What If?

The US Government spends approximately $338 billion dollars a year on interest payments on the US debt.

What does $338 billion buy? I don’t really know and I don’t feel like mindlessly googling to find it out, but I do know that $338 billion buys a lot of teachers, policemen, Joint Strike Fighters and a host of other programs and entitlements without raising taxes. When you combine federal taxes, state taxes, city taxes, social security and whatever other things are withheld from your pay check, you’re damn near paying European style taxes, yet we reap only a fraction of the benefits. Think of this along the lines of the homeowner who is in over his head, walking away from his mortgage. Same thing, except that you and I aren't on the hook, its China who takes it on the chin.

Obviously, a bold move like this doesn’t come without consequences. However, at this point, you have to wonder if it’s not worth a roll of the dice. The Federal Reserve isn’t going to foreclose on Delaware or Virginia. China isn’t going to come over here and repossess California and Oregon, not that many of us would miss California at this point in the game. Just kidding.

The dollar as a currency would be shot which would have some consequences. Some would have some nice silver linings.

Oil would become prohibitively expensive, but so what, US lawmakers have been trying to coerce consumers into using less, this would achieve that goal as well as spur investment in alternatives like electric cars, fuel cell technology and other green technologies. And no sham legislation would be needed, like Cap & Trade.

Imports would be very expensive, that would be a boon to besieged US industries, like the automakers, whom we are all invested courtesy of obama’s largess in bailing out Chrysler and GM. Not to mention, many imported cars are actually built on US soil, like Toyotas built in Georgetown Kentucky or Mercedes Benz’s built in Tuscaloosa Alabama.

Although my wife would beg to differ, we’ll all survive without Gucci handbags and Godiva chocolates. Coach and Hershey will do just fine.

US exports would become wildly successful. Talk about a jobs stimulus, this would actually create real jobs unlike the farce which is obama’s stimulus. The rest of the world would get a taste of what they have been doing to us for decades. The party is over.

Global clout? Who is really interested in listening to us these days, unless they are on the business end of an M1A1 or a B2 Stealth bomber?

So what if no one will ever lend to us again? Then what, we have to live within our means? That’s not tragic. Texas manages to do just this while having its economy thrive in one of the worst US economies ever. Texas is the 15th largest economy in the world. California is the 8th largest economy in the world. Look at what living outside of its means is doing to California for a contrast and perhaps a peek at the future. Why continue to throw billions if not trillions down the drain.

The US probably accounts for about 20% the world economy, I am guessing that the rest of the world will adjust and pay their tab, which I believe they have been dodging for generations. Conventional will not work anymore; it’s time for some revolutionary thinking.

Has Real Estate Hit Its Bottom?

No.

Next question.

While the NAR continues to cheerlead as fools grab the falling knife, foreclosure filings go through the roof. Our President's biggest cheerleader, CNN reports that we have just finished the worst quarter of all time for foreclosures. So while obama has continued to pour millions if not billions of tax dollars down the drain, on trying to raise the Titanic, he can't out run economics. It’s a shame he doesn't have those billions of dollars to spend on one of his other pet projects.

Good money after bad is how I have seen debacles like this described. Unfortunately, this is the worst one of all time. Way to go Barry, you've continued to screw us all and just like I said, there is no way in hell you were ever going to salvage the foreclosure constituency. And now, the price is just that much steeper and we're miles away from market stability.

If you see prices going up, there is a name for what your seeing. Its called a dead cat bounce.

Health Care Reform

A friend recently blew out his ACL playing rec league football. Thats what us thirty something year old guys do. He went to the orthopedist on Friday, got his MRI on Monday and has his surgery scheduled for later this week. This story tells the tale of a terribly ill Canadian citizen who is going to have to wait more than 6 months for an MRI. And of course, like any person who feels spited by obama, my friend bitched and lamented that were he living in an obama care world, he wouldn't be receiving treatment so quickly.

And then it dawned on me, obamacare is going at the problem the wrong way. Our President has no idea how to tackle the problem. He has no qualms going after Wall Street bankers salaries, yet he will not go after the costs of health care. My dad had a bypass a few years back. In the backwater he lived in, the whole procedure took 12 hours and cost less than $8000. I broke my wrist and required a screw to repair it. The procedure took just over an hour and cost just over $7000. It seems to me, a little tort reform and some forced socialism, like he's pushed it on the auto industry would really rectify the problem without sticking everyone who has worked hard to have good benifits. Why not treat doctors like bankers or other responsible citizens who are taking it in the back pocket every time obama finds another constituancy to play robin hood with.

I feel like a kulak.

Picking Up the Tab Again

I'll plead guilty to being out of the loop. Becoming a parent will do that to you.

I see that after taking care of home debtors with an $8000 incentive for first time buyers and $3500 for fools who drive gas guzzlers to get an affordable greenmobile, our Emperor in Chief is pushing hard for health care and immigration reform.

If your a citizen and you work hard, its just not that hard to put yourself in a position to have decent health insurance. On the other hand, if you chose not to take advantage of the public school education that is afforded every citizen in this country, then you have made your road that much harder to hoe. But again, that was your choice no matter how you want to cut it or excuse it. Its unfortunate if someone chooses not to avail themselves of the free primary education and inexpensive options for higher education in this country. To quote Judge Smails, "the world needs ditch diggers too ...”

I am sick and tired of having to carry the water that it seems like everyone else gets to drink without putting in a fraction of effort and sacrifice I put in.

Thanks to the NAR ...

I'd like to thank the NAR for publishing the information I need to make my case against them as complete and utter lying sacks of elephant dung. Here is a table that I found which is based on NAR statistics.

Price Range	Year over Year Change
$0 - $100,000	Up 38.8%
100,000 - $250,000	Up 8.7%
$250,000 - $500,000	Down 6.2%
$500,000 - $750,000	Down 8.9%
$750,000 - $1,000,000	Down 10.6%
$1,000,000 - $2,000,000	Down 23.3%
$2,000,000 +	Down 32.4%

I'll also wager that +/-5%, that a third of the sales in those lower ranges are also foreclosures, short sales or otherwise sales under duress.

Now, day in and day out, I am bombarded with NAR propaganda, as are most DC commuters who listen to the radio as we creep along in our steel coffins on the highways and byways of the city. I assume the same is for commuters just about everywhere.

The NAR continues to trumpet that now is a good time to buy, yet their statistics seem to indicate otherwise. I'll define "a good time to buy" as a place and point in time in which the value of the home you buy isn't going to continue to fall for the foreseeable future. I don't know where $250k buys you much of a home, but I can tell you for certain, that no place within the listening radius of the stations I listen to.

Lies, damn lies and statistics. So, there you have it, only the cheapest inventory in the lower valued markets are making gains, while the NAR continues to misuse statistics to the benifit of their constituants.

A Picture is Worth a 1000 Words

Senator Dodd Looking More Guilty

As reported here, last year, Senator Dodd (D CT) and his good buddy, Senator Conrad (D ND) appeared to be in some hot water over their participation in the Countrywide VIP loan progam. The Washington Times is reporting, that the noose is tightening on these two hypocrites.

Our Delusional Senate

These guys must be out to lunch. Or they think we're all really dumb. Massachusetts Senator John Kerry, you might remember him from his pitiful attempt to unseat George W. Bush from the Presidency, has floated an idea to allegedly pay for Obama's bank breaking healthcare reform.

His idea is to tax the insurance companies on the revenue for their most expensive plans. This will surely get passed onto the consumers. It will likely even get passed onto the consumers who do not have that insurers most expensive plan. An indirect tax is still a tax.

Arizona Senator John Kyl must not understand the concept of contradicting himself.

“There’s very little evidence the tax on the insurer would have an impact on the insured’s behavior, which is the whole point,” Arizona Senator Jon Kyl said. “Secondly, it’s a tax on employment since it clearly would be passed on to employees.”

His first point is completely naive and probably inaccurate. His second comment is pretty accurate and makes my point while contradicting his first statement.

Employees who found it easy to elect for the top end PPO coverage through their employer will be faced with a tough descision when it comes time between shouldering the cost of good coverage versus making a cut in some other aspect of their family lives. The difference between PPO and the lower end POS & HMO plans is significant. There is a reason I have opted for the better coverage at every job I have ever had. Making health care something other than a dollars an cents descision is exactly what Obama is trying to do for the uninsured, but at the same time, he's just shifting the constituancy who has to make that descision. I will have to have less so someone else can have more. Its one thing when we are talking vacations, cars and big screen TVs. Its entirely different when when we are talking about healthcare.

Obama’s era will be recalled as the era of the indirect tax.

How About The Truth?

This US News/Yahoo article lists several reasons why foreclosures continue to rise and talks about the outlook for the markets. They are all valid reasons, but none of them are the actual reason. The author of this piece either works for the NAR or he's totally deluded.

His first argument is unemployment. I don't really buy into this reason. Every downward cycle in the economy has had its unemployment casualties. While I can't find any hard numbers, I am guessing the relationship between foreclosures and unemployment has been fairly closely related from one recession to the next. I feel for the casualties of the recession. These people are usually the innocent bystanders.

The author’s next contributing factor is plunging home values. I guess I see the rationale here. Why pay for something that is worth less, or even way less than you owe? However, I don't buy that there are massive hoards of people sending the keys to the bank and walking away from a mortgage that they can afford. If you’re walking away from a mortgage you can afford, I can understand the business rationale, but I still think you’re the scum of the earth for bailing on a contractual agreement.

Lastly, the author cites the end of foreclosure moratoriums. This is just camouflage. Someone who got a free ride for the last 6-8 months, finally getting foreclosed does not mean there is a rise in foreclosures. They should have gotten the ax months ago, but we decided to pause and look around and see if there was a way to avoid the inevitable. These are the exact fools who provided the fuel for this debacle. I despise you, because I am the person who you priced out of the market and I am the person who is now getting stuck with the tab for trying to bail you out.

Not once, not one single time in this 750 word piece did the author cite the one reason for all these foreclosures. An overwhelming majority of the people getting foreclosed today, are getting booted from their homes because they were fools who couldn't afford the house in the first place. Its that plain and simple. I don't know why our media and elected leadership in Washington can't get that through their thick skulls. Robert Reich said in his blog that we're basically playing a new ball game. Thats a pretty accurate apprasial of the situation. I believe that the more time and resources we devote to trying to get back to playing the old game, the longer and more difficult this recession will be.

Personal Rant

Lets see, where to begin. I rent my house. Correction, I rent a house I can afford, so every single time I have to read about a foreclosure moratorium or another bailout for people who can't afford their home, it just spikes my rage meter up a little.

I spent years educating myself. I took tough classes like calculus, organic chemistry, physics, cellular theory of finite automata. Yea, that last one was a mouthful. You should have seen the book too. I think it was at least 50 bucks, used, 15 years ago and it was only like 150 pages, that we didn't even come close to getting through in a semester. For easy classes, I took classes like micro & macro econ, geology, meteorology so that I would understand the way the world works when some day I had a child asking tough questions.

I've worked hard to build experience that will allow me to maintain employment in the tough times. This didn't always work, the dot com bust was, as String described it, a humiliating kick in the crotch. However, in the long run, I can't complain about the breaks and how they have gone for me. I know a lot of people have fared far worse. At the same time, I am not living in 5000 sqft McMansion or a real mansion for that matter. My wife and I have worked hard to build a good life for ourselves and the child who is coming in about 2 months.

Lately, every single time I tune into the interweb, I am bombarded with yet another politician reaching into my pocket to take away from me and my family to give to someone else who is at a disadvantage. More often than not, that disadvantage is self inflicted at one level or another.

Today I read that our President is considering mortgage aid for the unemployed. I feel for you, if you find yourself in a predicament where you’re unemployed. Its no fun, I have been there and I don't really care for it. Really, when do the entitlements end? We don't live in utopia; we live in the United States of America where resources aren't unlimited. There was nobody lifting a finger to help me, back in 2003, when the dot com bubble burst for me. There was nobody worrying about my ability to pay my rent, electric, phone or credit card bills. I lived on my credit card for a while. My credit took some dings in that period, but I have worked hard to get my credit back up into the high 700s. Nobody helped me do it. I lifted myself up by my own boot straps, because nobody else was going to help me.

Unemployment is a bigger whammy than anyone thinks, because once you find a job, in this crap economy, it’s not necessarily a good job or wage. Why would an employer pay anything other than market value today, which is a shadow of market value 2 years ago or 2 years from now? It took me years to recover my lost wage level. Nobody helped me get to where I am. I paid my way through school. I recently paid off my loans, by myself.

I refused to buy a Chrysler or GM car, because I thought the styling was lame, because I had questions about their quality, because I didn't think the price for the features & quality was competitive, but they still got my money. On the high side, at least I wasn't one of the secured bond holders who had a century's worth of bankruptcy law yanked out from under me. But once again, the President reached into my pocket and gave my money to someone else, who got themselves in a pickle on their own. The UAW rank and file continued to elect leadership who repeatedly held a gun to management's head and drove up the cost of producing cars. Everyone should read about unintended consequences.

The "law of unintended consequences" (also called the "law of unforeseen consequences") states that any purposeful action will produce some unintended consequences. A classic example is a bypass — a road built to relieve traffic congestion on a congested road — that attracts new development and with it more traffic, resulting in two congested streets instead of one.

This maxim is not a scientific law; it is more in line with Murphy's law as a warning against the hubristic belief that humans can fully control the world around them. Stated in other words, each cause has more than one effect, and these effects will invariably include at least one unforeseen side effect. The unintended side effect can potentially be more significant than any of the intended effects.

The really interesting question is this ... If the UAW and its members had known of the unintended consequences of their repeated wage and benefit grabs, would they still have done it.

I carry some balances on my credit card. A little high living here and there. My share of a wedding, because my family didn't help me out. To modest degree, I am guilty. I recognize and accept it. The part that gets me chapped is that I had a fairly low fixed rate on my card, because of my good credit. My credit card provider recently decided to tie my rate to the prime rate, which is near an all time low. I called them to sort out a fixed rate, because this adjustable rate can only go up. Bank of America acted like the idea of this rate actually going up was absurd. Its not absurd, its an iron clad guarantee. My 6 credits of econ tells me that. Common sense tells me that. Let’s not forget, BoA is a TARP recipient, one of the biggest. They are only liquid because of my tax dollars. In the mean time, while I was managing my credit and taking care of my credit score, hoards of idiots were out buying Sub-zero refrigerators, big screen TVs, vacations, etc. Those people are getting a reduced interest rate and reduced principal. In short, I was taxed to keep BoA in business and BoA turns around and sticks it to me while reserving its most favorable terms for its biggest and most irresponsible losers.

Then there is healthcare reform. Yet again, the President reaches into my pocket and yanks out a chunk of change to help out people who haven't done what they need to do to take care of themselves. Get an education, work hard, earn a living and hold down a job with benefits. Its not that hard, if you apply yourself. I am sick and tired of subsidizing other people’s poor life choices.

The bill would impose a 5.4 percent federal surtax on couples earning more than $1 million annually and a 1.5 percent tax on couples earning between $500,000 and $1 million. Households earning more than $350,000 would get hit with a 1 percent tax.

I am not buying the math. Just because the CBO said it added up, doesn't mean its really going to pay for itself, in my opinion.

Lastly, there are all the mortgage bailout plans. You've all read my blog, I think they are essentially using my tax dollars against me by propping up unsustainable home prices.

I've always considered myself to be a pragmatic person. That certainly applied to my politics. I have always been a centrist with certain liberal social leanings and conservative spending priorities. I think a diverse smattering of ideas and political interests is healthy. Following one paradigm limits you, in my opinion. 24 months ago, there was no chance I was going vote Republican. I thought GWB was intellectually challenged. I didn't care for his decisions, but I never felt like his plans were working directly against me. As the primary election was spinning up, Senator Obama put out an idea that I was aghast at. He proposed bailing out the fools who were in over their head on a mortgage. I found it a bad idea then and a worse idea today. In November, I didn't so much vote Republican as vote against Senator Obama. Today, 6 odd months into his grand social engineering experiment, the seeds have been sown to make me a life long and staunch Republican. I hate the idea of embracing the religious right. I hate the idea of over turning Rowe v Wade. I hate a litany of Republican ideologies. However, as I sit here, watching our President and Democratic Congress drive a stake through my American dream while they continue to fleece me for the betterment of a lot of people who might not be so deserving, I can't see how I can forgive this. In 6 months, not one single piece of legislation has been proposed which does not work directly against me.

Why Nobody Wants CA's IOUs

The big banks are running from the idea of accepting the IOUs the state of California is issuing. Really, who could blame them given the year they have had. I'm not here to make excuses for the banks, but consider this from their standpoint.

In the last year, the banks have been subjected to what can, at a minimum be called arbitrary treatment, at the hands of the Obama administration. I am sure some would even call this treatment harsh.

In the last year the Obama administration has subverted more than century of bankruptcy law, in sticking it to the most senior debt holders in GM & Chrysler to benefit his friends in the UAW.

The banks have to be mortified at the prospect at accepting an unknown and at present, unregulated debt security with more than a passing chance that California could default or need a government funded bailout. It’s not much of a stretch to see the government bailing out California (The worlds 8th largest economy) and its Electoral College high 55 electoral votes that often elect Democratic Presidents. Even if the IOUs were made secured senior debt, it is still likely that Obama's whipping boys on Wall Street could be forced to forego their due in a bailout of California in much the same way as the senior debt holders in GM & Chrysler got dimes on the legally guaranteed dollar.

I have yet to see anyone do a serious analysis of what the long term implications are for corporate debt financing in the wake of the Detroit debacle which is the Chrysler and GM bankruptcies. However, my 6 credits of college economics tell that it is not going to be pretty or inexpensive.

A Frequent Target

Everyone here knows that the NAR is persona non-grata on this blog. I've regularly railed against them for their misuse of statistics. This next graph is no change from that modus operandiYou can clearly see how the NAR manufacturers some cheer.

Now we come to find that the NAR is lobbying against objective home appraisals. Business Week is running a piece that talks about their lobbying points. That’s fine, anyone and everyone is entitled to employ lobbyists to advance their cause in Washington. Its one of the great things about this country. However, don't stand there with a shocked look on your face and tell me that your innocent when I blame you for the current mess along with fools who signed for loans, Wall Street, 2 Presidents and a Congress who advanced a home ownership agenda that was at best faulty.

Here is a novel idea ... How about just letting values tank, find a true bottom and get on with the business of living life the way Americans have for decades, prior to the late 90s beginning of the real estate boom that has led us to ruin. It’s called taking your medicine.

Obama Sticks it to Renters ... Again

President Obama is going to let Fannie Mae and Freddie Mac refinance loans that are worth up to 125% of the collateral's value in an attempt to stem the tide of foreclosures according to an article on Bloomberg.

Other than sticking it to the third of the population who rents their homes in an effort to bail out the 10% who are over extended, President Obama tosses empathy under the bus for renters to save the fools who willingly over extended themselves.

Can anyone explain the logic in that? Anybody ... Bueller ... Bueller? Has anyone seen Ferris Bueller?

An Ounce of Common Courtsey Please?

So, I sent my Senator an email, expressing my rage at one of his potential votes. I used what he called a 3rd party website to send the email and this is the response that I got.

Unfortunately, due to the fact that your message was sent through an outside third party website, I will not be sending a detailed response. If you would like to receive a response, I would encourage you to visit my website at http://webb.senate.gov. By visiting my website directly, Virginians can request regular updates about my activities and positions on matters that are important to Virginia and our nation.

So, I went to his website, explained my position on the subject in a short email that used no big words and I closed with stating that I had emailed him previously and that I would be expecting a detailed and hopefully personal response. This is what I got back from Senator Webb.

____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

If this looks like nothing, your seeing exactly what I got from Senator Webb and his staff. Nothing, which is roughly the odds that I will be voting for him when his job is up for reelection.

Essentially what the man said to me was this ... I don't like getting spammed with messages that I don't like, so F you tax paying constituent. I don't like your message or view, but rather than just say that, I'll make your message appear unimportant because of the means of delivery. So, in response, I gave him what he asked for, a concise message submitted in a one off format. His response was nonexistent, because he couldn't find a logical or intelligent way to rebut my message. Thanks Senator Webb, I really enjoy paying you and your staff to not serve me. I look forward to voting you back to having to work for a living.

Terrific Michael Lewis Video

I'm Just Saying ...

Wasn't it George HW Bush who said, "read my lips, no new taxes? Wasn't it Barack Obama who said he wasn't going to tax health care benifits during his campaign? Look at how the ball is bouncing now. The senior George Bush was promptly voted out of office. I wonder how much coverage this comparison will get from the mainstream media. I am guessing little to none.

Option ARMs, Coming Home To Roost

As my regular readers know, this blogger has a big ego when it comes to big fat I told you so's. Mind you, I don’t think its funny for someone to end up homeless, but having to rent your home is completely different from being homeless.

Bloomberg is running a piece that says the option ARMs that are going to be recasting next year though late summer of 2011 will be a threat to the current housing recovery. Now, I dispute that we're in any kind of recovery, but I guess that’s semantics. Bottom line, I have been beating this drum since March of last year, that there would be no true recovery until at least 2012, once we're done with all the recasts. So, throw another log on the fire, we'll be torching another $750 billion for the pay option ARMs. Also, keep in mind, that $750 billion number does not include the pending Alt-A carnage.

Pay option ARMs are especially insidious, since the monthly payments started so low. Disgustingly low if you ask me. The article cites two cases, where payments started under $100 and will jump to over $3500. Once again, the ignorant consumer gets painted in a favorable light, but its high time the ignorant or foolish consumer get called out for their role in the current debacle. If people would have looked at these loan products as fools gold, instead of some get rich quick scheme, we might not be nearly the trouble we are in. We all learned at an early age that if something is too good to be true, it probably is. Home loans are no different, especially since its everyone's biggest expense and everything is handed to the loan recipient in black and white.

The phrase of the year for 2010 will be negative amortization.

Negative amortization, occurs whenever the loan payment for any period is less than the interest charged over that period so that the outstanding balance of the loan increases. As an amortization method the shorted amount (difference between interest and repayment) is then added to the total amount owed to the lender. Such a practice would have to be agreed upon before shorting the payment so as to avoid default on payment.

I just wanted to add this little nugget of info, because I so, despise the NAR and the cost added, faux innocent acting, constituency they represent. The NAR was well aware of the likely cave ins with option ARMs and Alt-A when they started running commercials this spring saying that "now" was a great time to buy. I find that highly unethical and self serving, but what else do we expect from an organization that pulls the strings on Lawrence Yun.

Need Affordable Housing? Call Your Senator

If you’re like me, you chose to sit out the tail end of the real estate boom while fools rushed in. Now today, as the fools wait for their bad loans to come home to roost, our elected leadership continues to meddle in markets which they are in part responsible for fouling up. Rep. Maxine Waters (D-CA) and Rep. Elijah Cummings (D-MD) spent hours on the phone trying to help constituents renegotiate the mortgages which they signed for and now can't afford.

I'll sum that for you, like this ... As tax payers, your paying the salary of these Representatives so that they can try and enact bills like the one sponsored by Illinois Senator Dick Durban that would continue to artificially prop up home prices that use your tax dollars against you, while at the same time, they pretend to be mother hen to undeserving home owners on your dime.

If your an aspiring home owner, these types of actions and legislation only prolongs the time in which you can achieve your American dream. If you’re a responsible home owner who would like to sell a home at a reasonable profit, this meddling in the markets will only put off the time in which you can sell your home at decent and historically typical profit.

So, I urge you to use the links on your right to find the contact information for your Senators and Representative. Call them, write them and email them to tell them that you want them to stop using your tax dollars against you. Tell them to stop meddling in markets which are in dire need of a natural correction, not more artificial fixes. Artificial fixes got us in this mess in the first place. If you want to tell them why they need to stop meddling in the real estate markets, direct them here, read my past posts, they explain the rationale for not tinkering with the real estate markets very plainly. I even used a lot of pictures so that they will be able to understand why proping up home prices at even the presently depressed levels is still unsustainable.

Picking Up the Tab

The President went to Nevada to help raise funds for Harry Reid and pander to the good people of Nevada. I don't know what else the President did while he was in the great state of Nevada, but none of it was front page news, except the appearance at the fund raiser.

It seems to me, Senator Reid's campaign should be paying for thousands of dollars worth of jet fuel, security arraignments and whatever else it costs when the President travels. As a tax payer who has been on the short end of just about every proposal President Obama and Senator Reid have put forward in the last few months, I don't like the idea of picking up the tab on Senator Reid's re-election efforts. Someone other than the tax payers should be on the hook for the cost of the President campaigning. Ditto for his hollywood fund raiser. The man has to stop chasing celebs around.

This sounds like exactly the kind of waste, which the President has been speaking out against. This whole thing sounds very hypocritical in my opinion. I guess that’s the Obama double standard at work.

If It's Too Good To Be True ...

Grandma had a saying ... if its too good to be true, than it probably isn't. For the last few days Turbo Tax Timmy has been running around telling anyone who would listen, that the banks are healing. Perhaps this is one of those misuses of statistics that the NAR is so fond of.

Unless you have your head buried in the sand, there is no way you could possibly believe that we are in recovery. There is a massive wave of Alt-A and Option ARM resets just a few months away.Then there is commercial real estate, the proverbial "other shoe" that is just waiting to drop. Nobody who should have known bettter, could foresee the failures in residential real estate. Its stands to figure that same lack of foresight will be dogging commercial real estate. As everyone’s home equity piggy bank dries up, as company's lay people off there will be decreased demand for Abercrombie clothes, vacations, dining out, gourmet junk from stores like Williams Sonoma, Sony big screens and a whole host of other consumer goods, which as we have seen, has fed back on itself to perpetuate even more economic downturn. If those stores aren't making money, the chains will shut them down or the chains will just go out of business leaving real estate investments swinging in the breeze. The chart below shows that delinquencies are on the rise in all facets of commercial real estate. So, my question to the Secretary of the Treasury and his MA from Johns Hopkins is this ... Are things really turning around or are you just trying to will a recovery with a nice bouquet of flowers while whispering sweet nothings in everyone’s ear?

Nothing being the operative word. This blogger is not buying this idea that we're in recovery or even some contrived pre-recovery phase. Best case, the carnage is taking a break, because there are tens of thousands of homes which are due to be foreclosed. The only reason they haven't been foreclosed is because the President imposed a moratorium on foreclosures which just ended. The banks are hiding somewhere in the region of 600,000 homes. That’s six hundred thousand homes that banks will need to liquidate, thus adding additional inventory to the already bloated inventory of homes on the market. As noted above, there will be more foreclosures starting later this year and all through next year as the holders of shifty loans on homes they can't afford begin to face the music of a rate recast with few options for refinancing. Lastly, there is that other shoe. There are some people placing that the bank's exposure to commercial real estate losses as high as $1.8 trillion. Somehow, I don't think the bankers had the foresight to get coverage on their commercial real estate holdings from AIG, like they did with their residential real estate. There will be no intermediary to help the government backstop the commercial real estate losses, like there was with the residential real estate paper that went bad. It was easy for banks to report profits with billions in TARP dollars backstopping them. What are they going to do when the commercial paper goes bad?

You Can't Handle the Truth

Somebody better press Col. Nathan Jessup's dress blues and see if we can squeeze Jack Nicholson into them, because that’s what needs to happen, pretty much every where across the country.

The shortest distance between two points is a straight line. Right now we are at a point where our economy is sadly broken. We want to be at a point where our economy functions normally and predictably. So, how do we get there? I'll tell you how, we take our medicine, we let the mechanisms within our economy function normally, as they have for generations. We stop undercutting contract and bankruptcy law with artificial "fixes" that will only prolong our slump and make a more bitter pill to swallow when we're forced to do so.

There is no pretty way to say it. You don't need a JD from Harvard or an MA from Johns Hopkins to figure it out. Its time to stop meddling with the complex economic machinery that drives entire world, we no longer have the power to just makes things happen like we did 20 years ago. Its time for real leadership. Leadership that realizes that the needs of the many vastly out weigh the needs of the feeble minded few who willingly and with great vim and vigor over extended themselves. Over extended home owners, I am sorry, its time to line up a rental and drop the keys at the bank. Mr. Banker, you leveraged everything but the door knobs, its time for a margin call. Put up or sell out, your short sighted profit mongering has come to an end. The people who didn't share in your gains certainly do not want to share in your losses. I used to say save the banks, we all rely on them. I was wrong, they can't be saved.

Its sink or swim time. Those with the anvil strapped to their backs are going to the bottom. A regular poster here, likened the current situation to forest fire. It was such an apropos analogy. Before man learned how to fight fires, forest fires were nature's way of renewing. The flora and fauna that was burnt died, but its nutrients were returned to the soil. Soon after the fire ended, new species began to sprout up and life began a new.

The Wall St Journal is Even on Board

Yesterdays WSJ piece closed with some really interesting comments. I'd like to say that those comments were an original sentiment, but I have been standing on top of the hill waving my arms like a mad man and screaming the exact same things. The closing comments of the article were also rather chilling for the "its almost over" crowd.

I looked at Case-Shiller's index back to 1987 and compared it to federal data on average earnings. The result, rebased to 100 in January 1987, can be seen here. And it's alarming. By this (admittedly very simple) measure, today's home prices are actually more expensive, in relation to average earnings, than at the peak of the 1989 property bubble.

Equally noteworthy is that when the last property bubble burst, it took about eight years before the market showed really strong signs of revival. This bubble was far, far bigger

A New Foundation? I am Not Buying it.

President Obama touted a new foundation for growth in his 100 day press conference. He blamed an economy built on sand for our current economic condition. Those were good analogies, courtesy of his speech writer. However, upon even distant observation, it’s obvious to anyone with an ounce of common sense, that the continued individual home owner bailouts, $75 billion at last count, are nothing more than adding more sand to the pile.

Can someone, anyone, please explain to me, how artificially supporting home prices will truly, in the long run, do anything to relieve the economic conditions which grip this country? Reworked mortgages are still failing nationwide. Banks are still holding billions, perhaps a trillion dollars worth of toxic paper that rides on top of hundreds of thousands of bad mortgages. It was a set of artificial conditions which got us in this mess and more artificial "fixes" will only prolong this mess as well as drive up the cost of fixing it. Einstein defined insanity as "doing the same thing over and over again and expecting different results".

The very best short term case is that this mortgage bailout plan supports prices for a short time and stalls our economic slide. It may even stall the slide long enough to get President Obama reelected. That’s the best case, with probably the poorest possible outcome as the slide at the end of any artificial stall will be far more precipitous than we are currently experiencing. In short, its good for him and bad for us. This is what we get, because we have allowed our politician's focus to become staying in office, rather than best serving the people.

Another Interesting NAR Tidbit

These guys are masters of misusing statistics. I was reading the Wall St Journal this morning when I came across this little nugget of information.

The NAR has been touting decent sales numbers over the last month, 360,000 sales versus 375,000 sales in the same month last year. Its the truth, but here is the real catch according to the WSJ piece ... Over half of those homes sold last month were foreclosures and short sales, while that number was under 20% a year ago.

Lies, damn lies and statistics.

Keeping Track

A lot of Republicans were drummed out of office, in some cases for lesser offences, yet the main stream media continues to provide obscene amounts of top cover. Where is the outrage?

Pennsylvania Rep. Jack Murtha - Faces allegations of steering defense spending to the consulting firm his brother works for and another firm that a former staffer founded.

New York Rep. Charlie Rangel - Currently faces no fewer than 4 House Ethics Committee investigations.

California Rep. Jane Harman - Is fighting allegations that she offered to help seek reduced charges for two pro-Israel lobbyists suspected of espionage in exchange for help from a pro-Israel donor, also suspected Israeli agent.

California Sen. Dianne Feinstein - Is accused of devising legislation that helped her husband get a federal contract to sell foreclosed properties at compensation rates higher than the industry norms. Her defense is that the legislation never became law.

Connecticut Sen. Chris Dodd - Continues to stonewall information requests in relation to allegations that he was the recipient of VIP loans from disgraced subprime lender, Countrywide.

North Dakota Sen. Kent Conrad - Continues to hide in Chris Dodd's shadow while he fights off the same allegations.

President Barack Hussein Obama - Continues to avoid scrutiny regarding the preferential treatment he received from TARP recipient Northern Trust Bank in negotiating a loan and purchasing his Chicago area home for beyond lowball discount of 15% under market prices at the height of this nations real estate boom.