The lesson I learned from the 70's (although i was a mere wisp then) was that OIL IS IN EVERYTHING. As we watched prices skyrocket and the redistribution of wealth take off at a breathless pace, we realized oil was in everything we ate, drank, read or did.
The first decade of the 21st century (whatever we end up calling it) is going to teach us that REAL ESTATE IS IN EVERYTHING.
It's in your pizza, your haircut, your taxes, and your schools. The cost of everything flies to cover the costs of renting (or buying) at every stage of the process. We have found ourselves consigned to shop in huge boxes in inhospitable locations in order to flee this hidden tax. (IKEA sitting out next to the Newark Airport would seem to be the pinnacle of this phenomenon.)
Prices coming down will make us all winners, particularly our kids.
Wednesday, August 27, 2008
Winners and Losers 2
So, everybody thinks that the people that are losing their homes in the mortgage mess are the big losers. But I read about a guy moving out of his home into a rental, reducing his monthly payments from 3600 a month to 1200 a month. As a renter, he is buffered, somewhat, by the ratcheting property taxes, the over-the-top maintenance expences and possibly even the utility costs of heat.
Sounds really rough. I bet, after the initial shock wears off, that guy feels like the burdens of the world have been lifted.
But what about the guys making the big bucks lately? Dick Fuld, Jimmy Cayne? That much money isn't under anybody's mattress. So where was it?
Stock (in their own company) way down
Housing (they are all in 3-5 million homes...cayne bought in manhattan for 28 million or something) wayy down.
Stock market? Down
Bond market? OUch
Remind me again, who is the loser here?
Sounds really rough. I bet, after the initial shock wears off, that guy feels like the burdens of the world have been lifted.
But what about the guys making the big bucks lately? Dick Fuld, Jimmy Cayne? That much money isn't under anybody's mattress. So where was it?
Stock (in their own company) way down
Housing (they are all in 3-5 million homes...cayne bought in manhattan for 28 million or something) wayy down.
Stock market? Down
Bond market? OUch
Remind me again, who is the loser here?
Winners & Losers
The most counterintuitive thing about this whole credit crisis is figuring out who wins and who loses.
It occured to me, as i pondered the growth in exports from a company like cummins, who apparently produces high powered engines for big trucks and whose products are in demand overseas, sitting in Columbus, Ohio using an american labor force. I'm thinking that the investment in that factory and the knowhow to do what they do is probably substantial, the demand for their products integral to the growth of economies around the world, and that they would be one of the winners in this mess.
We've talked a lot about china, and the cheap products that they create for the us market. Those factories, too required substantial investment, organization of their labor force, setting up supply chains, etc. As their economy weakens, the downside of fast growth could be seriously disruptive.
So maybe americans have some hope after all. We've been struggling (and i bet cummins execs are not earning the big salaries of the wall street titans) to build legitimate companies while struggling to attract capital while hot money was dazzled by the short term profits of creating junk and selling it for too much money.
So china has factories that are set up to produce things nobody needs and we have factories built to make complex engines that are mission critical to building infrastructure.
Score one for us.
It occured to me, as i pondered the growth in exports from a company like cummins, who apparently produces high powered engines for big trucks and whose products are in demand overseas, sitting in Columbus, Ohio using an american labor force. I'm thinking that the investment in that factory and the knowhow to do what they do is probably substantial, the demand for their products integral to the growth of economies around the world, and that they would be one of the winners in this mess.
We've talked a lot about china, and the cheap products that they create for the us market. Those factories, too required substantial investment, organization of their labor force, setting up supply chains, etc. As their economy weakens, the downside of fast growth could be seriously disruptive.
So maybe americans have some hope after all. We've been struggling (and i bet cummins execs are not earning the big salaries of the wall street titans) to build legitimate companies while struggling to attract capital while hot money was dazzled by the short term profits of creating junk and selling it for too much money.
So china has factories that are set up to produce things nobody needs and we have factories built to make complex engines that are mission critical to building infrastructure.
Score one for us.
Friday, August 8, 2008
Somethin for Nuthin
A great post at Credit Slips about the "Business Model" of the credit card issuers. In a national 'doh' moment, it has occured to a lot of us that the banks are not TRYING to lend to people who can reasonably be expected to pay back their loans. They are LOOKING for people right on the edge, desperate enough to pay whatever fees, charges or rates they can cook up until it's all gone and they are crushed like bugs.
I don't know if i can describe it, but they are on to something that is getting so pervasive in modern american life that hardly a day goes by without another smack in the head by one of these schemes. Maybe we can start by just listing a few of them that small businesses run into:
1. credit card machines. they are ludicrously expensive to buy upfront. In an age when you can get a decent computer from Dell for under 400, the little machine that hasn't really changed in a decade is an easy $1000. No worries...they will 'lease' it to you, forever, so that you will pay many times the value of the machine in just a couple of years. This scheme doesn't work if the machines were priced right in the first place.
2. The leases that never end. So a small business goes to dell and leases computers and buys them for a $1.00 at the end. Except they never end. They know that harried small business owners will pay on that lease for years after it's over, and they are more than happy to keep sending you bills, even though they know you don't owe them any money.
3. Everything costs double as soon as they know you are a 'business'. Phones, cable, internet connections, refrigerators. A blender from Costgo for $50.00 works fine for years (even in commercial use) but buy a blender from a restaurant supply place and expect to pay a minimum of $600.
4. Checking accounts. Make it 'corporate' and they start charging you when you deposit CASH. How DARE you deposit cash into a checking account?
5. Cascading bounced check charges. This one is a doozy. You write 5 checks, 4 of them for $10 and one for $1000. The four for $10 show up on your online account on tuesday as dutifully paid. On wednesday, the $1000 one shows up and you are overdrawn. The 4 from the previous day are MIRACULOUSLY now 'pending', the big one is cleared first, and you now have fees for bouncing 5 checks at $30 each. They call it 'batching'.
6. Health insurance. You are covered until you get sick. Then you're not. It works for them.
7. Homeowners insurance. This one is even better. You are covered unless you need it. Then you can't get it again.
I don't know if i can describe it, but they are on to something that is getting so pervasive in modern american life that hardly a day goes by without another smack in the head by one of these schemes. Maybe we can start by just listing a few of them that small businesses run into:
1. credit card machines. they are ludicrously expensive to buy upfront. In an age when you can get a decent computer from Dell for under 400, the little machine that hasn't really changed in a decade is an easy $1000. No worries...they will 'lease' it to you, forever, so that you will pay many times the value of the machine in just a couple of years. This scheme doesn't work if the machines were priced right in the first place.
2. The leases that never end. So a small business goes to dell and leases computers and buys them for a $1.00 at the end. Except they never end. They know that harried small business owners will pay on that lease for years after it's over, and they are more than happy to keep sending you bills, even though they know you don't owe them any money.
3. Everything costs double as soon as they know you are a 'business'. Phones, cable, internet connections, refrigerators. A blender from Costgo for $50.00 works fine for years (even in commercial use) but buy a blender from a restaurant supply place and expect to pay a minimum of $600.
4. Checking accounts. Make it 'corporate' and they start charging you when you deposit CASH. How DARE you deposit cash into a checking account?
5. Cascading bounced check charges. This one is a doozy. You write 5 checks, 4 of them for $10 and one for $1000. The four for $10 show up on your online account on tuesday as dutifully paid. On wednesday, the $1000 one shows up and you are overdrawn. The 4 from the previous day are MIRACULOUSLY now 'pending', the big one is cleared first, and you now have fees for bouncing 5 checks at $30 each. They call it 'batching'.
6. Health insurance. You are covered until you get sick. Then you're not. It works for them.
7. Homeowners insurance. This one is even better. You are covered unless you need it. Then you can't get it again.
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