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The top item in the news in the last week has been the financial crisis facing the banks. Yesterday, Washington Mutual was seized by the FDIC. This is the largest bank failure in United States history. WaMu was then sold to JP Morgan Chase, to further consolidate the banking industry into a handful of giant banks.

As the debate over a $700 billion bank bailout rages on in Washington, one of the nation’s largest banks - Washington Mutual Inc. - has collapsed under the weight of its enormous bad bets on the mortgage market.

The Federal Deposit Insurance Corp. seized WaMu on Thursday, and then sold the thrift’s banking assets to JPMorgan Chase & Co. for $1.9 billion.

Seattle-based WaMu, which was founded in 1889, is the largest bank to fail by far in the country’s history. Its $307 billion in assets eclipse the $40 billion of Continental Illinois National Bank, which failed in 1984, and the $32 billion of IndyMac, which the government seized in July.  Government seizes WaMu

Meanwhile, the debate continues in Washington about a $700 billion bailout for the banking industry to buy up bad mortgages. One of the issues at debate is whether homeowners who are facing foreclosure because of bad mortgages will receive any part of the $700 billion.

In an outstanding article, “It’s The Empty Houses, Stupid,” Bob Sullivan asks the question why the government bailout is focusing on the banks that hold the bad mortgages and not the homeowners who cannot pay the bad mortgages.

In case anyone has forgotten the core of the current economic crisis, here’s a reminder: empty homes, both present and future. Empty homes are behind all the supposedly worthless mortgage-backed securities that no one wants to buy on Wall Street. Fear of the coming avalanche of empty homes — what the Center for Responsible Lending calls the “tsunami of foreclosures” — has made Wall Street’s mortgage-related paper nearly worthless.

It seems that filling those empty homes by dealing with foreclosures and stoking demand to buy homes should be the first order of business. So why — as we discuss the most dramatic government intervention in nearly a century — is there only passing mention of all these vacancies? It’s the empty houses, stupid

Read the rest of the article here.

Dr. Kalinda Rose Stevenson

Find out how the current mortgage crisis is a direct result of a banking system that allows banks to make money out of thin air in  No Money Limits For Real Estate Investors.

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Leverage creates wealth. This has been the promise behind the real estate boom. Now that the boom has gone bust, what is the role of leverage in the current financial crisis?

Greed is blamed for much of the economic crisis currently facing us. But blaming greed misses the real point. Greed needs a mechanism—a tool—to put greed to work. This tool has been touted as the magic money-making tool. What is the tool? It is leverage.

Underneath all of the complicated terms, such as “derivatives,” “leveraged buyouts,” “financial instruments,” the fundamental tool that has led us to this point of crisis is misused leverage.

What is leverage anyway? Leverage is the result of the action of a lever. When properly positioned, a lever allows you to move something you could not move with your own strength.

A simple machine consisting of a rigid bar pivoted on a fixed point and used to transmit force, as in raising or moving a weight at one end by pushing down on the other. Lever

In finance, leverage is primarily the use of borrowed money to buy what you could not afford to buy with your own money.
 
The real estate boom has been fueled by leverage. This has been the great selling point for real estate investing. You can use leverage to buy real estate with little or none of your own money. In other words, you finance your real estate purchases with debt.

Leverage is the tool that rewards greed. With leverage—whatever form that leverage takes—you can buy more than you would be able to buy using your own money.

Leverage is a tool that can and does create profit. The real estate boom is a testimony to the effectiveness of leverage as a wealth creating tool.

People used to build wealth through building equity in their homes. Today, people prefer to speculate on the price of their house by using historically high levels of leverage. Richard Bernstein

So why are we in the current financial crisis? Underneath the crisis is a shared belief that values will keep going up. Robert Schiller makes this point in his book, Subprime Solution.

In Shiller’s view, the biggest dangers in financial markets come from unanimity. In Subprime Solution, he argues that what united the missteps by the Federal Reserve, mortgage brokers, Wall Street bankers and home buyers that together brought on the current financial mess was a shared belief that house prices never go down. Crash Master

This is the true irrational belief behind the financial mess. In reality, real estate prices are subject to cycles, and ups-and-downs. The old adage states: What goes up must come down. Nothing continues on a continual upward path indefinitely.

Yet, from the greatest investment banks on Wall Street, to novice real estate investors, many of us operated with the belief that real estate values would continue to go up, and that leveraging borrowed money was the smart way to make money fast.

As a result of this shared belief, many real estate investors and the bankers who financed their transactions, never saw the downside of using leverage as a tool to create wealth.  Read the rest of the article here

Dr. Kalinda Rose Stevenson

Do you know how banks make money out of thin air?  Find out in No Money Limits For Real Estate Investors.  And be sure to sign up for your Free “52 Heart Of Money Insights.”  

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• The Financial Crisis: A Titanic Failure Of Regulation (0)

John McCain claims that Wall Street greed is responsible for the current financial mess behind the bank failures and the subprime mortgage debacle.  Michael Hirsh has written a significant article that places the blame squarely on the refusal of the Federal Reserve under Alan Greenspan to use its regulatory authority.   

Who is mostly to blame for the biggest upheaval on Wall Street since the Great Crash? The disaster appears to have many fathers. “In a way, it’s the perfect crime: Who do you go after?” asks Jim Rokakis, the treasurer of Cuyahoga County in Ohio, one of a slew of state-level officials who saw the mess coming years ago but were ignored by the Feds. “If you arrest the mortgage brokers, how can you in good conscience not arrest the officers of the mortgage banks and the rating agencies?” Rokakis wonders. Ultimately, a big share of the blame lies with Wall Street CEOs who encouraged all this bad lending by packaging it into ever more complex securities, and then invested in it themselves by the billions. Indeed, the myth surrounding the subprime fallout is that no single player along the pipeline could have prevented what happened, including the giant investment banks that loaded their balance sheets with this dreck only to have it drag them into oblivion. “Everyone’s to blame, and no one’s to blame,” says financial expert Joseph Mason of Drexel University, summing up a common view of academia and in Washington.

I don’t buy it. Especially the idea that somehow the blame lies mainly with Wall Street’s greed, as John McCain reiterated the other day, saying we have to “fix” it. How do you fix greed? And let’s face it, left to its own devices, Wall Street has always operated on pure adrenalized greed, which is why financial manias and bubbles come and go and always will.

This mess is mostly a titanic failure of regulation. And the largest share of blame goes back to one man: Alan Greenspan. People mainly fault the former Fed chief, who once enjoyed a near-saintly reputation because of his reputed “feel” for market conditions, for ushering in an era of easy credit that accelerated the mortgage mania. But the much bigger problem was Greenspan’s Ayn Randian passion for regulatory minimalism.  Read the rest of “Greenspan’s Folly” here.

Dr. Kalinda Rose Stevenson

Discover how Federal Reserve interest rates determine how much money banks have available to fund your business and real estate projects in  No Money Limits For Real Estate Investors.

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• Can The Federal Reserve Stop A Recession? (0)
• “When Leverage Goes Bad: The Real Cause Of The Financial Crisis” (0)

On Tuesday, August 5, the Federal Reserve voted to keep the interest rate for banks unchanged at 2 percent.  Although I am by no means an expert on the economy and the role of the Federal Reserve, the actions of the Federal Reserve often remind me of that old cartoon about the conversation between  Bob and Joe under the streetlight.  Bob sees Joe looking at the sidewalk under the streetlight and asks:

Bob: “What are you looking for?”
Joe: “My keys.”
Bob: “Did you lose them here?”
Joe: “No, I dropped them over there.”
Bob: “Why are you looking for them here, when you dropped them over there?
Joe: “There’s no light over there.”

The goal of the Fed is to control the money supply to prevent both inflation and recession. It’s easy to think of the Federal Reserve as a giant puppet master in Washington, able to pull the strings of the economy when it goes off track. As powerful as it is, the Federal Reserve is really a one-trick pony, with one major tool. 

Read the rest of the post at

Why The Federal Reserve Is Keeping Its Fingers Crossed Under The Streetlight

For Your Abundant Success,
Kalinda Rose Stevenson, Ph.D.
“The Money Mentor”
kalinda@NoMoneyLimits.com
www.NoMoneyLimits.com

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Do you know that you are the product of all the stories you have learned throughout your life? Most of us try to live with stories that don’t serve us. This is especially true with Bible stories. For a new look at old Bible stories, go to Impolite Topics: Religion, Politics, and the Bible…For Seekers. To find out why most of the Bible stories you learned about Jesus and money are not true, be sure to visit Going Broke With Jesus.

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• The Financial Crisis: A Titanic Failure Of Regulation (0)

Stranger-Owned Life Insurance (STOLI) is offered to older people. Even if you are too young to be approached about such polices, it’s a fair bet that your parents or grandparents could be targeted, if they haven’t been already. It is in everyone’s interest to understand how this insurance scam works.  

“Stranger-Owned Life Insurance (”STOLI”) is a rapidly spreading virus that is infecting both individuals and charities. The end result is likely to be a lose-lose-lose situation for the public, the insureds, their families, and the insurance and estate planning communities. In fact, everyone is likely to lose–except the promoter-marketers and third-party investors they assemble to finance what is clearly an end-run around centuries old insurable interest laws.” Stranger-Owned Life Insurance

This one hits close to home because my husband and I were told about this insurance plan, and even met with someone who promotes it. It sounds like a great deal. You “buy” an insurance policy, but you don’t pay anything for it.

This is how it was explained to us.

Read More

Dr. Kalinda Rose Stevenson

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By Kalinda Rose Stevenson, PhD.

One of the enduring beliefs in American society is that people can pull themselves up by their bootstraps and succeed if they work hard and persevere.

Today, the Associated Press published an article that claims that people are losing faith in this belief. It asks the question:  “Is everything spinning out of control?”

“The can-do, bootstrap approach embedded in the American psyche is under assault. Eroding it is a dour powerlessness that is chipping away at the country’s sturdy conviction that destiny can be commanded with sheer courage and perseverance.”  (Read the whole article at http://www.msnbc.msn.com/id/25311529/ )

There are many reasons to feel powerless. The news is full of heart-wrenching stories about 500 year floods, massive earthquakes, and devastating typhoons.

The economic news consists of more bad news after bad news. Gas prices are over $4.00. The price of corn has reached $8 a bushel. A loaf of good bread will set you back another $4.00.

Meanwhile, the biggest banks are laying off employees. Foreclosed houses sit on the market. People lose equity in their homes.

At times like these, it is easy to be discouraged and to lose heart. And these are the times when it is especially important to choose the hero’s path rather than to sit on the couch and lament how bad it is.

These are the times when a hero takes on the challenge to act when acting requires courage and determination in the face of many obstacles.

In one of my favorite hero’s journey stories, the silly/profound movie, “Joe Versus The Volcano,” Joe makes the statement. “I am my only hope for a hero.”

Don’t let yourself be swamped by bad news. And don’t look outside yourself for a hero to rescue you. This is the time to be your own hero about money.

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Making money after the summer solstice is a test of persistence. Each season of the year has its gifts and its challenges. The gifts of summer are warmth and light, the essential elements of growth. At the same time, the greatest challenge of summer is persistence.  Most people begin new projects with enthusiasm, even though starting a new project can mean a lot of work.  The essential money-making characteristic of a money hero is persistence.

Back in my gardening days, I used to live in New England. I used to think that the most successful crop in my garden were the granite rocks deposited by ancient glaciers, granite rocks that had to be pried out of the cold ground, and deposited with the others in the rock wall at the edge of the property. No matter how many I had pried out the year before, each spring thaw heaved another crop of rocks into my garden.

It’s hard work to plant a garden, but spring is the time of promise. There is something about a new beginning at the end of a long, hard winter to motivate hard work. Each year it’s the same. You repeat the magic ritual of planting seeds and setting out small plants, carefully placing them into the earth with the ardent expectation that they will grow and flourish. You imagine the garden in its fullness even as you dig in the bare ground.

And then the summer solstice brings the summer season. And with the change in season, you face a different kind of work. You have to tend what you have planted.

Summer work is tending, weeding, hoeing. And it means working when the sun is hot, or when the sky is so perfectly blue that you want to quit working and go off to play.

Summer is the time when it is easy to quit. You tell yourself that it is too hot, too buggy, or too humid. Or it is so beautiful that you want to go swim in the lake or go for a picnic in the woods. The famous fable of the ant and the grasshopper catches the temptation to stop working in the summer.

Summer is the real test of persistence for all of us. Most of us can begin our projects, with hope and hard work. The capacity to persist in the middle of summer divides the beginners from the finishers. Who wants to be out weeding the garden in the hot sun?  Yet weeding the garden in summer is an essential step to producing an abundant crop.
 
This is the lifecycle of any creative project. Every project has a beginning, a middle, and an end, just as any dramatic story has a beginning, a middle, and an end. Middles are always the hardest to sustain because they are not as exciting as beginnings and endings.

In the classic “hero’s journey” story structure, the first act sets the scene, introduces the characters, and sets the hero out on the journey. In the third act, the hero has a final confrontation with the primary antagonist that either ends triumphantly or tragically. In either case, the hero is permanently changed.

The middle act lasts as long as the first act and the third act put together. In this act, the hero keeps enduring in the face of obstacle after obstacle. The middle act is the hardest to write. The middle act shows the hero slogging along between the bold beginning and the final brave resolution.

Look at the blockbuster trilogy movies. Star Trek (the early ones,) The Lord of the Rings, The Matrix. Each movie is one act in a three-part drama. The middle movie of such trilogies tends to be the darkest and the most problematic. And typically, the middle movie is the least satisfying of the trilogy, resulting in bad reviews and unfavorable comparisons to the excitement of the first-act movie. It’s hard to be a hero in the middle of the journey, and it’s not as much fun to watch. Yet the middle act is essential to the structure of the drama. The hero who faces the antagonist at the climax of the movie has earned the right by persisting through the trials of the middle.

In the seasons of the year, summer is the middle act. It’s fun to plant in the spring. It’s not much fun to weed and hoe in summer. Yet, the harvest in the fall depends on what happens in the summer. The heroic task of summer is to stick with it, even when you would rather be doing something else.

The true mark of the hero is the willingness to keep on keeping on. This is also the true mark of any successful person who finishes any creative project, whether it is writing a book or building a business or anything else that requires sustained effort over a long period of time. You keep on keeping on, even when you would rather be doing something else. The word for this is “persistence.”

The famous quotation by Calvin Coolidge expresses the reasons why persistence is such an essential characteristic for success.
 
“Nothing in this world can take the place of persistence. Talent will not; nothing is more common than unsuccessful people with talent. Genius will not; unrewarded genius is almost a proverb. Education will not; the world is full of educated derelicts. Persistence and determination alone are omnipotent. The slogan “press on” has solved and always will solve the problems of the human race.”

And so at the beginning of summer, when the days are long and the temptations are great, the question is, “What did you begin in the spring that you need to sustain in the summer to harvest your reward in the fall?”  The essential requirement for making money of a money hero is persistence, even in the long, hot days after the summer solstice.

Kalinda Rose Stevenson, PhD

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“The prudent see only the difficulties, the bold only the advantages, of a great enterprise; the hero sees both; diminishes the former and makes the latter preponderate, and so conquers.”
Johann Kaspar Lavater 

“I am my only hope for a hero.”
Joe in “Joe Versus The Volcano”  

“A hero is someone who understands the responsibility that comes with his freedom.”
 Bob Dylan

“Heroes know that things must happen when it is time for them to happen. A quest may not simply be abandoned; unicorns may go unrescued for a long time, but not forever; a happy ending cannot come in the middle of the story.”
Peter S. Beagle  

 “I believe it is the nature of people to be heroes, given the chance.”
 James A. Autry

“To think great thoughts, you must be heroes as well as idealists”
 Oliver Wendell Holmes

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“The Secret” has been a colossal phenomenon about how to create abundance, using “The Law of Attraction.” When my adult son first watched the “The Secret,” he objected to one dramatic episode. A boy wants a bicycle. He hopes and dreams for the bicycle and spends time gazing excitedly at a picture of the exact bike he wants. And then he sees the bike in the window of the bicycle shop with a “SOLD” sign on it. The boy becomes upset and gives up hope for the bicycle. After a period of despair, he again focuses his hopes and dreams upon receiving the bicycle. Throughout the entire episode, he does nothing but dream. The episode ends when the child opens the door to find his grandfather with the coveted bike as a present. We last see the boy riding off happily on his new bicycle.

The episode is meant to demonstrate that happy and excited thoughts focused on a desired outcome will result in getting what you want. In “The Secret,” the boy “manifested” his bicycle as a result of his concentrated positive thoughts and feelings. This is the secret of abundance in “The Secret.”

My son contrasted this story with his own experience. When he was in middle school, he wanted a Go-Kart. We said he could have one if he earned the money for it. So he went out and offered to work for people in the area. He raked leaves, swept driveways, and did other odd jobs. In a short period of time, he earned enough money to buy his Go-Kart. He “manifested” his Go-Kart as the result of concentrated intention and hard work. He has commented more than once in the years since that we did him a great favor by encouraging him to work to buy his Go-Kart rather than to buy it for him. It taught him that he could have what he wanted by taking focused action to get it.
 
I don’t mean to dispute the validity of “The Law of Attraction,” or deny the possibility that people can manifest what they want to have by concentrated thought. In a world of quantum possibilities, the mind is a powerful creator. I do mean to make the point that entrepreneurs are much more likely to get what they want than dreamers are, because dreamers merely dream, hoping for an outcome. Entrepreneurs act upon their dreams to produce abundance.

On contrast, so many of the stories addressed to children teach magical thinking as the method of manifestation. Fairy godmothers wave magic wands, genies grant wishes, boy wizards recite magic incantations. Children also learn about Santa Claus with his flying reindeer as the great wish fulfiller, a giant rabbit who brings colored eggs and candy, and tooth fairies who exchange baby teeth for cold, hard cash. As a child, I even learned to wish upon the first star I saw at night. I had no similar instruction in how to turn my wishes into reality by creating an action plan.

During elementary school, as a child growing up on Cape Cod, I was involved in a summer children’s theater. I had some small acting roles and did some behind-the-scenes work. During the production of “Peter Pan,” I sat in a theater box to the upper left of the stage and did sound effects. One sound effect was to jingle little bells for Tinkerbell.

In the story, Tinkerbell drinks poison and is dying. Peter Pan calls out to children everywhere to save her life by believing. Peter addresses the audience directly and claims that if there aren’t enough children who believe in fairies, little Tinkerbell will die. At that point, the audience gets involves and wishes Tinkerbell back to life. My part in the dramatic moment was to jingle the bells louder to show that Tinkerbell had been restored by the fervent wishes of the children.

Now, many years after my brief career in theatrical sound effects, I look back on Peter Pan as one more way that the adult world teaches children magical thinking. Maybe it is all part of the wonder of childhood and maybe it is all harmless stuff. But I am not convinced. The common denominator in all of these fantasies is to instill in children the idea that if you only find the right magic spell, the right genie, the right wizard, the right fairy godmother, do the right things to please Santa, then you can have what you want.

Such magical thinking does not end with childhood. When we get older, we can substitute hope in winning the lottery, hitting the jackpot, or buying into the latest biz-op as the way to get rich without doing anything beyond hoping for abundance.

Whatever else “The Secret” teaches, in this one episode about a child who wanted a bicycle, it teaches magical thinking as the method to achieve abundance.
 
In contrast, successful entrepreneurs do what my son did. They don’t use magical thinking to accomplish their dreams. When they want something, they do something about it. As a result, entrepreneurs are more likely to create wealth and abundance than any other group of people.

One way to overcome magical thinking is to understand the real nature of money. Be sure to get your free “52 Heart Of Money Insights.” 

Kalinda Rose Stevenson, PhD

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An entrepreneur abundance strategy is characteristic of the way entrepreneurs approach business. Whether or not entrepreneurs ever use the word “abundance,” the mindset and actions of entrepreneurs are the same mindset and actions that produce abundance.

“Entrepreneur” is one of those umbrella terms that can cover a range of meanings. In essence, an entrepreneur wants more out of life and is willing to do what it takes to have it. An entrepreneur is a dreamer, but dreamers are not always entrepreneurs. The primary skill of the entrepreneur is to imagine what does not now exist, and to take actions to create it.

Entrepreneurs are always “up to something.” Talk with an entrepreneur and you will hear some big plan, some bold idea, some powerful dream to create something that does not currently exist.

Compare someone who buys lottery tickets each week with the hope of striking it rich with the entrepreneur who sets out to create a profitable business. One hopes for an abundant outcome. The other takes action to create an abundant outcome.

Of the two choices, acting to create abundance has vastly greater probability of success than hoping to win a jackpot. Certainly, people do win jackpots, but the odds are miniscule. And the sad result is that many lottery winners end up worse off than they were before winning because they have no idea how to handle their new abundant money.

Years ago, there was a TV show called “The Millionaire.” Each week, a rich man sent his assistant out to give a million dollar cashier’s check to someone. The point of the show was to see how the money changed the recipient. It was usually not for the better.

What is the connection between being an entrepreneur and creating abundance?  Both require a similar mindset. Abundance is the direct result of a creative process. Abundance requires focused action toward your dreams rather than a passive hope that someone will leave abundance on your doorstep. The best strategy for abundance is to become an entrepreneur and create your own abundance.

One of the best ways to create your entrepreneur abundance strategy is to understand the real nature of money. 

Be sure to subscribe to your free 52 Heart of Money Insights. 

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