Toxic investments are one of the reasons Bank of America is in deep trouble, and laying off 30,000 employees, in an effort to survive. It all involved packaging toxic mortgages into nice bundles, getting them graded “AAA,” and selling them everywhere. AIG, in some instances, insured them, which almost killed AIG. People were buying homes they couldn’t afford, thanks to Barney Frank and Company, who told Fannie Mae, Freddie Mac, and banks to loan to unqualified buyers. Banks off-loaded them, and the chain of events proceeded. Bank of America made a huge mistake in buying the largest mortgage broker then in existence, Countrywide, which had loaned billions of dollars to poor risks. Thousands are suing Bank of America currently, because of toxic investments they made with the bank, who assured them it was all OK.
40% of mortgages in America are “under water.” This means that more is owed on homes than they are currently worth. Millions of homes are for sale with no buyers, and Fannie Mae and Freddie Mac are holding the paper for trillions of dollars in mortgages. Freddie and Fannie are owned in the main by the U.S. government, which means Uncle Sam has loaned trillions of dollars in paper money to home buyers, 40% of whose homes are now worth less than they owe. Toxicity in spades.
A local restaurant recently went bust, which was obviously going to happen, as it had been going downhill for months. When it went, a local prominent doctor lost his huge investment. The restaurateur had convinced the doc that she was a good investment. She wasn’t. It was a toxic investment, and the doc took a beating. Another local restaurant also went bust, and the Small Business Administration was left holding that bag. Another toxic investment by Uncle Sam, who has trillions of dollars worth of them. There have been hundreds of banks gone bad this year so far. The FDIC guarantees the deposits, but the bank stockholders aren’t covered, and their buying stock in a weak bank (usually because of bad mortgages), was a toxic investment. The FDIC has about a nickel in its till for every hundred dollars of bank ’insurance,’ and the FDIC could eventually become a toxic investment for the feds.
People who owned GM and Chrysler stock took a bath, thanks to big government, and the list is endless as to investments which have gone bad, or were toxic. More and more will surface as the economy continues to degrade. Jobless claims up again this week. (As I finish this, gold and silver are a huge, non-toxic, buys this morning!)
Probably the worst toxic investment one can make, are dollars in savings accounts and CD’s, even if they’re good as far as paying out the dollars when due. It isn’t the bank’s ability to pay the dollars, but the dollars themselves. Dollars are a toxic investment, simply because they lose value every day, week, month, and year. Ten years ago, gasoline was $1.27 a gallon, and today it is $3.66. Ten years ago, gold was $272 an ounce, and today it is $1800 an ounce. Had you bought gasoline ten years ago, it would not be any good today, as it would be old and probably not work in an engine. The cost of storing it for ten years would have eaten up the increase in price probably, even if it would still fire in an engine. Gold would have quietly rested in a safe place, and it’s price would have hedged its owner against inflation. The value of gold hasn’t changed over the years, only its price. An ounce of gold has always bought a good man’s suit, and still will. $100,000 invested in a CD ten years ago, would have initially given a 5% interest rate, but a year later, it was 1% and has stayed about there ever since.
If gold had gone up 3% a year, today it would be less than $380, rather than the $1800 it currently is. Gold has averaged over a 20% increase per year over the last ten years. It is not a toxic investment. That’s not the only reason it isn’t a toxic investment. 99% of investments are totally dependent for their prices on another item or entity. The price of a home, the backing of the investment, be it a corporation, government, property, law, rule, mandate, or whatever decides a price. Bullion gold stands alone, and is in no need of a backing or guarantee. It is self backed, and self guaranteed. ’Bullion’, means closest to spot price. Numismatic gold coins are not self backed, but depend on the outfit that graded them, and determined, in its opinion, in what condition they are.
You wouldn’t put Joe Blow’s motor oil in your Mercedes. You want Mobil One, Quaker State or Pennzoil. You wouldn’t buy Jenny Fruitcake’s mayonnaise, but you probably want a good brand like Kraft. Brands are important in gold and silver, and you always want a good brand or ’hallmark.’ Why? Because when you want to sell it, if you do, you want someone to buy it and who would want or buy a gold coin with an unknown name on it? A known, reputable hallmark, such as Gold Eagle, Krugerrand, Credit Suisse, Johnson-Matthey, or Maple Leaf, are a guarantee of purity and sale-ability. An unknown hallmark may sound cheap, but it isn’t. Gold dust and nuggets are not a good investment, as you don’t know their purity or weight, and if you buy, who could you sell to if it is necessary? Gold and silver bullion are not toxic investments.
P.S. Here are five true sentences someone sent to me
(1) You cannot legislate the poor into prosperity by legislating the wealth out of the prosperous.
(2) What one person receives without working for, another person must work for without receiving.
(3) The government cannot give to someone, without first taking from someone else.
(4) You cannot multiply wealth by dividing it.
(5) When people don’t have to work because others will take care of them, they usually will not work, and when those working, have the results of their work taken from them and given to the non-workers, that is the beginning of the end of any nation.