Marie-Antionette and Entitlement Programs

My brother, David, posted an interesting comment on my last blog about Marie-Antionette, the Austrian born aristocrat who donated her head to french peasant science.

Gary Martin provides the following history of the phrase, "Qu'ils mangent de la brioche" or "let them eat cake."

The origin of many phrases in English are unknown. Nevertheless, many people would say that they know the source of this one. It is widely attributed to Marie-Antoinette (1755-93), the Queen consort of Louis XVI. She is supposed to have said this when she was told that the French populace had no bread to eat.

The original French is Qu'ils mangent de la brioche. It has been suggested that the speaker's intention wasn't as cynical as is generally supposed. French law required bakers to sell loaves at fixed prices and fancy loaves had to be sold at the same price as basic breads. This was aimed at preventing bakers from selling just the more profitable expensive products. The let them eat brioche (a form of cake made of flour, butter and eggs) would have been a sensible suggestion in the face of a flour shortage as it would have allowed the poor to eat what would otherwise have been unaffordable. It's rather a mouthful, so to speak, but if the phrase had been reported as 'let them buy cake at the same price as bread' we might now think better of the French nobility.

Two notable contemporaries of Marie-Antoinette - Louis XVIII and Jean-Jacques Rousseau, attribute the phrase to another source. In Louis XVIII's memoir Relation d'un voyage a Bruxelles et d Coblentz (1791) he states that the phrase 'Que ne mangent-ils de la croûte de pâté?' (Why don't they eat pastry?) was used by Marie-Thérèse (1638-83), the wife of Louis XIV. That account was published almost a century after Marie-Thérèse's death though, so it must be treated with some caution.

Jean-Jacques Rousseau's 12-volume autobiographical work Confessions, was written in 1770. In Book 6, which was written around 1767, he recalls:

At length I recollected the thoughtless saying of a great princess, who, on being informed that the country people had no bread, replied, "Then let them eat pastry!"

Marie-Antoinette arrived at Versailles from her native Austria in 1770, two or three years after Rousseau had written the above passage. Whoever the 'great princess' was - possibly Marie-Thérèse, it wasn't Marie-Antoinette.

Her reputation as an indulgent socialite is difficult to shake, but it appears to be unwarranted and is a reminder that history is written by the victors. She was known to have said "It is quite certain that in seeing the people who treat us so well despite their own misfortune, we are more obliged than ever to work hard for their happiness". Nevertheless, the French revolutionaries thought even less of her than we do today and she was guillotined to death in 1793 for the crime of treason. (http://www.phrases.org.uk/meanings/227600.html)

Regardless of the originator of the phrase, it has become synonymous in modern nomenclature with entitlement. And politicians are great at promising hungry constituents that they can have more for less. Let them eat cake! Of course the elephant in the corner is who's going to pay for all this? Don't worry, let them eat cake! We can always adopt the philosophy of "From each according to his abilities, to each according to his needs." That seemed to work out well for Russia.

The truth is we can't have it all. We have to live with contraints and choices. I don't want a government that promises to take care of my every need. It can't be done.

I don't know about you, but maybe bringing back the guillotine for lying politicians wouldn't be such a bad idea.

Cure for What Ails You

I don't know about the rest of you, but this year has left me feeling more and more depressed. The state of the economy, the state of politics -- I can hardly stand it!

So, I've taken some advice to turn off the news and find pleasure in something that I can control.

I put together a playlist that I call "Guitar Heroes", things like "Smoke on the Water" by Deep Purple, "Stairway to Heaven" by Led Zeppelin, "Comfortably Numb" by Pink Floyd, "Free Bird" by Lynyrd Skynyrd, and "More than a Feelin'" by Boston. Songs that have some of the very best guitar riffs of all time. At lunch I pop on my iPod, crank up the tunes and head out on my mountain bike. I make for some of my favorite single tracks in the foothills of Provo Canyon and I ride until my heartrate maxes at 100%. I become, in essence, comfortably numb.

I find that after an hour of hard riding I'm pretty much too tired to care about what's going on in the world.

At night I'll sit down with the family and play a board game or watch the world series or go to a lacrosse match to watch Candice or Colin. Maybe it's irresponsible to disengage but I need my sanity.

Here's my full playlist:
"Smooth", Santana
"Comfortably Numb", Pink Floyd
"Hotel California", The Eagles
"Foreplay/Long Time", Boston
"Stairway to Heaven", Led Zeppelin
"For Whom the Bell Tolls", Metallica
"Iron Man", Ozzy Osbourne
"Freewill", Rush
"Rock You Like a Hurricane", Scorpions
"I Wanna Rock", Twisted Sister
"Hot Blooded", Foreigner
"Rocky Mountain Way", Joe Walsh
"More Than a Feeling", Boston
"Burnin' for You", Blue Oyster Cult
"Bohemian Rhapsody", Queen
"Renegade", Styx
"Smoke on the Water", Deep Purple
"Sweet Home Alabama", Lynyrd Skynyrd
"Crazy Train", Ozzy Osbourne
"Free Bird", Lynyrd Skynyrd
"Purple Haze", Jimi Hendrix
"Sultans of Swing", Dire Straits
"Final Countdown", Europe
"Aint Talkin' 'Bout Love", Van Halen

Rights? Whoa Nellie!

Okay, just as I was dosing off during all the pandering answers of the debate last night, a question was posed that jerked me to attention. The question asked by Tom Brokaw was, "is health care a privilege, a right, or a responsibility?"

Now, the last time I checked, there were three rights listed in the Declaration of Independence: Life, Liberty and the Pursuit of Happiness. Additionally, the Bill of Rights in the Constitution lists 10 more. Not one of these lists health care as a Constitutional right of U.S. citizens. I'm not saying that it's not a good thing to provide health care but let's not put the cart before the horse. We do have, after all, a constitution which is the supreme law of the land.

So, John McCain provided probably the most correct answer in that he said it is a responsibility. A compassionate society will find a way to take care of it's citizens. Or, better yet, an employer will take care of his or her valuable employees by providing health care benefits. Barack Obama, on the other hand, said it is a right.

Again, I ask: where is it listed as a right?

Of course, the undecided voters, as measured by the weird lines on the graph below the picture, agreed completely with Mr. Obama.

Perhaps education should be at the top of our "to do" list. And at the top of education, let's teach people about the Constitution. What it is. What's its purpose. Why it's important.

The populist crowd is storming forward. "Let them eat cake!" seems to be the rally cry. Perhaps this was what Joseph Smith saw when he said that the constitution would hang by a thread.

If we have antiquated 20th century banking laws surely our 18th century constitution is antiquated.

Beware. As the 10th amendment states, "The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people."

ZDRAS-tvuy-te Comrades!

Just getting used to the new greeting. Kind of want to be ahead of the January rush.

Do I really believe that communism is coming?! Of course not! The Lord has said that the people who possess this land will serve God or be swept off! (See Ether 2) So, I believe the land will be purged long before we reach the evils of communism.

But in the mean time, I do see a frightening trend towards socialism. Now, before you write me off as an evil hatemonger let me point out that I believe in helping our fellow citizens of the world. The second great commandment is to love our fellow man. It's the whole compulsion thing that gets me. I mean, wasn't that Lucifer's idea: I'll make sure everyone does exactly what they're supposed to do. A government that compels the people is not a government ordained of God.

As I see it, the constitution of the United States, a document that Latter-Day Saints hold to be inspired by God, clearly limits the role of government to: 1)establish justice, 2)ensure domestic tranquility, 3)provide for the common defense, 4)promote the general welfare, and 5)ensure the blessings of liberty. Well, I see our government doing a whole lot more than that (or, possibly, they're using the whole "promote the general welfare" to mean "nanny state.")

Yet, despite all this, U.S. citizens contribute more to charitable organizations by more than double per capita the next most generous nation, England. So, left to their own (without compulsory means) people will do the right thing without government intervention. And, given the chance, capitalism will always lead to greater prosperity. Not to just a few, but to everyone. Because everyone is free to compete and succeed. Why do so many immigrants succeed in America? Because they know that they are free to do whatever they want, to work hard, and become successful. Opportunities they didn't have to the same extent anywhere else in the world.

I'm not very impressed with any of the candidates this election. But I do feel that we, as citizens, need to stand up and take back the country. We have become lazy, turning our country and freedoms over to professional politicians. And, just like the D&C warns, "We have learned by sad experience that it is the nature and disposition of almost all men, as soon as they get a little authority, as they suppose, they will immediately begin to exercise unrighteous dominion." (D&C 121:39)

Now, back to the communism thing. Enjoy:

Credit Crisis

What's going on with financial markets? What is a $700 billion bailout? Is my bank safe?

These are questions that I'm hearing all the time now. Having worked in the banking industry for over 20 years I know a little about what is going on. So, let me try and cut through the politics and soundbites of fear and lay out some of the facts along with my opinion.

Mortgage Greed
This is probably the genesis of the current situation. Too many risky loans were made in order to make lots of money. Money was flowing into banks from 1) low Federal Reserve Rates, 2) Foreign depositors, 3) investors. Banks used this money to loan to home buyers and home investors. The huge demand for housing drove up home prices and home values.

Home owners took advantage of double digit home value increases to borrow against the equity and use that cash for consumer spending and investing. This stoked the entire U.S. economy as workers rushed to build houses, suppliers worked to provide home building supplies, land owners sold land for huge profits, and consumer good manufacturers built and sold all kinds of consumer goods.

But I'm getting ahead of myself. Back to the mortgage industry. I said too many risky loans were made. This resulted from a couple of market pressures. 1) The government and pseudo-government entities (Fannie Mae and Freddie Mac) pressured lenders into making home loans available to lower income borrowers by offering to buy up these mortgages thus removing the risk from banks. 2) Lenders coming up with creative financing options to qualify more borrowers. The economics are simple: more loans equals more money.

How a bank makes money
Banks don't make all their money from loan interest. Shocking, I know. Nowadays they make almost as much from fees with an enormous amount coming from selling mortgage loans. Banks will package (bundle together) mortgage loans and sell them to investors. These bundled loans are referred to as Mortgage Backed Securities or MBS. The investors pay the face value of the loans plus a premium for the interest that will be earned on the loans over the expected life of the loans. This "service release" premium is generally between 50 and 150 basis points (100 basis points is 1 percent.) This amounts to hundreds of dollars per loan. For example, a $200,000 mortgage sold for par plus 80 pb would net the seller $1,600 on top of the fees collected for doing the loan (appraisal fee, documentation fees, etc.) It's not hard for a lender to make $3,000 to $5,000 per mortgage loan. These loans are generally done with a buyer already committed to buy the loan so there is very little risk to the lender.

A bank will also make money by investing deposits which are not loaned out. Banks invest in MBS. But so do insurance companies, retirement funds, institutional investors and the average mutual fund investor. Historically,they have been good, conservative investments because the last thing a person wants to give up is their home.

What is a sub-prime mortgage?
It's really just what is sounds like: a mortgage loan that is underwritten to standards below those of a prime borrower. In other words, a more risky loan. But lenders tried to hedge on these loans by finding creative ways for the borrower to pay. Since consumers almost always shop payment (not rate) lenders developed programs to lower the payment. Interest only loans, variable rate loans with a starting rate well below market, 40 year mortgages, zero down. The list was virtually endless. But this wasn't all. Lenders began lending on stated income, meaning they didn't actually verify that the borrower earned what they said they earned. This was all par for our "get now, pay later" mentality.

So what happened?
With lenders cranking out loans by the thousands and investors buying them up, it's no wonder that normal oversite was soon trampled under foot. Politicians are trying to blame this on deregulation and lack of oversite, but that is a scapegoat. The industry is still very regulated. In my institution, for example, we undergo two independant financial audits per year. One by our regulatory agency and one by an independant auditing firm.

The buyer of the mortgage sets the underwriting standards. In other words, they provide the terms of the contract. If the lender doesn't meet those standards the investor won't buy the loan. Therefore, part of the blame goes to the large mortgage investors for loosening their standards. Fannie Mae and Freddie Mac happen to be two of the largest.

Of course, banks, especially large banks, still hold millions of dollars in mortgage loans on their books. And, to stay competitive they began lowering their own standards in order to write more loans. They may have done this with the idea of selling these loans at some future point in time or they may have planned on keeping them for the life of the loan.

The liquidity crisis
So this brings us to the crisis. As these loans started to default, the demand for them from investors dropped and eventually dried up. Banks and investment firms were left holding billions of dollars in subprime mortgage loans. Forclosures increased. Financial institutions had to put more money into loan loss reserves. Additionally, one of the requirements of the Sarbanes-Oxley Act is for companies to mark there investments to market value. As MBS investments lost value banks and other holders had to mark down these investments to market value diminishing their assets resulting in lower equity amounts.

So, the crisis is two fold. 1) Banks are unwilling to lend there diminished money (if they have any) to anyone but the very best borrowers. 2) Banks and investment companies are strapped with billions of dollars of potentially worthless loans/investments.

Now, I keep using the word potentially because not all of these loans have gone bad. Many have, but the majority have not.

What is the "bailout"?
What the government wants to do is borrow against future tax revenues to purchase these loans from banks. This will clear the bad loans off their books and allow them to begin lending money again. They also want to purchase these MBS from investment firms that will allow them to use the proceeds to purchase better investments thus protecting their investors.

The estimate is that the bad loans could equal $700 billion. The government would "protect" tax payers by taking stock warrants in the companies from which they purchase the loans. Of course, the government also hopes that as home values go back up they will be able to sell the homes and make a profit for taxpayers (I doubt that will ever happen, but that's a different rant.)

One of the sticking points has to do with executive compensation packages. Most executives have a terms written into their contracts that earn them hefty bonuses based on profits. But they also protect themselves by requiring a "buyout" of their contract if they are let go. By purchasing bad loans and investments the government can potentially create a windfall profit for Wall Street companies allowing executives to earn a big bonus from the bailout. Or, these executives could be paid to leave. Either way, the average consumer and their legislative representative thinks this is unfair.

What's will happen if a bailout is not passed?
It's hard to tell. We don't live in 1930 America. Economies are global. Despite what the politicians are saying there are a lot of regulations and controls in place. Trillions of U.S. dollars are held in foreign countries (but can only be used, ultimately, in the U.S.) But, the U.S. economy is also heavily dependant on credit. A lack of credit will certainly put the brakes on. To what extent, it's hard to say.

We are still well below the number of bank failures that happened during the Savings and Loan crisis of the 80's and that bailout wasn't even close to the one being talked about right now.

I would put my money in an insured account and wait to see what happens. If I am upside down in investments and have the time to wait it out, I'll leave them for the time knowing that they will eventually go back up. I'll decrease my spending and purchase only those things that are necessary to sustain me and my family. I'll pay off debts.

Bottom line: I'll do everything the prophets have been telling us to do for years.

The Joys of Home Ownership

Ah, the joy of being woken from a blissful sleep at 6 a.m. to the wonderful phrase, "we're flooded!"

Last night I was informed that our kitchen sink was backed up. Well, I was working on something else at the time and soon forgot about that little project.

The dishwasher started at 2 a.m. and, with no place for the water to drain, overflowed into the kitchen.

The kitchen floor was covered in water and a steady drip was coming from the basement ceiling to the carpet below.

Now, I'm getting pretty good at ripping up carpet after our basement flood two months ago. So, up came the carpet (luckly not as bad as last time.)

The ceiling's not looking so good, however. The drywall will probably have to be replaced or at the very least retaped and painted. Likewise, the slats of wood of the kitchen floor all have a nice up-curve on the sides and ends and so the floor will need to be refinished.

The interesting part about all this that in my board meeting last night at work we were discussing companies that have very high Net Promoter Scores or NPS. An NPS is determined by asking customers to rank, on a scale of 0-10, how likely they are to refer the company to family and friends. 10's and 9's are promoters, 0-6 are detractors, and 7's and 8's are passives. NPS is calculated by subtracting detractors from promoters (P-D=NPS). The theory is that word of mouth advertising is the best type of advertising. Customers who are enthusiastic about your company will sell it to others. Therefore, the more enthusiastic customers you have, the more successful your company will be. Thus high NPS=success.

USAA, a company that provides insurance and financial services to military personnel and their families, consistently has one of the highest scores of all U.S. companies. And, it just so happens that we have USAA home owner's insurance. So now is my big chance to test how good they really are (we've had one other claim for a car accident a few years ago and they did a great job.)

Regardless, with one more flood I may consider replacing the carpet in the basement with linolium.

Who Moved my Cheese?!

I can always tell the change of season -- not by temperature change, the shortening or lengthening of the days nor the changing colors or new leaves. Not even by the calendar. No, it's something much easier in my household: Lisa begins to reorganize.
I should be happy that I have a wife that can't stand clutter. Honestly, if it weren't for her our house would look like a swap meet. She's often threatened to not clean anything and see how the rest of us like it. Well, since we created the mess it's kind of a silly threat.
And so when I came home last night and saw Lisa hauling filing cabinet drawers down to the basement I knew it was the first day of Autumn.
It was with great sadness that I walked into my closet to find everything re-arranged and organized. I felt the twinge of pain, anger, regret -- you know, that feeling you get when you didn't get to tell someone goodbye.
Lisa likes things out of sight. I like things where I can easily find them. Now, the two should be very compatable. A filing system comes to mind. Labels on drawers and boxes. A pile on the floor or night stand. You get the picture.
Unfortunately, organizing, like loading the dishwasher, is something that we just haven't been able to come to some agreement on. So, I'll continue to reload the dishwasher after Lisa has loaded it and she'll continue to put my things "away".
Now, has anyone seen my favorite t-shirt? It was laying on the closet floor.