Virtual Chinese Currency - QQ coins

There's an interesting article in today's WSJ about the growth of a virtual currency in China - the QQ coin. The official Chinese currency, the yuan, is strictly regulated and you cannot take it out of the country. This makes it impossible for ordinary Chinese citizens to move their money. My wife has two homes in China but cannot really do much with them. If she sells them she cannot get the money here legally.

It's interesting how technology has allowed people to circumvent government regulation, giving them more freedom. Virtual money creation in Second Life seems to be a similar phenomenon.

My guess is that the Chinese government will try to crack down on this, but who knows. Maybe it will lead to the yuan floating more easily and people being allowed to move their money out of China. China is teetering on the edge of real market reforms. The people there are experiencing much more freedom than Russian people did during their "reform" period. Putin has put the clamps down on that and Russia has lapsed back into Soviet times again. I'm hopeful that China keeps going forward.

Fear Keeps you from Living a Longer and Happier Life

John Stossel wrote a piece titled The Media likes Scaring us and we like it. He discusses the network of people that benefit from scaring people - environmentalists, researchers,government bureaucrats and trial lawyers, labeling them the "Fear Industrial Complex"(FIC). The FIC does a good job of scaring us. I remember the wave of fear about overhead power lines that cost lots of people equity in their homes - only later did we find out that the researcher had falsified the data and there was no evidence power lines were related to increased cancer risks. Owens-Corning lost a billion dollars over silicone breast implants lawsuits but now the implants are deemed safe and women are have the same surgery again. All created trial lawyer greed that got people afraid of a myth. Of course, we continue to read the newspaper and believe nonsense about the poor economy, unwinnable wars and global warming.

So many people adopt a pessimist point of view. The irony of this, is that a pessimistic view point becomes a self-fulfilling prophecy for a lousy, shorter life. Here's some information from an Aetna website (can't link since it is behind a secure log-in):

"Americans are living longer than ever. Over the past century, the average American lifespan has increased a whopping 27 years. What’s the secret to a long and healthy life?

Good genes help. You get them from your parents. And since you can't pick your parents, this avenue to a longer life is out of your control. Besides, the value of good genes is in question. New research from Yale University found that genes contribute only 25% to the length of your life. This seems to mean that other factors, such as health behaviors and mental health, play a role in longevity, too.

Yale study claims that a good attitude helps keep your heart pumping and your feet tapping an additional 7.6 years on average. An optimistic outlook adds more years to your life than low blood pressure (4 years or less), low cholesterol (4 years or less), a healthy weight (1 to 3 years) and regular exercise (1 to 3 years).

"These Are the Good Old Days"The Yale study suggests that people who believe negative stereotypes about growing old may face a reduced life expectancy. If you think old people are frail and sickly, you'll probably see yourself as frail and
sickly when you get old."

So all that exercising you do and healthy eating are negated by reading and believing the garbage from the media.

Healthier, Weathier and Freer

I posted before on The Greatest Economy Ever because I believe that we are in a long period of economic prosperity that is fueled by technology. It seems that technology is not only creating this economic boom, but maybe providing other benefits as well. This article discusses the Good News for Mankind - not only are we wealthier, but also healthier and freer than ever in history.

Environmentalists scream that we are poisoning the planet yet:

"life expectancy increased from 47 years to 77 years. Onset of major disease such as cancer, heart, and respiratory disease has been postponed between eight and eleven years in the past century. Heart disease and cancer rates have been in rapid decline over the last two decades, and total cancer deaths have actually declined the last two years, despite increases in population. Among the very young, infant mortality has declined from 100 deaths per 1,000 births in 1913 to just seven per 1,000 today."

The article points out that this is a worldwide phenomena - not limited to the US or the West.

Also important is the broadening of freedoms:

"Equally important, the world is more literate and better educated than ever. People are freer politically, economically, and socially to pursue their well-being as they see fit. More people choose their own rulers, and have freedom of expression. They are more likely to live under rule of law, and less likely to be arbitrarily deprived of life, limb, and property. "

I wonder if freedom precedes the economic boom or the other way around - I would guess more freedom comes first. In China, people have been given freedom to start businesses and there is a huge growing middle class, while in Russia, there is much less freedom and no economic boom.

The article also makes an interesting point lost on environmentalists that want to limit economic growth - it is countries with the best economies that can afford to have the best environments. Globalization (another thing both extreme left and right fight against) seems to be responsible for a more rapid transfer of ideas and technology that not only benefits everyone economically but is important in developing countries adopting better environmental controls sooner then we did.

Yes, we still have problems and I don't see the world through rose colored glasses, but I remain an optimist about mankind's ability to solve problems as they arise. We are creative people and Straight Line thinking is counterproductive.

What are Extreme Perspectives?

A reader had emailed me stating that my views were extreme while my blog lead was about rational perspectives in a world that screams in extremes. So what are extreme perspectives and what is rational? It seems to me that the world has changed in what is considered "normal" during my 54 years here that what was considered moderate in 1960 is now extreme.

• If you believe in God and want to preserve Christian religious beliefs, you are extreme
• If you don't accept global warming as a proven fact you are a "denier" with extremest views
• If you are Patriotic - you have extreme views
• You have normal views if you believe the US is a greater threat to world peace then Iran
• If you believe marriage is between a man and a woman you have extreme views
• If you think that "evil" exists you are an extremest
• If you think that there are differences between men and women that prevent one sex from doing everything the other does, you have extreme views
• If you think some wars are justified or you have the right to defend yourself, you are an extremest
• If you say anything politically incorrect (e.g. Islamist radicals are Fascists) you are an extremest, but if you say the President of the US is a Fascist and should be killed, you are normal

I read an interview with Michael Crichton in which he responds to the following question:

What is the most serious threat facing our civilisation?

"Loss of classical liberal values in those western societies that embraced them. England was the first modern state, the first superpower, the first nation to deal with moral issues around the world, and the first nation to install the benefits of what we might now loosely term a liberal society. I mean that in the 19th century sense of liberalism. That notion of liberalism was also present in America, but made it to the Continent only in a pale and limited form. It is a wonderful social conception that must be vigilantly guarded. It is not shared by other nations in the world. Nor is it shared by many citizens in English-speaking countries. Peculiarly, many of our most educated citizens are least sympathetic to classical liberal ideals. Indeed the term 'liberalism' in the modern day has come to imply a constellation of attitudes that John Stuart Mill would not recognize as liberal at all. Nor would, say, John F. Kennedy recognize them as liberal. Kennedy's conception of liberalism was simultaneously more tolerant and more tough minded: tolerant about varieties of behavior within the society, and tough-minded toward threats to a tolerant society from without.

That's all gone, now. Today there is far too much sensitivity within societies, and too little hard-nosed recognition of threats from without. We are inclined to be intolerant of speech by our friends and neighbors, and tolerant of beheadings, rape, and homophobia in distant lands. This makes no sense. But here we are."

Carnival of Real Estate

The Carnival of Real Estate has my post on Banks are Abandoning Houses.

Some tips for Buying with little money is an interesting post

How to Avoid Foreclosure might be useful for some of my sellers. It's amazing to me how many people just take more loans - wrong way out!

Broken rules on spending

I splurged on something this weekend - not a normal pattern for me. I bought a 42" Samsung plasma HDTV and got the HD cable package. Since I cut my YMCA membership, this is revenue neutral from a monthly cash flow and I have 2 years interest free financing. I rarely watch TV at all, so my kids will get the most use out of it. I had been living with a 20 year old 21" TV forever.

Why did I buy it? Well, the best hockey team I have ever seen in my life time is about to enter the playoffs. Hockey doesn't mean much to 99% of the country but Buffalo is hockey crazy. I have been listening to Sabres hockey games on the radio all year and yet to see a game played on TV. I got a DVR so I can record the games and watch them after I come home from rehabbing my houses. I work a day job and then work until 10 renovating homes, so I feel this is a small reward for giving up the off-time most people have after work.

I don't know how this picture compares to other TV's but it looks beautiful to me. Was I wrong to buy this? I don't spend anything on entertainment and don't eat out, so maybe I'm too much of a miser. Life can't be all about work - right?

An Inconvenient Truth - we must all sacrifice

I love hypocrisy

Carnival of Personal Finance

The Carnival of Personal Finance is up with my post on It's the Economy Stupid.

As a real estate investor, I found the post on Prosper 2.0 quite interesting.

Fighting Evil

One of the big chasms between the right and left is the question of whether evil exists or not. The right seems to be of the opinion that it does indeed exist (we are all sinners after all!), while for the left, people are simply a product of their environment and by discussion and reasoning they can all be helped to "see the light".

This past week we have been treated to the insights of several minds that reek of evil:

• Khalid Sheikh Mohammed confessed to the killing of thousands with the intent of killing even more. He recounted with glee the beheading of reporter Daniel Pearl. Rather than reacting with anger at "human rights abuse" of his victims, the left attacked our methods of questioning KSM
• Evil doers in Iraq got through a security checkpoint by carrying two small children in the back seat of the car. After passing the checkpoint, they ran, detonating explosives in the car and killing the kids and other people
• A four year old girl sang a song of honor for her mother who had blown herself up to kill Jews. The girl vowed to become a suicide bomber when she grew up.

Those on the left often quote Jesus' phrase to "turn the other check" or maybe even Gandhi's letter to urge the Jews to commit mass suicide in WWII. They fail to see that Jesus was talking about interpersonal relationships. They forget the Jesus showed plenty of anger at people misrepresenting God (e.g. the money changers - what would he say about people killing others in the name of God?). Jesus also told his followers to "fight evil".

To be able to have a dialogue with people and reason with them assumes that they have a conscience. That they can recognize good Vs bad behavior. The people that we are fighting in this war do not have either of these attributes. Sometimes war is justified to fight evil.

Update: A reader wrote me an angry email stating that this post was extreme and that I was angry. I do not feel angry about the current chasm between left and right. I do feel that the pacifist mentality is an extreme suicidal mentality. Perhaps this book explains the readers letter - A Bee in the Mouth

A New Form of Evil

Related Post:

New Age Vs Christian

Life Estate and IRS liens

I was supposed to close on a house last Tuesday, but the Title search revealed that the house was in a Life Estate agreement. A Life Estate agreement transfers ownership to someone else (called the Remainder Estate) and allows the person with the Life Estate ownership to live in the property for as long as they are alive.

The Title search also revealed that the IRS had put a $29K lien on the house (owed by the life estate tenant). The purchase price for the house is only $23k. Of course, the title company will not write insurance in this situation. This is where normal buyers would give up I think and walk away. But I already have close to $2k in this in legal fees, lender fees and the appraisal fee, so why not persist?

I read John Reeds Book on Buying Real Estate at 20% below market value and he discusses buying from people that own life estate or remainder estates as one strategy for getting below market prices. Houses with IRS liens are also a source, so this home seems to have 2 flaws that could work to my advantage.

The life estate owner in this case is an 86 year old woman who is in a nursing home and will never live in the house again. Her niece is the remainder owner and has power of attorney for her Aunt. In theory (per the actuarial tables in Reed's book) the Aunt owns only 16% of the home. Does this mean that at most the IRS could only collect 16% of the sales price? This would certainly benefit the niece. It seems to me that this would be a good negotiating tactic with the IRS.

There are a couple of options that I see:

• The niece could negotiate with the IRS to settle for something much less than the $29K (or find that the $29K is erroneous)
• The niece could give up and sell her remainder portion to me for a steep discount and leave the negotiation to me (or I could wait until the Aunt dies, which could be a long time or not - in which case the life estate interest in the house would disappear - I assume wiping out the IRS claim)

At this time I just have to wait until the seller exhausts her options to provide a clear title.

Banks are abandoning houses

I wrote last month about a bank that was walking away from $71K in loans on a house, thinking I had lucked into a great deal . Turns out that this is more widespread in Buffalo than I thought. Here's and article in todays' Buffalo News about the problems of banks starting to foreclose and then just abandoning the house.

From a banks perspective, it certainly can make sense to walk away from a liability of a vacant house that is being vandalized. The cost of one lawsuit can more than offset the mortgage owed to them. This looks like one more opportunity to make some money, but these is always risk in any business venture.

Maybe I paid too much for the property I bought? I haven't really had much interest from buyers yet (I'm trying to wholesale flip this property). I tried the FSBO route first and am now trying to use a "flat fee" listing service.

Carnival of Debt Management

The Carnival of Debt Management is up and my post on Using a Balanced Approach made the cut.

Some article of interest were the new FICO method of getting a credit score with limited credit. Since my wife is a Chinese national with very limited credit history this is of great interest to us.

I'm also quite in tune with the post on Cash Flow is King. I am experiencing exactly that problem described. I have $750k+ line of credit to buy property but need working capital to fund times between purchase and sale.

Prosper.com funding

I got a loan funded through Prosper.com yesterday. It was my third attempt and I think I have gained a little insight into the Prosper market.

• The first loan I attempted was for $20k. I had read that you will be more likely to succeed if you join a group. So I joined a real estate group. Unfortunately, the group leader wanted a 1% commission, so the interest rate that I felt I could afford was reduced. I put in a max rate of 9.5%. The group leader did not really supply much support and only bid $50, so I don't think that this was really worth much. The loan did not get funded.
• The second attempt was for $25k. I did not join a group but got dozens of emails from group leaders explaining why I needed to join their group. I also had a lively discussion in the forums section with other members on why my loan would not get funded. I had bumped up the loan interest rate to 10.5% thinking that this would be more likely to get funded than the 9.5% I had previously requested, but in the end got even fewer bidders.
• My third and successful attempt was for a loan of $6500. I wasn't sure if this would get funded either, but the bidding was similar to that on EBay - nearly all at the end. Over 240 people ended up bidding on the loan and although I started at 10% interest rate, I ended up at 8.5% as the lenders bid the rate down.

My credit rating is AA, so I don't think in the end that joining a group had anything to do with the funding of the loan. Some observations and opinions I have about Prosper:

• the lenders seem much more comfortable bidding on loans under $10k
• this is an emotional market place and it seems that most lenders will bid more based on emotions than rational data. I saw plenty of comments from bidders talking about how low credit grade people "deserved" the loan - this is not based on rational thinking. Also, the furious bidding as the loan listing came to the end also screamed of emotion.
• It didn't seem to matter the purpose of the loan as to whether it would get funded. People who had screwed up their finances were just as likely to get a loan as people looking to use a loan for business.
• this is pure anecdotal, but it seemed to me, having a picture of your wife and kids helped get funding.
• I'm not sure why people will fund loans for poor credit borrowers. Is it pure greed or "bleeding hearts"? See MyMoneyBlog's analysis of default rates. The default rates for the risky loans make them extremely poor investments from a lender perspective, yet I did not see a pattern where these loans were ignored - it seems to me a $20k loan from an AA borrower was a better bet than a $5k loan from a low credit borrower, but this is not true to prosper lenders.

It is an interesting concept and I am pleased with the results of the loan I got, but I don't think that I would ever bid on a loan as an investment.

Lawsuit against Amway Distributers

I met Randy Haugen several times and listened to him speak. I was shocked to see P&G win a $19.5M award against him for a silly rumor about P&G being a Satanic cult. I'm not sure how P&G was ever harmed by this rumor and this award appears to be excessive, like most jury awards these days.

Also, sad to see that Randy is an ex distributor. He was quite an excellent teacher and leader. Most of us have made more serious mistakes than forwarding an email or voicemail message. I wish him well in whatever he does in the future.

Scammers and Personal Responsibility

If you read the media at all you are bombarded non-stop by sob stories of people that have been ripped off by scam artists. IWillTeachYoutoBeRich has one such story about Russ Whitney. Nearly every story about the current sub prime loan crisis is biased towards the "victim" borrowers and against the evil corporations that mis-represented their products.

Implicit in all these stories is the assumption that it is someone else's responsibility (usually the Federal Government) to keep borrowers or buyers from doing something financially beyond their means and that once they do something stupid, to bail them out no questions asked.

This is pure socialism that assumes that citizens are incapable of fending for themselves in a free market and are always at the mercy of greedy (and much smarter) businessmen. Of course, we are expected to believe that the government (which runs the Post Office and IRS) are somehow more efficient or benevolent than the average businessman.

Fundamentally, the important point is that as a culture we have changed from a saving society to one that thrives on debt. This transition took place during the FDR administration when the government adopted Keynesian Economic policies and switched peoples mentality from savings to spending.

I have observed the effects of long term socialism on a society first hand in Russia and it is not a pretty sight. The hopes and dreams of the ordinary citizen have been pulled from them leaving not much to live for. Personal responsibility in this country is pretty much going the way of the vinyl record. Most people expect that the government will take care of their retirement, want the government to take care of their health care, and think the best ways to get rich are win the lottery or sue someone.

Chancellor Otto von Bismarck established the first welfare system in the 1880's. He wanted a public so dependant on the Kaiser's government that they could be herded like cattle. FDR and his political descendants have accomplished their goal.

I mentioned the other day that I gave a lecture to students and was there during study hall. 90% of the students were goofing off. Maybe if they would bother to learn, they wouldn't be as darn stupid as the current crop of adults and I wouldn't have to pay more taxes to bail them out of their stupidity.

Home Wrecks

As I visit more and more people who are facing foreclosure, the picture of these people's lives gets clearer. It seems that people who have let their finances go are not just in chaos in one portion of their lives. Except for one house, the homes I go into are a total wreck. I don't mean that the homes need a little dusting or there are a few items scattered on the floor. I'm talking about piles of stuff that fills large dumpsters.

A home I purchased in February from a woman that had "moved out" took 6 people 12 hours to clear out. The pile of trash we left for the crew we hired to haul it away was 40' long by 20' wide and 6 feet high. I was in a house last night where a man whose wife had left him was living. Supposedly she had been gone 3 months. Beside cat and dog feces surprises over much of the floor, there was was literally no room to walk without stepping on piles of trash, clothing and who knows what. Some rooms I could not even enter - doors were blocked and beds were piled high with debris. The amazing part was that the mans' daughters were coming to spend the night! I have no idea where they could sleep, much less eat. There wasn't a square inch of clear space to sit, eat or cook in the house

These peoples lives are a mess and not just financially. I don't think this man created the mess by himself, as the children's bedrooms were equally trashed. I have to wonder what kind of environment these kids were being subjected to. The odd part is the man seemed most pleasant to talk with.

Oh, the one home that I went into that was clean - but the elderly woman who gambled away her home is probably mentally incompetent. When I call her, she refuses to talk because her phone is "tapped". And did you know that "they" have discovered a cure for cancer (but won't let ordinary people know) since no President has ever died of this disease?

Carnival of Real Estate Investing

The recent edition of the Carnival of Real Estate Investing is up and my post of Sub Primes - Crisis or Opportunity is up.

I found the top article on Bad Loans intriguing. As with many people, Bad Money blames Wall Street. But, I think half the blame should go to the borrowers as they are complicit in getting these loans when they are fully aware that they are at their spending limits. Maybe the little old ladies he talks about are also complicit. Remember the old adage "if it's too good to be true". Well... the little old ladies new this as well.

I'm also interested in the Chinese real estate market and Chinalawblog outlines some problems. I still wonder how to get your money out of China once you sell. My wife still owns 2 properties there.

Finally, this post captures my approach to real estate and why I feel it can be such a good investment. I also went back and read the first article on how not to get into real estate and found it quite interesting.

Credit Agencies see no fallout from sub prime market

Last week I posted that I didn't think that the sub prime problems were a big deal because of the reaction of the interest rate market. Today more evidence from the big 3 credit rating companies didn't see this as a big deal either. Yet the headline of the article screams "The Dangers of Investing in Sub Prime Debt". More evidence of the negatively focused media misleading you.

"They Always Blame America First"

That's a quote from former UN Ambassador Jeane Kirkpatrick in 1984 describing the Democratic Party and it rings just as true today. There's an excellent article by Michael Barone describing this phenomena today.

Barone is a very astute political writer who hits the nail on the head when he says the default assumption is the we are guilty and most of the world problems - whether it is terrorism or global warming are our fault.

Now my grandparents immigrated from France in the 1920's, so I am not descendant of slaves nor an Anglo-descendant, so I don't have to defend my ancestors nor were they responsible for the good that America has done.

But I believe that nearly all the advances in freedom have come about as the result of English speaking people. As Churchill outlined them they are: the development of the common law, guarantees of freedom, representative government, and independent courts.

I grow tired of the snotty PhD's that I work with that always want to point out how Americans slaughtered the Native Americans or when my kids come home from school pointing out how evil America was to drop the atom bomb on Japan. They have little inclination or knowledge to realize the contributions to the world that America has given beyond freedom. I like the bumper sticker that reads "If you can read this, thank a teacher; if you can read it in English thank a soldier".

It's no accident that we lead the world in entrepreneurship, net worth, economic output, charitable donations, Nobel Prizes and military might. See the movie "Amazing Grace" and understand that even today slavery is practiced in many places of the world. It was the English speaking countries that lead the way to eliminate this practice.

I have travelled to many places - Russia, China, South America and Europe. What we have in America is quite unique.People worry about the Chinese catching us, but until they have the attributes outlined by Churchill, I am not worried.

It's the Economy Stupid - why we're doing OK economically

I saw 2 articles today, one highlighting why the current turmoil in the sub-prime markets won't have much of an impact on our economy, the second showing data to support how satisfied the average American is with the economy. This contrasts sharply with the 'if it bleeds, it leads" doom and gloom of media articles.

Did you know:

• Household net worth has risen to over $55 trillion - an increase of 7.4% since 2005
• Corporate profits are up 20% over last year
• US households, at $28.8 trillion, have more net financial assets than the rest of the world combined
• 9.5 million new jobs have been created since 9/11 and unemployment is likely to drop below 4.5%
• 89% of Americans feel secure in their jobs - higher than any time in the 1990's
• 52% of people are satisfied with their jobs
• 71% of people feel secure in their financial situation - higher than in the 90's
• only 9% are worried about making minimum payments on credit card debt
• 88% are not worried about losing their jobs to outsourcing

The Greatest Economy ever continues to rule. Certainly there will be ups and downs but the long term trend continues to be positive.