Refinancing now is generally a wonderful idea as jumbo loans are back to all time lows.  That said, what happens if you are so underwater on your mortgage that you feel it doesn’t make sense to continue paying anymore because you don’t think value will ever recover?  Banks have become so annoyingly stubborn regarding allowing underwater homeowners to refinance, that you might have a better way.

Have you ever wondered why there have been so many foreclosures in states such as California, Nevada and Flordia?  I’ll tell you.  If you live in one of the 12 “non-recourse” states of Alaska, Arizona, California, Connecticut, Florida, Idaho, Minnesota, North Carolina, North Dakota, Texas, Utah, and Washington you are in luck!  If you so happen to own property in one of these states, and have substantial assets elsewhere, you can legally hand over the keys to the bank and exonerate yourself from the mortgage with no penalty against your other assets!

AN EXAMPLE ABOUT GETTING IN OVER YOUR HEAD AND BAILING

You have a million bucks in the bank and you bought a house for $800,000 several years ago by taking out a $750,000 mortgage.  Real estate market crashes and the value of the home is now $400,000.  You’ve already paid $50,000 of the mortgage principal over the years.  $300,000 of your mortgage is now unsecured ($700K mortgage balance – $400K value of property), which means your house is now an under-secured debt.  Because you live in a non-recourse state, if you turn over the collateral (your house), your lender cannot collect on the $500,000 unsecured debt.  The lender assumed this risk when they approved your mortgage application, and you can walk away with your $1 million in cash and live happily ever after.

However, say you bought the house for $800,000 with a mortgage of $300,000, and then a few years later took out a second mortgage worth $500,000.  Real estate market crashes and the house is now worth $100,000, leaving you upside-down on the house by $300,000.  If you turn over the house, you can walk away from the first $300,000 mortgage, but you’re still liable for the second $300,000 mortgage.  Since you no longer have the collateral, the second mortgage is now an unsecured debt.  Unsecured debts can be discharged in bankruptcy.

BANKRUPTCY OPTION

If you want to file for bankruptcy, the $1 million cash is a problem.  Since you’ve got the cash on hand, the court is going to say you have to pay back your second mortgage.  But who has $1 million cash in this economy?  More realistically, you have $1,000 cash.

If your income is above the median, you are eligible for a Chapter 13 bankruptcy.  In a Chapter 13 bankruptcy, the debt is not completely erased, but is instead consolidated and restructured into an affordable monthly payment.  The debtor creates a three to five year affordable repayment plan to pay off a portion of the total debt.

If your monthly income is below the median for the state you live in, you are eligible for a Chapter 7 bankruptcy, which is a total liquidation and discharge of all of your debts, including the $300,000 second mortgage.  The slate gets wiped clean and you get a “fresh start” to start rebuilding your credit.  You are eligible for a new FHA home loan 2 years after your bankruptcy is discharged.

If your creditors are harassing you or if a creditor has served you with a court summons, if you’re facing a repossession or foreclosure, or you are only making the minimum balance on your credit cards, you should seriously consider filing for bankruptcy.  If you feel like your finances are way outside of your control, bankruptcy is the “fresh start” you need to get your financial health back in your own hands.

Most bankruptcies are caused by one of three events: loss of job/failed business, medical emergency or family emergency.  You may have been living within your means just fine, but then you lost your job and defaulted on a payment.  One missed payment can change your interest rate from 8% to 39%, causing your debt to quickly mushroom out of control.  Perhaps you or a loved one suffered a heart attack, resulting in thousands and thousands of dollars of medical bills that you simply cannot manage.

IS IT RIGHT OR WRONG TO WALK AWAY IF YOU CAN AFFORD IT?

There are actually plenty of people in California who have substantial assets who are simply walking away from their mortgages.  Financially, it makes sense, especially if they’ve put very little down.  Legally, they have every right to walk away as well.  After all, the banks performed due diligence and made the decision to lend you money.  Nobody forced the banks to do anything, as perceived profits are what drove them to lend.

Sure, for the first 5-10 years, your stellar 770 credit might get trounced to 570.  But, if you have another fine property you are living in, and another vacation home down in Malibu, what do you care whether you can’t get more credit or not?  You’re already living the dream and catching a break from an investment property that went sour!

Readers, do you think it’s wrong to walk away from a mortgage if you can afford to pay?  How much do you value your credit and how would you value your credit given the negative implications of walking away?

After sharing your thoughts, go check out a guest post I wrote on Untemplater entitled, “The Best Place For Online Entrepreneurs To Live And Work“.  It’s what I discovered after blowing my tax refund!

Regards,

Sam @ Financial Samurai – “Slicing Through Money’s Mysteries”

“Sam, I absolutely hate my company and hate my job.  I can’t wait for some sucker to give me a big package so I can blow this joint and retire early.” January 17, 2011.

These are the words of an acquaintance who hit the jackpot when an upstart company in his industry decided to give him a two-year guarantee for 50% more a year.  In the employer’s mind, they think they are getting an experienced person with a great attitude and a long term commitment of building their business for 5+ years.  In my acquaintance’s mind, he’s jumping ship because he sees the dollar signs and plans to retire as soon as his two-year contract is over.

HOODWINKING, SOFT LIES, & MISMATCHING MADE PERFECT

After 5-10 years of experience in whatever field you are in, there will inevitably be competing firms who will want to hire you away if you are a good performer.  If you are a super high performer you will always have opportunities thrown at you.  Your biggest problem is deciding when is the right time to leave for the bigger bucks.

The sad part about the scenario above is that I’ve known the hiring manager for over a decade and think he is a brilliant business builder.  Yet, even a brilliant man like him can get hoodwinked by a miserable guy with different intentions.  How does this happen?  Here’s how.

The dark pieces of you can sometimes shimmer.

Nobody is completely melancholy.  We all have things we get excited and happy about.  Those specific thoughts are what you have to concentrate on to pass a lie detector test.

Interviews are the only way for an employer to directly ascertain how you are as a person.  This is when you need to throw away all your disdain, and less than desirable attributes and start performing.  You are the lead actor in a play, and your goal is to make your audience love you.  Don’t underestimate the importance of “looking the part”.  They do play huge parts in making good impressions.

You must smile and say sweet words of kindness.  You must pretend your motivations are pure, and that you are there for the long term.  All your intentions seem real, because you are thinking about things that will potentially make you happy if you get this job – a lot of money, an early retirement, and sticking it to your old firm.

Important positions need to be carefully vetted because once someone enters your organization, it is brutally difficult to get them out thanks to employment protection laws.  As a result, you will go through multiple interviews over many months to make sure you are the right candidate.  You need to keep your game face on and replicate your happy enthusiasm consistently over and over again.  You must not break.

Even Ghengis Khan has allies.

The next vital step is having superb references.  Even if you are the most evil person on earth, you will at least have a handful of people who will sing your praise.  Identify those people and feed them to your perspective employer.  Give your references a heads up that you have done so and be extra kind to them for at least a month before the process.  Take them out for lunch and help out anyway you can.

Five references is generally enough.  A lot of employers stop at three, so if you give them more, you will look like a credible person.

Sugar-coated donuts are unhealthy, but everybody still loves them.

You’ll undoubtedly have some weaknesses which are less than desirable with your prospective employer.  No matter, because you are smiling and demonstrating your fantastic fake enthusiasm about the hiring company.  You have implanted sugar coated donuts into the hiring manager’s head that you will be the perfect candidate for the job.

The interview process is exactly the time where you can over-promise on what you can do.  You make them salivate like Pavlov’s dog.  The more you promise them, the more they will want to pay you.  Forget the sugar shaker, you bring out the industrial powder sugar machine that rains goodness 10 donuts at a time.  You know that once you are in, it’s too late.  You’ve got them by the balls because everything is in writing.

The more you think about waterfalls in a crowded place, the more you will need to pee.

People can’t help but follow the herd.  As soon as your prospective employer gets a whiff that someone else might be interested in hiring you, your stock will rocket to the top.  You need to create that anxiety even if it might not be entirely true.  It’s easy to say have been approached by a competing firm, but nothing has transpired yet.  Once your prospective employer hears that, they’ll start thinking about Niagara Falls baby!

NOW YOU KNOW WHY UNDERPERFORMERS SURVIVE

You must master your own presence.  Like an actor in a big Hollywood movie, you are able to turn on the charm once the cameras start rolling.  If you can do that, you will forever be employed because you’ll always be able to jump around.  By the time your employer realizes they’ve made a mistake, it won’t matter because you’ve got that fat contract, or you’re already moving on to your next employer!

Readers, any tricks you have for getting hired when you know you don’t deserve the position or have no intention of staying longer than your contract?  Why can’t employers see through bad hires more often?  Do you know of people who keep landing on their feet, even though they are less-than-optimal performers?

Regards,

Sam

Now that Osama Bin Laden is dead, I hope the tens of thousands of Muslims who died at his hands and the families of the 3,000 people lost in the Twin Towers find closure.  After 10 long years of searching, we finally got the bastard who was hiding just 90 miles away from Islamabad, Pakistan.

It is now a certainty that President Obama will be re-elected to his second term in 2012 after taking credit for the killing.  We will have more big government spending and higher taxes.  That’s not so bad given the economy continues to recover and people are finding jobs again.

The main question you should think about is whether the killing of Osama Bin Laden by US special forces is a good thing, or a bad thing in the long run?  Osama Bin Laden has been the leader of the Al-Qaeda Terrorist Network for over two decades, but how much power has he had over the past 10 years given his need for secrecy.  Undoubtedly hundreds of new Osamas are looking to take a higher leadership role and avenge is death.  Expect retaliation.

Unfortunately, the killing of Osama Bin Laden brings about a new wave of terror.  We’ve closed one chapter, but many more chapters of terror are about to be written.  Let’s be vigilant and aware.  Here’s to peace, one less evil on Earth, and a thank you to our armed forces.

Readers, what are your thoughts on the killing of Osama Bin Laden?  Do you feel safer as an American traveling the world now?  Will there be retaliation and a never ending cycle of hatred and suffering?  How do we know if Obama is really dead?

Regards,

Sam

Having a mortgage is a wonderful thing.  In fact, I owe much of my work longevity to my mortgage.  When I was 24, I came across a lot of cash due to a couple good stock picks.  I was just lucky, because goodness knows I can’t pick stocks for doodoo.  I never really told anybody how much I had, but it was enough to put 25% down on a median priced home in San Francisco and still have several years of mortgage payments left over.

By my mid 20s I began questioning the meaning of work.  Perhaps I was simply suffering the lesser known “quarter life crisis.”  Because I had arrived at what I considered to be too much money too quickly, working to make more money lost its appeal.  It didn’t matter if I added another thousand or ten thousand to my savings, making money was so uninspiring.  I was demotivated because of a couple chance trades that required very little skill, just a lot of balls.  The great irony is that I don’t need much of anything to live a comfortable life.  Give me some clean clothes and a place overlooking the beach with a hot tub off the bedroom balcony and everything will be OK!

RENTING JUST FEELS WRONG AFTER A CERTAIN POINT

I had already lived in a nice one bedroom with parking for $1,600 for a couple years and I was sick of throwing my money away.  The next logical move up was to a two bedroom, two bathroom apartment, but those places regularly rent for $2,500-$3,500 a month in San Francisco.  It was unbearable to pay more than $2,000 in rent to someone else even if I was getting shelter in return.  $2,000 a month is $3,000 in pre-tax income one has to earn!  Forget that.

Admittedly, there was also an irrational fear that I would be a 40 year old renter if I kept at my pace.  There’s nothing wrong per say in being a 40 year old renter, just like there’s nothing wrong with being a 40 year old virgin.  But, regardless, I didn’t feel like shelling out month after month of hard earned cash to help someone else pay off their mortgage.  If you’re in the 25% Federal tax bracket or below, by all means rent.  Renting is cheaper in the beginning for the most part and provides a lot of flexibility.

I soon found a cozy little two bedroom place, which after putting 25% down cost 20% less than what it would have cost to rent.  I wasn’t hesitant to put that much money down at all.  In fact, I was absolutely ecstatic to deploy my savings into something useful.  Suddenly, I had much less savings, and a nice multiple six figure mortgage to keep me honest and motivated again.  With the mortgage, I gained a renewed sense of purpose! Funny how things work.

I couldn’t just be a bum and not give it my best at work because if I got fired, I’d be at risk of eventually going broke.  Yes, I still had savings left over, but everything is relative because I had an even heftier amount before the down payment!  I developed a game plan to get to know people in my organization better.  I worked harder at everything that was asked of me.  It was do or die time, and boy did I do do!

LIQUIDITY IS STILL KING

Despite having a nice home to call my own, liquidity is still king.  It’s been a decade since I purchased my condo, and now the payments seem incredibly low.  It’s funny how time makes everything cheaper, especially if you have a fixed payment.  The condo is now a rental, generating positive free cash flow because rents have crept up about 40% since while payments have actually gone down 25% due to a refinance.  Inflation is a wonderful thing!

I have the cash to pay off the entire loan, but I don’t plan to simply because it’s important to stay liquid.  You can dump all your cash into your property, but what if the house burns down?  Sure, insurance will hopefully take care of at least 80% of the rebuilding cost, but for that instant when your house burns, you are going to be shitting bricks wondering whether you’ve lost all that money.

If you so happen to be in a higher federal tax bracket (33% / 35%), it behooves you to keep your mortgage as long as you work.  The government is robbing you of your hard earned money and having that shield helps much more than if you are in the 25% or lower bracket.  Yes, I understand that it’s not the greatest to pay interest to save on taxes.  That said, it’s all about cash flow and tax minimization when you’re making money that Obama doesn’t approve of you to make.  Focus on cash flow.

Mortgage rates are so low now.  As I mentioned in “Should I Refinance Now?  Does A Bear Poop In The Woods?“, you can borrow at 3.625% for a 5/1 ARM nowadays.  That’s essentially how much money you can make in a 7-yr CD at USAA (3.88%) back in 2010.  Hence, the smart move is to stay liquid and not make extra payments on such a low rate.  Remember, you can deduct interest on up to a $1,100,000 mortgage!

Cash is always king, and you want to have as much cash as possible to ensure your financial well being, as well as take advantage of investment opportunities when they arise.  Please read more tips for mortgage refinancing in an article I wrote earlier this year.

CONCLUSION

When you can see yourself retiring in 5-10 years, start formalizing a payoff plan so that when you finally do retire, you will be mortgage free.  The interest deductions all those years are just side benefits.  It’s your ability to live in your home rent free for the rest of your life, which is your biggest benefit!

Use accounting to your advantage, not to the lender’s advantage. It’s all about matching cash flow so that you are always in a very healthy state.  If you can match your mortgage pay down with when you will no longer have a steady income, that is likely the best scenario.  Paying off your mortgage early is a very personal decision.  You just have to make sure you know yourself!

Readers, what are your thoughts on paying off your mortgage early and losing some of your liquidity in the process?  Has anybody else experienced the amazingly motivational aspect of taking on debt?

Regards,

Sam @ Financial Samurai – “Slicing Through Money’s Mysteries”

In a previous post entitled, “The Government Encourages Small Business Owners To Fire Employees” I discussed how my friend Zach let go of one of his employees to make room to pay for potentially $30,000-$40,000 more in taxes in 2011 and beyond.  As you all know, the government won’t be squeezing small business owners anymore thanks to the tax compromise signed by the President on Friday Dec 17, 2010.

The tax compromise adds some $850-$900 billion to the Federal deficit over 10 years, which is a big problem if the economy and therefore revenue collection doesn’t pick up during this time.  Our children will pay for our excesses and that just doesn’t seem fair.  But what about Zach’s state of mind and his fired employee who is paying the price now?

I grabbed a quick beer with Zach last night and asked him how pumped he was that he no longer has to budget for increased tax expenses going forward?  “A little bit, but not so much“, Zach replied.  What a downer, I thought to myself as I believe a tax compromise is good for all Americans.

THE CONVERSATION

“You see Sam, although I won’t have to pay out tens of thousands more in taxes for the next couple years, I’m still not sure whether I can grow revenue enough to maintain my current cost base and reach the profitability goals I have.  I give it to the Republicans for getting us 2 years of tax reprieve, but what about in 2013?  Then what?  Are my taxes going to rocket starting in 2013 to make up for no tax increases in 2011, 2012?  I’m worried they will!  As a result, I’m still very wary of expanding any time soon.”

“How about the employee you let go in August?  Was that the right move?” I ask inquisitively.

“Well, it’s too bad I had to let him go, but frankly, even if I knew taxes weren’t going up for another couple years before making the decision, I probably still would have let him go sooner or later because of the impermanence of the tax agreement.  We need a permanent tax policy where we all have as much visibility as possible.  I’d rather stay as lean as possible until revenue really starts accelerating.  Better to be short a little manpower and just work longer, than have too much manpower, you know what I mean?”

“True.  It’s kind of like you looking like a creepy flasher in your trench coat to stay warm and dry, rather than look normal and have cold nuts, right?” I retorted.

“Exactly! Now who’s that fine lady over there?”

MAKES SENSE TO ME

Zach is one of the many small business owners who employ 90%+ of the American work force.  His arguments make sense as to why a permanent tax policy is so important.  If you know your taxes will go up in three years, you’ll probably err on the side of caution and save your money to pay for future tax hikes.  But, if you could see for endless miles down a deserted road with no cops in site, you’d open up your Ferrari to the max and take some risks!

Readers, what are your thoughts about the importance of permanent tax policy?  If you are in the 33% or 35% federal tax bracket that is currently being assailed by the Democrats, are you saving as well to prepare for an increase in 2013 and beyond?

Best,

Sam

I want you guys to visualize a world where there is no media schadenfreude.  Imagine never reading stories debasing others out of delight in order to make the writer and you feel better about yourself.  My how nice the world would be!

The reason why there are so many negative articles out there is simply because there are a lot more people making a lot more money and doing much greater things than one realizes.  If you can’t make it on your own, it’s easier to just try and bring others down.  Don’t do that!

You know from a previous article that $60,000 to $75,000 is such a silly low range for what researchers and the media think is the ideal income level where happiness rises no more.  It’s so silly because that is clearly not the case if you ask anybody who has ever made more.  Is it a coincidence that researchers and reporters make on average not much more than $75,000?  Of course not and therefore it helps makes them feel better about their wages.  It’s perfectly rational.

THE SECRET MOVEMENT

Ever since the tech bubble downturn in 2000 there’s been a secret movement to hide one’s wealth and be more understated.  So many people killed it during the dotcom boom that they have no choice but to hide their wealth because the media went on and on about how so many people lost so much money.  It’s just not true, speaking from experience and the experience of others.

As a result of so much wealth creation during the dotcom days, juxtaposed by the disconnected reality of what the media was peddling, the wealthy had no choice but to start pretending they too suffered.  It’s so ingrained in people’s minds that most people lost so much money in the downturn it’s just not true.  Are people stupid enough to think that everybody bought at the top and sold at the bottom?  Don’t be silly.

We had another fantastic stock market run from 2003-2007, accompanied by an amazing real estate run from 2000 to end-2006 as well.  A lot of people killed it during this time period and are hiding their wealth.  Again, not everybody bought at the peak and sold at the bottom and the markets have now recovered fiercely since (S&P500 up 75% from the 2009 bottom).

SO MUCH AGITATION

People who do well are afraid of the government, the media, and bitter people all around.  They are afraid they will be hunted down by organizations who will tie you up and burn you at the stake.  You don’t know how many conversations I’ve had with people who are just so agitated they can’t spend 1/10th their income on a car because that would mean they’d be spending $50,000-$150,000, which is fancy by “normal” standards but is absolutely whatever by their standards!  Instead, they spend 1/20th to 1/50th of their income on a car because anything more than a $28,000 Honda Accord will be frowned upon.

Just the other day, I got a ride home from a tennis buddy who works at a hedge fund.  He drives a common Ford Explorer and on our way back we started talking about real estate.  He mentioned he and his wife are looking for a new house having recently relocated from Florida.  He mentioned his house in Florida costs just under a million, but is nicer than so many $3-4 million dollar houses in San Francisco.  So then I suggested instead of spending $3-4 million on a house in San Francisco to perhaps rent for a while.

He responded, “Actually Sam, I’m seriously looking at buying this unlisted house asking $8 million.  $8 million just seems like a lot though.  I’m thinking it’s worth no more than $6 million. I haven’t rented since I was 25, so renting feels foreign to me.”

Boy were my price estimates wrong, I thought to myself.  “Yeah, I wouldn’t spend more than $1,200 a square feet on the house either.  Take your time!  Houses are like stocks.  If you miss one, there’s always another that comes along.”

“Yeah, you’re probably right Sam.  But I wonder though, b/c I bid on a smaller house at $1,200/sqft and got outbid.  I wonder if there is just that much money out there?“, my buddy vented in frustration.

“There definitely seems to be.  Just wait until Facebook goes public!” I responded.

MAKING MONEY IS SO STRAIGHTFORWARD

If you guys want to make money, know that it is very straightforward.  There’s no magic formula.  You just simply have to want to do it and create enough scale.  Don’t settle if you don’t have to.  The following are conservative examples of what people make in their respective occupations according to an article I read on Bloomberg, and knowledge from my own conversations.  Many make more.

29 year old MBA student from a top 10 school: $150,000.

Oakland dockworker (Longshoreman): $120,000.

Policeman with 20 years experience: $150,000 with a 6-figure pension.

Cancer researcher 10 yrs experience: $150,000.

4 Star General: $185,000 with 6-figure pension.

Bond trader with 10 years experience: $1,000,000.

Neurosurgeon: $600,000.

Law partner $600,000.

Professional blogger with 5 years experience: $50,000-$200,000 +.

Software sales rep at Oracle, Salesforce.com and the like with 5 years of experience: $300,000 +.

Strategy consultant 5 years out of undergrad: $100,000+.

Hedge fund manager partner: $500,000-$20 million depending on performance and assets.

Google / Facebook employee with 5 years experience out of undergrad: $100,000+ with potentially millions in stock.

Entrepreneur: Unlimited!

The list goes on and on.  As you can see, practically everybody makes over $100,000 a year with enough experience and many make much, much more.

THE ECONOMY IS FINE

Have you ever wondered why restaurants are so packed, malls are so busy, and traffic is horrendous all the time despite the media droning on and on about 9.6% unemployment and 16% underemployment?  Well now you know!  More people make a lot more money than you think!  There is a serious amount of under-reporting of income, and an obsequious amount of over-reporting of how bad things are.

It’s important as a Financial Samurai reader you aren’t brainwashed by negativity and the media.  I want you to know that things are actually much better than they seem, and I’d like you guys to stay away from pessimists and those who delight in the suffering of others.  Focus on what you can do to make yourself better.  Be happy for those who are doing great because when they do great, we all do great.

At the same time please stay humble and follow the movement.  Keep your success under wraps. You will have people trying to come after you, and you don’t want that.  There’s absolutely no need to brag about how much you make and what you’ve done.  It’s just going to backfire.  The most successful people are ones who have no need to talk about their success.  They let their success speak for itself because they’re out doing something more.

Readers, what are some of the ways you balance living the good life and making sure you keep people from knowing how much you make?  Do you think people who like to tell you how much they make or show what they are worth are insecure?  Why do you think there is so much pessimism?

Best,

Sam

Yale law professor and mother of two Amy Chua penned an incredibly fascinating article entitled, “Why Chinese Mothers Are Superior” on the WSJ.  Professor Chua is a first generation American who went to Harvard undergrad and then to Harvard Law School.  As a tenured professor teaching at the most prestigious law school in the world, I feel for her kids first and foremost!  Think about all the expectations that are put on them since her husband, Jeb, is also a tenured law professor at Yale.

Let’s say you had parents who walked 10 miles to school every day.  Do you think there’s a snowball’s chance in hell that you will have a car in high school?  You might, but you’d feel guilty every time you get behind the wheel and your parents will likely remind you as well.  In the end, you’d probably compromise and either bike to work, have your parents drop you off, or walk yourself.

Here’s a non-offensive excerpt from her article where she justifies calling kids names such as “lazy”, “fatty”, “worthless”, “stupid”, and “disgraces” when they aren’t performing up to par:

“As a parent, one of the worst things you can do for your child’s self-esteem is to let them give up. On the flip side, there’s nothing better for building confidence than learning you can do something you thought you couldn’t.”  Amy Chua

I agree with her quote, but I definitely don’t agree with calling one’s kids names to shame them into conforming.  The main issue I have with Amy’s view is that she pits Asian mothers against “Western Mothers” who are by default deemed inferior.  I would be incredibly insulted if I was a Western Mother because who is Amy to impose her dictator-like ways on me.  Amy talks in stereotypes all article long about how Asian children always seem to be gifted in math & sciences and music.  Amy argues that it is in fact no coincidence since Asian mothers are such master motivators and disciplinarians.

NATURE vs. NURTURE

I’ve always wondered how I’d turn out if my parents hadn’t been there for me.  I got into a lot of trouble growing up because I had little regard for personal property or the law frankly.  I remember my friends and I would trespass onto this farm in the mountains so we could have firecracker wars and sneak a smoke.  We were in the 5th grade.

There were other times where my friends and I would skip school to go movie hopping and chase girls.  We’d go around town with our illegal mopeds.  Another time I remember punching my friend in the face because he pushed me over while I tied my shoe.  That was in the 9th grade and I got suspended for a couple days.

My parents weren’t super strict, but they laid down the law when I didn’t obey.  With enough disciplinary action, I grew out of my rebellious teenage stage and started hitting the books hard.  They basically told me if I didn’t do well in academics and sports, I would severely lessen my chances of making a comfortable living for myself because no good school would accept me.  They somehow instilled in me the absolute fear of ending up on the streets.

I’m almost certain that if my parents weren’t there to set me straight, I would end up struggling financially and be stuck in a job that I hated.  Then again, I wonder if nature would have eventually kicked in to set me straight on my own.  Perhaps it would, but if it kicked in at age 22 instead of 14, it may have been too late.

PERHAPS IT’S A LOT OF NURTURE AND A LITTLE BIT OF NATURE

I used to think that I would always send my kids to public school because I experienced both and didn’t feel private school was any better.  I used to believe that my kids would be able to discern what’s right from wrong and not hang out with the bad crowd.  Now I have my doubts.

Private school administrators know parent’s insecurities and therefore skillfully market to their fears.  “Why risk your child’s future?“, is a favorite line to convince parents to spend $20,000 a year in 7th grade tuition vs. $0 for a public education.  And you know what?  I’m starting to get nurtured by their propaganda as well.  If I’ve got the money, why risk sending your kid to a less nurturing environment, even if you have all the confidence in the world your kid is good.  Why risk tarnishing your star?

Parental guidance, phenomenal teachers who inspire, and good peers are instrumental to the development of a child.  Not everyone can be a success, however you define the world.  But, with the right environment, there’s no doubt in my mind that a child’s potential will be maximized.

Readers, how were your parents growing up?  Do you wish they pushed you harder?  If they pushed harder, do you feel you would be more successful?  What percentage does nurture play in the part of a child’s development?  Are Asian parents superior as Amy Chua believes?

Regards,

Sam

I’m so excited, I can’t stand it!  So excellent to hear the White House agreeing with Congressional Republicans to extend tax cuts for 2 years through 2012!  As a concession, the Republicans agree to extend unemployment insurance for another 13 months.  That’s not quite the  “Shock & Awe Yeah” proposal I have of 260 weeks of unemployment benefits, but 155 weeks is still pretty damn good!

Deploying an enormous unemployment insurance safety net could very well jump start the economy or bring us back to socialism.  I take the former stance, as a bullet-proof safety net causes employees to work harder, take more risks, and be more creative since they no longer have to fear losing their jobs.

Getting 13 months of extra unemployment benefits after getting 99 weeks sounds like a lot.  That said, if you were unemployed, hell yeah you’d want to the extra 13 months!  Now that compromise is here between our nefarious, I mean selfless leaders in Washington, the next step is dealing with all this QE2, QE3, QE4 nonsense!  There are much better ways to spend $600 billion than buying back US treasuries to stimulate the economy.

THE NEXT STEP

Instead of spending billions more on quantitative easing, spend billions directly on unemployment instead.  You address the problem straight on and help stimulate the economy as well.  If you cut taxes for “the rich”, they are likely to just save their increased disposable income.  But, if you give $300 a week to someone who is unemployed and basically doing everything they can to survive, you can bet your bottom dollar they will spend the majority of the $300 on food, clothing, and shelter!  The issue is whether or not those who are collecting are “doing everything they can to survive.”  Not all, but most are.

Many argue that 99-155 weeks is already a long enough time to be collecting unemployment benefits.  My question to those who criticize is whether they’ve ever been in the same situation before?  If not, then perhaps best not to judge.  Take my millionaire friend Greg, for example.  He’s been collecting unemployment checks for over 70 weeks now as it’s pretty tough finding a comparable job making $200,000 a year.  Yes, he can probably work at McDonald’s for $25,000 a year, but is that rational with his experience and savings?  No.

Greg went to Cabos, Mexico to vacation for three weeks in November because companies weren’t hiring.  Can you blame him?  Now that it’s December, things are as dead as a door knob and he’s thinking about going to Hawaii until the new year.  It’s just as easy for Greg to hunt for jobs online in sunshine, than during the cold and rainy weather of the mainland.  That’s rational thinking to me.

SPEND MONEY ON UNEMPLOYMENT NOT HOCUS POCUS ECONOMICS

If the most important issue at hand is unemployment, then the Fed should spend money directly on alleviating unemployment!  It’s inefficient to try and stimulate the economy via treasury buying to try and lower rates to then hope consumers borrow and spend.  You’ve got to then hope higher spending leads to higher corporate earnings, which leads to expansion and increased hiring.  Talk about taking the scenic route!

Providing liquidity and low interest rates is definitely a must to generate investment spending, however it’s unnecessary to spend the entire $600 billion or whatever the QE amount is just on treasury buying.  The 10-year yield is now back up to 3% after QE2, which means the initiative has completely backfired since the 10-yr yield was at 2.4% before the $600 billion deployment!  Spend money directly on the unemployed and you will not only help those who need help the most, you’ll see a large majority of that money get spent immediately back into the economy!

Readers, what do you think about the initiative of directing money straight to the unemployed rather than trying to manipulate assets and interest rates?  Where is my logic flawed?

PS Who cares about the growing budget deficit when we got a 3 year unemployment insurance net and tax cut extensions for all to look forward to in 2011 and beyond!

Regards,

Sam