Millions of Americans are now deeply underwater on their mortgage. If you’re among them, you need to stop living in a dream world and give serious thought to walking away from the debt.

No, you shouldn’t feel bad about it, and you shouldn’t feel guilty. The lenders would do the same to you—in a heartbeat. You need to put yourself and your family’s finances first.

If you are reluctant to give up on “your” home, realize that it isn’t “yours.” If you are in negative equity, it’s the bank’s home. You’re just renting it. And right now you may be paying way above market rates. You need to be ruthless about your cash flow.

Still, when it comes to the idea of walking away from debts, many people are held back by a sense of morality. They feel it’s wrong to abandon their obligations. They don’t want to be a deadbeat.

Your instincts, while honorable, are leading you astray.

The economy is fundamentally amoral.

Whether we like it or not, walking away from debts is as American as apple pie. Companies file for bankruptcy all the time, and their lenders eat the losses. Executives and investors pocketed millions from the likes of Washington Mutual, Lehman Brothers and Bear Stearns when the going was good. They didn’t have to give back one cent of that money when the companies went into bankruptcy.

Wow, I’m speechless. It seems the greed of Wall Street has permeated down to the lower rungs of society and it’s perfectly okay to socialize your debts and losses. (By socializing, I mean the bank or taxpayer or a large group of people who are not affiliated to you end up paying for your debts/losses/mistakes/greed). Apparently its as American as apple pie. Is this the change I didn’t vote for? If everyone in all sections of society thinks its perfectly okay to default on your obligations, logically, the next question is

How much longer until the US Government starts defaulting on its debts?

Of course, the US Government cannot default, since it can keep printing US Dollars to pay for its debt. Which it is already doing. The only problem is that this increases the number of dollars in circulation and causes the currency to devalue. Sooner or later, we’re going to see a large of amount of inflation. No we may not see hyperinflation like Brazil or Zimbabwe, but we sure might see 10-12% inflation for a few years.

But 12% inflation for only 6 years would cause the price of everything to double. If you don’t think that’s possible, just look at a country which isn’t currently in deep recession, like India. Inflation in India is currently running at 9%. And over the past decade it has been running at a similar rate. So what’s the effect on the average Indian? Highly skilled workers saw their salaries jump 10 times, salaries for unskilled labor are up ~5 times. So everyone is better off, right? Not exactly, people living on fixed incomes basically got screwed as prices for everything else went up 5-10 times as well. It was great if you owned real assets like real estate, gold and to some extent stocks, but terrible if you owned bonds or cash.

Related Posts

• September 15, 2009 -- The Recession Is Over, Unemployment Expected To Rise
• January 25, 2010 -- Venezuela Devalues Its Currency
• January 19, 2010 -- Suzie Says “Pay Off Your Home Mortgage”
• September 22, 2009 -- The Sun Sets On Dollar Supremacy
• September 10, 2009 -- Weekly Round Up Of Interesting Articles
• August 21, 2009 -- Buffett Finally Admits the Dollar is Doomed!
• June 24, 2009 -- Protecting Yourself Against Inflation

Tue Feb 23, 8:17 am ET

MOSCOW, Ohio – An Ohio man says he bulldozed his $350,000 home to keep a bank from foreclosing on it.

Terry Hoskins says he has struggled with the RiverHills Bank over his home in Moscow for years and had problems with the Internal Revenue Service. He says the IRS placed liens on his carpet store and commercial property and the bank claimed his house as collateral.

Hoskins says he owes $160,000 on the house. He says he spent a lot of money on attorneys and finally had enough. About two weeks ago he bulldozed the home 25 miles southeast of Cincinnati.

Ok, there’s nothing really humorous about this. But I thought it was a great story about getting back at the bank. Banks are notoriously difficult to deal with and after accepting billions in bailout money from the taxpayers aren’t really modifying very many loans. If you think that people who default on their mortgages are scumbags and deserve to lose their homes and that banks are just faultless victims, check this link about a foreclosure attorney who tried to help a couple modify their loan. Actually, regardless of what you think about banks or borrowers  you should still read the article. It’s very interesting.

Related Posts

• May 25, 2009 -- How To Avoid Foreclosure
• April 12, 2009 -- Real Estate: No Bottom Yet?
• December 23, 2008 -- 10 Worst Real Estate Markets In 2009
• November 28, 2008 -- Hitler: Real Estate Only Goes Up!
• June 24, 2008 -- Help! I’m Losing My Home To Foreclosure
• February 8, 2008 -- Forclosure In The Neighborhood
• February 7, 2008 -- Residential Housing To Drop Another 25%

#5. Start small

Don’t go all in when first starting a business. Get a proof of concept first and make sure you have a fallback plan. Parsons worked at a day job for 3 yrs while he started his first business, which he subsequently sold for $64 million.

#4. The best business partner is no partner

As opposed to conventional wisdom, two heads are not better than one. Having a partner or investor usually ends badly. You too much time discussing and negotiating than doing anything productive.

#3. Solve your own problems

Don’t use mentors and don’t copy what others do. According to the founder of Sony, Akio Morito, “You never succeed in business, technology or life by following the footsteps of others”. Indeed, a wise man keeps his own council. Speaking of Akio Morito, check out his highly acclaimed book, Made in Japan.

#2. Don’t fight fate

Keep eyes open to act on new opps when they arrive. For example,  Yamaha started out making pianos before they ventured in motorcycles, and Godday started out building custom websites.  You also need to be lucky. Strategy and planning are important but talent lies in spotting a a lucky break and taking action.  He gives the example of the first superbowl ad that got censored. The in-game censorship resulted in tremendous publicity and they jumped on it.

#1: Get and stay out of your comfort zone

Security is for cadavers!

You can watch the entire video below, but I’ve covered the main parts, except for the hot blonde! And speaking about wisdom that they don’t teach in business school, check out Never Wrestle with a Pig and Ninety Other Ideas to Build Your Business and Career.

Related Posts

• July 28, 2009 -- Article Roundup: Great Articles Of The Week
• January 20, 2009 -- How To Figure Out What To Do With Your Life?
• May 3, 2006 -- Buying a Cold Stone Creamery

To help take my mind off things, I decided to look at vacation packages. Once my quarter gets over, I might travel for a week.  I’ve been dying to visit South America or the West Indies for quite a while. Several packages look pretty good. And by  good, I mean from the aspect of being good value for money. Yes, I like to travel cheap, or as I like to emphasize, I’m a price-conscious consumer. Some of the places that had good deals were Costa Rica, Puerto Rico, and Mazatlan. Argentina also looked enticing, but the flights were slightly more expensive. One of the things I noticed was that my Discover Card was offering 5% cashback on travel booking until the end March 2010.

I don’t usually use my Discover credit card very much. It has a strange (but useful) rotational rewards program. Usually, you get 1% cashback, but every month (or sometimes for a whole quarter) you’ll get 5% cashback on a specific category of purchases. Each month its a different category. For example, it might be on travel (plane, hotel, car rentals or cruises), only restaurants, gas or maybe just groceries. This quarter, it just happens to be travel. Pretty useful if I actually end up traveling somewhere.

I typically use my American Express True Earnings Card instead of Discover. The rewards are more predictable. You get the typical 1% cashback on regular purchases, but you always get 2% cashback at restaurants and 3% cashback on travel. I paid my MBA tuition fees with it and got over $500 on it! While I don’t condone spending $50,000 just to get $500 back, it still makes for a nice Christmas present! (I would’ve actually preferred the American Express Starwoods Card since the rewards are great for taking vacations and the points are redeemable for stuff on Amazon, but I was coldly rejected).

So before making any major purchases, you should definitely go through your credit card rewards and see which one gives you more bang for your buck. If you don’t have a Discover card, make sure you sign up for it – the additional 5% might be worth it if you’re planning a big ticket purchase.

If you’re a student with limited credit history, you can sign up for the Discover Student credit card. It is a bit easier to get approved for it and it comes with the same set of rewards.

And if any of you have any vacation suggestions for the end of March, please let me know.

Related Posts

• March 14, 2009 -- The End Of Credit?
• January 19, 2010 -- Suzie Says “Pay Off Your Home Mortgage”
• January 6, 2010 -- Back In Action
• July 28, 2009 -- Article Roundup: Great Articles Of The Week
• June 10, 2009 -- Finding A Job
• May 25, 2009 -- How To Avoid Foreclosure
• September 7, 2008 -- Why You Shouldn’t Flirt When You’re Drunk!

Taleb said investors should bet on a rise in long-term U.S. Treasury yields, which move inversely to prices, as long as Bernanke and White House economic adviser Lawrence Summers are in office, without being more specific. Nouriel Roubini, the New York University professor who predicted the credit crisis, also said at the conference that the U.S. dollar will weaken against Asian and “commodity” currencies such as the Brazilian real over the next two or three years.

The Fed and U.S. agencies have lent, spent or guaranteed $9.66 trillion to lift the economy from the worst recession since the Great Depression, according to data compiled by Bloomberg. Bernanke, who in December 2008 slashed the central bank’s target rate for overnight loans between banks to virtually zero, flooded the economy with more than $1 trillion in the largest monetary expansion in U.S. history.

President Barack Obama has increased the U.S. marketable debt to a record $7.27 trillion as he tries to sustain the recovery from last year’s recession. The Obama administration projects the U.S. budget deficit will rise to a record $1.6 trillion in the 2011 fiscal year.

“The problem we have in the United States, the level of debt is still very high and being converted to government debt”, Taleb said in an interview with Bloomberg Television. “We are worse-off today than we were last year. In the United States and in Europe, you have fewer people employed and a larger amount of debt”.

Moody’s Investors Service Inc. said on Feb. 2 that the U.S. government’s Aaa bond rating will come under pressure in the future unless additional measures are taken to reduce budget deficits projected for the next decade.”.

Do I believe him? Absolutely. So why did I exit my highly profitable trade? Several reasons. During times of global economic uncertainity, there has always been a flight to quality. We saw this during the financial meltdown in 2008, where US Treasury prices soared and yields tanked. Right now, there is uncertainity in Europe regarding the debt of Greece, Portugal, Ireland, and Spain. People are worried this might have lasting consequences on the Euro as a viable currency. These fears are probably overblown, but until everything settles down and we have more clarity, there will be a flight to quality, which means that people will sell the Euro and flock to US Treasuries.

At least thats my hypothesis and I sold all my positions (except Berkshire Hathaway), shorted the Euro and also the S&P500. The one thing I didn’t do is go long the US Treasuries, since inherently I feel Nassim Nicolas Taleb is correct. At some point, I’ll most likely re-enter my short US Treasury trade, but in the meanwhile I happy to see how the European Union handles the issues of excessive debt.

Related Posts

• January 25, 2010 -- Venezuela Devalues Its Currency
• November 22, 2009 -- Trading & Investing Strategies for the Current Environment
• October 6, 2009 -- Gold Hits Record High!
• September 8, 2009 -- Why Is Gold At A $1000/Oz?
• August 24, 2009 -- China To Buy $80 Billion Worth Of Gold
• June 24, 2009 -- Protecting Yourself Against Inflation
• May 29, 2009 -- Jim Rogers Expects A Currency Crisis