Nimitz News - Sept. 22, 2013

September 22, 2013

Vol. 39 No. 33

INSIDE: SCI-FI WRITERS PG. 6

NEW GAME REVIEWS

PG. 12

NIMITZ NEWS | SEPTEMBER 22, 2013

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Commanding Officer Capt. Jeff Ruth Executive Officer Capt. John Cummings Command Master Chief CMDCM Teri M. McIntyre Public Affairs Officer Lt. Cmdr. Karin Burzynski Media DIVO Ensign John Mike Media LCPO MCC Mike Jones Media Production Chief MCC Gregory Roberts Media LPO MC1 Michael Cole Editor MC2 Jason Behnke Lead Designer MC3 Raul Moreno Jr. Media Department MC2 Jacquelyn Childs MC2 Ashley Berumen MC2 Nichelle Bishop MC2 Devin Wray MC2 Ryan Mayes MC2 Alexander Ventura II MC3 Renée L. Candelario MC3 Shayne Johnson MC3 Jacob Milner MC3 Christopher Bartlett MC3 George J Penney III MC3 Linda S. Swearingen MC3 Jess Lewis MC3 Vanessa David MC3 W. J. Cousins MC3 Derek Volland MC3 Phil Ladouceur MC3 Sam Souvannason MC3 Nathan McDonald MC3 Joshua Haiar MCSN Kole Carpenter MCSN Derek Harkins MCSN Kaitlyn Haskett MCSN Eric Butler MCSN Siobhana McEwen MCSA Aiyana Paschal MCSA Kelly Agee MCSA Victoria Ochoa MCSA Andrew Price Nimitz News accepts submissions in writing. All submissions must be in by Friday, COB. Submissions are subject to review and screening.

“Nimitz News” is an authorized publication for the members of the military services and their families.

Its content does not necessarily reflect the official views of the U.S. Government, the Department of Defense, the Department of the Navy, or the Marine Corps and does not imply endorsement thereby.

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By Lt. Cmdr. Jeffery Jenkins

Count Your Blessings “Extension” is one of those words that most service members dread hearing. As we continue to operate in the Red Sea, there are a variety of reactions to the extension as I talk to individuals across the ship. Some are happy for extra tax-free money – always a plus. Others just want more certainty to the schedule. Yet another group thinks we need to leave yesterday. Nerves may be slightly on edge in work centers and complacency can also set in. During challenging times, it is easy to lose perspective. It’s easy to dwell on the negative rather than seeing opportunity.

We can’t always control our environment but we can control our response. How we respond to external circumstances will directly affect our success and long term happiness. In fact, Dr. Allen Parducci, a prominent UCLA researcher, sought to find out what makes a happy couple. His research revealed that the level of a couple’s joy is determined by each partner’s ability to adjust to things beyond his or her control. Examine yourself today and ask, “How well do I adjust to my surroundings?” I would argue that is a key character trait to military success as well.

One attitude that helps us to have joy and a healthy response to difficult circumstances is a thankful heart. An old Christian hymn by Methodist preacher, Johnson Oatman, Jr., reads, “When upon life’s billows you are tempest tossed, When you are discour-

aged, thinking all is lost, Count your many blessings, name them one by one, And it will surprise you what the Lord hath done.” Have you stopped and counted your blessings? It is easy to count our sorrows and pains. We gather with our friends around a pot of coffee or other beverage and do so regularly. We find complaining therapeutic and perhaps at times it is best to get things off our chest. More frequently, however, complaining just reminds us of the depressing elements of life causing further depression.

Roman orator and writer Cicero: “A thankful heart is not only the greatest virtue, but the parent of all the other virtues.” A thankful heart chases away pity parties and opens our eyes both to our true blessings and to the needs of others. A thankful heart breeds joy but an ungrateful heart breeds bitterness. The Apostle Paul wrote the word joy or rejoice seven times in his short letter to the Church at Philippi. His letter of encouragement was written from prison to those who were free! That’s the power of a thankful heart.

We don’t have control over our schedule as a military service member. That is a reality whether we are on an extended deployment or not.

You do have the choice to control your response to your environment.

Be thankful for the blessings and opportunities and develop a healthy approach to the challenges. How will you respond today?

NIMITZ NEWS | SEPTEMBER 22, 2013

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A Family Affair C Story by MCSN Siobhana R. McEwen

“I’d like to see things go full circle, so I can pin him when he makes chief.”

-Flakes

Chief Aviation Boatswain’s Mate (Handling) Jeralyn Flakes stands at attention during her pinning ceremony. Photo by MC2 (SW) Ryan Mayes

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hief Aviation Boatswain’s Mate (Handling) Jeralyn Flakes moved from the Philippines to the United States with her family when she was 17 years old. She had recently started attending college in the Philippines, and wanted to go back and finish, but her father wouldn’t let her.

Flakes was finally able to persuade her father to make a deal: she would join the Navy, and if she could successfully complete one enlistment, her father would approve of her going back to the Philippines.

Fifteen years and four months after joining the United States Navy, Flakes was pinned to the rank of chief by her younger brother, Renato Velasco, Jr. Flakes said she ended up staying in the Navy for several reasons.

She is the oldest sibling in her family, and as she became more successful in the military, she saw that she was having a positive impact on her younger brothers and sisters. Shortly after joining the Navy, she realized she wasn’t the only one in her family who had made the decision to help support the family.

“I was in ‘A’ school and I saw a group of recruits marching. I thought to myself, ‘that guy looks like my brother,’” Flakes said.

Flakes called home and told her mom she saw a guy who looked like

Flakes, right, and her younger brother, Gas Turbine System Technician (Mechanical) 2nd Class Renato Velasco Jr., stand together during a pinning ceremony.

Photo by MCSN (SW) Kole Carpenter.

her brother, Jackie.

“My mom said, ‘Oh, didn’t I tell you? Jackie joined the Navy, too,’” said Flakes.

Flakes’ brother, Jackie Velasco, joined the Navy as an ABH, the same rate Flakes would find herself in a couple years later. Flakes initially joined as an undesignated airman, but struck, and made ABH3 on her first attempt – in the same advancement cycle as her brother.

Flakes and her brother have risen through the ranks almost in unison. He made ABH2 shortly before she was capped, and he made ABH1 one cycle before she did. On Sept.

13, they were both pinned as chiefs.

“My family is my support,” said Flakes.

Flakes said the siblings are more supportive than they are competitive, and she hopes to someday be stationed with her brother. Both chiefs were hoping to make rank so

they could be pinned by their father.

Unfortunately, Flakes’ father passed away in January of this year.

“My father was very proud of me,” Flakes said. “He used to talk about us all the time to his friends.”

Flakes said throughout the entire process of becoming chief she felt a strong presence from her father.

Though he couldn’t pin her, Flakes was still able to share the event with a family member. Her younger brother Renato, a gas turbine system technician (mechanical) 2nd class on board the guided-missile cruiser USS Princeton (CG 59), was flown over to Nimitz for the special event.

Just like her father supported and guided her, Flakes said she has made it a point to support and mentor her younger brother.

“I’d like to see things go full circle, so I can pin him when he makes chief,” said Flakes.

While on board Nimitz, Flakes

said she hopes to help her Sailors reach their own goals and become successful.

“It’s not about me anymore; it’s about the success of my Sailors,” said Flakes.

Flakes’ family has always had a major impact on her life. Though she would like to continue her career in the Navy beyond the 20-year mark, Flakes said she might have some other obligations. Since her father has passed, Flakes may find herself filling the shoes of provider and caretaker for her family.

“After all the sacrifices my mother has made for me, it seems fair if that’s what has to happen,” Flakes said.

NIMITZ NEWS | SEPTEMBER 22, 2013

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IMAGINING NEW WORLDS Story by MC3 Chris Bartlett

The power of one’s imagination can reach limitless possibilities. If you think it, want it, put the effort into it, you can make anything happen. For Seaman Apprentice Amy Haskins, from Kansas City, Mo., and Aviation Ordnanceman 2nd Class Thomas Childress, from Dothan, Ala., they have built their own worlds, characters and stories and put them on paper. They both are currently writing their own novels while on deployment.

Seaman Apprentice Amy Haskins, from Kansas City, Mo.

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askins has been writing passionately as far back as she can remember.

“I would tell the kids around me stories when I was little and eventually I found the joys of Microsoft Word Processor and after that it was impossible not to write,” said Haskins.

Her imagination ran wild, creating worlds of fiction, adventure, fantasy and the supernatural.

“That is the world that comes natural to me,” said Haskins. “I always think of the things that seem impossible but a lot of people still like to believe in, like magic or other beings living among us or different species existing like werewolves, mutants with powers, and even vampires.”

Her approach on building a storyline is somewhat unorthodox, as it derives from the characters she creates.

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“I’m a character writer, and even though I know where I want my stories to go, my characters tell me how it happens,” said Haskins. “I just relax and let everything come as it will.”

She has been writing the story “East Hurricane” since the age of 14 when the idea came to her and continues to write the story while on board Nimitz.

“My story, at its core, is about growth and bonding,” said Haskins.

“Maturity, adaption and triumphing over hardships while not losing who you are in an impossible environment even though you know who you are to begin with.”

Her story takes place in a modern day Kansas City with a few changes that she has creatively added.

“People will recognize some of the areas and shops, while other things simply don’t exist in reality, but are important to the story’s existence,” said Haskins.

“East Hurricane” is the first book

of a five part series including “The Twilight Typhoon,” “Alluvium: The Midnight Fissure,” “Scorched: The Noon’s Last Burn,” and “Destiny: The Relapse.”

“The themes for the entire series are the different elements with their associated traits impacting the stories severely yet subtly,” said Haskins.

Along with “East Hurricane,” she has many short stories she has written with titles like “Alien,” “The Story of Dmitry Skylhar” and her personal favorite, “Quiet in the Rain.”

“I’d love to have a career in writing, be it editing or authoring,” said Haskins.

Haskins’ ultimate dream would be to see her stories come to life.

“To see my characters on the big screen would be awesome, but better than that would be for legions of people from all over the globe to love my books as much as I do,” said Haskins.

Aviation Ordnanceman 2nd Class Thomas Childress, from Dothan, Ala.

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hildress will be the first one to admit that there never was a passion for writing early on in his life.

“As a matter of fact, I hated it when I was in high school,” said Childress.

Daydreaming as a youth, a story idea would evolve with time into something he couldn’t contain just in his mind, but would rather put it on paper for everyone to enjoy.

“I started writing the story just to get it on paper in order to show my wife but at first I hated every minute of it,” said Childress.

Then he decided to get serious by reading books to help him improve his writing skills. Eventually just like his story grew over time, so did his passion for writing.

“I remember writing the first page ten times and finally I started to get in a groove,” said Childress. “After I

wrote the first chapter I was hooked.”

Over the past three years, while in the Navy, Childress has been writing the story called, “Mercy for the Fallen: The Legacy of Hope.”

“I discovered through writing, I could create an entire world with the touch of a pen,” said Childress.

The story is set in a medieval time period, where a group of misfits come together through extenuating circumstances and end up saving the world.

“Each protagonist has a moral vex that they have to overcome while also having to overcome the antagonist and, at the end, the story has left you with a moral lesson,” said Childress.

His characters include an ex-assassin on the run who is driven by revenge, a hot-headed female guardsman with an agenda to prove herself and a fallen hero who wants to see the world burn.

“The characters in my story embody realistic human conflict and portray the vivid moral lessons that everyday people can learn from,” said

Childress.

His best time to write is while in berthing where he finds the quietest corner he can, and there he orchestrates his epic tale.

“Sometimes in order to get my imagination flowing, I’ll just listen to music for a while and play out scenes in my head as if I were watching a movie,” said Childress. “Then I’ll write them down until I can’t stay awake anymore.”

He said book will be finished by the end of deployment with future plans of writing more books to continue with the series.

Childress’ dream come true would be to make enough money off his books to make a career out of it.

“As soon as we get back to Everett, I’m going to run my book through an editor who will also make it an official book in the library of congress,” said Childress. “Then I will most likely self-publish until I can find a publishing company that will give me a good contract for it.”

“...even though I know where I want my stories to go, my characters tell me how it happens.”

-Haskins

“I discovered through writing, I could create an entire world with the touch of a pen.”

-Childress

NIMITZ NEWS | SEPTEMBER 22, 2013

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Stars in the Making Photos by MC3 Linda S. Swearingen

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Culinary Specialist Seaman Erik L. Chamberlain, of Thorton, Colo., makes star-shaped apple strudels in the Bake Shop.

It is a Nimitz tradition to send the star-shaped apple strudels to the crew of the ship sending supplies to Nimitz once a replenishment-at-sea (RAS) is completed.

Chamberlain has four college degrees

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in the culinary arts and was a pastry chef prior to joining the military.

According to Chamberlain, working in the Bake Shop as a culinary specialist offers him the opportunity to serve in the Navy doing what he loves best, baking.

The star-shaped apple strudel was made over two days using raw ingredients

by Chamberlain and is his own recipe.

NIMITZ NEWS | SEPTEMBER 22, 2013

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An Inspired Performance Story by MC3 (SW) Phil Ladouceur

“It is with life as it is with a play. It matters not how long the action is spun out, but how good the acting is.”

--Seneca

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n 1713, the play Cato by Joseph Addison was performed in London. It told the story of the losing side of the Roman Civil War, but was meant to demonstrate the principles of the Enlightenment and inspire those who saw it. It did.

It was a smash-hit, and was performed all over Europe and in the American colonies, remaining popular for the next hundred years. It may have been the most influential popular work amongst the generation that fought in the American Revolution.

Gen. George Washington referred to it in his correspondence frequently throughout his life, had it performed for his soldiers at Valley Forge, even quoting it when addressing mutinous officers: “I must appease this storm, or perish in it.”

It was a popular representation of many of the ideas that inspired the American Revolution, and it was no doubt familiar to a young man who would become famous for the heroic way he performed his own small part in that struggle.

Nathan Hale was born in 1755 in Coventry, Conn. After being tutored by a local minister, he went to Yale College at the age of 14 already equipped with a good education in Greek and Latin.

At New Haven he was exposed to the ideas of the Enlightenment. For a young man who had grown up in a small farming town, it opened up a whole world of new thoughts and possibilities.

He studied math, science, religion, and the classics. As part of the Linonia Society, a literary fraternity, he was a

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part of discussions about the great issues of the day.

He graduated in 1773 and began teaching. He was eventually offered a job at the Union School in New London, where he taught Latin, math, and the classics. By late spring of 1775, he had a job he not only enjoyed but also paid well, many friends with whom he corresponded, and seemed to be enjoying himself immensely.

As war seemed to be inevitable, he began thinking about what his role would be in it.

At a town meeting on April 22, 1775, when deciding whether the town should send its militia in support of the Siege of Boston, Hale addressed the crowd.

He said that going to fight was the least he could do, and all those who could should follow.

“Let us march immediately and never lay down our arms until we obtain our independence,” said Hale.

Independence was not commonly used to describe the goals of the rebellion at this time. Most of the reasons colonists cited were the familiar taxation and representation.

The word ‘independence’ itself was a new one, first used only a century before, and even then it was used to describe a faction of Puritans during the English Civil War. The American Revolution was just beginning and it already had to come up with new words

to describe its goals and purposes.

For the young teacher, it must have been electrifying to see all of the conversations of his college years being translated into action. The world was changing, and he wanted to be a part of that change.

That summer, Hale accepted a commission as a lieutenant, and when the 7th Connecticut Regiment marched out of New London on Sept. 23, 1775, he went with them.

After about a year, Hale had drilled, camped, built fortifications, disciplined his men for playing cards, and generally been disappointed by the tedium that makes up most of a soldier’s life. While he had competently done all that was asked of him, he still longed for something more dramatic than keeping records and receipts for -Hale supplies.

Almost a year after leaving home for war, Hale seized his chance to do something dramatic: Washington needed someone to go behind the lines and spy on the enemy so he could know the next British move.

Hale volunteered almost immediately, and went into New York pretending to be a teacher looking for employment, a reasonable enough cover story.

But his face was burned by gunpowder from firing his weapon, a mark only a soldier would have. His cover story gave no explanation for it. He had no training or experience in espionage.

“I only regret that I have but one life to lose for my country.”

Hale in his final moments before his untimely death.

He was a poor choice for a spy.

And he had the misfortune to be in New York at the same time as Major Robert Rogers.

Rogers was a hero of the French and Indian War, and is today considered the founder of not only the U.S. Army Rangers, but also the Queen’s York Rangers of Canada. He was brave, ruthless, and an expert at deception who had been fighting dirty since before Hale had been born.

Rogers had offered his services to Washington, but upon being turned down he immediately went to work for the British.

When Rogers heard that a stranger was in the area asking a lot of questions, he went looking for the stranger himself. He found Hale staying at a tavern and approached him.

Rogers was a fellow New Englander, and no doubt this helped him gain Hale’s confidence. He also indicated that he was himself a spy working for the same side and for the same goals.

The next day Hale visited Rogers.

The conversation was continued in front of a few of Rogers’ men, until a company of soldiers came and arrested Hale.

Hale was brought before the British commander. With documents on

him that were plainly intelligence information, there was no denying the charge of espionage.

Hale had been caught spying and there was no doubt what his punishment would be. The next day, Sept.

22, 1776, Nathan Hale was hanged. An impressed eyewitness to his death later told the Americans that Hale had died with great dignity, and quoted his last words as, “I only regret that I have but one life to lose for my country.”

The line is a paraphrase from Cato. In the play, Cato’s dead son was brought to him, having died fighting the tyranny of Caesar.

“How beautiful is death, when earned by virtue! Who would not be that youth? What pity is it that we can die but once to serve our country!” said Cato.

One of the themes Addison wanted to demonstrate in Cato was that someone did not need to be a perfectly virtuous person to be honorable. He defined honor as the esteem of wise and good men. To gain their esteem, you didn’t have to be brave. You simply had to act as if you were a brave man.

In short, if you aren’t a virtuous person, you can at least act the part, something anyone can aspire to.

Nathan Hale had only a bit role in the Revolution. He’d failed at his mis-

sion, but never doubted the rightness of his cause. At a time when the outcome of the American’s efforts was in doubt, he impressed those British officers who witnessed his death.

“He was calm, and bore himself with gentle dignity, the consciousness of rectitude and high intentions,” said Capt. John Montresor, a witness to Hale’s death.

He served his country for only a year, but this young man transformed his gallows into a stage, and his command performance continues to impress and inspire through the centuries since the Revolution.

Most wars are fought for the sake of conquest. The Revolution was fought for ideals. So it is fitting that a young and idealistic school teacher has come to symbolize the spirit of sacrifice that continues to motivate so many Americans.

“There is no social relation among them all more close, none more dear than that which links each one of us with our country. Parents are dear; dear are children, relatives, friends; but one native land embraces all our loves; and who that is true would hesitate to give his life for her, if by his death he could render her a service?” --Cicero

NIMITZ NEWS | SEPTEMBER 22, 2013

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THAT’S A WRAP Story and photo by MCSA Kelly M. Agee

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Culinary Specialist Seaman Christopher Merritt prepares a wrap for a Sailor at the wrap bar.

Sailor is waiting in line in the aft mess decks.

When it’s his turn he walks up to the counter and says “a turkey wrap please” and a culinary specialist (CS) hands him a freshly rolled wrap from the tray. The Sailor walks away to enjoy his quick and healthy meal.

Eating healthy is hard to do while deployed, and sometimes you just don’t have time to go through the chow lines.

Thankfully Nimitz’ food service division has come up with a food choice that is healthy and quick.

Lt. Vivian Maner, the food service officer, and her team came up with the wrap bar idea after reading the suggestions from the suggestion box.

“The wrap bar idea didn’t directly come from the suggestions,” said Maner. “But people said they wanted a healthier choice. It’s light and less fattening then the alternative.”

The wrap bar changes its wrap choices daily depending on what lunchmeats are available to the CSs that day. The varieties of these choices include ham, turkey, roast beef, chicken, barbeque chicken, bologna and a vegetarian wrap.

Sailors like the fact that there are different choices to choose from at the wrap bar.

“Sailors and Marines like an alternative option,” said Culinary Specialist Seaman Christopher Merritt who works

for the wrap bar. “Vegetarians also have an option here. We have the ingredients to make them vegetarian wraps.”

Merritt says he enjoys working at the wrap bar.

“It’s nice. You get to meet a lot of new people every day.

We have regulars who come back to the wrap bar everyday,” said Merritt. “You get to know people from different departments.”

Many customers enjoy the CSs behind the wrap bar because of their positive attitudes and customer service.

“They have great customer service,” said Personnel Specialist Seaman James Jenkins, a wrap bar regular. “They keep conversations going with the customer and always have smiles on their faces.”

Another positive thing about the wrap bar is the fact the line is short and quick.

“You don’t have to wait in the long chow lines with the wrap bar,” said Merritt. “It goes by fairly quickly because we have one or two people constantly behind the bar making wraps, so we already have lots of the wraps made. All we have to do when the customer gets here is cut them up and hand them to the customer.”

The future of the wrap bar looks bright, according to Maner. “The wrap bar is going to continue to keep going,” said Maner. “The Sailors and Marines love it and I love it too. It’s here to stay.”

NIMITZ NEWS | SEPTEMBER 22, 2013

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18 Finance

Housing Bubble Crisis A Fun and Easy Guide Cmdr. Matthew Miller

Editor’s note: Cmdr. Matthew Miller has transferred from Nimitz, but he left this series of articles to aid the Sailors and Marines aboard in making sound financial planning and investing. He is not a Certified Financial Planner. The opinions expressed in this series of articles are his and do not guarantee any type of financial success whatsoever. There are many rules and regulations associated with taxes, fees, withdrawal penalties, and other complications that require a detailed understanding of various financial products. Before investing you should review the prospectus associated with the financial product and check with a professional to ensure you understand it and that it is right for you. Past performance is no guarantee of future results.

Introduction

Although it’s been several years since the Housing bubble crisis in 2007/2008, I thought it might be a good idea to go through what happened and see if we can glean any lessons learned. If you remember around that timeframe, Bear Stearns, Lehman Brothers, and Merrill Lynch all went under with anxiety on whether or not Morgan Stanley or Goldman Sachs were next. These were not mom and pop financial institutions but well regarded powerhouses on Wall Street. I’ll organize this article into three sections: 1.

Provide my simplified summary of what happened and why.

2.

Put things in perspective by drawing some good lessons from previous financial articles.

3.

Provide thoughts and recommendations on what you should do.

With that, I will try to make what is a very complex topic as simple as I can without oversimplifying.

What Happened and Why? Source The source of this crisis was the housing bubble. The housing bubble really took off in late 2005 / early 2006.

The run up in housing prices from 2000 to 2005 was arguably justified. Mortgage rates were coming down which made housing more affordable. In simple terms, if you could afford a $1,500 monthly mortgage, then as interests rates came down, you could afford a more expensive house.

The price per month to you would be the same.

The problem really started when mortgage rates reached their bottom (2005 time frame). Mortgage brokers, banks,

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and everyone else that makes money off of selling mortgages (including Wall Street firms who “re-package” mortgages and sell them as investments) wanted to continue their strong profit growth. Companies started making loans to people who fundamentally could not pay their mortgages.

They structured the loans so initial mortgage rates would be very small and then skyrocket later. They didn’t require down payments or proof of income, and didn’t care about credit histories for the borrowers.

All of these individually are bad lending practices; however, when you put them all together, you end up with a lot of people buying houses who had no chance of being able to make their mortgage payments over the long run. You ended up with record foreclosures, falling housing prices as supply and demand got back into equilibrium, and a return to more typical long run housing appreciation rates of four to six percent (when prices go up 20 percent per year for a while, they need to stay flat or decline for a while to get back to “normal”). The question then became, when someone can’t pay their mortgage and goes into default, who gets stuck?

Collateralized Debt Obligations (CDOs) In simple terms the chain of events with many of these “toxic” mortgages resulted in the mortgages being sold as asset backed investment products – many of these were CDOs. What this means is the mortgage broker who arranged the initial loan got his commission and didn’t care whether the loan could be re-paid or not. Once the loan closed, he was out of it. The bank that made the loan didn’t care whether the loan could be re-paid or not because the bank sold the loan shortly after closing to Fannie Mae, Freddie Mac, or a Wall Street Firm who was buying a lot of these loans. Groups of loans were then pooled together and sliced into one big giant investment that was sold by a Wall Street firm as a “safe” investment. The rating agencies (Moody’s and S&P) rated these loan packages as safe – primarily based on models that didn’t account for the possibility of an overall decline in housing prices. After all, housing prices hadn’t declined nationally since the Great Depression, so the investments were marketed as safe. Investors like foreign governments, AIG, Wall Street Firms, and so on bought various slices of these repackaged mortgages and the money rolled in as long as people could pay their mortgages, refinance, or sell their house for a profit. Trouble started brewing in late 2006 when basically what was a house of cards, started to crumble.

Why Wall Street Firms Went Under Wall Street Firms make much of their money by borrowing a lot of funds at a lower interest rate and then investing the funds at a higher rate of return. The spread (i.e., the

difference in rates) is basically profit for the firm. This term is often called arbitrage. Banks, loan sharks and payday stations all use the same concept. As long as they can keep borrowing and investing they will make money; as long as the spread is positive, the more they borrow and invest, the more money they make. The problem arises when they lose access to funds to keep their operations going. What happened is we basically had a “crisis of confidence.” If no one wanted to lend any money because they were worried about getting paid back, then the Wall Street firms couldn’t continue their operations.

Even though the firms had assets and investments that could be used to pay back their short term loans, the assets were harder to sell and took time to turn into cash to pay back their loans. There were no problems as long as companies would continue to provide funding, but when the funding dried up, the firms had no way to pay back their loans and needed to file for bankruptcy or sell themselves to someone who could pay the loans back. The crisis of confidence is exactly what happened.

Government Bailout The government took a financial risk in supporting the JP Morgan buyout of Bear Stearns, taking over Fannie Mae and Freddie Mac, and taking an ownership stake in AIG. The government let Lehman Brothers go under. Why save AIG, but not Lehman? AIG was “too big to fail.” AIG operates in 130 plus countries and has over $1-trillion in assets. They couldn’t arrange short term financing to fund their operations and were going to have to declare bankruptcy. The government provided an $85-billion 2-year loan at approximately 11 percent and took a 79.9 percent stake in the company. Once we are through this crisis, these “investments” by the government will probably provide a good return for the taxpayer.

The government did not bail out Lehman Brothers because at some point you need to eliminate the “moral hazard” – i.e., if investors and companies believe the government will always bail them out, they will take undue risks. There needs to be a price for failure and taking too much risk. Fannie Mae and Freddie Mac were also “too big to fail” and play a vital role in keeping our national housing market liquid.

What Lessons Can Be Learned?

Lesson Number 1 – Asset Allocation Maintain a diversified portfolio in the right asset allocation commensurate with your goals and timeline. The stock market continues to be extremely volatile this year. If you had invested money in the stock market this year hoping to make a quick gain, then you are probably unhappy about the recent declines. You should NOT have money invested in the stock market that you plan to use in the next few years. The stock market is volatile and you could lose a lot. However, if you have a long time horizon and are properly diversified, then

you have nothing to worry about.

The stock markets have made significant drops over the past several years. Each time it may have felt like a lot, but in October 1987, the stock market dropped around 20 percent in one day. People thought it was the end of the world. If you look at a long term stock market chart going back 25 years or so, the crash in 1987 is merely a blip. Moral of the story - if you have a long term perspective, the volatility we are experiencing now will be just a blip on a chart when we look back in 2040. If you have a long term plan, the whole point is you stick with it through the ups and downs of the market. As long as your goals and timeline haven’t changed, your investing strategy shouldn’t change either.

Lesson Number 2 – Dollar Cost Averaging If you are buying in to the stock market on a regular basis through your 401(k), TSP, or IRA, there is a silver lining. When the stock market goes down, you are buying more shares. Over the long run, the return of the stock market should be ~10%. Short term drops are great for investors who keep buying in. Keep on buying!

Lesson Number 3 – Indexing vs. Active Management - You Can’t Beat the Market Every Year There are some really good funds with strong track records. The problem becomes the timeframe with which you are looking at the rates of return. Many of the best known and performing mutual funds underperform the market at various points in their life. These funds have outperformed in certain years past and may outperform in the future, but the bottom line is it is extremely difficult to consistently beat the stock market index over time. Many of these funds have gotten so big from all their press that it will be nearly impossible for them to significantly outperform and they probably won’t outperform at all over time… but you’ll pay a fee for that underperformance!

My simple choice is to stick with index funds.

Closing This one is easy. If you have a long-term investment strategy that incorporates your goals and timeline, then you should do NOTHING except stick to your strategy. If you don’t have a long-term investment strategy that incorporates your goals and timeline, then you should implement one now in accordance with these articles. Sometimes doing nothing different is the hardest thing to do. I encourage you to sit back and enjoy the volatility as you buy more shares at a lower price and 20 years from now, we’ll be laughing all the way to the bank!

NIMITZ NEWS | SEPTEMBER 22, 2013

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