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Jamie_B

Elizabeth Warren knocks it out of the park!!!

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[quote name='Bunghole' date='18 February 2010 - 11:18 AM' timestamp='1266520689' post='864175']
While I basically agree that the whole house of cards was bad, loans do not lend themselves. People have to sign paperwork/contracts to buy a home if they are borrowing money to do so. Knowing this, it behooves the borrower to know what they can and cannot afford, and what type of loan they are getting.

Whom in their right mind would think it was a great idea to buy a $350,000 house with no money down and an ARM mortgage whereby the payments became out of reach after only a handfull of years?

Again, equal blame goes all around, and I am only willing to argue the surface of this, without getting into the tying of bad loans to securities angle of it. ALL of it was bad, and it never should have happened.

That said, you guys are also right. The banks should have never been in a position to offer bad loans to bad prospects. It defies common sense and good faith in lending practices. OTOH, you are a fool or completely ignorant of the process or mortgages if you buy a house under those terms.
[/quote]


What is the job of a banker, Bung?

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[quote name='Elflocko' date='18 February 2010 - 02:19 PM' timestamp='1266520796' post='864177']
What is the job of a banker, Bung?
[/quote]

To lend money...within proper constraints.

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[quote name='Elflocko' date='18 February 2010 - 02:19 PM' timestamp='1266520796' post='864177']
What is the job of a banker, Bung?
[/quote]


That's kind of where I'm going with this. (at least from the home ownership side, the securities side is more important imo though, because of how it effects the economy and people getting loans on a whole.)

Who holds more responsibility, the person doing the buying to know what he or she can afford amix all the different types of loans, or the person who's job it is to know the types of loans and what their customer can and cant afford?

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[quote name='Bunghole' date='18 February 2010 - 02:49 PM' timestamp='1266522568' post='864185']
To lend money...[color="#FF0000"]within proper constraints.[/color]
[/quote]


This is the important part.

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[quote name='Jamie_B' date='18 February 2010 - 06:49 AM' timestamp='1266504593' post='864141']
But that doesnt even address the mortgage backed securities aspect of this. Should we be having a market in which people are betting on if you or I can afford to pay back our loans? And not just home loans themselves but also home equity loans? (And let's remember the system failed, or people failed to do their jobs, and everything was rated AAA) and should the banks that play in that market be tied to your personal bank? And should those banks be allowed to be involved in so many aspects of finance that if they fail because the system was set up like it was that we have an "oh shit" moment like we did, and mind you still are at risk to do again? Seriously watch the fox business link to understand why the tieing of community banks to investment banks is a problem. (And really listen to the link ElFlocko posted)
[/quote]

Yeah, that is what EW is saying too. Banks shouldn't be doing this with normal deposits. Banks became hogs. They started fucking with financial vehicles they didn't understand. I 100% believe derivatives should be allowed to exist, but in the hedge fund world or alternative markets. Joe Sixpack's paycheck shouldn't be gambled away like that.

Banks won't like the low ROI in the approved investment universe. Ever wonder why all of these free checking accounts started popping up everywhere? Remember, there was a time when you actually had to have money in a bank to use it's services. I can see that model coming back.

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[quote name='sois' date='19 February 2010 - 01:16 PM' timestamp='1266603362' post='864352']
Yeah, that is what EW is saying too. Banks shouldn't be doing this with normal deposits. Banks became hogs. They started fucking with financial vehicles they didn't understand. I 100% believe derivatives should be allowed to exist, but in the hedge fund world or alternative markets. Joe Sixpack's paycheck shouldn't be gambled away like that.

Banks won't like the low ROI in the approved investment universe. Ever wonder why all of these free checking accounts started popping up everywhere? Remember, there was a time when you actually had to have money in a bank to use it's services. I can see that model coming back.
[/quote]


Were in agreement, I dont care much if derivatives exist and people play in that market, I do care that they arent backed up by Joe Sixpack's paycheck/home loan.

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[quote name='Jamie_B' date='17 February 2010 - 06:56 PM' timestamp='1266450971' post='864034']
The point here is that she is in favor of breaking up the banks and putting them as consumer and investment banks again. This cant be pleasing to the Banks whom run things. I'm at school so I cant verify this at the moment as I have to get to class, but I'm pretty sure Obama said this might be an option.
[/quote]

But none of that addressed my point that the entire "too big to fail" notion was fabricated by our "leaders" in Washington as an excuse bail out the banks.

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[quote name='JohnnyUtah' date='19 February 2010 - 03:08 PM' timestamp='1266610134' post='864372']
But none of that addressed my point that the entire "too big to fail" notion was fabricated by our "leaders" in Washington as an excuse bail out the banks.
[/quote]


Why if all they were doing was wanting to bail out these guys, would they then go on to break them up? Think about it.

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[quote name='Elflocko' date='18 February 2010 - 12:17 AM' timestamp='1266470263' post='864098']
The fault lies with the deregulation and the bankers. You can blather on all you want about "personal responsibility" but the folks who were ultimately responsible failed to do their jobs...
[/quote]


[quote name='sois' date='18 February 2010 - 12:47 AM' timestamp='1266472069' post='864100']
Yeah, but that still doesn't invalidate my point. Some people are just corrupt and without regulation, they will try to screw everyone else.
[/quote]

I'm curious for those that think regulation would have saved us from this mess and want to blame this solely on the bankers, where did these banks get this money to make all these bad loans? With a country that had a negative savings rate, you'd think capital would have been hard to come by?

It seems to me, you guys are only addressing a symptom of the problem and not the cause. You can have all the regulation you want, but if you have a central bank pumping the market full of low interest easy credit, these are the types of results you're going to have. On top of the low interest rates, the Greenspan Put was a huge reason you saw these banks behaving in such risky lending practices because after all, it was a win-win for them. If the people paid off their loans they made money and if they didn't they'd get bailed out anyway. And none of this even touches on the push from DC to make home ownership a reality for everyone in America. There's plenty of blame to go around in this disaster, but I just don't think it's ultimately the banks that failed on this one. It seems to me they were acting in the exact manner that our politicians and the Federal Reserve wanted them to.

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http://www.portfolio.com/views/blogs/market-movers/2009/01/27/what-makes-a-bank-too-big-to-fail/


[quote]What Makes a Bank Too Big to Fail?

David, one of my readers, writes in with a question:

I'm curious about what actually makes a bank too big to fail. My guess is that it is because they are counter-parties to many deals, but would something like a CDS exchange help facilitate "canceling out" these deals? If Citi, for instance, was allowed to go bankrupt and quickly liquidated, and their operations sold to solvent banks, what calamity would befall us? Would this be a reasonable alternative to nationalization in which the taxpayers don't have to shoulder the burden of bad assets?

The first thing worth saying here is that too big to fail (TBTF) has nothing to do with counterparty risk or credit default swaps or other such arcana of this particular financial crisis. Instead, it's all about the sheer size of a bank's balance sheet -- its assets and liabilities. And when a balance sheet gets up into the hundreds of billions of dollars, or even into the trillions of dollars, you get big problems on both sides when that bank runs into trouble.

On the asset side, you can't quickly liquidate hundreds of billions of dollars of assets in some kind of fire sale; the Lehman bankruptcy alone is going to take years to work through, since there simply isn't the global capacity to pick up those assets for cash. If another bank were to join Lehman in that process, it could clog up the financial system for the foreseeable future.

What's more, when you do try to liquidate a bank's assets, you set a market price for them. So if the bank has a large leveraged loan, say, which ends up getting sold for 40 cents on the dollar, then there will be a lot of pressure on all the other banks who own that loan to mark their asset down to 40 cents on the dollar. Which could create a whole new round of write-downs and insolvencies.

The liability side is even worse. Lehman had relatively little in the way of unsecured liabilities -- a hundred billion dollars or so -- but when those went to zero, that contributed directly to the Reserve Fund breaking the buck and October's panicked flight to quality. When a stock goes to zero, financial markets can cope, although there are always plenty of unhappy shareholders. If hundreds of billions of dollars of bondholders are wiped out, however, there are nearly always systemic consequences.

And that's not the worst of it. At commercial banks, most of the unsecured liabilities are likely to take the form of deposits rather than bonds. Many of those deposits are guaranteed by the government, which means that a bank failure means a massive direct loss to the taxpayer. And then there's the deposits which aren't guaranteed by the government -- everything from Granny's life savings to the accounts out of which your employer makes payroll every month.

TBTF, then, means that both on the asset and the liability side of the balance sheet, any kind of bankruptcy or liquidation would have devastating systemic effects, and therefore it can't be allowed to happen. There's also a hint in the term that no other bank is big enough to be able to take on the failed bank's balance sheet.

As for credit default swaps, they're derivatives, and therefore zero-sum games. Investors can use them to shunt bank-failure risk elsewhere in the system, but they can't eradicate it. CDS might not be part of the problem, when it comes to TBTF banks, but neither are they part of the solution.[/quote]

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[quote name='JohnnyUtah' date='19 February 2010 - 03:29 PM' timestamp='1266611353' post='864380']
I'm curious for those that think regulation would have saved us from this mess and want to blame this solely on the bankers, where did these banks get this money to make all these bad loans? With a country that had a negative savings rate, you'd think capital would have been hard to come by?

It seems to me, you guys are only addressing a symptom of the problem and not the cause. You can have all the regulation you want, but if you have a central bank pumping the market full of low interest easy credit, these are the types of results you're going to have. On top of the low interest rates, the Greenspan Put was a huge reason you saw these banks behaving in such risky lending practices because after all, it was a win-win for them. If the people paid off their loans they made money and if they didn't they'd get bailed out anyway. And none of this even touches on the push from DC to make home ownership a reality for everyone in America. There's plenty of blame to go around in this disaster, but I just don't think it's ultimately the banks that failed on this one. It seems to me they were acting in the exact manner that our politicians and the Federal Reserve wanted them to.
[/quote]


Oh no doubt the low interest rate issue was part of the problem and to his credit Greenspan is the only one who has offered any me culpa on this. But I don't think we are addressing the symptom and not the cause, the issue for me on too big to fail is allowing them to become to big to fail in the first place. If Glass-Steagal was in place and investment banks were separate from commercial banks we could have let the investment banks fail backed by the dollars those who could afford the loss. With them tied together as you heard Warren say the loans for small business is at risk. And stop blaming the CRA, the majority of subprime was not being done through the CRA, thats just class warfare talk. Further the point here is it should have never been a win-win for the banks, and they dont get bailed out if the arent allowed to become the size they became.

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[quote name='Jamie_B' date='19 February 2010 - 03:39 PM' timestamp='1266611954' post='864385']
Oh no doubt the low interest rate issue was part of the problem and to his credit Greenspan is the only one who has offered any me culpa on this. But I don't think we are addressing the symptom and not the cause, the issue for me on too big to fail is allowing them to become to big to fail in the first place. If Glass-Steagal was in place and investment banks were separate from commercial banks we could have let the investment banks fail backed by the dollars those who could afford the loss. With them tied together as you heard Warren say the loans for small business is at risk. And stop blaming the CRA, the majority of subprime was not being done through the CRA, thats just class warfare talk. Further the point here is it should have never been a win-win for the banks, and they dont get bailed out if the arent allowed to become the size they became.
[/quote]

It doesn't have to be win-win for the banks if you have people in charge that are willing to let them fail. You don't have to limit their size to keep them from getting bailed out, you just don't have to bail them out.

I'm sorry for mentioning the CRA, I'll never do that again. I didn't realize that it had nothing to do with any of this. I mean, how could a mentality and policies from Washington that encouraged everyone to be home owners have ever helped to contribute to this. So stupid of me.

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[quote name='JohnnyUtah' date='19 February 2010 - 03:53 PM' timestamp='1266612806' post='864388']
It doesn't have to be win-win for the banks if you have people in charge that are willing to let them fail. You don't have to limit their size to keep them from getting bailed out, you just don't have to bail them out.

I'm sorry for mentioning the CRA, I'll never do that again. I didn't realize that it had nothing to do with any of this. I mean, how could a mentality from Washington that encouraged everyone to be home owners have ever helped to contribute to this. So stupid of me.
[/quote]


*sigh*

http://www.portfolio.com/views/blogs/market-movers/2009/01/27/what-makes-a-bank-too-big-to-fail/

and

http://www.responsiblelending.org/mortgage-lending/policy-legislation/congress/cra-not-to-blame-for-crisis.pdf

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[quote name='Jamie_B' date='19 February 2010 - 03:57 PM' timestamp='1266613033' post='864390']
*sigh*

http://www.portfolio.com/views/blogs/market-movers/2009/01/27/what-makes-a-bank-too-big-to-fail/[/quote]

Sigh all you want, just because someone throws around big numbers it doesn't mean a company can ever be too big to fail. The worst that would have happened would have been a collapse of our banking system which is inevitable anyways.

[quote]and

http://www.responsiblelending.org/mortgage-lending/policy-legislation/congress/cra-not-to-blame-for-crisis.pdf
[/quote]

Congratulations, the CRA didn't not cause this meltdown. Go back and read my post. If your take from what I wrote was that the CRA was the cause of this mess, then I can't help you. Apparently I didn't make it as obvious as I thought I did that it's my belief the main factor in this was the Federal Reserve. In addition, I didn't even mention the CRA in particular, I said there's been a push in Washington to make home ownership a reality for everyone. You're the one that made the assumption that I was A. talking specifically about the CRA and B. that I was placing all the blame on them. Like I said before, there's plenty of blame to go around whether you want to believe that or not is up to you. Your claim that I can't even bring up the mentality that existed in Washington regarding home ownership for the past 70 as one of the problems, in a long list of problems, makes no sense.

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[quote name='JohnnyUtah' date='19 February 2010 - 04:16 PM' timestamp='1266614168' post='864396']
Sigh all you want, just because someone throws around big numbers it doesn't mean a company can ever be too big to fail. The worst that would have happened would have been a collapse of our banking system which is inevitable anyways.
[/quote]


Define failure. Is breaking them up and going back to where we were before the removal of glass-stegal failure? If so then were in agreement, if not then we arent. I have no doubt that some of these banks are going to fail and should fail, but and here is where we differ, if you can break them up and allow those who would could still succeed to do so, then I say do it and there are a few reasons why I say that from this article...

1. [quote]What's more, when you do try to liquidate a bank's assets, you set a market price for them. So if the bank has a large leveraged loan, say, which ends up getting sold for 40 cents on the dollar, then there will be a lot of pressure on all the other banks who own that loan to mark their asset down to 40 cents on the dollar. Which could create a whole new round of write-downs and insolvencies.[/quote]

and

2. [quote]And that's not the worst of it. At commercial banks, most of the unsecured liabilities are likely to take the form of deposits rather than bonds. Many of those deposits are guaranteed by the government, which means that a bank failure means a massive direct loss to the taxpayer. And then there's the deposits which aren't guaranteed by the government -- everything from Granny's life savings to the accounts out of which your employer makes payroll every month.[/quote]

[quote name='JohnnyUtah' date='19 February 2010 - 04:16 PM' timestamp='1266614168' post='864396']
Congratulations, the CRA didn't not cause this meltdown. Go back and read my post. If your take from what I wrote was that the CRA was the cause of this mess, then I can't help you. Apparently I didn't make it as obvious as I thought I did that it's my belief the main factor in this was the Federal Reserve. In addition, I didn't even mention the CRA in particular, I said there's been a push in Washington to make home ownership a reality for everyone. You're the one that made the assumption that I was A. talking specifically about the CRA and B. that I was placing all the blame on them. Like I said before, there's plenty of blame to go around whether you want to believe that or not is up to you. Your claim that I can't even bring up the mentality that existed in Washington regarding home ownership for the past 70 as one of the problems, in a long list of problems, makes no sense.
[/quote]

What exactly did you mean by "And none of this even touches on the push from DC to make home ownership a reality for everyone in America." then? Home ownership within reason, I dont think anyone is stupid enough to push it for those who would never be able to afford it UNLESS there is a way to profit off of that model, and guess what....

As far as the CRA for anyone who is blaming it, the CRA does not require that lenders make sub-prime and high risk loans (and they were not largely happening because of it) the CRA was passed for the purpose of forcing banks to make loans to those who could afford it in certain neighborhoods. Banks, pre the CRA were not willing to give loans based on where you were doing development. So if I am a business owner who wants to invest in the community I could never do it in certain neighborhoods. It was passed to stop discriminatory lending.

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[quote name='JohnnyUtah' date='19 February 2010 - 12:53 PM' timestamp='1266612806' post='864388']
It doesn't have to be win-win for the banks if you have people in charge that are willing to let them fail. You don't have to limit their size to keep them from getting bailed out, you just don't have to bail them out.

I'm sorry for mentioning the CRA, I'll never do that again. I didn't realize that it had nothing to do with any of this. I mean, how could a mentality and policies from Washington that encouraged everyone to be home owners have ever helped to contribute to this. So stupid of me.
[/quote]

I agree with "don't bail them out, let them fail". All of the TBTF was all theoretical anyway. Sure you can project a total systematic failure, but in reality, anything could happen. Yeah it would take years to sort everything out but I definitely feel it wasn't a totally ridiculous theory.

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here is the other part of why i think investment banks need to be separated from community banks

We have a mentality by a set of folks in this country with regard to getting rich quick, we saw it with the tech bubble and the the things people were willing to "invest" in, we saw it with the subset of folks that were not even living in the homes the had or lived in them a short period of time for nothing more than the purpose of turning those houses to make a profit. Well when you have investment banks and community banks allowed to exist in the same entity when people's investments go bad you end up taking everyone down with you because the money that was in the banks accounts is not there anymore and this means they have to restrict loans to normal regular people as we heard miss warren say. That becomes a problem when people who can afford it, cant buy a house or cant get a loan for a small business because the lending is frozen. Now of community and investment banks are separate, banks that allow people to bet their money in the stock market arent on the same balance sheet as banks that back small business or home loans, thus they arent tempted to use the money of folks who arent involved in the market to back the losses of those who are. The ideal of a mortgage backed security was a horrible idea and so is any other idea that uses the money of folks who are playing fair to back the ones who are taking the risks. That should never have been allowed to happen, and with separate entities between community and investment banks, it doesnt.

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[url="http://www.counterpunch.org/roberts02192010.html"]"Wall Street’s approach to the poor has always been to drive them deeper into the ground."[/url]
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"But I'll tell you what they don't want... They don't want a population of citizens capable of critical thinking. They don't want well-informed, well-educated people capable of critical thinking. They're not interested in that. That doesn't help them. That's against their interests. They don't want people who are smart enough to sit around the kitchen table and figure out how badly they're getting fucked by a system that threw them overboard 30 fucking years ago. You know what they want? Obedient workers – people who are just smart enough to run the machines and do the paperwork but just dumb enough to passively accept all these increasingly shittier jobs with the lower pay, the longer hours, reduced benefits, the end of overtime and the vanishing pension that disappears the minute you go to collect it. And, now, they're coming for your Social Security. They want your fucking retirement money. They want it back, so they can give it to their criminal friends on Wall Street. And you know something? They'll get it. They'll get it all, sooner or later, because they own this fucking place. It's a big club, and you ain't in it. You and I are not in the big club."

-- George Carlin
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[quote name='Elflocko' date='20 February 2010 - 03:17 PM' timestamp='1266707861' post='864546']
"But I'll tell you what they don't want... They don't want a population of citizens capable of critical thinking. They don't want well-informed, well-educated people capable of critical thinking. They're not interested in that. That doesn't help them. That's against their interests. They don't want people who are smart enough to sit around the kitchen table and figure out how badly they're getting fucked by a system that threw them overboard 30 fucking years ago. You know what they want? Obedient workers – people who are just smart enough to run the machines and do the paperwork but just dumb enough to passively accept all these increasingly shittier jobs with the lower pay, the longer hours, reduced benefits, the end of overtime and the vanishing pension that disappears the minute you go to collect it. [b]And, now, they're coming for your Social Security. They want your fucking retirement money.[/b] They want it back, so they can give it to their criminal friends on Wall Street. And you know something? They'll get it. They'll get it all, sooner or later, because they own this fucking place. It's a big club, and you ain't in it. You and I are not in the big club."

-- George Carlin
[/quote]

Pet Peeve: Anyone who thinks Social Security is a retirement plan.

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[quote name='sois' date='21 February 2010 - 12:46 AM' timestamp='1266731206' post='864572']
Pet Peeve: Anyone who thinks Social Security is a retirement plan.
[/quote]
Agreed. SS is so much more than a mere retirement plan. It's a wonderful and glorious communal celebration of a culture which implicitly knows, and thus explicitly acts upon, the certitude that it is morally reprehensible to maltreat the physically and mentally disabled members of your community, or to discard the aged like they were pieces of scrap. The money we pay in now pays for those who have gone before us and who have made their contribution to our society. And if SS disappears, it'll be because the more venal and immoral elements of our society took control of the levers of power. The only thing worse than being the latter sort of person is, imo, being one who licks the boot that is on one's neck and thinks the taste is good.
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[quote name='sois' date='20 February 2010 - 09:46 PM' timestamp='1266731206' post='864572']
Pet Peeve: Anyone who thinks Social Security is a retirement plan.
[/quote]

Yeah, but I still love the attitude and mentality of the rant.

[quote name='Homer_Rice' date='21 February 2010 - 04:16 AM' timestamp='1266754576' post='864590']
Agreed. SS is so much more than a mere retirement plan. It's a wonderful and glorious communal celebration of a culture which implicitly knows, and thus explicitly acts upon, the certitude that it is morally reprehensible to maltreat the physically and mentally disabled members of your community, or to discard the aged like they were pieces of scrap. The money we pay in now pays for those who have gone before us and who have made their contribution to our society. And if SS disappears, it'll be because the more venal and immoral elements of our society took control of the levers of power. The only thing worse than being the latter sort of person is, imo, being one who licks the boot that is on one's neck and thinks the taste is good.
[/quote]

And sadly, I will be stunned if SS is actually there by the time I'm eligible. I started planning nearly 10 years ago as if it wouldn't be...

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[quote name='Elflocko' date='21 February 2010 - 01:24 PM' timestamp='1266787460' post='864642']
Yeah, but I still love the attitude and mentality of the rant.



And sadly, I will be stunned if SS is actually there by the time I'm eligible. I started planning nearly 10 years ago as if it wouldn't be...
[/quote]

Everyone should always plan for a retirement plan other than SS.

SS will never not be there, unless everyone suddenly stops working and paying in to the system. Remember, you are paying for the benefits of those retired now.

The SS system is effed up. I hate that I pay into the system the same amount as Shaq. It's fucked up. I also don't believe everyone should get it. One think I hated about financial planning for affluent clients was that they were drawing SS checks. It made me sick. People with a balance sheet larger than X (determined by someone smart) shouldn't draw a check.

And don't bitch about that not being fair. I pay for tons of shit I don't get to use. Lord knows how much cash I pay that goes to schools.

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