CNN Misses the Mark Again

What else is new? CNN finally recognized that there are some responsible people out there and did an article about them. Unfortunately, their take on things is that its not fair. Move on. That’s it. The poor, dumb, fools who took the short cut still get their bailout. They even got an econ professor from Mr. Potatohead State to chime in with some line of BS about hot we have to bail out the fools to save everyone else. As it is there are only a couple economists I trust these days, and Dr. Jellobrain from Mr. Potatohead State is not on the short list. Dr. Jellobrain and the rest of the CNN article failed to even consider any negative side effects of supporting the current price level. That’s fine, this link will be here for a long time, you'll be able to write CNN and Dr. Jellobrain to tell them how short sighted and self serving they were in December 2008.

I Told You So...

I don't draw a lot of comfort about being right on about something as bad as the current housing and credit crisis. However, I do believe that you can only save one group of people, the home owners who put themselves at risk with their bad bet on a risky loan or the people who are waiting on the sidelines because they saw that same bad bet for what it is. That said, I believe that in this situation, the prudent deserve their chance to flourish, as this country is designed to function.

That said, Bloomeberg and other news agencies are reporting that there will be another wave of loan foreclosures in 2009 after a lull late this year. Lull, that’s their word today. I was predicting this back in March. If you look at the chart in that posting, we are not much past the tip of the iceberg, 2010 isn't going to be good nor will 2011. Anyone forecasting a revival in real estate prior to 2012 is fooling themselves and trying to pull the wool over your eyes too. I am not sure that 2012 is the turn around point, but I am certain that the rebound will not come before then.

I also believe that any meddling that Congress, the President or President elect commit to in the real estate markets will only put off recovery even further. Its now widely understood that certain spending programs contributed to the length of the Great Depression. The catalyst for coming out of the Great Depression was World War II. I am not advocating war, but I am making a case against bailing out the individuals who put their homes at risk. Staggeringly low interest rates, 0%, contributed to Japan's lost decade after their housing crash in the 80s. Hard choices have to be made by our elected officials on Washington DC. I am not sure that there are many, or perhaps any, who are up to the task. The current Congressional leadership is certainly not up to the task. I see people who are blind to past lessons and are pushed to foolish actions because they are afraid to be perceived as doing nothing, but the fact of the matter is that by doing nothing and allowing the roughly 10% of the population who are at risk to go down with their bad bet is the only way to get back to equilibrium.

A third of the population of this country rents its home. Not all of them are would be home owners, but I am betting that there are more people who are frozen out of the market and will be frozen out of the market, than there are people at risk of losing their homes, if current price levels are maintained. Incomes are still not rising to meet costs of living if you want to own a home, regardless of where you live. Sure there are some markets that are legitimately holding their value or even going up, but they are the exception, not the rule. Even on the worst days on the NYSE, some stock some where sets its all time high.

In short people, wake up and smell the coffee, bailing out the individuals from their bad gamble is not going to turn things around. It will probably make things worse. So there you have, December 12th 2008, I am saying Congress, and people like FDIC chairperson Sheila Bair will make things worse if they continue to meddle with markets that can only be fixed by allowing them to naturally return to equilibrium.

Bailout!

Panic at the Fed?

I believe that the Fed & Treasury do not think they can keep the banking system afloat by either buying/guaranteeing the bad paper or offering cash infusions to the banks. There is no other good reason to be propping up home prices, which I think will contribute to a catastrophic round of inflation as cost of living indices readjust to the artificial housing prices and lack of creative finance options.

I think that this is a sign of panic on Bernake's part. They are willing to forsake the future for the current. I think they can wrap their heads around the consequences of massive banking failures. I believe that they think they can reign in the resulting inflation with higher, Paul Volker style interest rate hikes. If you don't own a home, you’re being sold down the river by both the current Fed and the incoming President.

Home prices are still dramatically out of sync with respect to personal incomes, costs of renting and historical norms. Even today, after 2 years of declines we are still close to double prices from 10 years ago. That’s twice the normal growth rate for home prices. Home prices used to be 2-4 times household incomes, now that number is more like 7-10 times household incomes. This correction is likely only half way though, at best. There are still 2-3 more years of ARM resets due. Plenty of them will be or have been refinanced, but the numbers are still remarkable. Look at the chart at the bottom of the blog linked below. 2010-11 still shows a lot of ARMs resetting. Right now and well into 2009, we are in a trough. Unfortunately the people who took the short cut are going to have bear the burden of their mistake. Bailing them out is foolish. There was no bailout for people who lost massive net worth’s when the dot com and telecom bubbles burst.

Allowing people to tap into their retirement is not a solution to this problem. First off, it probably will not be sufficient to stem the tide of foreclosures. Second, all that does is put off the inevitable. If you let people deplete their retirement to save their house, you are simply going to have to deal with them when they reach retirement age without sufficient savings.

People need to get over the idea that everyone is "entitled" to own a home. The CRA inflated the idea of the American Dream and now Congress is driving a stake through the heart of the American Dream.

Pay me now or pay me later. It's cheaper to pay now.

In looking at the current situation, home prices continue to be dramatically out of sync with personal incomes. Without the exotic loan products, people making a typical entry level salary, say $40k couldn't afford a 200k house. And 200k homes are not really available if you live in a major metro area. That average home price needs to come closer to $150k for entry level housing to be available. Keeping people in their over priced, ill financed homes will not get prices to where they need to be with respect to personal incomes. Similarly, it’s not practical to expect personal incomes to grow by 20% nor is it healthy.

So the question stands, who takes the sharp stick in the eye? The person who is over extended or the person who has not had the opportunity to make that same mistake.

Even the NY Times Likes My Stuff

I posted this comment to an article on the New York Times and even the editor liked it.

The US auto industry has a giant sucking chest wound from a Desert Eagle .50 cal and the UAW offered up concessions that are roughly equivilent to the free sample of Breathe Right nasal strips which comes with the small box of bandaids.

I wonder how Gettelfinger was able to keep a straight face during his press conference.

A New Hero Emerges

If it ticks you off to see your neighbors, in their over priced and ill financed homes, getting a free ride from the mortgage bankers, someone is fighting your fight. William Frey is not going to stand by and let it happen. As I have said before, you can't just modify the terms of loan agreements when you no longer own the loan. William Frey owns a lot of them and that is why he is suing the authors of the 2005 Bankruptcy Reform Act Bank of America of their proposed plan to restructure 400,000 loans that were made to completely unworthy home buyers.

When asked about the lawsuit, Bank of America played dumb, kind of like when they agreed to buy Countrywide, the originator of those loans. I'll bet there is some serious buyers remorse related to that purchase. If you think you over paid for that big screen that the wife yells at you about? I'll bet Bank of America has it ten times as bad.

Like most hero's Frey has his flaws. He thinks you and I, the tax payers should have to pick up tab, another half trillion dollars, on these bad bonds. I can't say that I am a fan of that course of action, but as I continue to beat my drum here at The Last Good Idea, I will repeat my mantra. Support the banks, everyone benefits. Only our idiot, fool neighbors benefits from bailing out the individuals.

So, like the old saying ... the enemy of my enemy is my friend. So while Mr. Frey seeks to put off bailing out the individual morons who bought too much house and continues to wave his ink pen sword at the likes of Representatives Barney Frank, Maxine Waters, etc. I will call Mr. Frey our hero today. Especially since he has given Barney Frank another opportunity to make himself look like an ass. He can't really help it, it’s his nature. Barney Frank asked Mr. Frey to discuss alternatives, but quickly withdrew the invitation. I am sure he knew he was standing on the wrong ground.

You Heard it Here First

You heard it here first. Barack Obama is truly the same old stuff that all Washington insiders are made of. He conned the electorate into believing that he was the candidate of change. However, as I said here, he forfeited that mantle a long time ago. The man is not yet in office and he’s already showing his true stripes as a Washington insider. Consider his early moves …

For Secretary of State, his first choice appears to be Hillary Clinton, never was there a bigger Washington insider than the former First Lady and 2 term Senator from New York.

As Health Secretary, he came up with former Speaker of the House, Tom Daschle who was first elected to the House of Representatives in 1978 and the Senate in 1986 where he served until 2004 before being ousted by a Republican challenger. Always the Washington insider, Daschle joined Alston & Bird who represent CVS Caremark, the National Association for Home Care and Hospice, Abbott Laboratories and HealthSouth. Daschle also holds a paid position as an advisor to the Mayo Clinic. In spite of all these entanglements, Obama, who pledged to avoid the K Street entanglements of various lobbying groups, still picked a man to hold a an appointed office of some serious significance.

Obama’s pick for Attorney General was yet another long time Washington insider. Eric Holder went to work for the Department of Justice, immediately after graduating from law school where, in 1997 President Bill Clinton nominated Holder as the deputy Attorney General. In 2000, after the election of George Bush, Holder joined Covington & Burling where he represented big spending and highly influential clients like Merck.

Janet Napolitano is Obama’s pick to head the Department of Homeland Security, Napolitano is another former Clinton appointee. In 1993, Bill Clinton appointed Napolitano as the United States attorney for the District of Arizona. She is the current governor of Arizona.

Obama’s closest advisor, his Chief of Staff, Rahm Emanuel is also similarly entangled in Washington’s seductive web. Emanuel was the chair of the Democratic Congressional Campaign Committee in 2006. He is the fourth-ranking Democrat in the House, behind Speaker Nancy Pelosi, Leader Steny Hoyer and Whip Jim Clyburn.

Mark My Words

Mark my words, if we bailout Detroit without fixing their labor problems we will be in the same boat the next time the US economy goes south, perhaps sooner.

Help Dick Armey Stop the Automaker Bailout

Use this link on FreedomWorks to send a message to our President and Congress, stating that your against a bailout for our bloated Detroit automakers.

Still Beating the Drum

A second round of calls for an individual home owner bailout went up this week. We shouldn't necessarily be trying to keep these homes out of foreclosure. Consider how out of whack home prices and personal incomes are right now. When Bill Clinton expanded CRA, home price appreciation accelerated while personal income continued to grow at a pace that was roughly equal to inflation. Just to put that in real terms, when homes were appreciating at 20% a year or more, personal incomes were growing at about 4% a year. Does anybody appreciate the significance of this? Does anyone understand that home prices need to come back to parity with personal income? Forget punishing he idiot homeowners who foolishly bit off far more than they could chew, they deserve it, but that is a debate for another time. Home prices have to retreat back toward natural levels with respect to personal incomes in order to avoid significant inflation. The only alternative to devaluing homes would be to massively inflate personal incomes, which would be good, except for the fact that the real gains in personal income would me negligible because the cost of everything else will increase with personal incomes.

America Got Sweet Talked

Now we're pregnant.

How is This For Screwing You?

The NY Times did a story on people who bought homes they could afford or were saving up to buy a home getting shafted by the latest attempts to bailout the troubled individual home owners.

Use Your Head

I implore our elected leaders as well as those about to be elected to take the real pulse of the country before using our tax dollars in a wanton fashion. And pehaps before you use our tax dollars against us. This ABC News story has comments with a clear sentiment. That sentiment is clearly stating that foolish and irresponsible people should not be bailed out. By a 4 to 1 margin, CNN readers do not want to see their tax dollars used to bailout individual homeowners.

Skeletons Falling Out of the Closet

It looks like someone who knows something about the deals Senator Dodd and others received on their Countrywide loans is spilling his guts to the Justice Department. Along with Senator Christopher Dodd, the story cites Sen. Kent Conrad, former Fanie Mae CEO Franklin Raines, Henry Cisneros, Richard Holbrooke, Alphonso Jackson, and Donna Shalala and James Johnson.

I wonder when they will start looking at loans from Northern Trust Bank and a certain junior Senator from Illinois.

This Will Be A Disaster

The government is working on a plan to remove the risk of foreclosure from 3 million home owners.

These over priced, ill financed homes need to be returned to the market in order to return home prices to historically normal levels that are in parity with costs of renting and personal incomes. Everyone who was priced out of the market by the real estate bubble along with the millions who have yet to come into the market place will NEVER be able to afford to own their own home without some sort of drastic action to readjust incomes to costs of ownership. In simple terms, I am talking about massive inflation with no real growth in wages. Incomes will rise to meet the cost of living indices. Other costs for food, energy and other consumer goods will rise too. Once again Washington is looking to rob Peter to pay Paul.

The other problem I have with this that "Paul" accounts for less than 10% of the households in the country, who are in trouble with a mortgage. Peter is a bit larger and more complex. The "Peter" who is paying is the rest of the population, who aren't in trouble with their mortgage. "Peter" is every potential home owner who was priced out of the market. "Peter" is every young person who has yet to graduate from school and enter the work force in pursuit of the American dream which is being stamped out by people like Christopher Dodd, Barney Frank, Nancy Pelosi, Harry Reid, Hillary Clinton and Barack Obama.

Their names and dozens of other political leaders who have pandered to an uniformed public, in the name of Main Street, will appear on the epitaph of the American Dream, as it killers.

This Must Be Really Bad

The LA Times is refusing to release a video where Barack Obama is at a dinner toasting and singing the praises of a man with ties to a Palestinian terror group. I say it must be bad, because the appearance of impropriety that the existence of this video creates is staggering in my mind. Lets not forget that Barack Obama is a man who has only one degree of separation between himself and the founder of Hezbollah, Hassan Nasrallah. There are far too many questionable ties between Senator Obama and terrorist organizations to allow this man to become President of the United States. Let’s not forget that these terrorists don't care if they kill, Democrats or Republicans, as long as they are American citizens.

Someone Explain How This is Legal

So, last night the wife and I are watching TV and on comes this Obama commercial, showing a web site with a calculator to show what the savings you'll reap from the 2 candidates tax plans if you plug in your salary, dependants, deductions, etc. I tell the wifey to go that URL, after all, I trust the Tax Policy Center as impartial and honest. We get to the web site and this is what we found ...

We have received many inquiries about an Obama campaign commercial that seems to imply that the Tax Policy Center (TPC) has a tax calculator that can be used to see how the candidates' tax plans would affect people. We don't. The calculator shown in the commercial was designed by the Obama campaign and is in no way affiliated with the nonpartisan TPC.

I have to say, I am really shocked at the out and out lying on the part of the Obama campaign. The ad doesn't imply it, it shows the TPC web site with an application that will tell you that you'll save more money with Obama's tax plan.

Its one thing to register homeless ghetto trash to vote. It’s quite another to tell a lie on TV, like the TPC tax calculator. Watch the video to the end when the guy says he wants to Obama do his hizzle or something. Classic.

Its a shame that McCain will not take of the gloves and start really fighting hard, because the Obama campaign is guilty of everything that the Democrats have accused the Republicans about. I guess for once the Democrats came up with the bigger scum bag.

Calling a Spade a Spade

Even The Boston Herald is calling out its brethren for being biased and partial. In fact The Boston Herald even goes so far as to suggest that people have more faith in Congress, whose approval rating is below that of the President, than they do in a fair and impartial media.

Corruption of the News Media

I really despise this years election cycle. I feel like it has robbed me of my pragmatism, which I valued so much. I've turned into a stark raving Republican and I don't like it very much, but I find it easier to stomach than the current hypocritical line of rhetoric from the Democrats. The way in which the business of electing our representative leadership has changed and not for the better.

My first caveat, I haven't watched much TV news over the last 5 years. Perhaps 10% of my news comes from TV, the rest from various internet outlets. Next, I am a Republican who has become highly disenchanted with W, to the extent that I voted for both Webb and Moran in the last few years. That will not happen again, after their votes on the housing bailout.

I have never really bought into the whole liberal media conspiracy thing. I have always felt that Fox News was overtly biased toward the right.

A recent spat of business travel had me spending a lot of time in airports, where I was subjected to a lot of CNN on airport TVs. I have say, what I saw left me disappointed, appalled and disgusted. CNN clearly displayed a Democratic bias in the amount of coverage and the tone of the coverage for the Presidential candidates. I find this to be a significant betrayal of CNNs principals. As a news outlet, which is what CNN likes to portray itself as, CNN should be offering fair and impartial coverage, but it isn't.

CNN is passing off its liberal agenda as fact or news, when in fact it seems more like CNN is helping to create news and sway events. The way I see it, CNN is overtly pressing its editorial agenda while trading on its solid gold reputation as news agency.

I will direct you all to this article, it describes a lot of what I have observed, from an insider in the inside of the news business.

Media's Presidential Bias and Decline

Summing it All Up

In a recent conversation, I reminded a friend of mine, that for months, I have been saying that we were entering the toughest economic stretch in generations. This was his response...

The 60s got weed and free love.
The 70s got coke and disco.
The 80s got heavy metal and coke.
What did we get? R&B, crystal meth and econnomic fuckery.

What can I say? We got screwed.

This Will Be The Trigger for Runaway Inflation

Recently, Boston Federal Reserve President Eric Rosengren called on the government to do something to bolster home prices. I find it incomprehensible that someone who is educated and informed, like a Federal Reserve President could be this short sighted. For some reason, the government and politicians fear being perceived as doing nothing, which is exactly what the current dilemma requires, because meddling with the natural way in which our economy works is what got us in this mess in the first place?

Even with the last 2 years worth of declines, home prices NEED to come back at least another 20% to approach historical norms, parity with the cost of renting and approach reasonable levels with respect to personal income.

Anything that artificially maintains current home prices will only serve to set the table for another economic crisis in the future. I believe that this crisis will be of epidemic inflation. The only thing that is going to get housing moving again is if younger people can afford entry level homes, which will allow subsequent echelons of home owners to move up. That is the way it has worked in this country for generations. Short circuiting the natural flow of home owners and buyers can only end negatively.

If entry level home prices, and other strata of home prices for that matter, remain at artificially supported levels the consequences will be dire. Cost of living indices will be higher and employers will be forced to pay higher wages to attract quality staff. Higher wages will translate into higher costs for other non-housing related goods and services. Thus, in the long run the working man will see little real growth in income. The relative growth in income will be another mirage that will suck in more and more unwitting people. While I lack the PhD in economics needed to forecast exactly where and how the next disaster will strike, my horse sense tells me that any kind of individual home owner bailout will be the catalyst for it, just like the CRA was for the housing bubble.

A final note on any potential bailout of the individual home owners ... If you are not a home owner and you are a tax payer, your tax dollars are being used against you. In a sense, the government is denying you your right to pursue the American dream; they are denying you, your Constitutional right to pursue happiness in order to help out the foolish, greedy, ignorant home owners who purchased homes that they truly couldn't afford. The time has come to pay the piper and putting off that bill will only make it worse in the future.

Obama’s Agenda, Not so Altruistic

Judge For Yourself

If you read this article and strip out the political rhetoric, you really have to sit back and scratch your head. Sure most of what the author presents is circumstantial, but there is an aweful lot of coincidence that is hard to just write off as coincidence.

How Can the Dems Sidestep Blame?

With evidence like this?

Thanks Moodys

Reuters is reporting that Moodys is now calling for a 2010 bottom. Its nice, but your still not there. Look at the ARM resets coming up. It will easily be 2011 before we find a bottom. Homes are still vastly over priced. And for some reason, fools with more money than sense are still over paying. For some reason Moodys thinks that banks will be done writing down bad paper by 2010, but I think the paper has to go bad before you can write it down, especially considering the just in time accounting processes banks use these days. Considering how caustic the 2006 ARMs are said to be, I can't quite see how the end of the tunnel comes before 2011 or even 2012.