Another Day, Another Crisis

# 026                                                                             April 29, 2009

By: Allen Wells

GM has proposed giving the USG up to one half ownership (that’s 50%) in the company in return for another $11.6 Billion in loans… and they are proposing to pay off half of the $20.4 Billion it owes the UAW fund (to cover health care) by giving the Union ownership of another 39% of GM. Well, I’m no mathematician (thank God), but doesn’t fifty percent plus thirty-nine percent equal eighty-nine percent ownership?

Who gets the other eleven percent? Will it be the lenders and individuals that invested in the company? No, the USG is pressuring them to take less than 30 cents on the dollar for their investments (and their faith in the system). 

America’s largest automobile manufacturer is about to be nationalized, state owned in a partnership between the bureaucrats at the USG and the United Auto Workers Union. Wow.  On the brighter side (so to speak), I bet there is some happiness in hell today… Lenin and the rest of the dead socialists are probably leaping for joy… everything they dreamed of doing to America, but couldn’t… we are doing to ourselves!

The end is coming to our lifestyle. It will take some time to destroy the economic base and industries that have been created in America over the last two centuries, but make no mistake… the end is coming. We are rapidly becoming a one world organization, government by bureaucrats and planners, manipulated by crises and hysteria.

Take a look at the crisis of the day – the “swine flu pandemic”. Presently, approximately 150 people have died in Mexico City. World governments have moved in an amazingly coordinated process to lock down Mexico City and to “protect” their citizens. If the worlds governments have worked quietly and efficiently behind the scenes over the past few years to manage an influenza epidemic episode, then what else have our overseers worked together to control? More global financial meltdowns? Restructuring of the worlds banking systems to control all capital? The nationalization of major industries? I’m sorry, I was not aware that we have become the United States of China.

I do have a question about the swine flu crisis. This “pandemic” sure seems to be moving very slowly. If this is such a serious threat to global life, why aren’t people dropping dead all over the world? The Spanish Flu epidemic killed somewhere between 30 million and 100 million people in just 4 years. That’s 10 – 25 million people per year.

Epidemics are generally fast moving and [for the most part] unseen before it’s too late.  We live in an age of crisis. Crisis takes our attention away from the truth. Crisis gives us something to worry about that takes precedence over everything else. Swine flu is not a crisis in America today. If your child breaks his (or her) arm and blood is spurting out and the bone is poking through the skin and you have to drop everything you are doing and rush the child to the hospital… that’s a crisis… wait - no, that’s an emergency.  I guess if you get sideswiped on the way to work by some idiot that damages your car and you don’t have enough money  for the deductible on your insurance… that’s a crisis… no, that’s an unfortunate situation, but it’s not a crisis.

What actually is a crisis? If you have no money, no place to live, you can’t care for your family and you cannot feed your family… that’s a crisis. In America today, how many families are really in crisis? How many true crises do we have?

“Crisis” has become one of the most ill-used, over-used terms of our generation. Everything is a crisis. This is much like the boy who cried wolf. In all honesty, I’m one crisis too deep to even care about the next crisis. We have the crisis of global warming, the crisis of nuclear proliferation, the crisis of Islamic terrorists, the crisis of the financial meltdown, the crisis at General Motors and Chrysler (hey, that almost sounds like crisis!), the crisis in Afghanistan, the crisis in Pakistan, the crisis in Somalia… Why is it that every crisis that appears, somehow, someway requires us, as American taxpayers to fund the response to these crises? Just asking.

The housing crisis is still around, but have no FEAR! This just out, Tuesday’s Wall Street Journal (article on page A2) tells us, “More Homes in California Are Selling.”  The article states that sales of existing single family homes  increased 64% from the prior year period and median home prices rose month-to-month for the first time since August 2007. Of course, you have to read down to the last two paragraphs of the article to find out that the improvements are “partly statistical”. Partly statistical? Is that like partly dead? Which part? As the article continues, “… the number of sales in March of 2008 was especially low.” What? That’s like asking someone you have not seen in a while, “how are you doing?” and they respond, “better.” Better than what?

The last paragraph of the article ends on a bright note (humor)… “Another concern is the recent ending of moratoriums on foreclosures by Fannie Mae, Freddie Mac and some big lenders. That is expected to lead to a new increase in foreclosures in California and elsewhere over the next few months.” I don’t believe the housing crisis is over!

Housing date released yesterday showed housing prices declined overall at a slower rate in February than in January. January’s decline was 19%, and February’s decline was 18.63%. We are told this is a good news and a call for celebration… should we really be celebrating an 18.63% in home prices?

Hmmm…. I wonder what the next crisis will be… “meet the new boss, same as the old boss.”

With warmth and regards (as always),

Allen

To reply or comment:

http://voicecafe.blogspot.com

The Internet as "The Dark Side"

Guest Essay

By: John Gault 

April 28, 2009

[Editors Note: This is a guest essay by our friend and reader “John Gault” (who is John Gault?). If you would like to post an essay you are very welcome. Just send the essay to AllenWells@mindspring.com and I will post it for you. ] 

Several years ago the History Channel aired their “Top 100 Greatest Humans” show and the number one slot did not go to Jesus, Einstein or Elvis.  Rather, it went to Johannes Gutenberg.  Gutenberg was the inventor of the printing press. At first thought, this may seem like an odd choice. The reason he was chosen (by a large panel of scholars), was that his invention allowed for the first time news to spread to large regions.  Exact words could be read and understood, without lost meanings or facts, which is often the case using only word of mouth communication.  Think about it… this does make sense. After all, the Bible and the tenets held within were only able to spread due to Gutenberg’s invention. Thusly, Gutenberg is the father of communication. 

Centuries later, we now have the extraordinary World Wide Web.  The Web has literally transformed the world. The benefits of the Web are very well known; there is little point in trying to list them.  

What about the evils of the internet? For all the talk about the indispensable freedom of the internet, very little is ever mentioned about the dark side for existing businesses.  

This is not a discussion about pedophiles scouring MySpace, or pornographic websites (we have Dateline with Chris Hansen for that). Rather, the dark side is about a loss of appreciation for art, as well as skilled workers.  One can clearly see a future where people no longer get paid besides those with brick and mortar jobs.  The problem is that the internet makes thing just so easy, that people just don't want to pay for anything anymore.  Now let’s be straight here, new technology always replaces the old and that’s life.  The Model T replaced horse and buggies, (thank goodness).  However the new technology always created new costs for those who purchased them or used them, and new income for those providing the new service or product. The internet is an entirely different beast. 

A good example of this is the article you are reading. Contrary to what many think, 99.9% of bloggers make zero or next to zero dollars. Rather, they do it for passion. And why are blogs free? Because users abandoned early blog sites that charged a fee.  The only way to truly make a livable income by blogging is by having hundreds of thousands of unique visitors to your blog and getting the attention of major advertisers, which will then pay you whenever a visitor clicks on a banner ad.  There are probably less than 50 blogs which make big money, out of the millions of blogs.  

As you probably know, national newspapers are shutting down every week.  People simply do not want to pay for a newspaper when they can get fresh and immediate news for free.  I will not be renewing my newspaper service.  By the time I get my Sunday paper, I’ve already read all the news online or seen it on cable news.   Newspapers are closing down, one by one, because it's old news by the time it hits the web, and the web articles are free. YouTube just announced they are starting a TV channel that will offer all favorite TV shows online. At some point, I could cancel my cable service and watch online, as I already do with many shows. 

The reason I pay for HBO is because I enjoy Real Time with Bill Maher. Incidentally, I just read that HBO is testing an offering of all their content online. This means (for me) as soon as this is available I will be canceling my cable service.  Certainly there will be a fee, but free shows will be posted on other sites such as youtube, which brings us to the mother of all internet catastrophes…Music. 

Popular music has always made the bulk of their money from teenagers. This goes all the way back to Buddy Holly, The Beatles, to The Rolling Stones.  Naturally older people purchased music as well, but in much fewer numbers.  Since the advent of the internet, record sales have been in such a steep decline as a result of free sites with servers all over the world, and most experts agree there is nothing that can be done about it.  

In 2000, US consumers purchased roughly 785 million albums. In 2008, that number dropped by 200 million.  So far this year, record sales are down another 20%.  Well how about ITunes you ask? It’s nice in theory, but it’s simply not working.  In 2008, 95% of the music downloaded from the internet was done illegally, meaning for FREE.  The reason is that (we know this from polls conducted) teenagers simply do not believe that music should cost anything. 

Why does any of this matter anyway? Well, beside the fact that thousands of employees have been laid off from record labels that have folded or merged, it matters because we as humans are losing one of our greatest treasures- music.  In the 1970’s, music labels would sign young musicians and bands up left and right. These days, that no longer happens.  Very few new recording artists are signed to major or independent labels. There no longer is a profit motive. Remember, we ARE NOT ALTRUISTS, everything we do is based on some type of survival. For record companies, that means money.  There is no money to be made, so why bother spending your dollars and time finding new talent in hopes they’ll make it big?  

This is why we now have these terribly unoriginal and manufactured pop stars.  Think of your favorite music.  What do you listen to most often? Is it a new act from the last five or ten years? If you are like the majority, the answer is no.  Turn on the radio and you’ll notice an interesting phenomenon, which is that the most popular stations are those that play music from the 1980’s and 1970’s.  This makes sense because in those two decades record labels were signing up thousands and thousands of artists.  What this means for us and our children, is that fifty years from now, we will still be listening to those same artists because that unfound talent playing in his garage will never get signed, he will never have that big record, which would allow him to make a second and a third album, and so on.  

To make this point even more clear to you, let me ask you a question.  Who does EMI, one of the worlds biggest (and few) remaining record labels, make their money from?  Any guesses?  Some of the hot new acts? Perhaps a singer with a number one pop song you’ve heard on the radio? Nope…Any guesses? EMI survives due to their catalogue of three particular British acts-The Beatles, Queen and Led Zeppelin.  They can’t make a dime from new bands or singers. 

The internet has also changed the landscape of the “consulting” world. Do you realize how many consultants are without jobs because everything you could get, advice wise, is available for free online?

Two weeks ago, there was a problem with my toilet. For those that don’t know me, I am not a handy man whatsoever. Years ago, I would have called a plumber. But instead, I googled it, and found a free site that gave detailed step by step instructions on how to repair every possible toilet problem and voila- I fixed the toilet.  There will always be a need for plumbers of course, but I guarantee you their phones ring much less these days. Shakespeare’s wish in some ways has come true, “Kill All The Lawyers.” Do you realize how much money lawyers have lost due to the internet? (Yes I know, this is wonderful news indeed). Every legal form needed is available online for free, or for very cheap to do your own basic legal work. In fact many lawyers who don’t work in a niche field are struggling to make ends meet these days.

Like I said, brick and mortar businesses will always be there, such as home builders, etc. But many white collar and some blue collar jobs will become extinct. However, unlike in times past, the new technology will not replace the old business platform with new jobs. Rather, there will be lots and lots of free stuff.  As they say, the best stuff in life is free. As for musicians…perhaps you should learn another trade that will utilize your creativity. How about a journalist? Oh wait, scratch that… 

With Love and Friendship,

John Gault

Information Update 12: I Have Some Questions...

# 012                                                               April 22, 2009

By: Allen Wells 

"We hang the petty thieves and appoint the great ones to public office." –Aesop

The more I read about our current national economic situation and what is being done to correct all our problems in the hallowed halls of Congress, on Capitol Hill and at the Federal Reserve and theTreasury Department, I am becoming more and more confused! Can someone (anyone) help me understand? Please?

Here are some examples of issues that are contributing to my confusion.

The Obama Administration is now vowing to cut taxes, so (with cameras and press conference in hand) the President has asked cabinet officials to cut $100 million from their budgets. How will they do this? Buying office supplies in bulk and teleconferencing when possible!  On the other hand, (with no cameras and press conferences) the administration handed out an additional $ 5.5 Billion to GM and Chrysler… I wonder if they are going to start buying their office supplies in bulk? Oh yeah, the federal budget deficit in March alone was $192 Billion!

It’s no surprise that most Americans agree the auto unions have been a driving force in crippling the U.S. auto industry with their ridiculous wage and benefits demands. Given the current state of the industry, within 5 years we may not even have a home grown auto manufacturer left. On the other hand, with the help of the media, liberals and “friends in government,” union organizers have mounted a committed and vicious attack on Wal-Mart – promising to unionize the entire company at all costs…. If they are successful, I wonder if we will even have a Wal-Mart in 20 years? By the way, 1 out of every 8 retail dollars spent worldwide are spent at Wal-Mart!

The USG told us consumer prices dropped in March and that regardless of the fact the U.S. Treasury is pumping record levels of money into the economy inflation is not a factor. In fact the government states they it is concerned about “deflation”.  I have to ask the question, with the exception of our 401k’s and our home values, what prices have you seen go down? By the USG’s own admission, if you remove gasoline (which went down marginally) and heating oil (which is down because many businesses are cutting back on costs, including heating), consumer prices increased 1.3% in March.  If our government was capable of being honest, I’m sure this number would be higher… much higher. By the way, did gasoline prices go down where you shop, and what is 1.3% a month compounded annually?

Banks are claiming record profits, with far more income than expected. Many are rushing to try and pay back the TARP loans. The government won’t let them. But wait, every day I read in the media how great the banks are doing and how much money they made in the first three months of the year. If this is the truth, then why can’t they pay the government back and go on with their business? Either the numbers are not real and the banks really are not so profitable (which means still bordering on the verge of failure), or the Federal Government never meant for the loans to be paid back because they want to maintain the ownership positions they’ve taken in the banks – which is tantamount to a backdoor nationalization of the banks… sneaky, sneaky.

When George Bush (II) was President, the federal deficit hit record levels and he was assailed on all sides by media and politicians alike as a fiend and a demon who was singlehandedly ruining America as we know it. President Obama has initiated programs that will bring the federal deficit to $2 Trillion this year and at least that much in 2010 and 2011. Even so, not one complaint about this deficit trickles out of the democratic congress or the media. Without being partisan I ask, why was less debt (still too much) so bad under President Bush and more debt ok under President Obama?

The Financial Accounting Standards Board (FASB) changed the rules last month on market- to- market transactions last month, allowing banks (in a nutshell) to value bad assets at whatever value they choose to value them, therefore concealing losses to the general public. On the other hand, lenders, banks and federal prosecutors are going after real estate appraisers for “overvaluing” properties for the sake of mortgage financing… my question is this; how are the two different?

I have a lot more questions… but at the risk of going on and on and on I will stop here. Do you have questions (or answers)? If so, reply with a comment here on the blog. I did make a change in the format, so you do not have to have a Google account to post a comment, all you need is a name! I would love to hear your thoughts, questions and ideas.

"A little government and a little luck are necessary in life; but only a fool trusts either of them." –P.J. O'Rourke

I thought you might just have some answers… 

With regards,

Allen 

Information contained herein is deemed reliable but not guaranteed.

http://VoiceCafe.blogspot.com

I’ve Learned a Few Things…

 # 026                                                                                                    April 21, 2009

[NOTE: I do not know the origin of this rhyme, but today it just seemed good to share. I’ve had it in my file for many years. It has given me hope through the tears and smiles through the fears. I wish I could give credit where credit is due, but I don’t know whom to give it to!]                                    

 I’ve learned-

That you can do something in an instant

That will give you heartache for life.

I’ve learned-

That it’s taking me a long time

To become the person I want to be.

 

I’ve learned-

That you should always leave loved ones

With loving words. It may be the last

Time you see them.

 

I’ve learned-

That you can keep going

Long after you can’t.

 

I’ve learned-

That we are responsible for what we do,

No matter how we feel.

 

I’ve learned-

That either you control your attitude

Or it controls you.

 

I’ve learned-

That regardless of how hot and

steamy a relationship is at first,

The passion fades and there had

Better be something else to take

It’s place.

 

I’ve learned-

That heroes are the people

Who do what has to be done

When it needs to be done,

Regardless of the consequences.

 

I’ve learned-

That money is a lousy way of keeping score.

 

I’ve learned-

That my best friend and I can do anything

Or nothing and have the best time.

 

I’ve learned-

That sometimes the people you expect

To kick you when you’re down

Will be the ones to help you get back up.

 

I’ve learned-

That sometimes when I’m angry

I have the right to be angry,

But that doesn’t give me

The right to be cruel.

 

I’ve learned-

That true friendship continues to grow,

Even over the longest distance.

Same goes for true love.

 

I’ve learned-

That just because someone doesn’t love

You the way you want them to doesn’t

Mean they don’t love you with all they have.

 

I’ve learned-

That maturity has more to do with

What types of experiences you’ve had

And what you’ve learned from them

And less to do with how many

Birthdays you’ve celebrated.

 

I’ve learned-

That your family won’t always be

There for you. It may seem funny,

But people you aren’t related to

Can take care of you and love you

And teach you to trust people again.

Families aren’t biological.

 

I’ve learned-

That no matter how good a friend is,

They’re going to hurt you every

Once in a while and you must forgive

Them for that.

 

I’ve learned-

That it isn’t always enough

To be forgiven by others.

Sometimes you

Have to learn to forgive yourself.

 

I’ve learned-

That no matter how bad your heart is broken

The world doesn’t stop for your grief.

 

I’ve learned-

That our background and circumstances

May have influence who we are,

But we are responsible for who we become.

 

I’ve learned-

That just because two people argue,

It doesn’t mean they don’t love each other

And just because they don’t argue,

It doesn’t mean they do.

 

I’ve learned-

That we don’t have to change friends

If we understand that friends change.

 

I’ve learned-

That you shouldn’t be so eager to find out a

Secret. It could change your life forever.

 

I’ve learned-

That two people can look at the exact

Same thing and see something totally

Different.

 

I’ve learned-

That your life can be changed in a matter of hours

By  people who don’t even know you.

 

I’ve learned-

That even when you think you have no more

To give, when a friend cries out to you,

You will find the strength to help.

 

I’ve learned-

That credentials on the wall

Do not make you a decent human being.

 

I’ve learned-

That the people you care about most in life

Are taken from you too soon.

 

With warmth and regards (as always),

Allen

To reply or comment:

http://voicecafe.blogspot.com

Information Update 11: The Shadow Inventory of Homes: What's a Banker to Do?

# 011                                                                           April 17, 2009

By: Allen Wells 

Folks, it’s not over… the banks are claiming that they are making record breaking profits…how can this be? By sleight of hand and accounting tricks, this is how. All approved and assisted by the USG. Goldman Sachs, claimed they had a very profitable 1^st quarter, but failed to mention a little gimmick called “changing your fiscal year” for reporting income. Goldman changed their fiscal year ending 2008, thereby ignoring all the losses of December! I guess now the rule is, if you don’t like the results, just make up new ones and use them!  

The gullible U.S. public sure fell for it by rushing out this week and buying $5 Billion dollars of new Goldman Sachs stock. Be aware… there is more danger on the horizon for bank profits in the second quarter.

The problem, aptly named by the Daily Reckoning,  “The Shadow Inventory of Homes.” 

"We believe there are in the neighborhood of 600,000 properties nationwide that banks have repossessed but not put on the market," said Rick Sharga, vice president of RealtyTrac, which compiles nationwide statistics on foreclosures. "California probably represents 80,000 of those homes. It could be disastrous if the banks suddenly flooded the market with those distressed properties. You'd have further depreciation and carnage." (San Francisco Chronicle)

Couple this with an article in Wednesdays Wall Street Journal, Banks Ramp Up Foreclosures, 

“Some of the nation's largest mortgage companies are stepping up foreclosures on delinquent homeowners. That will likely lead to more Americans losing their homes just as the Obama administration's housing-rescue plan gets into gear.

 

J.P. Morgan Chase & Co., Wells Fargo & Co., Fannie Mae and Freddie Mac all say they have increased foreclosure activity in recent weeks. Those companies say they have lifted internal moratoriums which temporarily halted foreclosures.

 

Some mortgage companies had stopped foreclosing on borrowers as they waited for details of the Obama administration's housing-rescue plan, announced in February, which provides incentives for mortgage companies and investors to reduce borrowers' payments to affordable levels. Others had temporarily halted foreclosures while they put their own programs in place, or in response to changes in state laws. Now, they have begun to determine which troubled borrowers are candidates for help, and to move the rest through the foreclosure process.

Foreclosures (until now) seemed to be leveling off. However, a strange thing is happening. What we appear to be seeing is what is being called a "shadow inventory" of foreclosed homes.  Banks are holding foreclosed homes in their inventory, but not rushing to put them on the market. What is going to happen when this new influx of homes hits the market?

The resulting increase in the supply of foreclosed homes could further depress home prices and put additional pressure on bank earnings as troubled loans are written off. It is estimated that banks will foreclose more than 2.1 million homes this year.  If you divide this by 50 states, that is over 40,000 homes per state this year alone! Certainly the harder hit areas (California, Florida, Arizona) will have a higher number of foreclosures, but can you imagine adding another 3,500 homes per state per month to the already record number of vacant and foreclosed homes?

A recent survey found that only 30% of foreclosures were listed for sale in real estate listings like the MLS.  30 – 40% of homes in the foreclosure process are already vacant. The homeowners have given up and moved on. There is no one for the banks to negotiate with to try and keep the homes off their books.  In addition to this, there is a huge market of homes that people cannot sell as a result of not having buyers, or they cannot sell them because the value has dropped below their loan amount. Some of these homes are being rented for less than the monthly payment. What will happen when inflation heats up and the owners do not have the extra cash to make up the differences in payments? Or, if the property owner is one of  the targeted “rich” that will have their taxes unfairly raised? Either way, that leaves the home owner with less disgressionary dollars to make payments. The banks may get many of these homes back, starting 2010 and beyond. 

This is a double edged sword. If a bank does not try to sell the foreclosed homes, they have to show the non-performing asset on their balance sheets. At some point they will not be able to continue to cover these losses with changing accounting laws and financial sleight of hand. Once they do put these homes on the market, they will drive home prices down even more. 

What the banks have is a conundrum, a puzzle that may or may not be solvable: 

On the one hand they can foreclose all the non-performing homes on the books (which will show them with major losses); 

they can hold off on foreclosing the homes that are in default (which will show them with major income losses); 

they can foreclose the homes, spend thousands maybe millions repairing the homes and getting them ready to sell them (which will show on the books as a major expense); 

they can flood the markets with homes sold at below market prices (which will lower their ability to recoup their losses). 

Any of these options may potentially devastate the already weakened housing market. 

I mean… what’s a banker to do?

I thought you might just want to know! 

With regards,

Allen 

Information contained herein is deemed reliable but not guaranteed.

http://VoiceCafe.blogspot.com

 

The Value of an Education (Part III)

#025                                                                                              April 16, 2009

How do we Retrieve the Value of an Education?

By: Allen Wells

As we’ve discussed, minimum wage laws and government hiring restrictions and requirements severely hamper the market’s ability to set wages and prices in a competitive manner. Businesses are operating at a disadvantage when it comes to the ability to hire and train inexperienced workers.

The question is, “What happens to all these young, inexperienced future employees?” Colleges and Universities have taken over as the “master trade” and training organizations. This is proving to be a failure. A college education is often unbearably expensive, leaving the student (or the student’s parents) in debt far beyond any concept of rhyme or reason. Each day the Federal Government is offering newer and longer payment terms on student loans. Students pay for a “well rounded” education, most of which they will never use after they depart the doors of the hallowed institution.  The truth is, most of this “well rounded” knowledge is useless and forgotten as soon as the student leaves the classroom (after final exams).

Since businesses, required to pay above market value for young inexperienced workers, cannot afford to pay to hire and train them; the future workers instead pay tens of thousands of dollars to earn a college degree. A degree, that for the most part will leave them woefully unprepared for their future career.

This is an amazing turnabout. Our education establishment has been able to take apprenticeship programs that in the past paid a nominal salary to the apprentice (often times including room and board in addition to the salary) and convince the American parents that their children will be much better served and prepared for the future if the parents pay tens of thousands of dollars to the colleges and universities for their child’s training (hopefully)… and even pay additional funds for room and board!

We have the attitude that if someone works for a business for 4 – 5 years with minimal pay (maybe even barely above subsistence level) to learn a valuable trade or skill that will support them and their family for the rest of their life -  in some way this is bad, degrading and demeaning. We have agreed that the government should not allow this and set minimum pay and hiring requirements and price this training above the market value, essentially rendering this concept unworkable.

On the other hand, we have the attitude that if someone goes to an “accredited” college or university for 4 – 5 years, with NO pay (not even at minimum subsistence level) to learn a vague, indeterminate degree in liberal arts, business, marketing, etc. from which they will not even have the training to start anywhere above a starting level position; this is good, something to be proud of and the experience will make you smarter, better and more prepared than others. Oh, any by the way, did I mention the student (or their parents) paid tens of thousands of dollars for this opportunity and will probably be in debt for many, many years as a result of this experience.

With minimum wage laws and the costly government requirements for hiring and employment, colleges have been able to usurp the genuine position of businesses to hire entry level personnel at a reasonable cost and train them to be worth more money, the result of which, after a couple of  years, they can be paid more (more than an entry level college graduate).

 Instead of apprenticeship programs that are managed and owned by businesses we have college degrees. When a business hires the recent college graduate, the new graduate still must be trained and taught the particular skill sets required for the position.

The difference is this:

When a person completes a 2 – 5 year apprenticeship program they are knowledgeable, trained and skilled. They also have a job. They are “paying their own way.” They (or their parents) are not tens of thousands of dollars in debt. In addition, they know if this is the “business for them” and can move forward on their career path as a successful productive citizen.

When a person graduates from 4 – 5 years in college they are untrained, and unskilled in the day to day aspects of their chosen profession. They must find a job, and figure out how to pay back the tens of thousands of dollars paid for their “education”. Often times the young graduate realizes their degree is in a field totally unsuited for their desires, ability or temperament. The answer? Settle for a job they are unhappy with,  or go back to college and get more education!

If we put less emphasis on a college degree and more emphasis on training and skill sets, our country would not only be more productive, but we would not be losing all of our manufacturing and other skilled positions to the rest of the world. As a result of government regulation, unfair expense to businesses (in the form of minimum wage laws and other hiring and employment expenses) we have made college the required “apprenticeship” program for most of our youth. By the way, this apprenticeship program is managed and taught by people that have [usually] never worked in the business world a day in their life.

Many of our youth would be far better served to forgo a college degree after graduation from high school and find an entry level job at a company (part time or full time). If desired, this person can go to college at night, or (if sufficiently self motivated) take the college classes by examination. The education expense will be far, far less and he will be trained on the job and experienced. In 4 – 5 years when his peers are graduating from college, thousands of dollars in debt, unskilled and inexperienced, he will be far more knowledgeable and far more marketable than his peers.

I’m not saying that colleges are bad and that everything that is wrong these days is a result of colleges. I’m just saying, colleges are way overrated. Let’s get back to a system of apprenticeships. Let our businesses have the freedom and ability to hire and train young, inexperienced workers and teach them how to be profitable – first for the business, then for themselves.

With warmth and regards (as always),

Allen

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Living in the Land of the "DO NOTS"

# 024                                                                                             April 15, 2009

By: Allen Wells 

Welcome to Tax Day! Well folks… it’s tax day in the good old “Land of the Free (to pay) and the Home of the Brave.” I thought you might want to know some interesting tax facts. 

Based upon the latest release of IRS data on individual income taxes, from tax year 2006 – way back when the economy was healthy and continuing to grow. In 2006 individual income tax receipts and average effective tax rates increased. 

Within the top 1% of earners, IRS collection data shows that the income share paid reached an all time high. The top 1% of earners paid a whopping 39.9 percent of all federal individual income taxes and earned 22.1 percent of all adjusted gross income. 

Compare this to 2004 when the top 1 percent of earners earned 19 percent of all adjusted gross income and paid 36.9 percent of federal individual income taxes. In just two years, the top 1% of earners increased their payments to the IRS by 3%. (information from The Tax Foundation) 

In an article in the Wall Street Journal entitled “We Still Need a Simpler Tax Code”, Nina E. Olson the “National Taxpayer Advocate” at the Internal Revenue Service states that U.S. taxpayers and businesses spend about 7.6 billion hours a year complying with filing requirements of the IRS. 

If tax compliance were an industry, it would be the largest in the United States. 7.6 billion hours a year is the equivalent of 3.8 million full time workers.  The Cato Institute reports “The U.S. "tax army" is bigger than the U.S. army in Iraq. Income taxes are so complex that there are up to 1.2 million paid tax preparers in the country – six times more than the number of troops in Iraq. The tax army includes legions of accountants, lawyers, and computer experts -- some of the best minds in the country.” 

There are now 526 different tax forms. According to Olson, there have been more than 3,250 changes in the tax code since 2006, an average of more than one a day! 

Where is our country going with all this? The more difficult and complex the tax code, the more likely you will make a mistake. Given the incomprehensible complexity of our current tax system (unless you file a 1040 EZ) you will have errors. With those errors come IRS audits and burdensome interest and penalties. 

Don’t you find it interesting that the IRS withholding schedules (if followed to the letter) will cause overpayments by you to the IRS – which they will happily refund the next year – WITHOUT any interest paid to you for their overcharges. However, if you make a mistake and are found to owe the IRS money, the IRS interest and penalties are far higher than market interest rates and their repayment plans are burdensome to say the least. 

But wait… hope is on the horizon… President Obama has pledged that NO ONE making under $250,000 will pay any additional taxes…and most will get a tax cut. How can this be? Can we continue to siphon a higher and higher percentage of upper income earners salary without any repercussions? 

Currently 32 percent of all Americans pay NO taxes. Let me repeat that. 32% of all Americans pay no taxes. Many of those 32 percent actually receive money from the federal government! Think about that next time you see a politician offer a handout to someone or a bailout to a company. Did you pay taxes last year? Are you aware that you and 68 percent of the rest of America are paying for everything? 

If you are in the top 5% of earners in this country, you pay 60% of all income taxes paid… I know we have a graduated tax system, but don’t you think this is a little ridiculous? Under President Obama’s tax plan, 60 million Americans will pay no taxes, and many will receive a refund back from the IRS. How can it be a refund if you didn’t pay?… just asking. 

By continuing to increase the tax burden on “upper income” citizens while requiring no “contribution” from lower income citizens, our government is creating a class division in this country that cannot be overcome. The division will not be between the haves and have nots, it will be between those footing the bill for all of our giveaway programs (who continue to be insulted, impugned and penalized) and those that pay nothing yet demand more and more goods and services (for nothing). 

In our country there are very few “have nots”. Instead we have “do nots”. The “do nots” do not pay taxes, do not contribute financially to the Social Security system, do not contribute financially to the Medicare/Medicaid programs. They do accept government funds for food, they do accept free infant care, they do accept free medical care, they do accept free housing and so on ad infinitum, ad nauseum.  They DO NOT contribute financially to these government supplied goods and services. 

These people have plenty, and are acquiring more every day on the backs of the 60 percent… There is one more thing the “do nots” do – they vote. Politicians know this. The political rhetoric may be to “cut taxes” and “lower government spending”, but the politicians know who votes – more and more it’s the “do nots” that vote, and each time they vote, the “do nots” acquire more and more of the things they “have not” worked for or paid for, it is the rest of us pay that pay. 

I’ll end with a quote by Alexis de Tocqueville in his 19^th Century book “Democracy in America”:

“When the American people realize they can vote themselves wealth from the public largesse, it will cease to be America as we know it.”

 Do we recognize the America of our grandparents? Has our America ceased to exist, relegated to the ash bin of history? 

With warmth and regards (as always),

Allen

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The Value of an Education (Part II)

# 023                                                                                         April 13, 2009

Why Have We Lost the Value of Real Education?

By: Allen Wells

What is the major reason the concept and practice of internships and apprenticeships virtually disappeared in the 20^th century? The answer, simply put is minimum wage laws and government controls on pay and hiring.  The cost has become too great for employer’s to bear.

Minimum wage laws are one of the most onerous regulations placed upon business owners in the history of our country.  By legislating minimum wage laws, the government has stated there is a minimum price that someone must be paid (under the law). Correctly understood, wages are prices. The wages paid to you is the price your employer pays for you – by the hour, day or week. Our government, in its infinite wisdom has decided that every single person working in this country is worth at least the amount at which they have set the minimum wage. It does not matter if you are young or old, single or married, skilled or unskilled. If the minimum wage is $6.50 per hour – the government has dictated that is what you are worth – maybe more, but certainly no less.

To set a person’s minimum wage level (regardless of ability or experience)is to say that the government has the right to control private business and dictate that the very least a person can make is a certain amount of money per hour… period. If an employee is willing to work for less money, or if you agree to pay someone less money than this – it does not matter. It is not your choice. If you do pay someone less than minimum wage, you are a criminal, in violation of the law and subject to penalties (possibly jail and forfeiture of your assets) under the law.

Let me give you a ridiculous example of the same concept… what would happen if this law were passed tomorrow?

“The Minimum Home Ownership Value Law”

“The value of homes has dropped dramatically in the past 18 months as a result of our severe economic downturn. In some areas, homes have lost 50% or more of their value. As of today the new “Minimum Home Ownership Value Law” is to be enforced: ‘... regardless of the amount a home was paid for in the past, regardless of what condition it is in, regardless of the neighborhood or area it is in, and regardless of its resale value, all homes will hereby be worth a minimum of $100,000. Not only are all homes to be worth a minimum of $100,000 (from this day forward), but lenders cannot discriminate in any shape, form or fashion as to any lower value of the home when they make their lending decision. Appraisals on any home previously worth less than $100,000 are no longer relevant or legal.’  Now, how much sense would this make? The goal may be considered honorable (by some), the government has decided that everyone paying for a home should not have lost value below $100,000… even if a law this ridiculous were to be passed, it does not change the fact that this would be a stupid and economically damaging law.”

If you are an employer this is the same requirement you are faced with in hiring new personnel. If you need a new trainee (apprentice), someone inexperienced but willing to start at the bottom to learn the business and you can afford to pay that person $4.00 per hour – you cannot. It is illegal. You may have the funds to pay your trainee (apprentice) $160 per week (based on 40 hours). If you choose to do this anyway, you will be subject to lawsuits (from the individual and the government), fines, harassment and possibly jail.

Why? Because the government has mandated that the value of an inexperienced worker is a minimum of $240 per week ($6 per hour x 40 hours). Suppose you own a small business, and you cannot afford to pay any more than $4 per hour? It does not matter. The government has mandated that you must value that employee at the amount per hour as dictated by minimum wage laws, regardless of that person’s market value, or your ability to pay, or how bad the person wants the job.

If the employer is in a position that he must have a trainee (apprentice), but cannot afford the minimum wage price as set by the government, then the employer must raise prices on his goods or services to be able to afford the additional $80 per week the government will require him to pay the trainee(apprentice). The unseen cost of minimum wage laws is an increase in cost of goods and services to all customers. What is a business owner to do if the market will not bear the price increase?

Businesses are in business to make a profit. Owners risk their time, their capital, and their lives to build their business. This is done to make more money, to create more capital, to succeed. If a business owner’s costs increase, then he must increase prices commensurately. If I own a business and the cost of my raw materials increase, then I must raise my prices to offset the underlying cost increases. Labor is no different than raw materials. If my labor costs go up (without an increase in productivity), then I must increase my prices to offset the underlying labor cost increases.

This is basic math. What our government’s wisdom has created is ever increasing prices as a result of ever increasing labor costs. These are labor costs as mandated by the government with no correlation to business expertise, business expense or profit capability.  This reminds me of the old adage; “If minimum wage laws work, then why not make minimum wage $100 per hour? Then everyone would have plenty of money.”

It is a never ending circle. As minimum wage requirements increase, costs increase. As costs increase, prices increase, as prices increase, the government increases minimum wage requirements. As minimum wage requirements increase, costs increase. As costs increase…. and so on.

When business owners are forced to raise their expenses over and against market forces, prices have to go up in an amount comparable to the forced increase in expenses. This includes matching Social Security, Medicare insurance and government mandated payroll expenses. If the government forces a business to raise the pay of their employees by $1 per hour (plus the commensurate payroll expenses), and the business raises their prices an amount to offset that increase in expense, then how does the wage earner benefit from their increased wages? They don’t, unless it is a psychological benefit from “making more money”.

How does this affect internships and apprenticeships? The majority of the workers in this country work in small businesses. Regardless of how much press and notoriety the “businesses that are too big to fail” are getting – that does not change the fact that small businesses are our largest employers.

Small businesses are owned and operated by people just like you and me. These are mostly hard working, honest and diligent citizens. In order to grow and expand the business people have to be hired and trained. This is an expensive proposition for the small business owner. To train someone takes time away from what the business owner must do to make money… run the business. When an owner hires a new employee they are making a commitment to train and (in a sense) care for that person’s [financial] needs. 

An inexperienced untrained employee is not worth as much to the business owner as an experienced trained employee. An experienced trained employee may well be worth far more than the federally mandated minimum wage. An inexperienced employee may not be worth an amount equal to the federally mandated minimum wage. When making a cost/benefits analysis of a new hire, an employer has to consider the burdensome minimum wage requirements of hiring an inexperienced employee.

As a result of the artificially high minimum cost of a new employee, many employers cannot afford to hire inexperienced workers and train them. Instead they seek out experienced workers only. They need an employee that can produce income immediately. This must be done because they cannot afford the high price the government has mandated for inexperienced, unskilled labor.

Stay Tuned for Part III: How Do We Retrieve the Value Of An Education?

With warmth and regards (as always),

Allen

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