Only Successful People Fail
"When you make a mistake, don't look back at it long. Take the reason of the thing into your mind, and then look forward. Mistakes are lessons of wisdom. The past cannot be changed. The future is yet in your power."
~Phyllis Bottome
1884-1963, Novelist and Lecturer
Good Afternoon!
Well, what can I say? These times are difficult and we all know it. While I see amazing opportunity in every downturn for those who have prepared for it by seeking pro-active advice from their team of experts, I'd rather take a moment to share with you exactly what has happened that has created the need for a 700 BILLION dollar "bailout." It's not really a bailout by the way, it's just what the media is calling it. I would like to give full credit to Barry Habib for the expert insight below:
"Crazy times. Whatever the political posturing, a plan needs to be passed. Credit markets are frozen and banks are going bust every day. This is not totally because of "toxic" mortgages. This has a lot to do with FASB 157, also known as "mark to market".
Each day lenders must mark their assets to the marketplace. It's like you having to appraise your home everyday and if your neighbor was under duress because they got very ill, divorced, lost their job and was forced to sell their home quickly they may have sold it super cheap. Now, does that mean your house is worth that super cheap price? Clearly not. Why? Because you are not under duress. You have the time to sell your home and get a more normal price, which more accurately reflects true market conditions. But "mark to market" does not allow for this, which creates a vicious cycle.
Why is this so bad? Because as lenders mark down their assets the amount that they have loaned previously becomes much riskier in relation to their assets. For example, say a bank has $1 million in assets and say they have $15 million in loans outstanding. Their ratio is an acceptable 15 to 1. But should they take a paper write down of $500 thousand due to "mark to market" requirements, their ratio suddenly changes to 30 to 1. This is because their assets are now only $500 thousand after taking the paper loss, while their loans outstanding are $15 million. And at 30 to 1 this bank is viewed as a risky investment. So the stock price starts to get hit, it becomes harder to borrow, and most importantly harder to make money. The bank is then forced to sell some of its loans to reduce its ratio...at cheap prices. And this makes the vicious cycle continue.
And a quick look at the holdings of these loans show that 95% are problem free. Additionally, the Credit Default Swaps (CDS) that are used with the pools of mortgages, are relatively safe. But this requires a bit of understanding. You see, when a pool of mortgage loans is put together it isn't just A paper or B paper etc. it's everything. Its got some A paper, B paper, C paper, and even what looks like toilet paper. An "A" investor buys the whole pool but because they are an "A" investor their safety is greater because they can avoid the first 20% (an example) of defaults. So they own the whole pool but are sheltered from the first batch of defaults, and for this they get the lowest rate of return. As you can figure from here the more risk investors want to take, the higher the return. So the investments are relatively safe, but the accounting rules currently place undue pressure on the banking institutions.
Now add to all this the opportunistic shorting done on the financial stocks, much of it illegal because those shorts did not legitimately borrow shares (called naked shorting), and you exacerbate this whole problem. Thank goodness for the recent temporary ban on shorting in the financial sector. As for the plan the government is the only one who can step in to do this. And they have to do this. And they will do this. The nauseating political posture from both sides is just part of the process.
This is not easy to understand for the general public. In fact most politicians don't get this either. That's why it is a difficult yet critical bill for them to vote on."
Hope that cleared up at least part of the confusion with what's going on right now.
The congress is set to vote on the bill this evening. My opinion is that the bill will pass. I think that congress has now seen what will happen (777 point loss in the markets in one day) if they decide to vote it down again and I'm quite positive that there has been some major lobbying done this week to ensure its passing. If not, ouch.
Money doesn't create happiness, we all know that. It does, however, create a comfortable retirement. It's necessary that you work with a Certified Financial Planner and a Certified Mortgage Planner. If you are not working with one, you really do need to call or write me now. It's THAT important. If the past few weeks isn't enough to convince people of this, then being absolutely broke would be the only viable wake up call. That's not an option for you so, please, do the right thing.
The best way to refer me is to give me your referrals name and phone number and tell them to expect my call. I always have time to help you, your friends, and your family with their financial needs. Your referrals are appreciated.
Have a great week and keep an eye on your money.
To Your Success,
Kurtis Kooiman, CMPS
Certified Mortgage Planning Specialist
Silverstar Finance, Inc.
Society of Financial Awareness
Bus: (714) 892-1002 Ext. 313
Fax: (714) 892-1092
Parting Thought: of the population is controlled by money. The effect is lack of money. The cause is middle-class thinking." ~ Steve Siebold
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