The latest genius idea to come from the Assembly Democrats in California is to [drum roll please] Borrow Cash to Save Welfare! What a novel idea! We haven’t heard that before. No, of course borrowing/taxing and spending beyond our means wasn’t what got us in trouble in the first place… was it? You know what they say right?

The definition of insanity is doing the same thing over and over and expecting different results.

- Benjamin Franklin

Yes, I do concede, the Assembly Democrats (as well as the Senate Democrats that want to raise taxes) are off their rockers. Instead of agreeing with Arnold Schwarzenegger and doing the sensible thing by cutting out the fat from overpaid union workers, steep pensions, and unsustainable welfare costs; the Assembly Democrats want to borrow billions more in bonds and raise new taxes on the oil companies. In a nutshell, increase borrowing/taxing and no budget cuts.

The absolute lunacy in this is they want to borrow $8.7 billion from Wall Street against the California Beverage Recycling Fund to be repaid over the next twenty(!) years. Basically, we are borrowing money that is stretched to be paid back with interest over a period of twenty years so we can keep welfare and government jobs running just a bit longer. What about next year? Are they going to pick up another twenty year loan? This is completely unsustainable in the long run and not a solution!

When you know you can’t balance your books, you’re spending beyond your means, it’s time to hunker down and cut the fat. You’re not suppose to, figuratively speaking, go out and sign up for more credit cards to pay off your home mortgage loan. You don’t add more burdens to your already over-stretched citizens by hiking up the taxes (incidentally California already has some of the highest income and sales taxes in the United States).

Of course, there is a good reason why the Democrats are doing this, they are pandering for the welfare and union workers’ votes. But seriously? You were voted in this office to help the state, not move it more swiftly into bankruptcy. Don’t throw the rest of the citizens down the river just so you can increase your paycheck by another 10k next year. How hard is it to get this message through your thick skulls: There. Is. No. More. Money.

And to think I consider myself a Democrat… what a world we live in today.

According to this article, ING is planning on offering loans that have “no fixed term and no requirement to repay any capital along the way”. Basically ING wants to become a “mortgage partner for life” by having “borrowers carrying the same interest-only loan from property to property for as long as they wish”. But why is this article saying that this home loan could save the homebuyers a fortune? Cause according to them, in lala land, prices of homes only go up and the homebuyers should be “accumulating equity from rising house prices as they go” from property to property.

Accordingt to ING, “There is no economic reason for banks to insist on regular capital repayment. It just makes the loan more expensive for the borrower… If this catches on and people carry the same mortgage around for life, instead of switching every five or six years… Depending on the size of the loan, it could add hundreds of thousands of dollars to a borrower’s cash flow over their lifetime.”

All I can say is: Are these people for real? Are they really trying to spin a positive out of carrying a huge motherf*ing mortgage loan for life? Do they really think there is no reason for banks to get regular capital repayment? Is this really going to save homebuyers a bundle? Is Elvis really alive and sipping Pina Coladas in Newport Beach? How stupid do they [the lenders] really think we are?

The current housing crisis has shown us that no, housing prices don’t always go up. What if you get one of these mortgages for life and the market crashes again? You would owe that amount of money forever and be underwater while not being able to accumulated any equity. And anyways, what’s the point of buying the house if you don’t really own it? Why not just rent and not deal with market fluctuations? This is the same lunacy as making tiny minimum payments on credit cards that drag out the balance for years. But this is even worse, you will never pay it back, you will be paying interest until perpetuity.

A friend of mine told me over the weekend that her coworker is planning on paying off 300 thousand in home mortgage loans over the span of five years. Yes you read that right, 300k over 5 years. I spit out my juice and took a double-take. How is that possible? That is 60k paid off every single year. That kind of dedication at being debt-averse takes commitment, guts, and a whole lot of capital.

And this doesn’t even take into account the multitude of other expenses her friend had to make in lieu of having a vanishing mortgage loan: mortgage loan interest (although it will be dropping like a rock as the principle disappears), property insurance, property tax, maintenance & repairs, and utilities. And those are only the costs related to the house. We’re not even going into all other things like transportation, food, etc… I never asked how much her friend was making, but it must be at a minimum over 100k/year.

Thinking about the ambitious course her friend is taking, I started taking a closer look at my own situation. I should only have a 106,000 balance left at the beginning of 2010, which is well under the 300k amount her friend is trying to conquer. Under my current plan, I can pay off everything by 2017, close to eight years from now. If I possessed her friend’s aggressiveness then I would be throwing everything I had at the loan and chopping down the final payment date to the end of 2014, which is five years from now. In that scenario I would be paying off 21.2k of the loan principle every year instead of the current average 13.3k. I believe I could do this — actually I know I can — but the downside is I couldn’t save or contribute for anything else (eg. Roth IRA or save a 20% downpayment for another real estate property). The upside is both peace of mind and stable return of money (4.5% pretax).

Reviewing my options, I think I want to stick with my current plan of just paying the mortgage + another 500 prepayment. I want to keep my options open and have the ability to jump on opportunities as they rise (such as investing in more foreign currencies or buying vacant land properties). Although this will make my debt load greater, the leverage could end up magnifying my gains should real estate properties rebound back in value. And anyways, when you’re young is when you should be taking more chances and be less risk-averse.

Below is the amortization schedule that I am sticking to [variables used: 4.5% rate, 15 year fixed, 500 prepay/mo, 113,666 starting loan]:

I know that if you don’t issue IOUs then you would run out of cash by the end of July. But don’t you understand? You’re just digging a hole and getting yourself further and further into debt. The fact that you are running out of cash already means that you’re bankrupt. Adding IOUs to the mix will only add millions of dollars in interest on top of that. How are you going to ever crawl out from under that?

And it’s not like you will be able to pay those IOUs back right away. You know that things aren’t going to turn around in the near future right? I mean, with your 11.5% jobless rate and looming storm of Alt-A and Option ARM foreclosures in the horizon, there are no green shoots to be found anywhere on the barren Inland Empire landscape.

No, we Californians won’t accept your accounting gimmicks and one-time fixes, it is part of the reason why we ended up here. We need real cuts that make a lasting impact. Yes that might add to the pain but without some sacrifice you will never become the glorious golden state of your yesteryears.

And no, if you can’t stop yourself, we need to stop you by rejecting your IOUs. We cannot perpetuate the problem. Like the shopaholic that runs up tens of thousands of dollars in credit card debt, we cannot continue to let you stick us with worthless IOUs that you might never be able to pay back. If you are allowed to do that, then can we also pay our sales, income, property, and inheritance taxes with IOUs? If not then lead by example. Make real cuts. Shrink your size. Don’t drive people, and as a result, income away.

What happened California? You used to be cool.

“It’s real estate,” said Encino bankruptcy attorney David S. Hagen, who conducts free seminars for homeowners organized by the nonprofit Neighborhood Legal Services. “People got sold a bill of goods on some kind of nontraditional mortgage and thought they could change it when the worth of their house went up. But the worth went down and the payments went up. They start to live off of their credit cards. “

Once again, we hear about how basically the public got conned into buying something they couldn’t afford. Yes, they couldn’t afford it but I don’t believe anybody had to con them into doing it. I just don’t understand how hard it is to know you can’t afford to buy a $500,000 house on a $50,000 salary. I also don’t get what’s so difficult about an interest only mortgage or a mortgage that doesn’t even cover interest (negatively amortizing loan) or a mortgage with a rate that resets in 3-5 years. All of this isn’t “hard” to understand, it’s just the public decided to take a gamble on what is possibly the largest asset they will ever own their entire lives. They took the bet that house prices will continue to skyrocket upwards and got burned. It’s that simple. Nobody sold them a bill of goods. Yes there are some crooked loan officers and mortgage brokers, but seriously when you’re buying the most important thing of your life, remember to ask questions, read the fine print, and be darn sure you can afford it!

By the time Norris Daniels of Sherman Oaks made it to the self-help desk staffed by Neighborhood Legal Services at the Woodland Hills Bankruptcy Court division, he had racked up $47,000 in credit card debt. His house troubles consisted mostly of storm damage repairs that spiraled out of control. The house eventually sold, but then came a divorce and support for his mother when she was ill. “I was a person with a good credit score – 750 – when I bought my house,” said Daniels, 42, a salesman at a Beverly Hills clothing store. “I’m a regular guy.”

[Even though a person filing for bankruptcy probably won't obtain credit for a long time and it stays on a credit report for 10 years,] that doesn’t matter to Daniels. He wants a fresh start. “There was no way I was ever going to be able to pay off $47,000,” he said. If his filing is successful, Daniels said he’d like to go to a low-cost college to get an MBA. “I’m going to reinvent myself,” he said. “And stay away from credit cards.”

Is this guy for real? He’s about to file for bankruptcy because he can’t pay off his loans and his goals for post-bankruptcy is to go get an MBA?! Even at a low-cost college an MBA doesn’t come cheap, I would think it’s at least $20,000 (since a normal MBA is about $80,000). So once he gets his MBA he would be another $20,000 in the hole. I think instead he should get his finances into order and start rebuilding his savings so that he won’t need to use credit cards to pay off debts. What he plans to do just boggles my mind. If I had no money, I wouldn’t think of going more into debt in order to “reinvent” myself. “Reinventing” yourself seems like a luxery for people that have the money to do so.

I feel like bankruptcy has become a vehicle for people that don’t want to take any financial responsibility. Of course there are legitimate reasons for filing bankruptcy (medical bills, job loss), but I don’t think this guy has it and definitely doesn’t grasp the value/opportunity of being able to do so.

So far our Governator has proposed:

• Releasing thousands of prisoners early (hopefully these are white collar criminals)
• Closing more than 200 state parks (I’m ok with this)
• Increase income/sales/vehicle taxes (no no no, ours is already one of the highest in the country!)

The one cut I would propose:

• Stop providing free education, health care, food stamps, and subsidized housing to illegal aliens – No more welfare state, estimates put the cost as high as $30 billion a year. That should eliminate the deficit problem.

California has always been a vanguard of this country. Are we too big to fail? I think not. But this does not bode well for the rest of the country.

But seriously, what is the Federal Government thinking? Giving $160 billion to AIG and $375 billion to banks but letting all the fifty states fail. What good is the Federal Government with bankrupt states?