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Archive for October, 2009

Bank failures 10/2009

Oct 25

Posted by robparis in General | 2 Comments

The seven new bank failures on Friday, October 23, 2009 brings the total for the year up to 106 – the most bank failures since the savings and loan crisis in 1992. 106 is still small compared to the 416 unnamed banks on the FDIC’s watch list. Which way is the trend going? Where are the bank failures taking place? See below.

Which way is the trend going?

During the current recession, the month with the most bank failures (so far), was July 2009 with 24. Although failures have slowed down, the six month trend is still upward.

bankfailurestime

Where are the bank failures taking place?
bankfailuresstate

unemploymenthousingMost of the bank failures so far have taken place in the southeast (Georgia and Florida) and southwest (California and Nevada). Illinois also ranks high on the list. What do these states have in common?

These states are suffering from a severe housing bust, and are suffering from the highest unemployment rates. There are currently only 14 states with unemployment over 10%, and all five of these states fall into that category.

Where are we going from here?
The facts end here. Now it’s a matter of prediction. I don’t see any “green shoots”. I don’t expect a quick turnaround. I expect bank failures to continue and become more frequent. I expect the FDIC to run out of money shortly. The FDIC will either require multiple years of pre-payments from the banks, or it will tap into its credit line with the US Treasury. If the FDIC asks for bank pre-payments, the stuggling banks will come under even more stress. I expect the FDIC to tap into its $500 billion credit line from the US Treasury. What happens if that credit line runs dry? There will be an even bigger one.

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A response to the comments on Daily Finance: Social Security COLA

Oct 16

Posted by robparis in General | 6 Comments

A response to the comments on Daily Finance

The comment I posted on Daily Finance mentioning my recent post on the Social Security COLA has received a lot of comments. I won’t be responding to every comment, but I think it’s fair to group the comments into three types:

  • ad hominem (abusive and circumstantial): the fallacy of attacking the character or circumstances of an individual who is advancing a statement or an argument instead of trying to disprove the truth of the statement or the soundness of the argument. Often the argument is characterized simply as a personal attack.
  • argumentum ad misericordiam (argument from pity or misery) the fallacy committed when pity or a related emotion such as sympathy or compassion is appealed to for the sake of getting a conclusion accepted.
  • actual coherent arguments – these arguments I appreciate and will respond to

The ad hominem attacks criticized me as a person, instead of arguing about what I said. I won’t bother responding to each of these attacks. Additionally, they were frequently misspelled – disiably for disability, diaphers for diapers, and my favorite, retarted for retarded. I’m sure most of these were typos and nothing more, but amusing none the less.

Examples of ad hominem:

linda said…
ROB, your evidently not retirement age, so that is why your thinking that way. just wait til your retirement age and then you will not be talking like that.

cynthia Flanagan said…
you sound like a lazy un-employed stiff…a baby who never knew hard work..

jerry said…
You probably voted for Obama & are on a disiably. Above the neck that is. One day you will be in the seniors place & then you can relate to your pass mistakes

ycav4424 said…
Rob is probably somebody’s snot nosed kid that has snuck onto their daddy’s computer to rile up people just for fun before he changes his wet bed sheets again so he can sleep dry for awhile.

MO said…
Once an idiot, always an idiot. I’m 66 yrs. old and worked all my life to get something I deserve. When you retire in a few years after you get out of your diaphers, are you going to turn down SS? Go crawl back under your rock you moron.

d r heller said…
rob and all the other imbeciles who have that type of attitude have to be living off their parents and have no concept what it is to be a retiree!

Mary said…
You are an jack ass.

gary said…
A LOT of folks here believe you are an asshole for making that remark. So it’s probably true. Have a nice day asshole!

Tom said…
Rob enjoys making idiot comments to see the reactions he gets…

EL said…
DUMB ROB, WAIT UNTIL YOU RETIRE, OR ARE YOU ONE OF THE LAZY ONES ON WELFARE?

ANDY said…
AREU RETARTED, OR AN ILLEGAL IMMIGRANT…

Les said…
What a dumb ass!!!!! I bet you still live with your mother. I hope you get sick and can’t work.

Slightly better than the ad hominem attacks, are the argumentum ad misericordiam. These arguments appeal to pity and sympathy to win an argument.

Examples of argumentum ad misericordiam:

lvn said…
At the senior complex I live in everyone got a letter stating…”due to the downturn in the economy there will be no more surplus food bags delivered to seniors.” 90% of the seniors here depend on that food to last them till the next SS check. At times (too many)cans were dented and once the soup can was not only caved in and rusted but expired 3 1/2 years prior. Weevils and bread smashed beyond recognition and 99% of all other foodstuffs were expired. Yet, if farmers were to give the animals this digusting food, government agencies would be down on them right away. Had one woman say she knew there were bugs and rancid food, but even the dog food she used to buy was too expensive now.

mary myers-agati said…
MY rent will go up next year and so will many other things food and other necessities. I am slowley going blind and cant afford surgery.

Susan said…
SAY THAT WHEN YOU RETIRE ASSHOLE AND YOU GET THE SAME AMOUNT OF MONEY EVERY YEAR… I TAKE CARE OF MY MOTHER WHO HAS ALZHEIMER’S. MAYBE WHEN YOU RETIRE, THERE WON’T BE ANY SOCIAL SECURITY LEFT, WHO YOU GONNA CRY TO THEN???

EL said…
SS IS NOT ENOUGH FOR HALF OF THE PEOPLE ON IT. SOMETIMES WE CAN T EVEN GET OUR MEDICINE

Finally come the actual coherent arguments. I will respond to these. Most people who tried to use coherent arguments had their comments voted down. If it wasn’t vicious or sympathetic, it just isn’t made for the Internet.

Bruce said…
If we happen to receive the $250 stimulus adjustment proposed by the President, please remember: this is a GIFT; you did nothing to EARN it; it is not now or in the future an ENTITLEMENT.

Bruce – The government is unproductive. It isn’t producing any of the ‘gift’ it gives you. It needs to raise money using its only three methods, inflation, taxation or borrowing. None of these are good. Since the money the government is gifting is taken by force from everybody else, it is not so much a gift, as it is theft.

Akela said…
So Rob, are you ready for YOUR parents, and or grandparents to move into your home with you?? I hope so ..

Akela – My parents saved throughout their lives so that they could be self-sufficient when they retired. If, for whatever reason, they were unable to provide for themselves, I would take them in without hesitation.

cruisedoc said…
…Payments need to be adjusted for inflation for obvious reasons. However, when their is no inflation, or negative inflation (deflation) as their is this year, then there is no rational argument for an increase. There should be no COL increase when the COL doesn’t increase. If I were on SS I would just be glad that I get it when the COL goes up and don’t get it decreased when the COL goes down. It’s kind of like getting your cake and eating it too. I think America is fair w/ seniors, after all, they paid in pennies on the dollar for what they get out; now they should in turn be fair and be thankful that it is tied to the inflation rate.

For making a coherent argument, cruisedoc had his comment voted down with mine.

Jenine said…
You just need attention. What a very ignorant remark to make. Some of these seniors get checks for less than $200 a month. Did you realize that before you mouthed off? Can you live on $187.00 a month? NO. Before you make comments without all the facts you should look and listen. Back when these people started working they made less than $1.00 a day!! Most states now the minimum hourly wage is $7.00 an hour. You should apologize to those people. You expect a raise and they deserve every one they get.

Jenine – Social Security (assuming it must exist), should serve as a supplemental income source, not as the single income source. I can’t live on $187 per month, and for that reason, I am saving money each month. So I can provide for myself. I don’t expect SS to provide me benefits when I’m older. Social Security has created a moral hazard where people have become entirely reliant on Social Security and can expect large increases. Once this system is in place, people feel little need to save and provide for themselves. Social Security is a self-perpetuating moral hazard.

Then came the group of attacks explaining that SS needs to be raised because the cost of living has gone up and the private sector has been increasing wages.

redconvoy said…
They need the increase to live. You can’t live on the same thing year after year with the cost of living going up and their Medicare premiums. So where ever you work, maybe you shouldn’t have a raise. See how you could live on your same salary year after year!

Teresa said…
Why would you say such a thing. Doesn’t cost of living go up each year. How do you expect people to survive if the cost of living goes up every year but yet the income does not go up.. mmmm If you know a trick please fill us fixed income ppl in. We would love to know how to do that.

BEAR said…
TELL ME SOMETHING BOY, DO YOU GET A COST OF LIVING RAISE OR ANY TYPE OF RAISE.

Sue said…
Last year I got a 3 cent raise. After 3 years with the company. The SS crowd needs to realize that those of us PAYING for them are having a hard time. I will never retire.

These arguments fail to note that many large companies in the private sector did not receive raises for two years. In fact, many companies are having pay cuts across the board. See the articles from Time and CNN. Of course, there are also the millions of people who received 100% pay cuts in the past 18 months. Sue made a similar argument, and accordingly, had her comment voted down.

I appreciate constructive criticism and other feedback on my article. However, it seems that most commenters prefer to just complain. If you have an opinion about my writing, please use a valid argument. Don’t just make personal attacks and pleas for pity.

For all of the people making constructive arguments, both for and against me, thank you.

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Response to the comments: Social Security COLA

Oct 15

Posted by robparis in General | No Comments

I received a few great comments. Since a lot of these responses were too long to re-comment, here they are.

#1 by JJ Skittles on October 15, 2009 – 1:32 pm

Interesting thoughts, and interesting site! I’d like to see your opinions a little more frequently, and I’d be curious to hear your opinion on how Social Security is similar or different than a Ponzi scheme. Are we just using today’s money to pay for yesterday’s workers, praying the money won’t run out, or is it more complicated?

Thanks for the kind words! See below for my thoughts on comparing Social Security to a Ponzi scheme. I think it’s more complicated than praying the money doesn’t run out since Social Security is run by the same people who run the printing press!

#2 by Scott on October 15, 2009 – 3:00 pm

SS is not a ponzi scheme for a number of reasons:

1) A ponzi scheme enriches all of the people who pay in an equal return (unless they are the one’s that get nothing back–i.e. they got in too late.) SS will give the highest contributors a lower return (about 1% APR I believe) while giving people with lower contributions much higher returns and people who become disabled huge returns.

Scott – Social Security might not be a Ponzi scheme by definition, but it’s pretty much the same thing. Close enough that I’d still call it a Ponzi scheme. However, I agree with most of your arguments.
1) A Ponzi scheme doesn’t need to pay each person an equal return. Although it’s often the case, it’s not a necessary condition. It would be interesting to see the expected APR of SS – especially if the odds of survival until payment are accounted for. I’d actually expect it to be much less than 1%, I’d expect it to be negative.

2) Ponzi schemes do not force you into them. This is why SS “contributions” should be called taxes, because the correlation between contribution and benefits is poor.

2) Same as Point 1, voluntary is not a necessary condition, although it often is the case. Like any Ponzi scheme, SS relies on the assets of new investors to make payments for the old investors. Since the SS trust fund is full of IOU’s, it relies on new money. I agree with your point about calling SS a tax and not a contribution. We all know what would happen if somebody decided that they no longer wanted to contribute.

3) Ponzi schemes don’t bet on people dying before they become too much of a burden on the system. The only reason SS is collapsing is because the average life-span has increased more than the people who made it thought it would. Essentially SS was a bet that enough people would die before they collected more benefits than the “contributions” would cover. Ponzi schemes ALWAYS collapse because they don’t last long enough for death to be a significant factor.

3) Ponzi schemes don’t bet on people dying, but SS wasn’t supposed to either. People dying early is just an added benefit! Even if it were the case that SS is a bet on people dying early, SS would still fail. As could be expected, the government was unable to properly assess increasing life expectancy. If a non-government entity were to make the same mistake, it would fail. Other companies don’t have access to the beautiful money-spouting machines that the government does.

4) I doubt SS will die, politicians will find a way to increase “revenue” by stealing more money; and decrease benefits by only reducing to those people they feel don’t “need” their money back. Unless the whole country collapses, SS will just become more and more like welfare, only for the disabled (and that doesn’t take much to qualify for under SS) and the elderly.

4) I’m not too sure on the life expectancy of Social Security, but I believe that it will survive. It won’t be the same beast as we know it, but it will survive in some form as long as the same federal government does. I agree with most of your point except with the piece on reducing benefits. SS taxes will go up, but I’d be surprised to see a decrease in “benefits”. It’s more likely to just become an entitlement program where the government prints enough money for any “benefits” not covered by the existing funds.

#3 by cdg on October 15, 2009 – 5:50 pm

The annual social security benefits increase (as well as adjustments to various income tax rates) is based on an artificial “cost of living” index, which is NOT representative of true costs. It is particular hurtful to those who rely on social security and disability benefits. Their basic costs (food, utilities, rents, medical) have sky-rocketed this year, while the government reports demonstrably fictitious inflation rates.

cdg – Your complaint should be with the way that Social Security payments are calculated, not with the $250 payment. I agree that CPI is often a horrible one-size-fits-all approach to estimating changes in cost of living. However, as per the current law, CPI is the only factor in Social Security payments. You should be a happy a clause was written in saying that payments can’t be reduced!

I think the underlying problem is not that people need the SS money because they are relying on SS. The problem is that the government has created a system where people are no longer able to provide for themselves.  With the SS safety net in place, the people that would otherwise be able to provide for themselves often choose not to. Rather than spending and planning accordingly throughout their lives, people are free to spend away and not save. Why depend on savings when the government will bail you out? It’s a very similar symptom of what happened to the banks.

The Democratic majority in Congress voted themselves a large raise last year, citing increased costs as their rationalization. Of course, they use a different cost-of-living index than the Social Security Administration and the IRS. The latter two use an index which is much lower than the actual inflation rate, so that Congress can pretend that benefits and tax rates are indexed, without impacting government revenues.

Comparing the wage raise in Congress to the lack of a wage raise in SS is an interesting point.

Obama (and others) have acknowledged the inaccuracy of the COLA by suggesting another $250 payment to cover increased costs. It won’t even come close to covering the true increase in the cost-of-living for seniors, but it’s better than nothing. It can be paid for by reducing government spending in other areas (for example, goverment staff including “czars”, endowments for studying porcine flatulence, and $2,000,000 trips to NYC for dinner and dancing.

Social security is a Ponzi scheme, but we still owe something to those who were forced by the government to participate.

Obama wasn’t acknowledging the inaccuracies of COLA by suggesting another payment. He was acknowledging his desire to have another four years. I agree that there are many places where government can cut spending, including the unconstitutional czars and outrageous expenses, but those savings won’t come anywhere close to paying off the almost 100 trillion in liabilities the government has built up. Imagine if they used the same GAAP that they required all public companies to use… instead of the 1+ trillion deficit, we’d be looking at 10+ trillion. Not that the word trillion means anything anymore.

I completely disagree with your argument that “we still owe something to those who were forced by the government to participate”. I don’t owe anything to them. I didn’t promise to provide their retirement payments – although I’ll probably be forced to anyway.

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Social Security COLA

Oct 10

Posted by robparis in General | 12 Comments

The Social Security COLA is one tough drink to swallow. That’s why it’s being forced down our throats.

Every year since 1975, Social Security recipients have received a cost of living adjustment. According to the official website of the Social Security Administration,

Legislation enacted in 1973 provides for automatic cost-of-living adjustments, or COLAs. With COLAs, Social Security and Supplemental Security Income (SSI) benefits keep pace with inflation.

The same site goes on to say,

The Social Security Act specifies a formula for determining each COLA. In general, a COLA is equal to the percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) from the third quarter of one year to the third quarter of the next. If there is no increase, there is no COLA.

The COLA has added up over the years. The following chart shows the annual COLA and the value of $100 in Social Security payments in constant 1975 dollars. A $100 payment in 1974 has increased four-fold, now valued at $407.

Social Security Cola

According to the Social Security Administration, the COLA is given to ensure that people dependent on Social Security are able to maintain their standard of living. Accordingly, the claim is made that, “If there is no increase, there is no COLA.” That’s their statement and they’re sticking to it. Instead of giving a COLA, Oregon Congressman Peter DeFazio is proposing a one-time payment of $250 in 2010. This one-time payment ignores the $250 one-time payment to Social Security recipients paid as part of the American Recovery and Reinvestment Act of 2009. DeFazio’s new payment is suggested in H.R.3597 – Emergency Senior Citizens Relief Act of 2009. Emergency relief? Will $250 make such a difference that this should be qualified as an Emergency? No. Emergency is just the default first word of any new legislation.

To pay these 50 million Social Security recipients, the legislation is proposing an increased Social Security payroll tax. The tax will include incomes between $250,000 and $359,000 in 2010, instead of the regular, first $106,800. This is another tax on the productive, to pay the unproductive.

According to 68 year old Vermont Senator Bernie Sanders who introduced similar legislation to the Senate.

The bottom line is that seniors deserve a fair increase in benefits to keep up with these added costs and economic hardships

Since in 2009 there is expected deflation of 1.5%, Social Security payments should be cut. In order to maintain the standard of living, Social Security recipients should receive a 1.5% reduction in payments. Instead, they’ll receive no reduction and a one-time two-time stimulus of $250. This is legal.

According to Section 215(i)(1)(B) of the Social Security Act

the term “cost-of-living computation quarter” means a base quarter, as defined in subparagraph (A)(i), with respect to which the applicable increase percentage is greater than zero; except that there shall be no cost-of-living computation quarter in any calendar year if in the year prior to such year a law has been enacted providing a general benefit increase under this title or if in such prior year such a general benefit increase becomes effective

It’s only a matter of time before we see the third one-time Social Security stimulus.

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