Adjustable rate mortgage (ARM) is a taboo term by now, while the mess in the subprime loan market continues to unfold.

ARM is another financial tool with a purpose for its existence. However, buyers abused it to buy a house they cannot afford, and banks abused it to get unsubstantiated numbers on their balance sheet. We can generalize that bad outcomes in human society is always the result of an abuse of certain power.

ARM is a good option for someone who wants to buy a house in short-term. It allows the buyer to keep more money in the pocket for the period of time with the initial interest rate, while he invests those money in other places for a higher return. There are also various types of ARM to “tweak” the amount of payment. The usual scenario is for the buyer to live in the house for however long before the interest rate reset and then sell it.

Essentially, the buyer must understand that by taking an ARM, he is speculating on an appreciating housing market. If he plans to live beyond the expiration of the initial interest rate, he’s betting on a reset to lower percentage for the interest rate. The ideal scenario is either selling the house before the reset at an appreciated price, or staying in the house with a reset to a lower percentage. It’s neither the case for the people with ARM, which brings us to the current situation.

I wonder if the ARM buyers in default or facing foreclosure thought and understood about ARM when they took the loan. I doubt it though. They were too busy marveling at the house that’s too big for them to afford. I also wonder if the banks made sure that buyers understand ARM. I doubt that too. They were too busy adding all the numbers on their quarterly reports.

But then, perhaps ARM will be a good option for me in the next few years?

Based on current news, the federal policy will help a selective group of subprime homeowners by freezing the rate for a period of 5 years applicable to those who are still on time with their payment but could not afford a rate reset. In a sense, the selectiveness of this plan is good news because the less government intervention the better, and it means limited government involvement with a free market that badly needs to correct on its own. Nonetheless, the concept of a government supported bailout is still scary, no matter in what scale. Notice I said concept.

Let’s walk through some implications that I had learned.

Promoting Irresponsible Spending, Investing Behavior

Let’s be honest. People who are truly responsible are not those who cannot afford their mortgage. People who are responsible would learn and understand what they are getting themselves into and buy a place they can afford down the road. These people who took an ARM made a bet, whether they think of it this way. Any betting involves risk, just like investing in stocks, starting a business, or gambling in casino. Now that they lost the bet, are they supposed to be able to kick, scream, whine, and complain to get away with it? People who lost in casino don’t get saved. People who bankrupted on their own business don’t get saved. Why this case? Sorry to sound cold-blooded but tough love is sometimes best to teach a lesson. Without consequences, it is difficult for people to learn responsibility, like how we teach kids. If they provide a bail out in this scenario, they may as well bail out people who lost money on stocks, lost money in business. Heck, they should even bail out those who are defaulting on their car loans. After all, we need to “protect the American dream”, and last I heard, that includes owning a McMansion and luxurious vehicles. And what lesson? Who needs to learn anyways?

Repurcusion for Future Home Buyers

Banks are not the owner of the money they lend out. They receive those money from lenders who are looking to receive return base on interest rate. If the government freeze the rate, that takes away the potential return that they invested their money for. They will be intimidated by what else they government can possibly do in the future and therefore, will become much more conservative about investing in the bank loans. To secure a certain income level and to entice lenders for their money, banks will start charging higher rate for all mortgage loans. For this, let me laugh at those who will take out mortgage in the near future. You just got screwed. Oh wait, I’m one of those people… crap!

Punishment for Taxpayers

This is speculation, but the government may end up paying some lenders, not the banks, who actually own the loans to compensate for their loss. Additionally, the government or the banks will need an agency to identify qualified homeowners and process their applications. Someone has gotta foot the bill. This means taxpayers are paying, including many of us who are too responsible to take out an ARM to buy a giganto house. Banks will try to come up with ways to pay for the cost of this plan. They will do things such as increase various financial charges, invent new types of financial charges, lower saving account’s rate… So why save? All you dummies should be taking out ARM you cannot afford. Wait, I don’t have an ARM either… Argh!!!

Prolonging the Housing Bubble

We can all agree on how bloated the housing prices have gotten, especially in major cities. A correction is needed and is a healthy process for the cycle. Responsible people who have been saving diligently to afford a home will benefit from the correction that will lead to more reasonable pricing. Looks like they will have to wait longer now.

Renters will also suffer

Based on the last point, less people will be able to afford their own place due to the lack of, or a delayed correction. Consequently, they will have to rent. The demand for rentals together with sustained high housing price will lead to high and increasing rental prices, which also means less saving to contribute to a down payment. Ouch, a double whammy. I’d like to point out renters in the bay area is definitely feeling the pain of the ever-raising rent. On a side note, I guess when the government says “they will protect the American Dream”, they apparently mean they will protect the American Dream just for those who already own a house, and not those who rent. Renters don’t deserve to dream. I guess I’m stuck in reality then.

Delaying the Inevitable

Last but not least, people who need to be bailed out cannot afford a rate reset on their ARM payment now, how likely are they able to do that 5 years down the road? Their possibility for this is not high, unless the interest rate drops to something like 1% again, which very very unlikely. These people stand a good chance to lose their home to foreclosures 5 years from now still. Will the government bail them out again? I guess we will have to see.

Unpredictable Outcome and Behavior

We don’t know the specifics on who and how ones qualify for a rate freeze. Once we find out, some may take drastic measures in order to qualify. The possibility for abuse simply exists.

I’m not saying that all of these things WILL happen. They are all possible ripples that may result from the government dropping this stone in the pond. However, in the grand scheme of things, this plan which supposedly “protect people from losing their homes” will hurt everyone in more ways than one and at the same time, will “save” just a small group of homeowners only within a 5 years period. You can decide if this is worth it. I personally see more political agenda for this action than the government genuinly want to do something for the people. Now they can claim they have done something. I feel the situation is dire because our economy, and therefore our life, is dictated by a bunch of halfwits who seem to be irresponsible, lacking foresight, and high on we… I mean, greed.

Thank you for reading my commentary.

I’m surprised I’ve never seen this article mentioned in any of the PF blogs out there. It’s the exact same thing that everyone always talk about in the PF blogsphere. Kudos to Scott Adams.

1. Make a will
2. Pay off your credit cards
3. Get term life insurance if you have a family to support
4. Fund your 401k to the maximum
5. Fund your IRA to the maximum
6. Buy a house if you want to live in a house and can afford it
7. Put six months worth of expenses in a money-market account
8. Take whatever money is left over and invest 70% in a stock index fund and 30% in a bond fund through any discount broker and never touch it until retirement
9. If any of this confuses you, or you have something special going on (retirement, college planning, tax issues), hire a fee-based financial planner, not one who charges a percentage of your portfolio

Everything except point 8 to the last is a common theme echoing what most PF bloggers emphasize out there, with point 8 being argued that you should tweak the percentage of your portfolio in stocks and bonds as you approach your planned retirement age. Notice he promotes the use of index fund too. Good stuff.

Bad timing.
They want the right timing to take action.
They wait and wait and wait.
Meanwhile, they stand still and do nothing.
Maybe they talk about it.
Maybe they think about it.
But otherwise, they do nothing.
Seconds go by, minutes go by, hours, days, weeks, months go by…
They wait and wait and get more and more complacent.
All the while, still telling themselves it’s not the right time yet.
Years passed by and they seem to have forgotten what exactly was that they wanted to do.
Then maybe one day, they realize suddenly as if struck by lightning…
“Oh, I haven’t accomplish anything…”
Or maybe they wont’ realize…
Too comfortable to notice, too comfortable to care.
Or maybe they are too comfortable to make changes anymore…
They continue to wait for the right timing.
There is always tomorrow.
There is always more time.

Aren’t we all familiar with the scenario above looking at the people around us?
Sadly, that’s the majority of the population.
Maybe you are one of them.

I’m 24 now.
Maybe it’s safe for me to say that?
Maybe I can just sit back and relax and do nothing for awhile?

I chose the difference.

I encountered the death of a near-age friend earlier this year. One day I was still chatting with him and then couple days later he’s gone. No sign. No prologue. He just left. I was speechless when I got the news. There is no words to describe.

I took that to the heart. It is not that I am afraid of death. It is actually about facing death. Chinese people avoid talking about death, and I hate it. Death lets me find and identify the things are meaningful to me, the things that I genuinely want to do. Those things are a part of my character. Without them, I am not the person I am. They are my priorities. If I don’t act in accord to my set of priorities each moment, I may not live to the next day to do them. It is precisely facing death that lets us to be not of it because we will start to do the things that define us in the best of our ability everyday. Things like caring for my family, being kind and compassionate to people, always trying to learn, becoming financially stable and independent, playing piano, trainingly myself mentally and physically, doing what I can for the world (You can laugh at me but I’m serious and sincere about it)… I have no regret if I am to die. It is doing with the end in mind. I also believe this helps to put us at ease and let us find that inner peace.

I do still relax and have fun. Sometimes I get tired and slack off, but I remain conscious and mindful of my priorities. Your priorities are your character, and there is no bad timing to act in your character. I am not suggesting to act rashly and bully ahead because there are moments, quite often actually, that require patience depending on situation. It is about consistently making the choice to move forward and contribute to those priorities, despite hectic schedule, despite fatigue, despite difficulty, despite bad timing. It is about making choice proactively to move forward with regards to what you truly want to do and the person you want to be, while staring death straight in the eyes.

So I urge you…
If you are still waiting for the right time…
Stop talking.
Stop thinking.
Stop reading.
Stop finding excuses.
Do something already.

Today I share with you an understanding of awareness in terms of Zen, which differs from the way I talked about awareness before.

First of all, awareness exists in all of us. One does not have to create or implement awareness per se because it is alwas there, always a part of us. Then how come we have not all become Zen masters?

What happened is that all the cultural, societal, and environmental conditioning that happened during our youth stopped us from being aware more and more so as we grow up. We live in an age and era where we are trained and told to be driven by emotions and thoughts. Emotions and thoughts exactly the things that cloud and bury our awareness. What we need to do is to stop buying into such culture to uncover the awareness that has always been there.

Awareness is above and separate from what our thoughts and feelings. It is about seeing the truth, unclouded and without the intrusion of thoughts. You can think of awareness as a silent observer with a third-person perspective.

Thoughts distort reality and prohibit us from seeing thing as it is. Seeing things with a pessimistic point of view is a distortion of reality. Seeing things with a optimistic point of view is also a distortion of reality. Thoughts are always subjective because they are based on one’s perspective. Awareness — the silent observer within each of us — allows us to be aware of our thoughts, and then we will start to see things as they are.

Sadness is just sadness. Pain is just pain. Happiness is just happiness. Passion is just passion. But we do not experience life like that. We label those experience as “good” and “bad” with subjective thoughts. We think that being sad is bad and being happy is good, even though we all know that is not always true. What hurts now may become beneficial for us later, and what gives us pleasure now may induce pain later.

There is no need to suppress sadness or try to avoid it. Same for pain. Same for happiness. When you are sad, you are just sad. Likewise, when you are happy, you are just happy. There is no need to perpetually drown in the sadness, nor there is any need to try to capture and retain the sense of happiness. There is no need to worry about how this happiness will eventually disappear. There is no need to punch people in the face when you are angry. You just need to feel and experience the emotions fully, without suppression, without dramatization. Fully experiencing is a silent act.

It is the same for our thoughts. There is no need to suppress thoughts. Instead, when you are aware, you simply see the thoughts that linger in your mind purely as they are, and hence you see the truth within yourself.

Put in other words, awareness is simply being. When we see a beautiful sunset, we can simply watch and be in the moment of watching sunset. That is simply being. When we try to capture the sunset, that is not simply being. When we exclaim, “what a beautiful sunset!”, it is not simply being, but I am not saying you cannot say such things :)

I am not saying we should be emotionless and heartless because we are humans after all. Living in society, we cannot be without attachments and therefore emotions and feelings. What we can achieve is being aware of our thoughts and emotions, and emotions being just bodily sensations in the most basic levels. When we see our thoughts, then we see thing as it is. Awareness is inside all of us. But for most of us, it is like a mirror cover with a thick layer of dirt as we grow up. We will need to uncover it to once again to use it in life.

The more you practice awareness, the more time you can sustain it. You will shift in and our of being aware as you practice. Ideally, enlightenment is when you are aware 100% of the time in life, but it’s very difficult to reach that level. Going back to the mirror analogy, the process of practicing awareness is like polishing the mirror. Englightenment is the moment when you becomes the mirror. When you are the mirror, there is also no mirror. This is the basic principle of oneness, void, emptiness, connectedness in Zen and Buddhism.

You must understand, however, that awareness is not a silver bullet. It does not solve all your problems. It does not take away pain and sadness. In fact, if defined through common subjective point of view, it makes living experience MORE painful because you are no longer running away from emotions. What it allows is, to provide you with a sense of peace and calmness in situations to allow you to make the best judgement and decisions. It does not provide right or wrong answer, but it most probably allow you to make choices to move in directions that is more desirable to your being. It is also through awareness that this peace and calmness allow you to find a sense of joy, which not the same as happiness, in life. Joy is the ability to appreicate and find wonder in each moment.

It is important to specify that that awareness does not solve your problems because people often turn to Zen when they run into obstacles in life and would like to “try out” Zen as a solution, an answer to their problems. By seeking Zen as a solution and trying to “find” awareness in order to be rid of the pain and suffering, they have already fail the fundamental concept of Zen and awareness. The action of trying to “find” awareness in itself already defies the essense of awareness or Zen. It is not an object or a destination to be reached because it is already a part of you. The notion of removing pain and suffering is also defiant to the concept awareness because pain and suffering is a part of life as long as you are alive. You simply have to be aware of your pain and suffering, and any other thoughts and emotions. Just being aware of and experiencing those things as they are untainted by thoughts. You simply be.

Awareness is simple and straightforward, but it is not easy. It is difficult because each and everyone of us grew up years under life conditions that put us in varying degree of unaware state. It is difficult because it is not easy to simply be, under the scope of modern society. It is difficult because it could take any amount of time to for people to regain awareness. It may takes years, or even a lifetime because everyone goes through different experience in life. This difficulty turns a lot of people away and not follow through with Zen. Additionally, Zen is indescribable and can only be experienced, which makes it incomprehensible despite all the Zen writings available out there. What I am doing here is sharing with you my experience, the best I can describe in words.

With that said, let me try to provide an example of awareness in a personal finance scenario. Let’s say a stock for which you own a lot of shares is dropping. You will likely begin to feel a panic. Maybe you will quickly sell all the shares because of the panic. However, if you maintain awareness, you are aware of the panic sensation and aware of the fright of loss. You simply be aware and and experience them, knowing that they are just emotions. With that, you keep your calmness and analyze if the prospect of the stock is really that bad, then you should sell the stocks, or if it’s only temporary and you can wait it out.

Now let’s move on to a different scenario that concerns personal relationship. In fact, this is a personal example based on my own recent experience. A person who I consider important to me has decided to give up on our relationship. Honestly speaking, it is the last thing I want to happen between us, but it did after a conversation. As I am only human, it is most unpleasant, and I felt sad. Additionally, thoughts like what could have been done and doubts about the real causes inevitably torment me. However, I do my best to be aware of those thoughts and the feeling of sadness. I simply am aware of them. That allows me to see that she has made a decision to the best of her ability based on her situations, and that I have offered the best of myself throughout the time together. That is simply how it is. She has chosen a different path. I feel the same way toward her before this happens and wish that whatever happens, she is happy.

It is not that I do not think anymore. It is not that I am not sad anymore. It is that… When I am sad, I am fully sad. When I am angry, I am fully angry. When I am happy, I am fully happy. Emotions are emotions and thoughts are just thoughts. They are all parts of my experience. I am not to suppress them. I am not to avoid them. I identify and acknowledge them as they happen. I simply experience them and be. It is a moment in my life like any other ones, and as I experience and be in the moment, life continues as I remain in peace. In a sense, being aware has indirectly helped me come to terms or let go of the life events faster.

Zen is simply being aware. Awareness is simply being. That’s why simply being lets you find joy and peace in each moment.

That is how I understand awareness and Zen now.