come. What possible good can come from this?

I could be saying I told you so, but I had a hard time finding anyone to tell. No one was listening. The American car makers have had major problems for several decades now, not just the last couple of quarters. They have been given their wake up calls on more than one occasion.

Sure some within the industry heard and heeded the call and some were able to come up with some really good and compelling products. Strides were made in quality improvement but not across the board and not enough to convince consumers that they had caught up with or passed the competition. There were glimmers of hope interspersed with packets of ‘more of the same’.

I feel sorry for anyone that has to turn to the government for a handout or subsidy. Sad to say we all are in that boat now and there doesn’t seem to be any turning back. As those who have had their hands outstretched for a gimme have recently found out, these government handouts come with strings attached. Some are o.k. with that while others prefer their independence. Some are beginning to have regrets.

So what do I make of the current state of affairs for the three? First Chrysler, which lost its way once and found it only to lose it, again, is perhaps in the weakest position of all. It is not currently being run by car guys though it seems to have many car guys within its workings. The shotgun wedding to Fiat seems inevitable if those holding the shotguns have their way, but I think it would be a mistake. Chrysler would do better to maintain its independence and build from its strengths. In order to do that it would need capital, true business management, and leadership with vision. These three components it lacks and therefore I see Chrysler fading away into oblivion even if a merger with Fiat is accomplished.

Second is General Motors, a company that is too big to know which way it is headed and too big to change the direction it is headed even if it wanted to. GM is the prime example of why mergers and acquisitions do not always work in the auto industry. Companies are created for a variety of reason but they all tend to try and differentiate themselves somehow, in other words, not all hamburger joints are McDonalds. Each company in order to do business will come up with its own solution to a consumer need and present it to the buying public. If successful it thrives but if not it goes back to the drawing board or goes away. Some companies will have a few outstanding ideas but will be lacking the rest of the components such as marketing, production, administration and such that make up a well rounded business. These are the companies that become prime targets for a takeover, not to obtain the company but to obtain the patents on the great ideas and incorporate them into your own product line. Many a merger has been done to obtain legal rights rather than finding synergies.

The problem in a merger comes when you try to combine two different cultures, as eventually they will also merge and become one and the same. As this happens, the setting that was the perfect ground to cultivate that great idea slowly fades into the mother company, the same company that was unable to create the idea in the first place and had to buy the other company to acquire. This is very evident in the GM of the 80’s when you the term ‘cookie cutter car’ was coined to describe the fact that all too many cars looked and acted exactly the same. The fact was they were exactly the same with exception of the name badgeing and a few accent trim pieces. You could find the same vehicle at Chevrolet, Pontiac, Buick, Oldsmobile, and on occasion Cadillac. Take a look at the pickup offerings from Chevrolet and GMC to see the most obvious example of sameness.

So what does this mean exactly? It means that the accountants and management took control of decision making for future product and decided that it would be less expensive and more profitable to develop one car and put several different labels on it thereby getting two (or three or four) items for the price of one. Sounds good on paper right? It doesn’t work out that way and here is why. Instead of developing and providing to the consumer two (or three or four) solutions to their needs, you have presented one solution and just changed the packaging. This is not an alternative solution to their needs; therefore competition can come in and offer a true difference. Consumers eventually will become savvy enough to know that when they are comparing solutions, they need only look at one of GMs offerings (rather than each one individually) and compare it to what the rest have to offer. And they wonder why their market share has dropped off.

GM has already killed off some of its brands, Oldsmobile is no longer for example. Is it missed, yes and no. If Oldsmobile were still here today wouldn’t it look just like Chevrolet, Pontiac, and Buick? Other than the slight visual clues for demographics they are one and the same. If they close Pontiac or Buick will they really be giving up that much? When Chrysler shut down the Plymouth name was there really much of an impact? They all have histories and we have fond memories of special cars from the past but was there any guarantee of recreating the magic of those one or two items?

So what is GM proposing to do to salvage itself but cut off some of the acquisition lines that gave it some distinction, namely Saturn, Hummer, Saab. Rather than working to make these somewhat independent lines profitable (and not being an insider it is hard to tell if they were or were not profitable) they have decide to cut them loose. This will create a very shallow corporation with dwindling product line with which to compete going forward. And as the product line going forward will now be determined by divine government intervention which will make decision not based on sound business doctrine but by political correctness, it is hard to say if there will even be a GM 5 to 10 years from now. Do you think the fun cars like Corvette and Camaro will even stand a chance of seeing a next generation under these conditions?

So that leaves us with Ford, the only hold out to the handout. I have to admire that and for that alone give them a standing ovation. I am sure there was a lot of pressure to bow. So Ford becomes the last hope for an American original. It is facing the same problems and constraints that the others are of underfunded pension plans, bureaucratic red tape, poor management, conformist and homogenized product line but it at least seems to be working from a plan and fighting for its continued independence. For this there is hope.

Fords product line is sufficiently diverse in the near term though they have the same problem of cross teaming between their Ford/Lincoln/Mercury lines. They have worldwide ties that should help enormously with product development if used prudently, the future 2011 Ford Fiesta is a prime example. (Ford if you are listening, please don’t over Americanize this car for our country. The European version sounds like the one I would want to own and drive.) The company still has a unique identity and some products still retain character such as the Mustang.

I do not understand the current design direction though. What is it with the 3 big flat chrome piece grill work? It is pathetic and reminiscent of the creased line loot the Art and Technology boys did that made me lose all interest in a Cadillac. I hope it is a short lived fade. They also added it to the full size vans as you can see. This is what being hit with an ugly stick does to you. Why do I always think of the station wagon in National Lampoons Vacation movie when I see these multi-level light treatments? Please run these design changes past someone that has taste before putting them out there?

Will Ford make it? It is hard to say for the same reasons it is hard to say if the other two will or not. The only reason Ford held out is that they had more cash on hand to allow them to stay in the game a little longer. How long it can last is anyone’s guess. I hope they all survive, because I don’t like to see anyone fail for one thing and because I think the open competition is good for the industry and the consumer. We all benefit from the raised bar.

The final note that should be made is that these are not the only American car makers today even if they get all the attention as if they were. Cars made in America include Toyota, Honda, Nissan, BMW, Mercedes, Tesla and others. Are they entitled to equal consideration, or are some ‘animals more equal than others’ in this Obama Nation? Will the rules apply equally to all and apply to all equally? And will those rules be the rules of business with the freedom to succeed and the freedom to fail based on the dictates of the marketplace or will the rules change yet again to fuel the fancy of a few? Time will tell as we wait and watch.

This is Ed Nef with a view from the Farr West.

Are their any grownups in Washington DC?

I am upset, disappointed, frustrated, infuriated, and all types of angry over what has happened in this country by our government and its people as it pertains to the economy.

I know I am not the only one.

The absurdity is overwhelming. I could not conceive of this as a reality scenario in even the most horrific Stephen King novel. I am completely dumbfounded and in a state of shock to think that there is even a remote possibility that the things I have seen and heard lately concerning our government and the economy are somehow based on anything approaching real life let alone the mind of a very imaginative fiction writer. How could any of this be real?

Hypocrisy is running rampant in Washington DC. The blame game is in full swing and no one but the other guy is to blame for the current mess we are in. I am amazed at the way Congress and the President are showing their disgust at employees of AIG receiving their agreed upon and contracted for bonuses totaling $165,000,000+ yet no one is saying much about the rest of the $2,000,000,000,000 of tax payer dollars that has been spent or promised for their solution to the economic downturn. (If you don’t understand the magnitude of those numbers and the actual difference between them, you are not alone, Congress does not either.)

They are now talking about taking legal action to ‘reclaim’ the bonuses if they can’t get them back voluntarily through shame or guilt. They are even talking about writing legislation to create new tax laws specifically aimed at taking back these peoples pay checks. Honestly, who is more guilty of a criminal act and gross negligence?

I am not defending the employees for their action as employees, their performances or whether they met the terms of their bonuses or not. I am not focusing on the management at AIG who felt it was necessary to make such agreements to obtain and retain the kind of employees they deemed fit for the positions they had. I am talking about our government’s actions to help. They stepped in and threw money at the problem without understanding the problem or asking questions or checking facts. They gave the money without any strings attached, (though that is hard to believe as anytime the money gives out anything there are strings attached). And now because a business that was labeled ‘too big to fail’ tries to continue to run business the way it always has (which is partly why it is in the shape it is) and we are supposed to be outraged and focus our attention on the employees because they got paid to do what they are paid to do? I don’t think so.

If Congress had let AIG fail, as businesses are supposed to be allowed to do when things don’t work out, the house of cards could have fallen, the damage would have been assessed and the remaining goods sold to valid companies at fire sale prices if need be, but then life and business goes on. AIG under bankruptcy law would have been able to renegotiate with court approval such things as employee agreements, pensions, and creditors payback. Congress could have let any of this happen and actually could have directed regulators to help facilitate the process in an orderly fashion but instead they chose to take the knee jerk reaction that threw money at the problem in the misguided notion that they had to do something. Hence they nationalized the bank (which is scandalous in any situation) without really taking anything over. They became the very noisy and boisterous silent partner. Unfortunately they did it using our tax payer money.

Though all of this is really sad and pathetic and Congress should voluntarily shut down and close shop from shame and embarrassment, the really scary thing that worries me the most is the way they are going after a target (the employees) with a vengeance that is unwarranted. If anything, Congress is every bit as culpable as the employees they are attacking and more so because this is only the tip of the giant iceberg they have created to take down the Titanic we fondly refer to as the USA.

My wish is that they would work at least as hard to renege the bailout/stimulus package they put in place, reclaim our hard earned tax dollars, both present and future, and cut their drag on my economy. Go ahead President Obama, cancel all the lousy financial actions Congress and you have passed in the past 6 months with the same vigor that you are trying to wipe out any actions taken by the previous administration. If you did that, I really would begin to have ‘hope’ again as that is a real ‘change’ I could believe in. Until then….

This is Ed Nef with a view from the Farr West.

Witness the birth of the new Great Depression Part 3.

In fact, that is just what happened. Everyone started leveraging everything and because everyone was doing it, it seemed to make it all right. We piled on debt to pay for everything to be able to live for today and it was all o.k. because once all our cards and accounts reached their max we could just consolidate everything into one big newly refinanced loan by tapping into the freshly created inflation generated equity that the investment in our homes had just produced out of thin air. Pretty neat eh?

This worked so well that we got used to it and came to expect that it would work every time. Jobs were consist enough that we could count on the income to always be there and so we went ahead and obligated ourselves to make consistent payments that matched those consistent paychecks. Most Americans had it worked out so well that everything that came in was exactly the same as everything that went out. It was a smooth running machine, until one day when the price of gas went up. Now instead of it costing $20 to fill the tank it cost $40 and you don’t have the other $20 in your pocket. Something has to go but everything you have is already spoken for. Witness the pin that popped the bubble.

So stupid people make stupid decisions, this is nothing new. It has happened before and it will happen again. The key point to take from all this is that we don’t make the innocent pay the price for the ignorance of others. That is where the second comparison has come into play. The knee-jerk reactions that followed the bad choices of others as happened following the first great depression should not be replayed this time around. Obama and Congress are launching on the biggest mistake in this nation’s history and it is not without forewarning. The “stimulus package” will seal the fate of this nation as a full blown socialist state with little hope of return. There are far too many critics that have been far too quiet concerning this matter. It is not because they have not spoken in the past or in the present, but the current mass media markets have decided not to listen. Make no mistake about it, voices are being suppressed. The America of our forefathers is in jeopardy of being no more, and for the sake of being politically correct we will squelch the voices of wisdom. We will label them crackpots or worse.

There are of course differences between now and then. FDR waited several years and I imagine went through quite a bit of debate before implementing the new deal. Obama and his congress have rushed the current new deal through in a matter of days. This surprises me especially when you compare it to the regular congressional budget that usually is past after the new fiscal year has begun, and sometimes months after. Why this rush? Banks closings are up but not anywhere near the level of the Great Depression. Unemployment is up, but also not anywhere near what it was in the Great Depression. 7.5% vs. 25+% do the math.

The economy was a hot button item during the election timeframe and usually is during campaigning. The Democrats and their media talked up how bad things were when in reality things were not really bad at all. This is not to say that there were not some bad areas and some people experiencing bad times. That has always been the case in our nation’s history. There are boom and bust cycles going on all over all the time, nothing new. But like so many political campaigns, you can’t convince others to vote for you unless you can convince them that the other guys are doing worse than you would. Standard fare, I mean I many times have you heard that the last few years under the Bush administration were the worst years ever in recorded history. Kind of sounds like the same thing Bush said about Clinton and Clinton said about the Bush before that. My question is why do we continue to believe it when the truth says otherwise, or at least is somewhere in between?

So the Democrats have convinced us all that the economy was falling apart and only they could make it work again. They said it so long that we and they started to believe it. Is this the case of a self fulfilling prophecy? Pretty soon people started making decisions based on this doomsday prophecy, confidence in the system was shaken and those decisions triggered other decisions which started us down the path of an economic slowdown.

If we can raise this slowdown to the level of a crisis, then we can implement all kinds of legislation without any questions or obstacles. What better way can you think of to get your policies in place before anyone has time to think twice? It has to be done now because it will be too late tomorrow, and beside we have to do something…don’t we? The knee-jerk caught a lame duck president with a first financial bailout and followed on to the new president with the stimulus package.

This isn’t the first real estate driven crisis, remember the 1980’s and the savings and loan problem. Remember how it wasn’t solved with a massive spending bill but a revamp of the banking industry that combined savings and loan institutions with bank bringing them under the FDIC insurance for depositor safety and then orderly liquidated bad real estate deals through the use of open market pricing? Why are we subsidizing the bad institutions this time and trying to keep them in business when we should be helping them liquidate in an orderly fashion? The FDIC could play the role of insurer as it is chartered to do and protect depositors money up to the agreed upon amounts, sell off the assets of the defunct business at market prices to willing participants and we could all get on with the business at hand.

Instead we are putting the patient on life-support, one that only prolongs the misery and the pain. Japan went through a period of denial with its real estate boom of the 80’s and they are still paying the price. Instead of clearing the books they finagled them through adjustable accounting. We are doing the same. Where oh where has wisdom gone in our elected officials?

And where has our wisdom gone? This article has taken a lot of thought and effort to write. As I have watched the proceedings take place in the news and the actions taken by our elected elite, I am both in awe and wonder. I am totally dumbfounded by what is taking place. It just doesn’t seem possible that this is actually happening in real life, and maybe when I get up tomorrow I can find that I just read it wrong. That was several days ago and I am still seeing the same thing, it is really happening. I can’t stop it, I am not an insider so I can’t profit from it, and I shudder to think what it will take to reverse it now that it is in place.

When reason fails with man, and the world begins to tumble, I guess the only thing left is the thing we have had all along. Turn to God. Pray and know that God lives. As the world tosses and turns and changes with the winds and tides; know that God is the same yesterday, today, and forever. Therein lays our strength, our guide, and our salvation. Ours need not be a fleeting moment in time if we are willing to look to our Father in Heaven with eternal eyes. My prayer for us all, leaders and citizen alike is that we have the wisdom and the courage to make the right choices and to stand for what is right.

This is Ed Nef with a view from the Farr West.

Click here if you want to see the new Great Depression Part 1 or to go to Part 2.

Witness the birth of the new Great Depression Part 2.

So what did you want the government to do, nothing? Yes, as a matter of fact, that would have been the best course of action for it to take. If we really believe in free markets (a freedom principle) and the economics of supply and demand, then the role of government is too help protect consumers from fraud (a criminal act with criminal intent) and monopolies (manipulation of markets to gain control and prevent freedom within the market), and such acts for fairness sake, but not to dictate which businesses we can have and how we should run them or who we can and can’t deal with. It is when governments try to intervene on the belief that they can best determine how to ‘create’ fairness that we all lose.

This is called social engineering and it has never worked well if it has ever worked at all. In any instance I can think of, it comes down to taking away from one to give to another. It is providing subsidies for a favored group at the expense of a less favored group, and it is always the party in power that is making the decision of which group to favor. This is not equality this is theft, and it is the worst injustice of all. Two wrongs do not make a right. Just because your group or cause may be winning the ‘equality equation’ one minute is no guarantee that it will the next. Welcome to the roots of Socialism and Communism. Ayn Rand, F.A. Hayek, George Orwell, and many others have tried to warn and persuade against these evils.

So if the government would have done nothing, the market would have worked itself out and life would have gotten back to normal a lot sooner than it did. Remember the words about supply and demand. Basic economics says that when a seller and a buyer have the same price in mind, a transaction takes place. If there is a difference in the desired price each is willing to accept then no transaction takes place…that is until they come to an agreed price. Of course, if a seller’s price is less than what a buyer is willing to pay or if a buyer’s price is higher than the seller is expecting a transaction will also occur with a happier than expected outcome for one of the participants.

If prices rise too far, buyers quit buying or buy less than they normally would until either their situation changes or prices fall back to a level they are willing to accept. This is where the true power of the market and more importantly the people’s power lie…as consumers. If a consumer decides that the price is too high she can just turn away, and with the markets that America has developed, they can look elsewhere. We as consumers have the power of alternatives and options, another great benefit from having free markets…choice.

So what happens in a bankruptcy? The prices fall to clear inventory. How far the prices fall is determined by the market and the need to move that inventory to meet the demands of the defunct business. Again the market place determines a fair price by matching the seller with the buyer at a price both can live with. In the case of stocks, the price will fall to some level where a buyer will believe that he can find value in the purchase. Look at the recent Circuit City bankruptcy as an example. They have invited in the liquidators who will sale all remaining inventory (and then some) at liquidation prices. First they will move all prices back up to full retail and then start marking off a certain percentage to make the sale. A few weeks pass and they will raise the percentage off to sell a little more. A few more weeks and a few more percentages, until most all the inventory has been sold off by having a willing buyer and a willing seller at an agreed upon price. The good stuff will go first at the highest prices and the lesser stuff will go as their fair price is eventually reached. It is natural, and it is how real markets work.

So what can we compare this to today? There are two common elements that exist today that were common back then. First is an overinflated market full of speculators and hype that has easy access to excessive credit for an overleveraged play. If anybody could not see the comparison to Real Estate investing then you shouldn’t be allowed to vote because you just aren’t paying enough attention to the world around you.

Real estate has been a huge hit sense someone went to the trouble of trying to convince everyone that they should have some. A chicken in every pot, a car in every garage, and home ownership, the American dream, who could ask for anything more?

Real estate promised equity and wealth, and a place of status. It was incentivized and subsidized by tax breaks and government programs. Best of all you could finance 80%, then 90%, then 100% with no money down. They even had loans that would give you 120% of the homes “value”. At the pinnacle of it all you could even find loans where you never had to pay back the principle, just pay the interest and everything would be fine. After all the prices were going up and up and up and they aren’t building any more land you know.

Everywhere you turned there was a class or a course on how to buy real estate with no money down, or how to flip a home, or buy a foreclosure, or become a landlord. Real estate gurus came and went as fast as you could change the channel on the late night infomercials. All you had to do was take a look around and you could see someone that had made a mint in real estate, why even the Governor of California made his millions in real estate so why shouldn’t we.

And even if it wasn’t to make us rich by becoming the next Donald Trump we could at least be better off. We have always been told that owning your own home was a good and smart investment. Look at the equity your building. You have ownership of something and they can’t take that away from you. Why pay someone else when you can be paying yourself? (That is good advice when applied in a practical matter).

So the equity you built is caused by inflation and not by an increase in value, and owning your own home allows you to put holes in the walls where you want to and repaint any color you so choose without checking with a landlord first, and owning your own home means you can do with it whatever you want to as long as what you want to do is consistent with existing zoning laws and property covenants and building permits, and owning your home means no one can take that away from you unless you have a mortgage and miss a payment or run up against hard times and can’t pay your property taxes, but hey it is your home.

In the past, you could only borrow an amount that would have your monthly payment no greater than 25% of one wage earners income and that was probably take home pay at that. Recently it seems that you could qualify to finance an amount that would take 80% of your take home pay. (The remaining amount could pay for cable and you could feed yourself with food stamps).

Click here to see the new Great Depression Part 3 or here to go to Part 1.

This is Ed Nef with a view from the Farr West.

Witness the birth of the new Great Depression Part 1.

There are certain stages in our nation’s history that we thought would never be repeated. In fact they should never be repeated. Those that have not learned the lessons from the past are doomed to repeat them. We have learned these lessons, or at the very least should have. For those that have not learned them, there are others that have if we will but listen. Sometimes it becomes a matter of knowing who to listen to. In this world of spin and revisionist historians, it is easy to become confused. Here then is my contribution to the economic world of wonder we are facing.

The current financial crisis we are facing has often been compared to the Great Depression. There may be some similarities and that is disturbing as this need never have happened, but with the passage of the “stimulus bill” it most certainly will turn into another great depression.

First a quick word about the economy and economic cycles. Booms and Busts. They have been with us since the beginning of commerce and will continue to be a major part of any world that consists of trade. The market psychology that comes with it is also nothing new. People get overly exuberant and overly pessimistic at the worst times and that drives the demand side of the supply vs. demand equation to unrealistic levels. Once it gets too far one way or the other, it usually returns to a more normal state but at a pace that catches most people unprepared. When this is done on a large scale it is called a bubble. It is called a bubble because prices grow rapidly and, much like a bubble, from the insertion of air…much of it hot. When a bubble can take no more air yet more is introduced, the bubble pops and everything comes tumbling back to normal waiting for someone to stick their ring in a can of solution, blow real hard and start to create the next new bubble.

We have all experienced bubbles before and sometimes not even realized it. The recent increase and then decrease in the price of oil and gasoline is a great example. The tech stock market that took dot.coms to the stratosphere and then tanked in 2000 is another. The bubble that is getting us today is housing. In order to put this into perspective and compare it to the Great Depression, let us go back to that time and see what was happening.

Most will say that the stock market crash of 1929 triggered the Great Depression while others are looking at other factors such as the governments reactions (actions taken after the fact) as the major cause of the Great Depression. From what I have seen and read, I tend to fall in the later camp.

The stock market crash of 1929 had several factors that came into play but one of the key elements was that fact that you could buy stocks on margin. In other words, you could use debt, or borrow 90% of the price of a stock to purchase it. This is known as using leverage in the investing world. It works great as long as prices are going up. It can kill you when prices go down. Here is how it works.

You buy $100 dollars in stock but you only have to come up with $10 and your broker came up with the other $90. The price of your stock goes to $110 and you sell it. You pay back the broker his $90 plus some interest for borrowing his money, say $1. That leaves you with the remaining $9 as profit and since you only put up $10 of your own money you just made a 90% return on your investment. Pretty sweet deal and way better than the piddley amount you would earn in interest from the bank.

The boom market in stocks that started in the mid 1920’s was making many people very rich, and just like the gold rush it attracted many newcomers, some that knew what they were doing and many that didn’t. It seemed that anybody could invest and make big money, and many did. And when you saw your neighbor making easy money it was natural for you to want to do the same. Pretty soon everyone was trying to jump on the band wagon and make their fortune. Eventually, prices rose to a point that was ridiculous and unsustainable and they started to decline.

When prices decline, those that have leveraged are the ones that are hurt. When the $100 stock goes to $90, and you bought it on margin, you still owe your broker $90. If you sell the stock now and pay off the broker, (and don’t forget you owe him $91 to cover the cost of borrowing) you are left with nothing. Well you don’t want that to happen so you hold on thinking this is a temporary down turn and prices will be heading up again very soon. After all you made this investment to become rich like your neighbor, and everybody is doing it. Pretty soon however the price is $80 and your broker gives you a call and says he needs some money to cover the shortfall. You don’t have any money because you spent your last $10 buying this stock that was going to make you rich. The broker sells your stock and you owe him the difference.

As the broker sells your stock it puts more pressure on the prices and they continue to go down creating a spiral effect. Individuals have to pull money from the bank to pay off their debts. If the stock they bought is used as collateral for other purchases and the value of that collateral declines the other loans are in danger of going into default. As the defaults start in one area they can quickly expand, moving from one area to another by hitting one account and then another. As people scrambled to cover their newly acquired debt and save their personal finances from collapsing, it began to impact other people and business portfolios. They in turn had to struggle to save their finances from collapsing. One person’s pain began to be felt by all.

Now remember that this was nothing new and in reality it was quite common for markets to experience booms and bust. In fact, some areas of some markets have had greater price movements both up and down. Investors have made their millions and lost everything on many occasions and in many different markets even before there was a stock market. You can find books that will describe other markets such as the great tulip market of the 1600’s that went through these outlandish pricing periods. In fact there have been many markets in our lifetime that have experienced extreme boom and bust conditions. Our awareness of them is only brought about by our personal participation or the participation of someone we know. The really big ones are only well known because they impacted a large percentage of the population. Where was the media when you lost all that money on your cabbage patch doll and beanie baby collection?

As a result of the magnitude of the stock market price decline, the impacts spilled out into all aspects of the economy from banks to business to government. The madness of men and markets drove a typical price correction into a recession of large magnitude and that should have been the end of it but then it turned into a depression as a result of the actions taken by the government to correct the problem.

Now before you get me wrong, note that they did do some things right. The margin rates were cut so that investors were no longer able to buy stocks with 10% down. The current rate is 50% which some might think is still high but 2 for 1 is a lot less than 10 for 1. They also strengthened the banking system and regulations for oversight and increased the use of insurance for depositors to restore faith in the banking system.

Unfortunately, the Great Depression also allowed the government to introduce the New Deal. This was one of those giant knee-jerk reactions from government to fix the wrongs of man. What it did was introduce many of the Socialist policies and programs that we face today. It also launched a large “stimulus” package that tried to spend our way back to prosperity. Many would say that it extended the length of the depression many years past its natural length. I would have to agree. Much of the spending went into make work projects where efficiencies and effectiveness were not considered let alone any outcomes beyond the creation of jobs as the objective. We also created the world’s largest legal Ponzi scheme ever known to man…Social Security.

This government driven economy is the very idea we used to find so abhorrent in communist nations and would speak openly against. We used to think that nationalizing any industry was something that only happened in backward third world countries and if anyone even suggested such a thing people would start looking for a hanging rope. Laissez faire has oft been the slogan of a free nation.

Click here to continue to the new Great Depression Pt. 2. or Part 3.

This is Ed Nef with a view from the Farr West.