Saturday, January 20, 2007

Economics of crime

What do you do when you have a neighborhood infested with vermin and you witness a murder? You can pretend you never saw anything or you can report individual criminals to the police.

Well gee Gordon, Of course you would call the police. Would, you if you knew that the thug was going to get back out on bail in a few hours and he knows you are one of the witnesses to the crime?

How do you fix the crime problem?

Now if your name is David Kennedy (photo) and you're looking to scam $100k from a city you come up with this brilliant plan where you simply walk up to criminals and tell them if they keep killing people, they're looking for problems.

If you're Gordon you do this, you arrest, prosecute and sentence thugs to a point where they can never victimize a neighborhood again.

Once residents of a neighborhood are convinced they can turn in a punk and will never have to deal with that punk again, residents will ultimately self police themselves and businesses might actually locate to that neighborhood. Businesses above and beyond check cashing operations encased in bars on the windows.

Who's the President?

Once again, certain members of Congress are trying to do everything they can to stop the US from protecting it's national interests and it's citizens.

Senate Democratic leader Harry Reid told the National Press Club yesterday that the President (i.e. Commander-in-Chief of the US military) needs to come to him and his colleagues for approval if he had any plans of attacking Iran.

“The president does not have the authority to launch military action in Iran without first seeking congressional authorization...”

Iranian president (and resident lunatic) Mahmoud Ahmadinejad must be smiling.


Thanks to socialistic, state health care plans like the one Gov. Terminator initiated in California, the country is a few steps closer to a federally run, universal health care program. Womb to the tomb. This is bad news. Make sure you take your vitamins because once Uncle Sam gets a hold of it, even the healthy will be sick.

"A few years down the road, January 2007 could be remembered as a turning point in American health care. A turn leftward, that is. This week, the groups best known for their stalwart opposition to Democratic universal health-care schemes in the 1990s announced two separate coalitions with former adversaries. This follows less-than-conservative health-care initiatives by Republican governors in California and Massachusetts within the past year. Viewed together, it looks like the political terrain on health care is shifting. "

The Washington Times: The changing health-care debate

Friday, January 19, 2007

SLUTH award

I'm starting an award on this blog for general stupidity, called the SLap Upside The Head (Sluth) award.

My first ever award is to each of the borrowers that hold Adjustable Rate Mortgages (ARMs) which are due to be adjusted this year. Approximately $3 TRILLION dollars of these types of mortgages will adjust year, looking to make this year the record year for home foreclosures in this country.

What in the hell were people thinking when they set up adjustable rate mortgages 3-5 years ago... at a time when mortgage rates were at an all time low?

The fact of the matter is tooooo many families bought homes they couldn't afford and ARMs were the only way to squeeze these folks into those homes.

But Gordon, if I buy a $200,000 home, the appreciation in that home is going to much higher than if I buy a $150,000 home.

Let's do the numbers...... Let's assume you buy a $200,000 home (100% financing) and you're able to get an 8% annual return on investment (generous for a home), at the end of 5 years your home is now worth 293,000 (a gain of $93,000). Now compare that to the home I bought for $150,000, assuming the same 8%, after 5 years, my home is worth roughly $220,000, a gain of about $70,000.

Ah ha!! I got you Gordon, I earned $23,000 more than you.

Except that you forgot to factor the extra $386/month I got to put in a mutual fund because I had a lower monthly mortgage payment. After 5 years, 8%, I have an extra $27,000 in actual liquid assets in the fund bringing my total increase in net worth to $97,000.

But let's assume that the increase in net worth is a push. How much more do you have to pay in real estate taxes, insurance, PMI insurance, plumbing repairs, homeowner association dues, maintenance, furnishings, roofs, water heaters etc, etc.. No one ever factors these costs in the return on their real estate and the fact is, the more expensive your home, the more these things cost.

In addition, by saving the money instead of having it locked into a mortgage payment, I have the ability to weather financial storms and the freedom to vacation, etc.

Yeah, but Gordon, what about the write offs related to owning a home? As I tell clients all the time, I'd rather have tax on income rather than the deduction for losses. If you ever want a write off to lower your tax liability, I'll give you a tax preparation bill equal to your income, that will wipe out any tax liability you might have and I'll have to pay the taxes. Yet, I'm still waiting for the first person to take me up on my offer.

My advise on homes.... buy it like you would an apartment, find the location, budget, schools, etc. Don't over buy. You wouldn't rent a four bedroom apartment for two people would you? Don't do the same for your house. You'll find that being able to sleep at night is a lot easier when you don't have bill collectors calling your home.

global warming yet again

Someone the other day questioned my assertion that Mars was, in fact, warming here's the quote from the NASA jet propulsion lab.

Money quote

"And for three Mars summers in a row, deposits of frozen carbon dioxide near Mars' south pole have shrunk from the previous year's size, suggesting a climate change in progress."

This is the last I'm ever going to post on this issue. As far as I'm concerned, I'm glad I haven't had to dig my butt out a bunch of snow.

Thursday, January 18, 2007

While Malibu gets snow...

"The Weather Channel’s most prominent climatologist (Dr. Heidi Cullen) is advocating that broadcast meteorologists be stripped of their scientific certification if they express skepticism about predictions of manmade catastrophic global warming. This latest call to silence skeptics follows a year (2006) in which skeptics were compared to "Holocaust Deniers" and Nuremberg-style war crimes trials were advocated by several climate alarmists. "

US Senate: Weather Channel Climate Expert Calls for Decertifying Global Warming Skeptics

Wednesday, January 17, 2007


Democratic Congressional leader Rahm Emanuel is bad for America. He honestly admits that he doesn't mind the situation in Iraq to worsen if it means gains for his party in 2008. This is disgraceful and Democrats should be embarrassed that this is the philosophy of their party's leadership. But I have a feeling they won't be.

"Rahm Emanuel's Democratic Party is so bereft of a sense of national responsibility that he apparently feels comfortable brazenly telling the Washington Post that his plans for his Democratic Party is to not even try to stop things from getting worse in Iraq -- so they can pick up the political pieces afterward. Mr. Emanuel is a "smart" politician. He thinks the more dire America's place in the world is in 2008, the more likely the voters are to vote Democratic. The more of our troops are left in more pieces the better for Rahm Emanuel's Democrats. "

Tony Blankley, Washinton Times: Vulture Politics

Is the Trade Deficit bad?

"Economists had taught me that the trade deficit is not a big deal. (The budget deficit may be a big one, but that's a different issue.) But with all the pundits and politicians alarmed, I began to wonder if I was out of touch.

Then I thought about my local supermarket. I buy stuff from the Food Emporium every week. I spend thousands of dollars a year there. But the supermarket never buys anything from me. Not one thing.

And yet that is no problem. It's better than no problem -- it's fantastic! Imagine if I could only buy from the store to the extent that it needed my services. I'd starve. That would be barter, and mankind dumped barter for the money economy eons ago precisely because it is so inconvenient."

John Stossel: Losing Sleep Over the Trade Deficit?

Pygmalion Effect

As a young, idealistic student looking to make a difference, I decided my life mission was to teach.

In the first quarter of the education curriculum, I took a course called "Educational Foundations". In the course, I learned about the Pygmalion Effect; the self fulfilling prophecy of believing that if students can't learn, they won't. It was taught in the context of white teachers believing that black students can't learn so the teachers will teach down to the them. It made perfect sense. I believe President Bush called it the "soft bigotry of low expectations."

Unfortunately, the very next quarter, a different professor started espousing a theory that black students could not learn in a rote environment. I challenged her position, noting the pygmalion effect we learned about in the previous quarter. After she spent the rest of the class dressing me down as a racist and an idiot, I decided the Education College was full of ding-dongs, derelicts, and douche bags.

Flash forward 25 years, we have a riot at a local basketball game, on Martin Luther King's Day no less, and one of the coaches, Walt McBride, claims that the reason for the riot was "lack of security".

Out of curiosity, when will African-Americans start raising the bar on their community? Shouldn't it be a given that you should be able to go to a high school basketball game without fear of being attacked? When can whites and blacks alike call out a community without being labeled a racist or an Uncle Tom? When will the Bill Cosby's and Thomas Sowell's finally get some traction and communities start listening to what they have to say?

Instead, we get the continued lowering of standards for African-Americans..... soft bigotry of low expectations. Who is really empowering the Pygmalion Effect?

Tuesday, January 16, 2007

Economic freedom

Attached is a ranking of various countries in terms of economic freedoms. Needless to say, standards of living ranking would just about mirror this ranking.

I used to believe US prosperity was due, in part, the numerous natural resources at our disposal but if that were the case how does one explain Hong Kong. Hong Kong is essentially a giant rock in the middle of the ocean, no natural resources and no easy transport to and from the island. I guess one could offer that because Hong Kong is an oasis in an otherwise communist China, it derives much of it's economic activity. Or maybe, it's economic freedom is what makes it the oasis it is.

Monday, January 15, 2007

Social Security Debacle

I would gladly give up every dime I've "donated" to Social Security if the government said I could invest it all myself from here on out. Obviously, I don't see that happening anytime soon. If a Republican president with a Republican Congress couldn't get a single change done, I doubt we'll see any major improvements anytime soon.

Mike Pence (a future presidential candidate, IMO) has a great commentary today about how the Bush Administration blew the entire social security debate last year.

"...Social Security reform must be properly understood. It is not about achieving solvency; it is about improving the system so that it offers a better deal for younger Americans through personal savings accounts. Focusing on solvency will lead inevitably to tax increases and benefit cuts. Focusing on personal retirement accounts improves the chance of enacting sound public policy that also makes the system solvent." Bush is still getting Social Security wrong.

Africa - AIDS

Someone I know sent me this email
I don't usually do things like this, but, this is mostly for South
Africa, and I sponser a child whose parents have died from this disease.
They are using the money they promised to fight A I D S to fatten the
wallets of thier war pimps, and kill our sons and daughters because of
thier dependance on foriegn oil. Maybe I'm conspiritorially minded, but
if they pursued energy alternatives as aggressivly as they are this war,
(Billions!) we wouldn't need to do this, we could take a CLUE from our
Amish brothers and sisters and forgive, be peacefull as a dove, and
shrewd as a snake, protect ouselves, but then, we'd really be a
Christian Nation.
Aside from the myriad of misspelled words, let's go through the issues on this ad infinitum;

First, I'm assuming the "they" he refers to is the Bush administration.

I'm not aware of any funding for the African AIDS crises that was spent by the military for use in the Iraq war or to fund the other "war pimps".

Second, the federal government already spends billions on alternative fuel sources, Ever heard of Ethanol, Shale, nuclear power, hydrogen power, solar power? Most of those came about as a outgrowth of federal government research.

Third, what exactly are the Amish doing about AIDS in Africa? To my knowledge, nothing. Yet the writer wants to use them as his Christian Nation example.

Fourth, no less than Bono complimented the Bushies for their work in Africa.

I get a little perturbed about justifying the theft of someone's money to give to someone else because it's the Christian thing to do. John Kerry pulled out Matthew 25:40 back in the campaign.

But I've read the Gospels 3-4 times and only one time does Jesus reference a government at all when he says "Render onto Caesar those things that are Caesar's, render to God those things that are God's" Matthew 22:21

The reason for this quote is to tell us that he was not here to save people from a persecuting government (which the Jews were hoping for at the time) but to save our individual relationship with God.

As Christians, we are commanded by God to be charitable and to do his work on earth regardless of what the government does but no where in the Bible does it instruct governments to take one's money to solve someone else's problem.

In fact, Jesus ran roughshod near a temple calling out the money changers who were selling sacrifices to pilgrims going to the temple. He never mentioned what the money changers were using the money for, good purposes or bad, but that it was a hindrance to worshipper's relationship to God; something that I would offer the government does today.

Look, the AIDS crises in Africa is horrible; no one should be dying there. But that's exactly the point, world health professionals believe that circumcisions alone would drop the AIDS cases exponentially. Couple that with eliminating unprotected sex and reusing of needles and dirty knives and we could eradicate AIDS worldwide. How many billions do we need to fund those programs?

But somehow I guess if a guy in the Congo has unprotected sex and contracts AIDS it's Bush's fault. Why not? everything else is.

Retirement planning

Although I've been ranting about politics lately, I wanted to get back to some of the tax planning issues I wanted to focus on originally.

I'm often asked about which retirement plans clients should fund; 401k's, IRA, Roth IRA's, etc....the choices can be overwhelming.

In general, my suggestion is to prioritize your retirement savings as such;

1) Fund at least the company match in any company sponsored 401k, SIMPLE, or other company plan.
2) If you still have the ability to fund more... max out your 401K or SIMPLE.
3) If you can put yet more money in a retirement plan, max out your deductible IRA.
4) Finally, max out your Roth IRA.

While the Roth IRA sounds great because of the tax free nature of the plan, they are not deductible. In Gordon's world, why pay tax today when you can pay tax tomorrow.

For the average worker, your marginal tax rate is higher than it is at retirement. For instance, most professionals are in the 25% tax bracket, when they retire, most retire in the 15% bracket. Why not take the deduction today in the higher tax bracket?

This strategy changes if you anticipate a fairly large inheritance, you already have large retirement account balances, or you presently happen to be in a low marginal tax rate.

If you need additional tax planning information, feel free to call my office.