Peter Pays Paul

This article is very important read for all citizens to realize the costs associated with our benefit programs. Somebody always pays the price, and usually it is us.

Children are selfish. Not because they are unkind (though many are) but because they believe in cost-free transfers. They do not understand that providing the toys and other amusements they demand imposes a cost on their parents. Children live in a fantastical world where Barbie dolls and trips to the zoo can be delivered without depriving their parents of something they might have enjoyed, such as a bottle of wine or a few extra hours off work.

A free lunch for you is a painful cost for someone else | Jamie Whyte – Times Online.

Yesterday I posted about the SF Chronicle article that argued in favor of gaming the system to get lower payments on your mortgage.

I realized as I was at home and with friends that from the title of the post, it may have seemed that I was advocating not paying your mortgage.

This was not my intention at all.

Viewing Money and Wealth as a Tool

I believe that there are many things in life more important than money.

My love for Jesus helps me to view money not as and end in itself. Money is a tool that allows me to eat, stay warm, and accomplish bigger goals in life.

Wealth is not an end in itself. Wealth (an abundance) makes eating, staying warm, and accomplishing bigger goals easier. It can often provide an easier solution to the problems that we may face.

A Good Reputation is More Valuable Than Gold

A good name is to be chosen rather than great riches,
and favor is better than silver or gold. – King Solomon

Thousands of years ago King Solomon wisely wrote that a good reputation is more valuable than great riches. Riches and wealth may come and go, but a person’s reputation can outlast their life.

A good reputation is an inheritance that even a poor man can pass along to future generations.

Keeping Our Word

Keeping promises is something more important than money.

A mortgage is a contract or promise between two people. The lender promises to lend money to the borrower in return for an interest payment. The borrower promises to repay and compensate the lender with interest for the use of the money.

Should a borrower purposely stop paying their mortgage or lower their income in an effort to get “better terms” or a “more affordable” monthly payment they are going back on their promise to repay their debt.

Doing it Right

Most of the time I am a stickler for doing things “the right way”. This has a tendency to frustrate those closest to me who may just want to get the task accomplished.

Accomplishing tasks with excellence breeds a sense of personal accomplishment over a job well done. No corners were cut, no task was left undone, this project is fully completed.

Getting a better mortgage payment may be financially better now. People might think you are crazy to not take advantage of the situation.

It can be done right, or it can be cut short.

If “shortcuts” are taken, we truly only short change ourselves.

Blinded By Nearsightedness

Too often it is easy to look at the near term benefits and forget the long term consequences when thinking about our money and finances. I too often fall into this trap. I look for the easy fix now, rather than the long term benefit.

The current government loan modification may cause us to be blinded to the long term consequences on our character and the character of future generations.

Subtly, we may be teaching those that respect us the lesson that doing whatever it takes to make more money and acquire more stuff is the highest and best goal and anything should be done to accomplish it.

Wealth in the Journey not the Destination

The pursuit of wealth and all that is shiny can be so very attractive for what it offers. However, the journey to achieving wealth is probably just as important as the wealth itself.

Wealth alone cannot produce character, while the journey to wealth can.

Of the billionaires I have known, money just brings out the basic traits in them. If they were jerks before they had money, they are simply jerks with a billion dollars. – Warren Buffett

In the journey we develop character, perseverance, and humility. So let’s enjoy the journey, keep our promises, and do it right.

I’ve written before about the government’s unintended consequences.

Today we read:

As we mentioned yesterday, a bit of a fight has broken out over whether it is irresponsible for journalists and others to advise homeowners about the options that the government’s bailout programs are opening up to them. But the fact is for a lot of homeowners it makes perfect sense to stop payments on mortgages…and it may even pay to stop any overtime work or have one of the earners in your household quit.

You Might Want To Think About Stopping Your Mortgage Payments and Reducing Your Income.

(HT:Tom Vanderwall)

Thomas Cooley and Lee Ohanian argue that the road out of the cycle we are in should be marked by less regulation and less restrictive policies based in the reality of history and not the fiction of theory.

Obamanomics | Print Article | Newsweek.com.

Brian S. Wesbury and Robert Stein detail some of the unintended consequences that government intervention has had in the current economic strain.

Take, for example, the extension of unemployment benefits enacted in June. Normally, jobless benefits are available for 26 weeks. The extension, which will last temporarily through early next year, added another 13 weeks. Following this, between June and October–in only four months–the unemployment rate has risen from 5.5% to 6.5%, a full percentage point.

What’s odd about the jump in the jobless rate is that it has been accompanied by an unusual increase in the number of people who say they are looking for work. Normally, when the unemployment rate leaps upward we see a decline in the share of the population either working or looking for work (what economists call the participation rate).

…

Another example of unintended consequences is the new ability of the Fed to pay interest on bank reserves, a policy it has long wanted to implement to give it more accurate control over monetary policy. Regardless of how much sense this policy may make over the long term, it may be undermining the growth of bank lending right now. Excess reserves by deposit-taking banks typically hover at about $2 billion. In October, these excess reserves were at $268 billion. So with one hand the government is injecting capital into banks to boost lending, but with the other it is enticing banks to hold extra cash as reserves.

The Law Of Unintended Economic Consequences – Forbes.com.

When governments intervene into private contracts it has long-term unintended consequences, and usually they are negative.

Read a blurb regarding the research from the St. Louis Fed on the downside of a moratorium on foreclosures.

Governments cause both immediate and long-term effects when they rewrite the terms of contracts between private parties, Wheelock argueded. “Although the economic and societal benefits of lower foreclosure rates are difficult to measure,” he said, “research shows that the foreclosure moratoria of the Great Depression imposed costs on future borrowers.”

Future borrowers were faced, according to the analysis and cited studies, with a restricted supply of loans and sky-high interest rates, because lenders needed to compensate for the possibility that their right to foreclose on delinquent loans would be constrained. Under the nation’s current turmoil, policymakers are scrambling to enact similar regulations as were made during the great depression, in order to limit the highest foreclosure rates since (what else?) the Great Depression.

Here is the link to the HousingWire.com article.
History Warns Against Foreclosure Moratoria: Study : HousingWire.

Here is a link to the St. Louis Fed report.

Update (HT: Tom Vanderwell)

Through the use of a clever experiment with a skating rink, John Stossel argues the faults of central planning.