Tuesday, April 22, 2008

More Validation for Me!

Its not easy being so right about something so bad.

Many problems with mortgage bailouts

Yale economist Robert Shiller stated, "I'm not sure we can achieve continuing high home prices". Home prices are up 85% in roughly the last decade. Given the historic precedent of home prices doubling every 20 years, the recent 15% retreat in home prices is only fraction of the correction needed for the market to be at or near equilibrium. Considering the current tight credit markets, I think its safe to say that we haven't seen much more than the tip of the ice berg with respect to the correction in housing prices.

While many people think the Foreclosure Prevention Act of 2008 will arrest the slide of housing prices, they fail to grasp the concept and consequences of allowing housing prices to remain out of equilibrium with personal income. Barry Ritholtz, CEO of equity research Fusion IQ said, "If home prices don't go down, it means newlyweds can't go out and find a home they can afford". I have been saying this since Hillary Clinton first opened her yap on this subject. But I guess a PhD in economics or a successful Wall St career lends a certain amount of credibility that I don't have. Common sense just isn't worth much in this day an age.

Treasury Secretary Henry Paulson seemed to have the right idea, when he sought to insulate the major structural institutions from the housing market downturn. However, his Wall St roots can't help but allow him to be painted as being too good of a friend to Wall St. Although, some people see issues with this course of action. Keith Hembre, chief economist of First American Funds believes that by propping up the banks we are devaluing other financial objects. However, I think that he is under estimating the gravity of the situation that confronts our financial markets and banking institutions.

Friday, April 11, 2008

What a Turd

Read this story

Its the story of a moron who got in over their head and now they are basicly thumbing their noses at every single tax payer who is taking it in the back pocket while they squat mortgage free in their home in Stockton CA which is awaiting foreclosure. At one point they actually feel good that they aren't paying their mortgage, becasue they have money in the bank since they aren't paying for their mortgage that they can't afford. Just makes it burn, doesn't it?

Wednesday, April 09, 2008

Who Would Have Thought

Who would have thought that GWB was going to be cast as the smart one in the sub-prime meltdown? I sure didn't, but just as the do nothing Congress gets off its preverbal ass to do something, the wrong thing, W is there waiting to slap them down.

At yesterday's White House briefing, Spokeswoman Dana Perino gave the bill an emphatic thumbs down, saying it would be counterproductive, do more harm than good, and not be supported by the President.

"The bill will likely do more harm than good by bailing out lenders and speculators, and passing on costs to other Americans who play by the rules and honor their mortgage debt obligations."

While I have been an epic critic of GWB and the Fed, for once I find myself on the same side of the fence with him. It surely can't last long, but for now, I am enjoy a return to the dark side, my Republican roots, that W has worked so hard for the last 7 years to kill off. While they were almost dead, Clinton and Obama (who I was actually close to endorsing) managed to resuscitate them in one short sentence each, affirming their support for an individual homeowner bail out.

Now if the Fed would just get themselves an equity stake with the stealth banking bail out thats going on right now, all would be right in the world.

Monday, April 07, 2008

The Over Flow Has Begun in Earnest

Municipalities and businesses alike are beginning to take it on the chin thanks to the sub-prime melt down. Its seems as if everyone was looking for a short cut. The market for auction-rate securities has plunged like Brittany Spears' underwear. The District of Columbia is now paying an additional $1.2 million a month to cover the interest on these securities they sold to cover the cost of building Nationals Stadium. I wonder what that foreclosure will look like. Its not just poor relation municipalities taking in the back pocket either. Hospitals, universities and even the NY/NJ Port Authority are neck deep in these cut rate debt obligations. Apparently, nobody thought the rates would go up or that the market for them would go to hell.

Granted, I can only say that I thought that housing prices would have to collapse sooner or later, I can't lay claim to seeing anything further than that. Although Nouriel Roubini probably did, but nobody listened to him. He was the biggest bear, caught in the middle of the biggest bull market anybody, anywhere has ever seen. I think its safe to say the cascade will be far reaching and perhaps worse than anyone could imagine. Public works will grind to a halt as politicians look for ways to stretch their shrinking tax base to cover rapidly growing interest payments. Universities will be forced to make tough decisions on staffing, up keep on their physical plant and quality of their programs.

The question on the tip of everyone's tongue is when will the end come, and the undeniable answer is no time soon. Certianly not while nood-nick, know nothing Senators like Christopher Dodd keep trying to meddle in markets which they know nothing about and aren't qualifed to be making adjustments to. At this time, the most prudent course of action has to be one of inaction, for any move made right now, is likely to only prolong the markets finding a proper equilibrium. Our check is coming and its going to be a big one. Putting it off only makes it worse.

Sunday, April 06, 2008

Speaking of Irony

The Washington Post is reporting the Mortgage Bankers Association might not be able to afford its nice, new, shiney, big building in downtown Washington DC. The group's budget has been squeezed by membership that has been reduced by 17%, because sham, sub-prime brokerage firms went busto. Two senior VPs have jumped, like rats off a sinking ship. Furthermore, as closing time approaches, the group's borrowing costs are rising and their prostpects for leasing out space in the build are drying up. Tough break for those who were just laid off to support the MBA's hubris.

You've gotta love it when irony comes home to roost.

Saturday, April 05, 2008

Public Enemy #1 - Senator Chris Dodd

This week Senator Dodd wheeled out a bailout package that will forsake every single person in this country who currently does not own a home. He also did significant favor for the home building and real estate industries. He was promptly called out for doing this favor for big business, but most people still seem to be ignoring the long range implications of any individual home owner bailout. So after being called out, Senator Dodd retreated like a Washington Redskins corner back by saying, "I would have been more moderate on that, to put it mildly" and he acknowledged that he had reservations about the business-tax breaks, but he still put them out there in the hope that they would slide on by. So now, in addition to selling every single tax payer down the river to pay for this bailout, Senator Dodd is proposing that people who are late with mortgage payments take money penalty-free from their retirement accounts.

That’s just brilliant Senator Dodd, so in 2008 we will bail these people out of their bad mortgages and in 2040 we get to bail them out again because they have no retirement savings. Absolutely brilliant. I don't know where Senator Dodd gets his ideas from, but I am fairly sure my 6th grade social studies class could have figured out a better plan than wrecking our economy for years to come, just to save a relative handful of foolish, ignorant, stupid and reckless homeowners.

No thanks Senator Dodd. No Thanks Representative Barney Frank and of course, lets not forget Senator & Presidential candidate Hillary Clinton, who opened her mouth first about an individual homeowner bail out.

Friday, April 04, 2008

The Needs of the Many ....

The primary problem I have with this bill is that it does nothing to address the disparity between home prices and personal income. Growth of home prices has vastly out paced the growth of personal income for more than a decade. At this point, anything that maintains the current home prices will only prolong the problem and likely make it worse. If this bill passes as is, nobody who doesn't own a home today will EVER be able to afford a home since just about every single market in the country is over priced and the cost of borrowing is going to go through the roof if lenders have to worry about bankruptcy court modifying the loan terms and writing down the principal. $7000 or even $15000 would do nothing to spur investment in markets like the west coast or around any large city.

The only possible outcome would be rampant inflation of personal incomes and the goods/services that aren't housing related. That would turn our dollar into the Peso or Yen.

Unfortunately, I think the time has come for America to take its medicine. Those who took the short cut are going to have to pay the price and lose their homes. I don't see any way to fix the problem, without making a bigger problem down the road. Lets not forget that its not 1929. There isn't rampant unemployment. Just about everyone who is losing their homes due to a sub-prime mortgage has a job and the means to rent. And as long as this bill doesn't pass, they will have the opportunity to own a home again some day when their credit rehabs.

The paper gains people have made on their houses, without selling are just that. Paper gains. Granted a home is usually a much bigger investment. A much more emotional investment than say stock options from 2001, but its really no different. I, along with many friends had enormous paper net worth’s that evaporated as the dot com bubble burst leaving us with only a tax write off on the options we paid taxes on. Some of us were worth millions and ended up with a few thousand. Most of us got nothing.

This bailout is very expensive. It’s very difficult to implement. Its has a significant likelihood of making things worse. This bill will help alarmingly few people in relation to the whole population of the American home owners and citizens in general. It forsakes the next generation's ability to pursue their American dream.

The needs of the many must be accounted for before the needs of the few. While it might be distasteful to see the CEO of Bear Stearns cash out $63 million from a company that was run into the ground but, preserving the integrity of our financial institutions benefits every American and perhaps every citizen of the world.

I urge everyone to contact their Senators and Representative and tell them you will not support them with your time, money or votes in their next election if they support this legislation.

List of Senators
List of Representatives

Wednesday, April 02, 2008

Hey Newsweek! Thanks For the Validation

Newsweek: Why housing bailout plan is flawed

In Layman's Terms

I'll put this in relatively simple terms so that even the intellectually challenged can understand.

Imagine 2 people sitting at a blackjack table. One is your average young person. They have a few bucks in their pocket, they are just getting started. The other person is your sub-prime borrower. The young person has read up and studied the game of blackjack and is going to play perfect basic strategy blackjack, while the sub-prime guy is not playing smart strategy. Throughout the game, the sub-prime guy takes cards or stands at inopportune times, thus messing up the game for the whole table, especially the basic strategy guy. At the end of the night when the basic strategy guy and the sub-prime guy leave the casino broke, someone gives the sub-prime guy his money back. And just to make things stick a little for the basic strategy guy, he's forced to go to the ATM and withdraw cash to cover a portion the sub-prime guys loss.

Tuesday, April 01, 2008

Dear Senator

Dear Senator So-and-so, I would respectfully request that the tax dollars I am sending the IRS next week be earmarked for something less wasteful and more beneficial than this bailout, like the war in Iraq.


A Taxpayer

Nice Hyperbole Senator Dodd

Nice Hyperbole Senator Dodd, but your context is all wrong.

Dodd said that about 8,000 homes are being foreclosed on every day.

"Foreclosures of this magnitude are on a par with the severity of foreclosures during the great Depression," Dodd said. "Each day without action means more are losing their homes."

80 years ago people were getting foreclosed though no actions of their own. The markets crashed, businesses went under, and the Great Plains were a dust bowl. Today, EVERYONE who is facing foreclosure is facing it because they made a bad gamble. They are facing it because they were ignorant, dumb or irresponsible. It’s a totally different situation. Everyone being foreclosed still has jobs and can still afford to rent. Eventually those people's credit will be good enough to own homes again. Unlike the plan Senator Dodd is proposing which will make it so that millions of people who currently don't own homes, will never be able to afford them, because prices will remain higher than should naturally be expected, given personal income levels and the cost of borrowing will be significantly higher. Brilliant strategy to forsake the future in favor of the present. Sort of how we got into this mess, no? Typical American ideology.

My Review of the Fed Overhaul

Yet another ham handed effort on the part of W to salvage a situation that doesn't need to be salvaged. A bottom needs to be found and built upon with fundamentals.

This overhaul will never work. Has anyone seen what’s going on at DHS? The Department of Homeland Security is floundering and failing. 7 years later, it still isn't fully staffed, programs are not coordinated and key mandates aren't being met. All DHS does is protect our borders and ensure our safety. The Fed overhaul wants to create a Federal Reserve which is responsible for our money at the expense of other federal agencies. Does anyone in their right mind see that endeavor succeeding?

I am not saying that revamping our financial regulatory structures isn't important or needed, but there are more pressing issues at hand. I also disagree with how the government is going about this restructuring. Representative Barney Frank, D-MA, who is the chairman of the House Financial Services Committee, called it "a constructive step forward (in) a profound national discussion that cannot be concluded in the months before the election". Correct Congressman, but its like the 4th or 6th step from where we are now. I hate to say it, but for a change Hillary was right when she called this reorganization, arraigning deck chairs on the Titanic. Too bad she rendered herself irrelevant last week when she called for a bailout of the individual homeowners.