Heads I win, tails I break
even By The Mogambo Guru
Bob Wood of Kaizen Managed Assets asked me
a question, which I don't remember exactly, but
which I paraphrase as, "Where is all the money
going to come from to keep consumers consuming so
that this idiotic fiat-currency/unlimited
fractional-banking/massive size of government
stupidity doesn't implode, as prices continue to
outstrip incomes as we plunge, plunge, plunge into
the living nightmare of a huge, huge, HUGE
freaking inflationary bust at the end of a huge,
huge, HUGE freaking boom of rampant monetary
inflation that was, at the root, the result of yet
another damned crisis caused by the damned banks,
which is one more crisis in the damned banks in a
long line of crises caused by the damned banks for
the last zillion years in a row, which is getting
very tedious, as all economic crises are ALWAYS
caused by the banks acting badly and, in this
case, caused by the damned Alan Greenspan and his
equally-damned
precious little Federal Reserve
nitwits creating monetary inflation for decades,
who together produced all the staggering amounts
of excess money, credit and debt that they
conjured up to finance the decades-long boom in
asset prices and size of governments, which has
now caused inflation in consumer prices, which
will lead to disaster, just as Ludwig von Mises
and the whole Austrian School of economics so
confidently predicted?"
Well, he didn't
ask the question in those exact words, which you
would probably have guessed anyway, because I had
planned to have him end his soliloquy with, "And
you can tell who the Austrian School economists
are, because they are big-time holders of gold and
silver since they know how this whole thing works
out, just like The Mogambo knows, and all hail the
Mighty, Mighty Mogambo (MMM)! Hooray for The
Mogambo!"
Well, the truth is that he did
wonder where the money for additional rampant
consumer spending was going to come from, and he
did become irate that I stole some fries from his
plate when he carelessly left them unattended when
he was looking at a pretty waitress who walked by,
like I am responsible for him not guarding his own
food or something, and there was some talk about
where money was going to come from in general,
too, which I initially understood to be some rude
crack about how I never pick up the check.
Well, I had to admit that I did not know
the answer to where all this money will be coming
from, but I know where French fries come from; you
just have to ask the waitress for them, and she
brings them to you! So maybe if we ask the
waitress for some money, she'll bring us some of
that, too!
Well, apparently he was ready
for my smart-aleck remark, and he whipped out a
news item from AP with the headline, "More People
Tap 401(k) Accounts for Cash."
It seems,
according to his AP article, that an outfit called
Great-West Retirement Services has noticed that
more people are taking money prematurely out of
their retirement accounts, and that, "hardship
withdrawals jumped 14% last year, and the number
of loans rose almost 13%, with a dramatic increase
occurring in the fourth quarter."
Even
over at Fidelity Investments, one of the nation's
behemoth providers of mutual funds, said it saw,
"withdrawals surge 17% in 2007, with record
withdrawals in December, but a smaller increase in
loans."
And as bad as that is, these
people needing to withdraw their money are the
lucky ones! The article goes on to say that, "Only
32% of workers ages 36 to 43 have any coverage by
a pension plan."
And Theresa Perry, who
manages benefits for a firm named PinkSlip LLC in
San Francisco, said she's been "surprised by the
number of people using hardship withdrawals to
make payments on so-called 'piggyback' loans,
which are home-equity loans wrapped with a first
mortgage to allow borrowers to fully finance a
home's value." Hahaha! She's surprised? Hell, I am
astounded!
I am flabbergasted that any
bank would loan 100% of the price of a house to
somebody who didn't even have enough money for any
down-payment, no matter how small! And the
borrowers just saw a chance to benefit by the
bank's stupidity, and they borrowed the money on
the "heads I win, tails I break even" chance that
they could later sell at a profit or walk away.
Now some of them are merely revealing their true
stupidity, too; they are bankrupting their
retirements to keep the house that they couldn't
afford, that they can't afford, and is now worth
less than they owe! Hahahaha! And its going to get
worse!
Then she admits that she is pretty
astounded, too, and that she's "been doing
benefits administration for 15 years, and using
401(k)s to keep mortgage payments under control is
new to me."
Apparently, people used to
raid their retirement plans to buy houses, but she
says that things have changed, and "They're not
taking money out to purchase homes anymore.
They're taking money out to keep the home they
already have."
To this I can only say,
"Hahahaha!"
Richard Daughty
is general partner and COO for Smith Consultant
Group, serving the financial and medical
communities, and the editor of The Mogambo Guru
economic newsletter - an avocational exercise to
heap disrespect on those who desperately deserve
it.
Republished with permission from
The Daily
Reckoning .
Copyright 2008, The Daily
Reckoning.
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Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
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