The price of power…

Apparently in Texas you can sign up for a “wholesale” electricity plan. Just like a loan with a floating interest rate, it could be a real benefit to the consumer when rates are low. The catch is, the interest rate for loans or the wholesale cost of electricity changes over time. Sometimes it changes both dramatically and quickly.

Signing up for the “wholesale” plan makes eminent sense when gas and oil is flowing and prices are low. All it takes, though, is a single unexpected event to make such a decision catastrophically wrong. It’s the inherent risk of pinning your plans on a floating rate that’s governed entirely on the vagaries of supply and demand in a potentially volatile marketplace.

While I feel badly for the people who woke up this week to a $16,000 bill for electricity, I presume the contract they signed included a pretty large warning that price moved both up and down and often does so with great rapidity. I felt sorry, too, for people who signed up for zero percent mortgages only to realize that when their mortgages rest to the “real” rate they couldn’t afford both the principle and the interest.

In both cases, these are people who willingly bypassed traditional service agreements or mortgages in favor of “exotic” options. The low up-front cost of exotic options, even if no other explicit warning is made, should be a clear indication to the average consumer that they are assuming a greater than normal degree of personal risk. Both are just one step better than walking in to the local casino and putting your month’s mortgage or rent payment on red and hoping for the best.

Though I feel sorry for both groups, I don’t feel any more sense of personal responsibility to bail out electricity consumers who made bad choices than I did for bailing out homeowners who took on unreasonable levels of debt. Expecting to enjoy all the benefits of low prices without encountering the corresponding negative possibilities smacks of immature thinking. Constantly protecting people from the natural consequences of their own actions clearly hasn’t done us any favors, as it seems no one has taken any of the lessons to heart. 

Now because I’m not a complete bastard, I could be convinced that low-interests emergency loans for those needing relief is a reasonable idea, but simply wiping out legitimate debt because it’s politically expedient sends an appalling message. Mine won’t be the popular opinion, of course, since no one wants to be responsible for themselves and politicians don’t win votes in this modern world of ours by expecting anyone to live up to their personal obligations when a billion dollar bailout is available. So, really, those whole post is about nothing more than yelling into the void.

What Annoys Jeff this Week?

In a time of global pandemic, impending financial doom, and the collapse of civilization, you might be tempted to think I wouldn’t find any day-to-day petty grievances to air. You, of course, would be exactly wrong. It may be the end of the world as we know it, but it’s far from the end of me being agitated. With that said, let’s get into it…

1. The news. The minute by minute drumbeat of the news is impossible to miss. Crisis, contagion, collapse… It can absorb you if you let it, and I, unfortunately, was letting it for the last few days. The trouble with being monopolized by the news is that it was getting in the way of my reading. So I’ll be making a conscious effort to step back and start ignoring it again. Beyond don’t leave the house unless you need to, I’m not sure what the news is going to tell me at this point that I might find personally useful. I mean if the apocalypse really comes, someone will beep me, right?

2. Bailouts. I’m increasingly uncomfortable with the various vast bailout proposals being kicked around with what fees like very little discussion or analysis other than politicians wish to be seen doing something immediately. Then again I didn’t support what eventually became the sweeping bank bailouts in 2007, government backed loans to the auto industry, or home mortgage “forgiveness.” I’d never be so bold to claim that government doesn’t have a role to play in shoring up the economy, particularly for those businesses shuttered and employees thrown out of work by executive fiat. My concern is mostly that everything I’m seeing reported on the news this week reeks of “lets throw money at it and hope it goes away” being the primary planning principle. A trillion dollars is a shit ton of money, I hope you’ll forgive me for thinking that maybe spending it should involve a bit more analysis than we’ve seen thus far.

3. Planning. Way back in 2005-ish I was involved in some preliminary “pandemic flu” planning. The end result was a plan and supporting documentation, the density of which would stun a team of oxen in their tracks. Pandemics aren’t something new. History could certainly be a guide here even if there wasn’t an actual plan. Everything I’ve seen thus far makes me wonder if anyone even bothered to read or even just dust off the damned thing from way back when.

Regardless of what you call it, when you creditors agree to write off 50% of your existing debt you are, by definition in default. Call it a haircut. Call it a Pontiac. It’s a default. Period. End of story. Fortunately, the world is polite enough to call it something different in the hopes that no one will notice and in the process they can prevent the European Union from flinging itself apart. When the rest of the world goes to all this trouble, the polite thing to do would be to say thank you and then go on about the business of trying to salvage your national economy. But that’s not your style is it, Greece. Oh no. You’re going to ask you voters, who have already demonstrated their inability to face reality, vote on the idea as a national referendum. Seriously? Are you trying to make a name for yourself as the go-to country for dysfunctional government? As a citizen of the United States, I thought we had a lock on that one, but you’re making a damned good run at it.

Look, it’s only a matter of time before the rest of us have to take our share of the bitter, bitter austerity medicine. Yes, it sucks being the one stuck going first but that was just the luck of the draw. Could have happened to any of a dozen debtor nations. We can kick and scream that it’s not fair until we’re all blue in the face, but guess what… the universe doesn’t care about fair. We can do the hard things now, while we still have some options, or we can wait a while and then spend the next two decades just reacting to things that could have been avoided if we’d have taken action sooner.

Communist News Network…

Last week I was watching CNN, which is not something I usually do, but the hospital is too cheap to get a decent cable package apparently, although they do charge $10/day for using the TV. Lou Dobbs, who once upon a time was their financial guru, has been running a series of “special reports” under the headline “War on the Middle Class.” Now aside from the obvious political slant of the headline (Fox isn’t the only news channel with an agenda, people), the issue that I have with this particular episode was that it was decrying the lack of a federal response to the “home loan crisis” and calling for a government bailout of people about to go into foreclosure.

As someone who did my homework, read every page of my loan origination documents, asked questions, and bought a house that I could actually afford to make payments on, I am absolutely livid at the suggestion that the US government should subsidize people who either through stupidity or negligence saddled themselves with a mortgage that they could not afford. I used logic and financial analysis to make my decisions on how, when, and where to buy, so I am having a hard time digesting the idea that because I made good decisions, money should come out of my pocket to pick up the tab for those who made bad ones.

This isn’t a war on the middle class in America. This isn’t even the government offering aid to people who found themselves in harm’s way during a natural disaster or terrorist event. This is about people being kicked in the teeth by the free market because they chose poorly. It’s not my responsibility or yours to compensate them for their own bad decisions. Government interference in the market always has unintended consequences and the inevitable bailout of these people sets a dangerous and damning precedent.