January 2006 Archives

Looks like Alito was confirmed this morning, in the most partisan supreme court confirmation vote in history, 58-42. Here's the roll call vote, but it's easier to just remember that except for Nelson (NE), Conrad (ND), Johnson (SD) and Byrd (WV), the Donkeys and their nominally independent ally all voted no, while the only Elephant who didn't vote Yes was Chafee (RI).



This bothers me. Let's stop pretending to ignore the forty ton dead baby in the room, Roe vs. Wade. I'm going to try to keep my personal opinions on abortion out of this to the maximum extent possible, but they are basically that although I am revolted by the concept and think it should be socially discouraged as much as possible, I also think that it must be legal with comparatively few restrictions. I will admit I would rather there was not one more abortion ever again, but to outlaw it in general would be a clear violation of principles I hold more important than that. I say this for disclosure; this is not really about abortion per se as it is about necessary compromise and distortions of the political process.



The issue with Samuel Alito was not competence, or fitness for the court. He was and is obviously, overwhelmingly, qualified. The issue was one party feeling that a certain court decision is wrong, and choosing a judge who is reasonably likely to vote to limit or reverse it next time the issue comes up. That party also happened to have won the presidential election, as well as a majority of senatorial ones. The presidential one gives the person we elected president the right and privilege of picking a supreme court judge whose philosophy is more or less in alignment with his own. That's part of what presidential elections are about. If the american people don't like it, they should have elected someone else president. However, indications are that a vast majority of the american public does like it. Not just in polls, but in elections. The Elephants, making this a campaign plank so it's not like this was any deep dark secret, won 55 senate seats and the presidential election. Senatorial seats are the one election nobody in the world can gerrymander, and although I can conceive of ways to gerrymander the presidential election, it certainly wasn't done in 2004, or if it was done, it didn't materially alter the result (run "Democrats charged election tampering 2004" through a few search engines, and contrast the news stories, including convictions, that come up with what comes up when what you get when you run the same searches replacing the party affiliation with "Republican").



Now the other party, the Donkeys, did not win the presidential election. This means that while the President might consult with them, and did in both the Roberts and Miers nominations at least (The Donkeys failing to come to Miers aid hoping for someone even better being one reason she had to withdraw), the maximum involvement in the process that the president could theoretically be legally required to give them is this up or down vote that they just got. In fact, since they only won 44 senate seats, plus a nominal independent but a de facto ally, the president would have been within his rights to ask the Elephant senators only into his office, and go down the list of potential nominees until he found one fifty one Elephants or more could support. He didn't do that. He was a lot more accommodating and consultive than that, and he could have gotten a candidate significantly more in the Donkey faces than Alito.



The reason the Donkeys are holding their breath until they turn blue is quite simply that they are being held hostage by a radical element within their own party. This element was presented with a surprise victory thirty-three years ago that they probably shouldn't have won, and they knew at the time they shouldn't have won (Roe vs. Wade was a real shocker at the time, including to the victors, as I'm barely old enough to remember). The word "abortion" appears nowhere in the constitution, and in fact, there is not one word in the document itself or any of it's amendments having to do with the issue or anything with significant association with that issue. The one item that appears to have significant direct association is the part about reserving powers not explicitly delegated either to the states or to the people.



Nor does the approach the constitution takes give us, the citizens, any rights. It acknowledges that we have rights, and prohibits their removal by the federal government.



The function of the Supreme Court's power of review, under Marbury vs. Madison, is not to legislate. Rather it is to say when the government has stepped over the limits upon their authority drawn up in the constitution. In the early years of the Republic, even this much was seriously debated by our founders, and there was a large faction who believed that the corrective factor should be the next election, and I am not certain they were wrong. It certainly should keep the citizenry more involved in the electoral process.



Based upon, you know, the actual words on the paper of the constitution and its amendments, not to mention well-documented intents of the framers, one could build a serious case that it isn't the federal government's business at all. Power not specifically reserved to the federal government, goes to the states or the people per the Ninth Amendment. Indeed, had the Supreme Court in 1973 made a serious case instead of incidental that it was reserved to the people and not the states, I think it might perhaps have been more accepted, but they did not (text of Roe vs. Wade decision here), instead relying mostly upon a different segment of the Fourteenth Amendment than the one that extends the limitations on the federal government to the states.



Whatever your opinion of that argument, the fact remains that this removed what should have been a political decision from the legislative branches at whatever level and arrogated them to the judicial. This was clearly not what the courts were intended for, nor is it what they were designed for. But because it was a national "Get out of doing your job FREE!" card for legislators at both the state and national levels, it was allowed to stand. Those legislators didn't want to face enraged voters, as they would no matter which way they voted. A good way to lose votes, and no way to gain. Is it any wonder there have been so few legislative challenges?



On the other hand, the nature of the supreme court decision prevented what should have happened: A reasonable compromise which likely would have resulted in women being able to get abortions, with varying restrictions in the case of fetus viability, if the woman was herself a minor, and notification, either before or after the fact, of other stakeholders such as any husband the woman might have, and exceptions having to do with medical reasons limiting the restrictions. Absent Roe vs. Wade, we would have come to some accommodation on the issue that, if perfect for very few, would have been completely unacceptable to only a very few as well. Furthermore, the issue would be settled with only minor movements, not this great flaming controversy that we face today. Perhaps the standards would be very different in some states from others; I can only observe that bus tickets are cheap, and so anyone shopping for a better venue for an abortion doesn't have a very high wall to get over. In fact, a one way ticket is even cheaper; they could stay and become part of that state's bulwark against a tightening of the laws by voting in that state.



But the real difficulty lies in the surprise victory gained by one side that, however politically powerful, is nonetheless in the minority. So now instead of one side of the issue being energized, we now have two. Furthermore, those who were handed the surprise victory were and are a critical block in what was the ruling party, without whom that ruling party would certainly fall, and even today when they are no longer the ruling party, without this block of votes they would not be competitive nationally.



For the first few years, no worries. Abortion wasn't an issue in the election of 1972; I have no idea what Richard Nixon's position was. Reagan made some hay on it in the 1976 primaries, but once Ford beat Reagan for the 1976 Elephant nomination, it wasn't an issue then, either, as no Donkey opposed to abortion could get nominated. Heck, they won't even let them speak, nowadays. But by 1980, anti-abortion folks had had time to organize, and they were a large portion of the reason why Reagan won - he made it a campaign issue and they responded by supporting him, both with their votes and with their activism. I do not understand upon what grounds their opponents claim this was somehow evil, and at this point both "dogs in the fight" of the issue were energized, although one was trying to guard a bone that they had come into its possession almost accidentally, the other wanted that bone.



Indeed, Reagan's picks for the court (O'Conner, Rehnquist elevation, Scalia, Bork, Kennedy) were no problem until we got to Bork. Obviously qualified, perhaps the foremost legal scholar in the nation at the time, there was a definite track record that said he'd likely vote to overturn Roe vs. Wade, and he would have been the fifth vote, making it a majority. Well, although this was exactly the sort of nomination he'd been elected to make, there were 55 Democrats in the senate at the time. This meant Reagan needed some crossovers.



He didn't get them. Indeed, the nastiness of the attacks on Robert Bork set a low for politics at the time, and subsequent antics by both parties can be traced back to this incident. So-called "pro-choicers" perceived themselves as having their backs to the wall, as if a reversal of Roe vs. Wade would somehow permanently outlaw abortion nationwide. Indeed I recall hearing them make this false argument in several venues at the time; it helped them energize their troops. They not only took no prisoners, they metaphorically ate their own dead.



Other accusations were made against Robert Bork, but anti-abortion was the one that stuck, enough to get him rejected by the senate, anyway.



I regard this entire concept as wrong-headed in the extreme. I want to see the nominee's decision-making process. If we really want an independent judiciary, I regard any questioning as to how a nominee would rule in any specific case to be prejudicial and grounds for recusal should it actually come before the Court, because they are certainly not approaching it ab initio, having publicly and improperly painted down their own options. It is harder and correct, although less welcome to issue activists, to get a sense for how they think to decide if a nominee is fit to be on the court. It is not acceptable for an outstanding legal mind to be rejected because said nominee would likely vote the other way on any particular issue. But the forty-ton dead baby in the room, that Ted Kennedy and the Kossacks and NOW bloviated about ad nauseum, was that Alito - correctly - would not answer questions about how he would vote directly related to specific issues. To wit, their pet issue, abortion.



This was the issue with Thomas, and would have been with Souter, too except that the abortion activists were happy with him. Nonetheless, president's who wanted a prayer of getting a pro-abortion candidate through learned from Bork - nominate someone without a track record on the issue. I'm not going to go into whether or not I believe Anita Hill at this point, but it was the pro-abortionists who gave the story legs. It was not enough that there be an inconclusive record, their requirement was an affirmative siding with them.



Clinton ran on a platform that included legal abortion; when he won, it was no surprise to anyone that he nominated pro-abortion judges. The Elephants, in the minority then as the Donkeys are now, realized that elections have consequences and did not obstruct. Indeed, the vast majority of them were able to vote for them despite the nominees decided - and known - proabortion preferences. The nominees were qualified, and there were no grounds to reject them that were not clearly prejudical.



Roberts kind of got a pass because the Roe vote was 6-3 and he ended up replacing Rehnquist, who was against anyway, having written the original dissent. No worries, no danger, obviously qualified, some slanders get tossed around but he gets a pass on the Bork treatment.



Alito is an actual step away, replacing a member of the Roe majority which may (and I emphasize may) now be down to 5-4 with his confirmation. So the pro-abortionists panic. They know they can't win the President's mind, they know they can't win a party line vote, as the majority of the american public favors more restrictions on abortions and so, blindingly obvious, the party that sponsors that wins more elections and is now in the majority in both houses of Congress. So smear and filibuster was the order of the day, and he gets the full Bork treatment.



Now the only way this whole thing makes any kind of sense is if the pro-abortion forces cannot win nationwide on the ballot, and this does seem to be the case. The Donkeys had a peak of 61 senators in 1977-79, 57 in 1993-95, the Jeffords switch in 2001-2002 was as close as they've come to majority party since.



Nonetheless, I believe an actual Roe vs. Wade reversal would be a disaster to the Elephants. The anti-abortion forces, having largely gotten what they want, will pack up and go home, becoming a less potent force. They'll still agigate on the state and local scale, but not at the Congressional level. Indeed, had the Donkeys not been so decidedly pro-abortion, it's likely they would have more seats now. This is the issue that has largely lost them the South and Midwest. Reagan won 49 states in his re-election but had to deal with a Donkey Congress his whole tenure. Bush was re-elected, primarily because he understands the war on terror, by a much smaller margin but still gets to work with an Elephant Congress. The longer it takes, the worse it's going to get for the Donkeys. They should go limp on this issue, at least as far as Supreme Court nominees go, and start proposing legislation making it affirmatively legal to get an abortion. That was the right thing to do thirty years ago, and remains the correct thing to do now. Let's have the discussion and come to the compromises that we're all equally uncomfortable with. I do not believe that it would be a return to the dark ages, and any representation I have seen to the effect that it would has been clearly on the level of hyperbole, whether it was intended thusly or not. Yes, abortion will probably still be legal almost everywhere and there will probably be some restrictions most places. This is quite reasonable. Fact is, few abortions are performed because of medical necessity. The vast majority are purely voluntary. Fact is, parents are responsible in all other ways for their children and not permitted to resign the responsibility without a willing replacement. Absence of parental notification and permission isn't usually about theocrats who won't give permission; it's usually about giving the children an easy out so mom and dad don't know and won't ground them. This is an argument we as a society should have had thirty years ago, same as every other country in the world. The fact is that the Supreme Court ruling, by premepting the argument, has kept it from happening and distorted our political processes for thirty years now. One group got a surprise present that they're fighting tooth and nail to hang onto, despite the fact that they are clearly in the minority. It's past time this was changed.



Unfortunately, this is not something the Donkeys can stomach risking. They're in the minority electorally, and the trends are sufficiently strong that some Donkey incumbents may be put in danger next election cycle. They know they've lost the electorate; what they do not understand is that the anti-abortion crowd has too. The abortion plank in the Elephant platform is firm but is not too prominent for a reason. It gets the the Elephants the anti-abortion folks. If these voters are unhappy with the priority the Elephants give it they are certainly not going to the Donkeys. Similarly, it's time for the Donkeys to turn this from a Supreme Court issue into a real election issue. Most voters do not favor general illegality, and therefore, the issue is likely to be a winner there where it is a loser at the "we must control the Supreme Court" level. If the pro-abortion fanatics get upset with the Donkeys, where are they going to go? The Elephants? I think not.

Lenders and Insurance Proceeds

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The question that inspired this was



can a mortgage company use the flood insurance claim money towards homeowners mortgage loans?



This is equally applicable to every other form of insurance on your home - earthquake, regular homeowner's insurance, and any others that you may have or require.



The short answer is yes.



The reason that the lender requires being added to every policy of insurance you have on your home is so they have a claim on the policy proceeds. Let's say you buy a $500,000 home for nothing down, and the value of the structure is $150,000 while the value of the land is $350,000. Let's say the house burns down next week. If they weren't on there as beneficiary, you could theoretically take that check for $150,000 and split, leaving them with a $500,000 loan that they're maybe going to net $270,000 for by selling the property that secured it - after all the time for foreclosure, et al, which means they're out all those costs plus thousands of dollars in interest. If you're a lender, you're going to suffer this loss once at most before you decide not to trust anybody.



On the other hand, the lender doesn't want the property or a partial repayment. They want the loan repaid in full. What they're going to do is sit on any funds they get and make certain they're used to rebuild, unless they have some reason to believe that rebuilding is a bad risk. Banks don't throw good money after bad, so if this is the case, they're going to keep the money. On the other hand, if you've been keeping your payments up, they're going to want you to rebuild. Their taking custody of the money is a way to make certain that you do.



Caveat Emptor.

Carnivals:



Carnival of Personal Finance. Recommended: Personal Finance Advice, No Credit Needed, and Especially Recommended: Old Niu's Blog. Learning to overcome greed and fear is critical for long term success.



Carnival of Debt Reduction



RINO Sightings Recommended: Classical Values



Strate-Sphere hosts a Carnival of the Chillin, regarding the Alito nomination. Recommended: The American Thinker



Carnival of The Capitalists. Recommended: The Entrepreneurial Mind



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I emailed several companies I'm thinking of advertising with last Wednesday. Google and Yahoo and BlogAds were both back same day. Microsoft is still ignoring me - likely my ad budget for the first month isn't rich enough to interest them. And Pajamas Media finally asked, "What!?" at 11:27 today. I responded, then got a further response indicating to me that Pajamas Media is way behind the power curve. I'm not going out of my way to yank their chains, so I'm not going to post the actual back and forth emails (at least not unless some Pajamas minion decides to nuke me, which they shouldn't as I'm trying to help them), but these people desperately need to hire somebody with customer service and business experience.



If someone with Pajamas Media wants to contact me, I'll be happy to forward the emails and annotate what I can see that you need to do, pronto. Barring some quick and notable improvements, it looks like I'm going to be spending my money elsewhere.



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I've added a category for Personal Finance, Economics, and Business sites over to the right. Please let me know if you're on my roll and you feel you belong there.



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US primary care about to collapse, physicians warn. Is anybody surprised by this?



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Looks like John got flushed again, this time in his attempt to filibuster Alito. Senate Moves Alito Close to Confirmation . The Vote was 72-25 for cloture, indicating that even many of those who are voting against him voted for cloture of debate. Bully for them. Maybe they have actually decided to act like mature adults.



Kossacks heads explode. Don't worry, it's not an essential item for them. It's happened before without damage - other than to the structure of the Donkey party.



HT to Politburo Diktat, who waded into the Minds of Morass so we don't have to. Except that I had to go sample, and found the following spectacular example (obscenities replaced with ****)



Which Do I ******* Want? (none / 0)



Women have been told to hold our mud for years and years and years. Our issues have been repeatedly pushed to the back burner while our leadership and fellow Democrats told us our day would one day come. Well, guess what not only did our day never come, it has been morphed out of existence. What we have instead is a party that has compromised our rights of choice away so much that women and young girls are already dying, they are being imprisoned and no new doctors have been trained to perform abortions. What does that mean? That the abortion providers today are in their 60s and 70s, ready to retire but with no one to take their place.



I want a party that ******* stands up and gives women a glimmer of hope that they ******* care if we live or die. I want a party that quits telling women, YOUR day will come SOMEDAY.



I don't give a rip what anyone says to me anymore. I will not vote for another Democrat until they put the rights of women front and center. I have seen what happens when we wait. I've seen abortion wards, the results of illegal abortions, I've heard it in the halls of my high school, the screams of grief when one of our friends died trying to self abort.



I've heard those screams, I've heard the screams of the parents at the funeral of a sixteen year old without a choice. It's a sound I'll never forget, it's a sound that drives me, it's a sound that makes me livid, it's a sound that haunts me, it's a sound that fills me with hate, it's a sound every single Democrat should live with for the rest of their ******* lives.



That's what waiting and hoping has done for women. The only answer for us is to show up at the polling places with no intention of voting. When we show up in the thousands maybe the leadership of this party will take note, maybe they will see the result of denying us the right to our bodies and the ******* RIGHT TO LIVE.



For all of you who call us names for saying we are abandoning or deserting this party, let me just say that it has become obvious to many women that the only thing of value we have to give this party is our vote. None of you can say you have given more to this party than I have. None of you can say you are more loyal, or have loved this party more than I have. None of you can give women the promise that this is the end of the apathy towards women, none of you can tell us we will be respected and protected by this party at long last.



I'm a proud liberal without the brackets. I've been a liberal since I was in high school 40 years ago. It isn't a label for me as in 'liberal,' it's a way of life for me, it's who I am inside, it's what gives me strength because I know I'm on the right side. My party can't say the same.



A line has been drawn in the sand for us, by us. What we know for sure is something we've always known, if we withhold what we value the most, the vote we fought for for far longer than we should have had to, that is what will win us a place at the table.



The shame is not ours, it's yours who will not listen, it's this partys, it's everyone who keeps telling us what to do, that's what's right for the party is right for us. We don't believe you because we have no reason to. And that is the real shame of it all.



Men, their rights and nothing more; women, their rights and nothing less. Susan B. Anthony





So many errors of logic in there that my brain hurts just trying to find where to start. So I'm not going to.



Michelle Malkin livebloged Senator "The T is for Tantrum" Kennedy's screed. I needed two ibuprofen just to read it.



Money quote:


And that is what we are doing (voice quavering) with this nominee. HE FAILED TO DEMONSTRATE before this Judiciary Committee that he was committed to the continued march for progress...
.



Somebody buy him a dozen extra strong super large C-clamps to keep his head from exploding, stat.





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Speaking of fundamental disconnects from reality, I wonder if Bill Clinton is trying to sabotage Hillary's presidential run? As reported by John Leo:



Bill Clinton thinks terrorism is an overrated threat. Last fall he said terrorism is less important than global warming. That was at the Clinton Global Initiative, his personal New York version of Davos, the annual big-think fiesta in Switzerland for world leaders and Hollywood stars.



Last week at the real Davos, Clinton demoted the terrorism threat from No.2 to No.3, behind economic inequality around the world as well as global warming. Most informed people think that climate change is very ominous and that poverty is of course a serious problem. But Clinton does not seem to think the possibility of New York or Washington disappearing in a nuclear blast is a very big deal.





We elected this gladhanding used car salesman president twice. I never really appreciated how lucky we were that the damage he did wasn't worse.



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LGF notes a Telegraph report that Iran may have infiltrated the IAEA.



Words fail. Oh. My. That ticking you hear is a countdown.



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I love it when life becomes harder for thieves: Tiny tags enlisted to identify property!

Life Insurance is something that nearly every adult should have, and almost every adult who buys goes about purchasing it the wrong way, at the wrong time, for the wrong reasons, and buys the wrong policy.



Is that an indictment of the system or what?



Let's start with what life insurance is. Life insurance is a bet that you make with an insurance company that you will or will not live. The idea is that if you die, while nothing can replace you, your family will get money to replace your salary. If you die while the policy is in force, the insurance company loses the bet. If you live for the full time the policy is in effect, congratulations for being alive, but you lost the bet. If you die after the policy stops, not only did you die, but you spent all that money and your family got nothing. Now it is critically important to understanding life insurance to understand that nobody gets out of life alive. Unfortunately, everybody has to die sometime. As of this writing, the chances of you missing out on this one final life experience that practically everyone wants to avoid forever are zero. So you might as well make plans that include anybody you leave behind benefitting from it, because (I have it on excellent authority) dying stinks. (Yes, I'd use a stronger word except that I try to keep the language here family safe as much as possible)



There are two major types of life insurance, term and cash-value, and the latter type has several subtypes which I will explain in due course. Term can be thought of as "renting" life insurance, while cash value can be thought of as "buying" it. Like owning versus renting a home, there are arguments on both sides of this story as to which is better. I will attempt to cover the pros and cons of all of the major camps, and there are people for whom each makes sense, but like buying a home, if you choose the right policy, cash value life insurance is a losing proposition in the short term while becoming fantastically remunerative after a few years. The vast majority of all people would do better to consider cash value, particularly when you crank the actual numbers and consider the alternatives.



Another thing that needs to be crystal clear is that life insurance is the second most tax advantaged investment you can make, right after buying a home. In fact, it's better in many ways although it requires more planning. If you plan properly, and die while it is in force, the death benefit comes to your heirs tax free. Furthermore, all investments in the cash value of a life insurance policy earn money tax deferred, and any money withdrawn from the cash value of a life insurance policy gets "first in, first out" treatment - something no other investment can say. There is no legal dollar limit on this tax treatment for life insurance. There are no income limits for this tax treatment of life insurance. Literally anyone who can qualify for a policy can receive these tax benefits, and so long as you comply with federal guidelines to retain this treatment, there are no dollar limits to the amount you can invest. Even if you violate those limits, the only consequence is that the tax treatment on actual withdrawals flips to "Last in, first out," and since there is no limit on the number of policies you can have, either, there aren't many reasons to violate those guidelines.



You can also take loans against the cash value of any life insurance policies you may have, and loans are not taxable. Let's say that again. Loans are not taxable. Remember that. It's going to be important later. When put together with the other parts of the tax advantaged nature of life insurance, it's an awesomely powerful tool if used correctly.



Now I'm going to violate one of my cardinal rules for this site: no graphics. The reason is that this picture is too darned important to the essay. It's graphic of some features of a life insurance policy. The vertical axis is money - dollars - and the horizontal axis is time. And the reason I'm putting it up is to illustrate a generic life insurance policy. It doesn't look like much at first, but here it is:





(Restored! Thanks Chris!)



Now I'm going to explain it. There are three areas: red, yellow, and gray. Grey is just background - dollars above policy value. Like the altitude above an airplane, it's useless, unless you climb into it later, as some policies can, painting ever larger numbers first red, then yellow. Red, or actually, the top of the red line, is the total dollars your family (or other heirs) will receive when (not if) you shuffle off the mortal coil. Yellow is the cash value of the dollars in your policy. The difference between the two is the amount of insurance you're actually paying your hard earned money for at any given time. Get it? Got it? Good.



Now it is necessary to note and remember that the cost of the red dollars - the difference between the top of the red curve and the top of the yellow curve - get more expensive with time. Sometime in your sixties, dollars of actual life insurance start getting expensive. Mind you, they are always getting costlier from the first day you buy any policy of life insurance out there. But in your sixties, this process accelerates rapidly, and this has all kinds of implications later in the essay as well as later in life. And now that we've covered the basics, it's time to cover policy types.



Term life insurance, as I said, is like renting your life insurance. It's like the red line, without the yellow curve in there at all. For the entire time your policy is in effect,you are going to be buying the full amount of insurance dollars every time you make a payment. This means that in an unaltered term policy, your premium goes up every year; sharply so once you've hit your sixties. If you are initially purchasing at a young age, most companies will give you the option of paying more starting right now, so that for a certain period your premiums will not increase. If you buy young enough, most companies have at least a 30 year fixed term product. It's very difficult to find a company that will sell you a policy allowing this fixed period to go later than your sixty-fifth year, however. In all cases, once the fixed term is over, it converts to yearly renewable term, where you can expect the yearly bill to go higher every year. What happens when people start getting these suddenly much larger bills? They cancel. This is what the insurance companies want. Fewer than three percent of all term policies ever pay a death benefit because they are canceled. When you cancel, you're letting the insurance company off the hook on your bet, and all that wonderful money you spent on their pretty policy bought you some peace of mind for a while, but now it's gone, and you have nothing. Term is very expensive insurance, when you talk about real cost to the consumer in aggregate, and very profitable to the insurance companies. It doesn't require writing a check for nearly the number of dollars now, but it doesn't provide nearly the benefits either. Remember that stuff I told you about how tax-advantaged life insurance is? Term makes almost no use of this fact. It's kind of like buying a Ferrari body, and putting a Yugo engine into it.



Now we're going to move into cash value life insurance in all its variants. They're called cash value because they have one. Now we're putting the yellow curve back into the picture above. What these policies are calculated to do is endow at a certain age. This used to be 100 for all policies, now the companies are trending more towards 120. This is a good thing because with more people living to 100, they are getting checks when they really want life insurance. Policies endow when the yellow curve rises to meet the red line, off to the right of the rest of the picture above. If it's your policy, you get a check for the amount of the red line in exchange for your policy of life insurance. This ends the tax benefits, and can have adverse effects upon your tax liability, too. So most folks want to get their policy value as a death benefit to their heirs, not as a check while they're still alive. Confused? Follow me.



The first major variant of cash value is whole life. This is what that default picture above is all about, because that's pretty much what a policy of whole life insurance looks like. The difference in dollars between the cost of the term insurance and the cost of the policy is invested with the general account of the company. It earns about eight percent or so, and they pay you about three, which is pathetic. Nonetheless, that three percent is tax deferred, tax free, First In First Out, so it's probably close to an effective 5 percent for most folks. Like all cash value life insurance, there are provisions for tax free withdrawals and zero percent effective rate loans and all of that. Also like all cash value insurance, to an ever increasing degree over the life of the policy, this moves from paying the cost of the insurance from the check you are writing, which is after tax dollars, to money already within the policy, which is before tax dollars. Finally, like all cash value life insurance, over the life of the policy you are buying progressively smaller amounts of actual life insurance (the difference between the red curve and the yellow one), which means that your actual cost of insurance is less, particularly later on when the cost of that actual insurance goes up. Because of this, cash value policies are likely to stay in effect your whole life and not get canceled. Nonetheless, this is a putrid return and makes the insurance company even more money than term insurance. Many people would have you believe that whole life is the only variety of cash value life insurance out there. It isn't. But you would not believe the number of straw man arguments against cash value life insurance I have read in the financial press that did their best to read as if that claim were true. For someone who is supposed to make their living informing consumers about the financial industry, this is either fundamentally ignorant, or fundamentally dishonest.



Probably about fifty years ago, some bright young person working at an insurance company realized that the need for life insurance may not be constant throughout life, and so came the first major addition to the choice of "whole life or term." This was Universal Life. The concept was simple. You could decrease the amount of insurance in set units, or increase it in set units, up to a certain value, and the initial underwriting would still cover it. This was really cool at the time, because it meant that you didn't have to apply again for life insurance and go through the underwriting and health insurance exam and health insurance questions all over again, and possibly get "rated" for some new health problem that wasn't there last time, or possibly even turned down. Unfortunately, in Universal Life Insurance, you're still investing your money in the general account of the life insurance company, and they are still only paying you about four percent. Once again this has all of the neat tax advantages, but even an effective six percent return is nothing to write home about. To most folks, it's almost embarrassing. Nonetheless, Universal Life Insurance has broad applicability to small dollar value policies, mostly for older folks. The return is guaranteed, the company assumes the investment risk, and the policyholder gets peace of mind for the rest of their life, knowing that whatever expenses they had in mind are covered.



Not too long after the enterprising young person had the idea for Universal Life, another one had the idea for Variable Life. This is a truly different product, but it really didn't go anywhere until the late seventies, when inflation was rampant and things were generally going south in a hand-basket until Ronald Reagan et al brought them back under control. The concept is simple: Instead of investing in the general account of the company, you have the opportunity to invest in a certain number of sub-accounts that act a lot like mutual funds. These sub-accounts are basically comparable to the ones in variable annuities, having roughly the same advantages and disadvantages except that most people do not have qualified money in life insurance because the interplay of withdrawal requirements with funding requirements gets nasty complex.



Now in those articles that do admit the existence of variable life, they most commonly write against it because "They have this expense and that expense and the other expense," ad nauseum, with the strong implication, never proven, that they are somehow more expensive than other policies. The fact is that these are expenses associated with all life insurance. The only additional expense that the variable life insurance policy has that the term life insurance policy (or any other) does not is the expense of running the mutual fund-like sub-accounts, which actually average a bit lower than the equivalent mutual fund upon which these are usually based. Every other expense is part of every life insurance policy - indeed, most of them are part of every insurance contract of any sort. Administration, Insurance, etcetera. They buy the stuff that makes the cash value life insurance policy an interesting and potentially worthwhile investment - the death benefit, that wonderful tax treatment, among other things. But because you're dealing with something regulated by the SEC, the agent and the company have to tell you about them in variable annuities, whereas with every other insurance policy, they are a "black box" into which money goes and insurance comes out.



Variable Life Insurance, like Variable Annuities, requires not only a life insurance license, but also an NASD Series 6 or Series 7 license to sell. This means that it is generally sold through financial planners, not "pure" insurance agents. These folks are competition for the financial "do it yourself" press, and if you are working with a professional you trust, you're not nearly as likely to go back to the bookstore or magazine stand for generic drivel with no fiduciary responsibility towards you. Admittedly, some advisors abuse it - and when they are caught, they are prosecuted and the insurance they are required to carry pays. The generic advice in books, newspapers, magazines and websites never has this responsibility in the first place. They are specifically exempted by the Investment Company Act of 1940. But Variable Life Insurance has all of the advantages possessed by all cash value policies that I listed above, and it also has the advantage that you are getting market returns, which the tax advantages leverage significantly in your favor.



Finally, in the early 1970s, another bright young person had the idea of combining the features of Variable Life Insurance with Universal Life Insurance. This product, called Variable Universal Life Insurance, is about the most flexible, most versatile financial investment there is, because you can do so much with it, and it facilitates changes in plans like nothing else. You get market rates of return via the mutual fund-like sub-accounts, effectively augmented several points above market rates because of favorable tax treatment. You can withdraw your principal tax free, and take loans at zero effective interest rate against the earnings after that. Remember, loans are not taxable. You can increase or decrease the dollar amount of insurance within limits. Actually, variable universal has the unique ability that both the red and the yellow areas in the graph above usually start climbing into the gray area somewhere about twenty-five to thirty years in, getting to the point where the cash value of the policy can be multiple times original issue value. All of this amounts to things like you can start saving for your children's college as soon as you decide you'd like to have some someday. You can save for literally anything, because of all of the options you have for putting money in and taking it out. Matter of fact, you get the biggest advantage from overfunding the policy, putting more money in than you have to, although there are federal limits on how much and how fast you can overfund and retain the most important tax advantage, that of "First In First Out" tax treatment. (It is to be noted that there are "single payment" policies that intentionally throw this benefit out the window, and are still an excellent investment in a lot of circumstances.)



There is one danger to variable life, and to a lesser extent variable universal life. It is possible that through inopportune timing of market declines and/or excessive withdrawals that there will not be enough money in the policy to keep it in force. This is, to use Orwell speak, double plus ungood. Let's say you took invested some number of dollars as principal, and later withdrew them. Then you took loans of $30,000 per year every year for ten years. But then your investments went through a market decline, and you kept taking the full $30,000 per year for another ten years. If you die with the death benefit still in force, it's all just a loan against the death benefit and therefore nontaxable because the death benefit is nontaxable. But if the policy self-destructs, now you have to pay the taxes on that $600,000 of income I've just described. The IRS is utterly unimpressed by "blood from a turnip" type arguments. They can usually figure a way to get their money a way that you won't be happy with.



The oldest of these policies are only thirty-odd years old, and there were a lot of improvements made in the early years, so there's no experience, as yet, with the first generation they were really designed for as lifelong financial instruments. The first people who bought them in their twenties are only just now starting to turn sixty, approaching retirement age. Going back via market performance in the last century or so, there does not appear to be major danger of self destruction on policies given time to mature and prudently advised, but there have been people who withdrew more than the market could really support, who had major adverse experiences as a result. Especially with the variable universal policy, there are alternatives to prevent losing the policy completely, but it's still not something you want to have happen. I will point out, however, that the same danger exists for investors of any stripe, it's just that the sword here is especially terrible. This is one of the good reasons why these policy require dual licensing to sell - to insure that there's someone involved who should understand the structural limitations of the policy, and can help you avoid the lurking gotcha! by keeping your withdrawals and loans to a sustainable level.



One strategy many people, particularly in the self help financial press, advise is "buy term insurance and invest the difference." This isn't a bad strategy, especially if you plan on dying while the fixed term period is still in effect. But most people in their twenties and thirties are going to live well past their sixty-fifth birthday, and the fact is that most people who are young today are going to work well past it, as well. The reason why insurance premiums start to climb then is largely because that's when folks start dying off in larger numbers. Investing in life insurance is something best begun while you are young, with few health problems and lots of time. Whatever the strategy you begin while you're young, you're typically stuck with the decision, even if you do figure out what's wrong with it around the time you're fifty. At that age, your effective compounding is marginal in most cases, even if you're planning to delay retirement a few years. But I encourage everyone with a potential life insurance need to look at projections of not what's likely to happen for merely the next thirty years, but for the entire rest of your life. Buying variable, or better yet, variable universal, especially while you're young is a better way to end up with more usable money later on in life for most people. And that's the whole purpose of retirement planning, right?



Caveat Emptor.

Ladies and Gentlemen,



I have a very reasonable, very easygoing trackback policy. I make my trackback URLs easy to find and easy to reference. Anybody is welcome to trackback, so long as you reference the post and should say something I believe worth my readers' time about the subject of the post. You may agree or disagree with me, and as long as you have a rational point, I'll happily leave it there. I will accept trackbacks from a straight "read this!" recommendation, but it's really not what they're for (And I apologize if my software sends you one automatically when I recommend one of your articles thusly). A spot on your roll of worthy sites is usually considered to be courtesy, but is not required, and the universe knows that I've slipped up on this.



The idea of trackbacks is that traffic goes both ways, not just from me to you. I will delete trackbacks that do not adhere to this. If you do not reference my post, I will ban your trackbacks completely on the second offense - the first if I think you're hitting me with trackback spam. I'm happy to share traffic, so long as we both benefit.



Due to requiring comment accounts, I have had very few problems with comment spam (which is exactly why I require comment accounts). I've always had issues with trackback spammers, but the cure of killing trackbacks completely is worse than the disease. I am trying to foster discussion and dialog, not stifle it, but if you want me to tell my readers about your post, you must tell your readers about my post. Unfortunately, two sites that should have known better have earned a ban in the last week. If you're not one of them, don't become one.



Oh, and one trackback per article of mine per article you reference it in, please. More than one trackback going from the same post to the same post is a waste of electrons. This is the reason I've essentially stopped putting manual trackback pings in my posts - I never know when the software is going to send an automatic one. I don't get angry, I just delete the extras.



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Balloon Juice has the details on the Bush Administration trying to silence a NASA scientist on global warming.



This is why I'm a Raging RINO. This is not what the United States is about, which is a free flow of ideas. I'm far from convinced about global warming. Okay, I'm openly sceptical and have been trending in the direction of further scepticism for some time. But if I don't let those who adhere to the hypothesis to make their arguments to the best of their ability, that indicates nothing more or less than than fear on my part. Fear that what I believe may not be the truth. The correct response is "I believe you are mistaken, but you're welcome to try and convince me - and others - that I'm wrong."



Not to mention the fact that the current Bush Administration has done more to control global warming, if it exists, than its predecessors by a goodly margin. Yes, there is a point to be made about making clear the distinction as to whether Dr. Hansen is speaking at any point in time for himself only, or for NASA. Nonetheless, trying to silence the opposition is nothing less than cowardice.



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Decision '08 has an excellent fisking of the New York Times misrepresentation of the scope, scale, and legal justification for wiretapping.



It is naked partisan politics to get angry with the administration for doing the same job you criticized them so harshly for not doing prior to 9/11. It is stupid, and ultimately self-defeating, to overexercise a privacy fetish. Furthermore, "Reasonable Suspiscion" is and has been the standard for any number of searches for a very long time.



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Rhymes With Right has a good article about why race shouldn't prevent adoption. Much to the annoyance of race baiters of all races.



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I'm not happy with Google's China cave-in, but I do agree with Q and O that it's not that awful that they're censoring stuff. Actually, Google's censorship (and the communist Chinese's requirements to do so) are going to be significantly less effective as Russia's attempts to keep the internet as a whole out in the late 1980s. Which is to say, not very. Fact is that in recent times we've been spoiled by search engines, and the chinese are only being denied access to part of a search engine. The chinese are intelligent and resourceful - perhaps more so than any other people on earth. They'll figure out how to find what they're looking for. It'll be harder, but they'll do it. The trick is to find the connectivity of subjects, a research skill that users of the internet needed until not so long ago. The whole censoring of search results is just going to make the chinese have to look a little harder for anti-regime stuff. They'll still be able to find it.



Via Instapundit, Paul Boutin makes my point graphically.



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Iraq The Model has some information about attempts to form a government. But they're negotiating. With words. Yeah, it could get ugly, but if "I do not want the coming four years to be wasted in waiting for another chance and I want our parliament to be a parliament of work and constructive discussions not one of sterile rhetoric and disputes" is your biggest problem, well there are worse things in life than a Congress too deadlocked to do anything. That also means that they can't goof anything up.



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Big Lizards has a possible explanation for Donkey behavior: the false dichotomy. You must choose either Bush or Harry Reid, and you don't want to choose Bush, so you must choose Harry Reid. Judges? buzz! So sorry, and thank you for playing. Be sure to enjoy our wonderful parting gifts.



Except for possibly Hamas in the most recent Palestinian election (Fatah makes Mexican policement green with envy at the level of corruption), I can't remember a time when anyone was elected because of who they weren't, anywhere in the world. Okay, yes I can. But George W. Bush is not running again, nor is he Nixon. And coincidentally, neither was Gerald Ford. I think we've figured out what kind of loser that kind of thinking gets us.



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Captain's Quarters gets it right on earmarks and the federal budget. Money flows to power - the ability to send money in the supporter's directions. Take away Congress' ability to allocate as much money, and the corruption automatically becomes less.



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One of the themes of the 'sphere the last couple of days is "Where were you when Challenger blew up?" It's easy enough to remember. I was starting training as an Air Traffic Controller the next day. I got into Oklahoma City the previous evening and thought, "Cool! I'll wake up early and watch the shuttle launch, then check out of the motel and into the apartment and take a nap, then get ready to report the next day."



Well, whereas the plan for the day was executed in pretty much every other particular, no nap. Spent every moment I could watching to see if maybe there was any hope of a survivor, or some small silver lining to salvage the day. The entire day was an exercise in surreality. It seemed like the whole world was trapped in a bad dream from which we couldn't wake up. I was just too young to remember Apollo 1, although I knew about it intellectually, especially as my dad worked at Convair assembling stuff for NASA's manned space program throughout the sixties. I had seen "The Right Stuff", which frankly acknowledged the risks but never showed them (A worthwhile movie if you've never seen it, and I'm happy to note that we as a nation are once again moving closer to the willingness to undertake risks that were characteristic of the time chronicled. Take the Gus Grissom spaceflight with more than a grain of salt, though. The movie leaves out a lot of relevant facts). Still, it wasn't until the next day, when I woke up and the newspaper headlines were all about Challenger, that it really hit me. We really had had a disaster. Of course, within a couple days, the jokes in the breakroom started, but they were always with a certain edge that you could feel the person was telling them in a "I've got to laugh because otherwise I'll cry!" vein. I missed Reagan's speech; I took quite seriously the claim that the ATC program at the time was "law school in 3 months" and devoted nose to grindstone that evening and never really came up for air until graduation. I only saw the speech years later. I spent fifteen months in Palmdale right after that until it became obvious that the desert and my allergies were not meant to co-exist, and the fact that there were no shuttle flights and therefore no landings (Edwards AFB is/was just up the road) during that period was one of the things that I remember hating most about the Antelope Valley.

Minorities get higher rates.



They add that the fact minorities are more likely to borrow from institutions specializing in high-priced loans could mean they are being steered to such lenders or that some lenders are unwilling or unable to serve minority neighborhoods.





What they describe is called redlining. It is illegal. HUD really gets their panties in a bunch over it, too. Mostly what actually happens is that the lenders simply aren't chasing certain kinds of business. If any comes to them, they deal with it like anyone else. This is standard marketing procedure. Figure out who you're trying hardest to serve, and really chase that segment. If anyone else wants to come to you, that's wonderful and you serve them the same as any other customer, but they're still not someone you're going out of your way to attract.



One thing that the article explicitly said: This does not include/compensate for credit scores. Working with people in the flesh, I have experienced the fact that there is a difference between how various groups handle credit. Often, the urban poor have some difficulty in meeting the requirements for open and existing lines of credit. They are more likely to have failed to make the connection between credit reporting and future qualifications for credit, having at some point made a decision not to pay a creditor. Often, they are more pooly educated about their options or think they're a tough loan when they're not. This extends into the general population, although it's less prevalent. I have a friend I went to high school with. He and his wife make over $160,000 per year between them in very secure jobs they have held for over a decade each. Their credit score is about 760. The loan officer they were originally working with told them they were a tough loan to try and scare them into not shopping with anyone else. The reality is that the only question is what loan is best for them because they easily qualify for anything reasonable. This is far more common than most people think. The current standard is that if you have two or three open lines of credit and your credit score is above 640 - sixty plus points below national average - I can get 100 percent financing, and the possibility doesn't disappear completely until you go below 560 (whether it's smart is a question for the individual situation, but I can get a loan done if it is). With increasing equity, I can usually get a loan done even for credit scores below 500 (two hundred points below national average!). Now, the better your situation, the better your loan (e.g. rate, terms, closing costs, etc.) will be, but the question is not usually "Can I do a loan for these folks?" but "Can I find them better terms than anyone else?" and "Should I do this loan or is it really putting them in a worse situation than they're in?"



Quite often, the loan provider that urban poor go to is the one who advertises where they see it - basically, the lender who chases their business, usually by advertising in that area or in that language. Every other lender is still available to them, but they go to the place whose advertising they see. They think "This guy wants my business. He does business with people like me all the time. He can get me the loan." The problem is that all too often, this loan provider has chosen to chase this market precisely because the people in it, most often urban poor, do not understand they've got other choices, and do not understand effective loan shopping, and so this loan provider makes six percent (the legal limit in California) on every loan plus kickbacks and arrangements under the table. They make more on one loan than I do on half a dozen for roughly the same amount of work, and the loan they do are not as good for their client as others that can easily be found.



Most people are better loan candidates than they think they are, and qualify for better loans than they think they do. It's more often the property they have chosen that creates an untouchable situation than the people themselves. Even then, there are usually options available.



(I got a ten minute lecture a while back from a nice young couple telling me they "deserved" a rate of four to five percent on a 100% loan for a manufactured home sitting on a rented space, because it was "the same rate everyone else is getting". Well, if it had been on a regular house sitting on owned land I could have gotten them that loan on very desirable terms, but nobody does 100 percent on manufactured homes, and if there's no ownership interest in the actual land involved then it's a loan secured by personal property, not real estate, and it becomes a personal loan, for which the rates are much higher.)



So keep this in mind if and when you're in the market for a real estate loan, and shop multiple lenders, and shop hard. Remember that all of the times your credit is run in a two week period for mortgage purposes only counts as one inquiry, whether it is just once or whether it's five dozen times. A loan provider does not have to run credit themselves to get a quote, but the information must be complete, accurate, and in a form they can use.



Keep in mind that the loan market changes constantly. A quote that's good today almost certainly will not be good tomorrow. If it's not locked, it's not real, and a thirty day lock is not valid unless extended on the thirty-first day, for which you will pay an extension fee if necessary. So shop hard, with a real sense of urgency, get it done quick, and make your loan provider get it done quick. Any additional stress will more than pay for itself (and the longer the loan takes, the greater the opportunity for stress, too). Apply for a back-up loan, and if it's ready first, it's probably a good idea to go with your backup. Sight unseen, I will bet money that a loan done in thirty days or less from the time you say that you want it is a better loan than the loan that takes sixty days or more.



Caveat Emptor.

UPDATED here

Games Lenders Play, Part V

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Hello, I've been reading your website for awhile now, and have found it very helpful as I'm learning to navigate this crazy loan process! I had a question I was wondering if you could write about/answer.

We currently have a mortgage and a secondary line of credit on our condo (we didn't have a down payment, so we had to do it like this). We have been here one year, and the home values in our complex have gone up about $70,000 - $100,000 in that time period. (We live in Southern California.)

Recently we got a notice in the mail telling us that they can reduce our monthly payments ("by as much as $1,500!)" if we refinance with them. Frankly, it sounds way too good to be true, and I have a feeling they're not really telling us the truth in this notice. But it did raise a question in my mind: would it be wise to attempt to refinance, in the hopes that our higher valued home would allow us to refinance with only one mortgage, instead of two? I'm not even sure if that's possible...I'm having a hard time understanding how refinancing works. I should mention that we are currently in an interest-only loan, with no prepayment penalties. Our first loan is 4.75%, and our secondary line of credit is 6.375%.

Any help would be greatly appreciated.


Your feelings that they aren't telling the whole truth are justified.

Refinancing is the process of replacing one loan for another on the same piece of property. The idea is that the terms of the new loan are more advantageous to you than the terms of the existing loan. There are three main issues that you need to be aware of, however. The first is that there are always costs associated with doing the new loan. The second is that there may be a prepayment penalty to get out of the existing loan. The third is to make certain the terms you are moving to are enough better, for your purposes, than the existing terms to justify the costs associated with the first and second issues.

You state that you're in California, which is where I work. Realistic costs of doing the loan are about $3500 with everything that is necessary. This doesn't include origination, to pay the loan provider for the work they do on the loan, or discount, to pay for a rate the lender might otherwise not offer. I explain those costs, the difference between them, and many of the games lenders play in my article on Good Faith Estimate, part I. There will also be the possibility of you having to come up with some prepaid items, explained in Good Faith Estimate Part II.

Note that not every loan has points. I actually think that, given most client's refinancing habits, it's usually better to pay for a loan's cost, and the loan provider's compensation, through Yield Spread. Yield spread can be thought of as negative discount points, and discount points can be thought of as negative yield spread. Discount points are a fee charged by the lender to give you a rate lower than you would otherwise have gotten. Yield Spread is a premium paid by the lender for accepting a rate higher that you would otherwise have gotten, and can be used to pay the loan provider and/or loan costs. Each situation must be considered upon its own merits, of course.

Now, let's take a look at your specific situation. Your current first mortgage is at 4.75% interest only. You don't mention what sort of loan this is (updated via email: it's a 5/1 Interest Only ARM), but there is no such thing as a thirty year fixed rate interest only loan. At most they are interest only for a certain period, usually five years, before they begin to amortize over the remaining twenty-five. On the other hand, you said you bought one year ago, and that rate didn't exist on thirty year fixed rate loans then and it doesn't exist now. (Via later email, the first mortgage is a 5/1 Interest Only ARM). Your second loan is a line of credit at 6.375. I'm also guessing that either you, or the person who sold to you, paid a good chunk of change in discount points to buy the rate down, and I'm hoping it wasn't you.

Now, there's no way that this is a loan that's going to serve you indefinitely at that rate. There hasn't been a 30 year fixed rate loan comparable to that available since Spring of 2004, with any lender I know of, no matter how many points you paid. So what you have is at most a hybrid ARM (Yes, 5/1 Interest Only). No worries; I love hybrid ARMs. They are the only loans I consider for my own property in most circumstances. But they do have one weakness. There is likely to come a time when it is in your best interest to refinance, because after the fixed period the rate on them adjusts every so often, based upon a stated index plus a contractual margin, and the sum of these two is likely to be significantly higher than the rate for refinancing into another hybrid ARM.

Now what are they offering you? They're talking about cutting your payment by $1500 or more. But there just aren't any rates that much lower than yours available. Nothing even vaguely close. I don't think I could get you a 4.75% rate, even fully amortized, right now. So how are they going to cut your payment?

The only hypothesis I can come up with that is not contradicted by available evidence is that they are offering you a loan with a negative amortization payment. I explain those in these articles:

Option ARM and Pick a Pay - Negative Amortization Loans and Negative Amortization Loans - More Unfortunate Details

There is more information on marketing games with this loan type in these articles: Games Lenders Play (Part II) and Games Lenders Play (Part IV).

Finally, there are a few more issues that may not be relevant to everyone in these articles: Regulators Toughen Negative Amortization Loans? and Negative Amortization Loan Issues on Investment Property

One thing to understand is that when lenders are sending out advertising, they are not looking for Truth, Justice, and the American Way. They're looking to get paid for doing a loan, and most lenders will do anything to get you to call, and then to get you start a loan. The Creative Fiction on many Good Faith Estimates and Mortgage Loan Disclosure Statements is only the start of this. If you find a loan provider who will pass up loans that they could otherwise talk you into because it doesn't put you into a better situation, keep their contact information in a very safe place, because you've found a treasure more valuable than anything Indiana Jones ever discovered. A valuable treasure that you can and should nonetheless share with friends, family, and anybody you come into contact with because you want them to stay in business for the next time you need them. Most lenders and loan providers could care less if they are killing you financially - what they care about is that they get paid. A negative amortization loan pays between three and four points of yield spread. Assuming your loan is $300,000, they would be paid between $9000 and $12000 not counting any other fees they charge you for putting you into a loan where the real rate is at least 1.5 percent higher than the rate you're paying now, and month to month variable. Warms the cockles of your heart, right? Didn't think so.

In short, they're offering you a teaser no better than a Nigerian 419 scam for most people in your situation. My advice is not to do anything unless you're coming up on the end of your fixed period, in which case you need to talk with someone else, who might have your interests somewhere closer to their heart than the Andromeda Galaxy.

Caveat Emptor

UPDATED here

Digger's Realm trackbacked to my article on California declaring secondhand smoke a pollutant, angry at the "violation" or "smoker's rights" and saying "Searchlight Crusade who thinks smokers should be taken out and shot."



No Digger, I don't want you shot, and that's not what I said. Read the article. I want you to grow up.



Even a stopped watch is right twice a day, and this is one case where the People's Republik of Kalifornia has it more right than anyone I'm aware of.



Either you are an adult, and you may choose to smoke, or you are not, and I am justified in keeping what has been more than adequately proven to be a deadly habit out of your reach.



But being an adult means more than just "I'm old enough to choose for myself!" which any five year old can claim, and most do. It means being responsible for the consequences of your actions, not just to yourself but to others.



I, and a fair sized minority of people out there, are allergic to tobacco byproducts. Cigarette smoke, among other things. Your rights stop at my nose, but your tobacco smoke doesn't. In my younger days, when California was less enlightened on this subject than we are now, I regularly spent entire weeks going around sneezing my face off, coughing and hacking and wheezing, because some immature child could not be responsible about their emissions. Usually, about the time the attack was starting to let up, some other egotistical child brought another one on. It still happens even today.



Nor are the people like myself, who are allergic, the only ones to suffer adverse effects. Your tobacco byproducts stink. They cause clothes and drapery and carpets and offices and elevators and taxicabs and everything else used by members of the public to stink. I know any number of people who become nauseated, some to the point of involuntary emission, because spoiled immature brats insist upon their so-called "right" to pollute the community environment to zero beneficial purpose. And there are even larger numbers of people who Just Don't Like It.



When you claim that you're an adult, and therefore have the "right" to smoke, you are also claiming responsibility for the emissions. There is no system of "rights" that I'm aware, under which you have the "right" to choose to lessen or eliminate anyone else's ability to enjoy the fruits of the community, much less the "right" to make someone else physically ill. Quite frankly, I'd rather you took a punch at my nose. That I can see coming, and that I have a pretty fair chance at blocking, and even if I fail to block the consequences are likely to be less severe, and also if I believe offensive action in self defense (I think a Louisville Slugger is about appropriate for most, reserving firearms for only the most egregious actions ;-) ), then the standards of the community anywhere have no serious difficulties with such responses when you have chosen to initiate force that way.



Smoker's clubs? Fine, so long as they are private property, and the sign at the entrance, all advertising, all logos, all business cards, and especially all help wanted ads include some prominent graphic or words that indicates smoking is allowed, and you are prepared to accommodate any persons who choose not to smoke whose employment duties carry them there (Delivery persons, repairfolk, etcetera. If they didn't choose to be employed there, but you need them to stay in business, and therefore an adult is responsible to make it so they don't have to breathe your poison. A good breathing apparatus with an air tank should be sufficient for most purposes). In public conveyances, on public lands, in public offices? No. Not under any circumstances that could lead to unwilling persons being exposed. The irresponsible behavior of smokers as a group has made it such that nobody rational should be willing to give that proportion of the smoking community who perhaps are mature enough to qualify as adults the opportunity.



In short Digger, your claim that any of your so-called "rights" has been violated is utterly without merit, as you would realize were you an adult in fact, instead of merely de jure. In fact, it is smokers in general who are violating the rights of the rest of us to breathe air unpolluted by at least that particular group of noxious chemicals.



So grow up. Or don't light up.

Hooray!



Unlike many confused libertarians, I welcome this: Calif. Says Secondhand Smoke a Pollutant. You see, I've spent my life having my nose (and throat, sinuses, and lungs) rubbed in the fact that I'm dealing with the hazardous chemicals smokers emit whether I want to or not. Even here in California, I have spent a significant portion of my life sick because of some inconsiderate boor's smoking, and you folks wonder why I'm in favor of increasing regulations. The answer is because you, in the aggregate, will not control where and when you emit. You congregate right at the entrance to damned near every building, as if to take revenge for not being able to inflict the byproducts of your habit on those who have chosen not to allow you to emit your noxious waste inside those buildings. You stand upwind of people who want no part of your filthy habit and inflict your hazardous waste upon innocent bystanders. Even in theoretically non-smoking restaurants, every time somebody opens the door there's a major chance of your foul-smelling byproduct being pushed in by the wind. If you weren't protected by the tobacco lobby, you'd be dealing with these folks and these folks every time you light up. And I'm thinking that would be a good thing. I don't see an essential difference between the smokestack of a coal-fired plant and a smoker. Actually, I see the former as producing economic benefits to society whereas the latter produces only costs. A mandatory containment system for tobacco byproducts would make my whole decade.



I concede your right to smoke so long as you concede my right not to breathe the byproducts of it. Poison yourself all you want, any time you want. But that doesn't give you the right to inflict it on anyone else.

The President is actually demonstrating that he "gets it" on something other than the War on Terror: Bush 'Reluctant' to Bail Out Automakers. Of course, the fact that he's never running for anything ever again might have something to do with the fact that he's able to say no.



The president has also called a press conference regarding the government surveillance projects.



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Either the figleaf is off, or Hamas is going to have to grow up fast and start talking peace. Hamas sweeps Palestinian election. Maybe, if we're lucky, the fact that the obvious authority over and responsibility for Palestinian affairs just landed in their laps will force them to improve their attitude towards Israel and also start behaving themselves better. Probably not, but it's a hope.



Dean's World has more that makes sense.



Chris Cam thinks the real story is peaceful transfer of power for Palestinians, and I think he's got a point.



BBC News:



Negotiations with Israel is not on our agenda," he said.



"Recognising Israel is not on the agenda either now."





HT Hugh Hewitt



That dove is listed in critical condition. Outlook not hopeful.



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This is encouraging kidnappers: U.S. Releasing Five Women Prisoners (as demanded by the kidnappers of a Christian Science Monitor reporter). They say it's coincidence. If it's coincidence, well I'm sorry for the inconvenience to these five women but we need to hold them until the situation is resolved, just to make a point. We let them go now, and not only these kidnappers, but future potential kidnappers, will see it as a victory. Better to say, "Well, we were planning to release them, but now we can't let them go until this other situation is resolved." This discourages kidnappers by portraying them as shooting these women in the foot.



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State of Flux makes a good point about real pacifism. Who was the real pacifist: Churchill, who wanted to confront Hitler early, or Chamberlain, who let the situation go until he had built the German Wehrmacht to the point it was able to challenge the rest of europe?



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Tinkerty-Tonk has the goods on Russian documents that show how they trained terrorists for decades.



Actually, I'm not certain who comes out the worse for the known association: Communists of splodeydopes. I'm not happy that a major power trained splodeydopes. But it gives one a certain sense of schadenfreude, given some more recent events.



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ROFASix has an article about an artist worth taking a look at. Especially if you have a need for some painting.



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Carol Platt Liebau sticks a harpoon into the Lesser California Moonbat Senator Feinstein.



Via Daily Kos, John Kerry has officially called for a filibuster of Samuel Alito. Without the Donkeys from the Gang of 14, a filibuster is dead. Guess what John? Can you say "Exercise in futility"? Knew you could. Almost as much so as pretending you wouldn't be among the worst possible choices for President.



Hey, if the New York Times wants it, the voters must all agree, right?



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Oh, those WMD



HT Vodkapundit



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Big Lizards has some worthwhile thoughts on the bribe Google took from China.



I get a good number of hits from Google every day. But their actions in regards to China give it something of an Eeewww! factor now. Not that I think that it's going to do the Chinese dictators any good, but just the principle of agreeing to it.



LGF went out and found a site that will help get around chinese government controls.



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Two tons of pot found inside Mexico-U.S. border tunnel



Is anybody unclear on what else could have used this tunnel? Do I really need to enlighten you?

Bridge Loans

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One of the things I'm seeing a lot of these days is blanket advice on bridge loans.



A bridge loan is a loan that you take out with the explicit intention of having it be short term. The most common situation is a loan against property A, which you own but plan to sell, so that you can put a down payment on property B right now.



The motivation for this comes from the fact that people get paid to do bridge loans, and they are typically very easy loans to do. Frankly, the people making the recommendation make more money by doing the bridge loan than by not doing it, and they are not motivated to do the calculations and legwork to see which is the better deal for the consumer.



When it comes to money, blanket recommendations of any sort are automatically suspect, and usually wrong. Every situation is different, and there can be factors that cause an ethical professional to recommend something in one case where they would recommend against in another superficially similar one.



Bridge loans are no exception. The advantage is that they make you a more qualified buyer, and can get you better rates on the loan for the new property. The disadvantage is that their closing costs are just as high as any other loan. So you're spending about $3500 extra plus points plus junk fees (if any). They are also, by definition, cash out refinances. The rate-cost tradeoff for cash-out refinances is less favorable, all things considered, than purchase money loans.



The next major issue that arises is that they can make it more difficult to qualify for the loan on the new property, which can often mean that you need to go stated income or NINA when you might otherwise have qualified full documentation, which means you got a higher rate on the new property anyway, and that you're going to want to refinance your new purchase as soon as Property A sells anyway, sending another set of loan costs down the drain. Don't get me wrong, I love to do loans, and my pocketbook loves for me to do loans, but it's a good loan officer's job to look after your interests first.



Finally, choosing a bridge loan can force a choice upon you: A good loan that puts you in the position of having a need to sell within a specified time frame, and a mediocre loan that may not. The best (lowest) rates are for short term loans. Always have been, always will be. However, if the market sours, this can cause you to either accept an offer you would not have otherwise considered, or flush another set of closing costs down the toilet, when if you had chosen the mediocre loan, you would have been okay indefinitely.



Let's crunch some numbers. Let's say you have a property currently worth $250,000 that you bought for $125,000 and have paid down to $100,000. You want to upgrade to a $400,000 property now that your promotion and raise have settled in.



The first thing you do is pull cash out to 80 percent. On a 30 day lock of a 30 year conforming fixed rate loan, assuming you've got good credit, this is about a 6.5 rate without points, and you'll actually get about $96,500 of that $100,000 you take out. I looked at shorter term fixed rate loans as well, but with the yield curve inverted right now since you're planning to sell, anything without a prepayment penalty is about the same, and a prepayment penalty is contra-indicated, as it means you'll have to pay thousands of dollars when you do sell.



You take and put that $96500 down on a new home purchase loan on a $400,000 home. It's over 20% down, so no PMI concerns, and no splitting into a second loan. But because you've got that $200k loan sitting over there, now you have to go stated income on the loan for the new home. This means your rate is about 6.75 without points. Soak off another $3500 in loan costs, plus purchase costs of maybe another $1000. You now have two loans, one for $200k at 6.5 and one for about $312,000 at 6.75. Now the original home sells. Let's say you got full value of $250,000. You pay 5% in real estate commission, and maybe 2% more in other costs. That's $17,500, so you get $32,500 in your pocket. You have three choices, two of them productive. You can 1) Spend the money, 2) Invest the money, or 3) Use it on the other mortgage. Now a paydown, where you just plop the money down and keep making your same old current payment is a good idea (Unless there's a "first dollar" prepayment penalty), but most folks are obsessed with lowering their payment. So they take that $32500, and of which $3500 is loan expenses, and (because now they can do full documentation), they end up with something like a $283,000 loan at 6.25 percent, assuming rates don't move. Total cost of loans: $10,500 assuming you pay no points for any of your loans. Perhaps possible for someone with above average credit. Not likely if your credit is below average.



Suppose instead, that you just leave that $100,000 loan sit on your original property. You're still going to have to do stated income on the new loan on the new property. But instead, you go with a 80 percent first, 15 percent second because you can come up with $25,000 until the first property sells. Same 6.75 rate on the first, and the second is an interest only at about 10.25, just to use the same lender whose sheet I happened to pull from the stack for the exercise. Loan costs, $4000 without points, which I priced the loan to avoid. First house sells, you get $132,500, replace the $25,000, and pay off that second, leaving you a $320,000 loan and about $47,500, holding cost assumptions constant ($1000 in non-loan costs). You could do a paydown, leaving $272,500 balance on a 6.75 loan, or you could take $3500 in closing costs and refinance to 6.25, just as above, leaving a balance of $276,000 if you don't pay any points. Total loan costs, $7500 and you only have to avoid paying points twice (once, as opposed to twice, if you take the paydown option. It takes a little under 37 months to break even on your interest savings). Furthermore, in less than hot markets, it gives you greater leverage with your seller to pay some part of your closing costs: "Do this, or I don't qualify". They have the home on the market for a reason, and they can help the buyer in hand or they can hope for another buyer to come along.



In this example, not doing a bridge loan saves you about $6500, less the additional interest (about $512/month) for the second mortgage until your first home sells, but plus approximately $541 per month interest every month between the time you initially refinance your original property and the time it finally sells, a longer period of time. Plus one set of possible mortgage points. So it's not difficult to construct scenarios where it's a good idea not to.



Let's look at a different scenario, however. Let's say instead of upgrading, you're already in the $400,000 home, and looking to downsize to a $100,000 condo. Furthermore, let's say you bought for $200,000 and are now down to $160,000 owed, just to keep the proportions consistent. You borrow out to $265,000 (paying $3500 in loan costs), which you qualify for full doc at 6.25. You then pay cash for the condo (including $1000 for purchase transaction costs, and you've still got $500 in your pocket). Furthermore, an all cash, no contingency transaction is a powerful negotiating tool for a seller to give you a good price. Then when your original property sells, costing you say 7%, or $28,000, in selling costs. You net $107,500 in your pocket. If you did no bridge loan, let's still assume you can come up with $25,000 on the short term, and you still qualify full documentation. Your rate on the condo is 6.375 without points, holding assumptions consistent. Then you sell the first property for the same $400k, paying the same 7% ($28,000) and paying off the $80,000 loan on the condo as well as replacing the $25,000. Net still $107,500 in your pocket, less additional interest charges for a little longer period, but you cut your stress level and put yourself in a stronger bargaining position, which is likely to be worth doing.



There are any number of reasons and factors to do a bridge loan or not to do a bridge loan. You may not have a minimum down payment without a bridge loan. That's probably the most common, as not all properties and purchases are eligible for 100 percent financing, and some require as much as a forty or even fifty percent down. The way a necessary transaction is structured. The presence or absence of 1035 exchange considerations is often a factor. Your credit score may limit you, or your ability to qualify full documentation may dictate the advantage lies in a different direction. Every situation has the potential for factors that may dictate an answer other than that given by pure numerical computation, and there are therefore, no valid blanket answers to the question of whether or not to do a bridge loan.



Caveat Emptor.

UPDATED here

Looks like Alito isn't getting rejected. The most the Donkeys can hope for is sustain a filibuster. Majority of Senators Vow to Vote for Alito



Looks like the Lesser California Moonbat has to get her licks in:



Sen. Dianne Feinstein (news, bio, voting record), D-Calif., said things are different from when the Senate considered Breyer and Ginsburg, who were confirmed 87-9 and 96-3 respectively. "There was not the polarization within America that is there today, and not the defined move to take this court in a singular direction," she said.





You mean where it was before Breyer and Ginsberg were added, Senator?



(I don't know about anybody else, but it scares me that our other senator makes Feinstein look normal).



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Carnival of The Vanities Recommended: Coyote Blog



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Yield Curve Inverts. What this means is that the effective rate on short term bonds is higher than on longer term bonds. Since people normally want a higher interest rate to tie thier money up (theoretically) for a longer period of time, this has traditionally been a harbinger of likely recession, as short term capital becomes more expensive than long. On the other hand, given how liquid the current bond market has become (where there is a ready secondary market for most government and corporate bonds) I'm not so certain anymore. When you can trade it away for cash (less a commission, of course) at any time, your money really isn't tied up, is it?



Don't get me wrong. There are huge problems waiting to bite the economy. But I'm not certain this is one of them.



What it does mean, for now, is that long term fixed rate loans are incredibly cheap as opposed to shorter term loans.



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Wizbang has an excellent article on the ethics of using civilians as shields for military operations, who does it, and who might get away with it and who definitely won't. As I said here, Gandhi and Martin Luther King succeeded in nonviolence because their opponents were civilized. Against less civilized opponents, they would have been slaughtered without hesitation, without repercussions, without remorse.



To intentionally use civilians as shields is first, to accept responsibility for the safety of those civilians, second, to the extent that those civilains are willing to assume said risk, a declaration of combatant status on their part.



A combatant is a target. Period. It is unacceptable collateral damage to blow up the entire block they go home to on leave, but there are plenty of opportunities to take them out when they're on duty, and anytime they are on duty, they are fair game. Them's the rules - the only rules that make sense. If you're unclear as to why, go over to Bill Whittle's place and re-read his two part piece Sanctuary. And if you haven't been there before, you're in for a treat.



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This is sad: The Celtic canary in the UK's coal mine. The larger part of my ancestors were Scottish, and it's a shame to see what was once such a vibrant area enter a demographic death spiral. Mind you, the population of the highlands has been declining for centuries. If Bonnie Prince Charlie planted his banner at Glenfinnan today, he'd be lucky to recruit a reinforced platoon, as the young folks have been leaving for where jobs and opportunities are (when they weren't forced out by the clearances). But the lowlands and cities were doing well until comparatively recently.



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Stop the ACLU documents people sheltering behind a slogan that amounts to a misquotation of Benjamin Franklin.



Conservative Cat hits the nail on the head:



Ben Franklin once said "They that can give up essential liberty to obtain a little temporary safety deserve neither liberty nor safety." Dr. Franklin turned many a clever phrase in his day, but that doesn't mean he has the last word in discussion of the Patriot Act.



Before we go too far, it's worth noting that Franklin was talking about liberty, not privacy. There is a relationship between the two, but I find it strange that no one bothers to quote Franklin when we're talking about the liberty to choose how your children are taught or smoke cigarettes in public. Instead, he's used to protect us from the government trying to find out whether or not we're terrorists.





Michelle Malkin has much more, including a round-up.





While we're talking about letting slogans do your thinking for you, Asymmetrical Information gives us some reasons why it's counter-productive. My position on abortion is fairly similar to hers, also.



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John Leo notes an interesting fact in regards to the judge who gave a teacher convicted of raping one of his 15 year old students a suspended sentence (no jail time - and even the suspension is only 30 months!)



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A very good sign: Hoder, an Iranian blogger with 20k daily readers, has gone to Israel.



HT Jeff Jarvis, who also has great advice to give the Washington Post.



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Jawa Report covers Google and the Chinese dictatorship trying to stop water with a sieve. A doomed, futile effort, about as effective as blocking pr0n search terms without blocking pr0n sites, for about the same reasons. Actually, it's harder to censor or avoid political information than it is to avoid pr0n. The internet is about connections, and politics connects to everything, whereas pr0n mostly connects to pr0n.



Dean's World has more worthy thoughts on this subject.



"I'm Feering Rucky"Scrappleface nails the necessary mindset.



Volokh Conspiracy, on the other hand, notes a large corporation that is passing on an opportunity to make a profit on misery.



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In yesterday's Link's and Minifeatures, I expressed doubt about the claims of an investigation into whether the CIA outsourced torture to eastern europe.



Today, Captain's Quarters has a more authoritative debunking.

Carnival of Liberty Recommended: Eric's Grumbles, TF Stern's Rantings, Eidelblog



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Something that is way too common. A story that contradicts its headline: Investigator: U.S. 'Outsourced' Torture



Marty said there was no irrefutable evidence of the existence of secret CIA prisons in Romania, Poland or any other country.



"On the other hand, it has been proved that individuals have been abducted, deprived of their liberty and all rights and transported to different destinations in Europe, to be handed over to countries in which they have suffered degrading treatment and torture," he said. If eventually uncovered, the detention centers would likely be small cells that could be easily hidden, he added.





earlier in the story:



"Acts of torture or severe violation of detainees' dignity through the administration of inhuman or degrading treatment





This is known as defining torture down. "Not the comfy chair!"



Here's another link on the same nonsense: Swiss investigator says U.S. 'outsourced' torture; European "But it says there's no formal, irrefutable evidence of such prisons anywhere in Europe."



Another link: Swiss investigator says U.S. 'outsourced' torture; European countries likely knew



No formal, irrefutable evidence? Likely "single, easily hidden cells"? Well, show us the evidence that you do have. You say you can't find them, but with "more cooperation" you would? This sounds remarkable similar to the investigators of many failed scientific hypotheses, claiming "with better equipment, I'll find my evidence!" Well, maybe, but it's not the first thing to check. From what it sounds like, you're building fantasy castles in the air, unsupported by facts. If the evidence is such that it leads to a preponderance of evidence in favor of the hypothesis, let's see it.



How about clemency for the first interrogator to step forward and detail what was done in full? How about tracing the path of one prisoner with evidence he actually was taken the places you claim? How about medical examination showing the damage done by torture to one or more prisoners?



The bottom line is that there are a lot of powerful enemies of the Bush administration who want this to be true, but there is an observed lack of presented evidence. They're making a lot of hullabaloo, but I'm not seeing any substance behind it. Kind of an "invisible friend" argument thus far.



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Captain's Quarters liveblogged the Canadian election last night, but this post is a summary of what happened. If you want more, go to his main page from there.



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Looks like Techography has become the target of a legal terrorist.



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I am still trying to figure out some non-bandwidth intensive and legal way to put a spreadsheet either on this site or the commercial sister-site, when it goes live. The entire idea is to make it interactive, let the viewer enter some numbers of their own and crunch the numbers right in front of them and even draw a line graph.



Right now the dang thing uses half a dozen worksheets in Excel, but I only need to display the front sheet. Furthermore, it could be easily ported to just about anything else. I know enough different spreadsheets that even if I need to learn another, no big deal.



Sorry, out of time for today!

Strata-Sphere has called for a RINO Stampede on the subject of Alito's confirmation.



Dick Durbin has said he'll filibuster.



Professor Bainbridge was first out of the box with an item saying he doesn't want the "nuclear option" used.



I agree.



Why?



Alito went through the tough part - and he came off as looking professional, reasoned, judicious, and supremely qualified. His detractors did not.



On high profile nationally televised hearings, this man demonstrated he's more fit to be making top level decisions than his detractors.



Go ahead and filibuster him. Make the President's day. Make Karl Rove's week. Make the RNC's entire campaign season. Because I guarantee that the average voter is going to be repelled by these tactics. On October 27, I wrote:





Best guess and best hope: One thing a lot of people don't understand about President Bush is that he's got cojones. The president will find a severely qualified conservative jurist smart enough to understand the politically generated hell they are going to go through in confirmation, and loyal enough to stick it out to the end even if the nomination appears doomed. The point is that's the only way to get some control of the confirmation process back, by naming someone who possesses the obvious qualifications to be on the court who is nonetheless subjected to something that makes what happened to Robert Bork downright friendly. Even if the Donkeys win that vote, they lose politically. If they lose it, they break even - both sides are energized, the Donkeys by the loss, the Elephants by what the Donkeys did to this poor person who is obviously qualified for the post.





If the Donkeys want 2006 to be the year the Elephants take control of Congress in the way that the Donkeys did at their peak (280 in house, maybe 60 in senate), they should be all means continue pandering to the hard-liners.



The average voter agrees that Alito deserves a thumbs up, or at least a vote. Furthermore, filibusters have an association with the civil rights filibusters of the sixties.



Something else: No virtual filibuster. Make the Donkeys stand up there and talk in open Senate about what an extremist Alito is, while everybody who wants to can put up video or transcripts of what was said and what was done. We know who will come off looking like extremists, and it's not Alito. He's got liberals who worked for him defending his integrity. He's got older judges with impeccable liberal credentials defending him as qualified and mainstream. There are fifteen years of his decisions as a judge, and the Donkeys have nothing to show him as out of the mainstream.



(The Donkeys really should be more careful in their choice of tactics. Alito is much closer to mainstream thought than either of Clinton's two nominees. If the Elephants want to stop future Ginsberg-type nominations cold, they've got all the ammunition they need)



When the gang of 14 first announced itself, I thought it was the a Bad Thing. But by October, I knew I was wrong. The Coalition of the Chillin' was right. Given their history, I doubt that the Donkeys on the gang of fourteen can justify Alito being "extraordinary circumstances" and "out of the mainstream" without torpedoing anybody whom that sort of pandering appeals to (i.e. the hard left) would find acceptable. So by voting to filibuster, they would be defeating themselves, and the whole purpose of the gang of fourteen was that they're not that stupidly partisan.


We have several rental properties that we own (more than 10). When we were younger, before we got married, we both moved around a lot and bought houses, moved, stayed a year or so and did it again. I of course don't have to mention why we did this (no money down, low fixed rates, etc.) However, now I am running into a dilema. I am finding that no one wants to refi or do purchase money loans now that we have 10+ mortgages. I need good rates to make my cash flow work. I have recently herniated one of my discs and have been out of work for almost 3 months, so I need to take money out of our house that is paid for, but no one wants to do it. Any suggestions on how to get around that? My credit scores range from 763-805, so that is defintaely not the problem. Any advice would be greatly appreciated as I am down to crunch time in needing to get some money.

Bad situation.

The reason for this problem is that whereas nationally, vacancy rates are much lower, and here in high cost California they are only running about 4 percent, the bank will only allow 75 percent of rent to be used in the calculation of whether you qualify or do not. Furthermore, on the negative side they charge the full payment, taxes, and homeowner's insurance, as well as maintenance. Now, here in the high cost areas of California if there is a rental property bought within the last three years that's turning a profit, I'd like to know about it. But for properties purchased several years ago here, and nationally in many markets, there are people making money hand over fist on rental properties whom the bank believes must be cash destitute. There is no way they will qualify for a mortgage loan without tweaking something.

There are two main ways to solve the problem.

10 mortgages (assuming you still own the properties) gives one serious status as a real estate investor. The loan should then be able to be done. Not necessarily A paper, but subprime with that kind of a credit score and a prepayment penalty will give them comparable - perhaps even better rates. Furthermore, on investment properties, there's a minimum of about a 1.5 point to 2 point hit on the loan costs just due to the fact that it is investment property. So refinancing an investment property is not something you want to do often. If you can't go 10 years between refinances, something is probably wrong. Especially given the extremely narrow spread between long term loans like the 30 year fixed rate loan and shorter term fixed rate hybrids, for investment property a 30 year fixed rate loan is likely the way to go.

But the key part is "real estate investor."

This is a business. You're going to need an accountant to attest to the fact that you've been operating this business at least two years. But that gives you standing as at least partially self-employed as the operator of a real estate investment business.

Which gives you an out to do stated income, possibly even A paper. You're going to have to state that you earn more income than you do. Given the environment today, a good loan officer looking to cover themselves is going to want you to acknowledge that you can make whatever the payment is really going to be. I don't care if you need $6000 per month to qualify and you tell me that you make $12,000 per month, or $120,000. Any time you are looking at stated income, you're looking at a situation that is vulnerable to abuse, both from the point of view of a consumer being put into a loan they really cannot afford, and from the point of view of a bank lending money based upon a credit score and source of income that really may not be there. This one is especially vulnerable to the latter concern in the current market, and I would likely take a real careful look at any bank statements that pass through my hands to make certain it's not patently disprovable. If it makes a borrower uneasy, well half of the reason is to protect them. Stated Income may be colloquially called "liar's loans", but that is not what they are intended for, and in this case you are intentionally overstating income in order to qualify under unrealistic underwriting rules. Furthermore, not every lender will permit this.

The second approach is NINA - a No Income, No Asset loan, also known as "no ratio" - meaning no debt to income ratio. These are much easier to do for the loan officer, as they're completely driven off credit score, but carry higher rates. Nor do you have to state a higher income than you make, as there is no debt to income ratio computation on these loans. On the other hand, especially if you're talking about your personal residence, as long as you're in a low loan to value situation, you may get a better rate from an A paper lender without a prepayment penalty, as opposed to doing a subprime loan with a pre-payment penalty.

There is serious potential for abuse in this situation, even if it is theoretically allowed under the rules. So be very upfront about what is going on with anyone you come into contact with. You, as a loan applicant, should never be dealing directly with the underwriter - as an anti-fraud measure, every lender I'm aware of prohibits it and cancels any loan in process if you to intereact with the underwriter. But this is allowed by the nature of stated income and NINA loans. Self-employed people and commissioned salesfolk have to file taxes, also, and tax forms are the preferred method for documenting income. Nonetheless, because there are significant deductions that would not otherwise be allowed due to the fact that you're paying your bills with "before tax" money whereas most folks are paying with "after tax" money, it does make sense to do it this way. Provided you don't talk yourself into a loan that you cannot really afford.

Caveat Emptor.

UPDATED here

Carnivals:



Carnival of Investing Recommended: Interview with Ben Stein (the actual interview only), Fred Fry International (good information on margin accounts), Wealth Junkie



Carnival of Debt Reduction Recommended: Below the Beltway



Carnival of The Capitalists. Recommended: Gongol, May It Please the Court, Marketplace Monitor



Carnival of Personal Finance. Recommended: Insureblog, Personal Financial Advice (read the comments, also!), Retire at 30



RINO Sightings. Recommended: Respectful Insolence, Decision '08





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Our president says something that needs to be said. Surveillance is necessary. Actually, non-surveillance is suicidal.



On the other hand, Donkeys paint themselves as weak on national security. John McCain defends unnamed individuals on the Democratic side (likely Joe Lieberman and a few low key centrists that are still Democratic, at least in name). John Kerry goes over the top again (too bad he couldn't lead troops in actual battle like that).



Protein Wisdom has more.



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Wizbang has some very rational debunking of the latest attempted smear on the President regarding Jack Abramoff. Clue to the sufferers of Bush Derangement Syndrome: The money Abramoff gave the President's campaign was legal, nor is the president accused of lobbying congress or any congresscritter on Abramoff's behalf or that of his clients. Trying to amplify the Abramoff scandal beyond its scope will guarantee that the Donkey officeholders who are treating it as not their problem will get burned.



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Vodkapundit is right on with his analysis of a NY Post article with Ms. Rice reforming the State Department. Not "Did she go too far?" but "can she get far enough in the next three years that her successor cannot immediately undo the changes?" State, along with CIA and a few other agencies, has become a time-server's paradise. It needs to become results oriented.



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Q and O makes a point that cannot be made too often: that there are no such thing as inalienable rights. All rights are a function of how much value society places upon them versus upon the value to society of not having them. This being demonstrably true, let's focus on preserving rights that are important, like the first and second amendments, and worry less about a woman's right to pre-birth infanticide which, whatever your viewpoint on the matter, is not enshrined in the text of the Constitution. The more effort you spend on "penumbras" and such, the less will be available for the really critical stuff, like the first two actual amendments.



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Mudville Gazette tells a story of part of her ransom money being found on released German hostage Susanna Osthoff, and goes on to discuss the terrorist who was released in exchange for her. You know, it sure looks like there's enough reason to investigate the possibility of a set-up here.



Belmont Club has more worth reading on this subject, and on the fundamental disconnect of the apologists.



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Lileks Screed has a dose of common sense rationality on the Iranian situation.



The suggestion that's made the most sense to me, however, is Bill Quick's from a couple days ago: Attack, destroy the Iranian military (along with any bomb making capability) and leave. No dealing with civil unrest, no "insurgency", no Iranian Al-Qaeda. Very cold-blooded, and you can be sure that the hard left would be demanding President Bush do what they damned him for doing in Iraq, but it would be within our capabilities and keep the difficulties from becoming significant.



On a related note, Iraq the Model has a masterful essay on a certain irrational priest and lost opportunities.



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Dean's World has a thoughtful article about blogging and such as opposed to journalism, specifically the attitudinal weaknesses of journalism.



For myself, the real issue I have with most traditional journalists is just that they get it wrong. As in "They Have Not The Slightest Clue What They Are Talking About." I've been present for, or been involved in the aftermath of various nationally important news stories, as well as several others of local import. I cannot recall one story where they even got the majority of the critical elements correct. Perhaps this is the paper's fault, as it doesn't take the time to develop a reporter who has the opportunity to become informed on a particular topic. Perhaps a certain portion of the blame goes to the individual journalists, who don't ask the experts what's really important, and in at least one case, wasn't interested in the most salient details.



Then, when I went into financial planning, I found that the newspapers weren't interested in getting that right, either. They were interested in writing their articles to sell more papers and more advertising. "Disinterested guardians of the public interest"? I think not. Jokers out to sell themselves is more like it. Much as I despise Bill Clinton, he's a piker at self-promotion compared to most traditional media.



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Asymmetrical Information has a wonderful column debunking most of the hype about abortion and prophylactics and education.



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Captain's Quarters has a thoughtful article on impromptu censorship practiced by the left.



Michelle Malkin has more.



Anytime you see censorship, or anyone attempting to justify censorship, look them right in the eye and demand "What are you afraid of?" Do not allow the conversation to go anywhere else until you have an answer to that question. There is nowhere else for it to go. The only reason for censorship is fear.



Needless to say, it stops them dead. You won't convince them - they wouldn't have a need for censorship of opposing views if they had an answer or an open mind. But it's very weighty for onlookers.



It's very illuminating that the left has been engaging in the same tactics it derides as "McCarthyism!" for at least the last twenty-five years. I started college in 1978, and it was going on then. Time has only made them bolder.



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Looks like Victor Davis Hanson is on the side of accountability as well, as regards the UCLA Alumni monitoring of lecturers.



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HT to Michael Barone for this link to David Warren Online



I am definitely curious to know how the Canadian elections are coming today. I haven't mentioned anything like how the polls are showing the conservatives getting a solid plurality, because the only poll that really matters is taking place today in the election booths. I don't know how "dirty" canadian polls are - whether they are as clean as possible or Richard Daley Chicago dirty. I do suspect that any tricks the liberals can think of, they will try. Look at how long they fought what was obviously a losing battle to keep their governing majority, when the smarter thing would have been to go limp and resign. I also don't know nearly enough about Canadian politics to make a prediction - only enough about realpolitik to know that Canadian politics of the last twenty years has been basically about the power of Denial, as in "We're not Americans!". Not that they are, but they've gotten so obsessed about the giant south of the 49th parallel that they've kind of lost themselves and their collective common sense in the bargain. One hopes today signals the start of a return to reality.



Captain's Quarters will be liveblogging, if you care for that sort of thing.

Reserves

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Thanks again for the terrific posts. I've learned more about mortgages in the past two months than I ever dreamed I might.

I am looking to buy my first home soon, and have myself in a good credit position to do so. My credit score is over 800 and I have no back-end debt - no car payments, alimony, student loans, etc. My annual salary is well over $100K, and while my down payment will not be as much as I would like, I should be able to put up 20% of the purchase price.

Before I shop for a loan, I have some questions and would appreciate your insight.

1. Do monthly "subscriptions" such as landline phone bill, cable, internet, cell phone, etc. come into consideration? As I have no cell phone and no cable (and don't intend to get them), I see my monthly expenses in this regard as significantly lower than most other borrowers.

2. Do my retirement savings come into play? I have saved conscientiously for several years and between IRA's and pension funds (fully vested) I have a significant amount put away.

Thanks again for the teachings


Gosh, I didn't think a dream client like this existed any more!

In general, there are only three instances when reserves really come into play. They are:

1) Stated Income. Since you are not documenting your income, for a true stated income loan they are looking for evidence that you are living within your means. The measurement that has evolved is six months PITI (Principal Interest Taxes and Insurance) in a form where you can get to it - savings accounts, investments, something. If you have a retirement account, such as a 401, IRA or similar, most lenders will allow you to use a discounted amount, most often 70 percent, as the money would require the payment of taxes and penalties. Roth IRAs may be treated differently, as the rules are different. There is a Stated Income Stated Assets loan programs, but when you get right down to it, those loans look more like heavily propagandized NINA (No Income, No Assets, aka No Ratio loans) than they do a true Stated Income.

2) Payment shock. If your payments are going to be much higher than rent was (or previous payments were), many lenders will require two to three months reserves of PITI payments in reserves.

3) Cash to close. No matter what the loan, the underwriter is going to be looking at the loan to make certain that you have the cash to close, and any reserve requirements are in addition to this. If your loan is going to require a certain amount of cash, either in the form of down payment or loan costs or most often, for prepaid interest or an escrow account, then the underwriter wants to see evidence you've got it. It's no good for the bank for the loan to be approved, the documents printed and signed, the notary paid, and then the loan doesn't close because you didn't really have the cash. Seller paid closing costs are getting to be a really touchy point with many banks, by the way, as they indicate the property may not really be worth the ostensible sales price.

In any of these cases, the underwriter is going to want to see evidence as to where the money came from. They want to know that you've either built it up over time or have had it for quite some time or that you can document where you got it from. What they are looking at with these requirements is the possibility that you got a loan from somewhere that you're going to have to pay back, and the payments on which may mean you no longer qualify under Debt to Income ratio guidelines.

Mind you, it never hurts to have money socked away. But it's not worth any huge amount of contortions to prove. For A paper lenders, the guidelines are razor sharp, and excessive reserves are not a part of them. You've either got the required amount or you don't, and the fact that you have $100 million in investment accounts isn't relevant - and it may cause some underwriters to start wondering why you're not paying for the property in cash or putting more of a down payment (Anytime you give an underwriter more information than required, you run the risk that they will ask you questions about it). Some subprime lenders may approve a loan they would not otherwise have approved, or maybe offer better terms than they might otherwise, but there have been enough adverse experiences with this that it is becoming more rare.

Monthly subscriptions (utilities, etcetera) are why the permissible debt-to-income ratio (DTI) isn't higher. You can cancel cable TV, you can cancel dish network, you can cancel pay per view, you can cancel magazines, although most folks want phone, gas, and electricity. They do not count against your DTI, just payments that you are required to make to keep the accounts on money you have borrowed current. So if you owe the utility company money because you got behind on your payments, that will count, but not the money to keep the utilities current.

Caveat Emptor.

UPDATED here

The Great Escape from Voice Jail. Anybody can say they've got great customer service. When the reality is that you try your best to use computer automation and phone trees as a shield against your customers talking to someone, that's pathetic. Of course, customer service is pathetic nearly everywhere these days. If I need to do fast food, I want to go where the food is decent and I have a chance of getting my food while it's still at least warm. But I dread it because the counter help pretty much everywhere is hopelessly incompetent at customer service. Furthermore, they keep trying to sell me more food. You really want to sell me more food, improve your counter service, because right now all I want is to get in, get the absolute minimum I need, and get out before I get too mad at these bozos. If the customer service was better, I might be willing to occasionally order more than a sandwich.



My wife and I have a salad buffet resturaunt we love to go to. In fact it's our favorite restaurant, period. The reason? Well, the food is a big part of it, but they have this one older gentleman who is not only fantastic on customer service, but his attitude is contagious to the point where he brings everyone in contact with him up to a higher level of service. The manager could set his prices higher than any other restaurant in the chain (there are several around), and we'd still go there.



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Jawa Report is due congratulations on two fronts. First off, it's his two year blogoversary. Second off, and more important, he has helped nail an actual would be-terrorist. His post details his involvement, and thoroughly debunks all of the Patriot Act alarmism that has spread through the ACLU and allied idiots.



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Ameriquest in $325M Settlement With States. I strongly suspect this is a case of Criminals are fined a thousand dollars for stealing a million.



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Utterly cool: Space 'Slinky' Confirms Theory with a Twist



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Say Anything has a good point to make about how the indian casinos are escaping consequences of the Abramoff scandal. They shouldn't. (San Diego County has got to have more Indian casinos per capita than anywhere else in the country. I can think of six right off the top of my head, and two more within a few miles of the county line)



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neo-neocon compares North Korea to Lucy and the football. The difference is that North Korea is desperate. Lucy was just mean.



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HT to Dean's World for this link to a thoughtful essay on why broadcast TV may be dead and what killed it. Piracy is Good.



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Below the Beltway has a post about an interesting proposal made by James Carville and Paul Begala. My take is to look at who is making the proposal. They're both Donkeys, and the Donkeys would benefit from this proposal. The Elephants are currently outraising them by a considerable margin. That would be okay if I thought the country would benefit, but it wouldn't.



In short, when you get into the details, it's about partisan advantage, not about helping the country.



Not to mention "little details" like the First Amendment standing in the way.



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Sorry. Out of time. Off to hold an open house!

More Eminent Domain Thievery

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Rhymes with Right notes an abuse of eminent domail even more abusive than Kelo vs. New London. A man in his Texas city was forced to sell a 105 acre parcel to the Port of Houston for $1. The Port is planning to build a cruise ship terminal on the land. I haven't got a way to check the comparables in Houston, but even the 1.9 million dollar figure seems ridiculously low (I know one of the people involved in building the new port down in Baja California. Even with Mexican land prices, etcetera, they're talking about a dollar figure in the tens of dollars per square foot range). Now compare and contrast that to commercially zoned land here in the United States, near to a major city, close enough to navigable water to be used for transshipment. Even at $10 per square foot, that's something like 45 million dollars, not a mere 1.9 million, and I'm guessing at least three times that would be appropriate.



I've said ever since this got put up. I'm in Real Estate, and stuff like this part of what agents and loan officers discuss among ourselves. The head of our office has been doing this twenty-odd years, and he's seen a lot more than I have. The issue for abuse in eminent domain is not so much can they? as it is about money. Ripping some poor sod off because they've got political connections and they can. Be honest with yourself: If you could get a $150 million dollar property for 1.9 million, let alone one dollar, wouldn't you take advantage of it?



The only way to prevent this is to take the ability to steal someone's land for less than the market price off the table. Since many folks don't have the resources to fight, or to document value, this means also requiring that their attorney and appraisal fees be promptly paid by the condemning agency. I think this is certainly no less than someone whose property is being involuntarily taken is due. Make it worthwhile for the condemning agency to offer more than a real market price for involuntary condemnation. Yes, the system could be gamed by mega developers, and I don't care. They're gaming it now. This protects the average person who does not have the resources.



The guy concerned is not a speculator or some wealthy investor. The land had been in his family over 100 years. But even if he'd just bought it the week before, he should be entitled to more than a fair price, to make up for the fact that the state is taking it at the point of a gun, whether he wants to sell or not, and his expenses of fighting the condemnation, which he did not ask for, and fairly evaluating the land should rightly fall on those initiating the suit. Last I checked, it wasn't a crime to own land. Even felons and illegal immigrants and foreign nationals who never set foot in our country are permitted to do so. Why are we punishing our own citizens?



I wrote this on July 1st, 2005, and this on July 10th. Either one is far more rational, and does more to actually solve the problem than taking the tack of flat prohibition, which would not work. But by removing the money incentive for abuse, you're pulling the rug out from under the reasons why it happens, as well as insuring that the victims of condemnation are compensated justly.

Many folks have no idea how qualified they are as borrowers.



There are two ratios that, together with credit score, tell how qualified you are for a loan.



The more important of these two ratios is Debt-to-Income ratio, usually abbreviated DTI. The article on that ratio is here. The less important, but still critical, ratio is Loan to Value, abbreviated LTV. This is the ratio of the loan divided by the value of the property. For properties with multiple loans, we still have LTV, usually in the context of the loan we are dealing with right now, but there is also comprehensive loan to value, or CLTV, the ratio of the total of all loans against the property divided by the value of the property.



Note that for instances where you may be borrowing more than eighty percent of the value of the home, splitting your loan into two pieces, a first and a second, is usually going to save you money. (See here for an example)



The maximum loan to value ratio you're going to qualify for is largely dependent upon your credit score. The higher your credit score, the lower your minimum equity requirement, which translates to lower down payment in the case of a mortgage.



Credit score, in mortgage terms, is the middle of your credit scores from the 3 major bureaus. If you have an 800, a 480, and a 500, the middle score, and thence your credit score, is 500. If the third score is 780 instead of 500, your score is 780. If you only have two scores, the lenders will use the lower of the two. If you have only one score, most lenders will not accept the loan. Now, I've never seen scores that divergent, but that doesn't mean it couldn't happen. Usually, the three scores are within twenty to thirty points, and a 100 point divergence is fairly unusual. Despite what you may have heard or seen in advertising, according to Fair Issacson the national median credit score is 720. See here for details.



In order to do business with a regulated lender, you need a minimum credit score of 500. There are tricks to the trade, but if you don't have at least one credit score of 500 or higher, you're going to a hard money lender or family member.



Now, exactly what the limits are for a given credit score is variable, both with time and lender, even when you get into A paper. Subprime lenders will go higher than A paper, but the rates will also be higher. Nonetheless, there are some broad guidelines. At 500, only subprime lenders will do business with you, and they will generally only go up to about 75 percent of the value of the home. A few will go to 80 percent, but this is not a good situation to be in.



Currently, at about 580 credit score, you can still find subprime lenders willing to lend you 100 percent of the value of the home, providing you can do a full documentation loan. At 580 is also where Alt-A and A minus lenders start being willing to do business with you, although they won't go 100 percent until higher credit scores.



At 620, the A paper lenders start being willing, in theory, to consider your full documentation conforming loan. They won't do cash out refinances or "jumbo" loans until a minimum of 640, but they will do both purchase money and rate term at 620 or higher. They may not go 100 percent of value until 680, but they will go about eighty or maybe higher.



At 640 is where subprime lenders will start considering 100 percent loans for self-employed stated income borrowers. Not too long ago, I could find these down to 600, but the lenders have been raising these requirements of late. For w2 stated income (essentially, people who get a salary and don't want to document income) the minimum for 100 percent is about 660 now. Mind you, if you can document enough income, it is in your interest to do so.



660 is where A paper will start considering conforming stated income loans. They may not go above 75 percent of value, but they won't just reject you out of hand. At 680, they will consider jumbo stated income.



Now, it is to be noted that just because you can get a loan for only so much equity, it does not follow that you should. Whereas the way the leverage equation works does tend to favor the smaller down payment, at least when prices are increasing, it can also sink your cash flow. So if the property is a stretch for you financially, it can be a smarter move to look at less expensive properties to purchase. I have seen many people recently who stretched to buy "too much house" only to lose everything because they bought right at market peak with a loan they could not keep up. Many of these not only lost every penny they invested, but also owe thousands of dollars in taxes due to debt forgiveness when the lender wrote off their loan.



There are other factors that are "deal-breakers", but so long as your debt to income ratio is within guidelines and your loan to value is within these parameters, you stand an excellent chance of getting a loan. All too often, questionable loan officers will feed supremely qualified people a line about how they shouldn't shop around because they're a tough loan and "you don't want to drive your credit score down." First off, the National Association of Mortgage Brokers successfully lobbied congress to do consumers a major favor on that score a few years back. All mortgage inquiries within a fourteen day period count as the same one inquiry. Second, the vast majority of the time it's just a line of bull to keep people from finding out how overpriced they are or to keep you from consulting people who may be able to do it on a better basis. I've talked to people with 750 plus credit scores, twenty years in their line of work, and a twenty percent down payment who had been told that, when the truth is that a monkey could probably get them a loan! By shopping around, you will save money and get more information about the current status of the market.



Caveat Emptor.

UPDATED here

Carnival of Comedy



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Well surprise, surprise, surprise. Clinton administration thwarted prosecutor's work.



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Think law of supply and demand as you read this: Housing May Be Cooling. Okay, it's December, and it's no coincidence that's when all the realtors go skiing. Dead time of year. Nonetheless, they're building large numbers and sales are slow. What do you think is going to happen?



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"We'll call it a draw" - The Black Knight, Monty Python and the Holy Grail



bin Laden offers truce. Note that they're not offering peace, just a truce until we get an appeaser in the White House. And of course, the similarity in phrasing and talking points to the die hard moonbats is "purely coincidental," right?



Dr. Sanity (who else?) deconstructs the logic.



Jawa Report has a transcript of the tape as well as a side by side quote comparison.



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Rice demands UN action on Iran nuclear dispute. One hopes in the fish or cut bait sense.



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Ann Althouse has some reactions about a website dedicated to outing UCLA professors who practice political indoctrination. Note that their own website says they don't care where on the spectrum a given professor sits, only that they practice indoctrination. However, given the proclivities of modern academia, we all know what's really going on. When's the last time you heard of someone complaining that their professor was a closet Bircher? Compared to my experiences in college, that might actually be a breath of fresh air and a chance to see if I can (metaphorically) hit right wing idiots as hard as left.



Professor Bainbridge has his own set of reactions. Money quote:"...so I say to my colleagues: Welcome to the 21st Century. It's going to be a very bumpy ride." Yep. For everyone that's accustomed to having unchallenged authority. I think it's grand.



Volokh Conspiracy also has some worthwhile thoughts. Basically, if it's valid, it's beneficial. If it's invalid, they have a right to say it.



Given the opportunity, the average person will choose accountability for the other person but not for themselves every time. But accountability for everyone is a good thing.



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Big Lizards has the scoop on who was killed in the terrorist's not-so-safe-house in Pakistan. Moral: no Welleran routine for Al-Qaeda. (the link is Project Gutenberg, and if you're unfamiliar, it's one of the earlier examples of modern fantasy, and is pretty short).

Carnival of The Vanities



Carnival of The Clueless.



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Want to become wealthier? Don't want to be poor? Get married. Stay married. About as surprising as gravity, but you'd be surprised how many people can't seem to understand it. I'm not religious, and my definition of sin is "unnecessary harm to others." The reason why every religion on the face of the planet has come up with marriage is that it makes economic sense, no matter the society, particularly where finding the resources to properly raise the next generation is concerned. I don't care about men and women (or same sex couples) "living in sin" That's their choice. It isn't important to me if Ms. Rich Celebrity has fifteen children by different fathers out of wedlock, so long as she has the resources to take care of them. Ditto Mr. Rich Celebrity, as long as he has the resources. It does bother me that thousands and millions of poor folks who do not have the resources to do this still do it, through design or negligence bring children they cannot properly raise into the world, and that there are those who defend and excuse this practice, but want the community to take care of the resulting children, as well as the parents. You want the community to take care of your out of wedlock kids? Put them up for adoption. It boggles my mind that we tax responsible adults to the point where they have fewer children in order to support keeping kids with adults who weren't responsible, and reward those irresponsible adults with money. Pretending marriage rates don't matter to the community is Denial.



(And yes, some marginal behaviors are more tolerable in those with the resources to afford the consequences. Get over it, or better yet, get wealthy. You're living in the society with more upward opportunities than anywhere else, any time in history.)



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A good sign: Kim Says He Wants to End Nuclear Standoff China is one of our best hopes for neutralizing the North Korean nukes, as China doesn't want North Korea turned into a strip of obsidian any more than it wants North Korea to nuke anybody. Kim Jong Il may be nuts, and everybody knows it, be he has some semblance of a grasp on reality.



A bad sign, if exactly what I expected: Iran scorns EU trio's draft nuclear resolution. Fisking this article would be too easy, so I'll limit myself to one snark:





"We are asking them to step down from their ivory towers and act with a little logic," the youthful (Iranian) president told reporters.





If the West acted with pure logic in this situation, Iran would be flat and glowing right now. It's only concern for and hope of rescuing their civilian population (and the effects on our allies to the east and west) that causes me not to support the nuclear option right now. Iraq was connected to Al-Qaeda, but the number one state sponsor of terrorism this last quarter century has been Iran. Not even the Taliban in Afghanistan came close. Nor are the rulers of Iran subject to the same constraints that held even Saddam Hussien in check. By their rhetoric, by their actions, they tell us that they are willing to accept martyrdom if it means the cause of their religion is advanced. You know something? I've seen enough evidence to be convinced (run "Hezbollah" and "Iranian terrorist connections" and "Iranian government policy statements" through a couple of search engines if you're not). I believe that they're on the level about their religious fervor. Those mullahs are crazier than the Spanish Inquisition, and way crazier than Kim Jong Il. They've got a lot of blood on their hands already. If we could nuke them without hitting innocents, I'd volunteer to push the button myself.



Compassion, hope for all those Iranians who are victims of their regime rather than supporters, as well as those who would be harmed indirectly, dictates our restraint. It's a long shot, at best, but we must keep trying until they force us to choose between killing them and our own annihilation, or forfeit our own humanity. Pure logic would have led to mushroom clouds some time ago. So are you sure you want to talk about logic, Mr. Ahmadinejad?



And now a logical consequence: U.S., France Reject Iran Request for Talks



via Instapundit, Daniel Drezner has a roundup, but they all reduce to the same bad options.



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Smaller Jets May Transform Flying. They're worried about them further jamming commercial airports, and I see their point. It's not really an airspace issue, as there used to be several times the general aviation there is today. But it doesn't matter how empty the skies are nationwide, what matters is the number of flights wanting to use a given piece of concrete at a given time - and they're not pouring many new runways. It's a real event when a new airport gets built, or an existing one gets expanded (as in a new runway, not as in a new waiting area terminal).



San Diego has Lindbergh and four satellite airports. Lindbergh is one runway, which means essentially that one plane can be landing or one plane can be departing at any given point in time, you're dodging parking garages on approach, and minimums are such that it regularly gets socked in so they've got to depart outgoing traffic directly into the face of arriving traffic. It's not a safe airport, and would never be certified today, but due to the city of San Diego futzing around the last two generations, it's what we have. And still arriving general aviation wants to go there because the fact that it's only a couple miles from downtown makes it convenient. Montgomery Field is much safer if your plane can handle the shorter runway, and Gillespie Field safer yet (although it has no decent IFR approach). But the average general aviation pilot has no clue (or at least acts like they have no clue) how dangerous mixing in with larger faster traffic makes the day for everyone concerned.



I suspect that if these jets become common, the bottom line is that a lot more airports will start charging landing fees. A $500 landing fee means nothing to commercial jetliners, but for corporate pilots it can be an incentive to force the passengers to drive their rental car an extra ten minutes.



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City Employee is accused of ID theft.



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Sorry, out of time!

Many people have no clue how qualified they are as buyers, or borrowers.



There are two ratios that, together with the credit score, determine how qualified someone is for a loan.



The first, and by far the more important, is debt to income ratio, usually abbreviated DTI. This is a measurement of how easy it will be for you to repay the loan given your current income level.



The debt to income ratio is measured by dividing total monthly mandatory outlays to service debt into your gross monthly income. Yes, due to the fact that the tax code gives you a deduction for mortgage interest, you qualify based upon your gross income. This ratio is broken into two discrete measurements, called front end ratio and back end ratio, for underwriting standards. The front end ratio is the payments upon the proposed loan only (i.e. principal and interest), whereas the back end ratio adds in all debt service: credit cards, installment loans, finance obligations, student loans, alimony and child support, and property taxes and homeowner's insurance on the home as well. The front end ratio is almost ignored; I cannot remember an instance of when front-end was a deal-breaker. The thing that will break most loans is the back end ratio, to the point where some lenders don't really care about the front end ratio anymore.



Now, as to what gets counted, the answer is simple. The minimum monthly payment on any given debt is what gets counted. It doesn't matter if you're paying $500 per month, if the minimum payment is $60, that's what will be counted.



"Can I pay off debt in order to qualify?" is a question I see quite a lot and the answer depends upon your lender and the market you're in. For top of the market A paper lenders, who have to underwrite to Fannie Mae and Freddie Mac standards, the answer is largely no. If you pay off a credit card where the balance is $x, there's nothing to prevent you going out and charging it up again. Even if you close is out completely, the thinking (borne out in practice, I might add) is that you can get another one for the same amount trivially. "Won't they just trust me to be intelligent and responsible?" some people will ask. The answer is no. Actually, it's bleep no. A paper is not about trust. A paper is about you demonstrating that you're a great credit risk. Even installment debt is at the discretion of the lender's guidelines. If they believe that what you really did was borrow money from a friend or family member who expects to be repaid, expect it to be disallowed. Therefore, the time to pay off or pay down your debts is before your credit is run and before you apply for a loan.



For subprime loans, the standards are looser because the lender controls the money. As long as they can see where the money is coming from, they will usually allow the payoff in order to qualify.



Now many folks think that stated income loans don't have a DTI requirement. They do. As a matter of fact, stated income is even less forgiving than full documentation loans in this regard. As I keep telling folks, for full documentation, I don't have to prove every penny you make, I only have to prove enough to justify the loan. If what I proved before falls short, but if the client has more income, I can always prove more. For stated income, we still have to come up with a believable income for your occupation, and then the debt to income ratio is figured off of that. Even if the lender is agreeing not to verify income, they're still going to be skeptical if you change your story. "You told me you make $6000 per month three days ago. Now you're telling me you make $7000 per month. Which is it? Please show me your documentation!" In short, this loan has now essentially changed to a full documentation loan at stated income rates. Nor are they going to believe a fast food counter employee makes $80,000 per year. They have resources that tell them how much people of a given occupation make in the area, and if you're outside the range it will be disallowed. So you need to be very careful to make certain the loan officer knows about all the monthly payments on debt you're required to make. Sometimes it doesn't show up on the credit report and the lender finds out anyway. This has nothing to do with utilities (unless you're in the process of paying one of them back). That's just living expenses, and you could, in theory, cancel cable TV if you needed to. Once you owe the money, you are obligated to pay it back.



As for what is allowable: A paper maximum back end debt to income ratios vary from thirty-eight to forty-five percent of gross monthly income. I'm a big fan of hybrid adjustables, but they are, perversely, harder to qualify for under A paper rules than the standard 30 year fixed rate loan despite the lower payments. This is because there will be an adjustment to your payment at a known point in time, and you're likely to need more money when it does. Note that for high credit scores, Fannie Mae and Freddie Mac have automated underwriting programs with a considerable amount of slack cut in.



Some things count for more income than you actually receive. Social security is the classic example of this. The idea is that it's not subject to loss. Once you're getting it, you will be getting it forever, unlike a regular paycheck where you can lose the job and many people do.



Subprime lenders will usually, depending upon the company and their guidelines, go higher than A paper. It's a riskier loan, and you can expect to pay for that risk via a higher interest rate, but even with the higher rate, most people qualify for bigger loans subprime than they will A paper. Some subprime lenders will go as high as sixty percent of gross income on a full documentation loan.



Whatever the debt to income ratio guideline is, it's usually a razor sharp dividing line. On one side you qualify, on the other, you probably don't. If the guidline is DTI of 45 or less, and you are at 44.9, you're in, at least as far as the debt to income ratio goes. On the high side, waivers do exist but they are something to be leery of. Whereas many waivers are approved deviations from guidelines that may be mostly a technicality, debt-to-income ratio cuts to the heart of whether you can afford the loan, and if you're not within this guideline, it may be best to let the loan go. You've got to eat, you probably want to pay your utility bills, and you only make so much. Debt to Income ratio is there for your protection as much as the bank's.



Caveat Emptor.



The companion article on Loan to Value Ratio is here.

UPDATED here

Carnival of Liberty. Recommended: The Picket Line, Different River



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The ACLU has sued to stop the government from wiretapping. I love the list of co-complainants - may Allah forbid we actually prevent any terrorist assaults!



This has officially gone beyond stupid.



Text of the Fourth Amendment:



The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no warrants shall issue, but upon probable cause, supported by oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized.





Let's see. We have a known terrorist or terrorist sympathizer on one end of the phone. And they are calling someone in this country. Is there anyone who believes that this it is not reasonable to want to know what they are saying? If so, I have some news you really should be aware of. Click the link, it'll open in a new window, and when you're up to speed on this event, here is an itemized list of the reasons why this is a reasonable suspicion.



The Constitution is not a suicide pact. It's time to stop acting like it is.



Protein Wisdom provides a translation to english of the American Criminals Liberation Union's press release.



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Dean's World drops some depth charges into that barrel full of fish. I've said I think the Iranians will change their own regime, but the question is will it be in time? Invading Iran may end up being the best of a very bad bunch of options (The second best being nuclear deployment, with the third option being watching Iran turn Israel, along with some of our real allies in eastern europe and likely, India, to obsidian)



Getting Ready For a Nuclear ReadyIran (322 pages). Haven't read the whole thing yet, but the summary is quick and easy reading. I'd like to see it happen, but I don't see it.



Belmont Club, where I found it, has his own thoughts.



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Looks like the figleaf is off. Saleh confirms he's running for reelection in Yemen.



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My host resolved some issues they had been having, with the upshot that I have access to real traffic information again. As of the end of 2005, I had a total of 153,418 visits for the year, with December once again making a monthly new record (38,039 visits). Total page views: 487,336, not counting webcrawlers (December's new record 130,634).



Thank you all for stopping by.

Annuities, Fixed and Variable

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One of the most discounted investments available is the annuity.



An annuity can be thought of as the opposite of a life insurance policy. Instead of creating an lump sum of money, an annuity liquidates one by providing you instead with a stream of income.



The original idea is simple. Suppose you get a lump sum of money, and you have no immediate use for it. What's more, you think you might waste it if it's just sitting in the bank. So you decide to invest it with an insurance company, who will then pay you so much money per month, every month.



The real kicker, or reason for doing this, lies in the options for payoffs. These fall into three basic categories. Period certain, life, and life with period certain.



Period certain means you'll get payments every month for however many years. If you die, your heirs get them. When that number of years is over, so is your payout.



Life payouts equally straightforward. You (or you and your spouse in joint life payouts) get those payments every month until you die. When you die, they stop. You could get hit by a bus the next month, or live another 150 years. However long it is, the payments continue for the full amount of time, and stop as soon as your life is over.



Life with period certain means that the payments will continue for your entire life, however long that is, but there will be a period of some number of years where if you are hit by that bus, your heirs will continue to get payments. This is highly useful to people who have minor children, who are thus assured that their children will continue to get something if they die.



The idea of either of these last two options is that you have an insurance company guaranteeing that you will not outlive the income you get from this money. This can be a very psychologically comforting thing for all sorts of people in all sorts of situations, who are thereby assured that they will have something to live on.



Annuities come in two flavors of beginning, immediate and deferred. Immediate means that here is this lump sum of money, annuitize me (start sending me a monthly check) right now. Deferred means I'm investing it with you, and I may invest more with you later, but let's just let it grow for now as I don't have any immediate need for the money. You can also withdraw money from a deferred annuity without annuitizing, but the tax treatment is not as favorable (see this article)



Annuities also come in two flavors of investment, fixed and variable. Fixed annuities are merged into the general assets and liabilities of the insurance company. You invest with them, they will guarantee you a fixed return, usually somewhere in the range of four to seven percent. Of course they turn around and invest your money and usually earn about 11 percent or so, but they assume the risk. The only risk you have is that the insurance company goes completely bust, but for this reason there are several rating services for insurance companies as to financial strength. One form of fixed annuity, Equity Indexed Annuities, are very popular right now with certain segments of the financial services industry, but any guarantee you can find in any fixed annuity can be found, usually in superior form with a superior product, in variable annuities. However, sales commissions for fixed annuities are much higher, so if you go to the insurance agent on the corner, you're probably going to hear about a fixed annuity, especially if you don't shop around.



In variable annuities, you assume the investment risk while the company still furnishes the insurance component. This is done via investing them in a set of mutual fund-like sub-accounts. Once annuitized, they make use of an assumed rate of return (ARR) on the underlying investment, which is usually between four and six percent. The higher an ARR you choose, the higher your initial payout, but if the results are less than ARR your payments can usually be reduced. Most if not all companies offering variable annuities do offer a minimum payout guarantee, and if your actual rate of return exceeds the ARR, your payments will be increased (indeed, this happens more often than not, within my experience). Variable annuities require not only an insurance license, but a securities license (NASD Series 6 or Series 7) in order to sell them, and are therefore usually purchased from financial advisors. The reason is because now you are assuming investment risk. I will caution the reader that while variable annuity sales commissions are not larger than advisor's mutual funds, there is no reduction for higher investment amounts, so there may be incentive for some advisors to recommend variable annuities when mutual funds might be more appropriate. I have also seen "fee-only" planners take a fee for preparing an investment plan, then a commission for recommending these, where someone working on straight sales charge still gets the commission, but prepares the plan as "part of the package." Nonetheless, when reading articles in the financial press, especially the "self-help" financial press, there is a heavy tendency to exaggerate the downsides of variable annuities, and the hypothesis that best explains the reasoning is that variable annuities require a financial professional to work with you as an individual. If you are working with a professional you trust, you're not nearly as likely to go back to the bookstore or magazine stand for generic drivel with no fiduciary responsibility towards you. Admittedly, some advisors abuse it - and when they are caught, they are prosecuted and the insurance they are required to carry pays. The generic advice in books, newspaper, and magazines never has this responsibility in the first place. They are specifically exempted by the Investment Company Act of 1940.



I read a lot of, well, crap about variable annuity expenses. Most of it in the financial press, which should know better. How they have this expense and that expense and the other expense. The fact is that there are expenses associated with all annuities. The only additional expense that the variable annuity has that the fixed annuity does not is the expense of running the mutual fund-like sub-accounts, which actually average a bit lower than the equivalent mutual fund upon which these are usually based. Every other expense is part of every annuity - indeed, most of them are part of every insurance contract. Administration, Insurance, etcetera. They buy the stuff that makes an annuity an interesting and potentially worthwhile investment - that guarantee that you won't outlive your money, among other possibilities. But because you're dealing with something regulated by the SEC, the agent and the company have to tell you about them in variable annuities, whereas with every other insurance policy, they are a "black box" into which money goes and insurance comes out. Furthermore, variable annuities have a protection that fixed annuities do not. If the insurance company does encounter difficulty (rare for strong insurers), the variable sub-accounts are not assets of the insurance company, and cannot be attached by other creditors. They are yours.



Most companies offering annuities offer several options, depending upon what a prospective client really needs, and in what proportions. When I was in the business, the company whose variable annuities I most often sold when variable annuities were appropriate had twelve different annuities, offering this option or that option, depending upon which fit the clients needs, and they all had the same underlying subaccounts. On the other hand, I was appointed with a multitude of annuity companies, most of which I found had something to offer a certain client that was superior for that client's purposes to other offerings. Furthermore, variable annuity offerings evolve over time. I ran across a reference to one that I used to sell in its II and III editions the other day, and it's now in the VI form due to regulatory changes and a couple of product improvements.



On the pure investment scale, variable annuities have two significant upsides and one significant downside as opposed to mutual funds. The downside is easiest to explain. As previously discussed, they have a so-called "MIE" expense and charge ratio that goes from about one and a quarter to one and two-thirds percent per year (although some designed for asset-based management fees go as low as forty basis points), as opposed to 12-b-1 fees that for most mutual funds are about a quarter of a percent per year.



The first upside is the fact that all monies invested in an annuity earn money tax deferred. This means that you're not paying taxes on money invested in annuities as you go, only when you withdraw it. This has the minor downside associated that it's all ordinary income, none of it capital gains, and capital gains may be taxed at a lower rate. Nonetheless, because you're not losing a fraction of your gains, you are earning interest on your taxes for those years until it's time to pay, as opposed to paying taxes on your earnings, after which they are gone. Depending upon various assumptions, this direct trade-off between higher MIE charges and deferred taxes will have a mutual fund theoretically leading an equivalent variable annuity sub-account for about fifteen years (I can get results varying from ten years to twenty-two without unduly torturing the assumptions), after which the variable annuity sub-account (net after taxes and redemption) will take the lead. This does not take into account investment re-balancing, which would work in favor of the variable annuity sub-account, as moving money between those has no tax consequences, something that mutual funds cannot say.



On the other hand, if you're talking about money that is tax-deferred by definition, such as IRA, Roth IRA, and many other sorts, the variable annuity sub-account does not gain the the benefit of the first advantage I just listed, as it is already present. Nonetheless, many very smart people nonetheless have tax deferred money in variable annuity subaccounts. Why? That's the second upside I was going to mention. Because the managers of mutual funds have to sometimes make decisions for the fund based upon tax consequences to shareholders, as opposed to strictly what's the smartest thing to do, investment-wise, as a large proportion of their shareholders investment dollars are not tax-deferred. But every last dollar invested in variable annuity subaccounts is tax deferred. So variable annuity subaccounts will usually outperform the equivalent mutual fund as far as investment return. I've seen estimates that range anywhere from fifty basis points to 150 basis points (0.5% to 1.5%) per year for the average of this number, depending upon who is doing the estimating. Given the 100 to 140 basis point difference in MIE vs. 12-b-1 charges, considered as a pure investment, this aspect of variable annuity subaccounts is likely to fall short of mutual fund returns considered from a strict "how many dollars do you end up with?" standpoint. Note, however, that the MIE buys some guarantees (insurance) in the areas of minimum returns, locking in high investment values, lifetime payouts, etcetera, which mutual fund 12-b-1 fees do not. If you're prepared to undertake a lot more risks, mutual funds will probably (but only probably) come out ahead. If you want some guarantees, the variable annuity sub-account has a lot to be said for it. I know of many people who were looking to retire based upon mutual fund account balances in 1999, who are still down major percentages of what their portfolio value was then. If they had invested in a variable annuity, that 1999 value might have only been 99 percent of the mutual fund value, but they would still have every penny of it and then some.



Caveat Emptor.

Carnivals:



Best of Me Symphony.



Carnival of Personal Finance. Recommended: Fearless Money, Sound Money Tips, Insureblog,



Carnival of Debt Reduction



Carnival of the Capitalists. Recommended: Marketplace Monitor, Boring Made Dull, Scrivener (Read that submission if you read nothing else!)



RINO Sightings. Recommended: Evolution



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Victor Davis Hanson has an article dealing with a rational response to the oil situation.



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American Thinker debunks the NY Times contention of an american rocket rain on Pakistan. (HT Michelle Malkin).



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Belmont Club has some interesting thoughts on a line that the mullahs dare not cross, lest it prove their undoing, and why.



Dr Sanity takes the Belmont Club article and runs with it.



HT to Instapundit for a link to this article on prospective prehistory of The Great War of 2007.



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Improved Ion thrusters! HT Dean's World



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Coyote Blog has an article slamming hijinks at the FDA, both left and right wing.



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neo-neocon is on a tear, and I've been asleep - or at least not watching her closely. Most important is an article on what it would take to reform the Koran. Then there's a two parter on the continuing relevance of Moby Dick, the novel. Part 1 starts with a reference she found, while Part 2 is largely her own thoughts. I've tossed off a couple of thoughts on the subject, but nothing substantial. I largely agree.



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Jawa Report has some worthwhile points to make on the Truth Laid Bare letter regarding Abramoff and Shadegg. I signed on to that letter because I can see it doing no harm, but I more closely agree with Rusty. I'd almost rather that our congresscritters were too busy with Hedonism to do what they've been doing for the past seventy-odd years.



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I am given to understand that Mad Mikey who is on my blogroll as well as being very local to me has had a stroke. Da Goddess has updates. He could use prayers, good thoughts, or whatever you care to send his way. If you can help his family somehow, that would be even better.

The Deposit

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A search I just noticed asked the question "Who gets the deposit if escrow falls through?"



The theory of the deposit is that here is an amount of cash that the buyer is putting up as evidence of their ability to consummate the transaction.



This is a good question. I've only dealt with real estate sales in California, so I'm going to deal with it from a California perspective. California is a widespread model for real estate practices (as New York is for insurance), but I can't speak to the specifics which states are and aren't following this model and to what degree.



Most of what happens in real estate sales contracts has a default, but is subject to specific negotiation. In other words, there's a standard way of doing it, but you can change that by negotiation with the other party. CAR has a specific set of forms that are encouraged, in order to make these questions somewhat more clear cut.



The standard here in California is that the purchase is contingent for seventeen calendar days, after which the buyer's deposit will belong to the seller whether escrow closes or not. From the time the contract is accepted by both sides, the buyer has seventeen days to finish all inspections, and to obtain a commitment for acceptable financing. If they call it off within those seventeen days, they get the deposit back. If the purchase falls through later than the seventeen days, the seller is usually entitled to the deposit, within limits. The seller can't just arbitrarily cancel the transaction on the eighteenth day and keep the deposit. The time specified in the purchase contract has to have expired, there must be evidence of bad faith dealing on the buyer's behalf - something.



Let me make very clear that the seller is indeed giving the buyer something when the purchase contract is signed. To be precise, the exclusive right to purchase that property for a certain amount of time. There are expenses of selling that they must pay and that they don't get back if you can't carry through, not to mention expenses related to preparing to move, at least potentially having the house sit vacant, etcetera. They cannot conclude a purchase contract with anyone else while the current buyer's contract is going on. If I'm selling, I insist upon retaining the deposit if the buyer can't carry though. If I were to be unable to consummate a purchase, I certainly understand that the seller will retain the deposit in most circumstances.



Now the escrow company won't just give the deposit to the seller. They are paid to be a neutral third party, to stand in the middle and make sure that everybody gets what everybody agreed upon, but it is not their place to settle a dispute. For that, you're going to have to go through whatever dispute resolution process is appropriate. This can be mediation, arbitration, the courts, or possibly something else. You can spend a lot of money fighting what the contract says, but in the end you can also expect to have to live up to it, and likely to pay the other party's costs as well as your own, so better not to fight something the contract says you should have done. The escrow company will often also charge a cancellation fee from out of the deposit, by the way. They do an awful lot of work, and if the transaction gets cancelled for whatever reason, they do not otherwise get paid.



Probably the number one reason for failed escrow is loan providers leading borrowers down the primrose path. "I can do that," and no, they can't. Unfortunately, I've never seen anyone able to recover damages from a failed loan provider. So keep in mind the The Best Idea About Applying for a Mortgage, and apply for a back-up loan.



Now you can change the standard contract by specific negotiation. If you're a seller who wants to get the deposit no matter what on day 30, you can ask for that as a condition of the initial sales contract. In a hot market, this is easy to ask for and get, but in a buyer's market, you are likely to lose the buyer. If you're a buyer who doesn't want to lose the deposit no matter what, you can ask to put that into the contract you propose, but most sellers, even in a buyer's market, are going to tell you to take a hike somewhere else. No big deal if it was "Hey, let's make a bid on this and see how desperate they are!" A real problem if you fell in love with the property and just have to have it. Over-playing your hand in negotiations is as disastrous as under-playing, and I've seen people so intent on being Mr. (usually) Tough Negotiator that they diddled themselves out of an excellent transaction. In any case, being too sticky on the deposit is a good way not to get as good of a price as you otherwise might have. For a seller, you have this property and you want cash. You need somebody to agree to pay it - the cash is not going to materialize out of thin air. For a buyer, the whole idea is that this property is attractive to you for some reason, or you would not be making an offer. You are asking the seller to trust thousands of dollars to your ability to swing the deal as much as you are trusting their ability to deliver a clear title to a property without hidden defects.



Whether you are a buyer or a seller, once that contract is signed, you want to get cracking on whatever your obligations under it are. Get it Done. The alternative is that you're likely to forfeit whatever rights to the deposit you may have had if you had been prompt. Just becuase Things Take Time in Real Estate Transactions is no excuse for you to waste time. Wasting time is expensive for everyone, and one of the strongest signs of a sour transaction I know. Buyers and borrowers pay increased loan and other costs, sellers lose money from delay. This is equally true in refinancing, by the way. The loan you are quoted today does not exist tomorrow unless you act on it today. In summer 2003, when rates hit fifty year lows, many people were in no hurry. They insisted upon thinking, in the face of evidence and testimony to the contrary, that the rates would always be there, and they lost out. If rates go down after locking, a good broker can usually get you better rates. If they go up, you've got the lock. If rates go up and you didn't lock, you get the higher rates. Period.



But the deposit is definitely something that the buyer can owe the seller if the transaction falls through, and that's as it should be.



Caveat Emptor.

UPDATED here


I just came across your posts this evening and absolutely love the blatent honesty. I am a real estate broker of 5 years now and by far the youngest in my area. I have 65 agents and an mls of 1500. It is absolutely unbeleivable to me that there is NO knowledge of basic finance in our industry. We have nothing but unscrupulous mortgage brokers in our area, and I find myself "saving" all of my clients and doing the job of 2 — realtor and lender, just to see people not get screwed over for their most important investment in life. I'm sure you know the feeling.

Your posts actually taught me a couple of things that I am thrilled to learn as I am always looking for a better education. I love the piece of the "adding client to the tradelines of an existing account". I plan to use that myself to help my parents out of a difficult situation that has plagued them for years without jeopardizing my own credit.

...(Material related to asking a question omitted)...

Thanks in advance for your response and keep up the good work on educating the public with the TRUTH!


Okay, sometimes when the world has you a little bit down an email like this can really make your day, and I hope that nobody minds the self-boosting too much.

Now, I do not believe I am the sole or ultimate fount of wisdom on loans, real estate, financial planning, or insurance. If anyone has tips and tricks and points of view that they'd like to share, I believe in sending traffic your way (if you have your own site) and giving full credit in any case, as my "Links and Minifeatures" stuff should illustrate. I reserve all of the usual editorial prerogatives, of course (I may comment, amplify, qualify, or disagree with it, take it to task, etcetera, etcetera.) What I am trying to build here is an informed consumer's arsenal aimed at curbing abuses. I can't pay for articles (at least not yet, although that is a goal), but if you have something aimed at educating the consumer, my server logs show well over 1000 visits most days (December 22nd, which due to some issues my host is having right now, is the most recent day I have a full report for, showed 1487 visits). It ain't Instapundit, and it probably won't ever be Instapundit, but if you've written something helpful to the consumer, there are worse things than 1000 folks or more (and rising!) looking at your stuff, and I'm more than willing to share the podium, such as it is. If you're a working professional, consider that some of these folks are likely to be in your area, and having articles linked or even published here would, I hope, be more likely to help than hinder your professional reputation. And pocketbook.

Guidelines: Target for education, not sales. Keep the language and attitude professional, but humor helps. Approach from a point of view of an intelligent layperson. "A is where you are, and B is where you want to be, and this is how you get there and these are wrong turnings and information and calculations is why." I don't expect chapter and verse of the regulations, or even want it unless the exact wording is central to the point. I do want to see a correct application of how it works in practice.

(Links and articles on other site interests are also welcome)

If you have a question you would like me to answer, please send to the issues (at) Searchlight (no space here) Crusade (dot) net e-mail. I am not going to give individually situation specific advice for free, but I'll certainly deal with broad issues, approaches to problem solving, and if it's got applicability to (in my opinion) a large number of potential readers, I'll crunch numbers and work through the decision-making process.

The "issues" email is also where actual articles should go. Please include your name, whether you want to be publicly identified (and if so, how: name only, email, address, etcetera). Because it's my credibility on the line, I will accept anonymous submissions although I reserve all of the usual editors rights.

I usually check "issues" once or twice per day, but I'm more likely to flag stuff there than the personal email ("dm") which I may check more often, but all sorts of stuff unrelated to this site's primary specialty goes there. Sending to the "issues" may take a slight bit longer, but if it relates to Consumer Information, it is a more certain way to get my attention.

UPDATE: I have since given up on trying to get folks to use the issues email. Please use the dm one for everything.

I won't be flying American Airlines any time soon, even if I do fly somewhere. American Airlines charged over reserve pilots reduced benefits during deployment.



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Dean's World provides a fresh breath of rationality on the wiretapping issue. Thank you, Dean.



In another Privacy vs Transparency argument, further evidence in favor of transparency: USDA Using Satellites to Prosecute Farmers (yeah, it's Pajamas Media. Get over it. I said I wish them well, and I mean it. I just don't see them having a clear understanding of how they're going to make money.)



HT Instapundit



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Pigilito says adds two important data points to the situation facing old europe: One a Disturbing Brain Drain (at least to Germany) and the second, France figuring out that their approach to immigration wasn't optimal. Unfortunately, the demographics of the french situation make this akin to starting to bail out the boat after the gunwales went awash.



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Issues with the Real I.D. Act.



Reading this, I'm mostly impressed by all the whining going on now that Congress has forced them to clean up a system that had gotten completely out of control due to political pandering and gutlessness. It's politically uncomfortable to fix, so they're thinking of any excuse they can come up with, never realizing how incompetent it shows them to be.



On a related note, Say Anything has an excellent article on the implications of the purchase of disposable cell phones.



See also The Anchoress



Michelle Malkin has a good roundup, and thoughts of her own.



Hemet is about 85 miles from me. My wife's grandmother lives there, and many cousins. Many people commute from there to San Diego, others to Orange County, still others to Los Angeles. I've been in that Target store. There is a good chance that clerk saved the lives of some of my family members and many other people here in Southern California. Maybe even me.



Thank You.



As for the New York Times: May your corporation go bankrupt. May your editorial and policy staff become unemployable anywhere in the media industry. May you fall (metaphorically) off the edge of the earth unknown, unmourned, unremarked.



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Kevin Drum has something for the moderates on the question of national security.



Victor Davis Hanson has some cold-bloodedly logical advice about preventing Iran from acquiring nuclear weapons.



After that, I was severely grateful that Scott Ott, the genius who runs Scrappleface, had a relevant article where I could laugh instead of cry.



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I support this Truth Laid Bare initiative





An Appeal from Center-Right Bloggers



We are bloggers with boatloads of opinions, and none of us come close to agreeing with any other one of us all of the time. But we do agree on this: The new leadership in the House of Representatives needs to be thoroughly and transparently free of the taint of the Jack Abramoff scandals, and beyond that, of undue influence of K Street.



We are not naive about lobbying, and we know it can and has in fact advanced crucial issues and has often served to inform rather than simply influence Members.



But we are certain that the public is disgusted with excess and with privilege. We hope the Hastert-Dreier effort leads to sweeping reforms including the end of subsidized travel and other obvious influence operations. Just as importantly, we call for major changes to increase openness, transparency and accountability in Congressional operations and in the appropriations process.



As for the Republican leadership elections, we hope to see more candidates who will support these goals, and we therefore welcome the entry of Congressman John Shadegg to the race for Majority Leader. We hope every Congressman who is committed to ethical and transparent conduct supports a reform agenda and a reform candidate. And we hope all would-be members of the leadership make themselves available to new media to answer questions now and on a regular basis in the future.





I know I said I wasn't going to handicap the race for majority leader. There's no way to know who will win. But I can think of no scenarios where the above hurts, and many where it will help.



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"Manouvering the junction of commercial airliners into offending skyscrapers"

"Manufacturing large amounts of unstable explosives"

"Creating crimson perforations in humanoid surface tissue"



Michelle Malkin has the goods on Jose Padilla's application to join Al Qaeda. They asked him his hobbies.




Read your article on negative arm loans, and for the person who only owns a residence and most real estate investors it will not work. I own several properties, and the parcel to be refinanced is ocean front...so is going up in value more than the negative arm would be when refinanced after prepay penalty period. Cash out would be used to pay off other mortgages, thereby increasing my cash flow for a few years. Does your advice against negative arms apply in my situation?


I believe he's referring to this article.

This is actually an excellent question, and the answer is ... maybe. At least it is not a clear "no", unlike so much of what the Negative Amortization loan is misused for. This largely goes beyond the scope of what I'm trying to do with this site, but I'll take a swing at it.

The fact is that I can construct a scenario that goes either way, and the implicitly high appreciation rate you mention has surprisingly little to do with it.

The positive is that your other loans are paid off! To use Orwell-speak, this is maximum plusgood.

The negative is that this loan now includes every dollar you previously owed. Furthermore, there may be negative tax connotations to the fact that all of your interest expense now comes from one property, as opposed to being able to directly match it against individual properties with individual incomes. If interest against one property is greater than the income for that one property, you may not be able to take it all. I'm not clear on the implications of the tax code here (and I'd like to be educated), so consult with a CPA or Enrolled Agent.

Furthermore, your new loan won't magically create any "lake" of dollars. In order to pay off the other loans, it's going to have to be the size of all of them combined, plus any prepayment penalties, plus all costs of doing the loan, plus potential pre-payment penalties for the Negative Amortization loan.

Now consider:
If you make payment option one (the "nominal" or "as if your rate was 1 percent" payment), you are allowing compound interest to work against you. This is the force Einstein described as "the most powerful force in the universe", and it's working on the whole dollar amount of every single one of your current loans and then some.

Ouch.

No matter which payment you're making, the rate you are being charged, (aka "what the money is costing you") is not fixed, but variable month to month. As far as most commercial property loans are concerned, this is no big deal. They're pretty much variable at "prime plus" anyway. However, I expect the MTA and COFI (upon which Negative Amortization loans are based) to continue rising as government borrowing increases, whereas I'm not so certain about prime, which for most banks is comparatively high by real and historical standards.

Now with all this said, it's still very possible to construct winning scenarios, depending upon a variety of factors. You mention short-term cash flow, and that is certainly one possible justification. If short-term cash flow is all you're looking for, and the money it will cost you later on is no big deal because you're planning to buy down the prepayment penalty and sell in a short period of time. Yeah, you've added to your balance but you've got plenty of equity and you'd rather have a few hundred per month now than multiple thousands later. Think of it as a cash advance.

One of the things that negative amortization loans can do for you is make it easier for you to qualify for more loans on more properties. Because in loan qualification, the bank will only give you credit for 75 percent of prospective rents while dinging you for the full value of payments, taxes, fees, maintenance, etcetera, this can make it much harder to qualify than is realistic, given that in many markets the vacancy factor is less than five percent. You actually pay more, but you're not obligated to. Particularly because many people own investment properties for the capital gain rather than the income potential (i.e. price speculation, rather than monthly income). On the other hand, just because a property has been appreciating rapidly does not mean it will continue to do so, beachfront or not. The market nationwide is entering a very different mode than it's been in for the last few years. I can point to beachfront property here locally that's lost a lot of value since early 2005. Price speculation is great when it works (which is most of the time), but is really scary when it doesn't. It's a reward for risk-taking, so don't lose sight of the fact that it is a risk.

One other factor of doing this is that it can cause taxes on a sale to exceed net proceeds. Suppose you intend to sell the beachfront property in a couple of years, and it doesn't gain any more ground from where it is right now. Many properties were bought for less than 10% of their current value. Let's say you bought for ten percent of current value. If your loan is for eighty percent, and you pay six to seven percent in sale costs, you're getting ninety-three to ninety four percent of value, leaving a net of thirteen or fourteen. But you owe long term capital gains of eighty-three or eighty-four times twenty percent - almost seventeen percent! This can force you to take another loan out, against one of those "free and clear" properties lest you owe the IRS penalties. Yes, 1031 and even a potential personal residence exclusion can modify or nullify this, but so can all the depreciation you may have taken over the years, and if you intended to 1035 the property that would tend to contra-indicate any reasons you had for the negative amortization loan.

Now, to be honest, my experience with commercial loans is limited, and I've never done a negative amortization commercial loan. What few clients I've had in that market have had different goals in mind, and being as I'm a sustainability type loan officer, I tend to attract sustainability type clients, where Negative Amortization loans are more indicative of a speculative ("risk taker") type. I understand what's going on, but it isn't my primary approach to the issues. There are circumstances on investment properties where, unlike your primary residence, it can be very appropriate. Unfortunately, without full specifics, including time schedules, goals, reasons for holding investments, other investments, risk tolerances, etcetera, it's difficult to tell if yours is one of them. My experience in dealing with people is telling me one thing, my sense of ledger evaluation is hinting at a different answer. But I hope I've given you a clear idea of the kinds of issues you need to look at with professional help.

Caveat Emptor

UPDATED here

Carnival of The Vanities Recommended: Boxing Alcibiades, Coyote Blog



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It's Hunting Season for Identity Thieves



HT to Jeff Jarvis for this link to a story of Sprint refusing to help a family recover their SUV (and incidentally, 10 month old son).



Now, if we just dispensed with the subpoena nonsense, but made everyone who wanted the information submit verifiable information about themselves, would that not have solved the privacy issue in a superior way? How many celebrity stalkers are going to want to fill out forms that tell everyone who got the information? "My name is John Doe. My driver's license is A1234567. I live at 1234 Main Street, and my phone number is 123-456-7890"



The problem is that the whole privacy movement is fighting a war that's already been lost, and in continuing to fight it in a manner that makes the damage worse, rather than trying to make the situation better.



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Michael Yon has three letters up from the family of an American hero whose murderers were allowed to go free.



I urge you all to contact the president or his staff and your elected representatives in this matter.



Here is a letter I sent:



Mr. President,



I am a concerned voter who is writing today to ask that you please take steps to bring the murderers of Robert Stetham to justice here in the United States. They were recently released by Germany in order to secure the release of German hostages.



From your speeches which caused me to vote for you and to support you, I believe you find this as unconscionable as I do. Mohammed Ali Hammadi, Ali Atwa, Iz-Al-Din and Imad Mugniyah tortured and murdered this American hero in 1985, and are free to reside in Lebanon.



I understand that Lebanon is currently undergoing a period of transition out from under Syrian oppression. All the more reason to serve notice now that while we sympathize with their situation and wish to aid them, there will be no free passes issued in the War on Terrorism.



Please make a formal diplomatic request for the extradition of these murderers to stand trial in the United States.



Sincerely,





Be respectful, keep it short, keep it to the point. This hero was tortured and murdered by terrorists because he was a United States Serviceman. That they are allowed to walk around free in a country that we have rendered substantial aid to should be an affront to the sensibilities of any american, whatever your political affiliation or sympathies.



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Ann Althouse has some thoughts on whether a husband supporting a wife at congressional hearings would cut the senators sufficient slack for what's been directed at Alito. My response: not likely. But then the cowards would never dare direct it at a woman, either. That would be seen as "bullying," and even if they thought she was an unqualified hack with an extremist's mentality, they'd have better political sense. Intellectually, I believe that women are capable of putting up with as much as men and should be required to, but politically and emotionally it's just not going to happen. True political equality will be when a man can attack a woman as Judge Alito has been attacked, and nobody thinks anything of it except as it relates to qualification and political orientation. On the other hand, I don't think anyone should be subjected to this.



(If my wife were attacked like that? The senator better pray for a sympathetic television editor and a commercial break. That's part of the promise I made on our wedding day, and she'd do the same for me. No, we'll never be confirmed by the US Senate for anything. So what?)



Wizbang has the answer to "who made Ms. Alito cry?" question right. here is more.



Professor Bainbridge also has the right idea. A man without solid principles could get radicalized by this treatment.



Dean's World has the reasons for the tone of these hearings dead right.



Captain's Quarters covers an ironic suggestion by Joe Biden with the reasons why it is appropriate. If you want hearings into whether or not someone is actually, you know, qualified, Donkey tactics of the last twenty years are pretty much a textbook entry for how not to get them.



A more destructive bullet to our constitutional foot would be difficult to imagine.



Finally, to those who went off the deep end on Harriet Miers: Thank you ever so much for giving ammunition to this nonsense from Daily Kos



On the other hand, Powerline covers a thoughtful liberal's position on the matter.



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Politburo Diktat has got a photo essay too funny for words!



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John Leo has some thoughts on the VAWA, which Congress reauthorized.



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Cox and Forkum sums up the Iranian nukes situation. I spoke to the issues here.



Victor Davis Hanson covers the international situation.



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Iraw the Model has some good news in that the Sunni have rejected Zarqawi.



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Asymmetrical Information has a worthy snark on Whole Foods.



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Armies of Liberation has a good post on a Yemeni judge standing up to the regime, and it looks like Canada has given up on being charitably effective in Yemen.



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It is good to see moderates like Joe Lieberman having broad electoral support, as Michael Barone notes.



Michael Barone also notes why handicapping the Republican race to succeed Tom DeLay is largely a waste of time.



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Michelle Malkin dissects the armor issue.



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Meryl Yourish crunches numbers and comes to an inescapable conclusion as regards the Palestinian "truce". I fail to see how anyone could have any sympathy for the Palestinian point of view after reading this.



HT to Instapundit



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UPDATE: Regarding the Alito Confirmation Hearings, I wrote this on October 27th, right after Harriet Miers withdrew. So far, it looks like I nailed it. Also, the first segment of this Links and Minifeatures that I did on November 3 seems relevant to the discussion.

For being the most popular investments in the country, many people have a "black box" picture of mutual funds. Money goes in one end and more money (usually) comes out the other.



Mutual companies in general are a very old concept. The Egyptians had them in ancient times, mostly for insurance purposes. For one time investments, they go back at least to europe in the middle ages. But it wasn't until 1924 in the United States that somebody had the bright idea of making it a continuing thing, an actual business planned around the continual making of communal investments. (The very first mutual fund is still going, by the way, as a member of one of the bigger advisory fund families.) Regulation of mutual funds and similar entities dates to the Investment Company Act of 1940.



The basic concept is this: A group of people get together and pool their investment money, and invest it as a group. They all own a portion of the entire pool of investments.



This buys a lot. It buys economies of scale, as the costs to trade 10,000 shares are significantly less than 100 times the cost of trading 100 shares, and way less than 10,0000 times the cost of trading a single share. It buys instant diversification, as the group has plenty of money to split among enough investments so that the failure of any one will not unduly hurt them. It buys (theoretically) top tier money management, because there's enough money in the group such that the cost to pay such a person isn't prohibitive, as it is to average investors on their own. Furthermore, there is no need to purchase an even number, or even an integer number of shares, so you can invest any amount that is at least whatever minimum the group agrees upon. You can typically buy mutual fund shares in increments as small as one one thousandth of a share, so if you want to invest $507.63 exactly, that's not a problem as long as it's above the minimum investment, or minimum additional investment, whichever is applicable.



Because there are costs to the group associated with adding a new investor or making a new investment, they do have rules about minimum initial investment and minimum additional investment. For some "no-load" funds, the minimum investment can be several thousand dollars. For advisers funds, where there is a sales charge, the minimums are typically smaller, something along the lines of $250 or $500, as the sales charges discourage short term trading. Indeed, some of the advisers funds will accept initial investments as small as $25, as long as you agree to monthly investments.



The math of mutual fund share price is mostly important to the accountants, not the investors. Initially, it's quite arbitrary. There is a given pool of investment dollars, and the group, or investment company, decides that share price is going to be $10.00 or $25.00 or whatever. Note that, with mutual funds, there is no practical difference between $1000 buying one hundred $10 shares or forty $25 shares. It's just a matter of record-keeping. There is a minor record keeping argument for setting initial share price low, but it's mostly important for record keeping.



During each trading day, the number of shares is kept constant. Whether or not there is any trading activity, any new investment, or any redemption, the number of shares stays constant until the end of the trading day. At the end of the day, the fund computes the value of the underlying investment, divides by the number of shares for that trading day, and that becomes the share price. At this point, the end of the trading day, any redemptions or new investments take effect If someone wants to redeem a given number of shares, the company sends them share price times number of shares. If someone wants to redeem a given amount of money, the fund divides that by the share price and redeems that number of shares. If someone invested money in the fund that day, the purchase takes effect at the end of day price. You can buy a given number of shares (providing you sent them at least enough money) or, more commonly, you can invest a certain number of dollars, which will be divided by the share price to calculate the number of shares you bought. For these reasons, among others, short-term trading mutual funds of any sort is a pointless way to waste money, and Exchange Traded Funds are a method for extorting money from the gullible (If you must day trade, S&P and similar option based alternatives are superior). Mutual funds are for investors who intend to hold for a while.



As time goes on, there are several sorts of events that influence share price. First off, that the underlying pool of investments fluctuates in value, going up and going down with supply and demand. This happens whether that investment is bonds, stocks, or both. Bond prices and stock prices change every day, with supply and demand and market conditions. Always, within a given day, the number of shares in the fund is constant. At the end of the day, the effects of the market and any trading the fund did are taken into account, and the end of day share price is computed, and all of the day's transactions in shares take place at the end of the market day. In order to be processed by the fund on that day, any orders to buy or redeem shares must be received by the fund prior to market close, or they get the next day's share price. There have been people criminally convicted and sent to jail on this point, for gaming the share price.



The second thing that happens to influence share price is income. Every so often, one of the fund's underlying investments will pay a dividend (stocks) or make an interest payment (bonds). Each one of the fund's shares (not shareholders!) is entitled to an equal share of this money. Say that the fund gets a million dollars over the course of a certain period, and there are ten million shares outstanding. Each of the shares will get a payout of approximately ten cents. I say approximately, because there are other concerns involved. Now, because this money has been received over a period of time, and until the payout was included in the overall value of the fund, the price per share will be reduced by whatever the payout is (and all funds hold at least a small amount of cash). So if the price per share was $15.00 before a $.10 per share payout, it will be $14.90 afterwards. Some shareholders will have elected to receive income in cash, and some will have elected to have it automatically reinvested (each share's payout purchasing 1/149th of a share in this example), but in either case, this has tax consequences for the investors unless they made their investment from within a tax deferred account such as an IRA (among many others), and the money remains within that account.



The third thing that has an impact upon share price is capital gains (and losses!). If the fund invested $1 million by buying 50,000 shares of ABC company at $20 per share, and ABC company goes to $30 per share, the value of those shares has increased to $1.5 million. So long as the fund management holds onto those 50,000 shares of ABC, it's just a paper increase, and if there are ten million shares of the fund outstanding, that means that each share of the fund effectively owns fifteen cents of ABC, and five cents of that is an unrealized gain.



But let's say that the share price of ABC goes to $50 per share, and the fund management decides that it's time to sell those 50,000 shares. Now they sold for $2.5 million, and of that, they cost $1 million to buy (This is usually stated by saying that those 50,000 shares had a basis of one million dollars) But the remaining 1.5 million dollars is profit for the fund. If there are still ten million shares outstanding, that's a 15 cent per share capital gain. Assuming there are no other capital gains or losses for the period, the fund declares a fifteen cent capital gain. Just like income received, if the share price was $15.15 before, it will be $15.00 after. Some investors will have chosen a payout, and some will have chosen to reinvest. The ones who have chosen a payout will get a check of fifteen cents multiplied by however many shares of the fund they own, while the ones who have chosen to reinvest will each get one one hundredth of a share per share they already own. Whichever they have chosen, unless the investment comes from and remains within a tax deferred account such as an IRA, there will be tax consequences for the individual investors.



Most mutual funds are not "stand-alone" investment companies. They are members of a family of funds, theoretically investing only in a particular investment niche. This allows the entire fund family to amalgamate their marketing efforts and administration. Particularly with advisory funds, most investors should find a single fund family that meets their needs to stay within, in order to minimize sales charges. The family may or may not have input as to a given fund's management team. Nonetheless, each fund has its own board of directors, and there is not usually anything legally binding a particular fund ("investment company") to a particular fund family if the investors and fund management really want to leave.



Now there are some potential weaknesses of mutual funds. The fact that there are tax consequences for investors is not an issue while still holding most other sorts of investments, at least not to the same degree. So most mutual funds find themselves with incentives to do something, or not do something they would otherwise have done, due to tax consequences to their investors. Furthermore, most mutual funds are way too dilute. The optimum number of investments, according to mathematical models, is between twenty and thirty, and given that the overwhelming majority of investors who invest in mutual funds have invested in several different ones, a smaller number of investments per fund is more appropriate than a larger number. It being that time of year right now, I just got a statement from one of my funds listing over 400 holdings. There are reasons I continue to invest in that fund and that family, but I'm certainly not happy about that aspect.



Nonetheless, even with these weaknesses, a mutual fund's ability to deliver immediate diversification, economies of scale, and professional management with only a modest investment, well within the capabilities of beginning investors, are excellent reasons why most investors should strongly consider them as an investment vehicle, especially starting out. That they are also very liquid, and not subject to large purchases and redemptions significantly influencing share prices, can give even a large investor with "high risk" predilections reason to park money there for a time.



Caveat Emptor

Updated here

Carnivals:



Best of Me Symphony



Carnival of Personal Finance Recommended: Insureblog



Carnival of The Capitalists Recommended: The Entrepreneurial Mind



Carnival of Investing



RINO Sightings Recommended: Right Thoughts, Strata-Sphere, Pigilito Says



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Jon Henke of Q and O had a column published in TCS Daily about how the economy is in pretty darned good shape.



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Sorry, a nasty case of food poisoning has me Out Of Service. I'm not going to get graphic on you, but I wanted to post the carnival stuff before it got any later

The majority of the protections that folks have are aimed at helping non-professionals have a chance in the complex and nearly incomprehensible maze that is real estate. The legal presumption is basically that you are a babe in the woods, and can easily be led astray by the fast-talking real estate broker and the big bad mortgage lender. And actually, this isn't too far off. I have seen enough to know that however bad a choice Negative Amortization loans are for 99 percent of the population, an unscrupulous agent and/or an unscrupulous loan provider can talk 95 percent plus of the public into getting one of them simply by accentuating the low payment and not mentioning the fact that your balance increases, among other things that most folks regard as inimical about them. Particularly in combination, each of them hoping for a big commission (the agent from a house beyond what the client can really afford, the loan provider from the associated loan), they reinforce each other's credibility beyond all but the most skeptical of laypersons to withstand.



When you get into investment property, however, this isn't just your personal residence any more. This is no longer something every living person needs, a place to live.



You are now intending to make money.



You are now in business. You are a businessperson. It does happen, of course, but it is difficult to have much sympathy for a businessperson who doesn't know enough to conduct business of that nature. Some Poor Guy who wants to get in on the American Dream is entitled to significant legal protection against all the sharp and smooth operators out there. But once you get out of the realm of personal use and get into the realm of making money, now you are telling the world that you know something about this (or at least that you should know something).



You have promoted yourself into the realm of sophisticated user. The legal presumption is no longer that you are a babe in the woods, although you may be every bit as much of one as the person in the earlier example. But because you have promoted yourself to someone trying to make money, many of the protections and disclosure rules do not apply.



It's not like you went out and got a real estate license (unless you did) or passed the bar, which automatically gives you the right to a broker's license in most states. There are still significant protections even there. But if they wanted to push the point, your agent and loan provider could probably eliminate half the forms you're asked to sign. The three day right of rescission goes away because instead of being presumed to require consultation with professional experts, you are presumed to be a professional expert. Why are you in the business if you're not an expert?



Needless to say, this point has become quite the illuminator of experience for many folks who see others making money via real estate investments, and think, "That's easy! I can do it too!" All too often, people who may be used to the protection afforded the general public get burned when they are presumed to be experts by the law. Not that the government has done a particularly good job of protecting the general public, but the sharks in those waters have to make it look reasonable. The sharks who swim in the waters of investment property have no such limitation. They talked you into a bad loan? For your own personal use, you have the three day right of rescission and many banking laws designed to require that the bank show something that can be construed as a benefit to you, the borrower. Lower payment, lower interest rate, something that persuades a judge that a rational person might have done this. The person with an investment property doesn't have even that protection. So what if it leads to bankruptcy? You did it. You must have had some reason.



I am not a lawyer, and I am exaggerating a small amount for effect. Real Estate investments, handled correctly, can make you a humongous amount of money. The point I'm trying to make is that they can also lose the unwary a lot of money. The amount of loose money available in real estate for the picking is the lure for a large number of professional sharks.

Caveat Emptor

UPDATED here

Donkeys playing with fire, and likely to get burned.



Elephants in full damage control mode but at least they are reacting appropriately.



UPDATE: Captain's Quarters has aggregate party-based dollar figures.



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Argghhh! has a memorial to the passing of a different kind of hero.



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Enrevanche has the press release related to wikis of how to blog anonymously for those in repressive regimes worldwide. I'm generally opposed to anonymity, but there are factors that can make it not only beneficial, but essential. This is one.



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Michael Yon is looking for retired military volunteers to vet stories of the war for credibility.



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Privacy versus transparency being one of my pet themes, I must ask the Donkeys trying to keep this sealed, "If it contains nothing damaging, why not release it?" (This is a riff on Mark Twain's "safer to keep quiet and be thought a crook fool than open your mouth and remove all doubt")



HT to Anti-Idiotarian Rottweiler (language advisory)



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SMASH versus Filner. Advantage: You decide.



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Mark Steyn understands the real issues behind wiretapping, and it appears most of the American Public does as well.



Balloon Juice has a piece on how you can get anyone's phone records for just over $100. And this evidently surprises not only him but the place he got it. Since the 1970s, the technology has existed to monitor every conversation in any room that has windows from basically any distance. The great defenses have been anonymity (why should anyone care about this), expense (it wasn't cheap) and processing power (somebody had to actually listen to all the garbage in order to extract any jewels). With modern programming, computers can take the place of human listeners at the first filtering, it's becoming cheap enough such that most folks can afford to plant bugs in dozens of locations if they want to, and with it so cheap, anybody is a potential target.



The same thing goes with cameras. If it's worth it to me, I can monitor anything you do from anywhere that is visible from public spaces, and most of the ones that aren't. Credit reports (the social is both login and password, and anyone can find it out if they're motivated enough). Any other information you'd care to name.



There is no defense. Not de facto, not really de jure. Outside of some pretty campy science fiction (the original Thunderbirds) I haven't seen anyone seriously propose any kind of detector for this. Failing that, the only way to stop it is nearly microscopic level sweeps of surrounding terrain on a continuing basis. And it's difficult to prove it belongs to anyone in particular.



Given this, there are essentially two options for individuals. Live in denial until you're caught, as happened to Congressman Cunningham. Or don't do anything such that you'd care if it was on page one of every newspaper and the lead of every newscast for a week.



Now, if there is one thing that everyone should have learned from recent celebrity trials, it's how difficult it is to convict anyone with resources (money) of anything substantial. Given this, making it illegal to spy means that the powerful and wealthy can spy on the less powerful and wealthy, but that the average person could not spy on the powerful and/or wealthy.



I find this idea intolerable.



So we arrive by process of elimination at the conclusion that we need to make all of this specifically legal.



What we gain from this step is also non-trivial. Identity thieves are nailed much sooner. Criminals of every real sort find it much more difficult to ply their trade when they can be captured on film at any moment. The powerful, who would be especially scrutinized, learn to live clean or live poor or live in prison. Yeah, there would be "Exclusive pictures of Congressional orgy!" in all the tabloids. We're all free not to purchase them, and the fact they undergo scrutiny of this sort constantly motivates them not to do anything they'd really care about being caught at. In fact, this kind of routine scrutiny would swiftly cause most sorts of victimless "crime" to be decriminalized, at the very least. There'd be some show trials, and after a very short period of time, it would become evident to even the most die-hard legislator of other people's morality that this nonsense just isn't viable any more.



I'm not exactly happy about the national security angles myself. But National Security is going to be the object of this sort of thing no matter how illegal it is. Treason and Espionage are two of the oldest and strongest death penalties on the books. The people who do these things know this, and do it anyway. On the other hand, legalizing scrutiny makes it much easier for those abiding by the law to find the real bad guys. And legalizing scrutiny means that we can watch our law enforcement, as well, and know if they are really staying within the limits that we have prescribed for them.

This Week's Critter Post

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The last couple of weeks, I've been doing a Saturday post having to do with animals. No pictures this week, seeing as the stars are guppies. Aka rainbow piranha. Aka the model after which mice and rabbits are weakly patterned.



Now with guppies, the problem is how to keep them from breeding in captivity. Well, due to the fact that they will eat their own young, this hadn't been an issue for the last several months. If they were egg-layers, like the catfish, instead of live-bearers, there would never be a guppy that survived to hatch. We had a few juveniles in the tank, which weren't big enough to eat the babies on their own, but were small enough to go into the plants and flush them into the adults waiting jaws. Imagine if your parents and older siblings were cooperating in hunting you when you were an infant. Result: 100 percent consumption over a period of three months or so, and now the juveniles were fully grown.



Well, we have pretty guppies. We want them to have a few babies that survive. So I dropped two more plants into the tank sometime in mid December. I just did the first partial water change since then. Flushed at least twenty fodder and survivor sized babies out into the open (Baby guppies go from eyes to fodder to survivors, then juveniles). That is a rate that's just too high, large tank or not. Given the size of the tank, we're fine if we don't get any more, but we want a full spread of ages so that we never have a catastrophic die off without replacements. So I took one of the plants out and moved the remaining ones further apart, and resigned myself to taking a few to the one store in town that will accept them when they're mature enough (for resale as fancies, not feeders). They're pretty fish, but there is a limit to how many a tank will support.

Top Smart Replies of 2005

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My wife sent me this



TOP 5 SMART ASS ANSWERS FOR 2005:



Smart Ass Answer #5:

A flight attendant was stationed at the departure gate to check tickets. As a man approached, she extended her hand for the ticket, instead he opened his trench coat and flashed her. Without missing a beat....she said, "Sir, I need to see your ticket not your stub."



Smart Ass Answer #4:

A lady was shopping for a turkey at the grocery store, but she couldn't find one big enough for her family. She asked a stock boy, "Do these turkeys get any bigger?" The stock boy replied," No ma'am they're dead."



Smart Ass Answer #3:

The cop got out of his car and the kid who was stopped for speeding rolled down his window. "I've been waiting for you all day," the cop said. The kid replied, "Yeah, well I got here as fast as I could." When the cop finally stopped laughing, he sent the kid on his way - without a ticket.



Smart Ass Answer #2:

A truck driver was driving along on the freeway. A sign comes up that reads, "Low Bridge Ahead." Before he knows it, the bridge is right Ahead of him and he gets stuck under the bridge. Cars are backed up for miles. Finally, a police car comes up. The cop gets out of his car and walks up to the truck driver, puts his hands on his hips and says, "Got stuck, huh?" The truck driver says, "No, I was delivering this bridge and ran out of gas."



AND NOW........FOR THE..........BEST ONE..#1 SMART ASS ANSWER OF THE YEAR 2005.



A college teacher reminds her class of tomorrow's final exam. "Now class, I won't tolerate any excuses for you not being here tomorrow. I might consider a nuclear attack or a serious personal injury or illness, or a death in your immediate family, but that's it, no other excuses whatsoever!"



A smart ass guy in the back of the room raised his hand and asked, "What would you say if tomorrow I said I was suffering from complete and utter sexual exhaustion?" The entire class is reduced to laughter and snickering. When silence is finally restored, the teacher smiles knowingly at the student, shakes her head and sweetly says "Well, I guess you'd have to write the exam with your other hand.

Holy Orwellian Doublespeak, Batman! US agents shot at, tension mounts on Mexico border. So of course, Vicente Fox has to go on the offensive about how the Eeevil Americans are actually enforcing their border.



But East Asia has always been the enemy.



HT Ogre.



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Kesher Talk has some reporting upon Arab tributes to Ariel Sharon. When some of your enemies say things like this about you, you did good.



As the only Israeli with the right credentials to get the people of Israel lined up behind a credible peace plan, he will be missed.



We may not see his like again.



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neo-neocon may finally have solved the mystery of why the "Bush Lied!" meme won't go away no matter how thoroughly refuted. What they really mean is "I was fooled into believing him!" Well, Timmie, sometimes people make mistakes.



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I apologize for not doing more on the "big" stories. I just can't generate any desire to write on them.



The wiretapping brouhaha is stupid. Politically, rationally, and friends of liberty-wise. The only angle I see in it is "get the Elephants!" I started an article, and cannot generate the desire to finish it. One gets tired of telling people they're being stupid, emotionally immature, and narrow-minded. I'd rather find something good to say (on something else) if I can.



On the Alito confirmation, I have been completely unimpressed with anything the opposition to his confirmation has come up with. If they want to convince me he shouldn't be confirmed, talk about what he's done in his fifteen years as a judge. Otherwise, they should shut up, because they're not helping themselves for future confirmations.

Of all the political parties, my personal sympathies lie closest to the official platform of the Libertarian Party. Nonetheless, I have never been a registered Libertarian, never sent them money, and likely never will.



The Libertarian Party, you see, is primarily interested in ideological purity. They've been hijacked by those among the most extreme of all libertarians, and have consistently taken an "all or nothing" approach to politics. If you're not for the purists ideological position, you don't belong.



This is a good way to marginalize yourself, and indeed, the Libertarian Party has done just that. Their candidates consistently run somewhere in the mid single digits. You tell each other you're "fighting the good fight" and congratulate yourself when everybody is disgusted enough with the major parties that you get 8 percent of the vote. This is a great way to keep the faithful together, but a truly awful way to move things in your direction politically. The impact on the political process of the Libertarian Party is basically zero. The majors may be aware that the Libertarians exist, but with all the libertarians off doing their own thing and no observable effect upon which of the two major parties wins, they have no reason to care.



Other groups no larger than the Libertarian Party wield an outsize political influence. For instance, the bisexual and homosexual political groups have a base that, depending upon who does the counting, runs from three to five percent of the electorate, but angering this constituency is something no politician does lightly. Why? They may be more affluent than average, but not notably so, and probably no more so than Libertarians. Well, they do give money, while libertarians are not noted for their generosity towards other parties' politicians. But mostly, because they engage the major parties. They practically own the Democrats, but they have a lot of influence in Republican circles as well. More to the point, for a long time they have worked to earn political capital from the majors. For years, they endorsed - and worked for - any candidate who was less unfriendly to their issues than their major opposition, graduating to working harder for candidates that were actually friendly, to the point now where the issue is not usually which candidate is friendly to gay issues, but which candidate is friendlier. It was a long hard slog for them, and perhaps they've abused their power a little of late, but you have to respect and admire them for what they have accomplished. They have taught politicians nationwide that "gay-bashing" is hazardous to their political ambitions, while being "gay friendly" is conducive. They may not be a major block, but given how narrow many victories are, they are a critical one, including and especially if a major party wants control of the legislature. Three points away from your opposition's candidate and towards yours might not tip every race, but it will tip enough such that if you're competitive in the first place, you'll win it. But in order to do it, you have to work with the major parties.



This is the lesson that libertarians need to learn if they want to have an effect on national policy. It may be very gratifying to a certain mindset to keep your ideals so pure that there is no chance of any actual effect upon the course of the country. But if you focus less on getting into office yourself, and more on rewarding politicians who come closer to your positions than their opposition, you wield more real power. Eight percent is a joke in an election, if that's all you get. But the difference between forty-six and fifty-four percent is the difference between going back to your old career and going to the capitol. Newly elected legislators are known to be grateful to those who put them "over the top," and to want to keep those folks on the list of people that are happy with them.



Furthermore, a lot of ordinary citizens really like moderate libertarian positions, but are profoundly uneasy with "purist" libertarians. Ronald Reagan's coalition made smaller government one of their principal planks, and it won on two of the strongest electoral margins in living memory. Decriminalizing or legalizing marijuana polls very strong numbers, but change the question to "should every currently illegal drug be legalized?" and the vast majority will turn against you. The rational, obvious thing to do is take the easy victory, and see how it works out. In a few years, it may be that the electorate will support legalizing the next echelon of currently illegal drugs, and dropping restrictions on marginal cases. This also has the advantage that if it turns out that we're wrong, we find out about it before we've got thirty million heroin junkies and fifty million cocaine addicts.



Indeed, true libertarian policies have never been tried on anything like the scale of the United States, so incremental steps in that direction is likely to be a good thing. Libertarian politics and economics and social science sure looks good on paper, but so does communism. One of the major things wrong with communism, it seems, is that it requires communists to acquire power. All the power, to where there is no opposition force with enough power to restrain them. And that following communists acquisition of power, they insisted upon an immediate and as radical shift as they could possibly manage, with the results anyone who hasn't been living in a bubble these past eighty years is all too familiar with. It didn't work, but the communist rulers would not admit it, and no one inside the system could force them to. I can hear people snorting with derision about the very notion of libertarians practicing censorship and coercion, but are you prepared to bet the future of the United States on it? Especially when there is no necessity, that's a sucker bet - a pointless risk where you could lose but can't really win because there is nothing to gain by giving any group a monopoly on power.



I see nothing in any major libertarian-backed policy that requires an "all or nothing" approach. Indeed, for most of them an experimental movement in that direction, intentionally either limited in scope or in accomplishment, would be important confirmation of libertarian theory, assuming it is successful. There is clearly not adequate evidence to presume that no further experimental proof is necessary, and that libertarian theory must be implemented in full without further error checking.



In short, I could be wrong. We could be wrong. If so, incrementalism will reveal it.



Therefore, there is no rational reason for libertarians not to engage with anybody "going their way". Small government republicans and chamber of commerce republicans on one hand, and civil rights democratic groups on the other. Whichever politician, whichever major party, is willing to give more precedence and importance to libertarian values. Work with them, do your best to help them beat their opponent. Once upon a time, libertarians wielded significant power in this way. Indeed, I happen to believe that the statist ascendancy dates from the libertarian self-destruction as a potent political force. The country could only benefit from a libertarian return to the fold of the major parties.

Dean's World has the best article on Ariel Sharon's sudden absence that I have seen.



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Asymmetrical Information has an excellent article upon people who think they understand economics, but don't.



I've always been amazed at the number of people who, because it deals with money, think they understand economics, investing, or real estate. They wouldn't try to practice law on an equivalent amount of learning, and they definitely wouldn't practice medicine, but in investing, economics, or real estate, they think because they've read a book written by a clueless journalist who has never worked in the field that they know just as much as working professionals. (I also regularly encounter a lot of people who think their understanding of military matters is superior to the average flag officer, when in fact they are so utterly clueless that words fail me. I have a fair idea of how many light-years short my expertise falls, and these self-proclaimed experts make me feel like Alexander III compared to Publius Quinctilius Varus.) Folks, there is a reason for the rigamarole of qualifications. Yes, a layman can be right in the face of an argument by a top professional. It's theoretically possible for every particle in your body to simultaneously jump one foot to the left, too. It's not a bet I'll take in the absence of further information.



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I largely agree with Captain's Quarters On the fallout from Abramoff. He may have rewarded more Elephants than Donkeys, and with larger amounts, but every Congresscritter who took the money would be tarred with the same brush, and any Donkey who thinks otherwise is fooling themselves. Furthermore, the Elephants are scrambling all over themselves to give the money back, while the Donkeys are pretending it's not their problem. Nobody is fooled. If you got bought for $50,000, you're a crooked political prostitute. If you got bought for $5,000, you're a cheap crooked political prostitute. If you gave the money back after finding out it was tainted, that's something in the way of redemption. If you kept it after finding out it was tainted, that's damnation. No serious proportion of the voting public buys into any kind of "crooked for Elephants only, okay for Donkeys only"



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Pigilito Says has a good artilce on EU's failure to deal with the natural gas crunch brought on by Russia's temporary cutoff of supplies. If you know the EU, what would you predict they do when Russai restored the gas: try and figure something out to prevent this from happening again, or just breathe a sigh of relief and send everybody home?



And these are the jokers we're trusting to negotiate with Iran over nuclear armaments?



(Upon which subject, I largely agree with evolution's post here. Iran gets nukes, they're going to get used. As in large explosions and radioactive fallout. Kim Jong Il isn't half as crazy as the mullahs, and that's not saying anything good about Kim Jong Il.)



Inside Larry's Head has an article that starts "Dear Housing Bubble People" where he talks about the fed having signalled that the end of hikes in rates are likely near, and speculates that this means there is no housing bubble.



Sadly, no.



There's no sense of glee in this. I would be happy to be wrong on this one. The Fed rate was 1 percent even 2 years ago. Now it is 4.25. Whereas this has no direct effect on available interest rates for consumers, it can be looked at as the cost of short term money to the bank. In turn, it influences things such as a bank's decision as to what it's prime rate will be.



The thing that's more indicative of longer term rates, the 10 year bond rates, is sitting right at 4.5. This isn't bad, and actually isn't too far from where it was two years ago. On the other hand, the two year is right at 4.375. Two years ago, it was three points lower than that. This is an extremely narrow spread. In some measurements, the two year rate is actually higher than the ten year - indicating that people may think we're in for a rough patch for a while.



Furthermore, whereas I think there are many areas of the country that will be fine, the higher priced urban areas of the country have a lot of problems not directly related to future interest rates. The incidence of short-term, interest only and Negative Amortization is over eighty percent (!) of all "purchase money" loans in the last two years in San Diego. I doubt that the rest of California is much different. It has always been something of a tradition for people to stretch and purchase more house than they should, but for the past couple of years, various members of my profession have been encouraging it via negative amortization and interest only loans. I've taken quite a hit, income wise, by being unwilling to place people in inappropriate loans - but if I won't do it, they can always find someone who will. Nor is it like the standards have not eased considerably. When I first bought, the standard debt to income limits were twenty-eight and thirty six percent of gross income. Fifteen years later, A paper backers Fannie Mae and Freddie Mac will go thirty-eight and forty-five (and occasionally higher through their automated underwriting programs), and some subprime companies will go to sixty (!) percent of gross income.



Furthermore, a much higher proportion of borrowers are using stated income as opposed to full documentation loans, and this includes people who get a regular, set paycheck and a w-2 at the end of the year, not commissioned salesfolk or the self employed. The only reason to go stated income with a w-2 borrower, where income is trivially easy to document, is if they don't really make the money. I have heard fellow loan officers call, quite rationally, for the abolition of stated income loans. I wouldn't go that far, as for commissioned salesfolk and the self-employed, they are a valid resource if not abused, but I would agree with prohibiting it for hourly and salaried borrowers.



Add it all up, and in high cost areas of the country, you have a lot of folks who've been encouraged by members of my professions to buy houses they really cannot afford, lest they be permanently "priced out" of the market later. The problem is that this demand curve has been artificially inflated by precisely this phenomenon. Families who make $60,000 per year should not be purchasing $850,000 homes. They should be purchasing a three bedroom condo, or something similar, but they've been encouraged to stretch beyond their means by the inducement of an artificially low payment. Unless their income somehow doubles, they are not going to be able to adapt when the period of artificially low payments comes to an end. Since few people already working in a stable profession have that happen, most are going to be in trouble.



As the stock market bubble of a few years ago illustrates, it doesn't take many sellers to deflate the price. After stock prices started coming down, volume of trades went way down - but those who were buying, and those who were selling, nevertheless determined the price. The same will apply to the housing market. Right now, sellers don't want to sell for what they can get, which is less than they could get just a few months ago. Buyers don't want to pay peak, or even near peak, prices for fear that prices will erode further and they will be out their investment. And when you're thinking about the next use, renting, the numbers are against it. Nobody can make a cash-flow profit renting recently purchased homes, locally.



In short, the ride was good while it lasted (especially for members of my profession), but like Chuck Yeager and the F-104 in "The Right Stuff" the plane has been milked for all of the altitude it can get, and now it has no power left and is starting to fall. And there I will leave the analogy, lest I push it too far, but however far it drops, a lot of people are going to get hurt badly by the fall, especially in the most heavily populated areas of the country.



Caveat Emptor

Carnival of Investing



Carnival of Capitalists Recommended: Daily Dose of Optimism



Carnival of Liberty



Carnival of The Vanities



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So folks know where I'm coming from philosophically:



You scored as Existentialist.



Existentialism emphasizes human capability. There is no greater power interfering with life and thus it is up to us to make things happen. Sometimes considered a negative and depressing world view, your optimism towards human accomplishment is immense. Mankind is condemned to be free and must accept the responsibility.



Existentialist 81%

Cultural Creative 75%

Idealist 63%

Postmodernist 56%

Modernist 25%

Materialist 25%

Romanticist 6%

Fundamentalist 0%



What is your world view? HT: Inside Larry's Head



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Michael Barone has some thoughts that are worth reading on the Index of Economic Freedom.



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REQUEST FOR ASSISTANCE



I have a severely useful spreadsheet relating to the purchase of residential property that I'd like to upload to the site. Currently, it's in Excel. It would be trivial to change it to Corel. I could also handle other spreadsheets, as long as they can handle the formulas I need (amortization is the only tough one). What I really want, though, is a stand alone that will correctly manipulate a few numbers that the user puts in. The formulas are all in and all correct. I'm debating between just putting it up for anyone who wants to use it on the site, and actually making it downloadable.



I would appreciate any technical or copyright (of the base program - I wrote the spreadsheet itself) thoughts anyone has. Is there a public domain program I could move it to? Would it handle being a stand-alone spreadsheet, so I don't have to include or pay for the copyrighted program? Thanks in advance.



UPDATE: I've tried uploading it as a webpage and also using Microsoft Excel Viewer. The issue, in both instances, is that this seems to turns the sheet completely static, where I want them to be dynamic and at least to some extent, interactive. And it also requires the use of IE rather than Firefox (Eeewww!).

Working with a borrower all day today. Truly ugly situation because he doesn't have a long history of credit, and this is the major obstacle to getting the loan done. He actually makes the money, and has a sufficient history of making the money to justify the loan "full documentation". But: He only has one usable line of credit, and it is only 9 months old. Most lenders require a minimum of three tradelines, at least one of which must be open for 24 months.



On the other hand, there exists a method to help this person. What he is going to do is approach close relatives with long term stable, paid up lines of credit, and ask if he can be added to one of their revolving accounts as a co-user. He does not have to get a charge card, or actual access to the account, he just needs to be added to the account as a co-borrower, and he will get the benefit of however long the trade-line has been open. He doesn't even have to know the account number (and the credit report omits several digits, so he doesn't get it there, either).



This has two effects. First, he will get the benefit of the length of the trade lines, and second, he will get the benefit of the tradelines being paid promptly and on time for however long. Preferably, these are low limit and low to zero balance accounts, because he will be dinged for any necessary payments on his debt-to-income ratio. But it will likely raise his credit score significantly (I would guesstimate at least sixty points) by giving him a several year history of on-time payments, as well as giving him an adequate history of tradelines.



Nor is this fraudulent in any way, shape or form. This is being done in full consultation with the lender. The lender has been notified in writing and approved of this. It may seem like I'm always going off about fraud, but in this case something that may appear a little shady actually turns out to be something that both the bank and the regulators can live with. So if you're thinking that loans are always about NO NO NO, here's a very strong YES to go along with it.

Caveat Emptor

UPDATED here

Most people don't stay in their first house their whole life. At some point, they want to move to a different home.



There are several ways to approach the transaction, but you have to decide which way fits you. You can approach it with an idea to maximizing profit, maximizing cash flow, maximizing speed, minimizing stress, or minimizing inconvenience. You really only get to choose one, but it's a good idea to rank them from most important to least important so that both you and your agent know where your priorities lie, and perhaps you can do some things from your lesser priorities.



Now, if this was a commercial site, looking to seduce you into listing with me, I'd probably have some corporate salespeak flack telling me to say you can have it all, but instead I'm going to tell you the blunt truth: You can't, not reliably, and any representation to the contrary is a lie, the words of a fool, or both. You can certainly do things in each of the categories (and others) but if you don't go into the transaction with a clear view of what is most important to you, chances are you won't get whatever it is that is important to you. Some people do luck out, especially in hot markets, but when the market is cooler, the fact is that you take what you can get, and the probability is better that you will get what is most important if you decide what is most important and stick to it.



If you choose to maximize profit, move out of the old property and into a rental unit, and make whatever cosmetic alterations you're planning before the property hits the market. Newly renovated vacant units show better, and therefore sell better, than anything else. Your time of highest interest is typically for the time period immediately after it hits the multiple listing service. Particularly if you have pets or children, who are both highly efficient entropy generators, you want to move out if you can afford to. Since this is very costly in terms of cash flow, many cannot afford it. Nonetheless, in most markets under most conditions, the return you will get will repay your investment, as there are few obstacles and conditions to your prospective buyer moving in as soon as they can consummate the sale. Furthermore, because the property is vacant, they can more easily picture themselves living in it. Ask any artist which is easier to work with - a blank canvas, or one that already has a painting on it? Then consider that the average buyer has the imagination of a rock, which is why properties with just a little more oomph are much easier to sell. The less of your family there is in the property, the more potential buyers can picture theirs in it.



Staying in the property causes not only stress from whether the property is clean enough to show every day, but also from prospective buyers and their agents having both a window of observation on your life and the potential opportunity to debark with some material piece. I imagine it happens, but not nearly so much as to warrant the stress sellers put themselves through on this point. As an agent, I'm always aware that my good name is on the line as well, and I'm always watching prospective buyers, even though I've never had anyone attempt to remove anything (that I'm aware of). Nonetheless, many sellers insist upon being physically present, which often has the effect of chasing people away that I, as the agent, could have sold the property to given a freer hand. Given real estate practicalities, your concern over a couple of $15 CDs that might have potentially wandered off could have just cost you tens of thousands. So if you're concerned, move anything valuable or irreplaceable like jewelry and heirlooms out, and resign yourself to replacing anything remaining. You'll likely come out ahead in the end.



If you're looking to maximize speed, moving out is a good idea also, but you're also going to want to price your property significantly lower. The higher the price, the harder it is to sell the property, the fewer people that can be expected to look at it, and the harder it will be for them to qualify. If you're priced 5 percent above anything comparable, the appraisal probably going to come in lower than the sale price, and not many people want to pay a premium for a property. It's going to take longer to sell. If you're priced a tad below the comparables, however, well everyone wants to buy homes with some built in equity, and the bank sees their loan as being less risky, so it's a little easier to qualify (They're still going to stick with the LCM principle, but from experience, they're less sticky about the little stuff if the appraisal is a little above the price).



If you're concerned about cash flow, on the other hand, moving out is not the way to go about things. For one thing, you don't have the money, or if you do, you're going into stress mode about whether some short deadline is going to be met, which can cause you to be forced to accept an awful deal that you would not otherwise have considered because you're running out of money to pay for all the extra stuff you weren't paying for before. If you think ahead, and make your agent aware of your concerns, you've got a better chance to come out ahead in the end.



Suppose your priority is to minimize stress? Then you typically stay put while researching other properties, and ask for a contingent sale, possibly with a leaseback that gives you a certain amount of time to find alternative lodgings. Alternatively, if cash flow isn't an issue, you might start looking right away, either with or without a "bridge loan" (cash out against your current property, as a down payment on the new one). Bridge loans are great, they are wonderful, they can do all sorts of things for you, but they are aren't cheap. Before you do one, consider whether there is a real need. If you have some cash and are a good credit risk, the better option may be to borrow more against the new property. Perhaps the better option is to split finance the new property and pay off the second loan on the new property when the current property sells. Because "bridege loans" are cash out refinances, then all things being equal, it's probably a better idea to get the money through a purchase money loan. It's even possible (albeit rare) that despite paying for two loans, the math may favor getting some money via a bridge loan, and borrowing the rest through the purchase loan on the new property.



If you want to minimize inconvenience, you probably want to stay in the property until it sells, and quite probably for a while thereafter, so you're going to want a short term leaseback as a condition of the sale. Many people do this to avoid moving the kids out of school in the middle of an academic year. If they're staying, it also gives them some time to find another property in the same district, or even that attends the same school. But here again, remember that you're limiting your buyer's options, which has the effect of possibly scaring off the ones who would otherwise have offered you the best price, or causing them to not be willing to pay so much for it ("Darn it, my kids are in the middle of a school year, too!") If it's a buyer's market, you're likely to pay a certain price - or rather, your buyers are likely to be willing to pay less - but if it's worth it to you, you also get what you pay for.



There are other potential factors, certainly, and other strategies to maximize the blend of "goods" that's best for you. But these are the ones that most people need to think about ahead of time, and these are the ones where failing to consider them ahead of time will reliably cost you the most.



Caveat Emptor.

UPDATED here

Another feminist legend bites the dust: Research Debunks 'Barbie Ideal'



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Had my first pr0n search hit. Somebody in Avondale Arizona (or close by) is a sick person. The string they typed in was "i want to see pictures of women urinating and using the toilet" They were sent to my post on the visit to the zoo Christmas Eve, where I happened to mention an orangutan performing this bodily function. MWA-HA-HA-HA!



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Carnivals



RINO Sightings. Recommended: Kesher Talk, aTypical Joe, Dean's World



Best of Me Symphony



Carnival of Personal Finance



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Remember the little girl I posted on December 22nd? She's in the states to get her spinal bifida corrected now.



Doctor Says Iraqi Baby Is Doing Well. For anyone who donated, thank you.



Michael Yon has more.



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The Last Amazon has an idea for the next country to need regime change in the War on Terror. It's a joke. I think.



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The Wrightwing discusses voting and wasted votes.



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Decision '08 makes a good point about wiretapping.



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Wizbang has a proposed solution to identity theft that bears consideration.



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Captain's Quarters has a good editorial about the Legacy Media fighting the notion of accountability. It is very tempting to want to return to the "good old days" when you could just print anything you liked or that fit in with your agenda while ignoring those that did not. Unfortunately, the world is a messy, chaotic place, and nobody has 100% of the truth on their side. Most humans, if allowed the choice, will choose "accountability for thee but not for me." However, accountability helps your product. Thirty years ago, American cars were awful. If anybody called them reliable, they didn't mean it in a good way. Imports penetrated the markets, and if UAW workers were discomfited, the cars we have now are significantly higher quality - and that includes the american ones, as well. Competition is a form of accountability. If people like what I write, they come back and read more. I'm about one three hundredth (by visit/subscription count) as influential as the local newspaper, so I'm not a serious threat - by myself. In aggregate, however, there are a lot of people with their own logs. Put our numbers together, and they're starting to compete. If people find what I (among others) choose to write about and the manner in which we write about it superior to the local rag, we "win" and it "loses". And that is causing them some discomfort, as they have to choose between printing the truth and offending some advertisers, or just losing audience share to people around the 'sphere. I have noticed that the Real Estate news (and related economics) has lost its pollyannish cast of late, and real estate is one of the paper's big advertisers. So it's painful for them, but they are starting to put out a better product because of it.



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Victor Davis Hanson has a clear eyed post on illegal immigration.



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Mark Steyn. NOW!



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Scrappleface has the scoop on the President's New Year's resolutions.

Enrevanche sent me an email about a Chapomatic article and his own response on the distinction between Jihad (or "holy war", a name for war in the name of religion), and hirabah, which to quote



The term hirabah refers to public terrorism in a war against society and civilization. In legal terminology it is defined as "spreading mischief in the land," but its precise meaning, as defined by Professor Khalid Abou el Fadl, is "killing by stealth and targeting a defenseless victim in a way intended to cause terror in society."




Well, I see the distinction, and the fact that so-called "moderate" islamics are starting to see and acknowledge the distinction is something of a good sign. But it is something to note that Chapomatic's source is something of a fixture in the foreign policy community himself, and while railing against the foreign policy apparachtniks accommodationism, may thus himself be looking for a more accommodationist way than is truly appropriate.



I do not, and can not agree that it is ever appropriate to kill or commit violence in the name of religion. Period. End of Sentence. The whole concept is something that needs to become socially unacceptable worldwide. This may seem like a meme of intolerance on my part, and to a certain extent, it may even be correct. Nonetheless it is no more morally equivalent to the idea of killing or violence in the name of religion than those who resisted Attila the Hun were morally equivalent to him in that they believed in the use of violence to defend themselves against rape, pillage, and vandalism. Had Attila not assaulted the world, there would have been no need and no real desire to use violence against him and his people.



*With this said, I find the concept of differentiating the two, as opposed to not, to be about as acceptable as the Mensheviks - marginally less bad than the Bolsheviks, but still a rotten, poisonous idea at the core. If the choice is that I must accept those who believe hirabah is distinct from jihad, or simply accept jihad as a permanent world idea, I'll take the former. But neither has any component that is desirable, and jihad itself is an abominable idea.*



The idea that it is acceptable to kill, to commit violence, or even to use force in the name of religion is part of what we are fighting here. And I mean nobody should be allowed any kind of illusion that it is acceptable in any way, shape or form. Not Atheists, not Christians, not Hindus, not Buddhists, not Jews, not anybody. (Actually, the Buddhists and especially the Jews have an excellent record of not doing so, at least within a longer time frame than other major religions**.) You can drag your minor children to worship if you so desire, but that's the utter limit of what I'm willing to accept. Faith, by definition, is not subject to proof, scientific evidence, or any such. Faith must come from within, or it ceases to be faith and becomes a straightjacket. If your adult children wish to leave the faith, they must be free to do so and still be members of your society. Anything less takes us back at least to the Thirty Years War, if not all the way to the Dark Ages in europe, where priests and kings all over europe fought over who was to rule and who merely to reign. Every other world religion has come to terms with this philosophically. Islam, which otherwise has many admirable qualities to it, has not. It is this failure which we are fighting right now. When it is remedied, if it is ever remedied, the rest of the (current) terrorist problem will solve itself quickly.



(While I'm talking to their points, I also want to mention in passing the term "splodeydope" which both Chapomatic and Enrevanche use. I generally approve of it. I haven't done any research but seem to recall something about the suicide bomber's genesis in that the original suicide bombers were actually camels, and it was only later that they were replaced by humans for a variety of reasons. But splodeydope conveys contempt, derision, and all of the other suitable connotations, as well as a denotation sufficient unto the task of accurately describing the function. In conversation, I've never been asked to define it by anyone who had previously not encountered it, and I've caused several people to laugh significantly by its use, thus causing me to believe that they had not previously encountered it. I've confirmed it in a couple of cases. So it passes an intuition test as well. And I believe I first remember hearing it in the 1980s or early 1990s, so where LGF may have been instrumental in its spread, it's much older than that)



UPDATE: A Commenter was confused as to what I was saying, and I see why, and so I edited. Original wording of starred paragraph:



With this said, I find the concept of Hirabah to be about as acceptable as the Mensheviks - marginally less bad than the Bolsheviks, but still a rotten, poisonous idea at the core. If the choice is that I must accept those who believe hirabah is distinct from jihad, or simply accept jihad as a permanent world idea, I'll take the former. But neither has any component that is desirable.



**Also added the words "at least within a longer time frame than other major religions" to the succeeding paragraph

Spent the day at the Wild Animal Park, an adjunct of the San Diego Zoo about thirty miles north. Our membership covers admission to both. New Years Eve we expected it to be less crowded than usual, and rain was forecast, so even better. It was wonderful, and just enough people that nobody minded talking to anybody else. Nice and cool and most of the animals loved it.



(If it bursts anyone's bubble to learn that it rain in San Diego, sorry. Once every three years whether we need it or not.)



This first one is what my dogs were bred to hunt, so it's a good thing they don't admit wiener dogs to the park. A nine month old badger. His mom was killed by a car up in Ventura County, and the zoo has been training him to put on these "animal encounters".



Red Tailed Hawks, one of whom was flying.



Bald Eagle.



California Condors. Wasn't too long ago these were extinct in the wild. They were down to nine total at one point. It was only about twenty years ago they were sucessfully bred in captivity - Sisquoc (the first hatched) made the news worldwide. This is where they bred most of what has been released (The Los Angeles Zoo also has a smaller program). Now they have a couple hundred. It looks like my girls are likely to grow up in a California where these can be seen not only in zoos, but in the wild.



There's a trail that goes round most of the park, but not that many folks walk it. It's probably two to three miles, and there's a lot of steep places, but you can see stuff there that people who won't walk can't. Got some pictures of the lion in the older lion enclosure. The white tiger was hiding today. But this is the first of two panoramic views I took from about halfway down the trail towards lion camp, just to give people who may not have visited an idea of how big the park is. The two people in the lower right are my wife and older daughter. The second photo was taken from exactly the same spot, turned about 120 degrees. Nor can you see the whole park from anywhere except airplanes; it's about 1800 acres (3 square miles).



This is one of several pictures I took at Lion Camp, an exhibit that's only a year or so old. Well laid out; they learned from Tiger River at the Zoo. I went around the corner and took another from a different vantage (no glass in the way, just a moat and wire) but decided not to upload it, and the exhibit as a whole is probably close to an acre.



Getting back to the more travelled areas of the park, this one is a pair of vultures, in Heart of Africa, and is very close, only cropped a little at the sides. Here's a family of gerenuk, and they were scampering about and playing. Despite coming from a hotter part of Africa, the relative cold didn't bother them but the keepers did bring them in. This little baby deer was only a week old, and I just happened to catch a view of him through a hole in the hedge, as he was doing his best to hide behind a rock from the normal viewing area. Finally, the public was being allowed to feed this giraffe, which explains why he was so interested in humans.



Another animal encounter, this one with an owl. I can't remember the type.



The nursery is a favorite stop at the Park, especially when the baby animals are getting fed. Here are a pair of Springboks. And here is a Transvaal Lion cub whose mother had a very difficult birth and had to be delivered caesarian. The posted literature strongly hinted that he's being trained as an animal ambassador, as they don't get canine companions for most animals. And yes, he did lick his keeper full in the face.



The final set of pictures I'm going to share are from the tram ride around the park. Always got to go on the WGASA Bush Line at some point, because the kids get tired of walking. So take my advice and wait until they do get tired, because the line is usually long and they get rambunctious otherwise. There were signs saying we had to be in line by three, and at 3:30 it looked like there was nobody left when our train pulled out, so we thought we were on the last one for the year, but one more pulled around the corner as we were walking to the car, so we weren't.



(There's a story, well known in San Diego, about how the WGASA part of the name came about. They held a contest among zoo employees, and one submitted it. It sounded african, so it won. And after it was publicized and opened, somebody asked him what it meant, and he informed them "Who Gives A S***, Anyway?")



One thing you encounter in the less travelled areas of the park are California Freeloaders. Birds and mammals who are native to the area, and come in to eat the Zoo's plants or swim in the Zoo's ponds. The Zoo actually encourages it a little. I understand we missed Canadian Geese by only a few days. But here are mule deer, a mother and her fawn. These were smallish for Mule deer, I've seen them much bigger in the Sierra Nevada. Next up is a male Golden Eagle, half of one of only fourteen known breeding pairs in California. They live on Zoo property, and the Zoo actually makes certain their nest is undisturbed, but they are not themselves zoo property.



Somali Wild Asses, the one front and center is only about a month old.



A female Serow, from Japan. The opposite enclosure had Chinese Goral, which are closely related, but no pictures good enough.



Three Ibex in the exhibit that used to house mountain goats. The guide said they couldn't catch these three, so they had to be careful as they were doing some work introductory to putting some different animals in. Looking at the exhibit, I want to know how they caught the rest - not to mention all of the sixty-odd mountain goats that used to be in there.



Still from the tram, here are some Rhinos! Rhinos evidently love the rain. The wetter it was, the more they played. Mom and two kids. The older is three years, the younger is about eleven months. Rhinos along the fence. Rhinos at the waterhole. Rhinos scuffling. Two of Rhinos playing, and no, the earth wasn't shaking.



Finally, from near the end of the ride, a Black Rhino mom and her young one. These are half the size of the white rhinos in previous photos.



UPDATE: HAPPY NEW YEAR EVERYBODY! (You can tell my wife and I are real party animals... not!) Off to bed.

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