Climate Change

This is basically my simplified version of Lord Monckton's argument, I just took his facts and streamlined the delivery.

So. His argument is pretty clear. He claims that the U.N.'s figures are vastly exaggerated, BUT to show that even on the off-chance that he is wrong, he used their figures to show the logical fallacies in their argument.

Again, this is using the figures in the U.N. Climate models.

The U.N. says that we produce roughly 30 billion tons of CO2 a year. This is and actual fact.

They say this increases the CO2 in the atmosphere by 2 parts per million. (So, if you took a million molecules out of the atmosphere, two of them would CO2 molecules that we produced this year.) Therefore, 15 billion tons of CO2 equals 1 part per million.

The U.N. claims that over the next hundred years, we will increase the amount of CO2 per million by 468 parts, because of the growing use of oil and coal.

They also say that in the next hundred years, temperatures will increase by 7 degrees fahrenheit.

468 parts per million = 7 degrees Fahrenheit

66.85714 parts per million = 1 degree Fahrenheit

and if you remember from the beginning, at our current rate of emissions, we produce 2 parts per million per year.

So if we stopped emitting for 33 years at today's rates, we'd only decrease their projections by 1 degree. So there's clearly no workable solution if their projections are correct.

Luckily for us, they've been proven wrong.

The Failing of the American Economy, part 2.

The question I left you with last time was this:

Why couldn't people afford to pay their mortgages?

There are a variety of reasons for this, but I'll focus on the ones that shouldn't have happened.

Risky Loan Practices

Owning a home is not a right. It is not something that must be provided for you. It is a privilege, that requires responsibility to function.

When banks gave out mortgages with no money down, households that made under $50,000 a year had access to a $500,000 loan. That is doable, if you are willing to live frugally, and you get a good interest rate, etc... However, this is a domino that can very easily start a cascade. If every loan was like the one I just made up, and people were responsible, the system would work. The system can withstand some failure. The system cannot withstand the storm of foreclosures that hit in 2008. People who could not be reasonably expected to pay for the homes were given mortgages. These people did not pay, because they could not pay. As explained in the last post, this meant the financial institutions that owned the bundles of mortgages lost a lot of capital, pushing some institutions towards insolvency or bankruptcy. This meant they needed a quick source of cash, so the people who were falling behind on their mortgages started receiving more forceful letters. These people, who could not pay, were foreclosed on which, ironically, intensified the problems within the institution. The institution goes bankrupt, and it's creditors demand their money, so they foreclose more people who are behind on their mortgages. However, the glut of open homes on the market drives down prices, so the bank now has more creditors than credit. If the banks had been allowed to fail, stockholders would have suffered. However, that's what bankruptcy court is for. It determines the rights of the creditors and doles out the capital accordingly. As soon as the government stuck it's nose into the system, and started declaring that some institutions are "too big to fail", the stockholder was screwed.

Check back on Friday for the next entry in this series.

The Failing of the American Economy

Today, I'm going to talk about the failings of the American economy.

Contrary to popular belief, the free market did not cause this recession. I know that text isn't the best medium for expressing this sort of idea, but I have no video camera, so...I'll make do.

So. I've done a lot of reading on the subject, so I'll try to condense the main points into a couple paragraphs.

The Main Problem-Makers

From the eyes of the free market system, the main trouble makers in the financial crisis are Freddie Mac, Fannie Mae, Barney Frank, Chris Dodd, and The Federal Reserve. I don't have time to go over the entire thing today, but I'll start off with Fannie Mae and Freddie Mac.

Fannie Mae and Freddie Mac

For those of you who don't know, Freddie Mac and Fannie Mae are GSEs, or Government Sponsored Enterprises. Basically, their entire purpose is buying back mortgages from banks. The theory is, the more they buy, the more money banks have. The more money banks have, the more loans they can make.

So, what can they do with these mortgages?

They sell them as mortgage-backed securities. How does that work? I'll show you.

Let's say couple A buys a $500,000 house. They put $50,000 in the down payment and get a $450,000 mortgage from Bank of America. I'll make up a rate, say....7.8% over 25 years. If the homeowners paid their monthly payments exactly right every month for 25 years, they would have paid the bank 1.024 million, after interest.

Fannie Mae, for example, would buy that loan from bank of America for $600,000, say. The bank makes money right away, a cool profit of 33%, they're happy. Fannie Mae now packages this mortgage with a whole bunch of others. For easy math, lets just make it a bundle of 100 mortgages with the same stats. So, Fannie Mae has now paid out 60 million for a bundle that will someday (assuming all the homeowners pay off the entire mortgage) be worth just over 102 million.

It seems like good business, and even a good way for everyone to come out ahead, right?
Well, if they had stopped right there, and used the money gained from that to pay off the deficit, it might have worked. Instead, they wanted instant gratification. So they sold shares in these bundles.

Again, seems like it would work. Why not sell shares? These shares were circulated throughout the market, and then the hammer dropped. When the housing bubble popped, people couldn't afford to pay their mortgages. So, the hedge funds and banks that had been buying up these shares of Fannie Mae's "mortgage-backed securities" lost money. So people pulled their money out of the hedge funds, and banks began to divest themselves of these toxic assets. So all of a sudden, Fannie Mae found itself in a massive amount of debt. And the government bailed them out. So now the people are being foreclosed on, the banks are shaken (which drives up rates and makes it harder to get a loan), and Fannie Mae can't afford to buy more loans (which makes the banks even more unwilling to lend).

Why could so few people pay their mortgage? More on that next time.

Relaunch!

Hello out there in Internetland, this is the relaunch of my political blog.

I'll be focusing mainly on American and Canadian Politics.

I don't hide my biases, I'm a fiscal conservative, and a social liberal. I don't believe that the government has any right to interfere in your daily life, so even though I don't personally support gay marriage (as a Christian, I think it's morally reprehensible) it should not be illegal.

I support limited, or small, government.

I believe that capitalism is a good thing.

I believe that Christianity is essential for salvation, and that there is really a God watching us.

I believe that abortion is murder.

I believe that too many people compromise on issues that are far too important to compromise on.

And I believe that my country, Canada, is walking along a path to financial ruin, and that our neighbour to the south is close behind us.

More to come, hopefully soon.