Saturday, March 29, 2008

Way to go Senator Coburn

Sen. Tom Coburn (R-Okla.) said he hopes that "the administration is not into subsidizing stupid behavior. It's one thing to help people who made a rational decision, who were spammed or defrauded. But it's another thing to reward people who thought they were getting something for nothing, and knew what they were getting into."

An Open Letter to Every Elected Official

President/Senator/Congressman, I find it totally unacceptable that this administration is even considering the possibility of bailing out troubled home owners, for a litany of reasons.

First, this kind of bailout can only reinforce poor decision making and risk taking in the future on the part of individuals and institutions. There will always be people looking for a short cut. Don't reward this kind of irresponsible behavior with my tax dollars.

Second, a bailout will create a situation where generations of potential home buyers are frozen out of the market, because of the current disparity between home prices and personal income is never going to be rectified.

Third, bailing out the banks is one thing. I consider maintaining and supporting the US banking system with tax payer dollars to be important and worthwhile. A healthy US banking system is matter of national security. Bailing out troubled US banks, benefits every single US tax payer. Bailing out the individual home owners bails out a staggering small percentage of the population.

Fourth, the home owners who are being put out of their homes are not destitute, they aren't unemployed, they don't face impending doom. They can easily rent, like millions of people who were frozen out of the market prior to the beginning of this price correction.

Fifth, if the government is going to bail out home owners who took on too much debt, will the government be bailing out people who took on too much student loan debt? How about the individuals who took on too much credit card debt? How about just expunging the criminal records of, say everyone under the age of 25? Those people could always plead ignorance or youthful stupidity, just like all the home owners who claim to be victimized by predatory lenders. Its a slippery slope President/Senator/Congressman, where does it end?

Sixth, a bailout of the individual borrowers punishes everyone who decided to buy within their means. It punishes everyone who chose to wait for a market correction, because it wasn't hard to see coming. It makes me wish I had been dumber and more irresponsible. Consider the illogic of my last statement. When would any normal, intelligent, rational person make that kind of statement? I think it illustrates just how foolish a bail out for the troubled, individual borrowers is.

Finally President/Senator/Congressman, I am highly offended that my tax dollars are being given to someone who was irresponsible and whose only plight is that of having to rent instead of own their home. Please do not condemn current and future generations to the same fate because they were unwilling or unable to have the opportunity to make a bad decision.


Friday, March 28, 2008

Pathalogical Stupidity

How stupid can you be. This person made $70k/year and took out an interest only loan with a $2500/month payment. Her mortgage was easily costing her something in the region of 2/3 of her take home salary. Plus run away property tax, insurance, a likely car payment, not to mention other luxuries like food, clothes, gas. And the real kicker, she was working as a loan processor, she should have more insight into the market place than the average bear. Watch the video, linked at the top of the page! Look at the kitchen in that house. No restraint what so ever. This family must have been the builder’s wet dream come true. Not to mention the electronics store and where ever she buys her wine from. She talks about taking off the Tiffany bracelet and Coach purse before going to the food bank. How about eBaying those little luxuries? With the stainless appliances, marble counter tops, there is undoubtedly an over priced car in the garage.

Then there are these fools who are paying an $800/month gas bill. Let me offer some basic advice, get rid of the family pick up for something more economical. Fine, the guy works in construction, he "needs" a pickup, so go get something that gets more than 11/miles per $4 gallon. I know its out there. And since they live in Florida, they probably voted for Bush, so screw'em.

This twit probably should have picked a more affordable school or a better major, because $1600/mo in student loan payments is absolutely absurd. What did she do, go to Harvard and major in "I don't want to make a lot of money"? Actually, I have no idea where she went to school, but coming out with a $1600/mo tab should probably make you a lawyer or doctor or something else that pays better than $40k yr. My wife has a private school education and her loan payments are a fraction of $1600/mo.

Some financial stimulus, for Bank of America, these two managed to get out from under their ARM and they are sending their bush bucks to the credit card company.

Terrific life choice here, she quit her $50k/yr job so that she could take some time off, thinking she could always get something later. NOT! I am sorry she didn't like her job, but there is a reason they call it work ... Shit and fuck were already taken. She must have some partner, to let her submarine the relationship like this.

Some health care system we have, that allows someone to go $5 million in the hole for cancer treatment.

Touch choice, make your car payment or send your kid to private school.

Grow up, neither party in the American political system has any interest in the middle class. You don't donate, you probably don't even vote and there aren't enough of us to make a difference.

It’s hard not to feel compassion, but how about the stupidity and lack common sense. While some of us bought within our means or didn't buy at all because we were priced out, other fools went full speed ahead. It never dawned on people to not buy something, just because someone said you could afford the loan. It’s like the Martha Stewart mentality that traded on inside information to make a few thousand dollars, when she was worth of tens of millions. I just don't get the lack of restraint and rational thought.

These people and millions like them, stuck their nuts in the ringer and turned the crank themselves, and now they want responsible people to make an irresponsible chioce to bail them out. No thank you.

How about CNN does a story on someone who is living within their means and sweating these morons getting bailed out to maintain an over priced market. Now that would be an interesting story.

Wednesday, March 26, 2008

Are homeowners the next bailout?

Absolutly not. I urge everyone who reads this to, email their elected representatives and urge them to not bail out the individual borrowers who have over extended themselves. There is no bail out for stupidity. There are no favors for people who over extend themselves with credit cards, car loans or the loan sharks in the back allies of the world.

The only possible rationale for bailing out the dumb is to bail out those who could afford those same homes, to protect their investment. However, that reasoning is flawed. If it weren't millions of dot com programmers, receptionists and others would have something to show for the millions of dollars in stock options that took them from being paper millionaires to being lucky to have the down payment on a house, when the dot com bubble burst. Those gains weren't real and neither are the present real estate gains. The only real gains are in the pockets of the person who sold their home before this bubble burst.

The housing market MUST be allowed to find a natural equilibrium. Until that happens, the banks will not know the value of the investments and the volatile stock markets will not stop swinging wildly as bad news follows false good news day after day.

For Hillary Clinton to suggest that bailing out the individual home owners because a large investment bank was bailed out is highly populist and self serving. Her statements are not meant to do anything other than to bolster her own cause to be President of the United States of America. There is nothing altruistic about her suggesting the troubled home owners be saved. They aren't facing impending doom or life on the hard streets of America. These are decent people who made a mistake, took a short cut. However, at the end of the day, these people still have jobs, families and retirement accounts to fall back upon and build upon for the future. Bailing them out only serves a few, while bailing out the banks benefits the whole United States.

Monday, March 24, 2008

Wake up Sheeple

With the root of the current unrest in our economy firmly rooted in the troubles of the real estate market, I have to question some of the current policies for our Federal Government. While distasteful to the mindless sheeple who are looking for someone to follow in railing against our government, bailing out the banking industry is the right thing to do. At least the lessons of 1929 are not lost. My issues there are with the way in which the deal was structured, and that it is not designed to have much of a return on investment to the US tax payers who funded the Bear Stearns buyout.

Getting back to the root of the problem, the idea of providing a bailout to the individual sheeple who took the short cut and found out that it didn't lead to the promised land is just a plain poor idea. It is my opinion that the first thing that has to happen for our economy to stabilize, is for the real estate markets to stabilize. for that to happen, everyone needs to get gigantic raises to bring the cost of home ownership back into reach or home prices need to come down significantly. This is especially troubling in the major metropolitan areas. Over the last decade or so, incomes have only increased about 25-30%, while at the same time home prices have appreciated more than 75%, even after the last 12 months of decline in prices. An entire generation of Americans will never have a chance to own homes if the present disparity continues to exist between home prices and wages. With the Federal Government contemplating a bailout of the individual, troubled, home owners, I can only stand by and shake my head and question the wisdom of the move.

I have several reasons for questioning a bailout of the individual borrowers.

First off, I am not sure that such an undertaking is achievable for a number of reasons. First off, there needs to be a way to modify the terms of the mortgage. I just don't see how it is practical to restructure millions of loans.

Second, the whole thing strikes me as very populist. Even if the endeavor fails, it seems as if our leadership is unwilling to make a challenging decision to forsake the few in favor of the many. I can identify with the problem faced by every incumbent who chooses this path, but that’s a whole different ball of wax.

Third, I believe that home valuations need to come back into line with incomes for stability of the market place to be achieved. I think that attempting to bail out the individual troubled borrowers only prolongs the market from finding a bottom which I believe is necessary for parity to be achieved. Parity in the real estate market needs to be achieved in order for Wall St to have a sporting chance at putting a real valuation on their CDO's. Only then will the true scope of the situation be known and understood. Until then, there will continue to be incomplete, yet staggering write downs from the investment banks on their CDO investments. Thus, the markets will remain unstable and the economy in recession.

Friday, March 21, 2008

Getting Up to Speed, FAST!

I have been following Nouriel Roubini's writing for the past couple of months and I am convinced that at present, he's got the best grasp on what’s going on and where things are going. Roubini believes that we need to see at least another 10-20% decline in the housing market. I am more bearish, but who am I to go around questioning a PhD economist? At present, there are 8 million households upside down on their mortgages and probably another $150B in write downs to come. Roubini believes the number of people who are upside down on their mortgages will easily double and quite possibly triple. Combined with the up coming resets in 2010/11, I don't see how only 20% declines in housing will be enough to clear the excess inventory from the market. Roubini sees a pretty good chance that all forms of credit coming to a grinding halt. I am not sure we'll see a grinding halt, but credit is certainly becoming difficult to get. Roubini sees a slim chance of the US hitting a 1929 style depression. I probably agree with him on that account. While unemployment is ticking upwards, credit and liquidity are on skid row, I think that there is enough strength in the economy to provide sufficinet employment to stave off another Great Depression.

My definition of a depression is when a recession hits you, it becomes a depression.

For now, I don't see much reason for optimism. Hard choices have to be made, perhaps even Volker-esque choices, however we lack the leadership anywhere in Washington DC to make those choices, so for now, our leadership has chosen this course of action which has taken us to this recession, and we're not likely to be changing courses any time soon.

Good luck and baton down the hatches.

Wednesday, March 19, 2008

Stupidity Pays

Another $200 BILLION down the drain. 200 billion of our tax dollars going for Fannie Mae and Freddie Mac to bail out the idiots who took the short cut, didn't heed the warnings and in general are morons.

I so wish I had bought a McMansion that I couldn't afford, so at least I would get some of my tax dollars back in the form of a bail out.

This money has been allocated to Fannie Mae and Freddie Mac with the express purpose of going toward buying mortgages of struggling homeowners to enable them to refinance into more affordable loans.

This is just brilliant, I didn't over exend myself on buying a house and I will not be getting a check in May when the economic stimulus package checks go out. Talk about a redistribution of assets.

November is coming, and in every election, my advice is as follows. To borrow from Richard Pryor, vote for none of the above. Because quite frankly, anyone in office has done an abysmal job, and anyone who wants to be in office can't possibly have good intentions.

Jim Rogers Calls Out the Fed & Ben Bernake

Tuesday, March 18, 2008

The Coming Storm

The coming storm has nothing to do with the price of houses or who sits in the White House. It has everything to do with where wealth is currently pooling. Wealth is accumulating in some very dark, ugly corners of the world. China, Russia and the countries of the middle east are loaded with dollars, gold and soon Euros. If wealth equals power, the world is just beginning to enter a dark period in its history. Because those 3 countries/regions are not governed by the kinds people and principals we would ever want to be subservient to. I do not think that the current tide can be stemmed either, a natural evolution is beginning.

A good friend once posed an interesting question. He asked, "I wonder if the Romans realized that the end had begun as the visigoths began to chip away at the Roman empire".

My Objection to the Bear Sterns Buyout

The Bear Sterns buyout is such a sweet heart deal for JP Morgan. Seriously? WTF? This bailout/buyout should have been structured so as to return something to the tax payers. This is the 2nd time in a week that the Fed has thrown IB a big bone and gotten nothing in return.

Last week the Fed essentially bought $200B of worthless real estate paper and got NOTHING in return. Then over the weekend they finance the Bear Sterns buyout by assuming the risk on $30B in bad Bear Sterns real estate paper and gets nothing in return. I don't object to bailing out the banks, I have said all along that its necessary for the banking institutions of this country to be on sound footing, but Bear Sterns is just a brokerage/trader, they aren't a bank where millions of people have their savings accounts. While their going under would be very bad news, its not like your talking about Bank of America or Wachovia going under.

With a cost basis of $2/share, JP Morgan will make billions on this deal, and probably cover their bases fairly quickly, say 3-5 years. This deal could have returned a lot of money to the Federal government and the tax payers who are financing it, or at least bearing the burden of the inflation another $30B in printed money will cost. I also don't like that the whole thing was done under the cover of darkness and fast tracked over a weekend, so that nobody had a chance to raise an objection.

Where in the Hell are We Right Now?

Its not hard to see how the gov't missed the boat on the whole sub-prime mess. Banking regulation has been retreating for 50 years. Because of the accounting rules and methods, I suspect that the banks have no idea where they really stand. Which is why I think we aren't even close to the end of the write downs. It might be 2012 before we really get back on our feet. This chart, shows that the real storm of ARM resets isn't going to end until then.

There will be a trough late this year, but its fools gold. Even the National Association of Realtors have written off 2008, they will be reticent to do the same thing for 09, but its a write off too, however I think they will try to create some hope, just like they spent all of 2007 trying to do. With just about everyone holding an ARM being upside down on their loan, there will be no refi options out there, as things stand today. 2012, realistically is the first chance for a rally. By then, the backlog/inventory of homes and condos on the market will be staggering. Income growth and home price growth are way out of whack. Even today, they are way out of parity as shown here. The average salary has not kept pace with home price appreciation.

Freddie Mac's CEO told Congress last week that the housing market is only about 1/3 of the way done correcting, which would put us back at 1999/2000 price levels. He's probably pretty close to correct. The vibe I get from the way in which the Fed, Treasury and the other big banks are acting, is nothing short of sheer panic. I half expect to walk out of my office tonight, and see people running around in the streets around the Capitol, World Bank and White House with torches. Fortunately Nero is safe in the West Wing, trying on the new clothes he got from the emperor.

As I have said before, I don't think the gov't can bail out the individual borrowers. Its simply too massive and too expensive of an undertaking. I also question the wisdom of spending billions to benfit those few who have taken the short cut, while the rest of us have bought homes the old fashioned way or chosen not to buy because the market was dramaticly over bought. The banks have to be propped up. Its a matter of national security. The last thing anyone wants to see is the Russians, Chinese or middle easterners taking substantial stakes in our banking system. Bailing out the banks, benifits far more of our society than bailing out the troubled borrowers.