Archive for December, 2015

The Big Short and Understanding Finance

December 25, 2015
My 2 flat in Rogers Park, Chicago's 49th ward.

My 2 flat in Rogers Park, Chicago’s 49th ward.

It’s Christmas Eve, 2015, and I went  to see “The Big Short.”  Although the movie was not well reviewed (Michael Phillips of the Chicago Tribune said that  financial markets were too complicated for the average person to understand. Hence, this movie was boring), I found it well scripted, edited, and acted.

Perhaps  it is because I, also, could see how over heated the real estate market was…and I will tell you  how.

In the mid 1980s, seeing that I would never get rich by grooming dogs, no matter how well I  managed my budget, I decided to learn about the mortgage market and selling commercial paper.  That’s right.  I learned that not just banks, but private investors bought mortgages and you really didn’t need years of college education to sell mortgages.  You just had to know the concepts of present value of future cash flow, loan to value—and the formula to  figure out what a cash flow was worth.  That was it.  Simple as that.  Yes, you need a special calculator to  figure this stuff out, but you can easily learn the formula in a few minutes.

I  learned, via audio tapes, that  brokers sliced up payment streams, and sold portions of mortgages.  You didn’t have to buy 240 payments (a 20 year mortgage), but could by payment 12, 18, 32…whatever.  How would you manage to get paid if the mortgage was sold or the mortgagee defaulted?  Ah, there was the rub.

I wondered how this could be legal.  Well, it was legal because it was not ILLEGAL, and frankly, most people who buy bundles don’t look that closely at what they are buying.  I mean, they don’t look at the value of the property the mortgage is on, trusting appraisers.  They don’t look at the credit histories of the borrowers.  The assumption was that someone was  checking out this stuff…but in reality, nobody was. It just seemed to risky for me.  The only way you could  make money was if you were  a lawyer, and even then, it was an iffy investment.

My niece learned the  mortgage business (and was a lawyer), and I called her about a mortgage because I wanted to lower my payments.  She got me a ‘no document’ mortgage, meaning I didn’t have to prove income.  At the time, I was earning under $30,000 a year, but my credit was good, and my  ‘loan to value’ on the house was very good, so it wasn’t a problem.  After a few years, I thought I could do better, and wanted to retire a line of credit which was never very transparent, and I could never get a statement  on how much principle I owed, so I , again, refinanced with a broker who got me  a mortgage based on the LIBOR (London Interbank Offered Rate—a rather bogus index used in the USA), which was  at 3%, but adjustable. The broker told me  the rate was very stable, and rarely fluctuated more than .25, but that turned out  not to be so, and within  six months the rate climbed from 3% to 5%, and I again refinanced.

I just love HGTV, and I loved the shows about house flipping and people house hunting.  What I was seeing, on those shows, was people were being approved for  mortgages with no or hardly any (2%?) money down, based on their incomes, not expenses, and clearly people were buying much more  home than they could afford.  But it was legal.

I was seeing this with some friends as well. I thought that this could not possibly go on.  People were trusting banks, were carrying too much debt on credit cards, and all that needed to happen was for energy prices to go up or people losing jobs for whatever reason, or becoming over extended (a good one was  investors buying a bunch of property, not keeping the property up, getting rent payments but not paying the mortgages on time because  that’s how  some people manage their finances).

This movie shows that—all of that—really well…and virtually all the practices that led up to this are still legal.   Our Chicago area schools are not really teaching finance, or compound interest, or budgeting…especially not in low-income areas…and we still have people thinking this is  just not an interesting subject.  These are the same people who don’t bother to  check out the political candidates positions online (easy enough to do, but they go for the bloviators), and don’t vote, anyways.  Then, they complain.

I had read excerpts of Michael Lewis’ book, and learned about Michael Burry (excellently portrayed by  Christian Bale).  This movie should be shown  to every highs school student.

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So, where do you see yourself in five years?

December 19, 2015

bewaresignSince I failed to marry someone to keep me in the style to which I wanted to become accustomed….I know the only way I would be ‘independently wealthy’ is to sell my house within the next year and move to a cheaper place.  Cheaper meaning a place with lower or no property taxes, as my property taxes are now higher than the mortgage!  Really. We pay about $400 a month  in property taxes (more or less, with exemptions), and  Mayor Rahm,instead of promoting the tax on  investment trades, is closing our public schools and laying off teachers (all the while with evidence that the charter schools are not providing a better  education product for our students) & lets not forget Barbara Byrd Bennet, who  ripped off the students not just  for her outrageous salary, but for $20 mil in  a skim for her ‘consulting firm’!  & lets not forget payouts for  bad police behavior.  Yeah yeah yeah—this has been going on since at least Daley, if not before, but it’s now over the top.

At one time, I saw myself owning a boarding kennel and showing dogs, but it really took Enron, 911, and the financial crash of 2008 (read Michael Lewis’ “The Big Short” if you’re unclear about  this), to dash that. In fact, I had learned about  the craziness of land speculation  when I was in grad school, but we all had to be in denial  or we  would have  given up.  In any case, that  was  one of the first nails in the coffin of ‘the fancy’, which I have blogged about ad nauseam.   Many of my naive kennel club members really believe we have to support AKC lobbying efforts on behalf of commercial breeders, as this affects all breeders. But come on—can we not come up with  a number of dogs a dog lover can keep  and have a relationship with?  Sure, some puppy mills, like Blythewood, breed excellent dogs….but is Joan Huber or her staff actually screening buyers….or do they  just think that anyone who would pay that much will automatically provide a good home?  I am sure she doesn’t care if less honorable  puppy mill breeders buy from her.  I am sure the explanation is that ‘at least they are buying genetically sound dogs to breed.’

I love grooming dogs, but I can see what’s happening, too. Fewer people  care if the  dog  actually looks good, and fewer people are training their dogs anything.  Fewer people are middle class.  I’ve been working at businesses in upscale areas, where  people can afford the service, but more and more are getting mixed breed dogs—and they are not rescues.  They are still believing the marketing.   It’s very discouraging, because many of these mixed breed ‘designer dogs’   you can’t make look good. Their coats are just impossible. I may spend more time training my own dogs .

About 30 years ago, after Peace Corps, I was thinking of  academia, but it’s hard to  get in, except as an adjunct, and frankly, though it is hard to believe, dog groomers make more per hour!

So, I see myself now as mostly retired, maybe grooming  2 to 3 days a week,  doing volunteer work, and traveling several times a year.   I really have enjoyed the Saluki Club of America and the American Whippet Club weeks of specialties, with all their activities.  I still have not been to Central America or Hawaii.  I’ll just have to see how it goes…

Why I Joined a Kennel Club

December 10, 2015
This is a display of rosettes at the American Whippet Club Specialty , 2015

This is a display of rosettes at the American Whippet Club Specialty , 2015

When I was thinking of breeding and showing dogs, I became a member of a kennel club.   One of my employers had been a member of the Waukesha Kennel Club in Wisconsin, and it was from those club members that she learned to groom the terriers and  many breeds we saw in our shop.  In fact, she learned to groom Bedlingtons from Charlie Prager, who invented the first portable grooming table and fluff dryer (Groom-Rite).

For a long time, I was not active in a kennel club.  I was either working my own business or  in the process of a divorce, or in school. Then I was in Peace Corps, then  re-acclamating myself to life  in the USA.  I just didn’t have ‘time’.  And how much time would it have actually taken to be a club member?  Not much, really.  In fact, it would have helped with business networking.  This is really the best reason to be a member of an all-breed  dog club, for groomers and trainers. Hobby breeders sell puppies that need services.

However, I knew from being a club member (I was a member of the Goldcoast Kennel Club in Chicago until 1987…the club has since  folded),  many of the club members were not breeders. They were  fanciers who may have shown a dog in the past, or were hoping to show a dog, but they were not active breeders.  We were all members for the same reason:  to support the fancy. That is, support people breeding dogs for the betterment of their breeds.

Vern Price, of  Crown Jewel Dalmatians, did a lot to  make the club a success.  He  instituted a 50/50 drawing for cash, and pulling a member’s name out of a hat at every meeting for a cash prize.  He made sure the club offered both obedience and conformation classes.  Vern made sure there were prizes for every dog show class at  the annual all-breed show.  Whether you  liked or hated Vern,  he made sure the club functioned.

Dazzle, JC (Dazzle) Saluki, on the left, Bebop Whippet, on the right. Bred by hobby breeders for the betterment of their breeds.

Dazzle, JC (Dazzle) Saluki, on the left, Bebop Whippet, on the right. Bred by hobby breeders for the betterment of their breeds.

When Vern died, the club started to disintegrate, and there is no longer a Goldcoast Kennel Club.  In the Chicago area, there are still about a dozen all breed clubs, but hardly any has an active membership. Worse, though, is that the specialty clubs are folding due to lack of members.  Granted, most clubs  exist at all  for breeders to promote their breeding and support their breeds.  They  have done this by holding dog shows, paying for research into health and genetic problems their breeds have, holding grooming classes, and supporting  performance training and events (agility, barn hunt, schutshund, lure coursing, etc) to keep interest in their breeds—and  individuals  competing with their breeds, alive.  Actually, the  breed club I belong to, the Greater Chicago Whippet Club—has no breeder members!  We are all  pet and racing folks who want to  socialize with other sighthound fanciers!

Purebred Bedlington. another breed with such a small gene pool, with genetic health issues, that the puppy mills have generally ignored.

Purebred Bedlington. another breed with such a small gene pool, with genetic health issues, that the puppy mills have generally ignored.

What has been happening —and those of us who have been grooming for several decades know this—-is that the American Kennel Club, the holder of the stud books (that is, records of who got bred to who), is supporting commercial breeding of dogs in our state legislatures (and defending the right to commercially breed pet dogs), at the expense of the fancy (what purebred dog enthusiasts are called).  Many breeders have ‘aged out’ or died, or just got disgusted with the whole cultural milieu.  Their  children either  never became interested, or can’t afford to  breed dogs.  Few  people can, with the middle class actually being less than 49% or all households.  So that means than many wonderful breeds don’t have viable gene pools…and as for the popular breeds, your chances of buying a  well bred pup without being on a waiting list is slim to none.  Of course, many of us are willing to take mature dogs, but how about our clients?  So, if they want a dog of a breed, their only option  is buying commercial breeders.

Why should dog  groomers be concerned? You might think this does not matter because  you haven’t gotten a new client with a purebred dog in several years (unless you  breed your own business).  Indeed, I  work in an elite section  of the Chicago area, and  all we are seeing is designer dogs.  It’s shocking  how many people have paid so much money for these mixed breed dogs…and virtually all of them have genetic health issues, because the people breeding dogs for the market really don’t care.  Also, by the time these pet owners learn that their  dogs will need a pricey health intervention (repair of liver shunt, removal of cataracts, fixing luxated patellas)….the breeder will be gone.  This is not to say  this  does not happen in purebreds—as it does, and these mixes are not pariah dogs, but mixes of purebreds.  But I do know that members of the American Miniature Schnauzer Club virtually eliminated congenital juvenile cataracts in their members bloodlines by paying for research , test breeding, and putting in the time and heartache.

If we don’t support hobby breeders, and let our  grooming clients know there is a difference, we  won’t have a grooming industry in about 10 years…unless you’re happy with shaving down dogs.

We must work together on this.  I urge you to network, and find a dog club you can work with.

Businesses Make ‘Make Work’ Jobs

December 4, 2015

When I was  a Peace Corps Volunteer in Malawi over 20 years ago, I  ‘inherited’ a staff of  about  20 to 30 employees. I tried to get a handle on  who they all were and what they did. Frankly, bureaucracies  are the same where ever you go…especially  when politicians are involved.  In any case, I had several people assigned to my department  whom I could not  see as doing anything that added value to making the city run smoothly.    However, the British had set up a system where  we  didn’t just file the files, but assigned the files an additional filing number, and in order to get a plot file…rather than going into the filing  room and getting the file, we had to go to a clerk who would look up  the file number for the plot records and then fetch the file for us…or not.  Files would go ‘missing’.  Even though you were supposed to  sign for a file, I  learned that  another department head was not signing, and just taking  files.  After all, there was really no way for an employee to make the  guy sign for the file…especially if the employee in charge was paid something extra.  After a few months of this, I, of course, insisted we  do away with this ‘system’ and refile by plot number—and perhaps we’d find some missing files (we did) or get a handle on what was missing.

But what to do with the superfluous  employees?  I went to the Human Resources guy, and he told me  I had to  go to the town clerk, as he could not move  people around. The Town Clerk agreed with me, but told me that if I had people I needed to get rid of, I had to find another department head and make a trade. The only way I could get rid of someone not working is if they died or left voluntarily.  The Town Clerk warned me that if I made a trade, I might get someone even worse than what I had.

In the USA a few weeks ago, I got a call from my bank (Ally Bank, for the record), as well as an email. They had an urgent matter to discuss with me.  I was told to ask for a specific employee.  Having had a not great experience  emailing (although I did email the person), I called.  Hilarity and frustration ensued.  I was asked my mother’s maiden name, my address (including the 4 digit suffix to my zip code), my favorite color, and my favorite singer—by three different people…but nobody could tell me why I was contacted. So now several people know  my confidential information. They asked me how many accounts I had at the bank. one.  Just one. Finally, after all this and being put on hold—about 20 minutes of my life…I was told that I used the wrong deposit ticket to make a deposit.  How did this happen?

I was running low on deposit tickets, so I emailed the bank to order more. I got an automatic response stating they would contact me. They did not.  After  three weeks, I CALLED THE BANK.  The customer service person told me to use the  sample ticket I got in my welcome packet (three years ago) and she would put in an order for more deposit tickets.  So I did that, since I had several hundred dollars in checks.  I thought I had the right routing number, but apparently, it was for an account style I had opened…and then changed.

So, my deposit was just sitting there on somebody’s desk—not deposited—until I told them I had only one account.  This could have been taken care of in less than five minutes if —when I was initially contacted, I was told I used the wrong deposit ticket.  It wasn’t like I was taking money out—I WAS PUTTING MONEY IN!

Think I am being picky?  I work with my hands.  If I have to hold a phone, I can’t work.  I don’t play games on either my phone or my computer. I am not putting outfits on my dog, polishing my nails, or watching YouTube videos learning to put make-up on. My time is precious.  By making  something complicated, it doesn’t make it more serious or important.

Here’s another good one:  the valve stem broke off one of my tires.  I got a flat tire.  My roommate, who  hasn’t noticed if I painted a wall a different color or  moved art around, noticed that I had a flat tire, and this was the reason.  He put  the spare on the car, but told me to have it fixed ASAP.  He told me it would cost about $30. So, I went to the  tire dealer, and, indeed, that was the cost…except the law since 2006 is that the computer in the car has to be reset, as it would indicate low tire pressure…and that cost over $140!  Why is this?  Up until about  20 years ago, car engines didn’t last that long.  In many cases, you’d get to 75,000 miles (sometimes less)m and you’d need a ring job, or a new timing belt, or another major repair. Well,  due to  Asian competition, everyone now makes pretty sturdy car engines. That’s not what’s going to go on your car. It’s going to be something smaller. Maybe the battery, or the tire.  The car repair  businesses can’t really make any money on small repairs, so, by having the  computer  and access to proprietary codes, and charging us for it, they can stay in business.

Where I currently work, a dog grooming business, we have  two  guys who bathe dogs. That’s all they do. Yes, they clean cages at the end of the day, but neither does anything they are not told to do. Hence, we are always running out of something, and the place is a mess. In theory, they are supposed to make our work easier and help us complete grooms more quickly.  The reality is, they slow us down.  Partly because  when I started grooming, I had to bathe a lot of dogs before I could get to clipping and scissoring, and partly because, traditionally, we’ve been paid commission,  my average dog bath takes about five minutes, and I get  the dog clean and the soap rinsed out, and I get the dog dried quickly.  Not these guys. We are constantly sending dogs back to be rebathed.  It takes them four times as long as it does me.  Not only  that, but they clock in, then stop for breakfast! Why  does my boss allow this?  He’s not a groomer and he justifies this because he pays them $11 an hour, and I am too ‘valuable’ to be doing this task.  It’s a false economy.

All this is make work.  None of this is adding value.  I don’t know that there is a solution as long as  people in charge  rise to their highest level of incompetency, and think the goal is job creation.