Raymond Zulueta

Bill said on November 27th, 2007:

These landowners, who owe $250,000 on an asset now worth $160,000, and are paying taxes on top of it, owe nothing to the bank. Many will walk away. And the bank will be holding the bag. The supply-demand imbalance is still pretty wide.…

When Raymond Zulueta went into default on his mortgage last year, he did what a lot of people do. He worried.

In a declining housing market, he owed more than the house was worth, and his mortgage payments, even on an interest-only loan, had shot up to $2,600, more than he could afford. “I was terrified,” said Mr. Zulueta, who services automated teller machines for an armored car company in the San Francisco area.

Then in January he learned about a new company in San Diego called You Walk Away that does just what its name says. For $995, it helps people walk away from their homes, ceding them to the banks in foreclosure.

Last week he moved into a three-bedroom rental home for $1,200 a month, less than half the cost of his mortgage. The old house is now the lender’s problem. “They took the negativity out of my life,” Mr. Zulueta said of You Walk Away. “I was stressing over nothing.”

-NY Times, today

Raymond should have read Brick Oven, he would have saved $4200.

Afterthough Update: What a business model. I hereby announce the launching of my own service, called ‘You Drive Away.’ Clients wishing to take advantage of You Drive Away’s services need to follow our patented two step process:

1) Send You Drive Away a check for $800. That is nearly 20% cheaper than our main competitor.
2) Drive away. This is faster than walking.

You Drive Away is currently accepting franchise applications. For either opportunity, please leave a comment below.

Investments III-Other Commodities

Stuff has become more valuable. Or the dollar has become less valuable. Or both. The stuff that makes for the best investments is stuff that the government is likely to restrict access to.

Western water is a good example of this. There is a finite amount of it and the government has its fingers in the pie. A man who bought $10,000 of western water in 2002 saw his investment grow to $200,000 in 2004.

My next pick may make me sound ‘wingnut’, which I understand means a right wing lunatic:

Ammunition is a commodity, made of metal, sold in a competitive market. Its price has doubled with the fall of the dollar. The price of a round varies, but is in the neighborhood of a quarter. The government will try to restrict access to ammunition through taxes. Maryland has proposed a $5/round tax on handgun ammunition, which would raise the retail price of 9mm ammo over 3000%.

The best investment is in a style of ammunition most likely to be restricted; namely handgun and assault rifle ammunition. A case of Russian 7.62mm currently goes for $200.

Another commodity likely to be restricted is high-capacity clips. You can buy 40-round clips for around $30 and the Taleban-special super high capacity clips for just over $100. An investment in the thing that the clips attach to goes for $350.

Note: In trying to provide you with a picture, my access to www.ammoman.com , a retailer, has been blocked:

Reason for restriction: Forbidden Category "Other"

Financial Engineers

As a licensed professional engineer, people using the term ‘XYZ engineer’ never bothered me. One thing that does bother me is the presence of a profession that calls itself ‘Financial Engineers’. The link is to a group that calls itself:

“The International Association of Financial Engineers”.

The panel consists of one person from CITI Global Wealth Management, one person from Fitch Ratings, and one person from Bear Sterns. The group was hosted by Goldman Sachs. The name of the discussion is:

“The Boundaries Between Credit Risk and Operational Risk: Are They Real?”

The Panel agreed that 'risk disciplines' tend to operate in ‘silos’; “It is important to manage risk across silos and to include operational risk in enterprisewide risk dialogs.”

Which, I think boils down to a way of extorting money from the Federal Reserve.

http://www.iafe.org/documents/orc_event_withcommentsOctober312007_000.pdf

Finance

Moody’s is a company that assesses risk. Moody’s lost half of its market value in 2007. Now why would a company that assesses risk tank in an era where risk assessment is more important than ever?

Collusion and resulting legal liability to investors.

In a proper system, a business enterprise would approach a bond attorney who would assess the enterprise's risk, and if his due diligence convinced him that the risk was manageable, would originate the bonds. A third-party assessment service like Moody’s would judge the judgments of the attorney and sell their judgment to the investing public.

In the boom, these three parties acted as a team and packaged investments that were attractive to investors. They would walk around together. The firms that got the work were the firms that would most reliably put a positive spin on the investment vehicle. Moody’s assessed the ‘sub-prime’ risk.

They sold out their reputations, and that will come home to roost.

Update: Another thought- Moody’s is a publicly-owned company, which means that institutional investors own the majority of it. Institutional investors have the most to lose by honest negative assessments. Wikipedia (take it for what it’s worth) states that Berkshire Hathaway is a major owner of Moody’s.

Investments II-Gold

King Priam’s ransom to Achilles for Hector’s dead body included ten bars of gold. All currencies since then that have not been tied to gold eventually fail. Ours in on it’s way due to the trade imbalance and unstable social spending. Precious metals are still a solid investment, even at gold $950/oz, but the easy money has been made.

People argue about holding bullion vs. some paper security. Choose bullion, you’ll pay a $30/oz. or so premium but you physically control the asset, unlike some fund or a mining company.

US Mint coins include the Buffalo and American Eagle. The Buffalo is purer gold but the American Eagle contains alloys which make it more durable. Buy the Buffalo. If things ever get bad, it would be easier to cut Buffalos into pieces for everyday commerce.

Florida

As a power plant comes under higher loading, the output voltage goes down. This is a way to control the flow of power throughout the grid.

If voltage drops to a certain level, power plants shut themselves down. Some version of this probably happened in Florida. Florida is a good illustration of how vulnerable our power grid is to a coordinated attack.

A friendly suggestion to take another look at the ‘Paranoid’ post from a couple of days ago.

Dead Brown Men

Top 16 Reasons Why McCain Is the Wrong Leader in His Self-Proclaimed ‘Long War’

1. If active, appear inactive;
2. If near, appear far;
3. If they are strong, avoid them;
4. If they are angry, disturb them;
5. If they are humble, make them haughty;
6. If they are relaxed, toil them;
7. When doing battle, seek a quick victory;
8. Do not stay on open ground;
9. Do not swallow the enemy's bait;
10. A protracted battle will blunt weapons and dampen ardor;
11. If the army is exposed to a prolonged campaign, the nation’s resources will not suffice;
12. When weapons are blunted, and ardor dampened, strength exhausted, and resources depleted, the neighboring rulers will take advantage of these complications;
13. Then even the wisest of counsels would not be able to avert the consequences that must ensue;
14. Therefore, I have heard of military campaigns that were clumsy but swift, but I have never seen military campaigns that were skilled but protracted;
15. No nation has ever benefited from protracted warfare; and one last one from the Washington Times:
16. "Anyone who is advocating a precipitous pullout of U.S. forces, believing this will be a catalyst for political progress, does not understand the realities of Iraq and the minds of the key political leaders," Gen. Keane told The Washington Times. "The U.S. military presence is the glue that is holding things together in Iraq and is the fundamental reason for the recent political progress. If you remove this presence, the political leaders in Iraq will believe they are on their own and will fall prey to their own fears and paranoia. ... They will bunker down and the political progress will come to a dead stop."