Bits Bucket for February 13, 2011
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The Housing Bubble
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Here’s something you don’t see in the MSM much:
‘Four years ago, Rand Paul was helping out his father on a presidential campaign that was not taken very seriously… Fast forward to CPAC 2011. The economic portions of Ron Paul’s agenda are no longer controversial. “I think we need to default on our debt with China,” says Calum Pasuqua, talking about the Pauls’ ideas with a few new friends. “It’s going to be painful, but it’s going to happen one way or another.”
“Early on Thursday, an overflowing room is given over to Tom Woods, a paleoconservative scholar who helped Ron Paul write his books and who’d subsequently seen his own books become best-sellers. “I want to talk about the impossible fiscal situation of the government,” says Woods. “It can’t be fixed. It is going to have to renege on its promises. But as long as we’re facing massive cuts that have to come, one way or another, let’s go back, then, and re-evaluate all these claims about government we got when we were in the sixth grade.” He starts to lay out a thought experiment: What if we look at the government as obviously destructive instead of obviously supportive?’
“This,” he says, “makes the coming fiscal collapse an opportunity to be embraced.”
http://www.slate.com/id/2284686/pagenum/all/#p2
Maybe for China, it sux to be you?
If China is the principle bagholder on toxic GSE assets, then where is the problem? As BB pointed out long ago, the Fed has a printing press technology. Who needs renbminbi yuan when you have Ben’s bux to stimulate the economy?
Or is the Democrats’ plan to force the U.S. taxpayer to make Chinese creditors whole?
* FEBRUARY 11, 2011, 5:50 A.M. ET
UPDATE: China SAFE Denies Report On Possible Fannie, Freddie Losses
By Aaron Back
Of DOW JONES NEWSWIRES
BEIJING -(Dow Jones)- China’s foreign exchange regulator on Friday denied a media report that said it could face losses of up to $450 billion on its holdings of securities issued by U.S. housing-mortgage giants Fannie Mae (FNMA) and Freddie Mac (FMCC).
The State Administration of Foreign Exchange’s statement didn’t specify which report it was denying, but it appeared to be referring to a report on Thursday by Chinese newspaper International Finance News, which said a forthcoming plan from the Obama Administration to gradually phase out the two government-controlled companies could lead to the losses.
SAFE said the report was “groundless,” and that is has been receiving regular payments of interest and principle on the bonds it holds from the two companies.
The International Finance News report didn’t explain how the losses could be realized, but cited unnamed analysts as saying that losses could reach $450 billion. The paper cited western media reports as saying that the Obama Administration will issue a report as soon as Friday that will outline options to wind down the two companies.
Separately on Thursday, a popular Chinese economist issued a report warning of risks in China’s holdings of Fannie and Freddie securities, estimating that China’s total holdings are around $500 billion, but not offering any estimate as to the extent of losses.
…
To answer both Prf Bear AND Krzay Bill:
I suspect it IS the Democrat’s plan to make the Chinese creditors whole by ramping up jobs (tax money!), spending less money on foreign wars, and (hopefully) getting the young to pay for the old in one giant healthcare system. I.e. trickle up economics.
Meanwhile, the Paul plan (to expand on Krazy Bill) is to strategically default and use the BK to shed the ultimate pension plan; that is, Social Security. Just like the damn airlines did in the 90’s.
What does SS have to do wih the debt we owe to China> I understand that the GOP wants to repeal it (along with welfare). I guess they are enamored with the idea of starving teeming masses.
Wait a minute — are you suggesting the Democrats are not only interested in assuming responsibility for feeding America’s hungry, but also China’s?
The question should be can you default on Fannie/Freddie without linking it to Treasuries too. Since the Fed sucked up hundreds of billions of MBS it seems to me Treasury Bonds are actually like Taco Bell sandwiches (mostly fillers).
Catch 22 - I would point out Social Security is backed 100% by US Treasuries or equivalents.
US Treasuries or equivalents
US Treasuries that are worth absolutely nothing.
What does SS have to do wih the debt we owe to China> I understand that the GOP wants to repeal it (along with welfare). I guess they are enamored with the idea of starving teeming masses.
Oh yes, and of course we had constant famine in this country during the 150 or so years before SS and AFDC. Whereas in North Korea, there is no hunger at all because the Dear Leader takes care of everybody!
Welcome to the topsy-turvy world of the big government set.
Yes…. we had substantial poverty in this country before SS and substantially less after implementation of SS.
I’m glad to see you at least acknowledge that fact.
Ever read any Dickens, LehighValleyGuy?
The social conditions in his books were not fiction.
China also bought what was graded as AAA paper by Moody’s, etc. The Wall St. Boys, credit agencys “all made big money” from selling poor paper. China was also snowballed and was not the only suckers who believed the Washington DC Gang/Wall St Boys!
We’re gonna default anyway. Only interesting question is the timeframe.
Let’s see - what exactly did the millions of Chindians work hard to accomplish?
Occupation of Africa.
Excellent response and you, sir, are right, of course!
While other nations were busily dispensing “aid” to Africa that ended up in the pockets of potentates and middlemen and never quite trickled down to the populace, China has been dispensing jobs to the peasantry. Horrible, dangerous, dirty jobs (mainly mining and other labor intensive type stuff) with long hours at abysmal wages, under the watchful eyes of cruel, demanding Chinese overseers. Naturally, some human rights groups got their boxers in a wad and went to “investigate”. The Chinese didn’t have to lift a finger. Their newly employed African minions chased the “investigators” off and threatened them with murder and mayhem if they continued investigating.
My source for the above was an article in Vanity Fair magazine a few years ago. At least, as I recall.
It’s very rare that someone trumps me at my analysis/prediction game, and I do this for a living so I doff my cap to you.
If you’re ever in New York, drinks are on me.
I’ll settle for one of your excellent, personally prepared repasts. And the cap you’re doffing.
“Horrible, dangerous, dirty jobs (mainly mining and other labor intensive type stuff) with long hours at abysmal wages, under the watchful eyes of cruel, demanding Chinese overseers.”
Outsourced African slavery?
I’ll settle for one of your excellent, personally prepared repasts.
Oh, that’s a given.
“Horrible, dangerous, dirty jobs (mainly mining and other labor intensive type stuff) with long hours at abysmal wages, under the watchful eyes of cruel, demanding Chinese overseers.”
The future of America’s children, thanks to the corporate cartels and the fiscal insanity of the Republicrats.
Agreed, Sammy. America’s children will pay the pound of flesh for their ancestors’ excesses.
The kids in Africa are working those slave mining jobs because Africa has the natural resources to mine. American kids won’t have even those jobs because what natural resources are left in the US?
Plenty of natural gas and coal.
Having recently returned from Africa, I have seen it up close and personal. The chinese have a huge presence there.
Been to Mexico City-Santiago recently?
Or Belize? Finding a shop, supermarket, or bank that isn’t Chinese-owned is damned near impossible.
“…Finding a shop, supermarket, or bank that isn’t Chinese-owned is damned near impossible.”
Or a port.
Comment by Sammy Schadenfreude
2011-02-13 09:51:42
Or Belize? Finding a shop, supermarket, or bank that isn’t Chinese-owned is damned near impossible.
I love Belize. Hey dig a little deeper and you will see that most of the Chinese are from Taiwan, not mainland China. Check out the new Belmopan US Embassy, it costs more than the entire country spends on education and health care. It’s main purpose seems to be to coordinate DEA operations.
“I love Belize.”
I haven’t been back to Belize since 1998. I could fill a few pages with fond recollections. I stood on top of the “El Capitan” pyramid at Xunantunich in a driving rainstorm looking into the Guatemalan rainforest. No one else around. Dove the barrier reef. Outstanding wall diving. Visited banana plantations that went as far as the eye could see. Drove the hummingbird highway through surrounding jungle so thick it almost defies description. I absolutely love the place. My wife hates it. But what does she know, she likes American Idol.
Bluestar, I’m sure you know the old capital was Belize city. It was destroyed by hurricanes more than once so it was moved inland to Belmopan.
+1,000,000 puss.
I’ve banged that drum for quite awhile. The numbers don’t add up, just like the housing prices never added up.
Fortunately, most people are sloooow on the uptake. This creates opportunities aplenty. I wish nobody harm but nature will take its own course regardless of my wishes.
The dollar will be toast. When is the only question.
There are still two options: Refuse to pay, or pay in hyper-inflated worthless $s.
Suppose we default with China. Would China react violently? Or out of revenge finally annex Taiwan?
Perhaps China would decide they’d take payment in advanced weaponry.
CONgress will pass another “individual” mandate, wherein US citizens will be required, under pain of IRS penalty, to purchase all consumer goods from China until the debt is paid off.
+1
It’s always good to have an escape plan.
An we can only eat at Chinese restaurants. And no more delivery, we have to go get it ourselves.
Chinese restaurants would be granted eternal exemptions from the health department inspections they have been constantly failing since the beginning of time. That concession would be worth $billions.
“Suppose we default with China. Would China react violently? Or out of revenge finally annex Taiwan?”
I think that is definitely in the cards Bill.
As for what other punitive measures they may try, how about closing a Wal-Mart or two?
China will congratulate us on our instant debt vaporization by sending us ten million bottles of rice wine, each carried by its own People’s Liberation Army soldier.
No, China would not react violently. They would be very understanding about being left holding the bag for more than a trillion in US dollar-denominated assets. It’s their nature to forgive and forget.
Or maybe not….
China is not the only buyer here. Biggest buyer I believe is USA(pension, some other funds,…), then you have China, Japan, UK, etc. There is no free lunch, default will not mean easier life than repaying debt, otherwise USA probably will default.
“I want to talk about the impossible fiscal situation of the government,” says Woods. “It can’t be fixed. It is going to have to renege on its promises.”
At the local level, I was talking to a retired firefighter last week. He is 1 year older than I am, 52. He is retired with an $85k a year pension plus gold plated health insurance for life. I was just wondering who negotiated and agreed to the deal of paying this gentleman $85k while presumably paying his replacement (because I have to assume someone who commands an $85k a year pension at 52 needs to be replaced) a nice salary + similar benefit package for at least the next 13 years and probably more, that I will have to work before ever considering retirement.
I hope your friend has his coins saved up ’cause when his pension defaults (and there’s zero chance that it won’t!), he’s gonna be eating catfood for dinner.
If you assume that life expectancy is about 80 — more like 85 for people in good shape then your friend is talking about 33 years on this planet.
Which is just barely a tad of a shade more than me being in existence at all!
Your friend is entering a world of pain.
FP, I give it five years max.
If that!
But they will try and tax their way out..They are already trying to do it right Rancher ($5.00/Mo ??)… Raising fee’s & taxes will be the straw that breaks the camels back that finally forces it into collapse..
All politics are local. You start there, fighting
back every increase and then start cutting. It
can be done. YOU HAVE TO GET INVOLVED.
Tomorrow we have the council workshop and
a few bombs are going to get dropped. I’ll
let you know what happens.
“the straw that breaks the camels back”
Has a camel ever been loaded with anything, including straw that actually broke it`s back? I have seen bleachers collapse from being overloaded, I have seen bungee cords break from being overloaded and I have seen roofs collapse http://www.youtube.com/watch?v=AAyLX2hY7E0 - 128k - from being overloaded ( with snow, not straw ). But never, not once have I seen a camel`s back break from being overloaded with anything. Least of all straw! So from this day forward I say a new generation of Americans shall say “That`s the flake that dropped the roof” Unless someone can show me proof of a camel with a broken back that came from being overloaded with straw, or anything else for that matter. I will no longer acknowledge the phrase “the straw that breaks the camels back”. I have had it! ‘that’s the last straw’
Yet, FPSS you seem so witty AND wise, I would have thought you a decade or so older. “At 20 it’s the will, at 30 the wit, and at 40 the wisdom; these are the things that rule the man as he progresses through the decades”; I paraphrase/butcher some famous dude here, but it seems to generally hold true. You seem somehow to buck this meme and pull wisdom out of your….hat.
Speaking of willfullness, when I was 20, I got an “emergency” student loan, bought a 72 VW Bus, and drove it down to Mainland Mexico. Seemed like a good idea at the time. Failed my classes, angered my parents accordingly when I called them from Tuscon to finally inform them of my whereabouts, and begging for bus fare home; had to also beg the dean for readmission.
All because of my willfullness/stupidity. Of course the starter of the bus was the first to go; we push started that thing every time we got going unless we had parked on a hill; we fixed the broken carb with a coathanger, worked great until we overheated and blew the engine and then sold my van for a ride to the border.
Of course that ride also broke down, so two of the three of us genuiuses got out of the country using thumbs. We had federales drilling our panels for drugs(luckily they were hidden in a loaf of bread); waving pistols in our faces at 3AM in Peurto Vallarta(at least one of us spoke Spanish, which got us out of every dicey situation); friend broke his nose and we had our belongings rooted through by the village pig once we reached nirvana; which turned out to be a windy dusty hovel where they sold liquor in bags, not bottles; that way when you got stinking drunk you did not have a good weapen to boot.
We had imagined wine, women, and waves; we got leafs for pot; dirty stares from the pretty girls’ older brothers and an unusual lack of waves. Karma is a bi$%^ sometimes, we all decided we hated each other, and we split with our tails tween our legs. Our one friend with means, who had promised us a bailout should things go awry, scooted for the nearest airport and left us with his surfboards to take home for him. And we exited that country by the skin of our teeth.
You sir, are wise beyond your years, or maybe you just don’t have kids; that would give you extra time and freedom to apply your wit to wise witty witicisms, instead of figuring out more efficient ways to change a diaper, or finding ways to coerce your youngin’s to take synchronized naps; which is what I was doin’ at 32.
Heck maybe you are the guy sitting on top of the mount; giving out free sage advice to those willing to pay for it!
At the local level, I was talking to a retired firefighter last week. He is 1 year older than I am, 52. He is retired with an $85k a year pension plus gold plated health insurance for life. ”
years ago I felt I was the only person on the planet complaining about ourageous pensions for Firefighters
now everyone is it won’t be long until this rage is used by politicians to get votes
But the stock markets going up and thats the important thing
Wow! If I could get a guaranteed $85,000 per year retired, I would be out mountain biking north of Scottsdale now instead of sitting only a$$ outside Starbucks on Fletcher drinking iced green tea.
Iwouldhave been one of the first to say fire fighters pension’s are way too generous, but I was afraid of getting attacked by the locals on this blog who love socialism.
That 85k pension will only be worth 69K in ten years. 50k in 20 years. 38K in 30 years.
(Tom’s Inflation Calculator)
I was just wondering who negotiated and agreed to the deal of paying this gentleman $85k while presumably paying his replacement (because I have to assume someone who commands an $85k a year pension at 52 needs to be replaced) a nice salary + similar benefit package for at least the next 13 years
If you voted Republicrat then you, sir, gave your consent to this, just as you gave your consent to cover all of Wall Street’s bad bets and shower the banksters with obscene salaries and bonuses. An inconvenient truth, but true nonetheless.
Did you call me sir? Now take that back!
Maybe if you put your a@@ on the line of fire you would not be whining. Love this “keep the government off my Medicare” crowd. Don’t whine, apply for the damn job see if your competent enough.
If China has their money invested in our Treasury bonds then how do we selectively default on China without defaulting on everybody else that holds Treasurys?
Also, what about the hundreds of billions of dollars invested in Chineese infrastructure? What happpens with with that?
You “negotiate” a default.
“Also, what about the hundreds of billions of dollars invested in Chineese infrastructure? What happpens with that?”
I’d imagine if those investments were seized, anyone whose job was outsourced might consider it karma.
The irony is: The guys that had their jobs outsourced to China will be the same guys that will fight in a proxy war with China over the confiscation of the factories that their jobs were outsourced to.
Being in the US Military is the new blue collar job. I’m surprised high schools don’t have programs (beyond JR ROTC) to prepare kids for a “career” as a US military grunt. Heaven knows that for the crowd that isn’t going to college its their best bet at getting a “job” that pays a living wage, especially if they can make sargeant
I’ve talked to some young sergeant vets. If they survive a combat tour, they are making some damn good money (for non-degree)… plus bonuses. (re-enlist, hazard, good test scores)
Usually, though, they do 10 and get out. At 10, they have some serious money in the bank (for non-degree) and paid for college scholarships.
“…hundreds of billions of dollars invested in Chineese infrastructure…”
Are you guys talking about the Chinese infrastructure investments in their Potemkin ghost towns? I suppose when it comes to light that China has entire cities lying vacant, America’s housing vacancy problem won’t look quite so bad by comparison. Both cases beautifully illustrate the malinvestment which results from an excess of top-down, command-and-control economic governance, whether because of too much market power concentrated at the Fed + GSEs + Wall Street Megabanks, or due to communist government rule. Just imagine the huge waste of resources required to build all these vacant structures!
The ghost towns of China: Amazing satellite images show cities meant to be home to millions lying deserted
By Daily Mail Reporter
Last updated at 10:53 AM on 18th December 2010
These amazing satellite images show sprawling cities built in remote parts of China that have been left completely abandoned, sometimes years after their construction.
Elaborate public buildings and open spaces are completely unused, with the exception of a few government vehicles near communist authority offices.
Some estimates put the number of empty homes at as many as 64 million, with up to 20 new cities being built every year in the country’s vast swathes of free land.
The photographs have emerged as a Chinese government think tank warns that the country’s real estate bubble is getting worse, with property prices in major cities overvalued by as much as 70 per cent.
…
Good find, PB. This won’t end well. The Chinese fraudsters and their publically traded companies make Wall Street look like pikers.
I guess it is pretty hard to hide entire cities comprised of tens of millions of vacant properties from view in the era of satellite and internet technology, no?
Good thing all those resources they’re getting from Africa are being put to good use.
A couple of comments on the article:
“china is just preparing itself … all the roads and houses are gonna be bustling with activity over the coming years. not only that…but the infrastructure will undoubtedly be first class and super efficient..if in the next 20 years…carbon emmissions are severely restricted….thats not a problem for china…because they saw it coming and built hard and fast before they were totally restricted. china is making no mistakes. trust me everything is going to plan.”
“The cities were built with the money printed by the Federal Reserve ( a Rothschild Company ) and they were meant as survival and New places to live after WW3 . Indeed , the Chinese understand that the Bilderbergs will start a nuclear war with North Korea which will drag in China and even Russia and Europe . So the Chinese are preparing : buying tremendous amounts of gold and … building empty cities ( hence not worth nuking in the WW3 ) to be populated at the end of the war ( gwad knows they have tonnes of people to ‘spare’ ) . This is another proof that the Elite is not too bright , but never the less , you and me will still be cannon fodder !”
———–
Or maybe China was just making jobs for its citizens. All those cities are nice, but where’s the water going to come from?
Saw this article last year. So I did some searching on the Internet.
They ARE growing into those spaces.
It’s just the Chinese version “planned communities.”
CarrieAnn,
I wouldn’t call all those hundreds of billions sunk into Chinese infrastructure an “investment.” It was stimulous spending that enriched corrupt local cadres with borrowed and printed money.
Just stickin’ to the quote Sammy.
BEEP-BEEP-BEEP Back up the truck!
Just 11 years ago the debt actually shrank y/y. The U.S. could pay down/off the debt if it choose to. The Paul supporters are talking about strategic default, exactly like underwater home debtors that are able but unwilling to pay their debt.
Exactly. These guys are just talking their book.
All this talk about the inevitability of default ignores the fact that we were had a much higher debt to gdp ratio after WW2, and had been successfully paying it down for two generations. We stopped when a certain great president introduced voodoo economics and ran up our national credit card.
Anyway, as I’ve pointed out before, most western nations have much higher external debt than the US. If such circumstances force the countries to default, then we should be watching that happen in many, many other countries before such problems get to us. In fact, compared to such countries, we will be recognized as a comparatively safe haven.
‘Just 11 years ago the debt actually shrank y/y’
It’s a nice myth, but you’re mixing up annual deficits with debt. Plus, those annual deficits were only balanced borrowing Fica taxes and spending them. It’s simply a dishonest smoke and mirrors game.
‘we were had a much higher debt to gdp ratio after WW2′
Maybe, but we had the baby boom growing and working, not retiring.
‘most western nations have much higher external debt than the US’
Well, that makes me feel better! This is from 2007, and we’ve been spending like crazy since then:
‘The federal government recorded a $1.3 trillion loss last year — far more than the official $248 billion deficit — when corporate-style accounting standards are used, a USA TODAY analysis shows. The loss reflects a continued deterioration in the finances of Social Security and government retirement programs for civil servants and military personnel.’
‘The loss — equal to $11,434 per household — is more than Americans paid in income taxes in 2006.’
‘Modern accounting requires that corporations, state governments and local governments count expenses immediately when a transaction occurs, even if the payment will be made later. The federal government does not follow the rule, so promises for Social Security and Medicare don’t show up when the government reports its financial condition.’
‘Bottom line: Taxpayers are now on the hook for a record $59.1 trillion in liabilities, a 2.3% increase from 2006. That amount is equal to $516,348 for every U.S. household. By comparison, U.S. households owe an average of $112,043 for mortgages, car loans, credit cards and all other debt combined.’
http://www.usatoday.com/news/washington/2007-05-28-federal-budget_N.htm
From Bill above: ’strategic default…able but unwilling to pay their debt’
Please show me how it is possible for the US to pay this off, especially when we are digging deeper in debt every day.
The problem with brute long division tends to be that it’s both irrefutable and damning!
If it can’t be paid, it won’t be paid. How hard is that?
Indeed. The Unicorn in Chief wants to spend 50 billion on high speed rail. Or is it high speed internet? I dunno, but “high speed” is the new buzzword. Green jobs is so 2010. I’d hate to see his checkbook.
This is the problem with all people who get into the political/hacktivist racket. They are essentially rent-seekers. Money just magically flies out of the pockets of the taxpayers, through the goobermint funnel and into their bank accounts, so why shouldn’t this work on a broader scale?
‘Meanwhile, the Paul plan (to expand on Krazy Bill) is to strategically default and use the BK to shed the ultimate pension plan; that is, Social Security’
Oh, that’s nice, call it a Paul plan. (These were quotes from people at the CPAC meeting, BTW).
Whatever you might think about Ron Paul, you must admit he’s spent decades in office trying to get govt to stop spending and borrowing.
Anyhoo, this stuff has been baked in the cake for a long time. It comes up from time to time, and then the PTB will change the subject. But it doesn’t go away; the problem just gets worse.
Green jobs are still pretty hot in the Centennial State.
NREL has expanded as have many alternate energy firms as well.
Green jobs and stimulus spending is not producing anything that will pay for itself.
In fact, all the cash pumped into the system
is nothing more than payments on the premiums for the governments riot insurance.
Anyone want to make a bet that unemployment will not get extended again?
Does the long division take into account the fact that there are more ‘generation Yers’ than there were baby boomers? (80 million compared to 76 million- wikipedia) And that we just had a flood of new immigrants who favor large families?
The US is in a far better financial/demographic situation than almost all of our supposedly-about-to-own-us competitors. Let Bush’s tax cuts expire, make the tax codes fairer, quit fighting voluntary wars, reinstate Glass-Steagall, and inflation and growth will take care of the rest- just like was occurring during the forty years after WW2 when we paid down a bigger-sized debt.
It’s not only doable, it’s been done.
Obviously America first has to stop going deeper into debt.
Raise revenue; yes, raise taxes to the level needed to pay down the debt however slowly. If income tax was doubled we’d still be paying less than 30 years ago. Raise SS and Medicare taxes enough to cover their expenses. Painful? Certainly. Cutting defense spending drastically will ease the pain a little, but only a little.
But my guess is America is a country that doesn’t want to honor it’s commitments, and won’t.
raise taxes to the level needed to pay down the debt ”
What makes you think government will pay down debt with new taxes ? Maybe they will just spend more?
‘raise taxes…income tax was doubled…Raise SS and Medicare taxes…Cutting defense spending drastically’
Yes, and do this during a recession, with state and local govts having huge deficits too. My guess is in a few days, we’ll lose interest and pick other topics. But the problem will still be there, piling up day by day. One day it will become a ‘debt crisis.’ No one can say when, but even if we raised the taxes you described, it wouldn’t come close to covering the obligations. We could cut the out-flow, but what will all these people do for retirement?
Yesterday we discussed the relative damage of TARP in history. I mentioned the SS changes in the early 80’s as being much worse than TARP. This is why; we hit a wall just as a huge number of people are relying on the fund. This was never in doubt; the numbers have been there all along.
Wasn’t it just a few years ago that Medicare had a trillion bucks added to the obligation? We’ve been going in this direction for so long, it seems normal.
A short and concise explanation about
numbers and money.
http://www.youtube.com/watch?v=LqcHG7QUK9k
The Unicorn in Chief wants to spend 50 billion on high speed rail.
Yes, because people will need to get to all those amazing part-time jobs on time and they won’t be able to afford cars or bus fare.
Oh, that’s nice, call it a Paul plan. (These were quotes from people at the CPAC meeting, BTW).
Heck why not? The conservatives love to blame Obama for everything even if it isn’t quite Obama’s fault. (like the RECESSION and the WARS). If Paul wants to be President, he better get used to being blamed just because he’s there.
Here in Hawaii they’re just breaking ground on a railroad… for an island you can drive across in 30 minutes. Borrowing billions of dollars to promote jobs and destroy and environment even more. A freaking bus lane would have the same travel benefits and cost a 100th as much to build. And they have a pretty nice network of busses here already.
The rail will no doubt be electric powered too. And electricity here means burning oil. The few wind and solar power farms are tiny. Any time they propose building more the target ground is found to be sacred or the mills thought to obscure a sacred view.
The passengers remain dry until the water actually washes over the deck.
Being dry doesn’t mean you’re not sinking.
“The Paul supporters are talking about strategic default, exactly like underwater home debtors that are able but unwilling to pay their debt.”
Now that’s just plain smart. If American households and businesses routinely walk away from unrepayable debt burdens due to loans the lenders were foolish to make, because the principle was clearly an absurd sum which would never be repaid, why not apply the same principle to civic, state, national or international debt which clearly will never be repaid? Where is the meaningful qualitative distinction between these cases?
Agreed PBear.
Rebirth is on the other side of the crash. My rebirth plan would include fumigating all government offices.
“My rebirth plan would include fumigating all government offices.”
How Hitleresque!
PB, I didn’t say Cyclon B. Besides the Skinheads/Aryans wouldn’t look upon my Jewish wife and half Jewish kids too fondly.
My strategy was meant purely for pest control!
If pest control is your objective, how about if we start by fumigating the private sector of Wall Street banksters?
I agree to your amendment.
I call dibs on K Street, starting with HQ for AHIP.
I was going to say, you might want to focus more on K Street.
Government defaults on debt they will lose thier power and won’t be able to stay out of jail
big incentive to keep borrowing, kick can down road
Just the fact that someone in Washington is talking openly about defaulting on our Chinese debts, may have the beneficial effect of causing the Chinese to wise up and cut off the spending addicts from their endless source of supply. That would FORCE fiscal discipline at long last.
The other alternative, which looks far more likely, is Ben Bernanke’s Weimar Republic solution: inflate all public and private debts away. As we know, that led to a flowering of German democracy, economic and social revival, and peace in our time.
Oh, wait….
Why can’t China just sell all of their “questionable” paper to Fannie Mae for 100 cents on the dollar like everybody esle? Fannie can easily afford it and then everything will be just fine like it is right now.
I should be the Treasury Secretary.
Do you under-report your taxes?
China doesn’t have a Goldman Sachs equivilant whose alumni run the Treasury and Federal Reserve, and set economic policy, for the benefit of their “former” and future employer.
We have a winner.
Gandhi’s saying, “First they ignore you, then they laugh at you, then they fight you, then you win” is coming true again.
“I think we need to default on our debt with China,” says Calum Pasuqua, talking about the Pauls’ ideas with a few new friends.”
yea right China loans the US money. Quit paying interest to the place that loans you money and keep paying to the places that are a liability? Homedebtors kept their credit cards but walked on their home loans. Same logic. If the US is going to default on any debt it will be to the people who don’t work or loan the US money.
Hint Social Security Medicare
Why? Because screwing over your citizens always ends well?
Op-Ed Columnist
They Did It
By THOMAS L. FRIEDMAN
Published: February 12, 2011
CAIRO
In the end, President Obama made a hugely important but unintended contribution to the democracy revolution in Egypt. Because the Obama team never found the voice to fully endorse the Tahrir Square revolution until it was over, the people in that square now know one very powerful thing: They did this all by themselves. That is so important. One of the most powerful chants I heard in the square on Friday night was: “The people made the regime step down.”
This sense of self-empowerment and authenticity — we did this for ourselves, by ourselves — is what makes Egypt’s democracy movement such a potential game-changer for the whole region. And in case other autocrats haven’t picked up on that, let me share my second favorite chant from the streets of Cairo after President Hosni Mubarak resigned. It was directed at the dictator next door, Col. Muammar el-Qaddafi of Libya, and it went like this: “We’re not leaving Tahrir until Qaddafi leaves office.” Hello, Tripoli! Cairo calling.
…
Obama did do something. During the Egypt “crisis”, he had his fingers stuck firmly up his hey-hey-hey while diddling himself to a furious frenzy.
Isn’t that all he’s capable of?
The sad part is I’m a liberal.
If hypocrisy is the homage vice pays to virtue then Yomama is the homage rhetoric pays to action.
Yo mama is so fat, she occupied all of Tahrir Square by herself.
Phat.
Nice one, alpha.
“Obama did do something. During the Egypt “crisis”, he had his fingers stuck firmly up his hey-hey-hey while diddling himself to a furious frenzy.”
I’m glad that’s all he did. The last thing we need to do is to invade Egypt.
“The last thing we need to do is to invade Egypt.”
Now there’s a plan for kick-starting the economy! [sarcasm off]
Obama diddled with himself while Rome burned!
And what should he have done?
Obama’s main concern over Egypt is: Where will he send people to be tortured now?
Why should he have had to do anything?
I too, echo the sentiment that, thank god, he didn’t do anything.
Is Friedman being overly optimistic or is this indeed a “Shazam-Islam-Is-Democracy” (TM Hwy50) moment?
Was Iraq the first domino?
Notice how Iraq rarely, ir ever, comes up as a topic in this “democracy” rage?
Perhaps others in nearby Middle East countries LIKE what they are seeing in Iraq?
Just wondering.
Based on what just happened in Egypt, I wonder if Iraqis would now be taking to the streets against Saddam if we had not taken him out.
Well, we’ll never know now, will we?
The Iraqis DID take to the streets against Saddam in 1991.
He shot them dead or gassed them.
Like what they are seeing in Iraq?
I guess that’s why the Islamic Brotherhood is the popular party in Egypt, right?
“Muslim.” Muslim Brotherhood.
Where’s my coffee?
Commodities Corner
| SATURDAY, FEBRUARY 12, 2011
Gold Won’t Repeat 2010’s Climb
By ANNA RAFF | MORE ARTICLES BY AUTHOR
The precious metal rose slightly on the turmoil in Egypt, but it is unlikely to continue rising at the growth rates it reached—near 30%—last year.
“It’s still unclear whether factors that previously supported prices have disappeared, or just gone dormant.”
So much for gold being the only “true money”. Has this factor disappeared or has it just gone dormant?
It was never present. Even two hundred years ago.
Money = Extraction of productivity into tangible goods today.
People confuse storage of the object with the object itself.
A few months ago on this board, I said that we were close to a correction on gold and other precious metals. We are having it. However, I do not think we have seen the last of the increases. Countries will default on their debts by opening their printing presses. This will make gold and palladium etc. go through the roof. We are only in the fourth inning of this game.All the growth in the U.S. is due to deficit spending/money creation and thus is unsustainable. Not at all like the situation we were in after WWII where the cause of the debt was the war and the war was over. Also, we had an industrial base and Europe and Japan was in ruin and could not compete with us.
Are Beanie-babies still a sure thing?
Gold has been “money” or a medium of exchange for thousands of years. Unbacked fiat currencies printed in volumes at the whim of a political system desperate to not make the electorate face reality are the Beanie babies of tomorrow….
“Unbacked fiat currencies printed in volumes at the whim of a political system desperate to not make the electorate face reality are the Beanie babies of tomorrow….”
They’re working fine for me. Can I have yours?
Gold will continue to appreciate relative to Federal Reserve Notes as long as we continue to print at an increasing rate. Claims gold was “in a bubble” seem to have abated as people realize in order to have a bubble, you need to have massive participation. I understand that the concept of gold as a store of value requires a degree of faith not unlike a religion but is a paper currency backed only by a government guarantee (the same government which promises pensions, social security, and health care that we all know is unaffordable in its current form) any more credible?
Economic conditions are supposedly improved assuming you buy figures such as unemployment - surely the labor participation rate is falling since so many people have made money in the stock market that they no longer feel the need to work. But consider:
1. Public sector layoffs continue to grow - reference the latest state budgets which do nothing but cut everything except pensions
2. Inflation everywhere except the CPI. Does anything really think we won’t be paying $4 for gasoline this summer? Gone to the supermarket lately for cereal, milk, fruits & vegetables?
3. Despite 2 years of recovery, the budget deficit projections are the highest ever. Does anyone think the 2% FICA tax or continuation of the 35% rate on 250K + earners is going away in a 2012 election year? How about caps on Social Security, increased FICA taxes, real cost controls on medical care?
4. The Fed buys treasury notes at a premium from investors on the open market at the same rate the Treasury issues the bonds. The Treasury pays interest to the Fed which sends the money back to the Treasury. The Fed “loses” money on the bonds by paying a premium to the market but it really doesn’t matter since they can keep printing more FRNs. Is faith in this practice more sound than buying a pretty mineral used as a store of value for 5000 years?
The Chinese and their government are accumulating precious metals at a furious rate. Perhaps believers in gold will find themselves worshipping a false god, but where I sit the alteratives are worse. Nothing except guns and food are helpful if we go mad max, but even countries with massive hyperinflation such as Zimbabwe seem to get by. Like Mexico did years ago, lopping off a few zeros seems to do the trick.
Gold is still in its rising trading range despite a little itty bitty correction of late. It’s not the first correction in this moon shot. Speaking of moonshot, look at silver.
Gold is the crown of the current commodities bubble. The exits are going to be very crowded when the bell goes off.
Hey, remember the old saying: “Buy what Japan buys.”
PB-How many years are you going to be anti gold?
I think when the US gets it’s financial house in order then I will be anti gold. That won’t happen anytime soon.
I’m not “anti-gold” — I have no dog in the game, and really have very little interest in the metal per se, aside from my fascination with the gold bugs who are eternally certain it is the pussy cat’s meow. Cargo cult belief systems are a never-ending source of fascination for me.
To take this a step further, have you noticed the very large number of individual investors, not just in the U.S. but also in Chindia, who are congratulating themselves for figuring out that gold is a better store of value than fiat money currencies? And do you think central banks are somehow oblivious to so very very many too-clever-by-half individual investors who have figured out that gold is the place to be during times of high inflation risk?
I don’t have the inside scoop on the crisis management strategy of the Fed or any other central bank, but if you don’t think they take the potential to shift losses on to burgeoning individual investor demand for gold into consideration when charting a way forward through the shoals of this financial crisis, you are being naive.
Bingo, Prof.
Shifting money into whatever sector is screaming the loudest is what our “modern” economy is all about. Each time it shifts, the brokers are there to grab their slice and the “little people” (that would be most of us,) get to figure out where to scurry to try to scavenge the crumbs.
But it’s still the same lump of dough being digested by different entities. This week FNMA and FDDM are getting suctioned. Last week it was Egyptian plutocrats. The week before….
‘…the “little people” (that would be most of us,) get to figure out where to scurry to try to scavenge the crumbs.’
Once the “little people” are patting themselves on the back for their cleverness in figuring out the sure path to riches, the Masters of the Universe in charge are perfectly situated to pull the rug out from under them once again. I refer you to the metaphorical equivalent of Lucy holding the football for Charlie Brown to once again attempt to kick it. This happened in housing back in the earlier part of the last decade, and in gold and Treasury bonds in the latter half.
And by the way, if anyone can show me where in the Fed’s mandate that they are tasked with picking winners and losers among those invested in different asset classes, I am highly interested. It appears that they have in place de facto stealth policies to support assets owned by the top 1% (e.g. MBS, housing prices, etc), while throwing the asset choices of the hoi polloi (e.g. gold) under the bus over and over again. What does this have to do with maintaining a stable currency or high employment?
“What does this have to do with maintaining a stable currency or high employment?”
Perhaps faith in every asset class needs to be undermined from time to time, to avoid the masses concluding that they are safer than $$$s, thus weakening the faith in fiats?
“Perhaps faith in every asset class needs to be undermined from time to time, to avoid the masses concluding that they are safer than $$$s, thus weakening the faith in fiats?”
If that is the strategy, I can think of no better choice of asset class to pummel than gold to reassert the primacy of fiats.
I doubt a gold standard could work. There is only a very limited amount of gold on the planet, and even with current production this would tend to indicate there would be less and less to go around as the world population increases. Worse, someone who discovers a big hoard is instantly debasing gold as a currency too.
The problems we see today started when Banks no longer had to loan depositors money, but rather could just loan money into existence, then collect interest and principal on the previously non existent money. This has become a giant Ponzi scheme.
GH,
Please do some research on fractional reserve lending. The recent problems you mentioned have been present for centuries.
When you tether a currency to something tangible it is one way to limit the monopoly effect.
Go to Lew Rockwells site and do some searching. It should be enlightening.
Goldsmiths were the original fractional reserve bankers. People deposited their gold with the goldsmiths, who gave them a written receipt for it, which people would trade back and forth as a currency. The goldsmiths quickly learned that people wouldn’t all demand their gold back at the same time, and thus fractional reserve banking was born.
Same as it ever was.
I guess I just could not reconcile this when dozens of posts upward they are talking about defaulting. Gold should hold it’s value, but buy more dollars if the Dollar suddenly plummets. When your bonds are worth 65 percent of the principle, that means the fiat money is worth less.
What makes you so sure that defaulting would make dollars worth less than they are currently? Isn’t it possible that by reducing the outstanding value of debt owed, the value of the dollar would actually see an increase?
Bottom Lines: Foreclosures in New Jersey now take an average 849 days
Posted: Saturday, February 12, 2011 11:05 pm
| Updated: 11:19 pm, Sat Feb 12, 2011.
Bottom Lines: Foreclosures in New Jersey now take an average 849 days By KEVIN POST Business Editor pressofAtlanticCity.com | 0 comments
We have started to feel the consequences of the robo-signing controversy. There was nationwide concern that the expedited processing set up by lenders to handle record foreclosure volume does not meet normal standards and might result in an increase in unwarranted seizure of homes.
A few months ago, we were all aghast that foreclosure paperwork was being signed the same way consumers agree to the terms of service for software: without reading it and with the reasonably confident belief that everything’s OK in all that legal text.
The reaction to such robo-signing was predictable, and now has come true. The processing of foreclosures has slowed greatly, especially in states such as New Jersey where foreclosure has to go through courts.
Despite a media search for responsible homeowners unfairly evicted from their homes by shoddy paperwork, next to none have been found.
…
“Despite a media search for responsible homeowners unfairly evicted from their homes by shoddy paperwork, next to none have been found.”
‘Next to none’ ain’t none, especially when you consider that the robosigning was just getting going when it fell apart, due to it being an illegal operation.
But of course, we can’t expect major financial institutions to follow the law, can we? That will just gum up the works. I take their word that they really have all the proper documentation…somewhere…maybe…
O-oh, MERSy MERSy me…
O-oh, things ain’t what they used to be, no no..
Oh, MERSy doats and Banksy doats and little lambsy divey
Soon the foreclosure process will take longer than the terms of 30year mortgages. Squat now or be priced out forever.
Don’t bet on that. The Banking Clan eventually always gets what’s theirs.
The charter of the Second Bank of the United States (B.U.S.) was for 20 years and therefore up for renewal in 1836. The B.U.S. was in no sense a national bank but rather a privately held banking corporation.
The Second Bank of the United States provided a way for the government to handle its financial affairs. The bank was created when James Madison and Albert Gallatin found the government unable to finance the country in the aftermath of the War of 1812.
After the war, despite the debt, the United States also experienced an economic boom, due to the devastation of the Napoleonic Wars. In particular, because of the damage to Europe’s agricultural sector, the U.S. agricultural sector underwent an expansion. The Bank aided this boom through its lending, which encouraged speculation in land.
In the summer of 1818, the national bank managers realized the bank’s massive over-extension, and instituted a policy of contraction and the calling in of loans. This recalling of loans simultaneously curtailed land sales and slowed the U.S. production boom due to the recovery of Europe. The result was the Panic of 1819 and the situation leading up to McCulloch v. Maryland 17 U.S. 316 (1819).
By the early 1830s, President Jackson had come to thoroughly dislike the Second Bank of the United States because of its fraud and corruption. Jackson then had an investigation done on the Bank which he said established “beyond question that this great and powerful institution had been actively engaged in attempting to influence the elections of the public officers by means of its money.”
- Wikipedia (Second Bank of the United States)
Sound familiar? This ain’t our first rodeo. Guess who else knows this?
I keep hoping that by some miracle, Obama will eventually look like the reincarnation of Andrew Jackson. So far, no such luck. Perhaps once he gets elected to a second term, he can back up his populist rhetoric with action.
Maybe he just needs to go off his meds.
What can you do with a Congress determined to sabotage everything?
Back in Sept, the Repubs defeated a bill that would have ended tax breaks for offshoring jobs. Tax breaks that were then to be given to local businesses to hire!!
How can you go up against that kind of wanton treason?
Especially when we the people, just gave the Repub more power?
Buyers Face Gamble With Rising Mortgage Rates NPR
http://www.npr.org/2011/02/13/133692701/buyers-face-gamble-with-rising-mortgage-rates
Rising Mortgage rates without rising wages should equal lower house prices
should ??
They will….
Another question: what exactly would “default” mean? If I buy a $1000 52-week t-bill for $997 would it mean I would get $997 back in 52 weeks, but not $1000? Or would some of my principle be lost as well?
How is it that entirely sane and reasonable adults turning into babbling drool-spilling monkeys when finances are involved?
Let’s go over this one:
I issue a bond at par. Face value = $1,000.
You could buy it when I issue it but you choose not to.
Much later, you buy it in the secondary market (= not when I issue it) at $900.
In theory, you should get $1,000 back when the bond matures.
If it does, you get the interest plus the capital gains of $100.
Let’s say I default.
Then you and I duke it out in court, and we negotiate that I give you back $550 instead of $1,000 that was owed to you.
You take a capital loss of $350 ($900 - $550).
Thanks. Try to pay attention next time to the basics.
Your friendly neighborhood Finance-man!
Ok, don’t get your undies in a twist. I am just an engineer.
In this case, this is a “process” not terribly unlike any other process you have experienced as an engineer.
There’s a rock-solid logic that should be totally within the grasp of an “engineering” mindset.
You just got called out, and with good reason. You haven’t done your homework.
Faster Pussycat wins “holier than thou” award for this beautiful morning.
Well, he’s right. Even an old, retired engineer like me understands bonds. Smile.
It ain’t “holier than thou”, love. It’s called an education. It’s important in that entirely ol’ school way that seems to be out of fashion these days.
Ignorance isn’t cool. It’s just ignorant.
He’s posting here to dispel his ignorance. I’m sure there’s a history here I’m not aware of, but there isn’t any reason to be a dick to someone who is trying to educate themselves.
“Ok, don’t get your undies in a twist. I am just an engineer.”
I thought you were a “savvy investor”
engineer huh?
Bill, the short answer is you get your a$$ handed to you.
Let’s say I default.
Then you and I duke it out in court, and we negotiate that I give you back $550 instead of $1,000 that was owed to you.
You take a capital loss of $350 ($900 - $550).”
I doubt the US government will default like that unless it wants war.
Inflation is the cure for too much debt. With deflation its hopeless and the FED must know this.
With inflation treasuries will have to pay more interest.
I was explaining the general process not specific bonds.
yea you’re right thats what they do but treasuries have never done that. Now if the FED keeps taking on more and more debt?
A question thats going around now is muni bonds and will state governments be allowed to default?
It seems to me the more passionate denials the more truth there is
If states default in a big way on bonds this could set-off another panic
but Federal government states they won’t bail states out?
In FED speak does that mean they will bail them out?
I don’t buy government bonds anymore.
“With inflation treasuries will have to pay more interest.”
I thought the point of the Fed’s bond-buyback program, coupled with the specter of green shoots which seem to always turn out browner than expected, plus super-douper low rates only available on a tightly-rationed, discriminatory basis to Megabank, Inc, was to keep a lid on interest rates?
was to keep a lid on interest rates?’
yea but for Banks not the average worker who needs a loan to buy a house.
The banks need to make up all the Billions they have in loses squirrled away in shadow inventory
“Inflation is the cure for too much debt.”
Ahh yes, the dirty little secret.
I think that inflation will be step 1A.
Step 1B will be the “renegotiation” portion of the overall collapse. It will occur when nobody wants our rectangular presidential portraits anymore.
Something new and improved will be trotted out. Certain to be pure FIAT.
If we permit it.
“I think that inflation will be step 1A. Step 1B will be the “renegotiation” portion of the overall collapse.”
Likely correct. It will be tough to inflate our way to 70%+ (or so) of GDP.
Isn’t the more likely way forward for the QE.1, QE.2, QE.3, …, to get out of hand in a manner which “nobody could have seen coming,” resulting in the the (non-defaulted) nominal $1,000 repayment at maturity having a real value of something like $550? Implicit default seems so much more attractive than the explicit flavor.
PB - I agree with your comment 100% - the US won’t default, we have the “reserve currency” - they can just print it. China wants its $800B back, fine, here are 8 - $1 billion dollar bills. Sooner or later people will catch on and start demanding other forms of payment for new loans and new purchases.
Of course, this is the gold bug’s core belief.
“China wants its $800B back, fine, here are 8 - $1 billion dollar bills.
…
Of course, this is the gold bug’s core belief.”
Suppose the Bernanke Fed executed a surgical QE strike, and managed to hand over those 8 - $1 billion dollar bills without printing a further dime’s worth of inflationary fiatscos. What would be left to drive up the price of gold?
PB - what is he going to pay China off with? I doubt they would just keep 800 $1 billion dollar bills - they would make strategic investments and probably trade the rest in for….gold. China is already the biggest net purchaser of the metal.
“PB - what is he going to pay China off with?”
So far as I am aware, the debt is owed in nominal dollars. Do you have other information?
California plans $2-billion program to help distressed homeowners
http://articles.latimes.com/2011/feb/10/business/la-fi-keep-your-home-20110210
California plans $2-billion program to help distressed homeowners
well CA has plenty of money to do this…….
A perfect example of why CA is broke.
GM Said to Pay Workers Bonuses of More Than $3,000
February 08, 2011, 4:32 PM EST
By David Welch and Keith Naughton
Feb. 8 (Bloomberg) — General Motors Co. may pay its 53,000 unionized hourly U.S. staff record profit-sharing checks of more than $3,000 per worker, two people familiar with the plan said.
The company hasn’t determined a specific amount and may change its plans after completing accounting for 2010, said the people, who asked not to be named because the plans haven’t been publicly disclosed. GM’s previous highest payout was $1,775 in 1999, according to the Center for Automotive Research.
Sharing the U.S. auto industry’s prosperity will be a focus of contract talks this year between the United Auto Workers and GM, Ford Motor Co. and Chrysler Group LLC. UAW President Bob King has said he aims to recover some of the $7,000 to $30,000 in concessions each worker gave up since 2005 to help U.S. automakers survive the worst market in decades.
“This is probably more than workers were eligible for so that they’ll feel good going into negotiations, which makes this a pre-signing bonus,” said Sean McAlinden, a former auto worker who’s now chief economist for the Center for Automotive Research in Ann Arbor, Michigan. “Lump-sum payments like this could make up 12 percent to 15 percent of compensation in the next contract.”
http://www.businessweek.com/news/2011-02-08/gm-said-to-pay-workers-bonuses-of-more-than-3-000.html - 57k -
Those GM workers are now considered “heros” like our FIrefighters and should get obscene bonuses and pensions. They saved our auto industry from burning to the ground.
Oh please, who believes that?
Profit-sharing’s a lot better than making promises that will get redeemed 25+ years into the future.
+1 . People may cry about a $3000 bonus, but for the UAW, that’s a real haircut as opposed to the “works program” or whatever they had. I still can’t get over the GM janitor who made $60K for pushing a broom. And this in a city where working class houses could be had for $100K.
“works program”.
Jobs Bank. Paying legions of people to not work.
Sounds a lot like now.
Paging 2banana .. union employees making a little money. Time to fire up your Outrage-o-Tron.
—
General Motors Co. may pay its 53,000 unionized hourly U.S. staff record profit-sharing checks of more than $3,000 per worker, two people familiar with the plan said.
Nothing more than paying off the unions with our tax dollars.
GM is still in debt to the American tax payer for $60 billion.
The unions investment in obama has paid of quite handsomely…
Any investments the unions made in The One are rendered microscopic in comparison with the investments that Wall Street made in him. Know any union workers getting 7-digit bonuses?
—
The unions investment in obama has paid of quite handsomely…
Ah - the old “bankers are ripping off the taxpayers so it is OK for unions to rip-off the taxpayer” argument.
It is a tiring argument - and contains logic that 7 years old use.
Gosh no. Add up bonuses paid out at WallStreet firms accepting TARP, err, taxpayer money.
Add up bonuses paid out to union members at bailed-out auto firms.
Is there some parity of this dollar-denominated evil, or is one of those two quantities something like a couple thousand times larger than the other?
Just asking.
—
It is a tiring argument - and contains logic that 7 years old use.
$3000? Wow. They could buy whole neighborhood of Detroit!
It’s a shame they can’t sell their toxic assets to Freddie and Fannie so they could pay back the rest of the loan.
Seemed to work for Wall St.
Chrysler Loses Money, Gives UAW Bonuses
Chrysler recently reported a 4th quarter loss of $652 million. So what does a UAW majority owned company that is losing money do? How about a bonus for UAW workers?
Current Chrysler ownership breakdown puts the UAW at a 63.5% ownership stake while the US Treasury holds a 9.2% stake. Italy’s Fiat currently owns 25%. Bonuses planned for UAW workers are estimated to average $750.
It is disturbing that at the same time Chrysler plans for UAW bonus distributions they are back asking taxpayers for more money. Reuters reports that Chrysler has applied for $3 billion in subsidized loans from the Department of Energy. Sean McAlinden, chief economist for the Center for Automotive Research, says that Chrysler expects “another really tough year and they need the money.” It seems odd that the UAW would receive bonuses under these circumstances.
The auto bailouts, as orchestrated by the Obama Administration, demonstrate that the UAW will get their payoffs, by hook or by crook. Ford factory workers are to receive about $5,000 each in bonuses. GM is expected to announce their bonus plan after reporting earnings. UAW president, Bob King has made clear that the UAW expects to share in any profits attained by GM, Ford or Chrysler. In the case of Chrysler, it seems the UAW expects to benefit even in the absence of profits.
Based on the past generosity displayed towards bailed out automakers, it is unlikely that Chrysler’s loan request will be turned down. It remains to be seen if Republicans that now control Congress have the courage to stand against the continued taxpayer funding and UAW favoritism that have arisen from the auto bailouts. The politically favored UAW continues to benefit at the expense of tax paying Americans. Disingenuous statements proclaiming that taxpayers are being paid back through appreciating GM share price neglect the facts that the taxpayers are losing money in other areas such as the $45 billion tax write-off given to GM by the US Treasury. Subsidized loans are yet another way for the Obama Administration to funnel money in to struggling, bailed out automakers. At some point, our representatives should say, “enough is enough.”
http://www.mylocal2209.org/other-stories/195-chrysler-loses-money-gives-uaw-bonuses.html - 31k -
Could the trend of the uptick in aggravating stories like this be the “smoking gun” for the dreaded “wage inflation” ingredient required by the hyperinflation recipe?
Obvious signs of unsubstantiated wage inflation (due to QE effects) in these segments:
Banking (duh)
Firefighters/Cops
Other government workers (pobably?)
Auto workers
Oil industry
Any Union big enough to strongarm the host
Cash-4-Gold clowns
Did I leave anybody out?
“Auto workers”
You are aware that new UAW hires are not paid the same as the old boys? IIRC they only get $14/hr.
“they only get $14/hr”
Not to worry.
“the UAW leadership is already setting the tone for contract negotiations”
Skimmin Bob King told Reuters
“he wants union members to share in the U.S. automaker’s turnaround, through profit sharing or wage increases.”
Sep 22, 2010
Second-tier UAW workers at GM plants thankful for jobs
Members of United Auto Workers Local 602 at GM’s Lansing Delta Township plant install a trailer hitch on a 2011 GMC Acadia Denali, which began production there Tuesday. As part of a public radio project chronicling how people in the Rust Belt are adapting to the new economy, Changing Gears has a story on the new “two-tier” pay structure for union auto workers at General Motors: New second-tier workers make half what older union workers make.
Since 2007, General Motors and Chrysler have been able to pay new hires lower wages than current workers. Traditional workers earn just over $28 an hour in pay, while new hires make $14 to $16 an hour. There are also differences in benefits: vacation, retirement and health care coverage.
The story includes two brothers, two years apart. Justin Jewell is 22 and earns $16 an hour at GM’s Lansing Delta Township (Mich.) plant. Derick is 24 and makes $28 an hour.
But Justin isn’t complaining. He says he’s got a good union job, and he’s not sure he could be earning his current wages elsewhere:
“Lot of plants have closed down,” he says, “And we’re not too far from Flint where, for a long time, a lot of people were laid off. So there’s a little bit of remorse but at the same time there’s some faith and just being glad to have a decent paying job.”
There’s another family in the tale, a mother and son. The mom expresses some regret at the end for referring her son to the plant, but her son seems more at ease with the decision.
Meanwhile, the UAW leadership is already setting the tone for contract negotiations, which start next year. UAW President Bob King told Reuters he wants union members to share in the U.S. automaker’s turnaround, through profit sharing or wage increases.
http://content.usatoday.com/communities/driveon/post/2010/09/second-tier-uaw-workers-at-gm-plants-thankful-for-jobs/1 - 30k -
…and NO pension.
Oh, and I thought the traditional avg pay was $90hr?
Guess not.
ecofeco
What`s the labor burden on your employees? Do you contribute to their retirement? Do you pay for all of their health insurance or do you have them pay part of it? How many paid weeks vacation a year do you give them? My guess would be the $28 an hour UAW worker cost is $65 an hour all in maybe more.
Let’s say I’m paying an employee $15 an hour. What is their actual cost to the company?
It depends.
The employer pays taxes on top of the employee wages. For example there is Medicare on all wages, Social Security on the first $106,800 (for 2010), the Federal Unemployment rate of .8% on the first $7,000 of the employee wages and the state unemployment rate which is probably capped on the first $10,000 to $25,000 of wages. A rule of thumb we use, without going into detail, is about 12% of their rate of pay. So, if the employee is paid $15 an hour, it costs the employer $16.80 an hour. However, if you have a high unemployment rate (5% or higher or you state unemployment wages are not capped), this will change this equation.
The employer also needs to factor in workers’ compensation insurance which is required in most states. Depending on the industry, this can add anywhere from 2% to 33% on top of the 12% factored in above. An employee in the roofing business may be costing the company 45% more in taxes and workers’ compensation over the rate paid to the employee because of high workers’ compensation insurance.
If there is a match retirement program such as a SIMPLE plan or a 401K plan, the employer match will need to be factored.
Then there are soft costs: Vacation, Sick, Personal and other paid time off. There may be health insurance and other fringe benefits. There is the administration cost just to handle these aspects. If you as the the employer link employee paid hours directly to what you are able to bill, there is the unbillable time in which you are paying the employee, but cannot recapture from your customer.
Don’t hire employees if you can afford to pay them decently.
But it’s moot now it isn’t it? New hires have no benefits, no pensions, one week of sick days for the ENTIRE YEAR and if it weren’t for the Family Leave Act, which is very limited, they wouldn’t have job it they needed more time for illness and are paid half of the past avg with pretty less than inflation raises and one week of vacation after the first year… if they are lucky.
Welcome back to the Gilded Age. Hope you find a job like that, because unless you are from a wealthy family, you have a 60% chance of working one of those jobs within your lifetime no matter what you do now.
“…CAN’T AFFORD…”
sheesh
“Don’t hire employees if you can afford to pay them decently.”
THAT`S RIGHT! Then go out of business! File BK! Don`t stick your hand out for $60 billion! Like I have said before if houses were built by UAW workers or govt. workers with their pay scale, benefit package and work ethic it would cost $400 a sq. ft. bare bones. How about fish, do you eat fish? The most dangerous job in the country is being a fisherman. If the UAW was catching our fish no one could afford to eat fish! Luckily I don`t eat fish so if they ever do take over that industry I will be fine with it. Put the banksters in jail, flog em for all I care. Stick Angelo and his friends in tanning booth from which there is no escape. Tar and feather the crooks on Wall Street. But none of that makes it right for Union or local, state and federal employees to get pay and benefit packages that the rest of the tax payers who work and run small businesses just can`t get or afford. It doesn`t work.
“…CAN’T AFFORD…”
That`s right! We can`t.
$14 an hour jobs are getting harder and harder to come by. In many areas, that’s a good job.
But still not enough to buy new cars, let alone houses.
But who cares now? GM just sold more cars in China than USA last year!
Gam bei!!
Obvious signs of unsubstantiated wage inflation (due to QE effects) in these segments:
CEO’s because the stock market is up big think stock options
Commodities traders
Like I said above, it’s a shame they too, can’t sell their toxic assets to Freddie and Fannie so they could pay back the rest of the loan.
Seemed to work for Wall St.
This regulation stuff is getting out of hand….
Feb. 9 (Bloomberg) — Wells Fargo & Co.’s head of brokerage operations said banks may reduce the number of investment products offered to customers if regulators impose a fiduciary standard on brokers.
The U.S. Securities and Exchange Commission’s proposal for a common fiduciary standard for brokers and registered advisers may increase the need for due diligence from banks and advisers, Senior Executive Vice President David Carroll said today at a Miami investor conference.
The SEC’s plan would make all brokers and registered investment advisers who provide personalized investment advice adhere to a common standard when dealing with clients. Broker- dealers currently must ensure only that an investment product and accompanying advice is suitable for their clients’ needs. A fiduciary duty would mean putting clients’ best interests first, which might require passing up choices with bigger commissions.
http://www.businessweek.com/news/2011-02-09/wells-fargo-says-fiduciary-standard-may-narrow-customer-choice.html
Interesting: I always check the “foreclosures” section in the local (Daytona Beach) paper every Sunday. For about the last year there have consistently been at least 200 sales scheduled for the following week. The last couple of weeks there have only been 30-40. I guess the
“freeze” is responsible? Must be backing up like crazy in the system…
Interesting. That’s what it sounds like, doesn’t it?
Question for the board. I agree there will be some sort of “negotiated default” how does one trade this? Just short treasuries? I’m thinking oil might be perceived as a safe haven and benefit as a sanctuary. Other possibilities, go long defense as expectation of increased tensions mount (buy LMT, GD). Also what will the impact on housing be, a spike in rates that absolutely hammers values? Logic would dictate our debt would still be saleable however default risk would have to be priced in new issues going forward via a higher yield. Appreciate any insight.
“Also what will the impact on housing be, a spike in rates that absolutely hammers values? ”
Answer: Dow would go to 20,000. A no brainer (really, I have no brain).
go long defense as expectation of increased tensions mount (buy LMT, GD).”
I bet they try and cut defense spending at least the big expensive money making programs. the furure is predator drone like weapons not mach 3 manned fighters.
They can try, but it won’t happen. The defense lobby is more powerful that Wall St.
A default, negotiated or otherwise, means whomever is owed doesn’t get paid because one person’s debt is another person’s money.
Promised money is also owed money which means it is also debt.
A lot of borrowed money and a lot of promised money will not be paid out because the numbers just don’t work. This means a lot of people are going to have to do without a lot of money they thought they had coming to them.
“… how does one trade this?”
IMHO if one has a good job and is offered incentives to retire then he should just say “no”. That’s because having a job means one has a steady flow of incoming cash. If one retires then his flow of incoming cash is subject to the whims and decisions of strangers.
He should also pay down down his debts and amass as much cash as possible. Remember, a lot of people who thought they were owed money are not going to be receiving much of it. This will make cash scarce, hence more valuable.
There are other opinions, and I’m sure we are about to hear some of them.
You had me at, “Poof!”
“Poof!” can end up being an investor’s best friend if he is not at the wrong end of it.
I’m looking into buying an expensive violin this year.
In an era of central banks handing easy money to private banks in the form of zero-interest-rate loans, my optimism over finding a decent violin for sale at a fire sale price admittedly might be misplaced.
What is the effect of a financial crisis on the high-end violin market?
Although the present financial crisis has not had a deleterious effect upon the high-end violin market (in fact, prices of Stradivari and Guarneri violins have steadily increased during this period), it cannot be said that violin prices have never gone down. Just prior to the 1929 crash, Stradivari violins such as the “Jansa” sold for $23,000, the “Artot” for $27,000, and the “Titian” for $30,000. In the midst of the Great Depression, prices fell to about one-tenth their pre-Depression levels; for example, the “Portuguese” Strad sold for £2,300 in 1933. However, by the late 1940s violin prices had recovered, as evidenced by the sale of the “Lamoureux” Strad for £21,000 in 1948. The same cannot be said for savings lost in the Bank Holiday or money invested in the stocks and bonds of companies that went out of business during the Depression.
Most recently, the “Kochanski” Guarneri violin sold for $10M, and the asking price of the “Vieuxtemps” is reportedly $18M. These prices reflect an upward trend that has been unaffected by the recent “credit crunch” and the 2008 stock market crash.
…
Super high end luxury goods and art have not been affected at all by the current economic situation.
These are the wealthy’s equivalent to gold.
Why not buy gold and art when they are at all time highs? The majority is never wrong.
Gold is affordable for the average person because it can be bought in small quantities.
A Van Gogh or Picasso or Fabrege or 1950 Ferrari? Not so much.
I’m gonna explore the market in first-rank newer instruments whose production has been stimulated by the hoarding of the old Strads by the denizens of Upper Richistan. Every dark cloud has a silver lining, and the silver lining in the hoarding of the rare old Italian instruments is to stimulate demand for production of new first-rate custom violins.
You can play a cheap guitar or that expensive violin on the street corner while selling apples in front of a tin cup.
I guess it just depends on how well you play and if anyone has the money, interest and appetite to pay for the apples.
Question for the board. I agree there will be some sort of “negotiated default” how does one trade this? Just short treasuries? ”
I think buying companies stock that have a wide moat around their business and pay dividends. I think they will survive better than Government Bonds.
TBT a short treasury play or DBA a long commodities play but these things have costs so don’t buy and hold.
Let’s have a list of companies that are recession proof and pay dividends at 10% of stock price.
No, I think the defense industry is entering it’s own recession. A repeat of the early 1990s. DOD engineers were bullet proof in those days though.
Oh, it is… it is…
An engineering degree isn’t worth anything these days with the sole exception of systems/software engineers with top level clearances. They can go play at NSA and track the bad guys while our loyal leaders sells us out… as for other types of engineers, we’ve been instructed to “drop dead” since that is more profitable for business.
So, we’ve killed out space program, aerospace and defense are dying, and the auto industry is in poor shape… and everything else is going to China or India. Looks like we won’t need college degrees for the Wal-mart future!
Wifey and I went furniture shopping yesterday to the “big city” of Greenville, where there’s lots more selection and better prices. Holy Shiite! The streets around the mall were so crowded it was almost gridlock. Then down to Anderson to her favorite fabric store. Same thing along the main shopping drag. We passed the Olive Garden at 4:30 PM. The parking lot was already full and there were a number of people waiting outside for a table. Had dinner at our favorite independent pizza place. Business there appears to be almost back to what it was three years ago.
Also had an interesting discussion with my barber last week. In response to my question he said that business declines somewhat when times are bad, as men wait until they’re shaggier before coming in for a haircut. But the big difference is how many of them tip him, and he says that percentage is starting to increase.
Just reportin’.
Interesting, our UE rate is lower than yours, yet I see no evidence of these shopping mobs out here.
That said, I visited my brother when he lived in WInston Salem around 2007. The restaurants were packed.
I never understood why places like Olive Garden, Applebees, and Chilis get so busy. their food is so bad, but I guess Americans prefer the huge plates of food over taste.
Not keen on the whole menu, but Applebees does make a decent hamburger. In fact, I like their burgers more than Five Guys’ hamburgers. Around here, if you ask the waiter, you can get it with a plate of fries for $4.99 (menu price is higher).
My niece works at Applebees… & she warned me… that ALL of their food is MICROWAVED.
I suspect the same for all of the other chains, as well (Chili’s, Olive Garden, etc.)
I will not eat at these places.
Olive Garden I can live with by going a la carte. Especially their salad.
Applebees and Chilis is disgusting, overwrought and over spiced, although there are a few plain item at Applebees I can live with.
Chilis? Never again. What is that crap?
“Applebees and Chilis is disgusting, overwrought and over spiced, although there are a few plain item at Applebees I can live with.”
I stopped of at an Applebee’s for a quick lunch near Milwaukee a couple of years ago. I was at the bar and just begun munching on my rubin and drinking a beer when a large inquisitive roach wondered down the bar and stopped right in front of me and my plate.
Everyone saw him and an embarrassed bartender finally chased him and allowed him to escape uncaptured. That cured my appetite and I asked for my bill. The manager quickly heard about it and told me that there would be no charge.
Great…I’m not sure about the overly friendly roach but I never went back.
Yeah, that’ll do it for me too!
“Applebees and Chilis is disgusting, overwrought and over spiced, although there are a few plain item at Applebees I can live with.
Chilis? Never again. What is that crap?”
Probably the same stuff as Taco Bell serves- binding agents, fillers, and chemical preservatives masquerading as meat and food.
How could you tell with all the freaking peppers overkill they put on it?
Hello DC area folks,
Is the time right to get a townhouse in Gaithersburg area for investment purposes. I looked at some that were priced 150-180K.
The rent seems to be $1500 or so per month. The taxes are like 2.5K.
Seems to make financial sense. Not the really good newer townhomes are like 350K or higher and they have ways to go down in price as the rent is still the same.
Thoughts!!
As a Rockville guy looking for a house myself, we are going to wait. Too many foreclosed houses are just waiting to be unlocked this summer. The prices going down 5 to 10 percent gets people really giddy, but for me I’m looking for a 20 to 30 percent drop, which I think I’ll get around the end of the year.
rates go up, prices go down. not too mention the insane amount of homes banks have in their inventory. Bad timing.
But, rates have never been this low!
Close enough.
Bank of America informed us it will cost 59 bucks a year to use their credit card starting in April.
Umm no
As repeated many times here, why are you with a commercial bank and not a CU?
No good choices here in Ventura County that I know of? I was going to change to Midfirst Bank when I lived in Phoenix.
inertia I have bill pay online banking direct deposit
I go to another bank credit union I have to re-set up all these things, I move again and credit union is bye bye aren’t they local?
the credit card I suspect will try and keep me when I pull the plug on it, its my wife’s 7% card with a 1500 limit, to limit damage she can do with it
USAA if you can get it. ING Direct otherwise.
Aren’t these credit-card things like a dime a dozen for people who have good credit (like ALL of this blog?)
Do you care?
If the BoA bitch won’t put out surely her sister bank bitch will!
Collectively, I hope most of Ben’s denizens develop a “high pass filter” - where most of this stuff just gets tuned out.
You may be amazed what this does for your sanity and your sex life. Life is really good if you got no stress.
Bank of
IndiaAmerica is in big trouble. GTFO of there while you can.Bad robo-signing karma is gonna bite Megabank of America in the patootie!
There is a lot of lame discussion recently about how a rate rise to 5 or maybe even 6 percent would have little impact, because that is still a low level by historic standards. These people are missing the historic anomaly of ultra-low mortgage rates coupled with historically high housing prices, which will just as surely vanish after the bubble as they materialized during the bubble.
Buyers Face Gamble With Rising Mortgage Rates
by Marilyn Geewax
February 13, 2011
Audio for this story from Weekend Edition Sunday will be available at approx. 12:00 p.m. ET
Home prices and sales are still depressed, but now mortgage rates are moving up.
Enlarge Joe Raedle/Getty Images
February is when potential home sellers start painting walls beige and cleaning out closets, preparing for the spring homebuying season. But sellers got some unnerving news last week: The interest rate on a 30-year mortgage jumped up to a level not seen since last April.
In November, the average rate slipped to a 40-year low of 4.17 percent. Today, it’s just over 5 percent, and concerns are growing that rates will keep rising — enough to scare away potential buyers. It’s at least enough to make those buyers rethink the advantages of homeownership.
Why Rates Rose
The housing industry had hoped interest rates would stay very low for a very long time — at least until the market bounced back. Unfortunately, home prices and sales are still depressed, but now mortgage rates are going up.
The key reason is inflation. In recent months, prices have been rising for all sorts of commodities, from steel to wheat to gold. Whenever prices go up, long-term interest rates — like those on 30-year mortgages — rise along with them.
So far, at least, the rate hikes have not been steep enough to discourage most potential buyers, and 5 percent is still low by historical standards. Mortgage experts generally say you won’t start to seriously undermine the housing market until rates get closer to 6 percent.
…
“Mortgage experts generally say you won’t start to seriously undermine the housing market until rates get closer to 6 percent.”
Rising interest rates stir debate on Fed’s easy-money policy
As the U.S. economy rebounds, so do long-term interest rates while the Federal Reserve holds its benchmark short-term rate near zero. Is the central bank ignoring inflation signals?
February 10, 2011|By Tom Petruno, Los Angeles Times
As with so much else about the U.S. economic recovery, interest rates have become a story of glaring contradictions and uncertainties.
Mortgage rates have jumped in the last few months as Wall Street has become more convinced that the economy is improving and as fears of renewed inflation have bubbled up.
…
The economy HAS improved… for the very rich.
Trickle-up economics.*
* Don’t know if that term was coined here or not. But it’s very descriptive.
Oh no, it doesn’t trickle up. It POURS!
The 150-180 townhouses in Gaithersburg are not in the best areas. Crime is not insignificant, and you will be renting to people who are accustomed to not living in the best areas. If this does not discourage you, then now may be a good time. Certainly the DC area has a healthy economy and will continue in such health for the foreseeable future.
http://www.politico.com/news/stories/0211/49412.html
Young Neo-Cons for Endless Military-Industrial Complex Gravy Trains and Forcible “Democratization” of the Middle East, a.k.a. Young Americans for Freedom, has booted Ron Paul from its advisory board for his “anti-war” stance.
Never mind that the people of Egypt did more for genuine democracy in the Middle East than the neo-con chickenhawks have done in the past nine years.
Neocons: Conservative recto-cranial-inversion since 1980.
Corporate (defense contractors) funded front groups pretending to be grass roots. Just like every other “conservative” cause.
“Never mind that the people of Egypt did more for genuine democracy in the Middle East than the neo-con chickenhawks have done in the past nine years.”
Uh-huh.
“Shazam-Islam-Is-Democracy” (TM Hwy50), and the second domino falls after the first one was pushed over.
Chilock has nothing to fear as regards extracting his pound of GSE flesh.
* ASIA NEWS
* FEBRUARY 13, 2011, 10:33 A.M. ET
Chinese Express Wary Faith in Fannie, Freddie Debt
By AARON BACK
BEIJING—China’s government, one of the biggest holders of debt from Fannie Mae and Freddie Mac, voiced confidence that Washington would continue to stand behind the obligations of the U.S. mortgage giants after the Obama administration outlined options for phasing them out.
The statement by the State Administration of Foreign Exchange, or SAFE, the arm of China’s central bank that manages foreign-exchange reserves, reflects Beijing’s continued concern about perceptions within China of the safety of its U.S. investments. Most of China’s $2.85 trillion in reserves is invested in dollar assets, and while China doesn’t disclose the size of its holdings of Fannie and Freddie securities, past records show it owning hundreds of billions of dollars of debt from them and other U.S. government-linked agencies.
Chinese officials have raised concerns about the possible impact of U.S. policy on the future value of China’s dollar holdings, saying loose monetary policy could hurt the value of U.S. assets. But the government has also rejected rumors that it has lost money on its existing holdings of Fannie and Freddie debt.
The Obama administration on Friday issued a white paper on plans to reduce U.S. government involvement in the mortgage market, including an eventual phaseout of Fannie and Freddie, which the government took over in 2008. But the White House’s report emphasized that it “will not waver from its commitment” to ensuring that the two “have sufficient capital to honor any guarantees issued now or in the future and meet any of their debt obligations.”
…
One of the questions I have been asking for years now in sporadic HBB posts has at long last been raised in the MSM!
opinion
Editorial: Why should government back $700,000 mortgages?
Policies that help Americans buy homes they can’t afford are bad for the entire economy. Congress should reduce limits.
By The Denver Post
Posted: 02/13/2011 01:00:00 AM MST
The Obama administration is expected to soon recommend that Congress begin reducing the size of mortgages that are eligible for government guarantees.
It’s about time.
In fact, if the reports are true, we don’t believe the administration is going far enough.
Right now, mortgages up to $729,750 are eligible, through temporary federal programs, for government backing. That hardly sounds like a buyer in need of charity.
Yet investors, always on the lookout for government insurance to guard against losses, will most often offer those loans with artificially low interest rates to attract takers. While it’s been reported the administration will suggest to Congress that it lower the loan limit to $625,500 starting in September, we believe it should go further.
We certainly understand the good intentions behind the drive to make home ownership more affordable, but there are many problems with this kind of policy.
As we’ve learned, for instance, government guarantees played a role in feeding a housing bubble that generated a serious recession. Fannie Mae and Freddie Mac, we believe, exacerbated the problem, pumping the market with bad loans and creating moral hazards for banks and citizens who were buying homes they could not afford.
Washington was forced to bail out Fannie and Freddie with around $130 billion, and the organization is still struggling.
We are also skeptical that Washington should be insuring such large amounts.
Why are taxpayers subsidizing the homes of Americans who believe they can afford to take on a $700,000 loan — not to mention banks that believe they can afford to lend it to them?
…
“We certainly understand the good intentions behind the drive to make home ownership more affordable, but there are many problems with this kind of policy.”
Can anyone who believes they understand this kindly explain to me what insuring mortgages in amounts of $729,750 has to do with fulfilling the GSE mandate to make housing affordable?
Senator Dodd? Congressman Frank? Are you listening?
GSE limits should have gone the other way.. I thought and said that immediately when they increased the limits in 2008 to keept the punch spiked a bit longer… everyone involved in that decision should have lost their job in the Finance Service Committee .. hell, everyone in the Senate on the Banking Committee should have been fired as well.. Frank, Dodd.. the whole damn lot of them… bunch of clowns.. get government the hell out of housing if you want to make it affordable.. how’s that for a policy..
You would think when U.S. housing prices have dropped for the first time, ever, by 30 percent or more on a national basis, they would automatically reduce GSE limits in response, reciprocally to how they felt compelled to adjust them skywards when home prices became so unaffordable at the peak of the bubble, wouldn’t you?
If you can afford a 700k house, you need NO help from the government for any damn thing!
And last I heard, it was those very same class of buyers that now lead in defaults.
Do you mean to suggest that middle class Americans living on Main Street in flyover country, where the median home price is $130K or less (and maybe $20K or so in Detroit), shouldn’t be forced by their Government Masters in Washington, DC to subsidize home purchases out on the coasts at price points above $700K?
What do you see as the problem with this? Aren’t people who live on the coasts entitled to their affordably priced homes, selling for over $700K?
You would think that that would be a line taken by the resurgent GOP, especially since their “base” theoretically is in the south and the intermountain west, prime flyover country. But no, they would never make such statements because any criticism of federal programs that benefit high-income people is considered to be “class warfare” or the politics of envy or whatever.
Well if criticizing Welfare for the Wealthy programs like “affordable housing loans” in the amount of $729,750 is tantamount to class warfare, then I must be a class warrior. I personally find this policy blatantly absurd, especially since it is Democrats Dodd and Frank who championed it
http://news.yahoo.com/s/ap/20110211/ap_on_bi_ge/us_obama_housing
It looks like another not-so-suble DNC shakedown of their TBTF contributors just kicked off. Contributions will be duly increased, then this empty talk will quietly fade away.
The Giant Pool of central-bank-created fiat Money seems to suddenly be coming into plain view. So much for the Emperor’s New Clothes!
Currency Manipulators Created $7 Trillion, Causing the Global Economic Bubble
By Richard Duncan
02/13/11 Singapore, Singapore – The single most important development affecting the global economy over the past decade has been the creation of $7 trillion worth of paper money by central banks in developing countries. This explosion of money creation drove up the price of stocks, bonds and commodities – and drove down yields – all around the planet. It caused the Fed to lose control over interest rates and over the economy. In short, this new money (along with the US trade deficit which played a role in its creation) caused the global economic bubble that imploded in 2008.
It is mindboggling that Washington, Wall Street and the financial press all failed to identify the source of the money inundating the world. Thousands of economists and financial journalists from dozens of nations watch the Fed’s every move. Yet, somehow, they entirely missed the paper money revolution being carried out by other central banks. This failure is all the more incredible given that the IMF publishes the relevant information each month in its International Financial Statistics database, under the heading of Total Foreign Exchange Reserves.
Foreign Exchange (FX) Reserves are owned by central banks. Central banks acquire FX Reserves in the same way that they acquire any other asset, they create paper money from thin air and buy them. Therefore, the increase in Total FX Reserves from $2 trillion in 2000 to $9 trillion in 2010 shows that central banks conjured up $7 trillion worth of new paper money during those years. To put $7 trillion into perspective, the entire amount of US government debt held by the public was less than $7 trillion when this crisis began.
…
And, they’re engaging in “hair of the dog.” This can’t end well.
Another disturbing trend I have noticed is ramped up residential construction in some of the most overbuilt areas of the western US. WTF?
It will end “well” as it always does.
Patience, young Jedi.
“…ramped up residential construction in some of the most overbuilt areas of the western US. WTF?”
Like San Diego County, where the builders apparently are falling for the Fed’s ‘green shoots’ head fake, as though a massive shadow inventory of homes in default wasn’t going to suffice to restore affordability?
BTW, I have some great news for San Diego home hunters. I just tried out this housing market search site I never saw before, which shows 881 San Diego County homes priced at $100,000 or less. I guess the market here is a lot more affordable than the ever-frothily-priced MLS listings would suggest!
There are 15,048 homes listed for San Diego County on this site, and the red hot spring sales season has yet to even begin. Seems like affordability is bustin’ out all over these days!!
Out, damn
spotrumors!13 Feb, 2011, 04.05PM IST,PTI
China denies rumours of losing $450 bn in Fannie, Freddie debt
BEIJING: China’s foreign exchange regulator has refuted media reports that the country may lose up to $ 450 billion by holding bonds of Fannie Mae and Freddie Mac, the US mortgage giants, which according to speculation may be phased out by the US government.
…
Wouldn’t it be easier for banksters to just unload their portfolios of foreclosure homes onto end-user buyers who need them, rather than shouldering the ever-high costs of maintaining vacant properties?
Banks work to ensure properties don’t droop; competition, codes help keep homes from disrepair
* By David Benda
* Record Searchlight
* Posted February 12, 2011 at 9:26 p.m.
Spurred by the competition and code enforcement officials across the country, banks today are doing a better job of managing their growing portfolios of foreclosed homes.
“They have instituted policies that have been awhile in coming,” said Diane Abair of Bear’s Den Real Estate in Redding.
Abair, a listing agent for Fannie Mae’s HomePath foreclosure program, believes many of the rules were the result of pressure from municipalities fed up with neighborhoods pocked by scorched-brown lawns and stagnant pools.
“So I don’t think (banks) did all this cheerfully and on their own,” Abair said.
But it’s not a perfect system.
Police and code enforcement officials in Redding have been struggling with a wave of foreclosed rental properties. Officials estimate they dealt with at least 50 rentals that had been foreclosed and neglected in 2010.
In December, a bank-owned apartment complex on East Street in downtown Redding grabbed headlines for its moribund condition.
Debra Wright, Redding’s code enfore cement chief, said the bigger lending institutions like Bank of America are easier to work with.
“We have contact numbers to talk to actual people in the real estate division, so that is helpful,” Wright said.
…
Wouldn’t it be easier for banksters to just unload their portfolios of foreclosure homes onto end-user buyers who need them, rather than shouldering the ever-high costs of maintaining vacant properties?
Or they could just keep them on the books at full value and not spend anything on maintenance and worry about the rest later.
Exactly. After all, where would we be without mark-to-fantasy?
Fannie, Freddie forever
Last Updated: 5:04 AM, February 13, 2011
Posted: 12:05 AM, February 13, 2011
Terry Keenan
The 2016 Summer Olympics in Rio will likely be history by the time any White House plan to wind down Fannie Mae and Freddie Mac puts the government-sponsored mortgage giants onto the ash heap of history.
Still, the process of getting Uncle Sam to step back from the mortgage business is coming at a perilous time for the economy and the housing market.
Compounding the misery, another leg down in housing could place tens of billions more in losses on the shoulders of US taxpayers as Fannie and Freddie take further hits to their bottom lines.
As usual, Washington is well behind the marketplace in assessing such risks. For President Obama, it means that we could very well be looking at another housing-driven economic swoon just as the 2012 election campaign kicks into high gear.
That’s because while Congress hashes out plans to extinguish Fannie and Freddie, homebuyers are already starting to feel the pain in the form of higher down-payment requirements and upward pressure on mortgage rates.
Not only does the eventual demise of the agencies remove the backstop commercial banks have relied on when making mortgage loans, Fannie and Freddie still guarantee 90 percent of all mortgages.
Little wonder that three years into the housing bust, demand for mortgage credit is still dropping. The average mortgage rate on a 30-year loan has soared a full percentage point in the past three months, clocking in at 5.17 percent.
…
Is Obama’s Strong Housing Finance Stand for Real or a Political Play?
Feb 13 2011, 9:33 AM ET By Daniel Indiviglio
On Friday, the Obama administration released a surprisingly strong housing finance policy report. It explains a general process to wind down Fannie Mae and Freddie Mac, and offers three alternatives for how to conduct housing finance policy without them. Each option has pros and cons, but put together they lean firmly towards free-market ideals, which arguably makes the report one of the clearest signals of President Obama’s move to the center yet.
Or does it? While these three options could genuinely attest to the administration’s dedication to free market principles, they could also be strategically designed to achieve some political end. There are at least three possibilities here.
A Punt
Possibly the least likely, but not impossible, goal could be for the administration to use these three options to punt the issue for the time being. Perhaps the President knows that housing finance is so contentious that the split Congress isn’t likely to compromise on any comprehensive reform legislation over the next two years anyway.
If that’s the case, there’s really no downside to the administration taking a tough stance. When Congress fails to act, the President can shake his head and say his report sought to gain widespread acceptance from Republicans, but political divisiveness got in the way. During the 2012 race, he could point to the report as an example of his dedication to the free market, without actually having to follow through with some of the strong medicine it calls for.
It’s a little difficult to believe this could really be the President’s strategy for one main reason: to whom would he be punting? Presumably, he intends to win reelection in 2012. Comprehensive housing finance reform would absolutely have to occur before 2016. So he would presumably be expected to stand behind the options in this report at that time, if not now.
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All this talk about default on the foreign held national debt makes me think one thing. Don’t invest overseas, because lots of pissed off countries are going to nationalize U.S. assets.
That might happen in response to inflating away the debts too.
Denials all around, but I think Bernanke is printing money — and telling other countries their resulting inflation is their problem and if they don’t like it allow their currencies to appreciate — is based on his belief that this perpetual trade deficit has to stop, and he is going to stop it.
And by threatening default Paul, the enemy of the Fed, is playing along. Like a bad cop to Bernanke’s good cop.
I’m sure glad I didn’t fall for this scam.
College Planning by Jilian Mincer
The End of Prepaid Tuition Plans?
College costs keep rising, and recession-scarred parents need all the help they can get, but several cash-strapped states are abandoning or adjusting one of the most popular college-savings options: prepaid tuition credits for college-bound kids.
The latest casualty may be Washington state, where legislators announced last week that the state’s popular prepaid tuition plan, called Guaranteed Education Tuition (GET), may be in need of an overhaul. That comes on the heels of Tennessee’s recent decision to shut down its prepaid college tuition plan, making it the eighth state to do so in the last few years. And in Alabama, legislators are facing a class-action lawsuit brought by parents who say that state’s plan is underfunded by $269 million if tuition climbs at its current pace at some of its most popular schools. As of now, only 11 states have plans that are still open to new investment.
That’s bad news for a growing number of parents who, still shaken by stock market losses, have come to depend on these plans, which allow parents to purchase university credits at today’s prices, and use them at some indeterminate time in the future. Enrollment in Washington’s prepaid plan was up 19% this year. In Pennsylvania, where the plan is not threatened, enrollment in the state’s 529 Guaranteed Savings Plan rose 15.6% this year.
But investors with outstanding credits in states where they have shut down plans shouldn’t worry, say experts: Plans have so far made good on their promises. “If you’re already in the program, those terms will not change,” says Betty Lochner, director of the GET Program in Washington. The $1.4 billion plan is solvent, she says, but legislators plan to study their options in preparation for a potential shortfall. The plan, which opened to investors in 1998, originally anticipated that tuition would rise 8.5% per year. Now state officials expect costs to rise 11% a year for the next two years. Tuition jumped an average of 13.1% per year from 2009 to 2010.
Those who want to start investing in a plan should act quickly, since other states may soon close their plans to new investors, say experts. “Given where state budgets are, if something were to happen to the prepaid plan, states are not going to be in a position to put resources into helping them,” says Jackie Williams, director of the college-savings initiative at the New America Foundation, a nonprofit, nonpartisan public-policy institute based in Washington. She was executive director of the Ohio Tuition Trust Authority, which, like Kentucky and West Virginia, closed its prepaid tuition plan to new families after the dot-com bubble bust.
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“Those who want to start investing in a plan should act quickly”…
(I assume by “act quickly” she means put money into these things)
…and then “if something were to happen to the prepaid plan, states are not going to be in a position to put resources into helping them”
Anyone else seeing the incongruity here?
This happened in Texas just a few years ago. Needless to say, there were some mighty, uh, “upset” people who had to SUE the state to get their money back.
This idea is right in line with a point that I have made numerous times on the HBB, which is that still-unaffordable U.S. housing prices represent a vast, untapped well of financial “potential energy” which represent more productive uses of capital. Why not kill two birds with one stone, through eliminating a real estate subsidy in a manner which kick starts American small business?
Of course, the fact that the mortgage interest deduction is highly regressive and primarily benefits the wealthy reduces the chances that the bankster-friendly Obamanites will eliminate it.
Kill the mortgage deduction and give it to entrepreneurs
Feb 11, 2011 11:06 EST
Prospective home buyer Jessica Doctoroff (C) visits a condominium for sale with her real estate agent Brenda Bremis in Medford, Massachusetts April 2, 2009. REUTERS/Brian Snyder Somehow I don’t think President Obama had the home-mortgage interest deduction in mind when he mentioned the U.S. tax code before the U.S. Chamber of Commerce this week.
Yet winding down and eliminating this write-off for homes would be good for business. It’s unfair, doing nothing to revive the housing market and can be put to better use shifting it to entrepreneurs to create jobs.
Most of the job creation in the U.S. economy comes from small businesses, which typically have no public shareholders to sate and are not primarily interested in fattening pay packages of overpaid executives.
The home mortgage deduction needs to go because it doesn’t make housing less expensive, either. If anything, it makes homes more expensive because the subsidy inflates prices. Most homebuyers don’t even itemize to take advantage of it. Nixing it would make homes more affordable.
As Alan Mallach, senior fellow at the Center for Community Progress, wrote in this space: “It is one of the most regressive parts of the tax code, since it affects all house prices, including the price of houses bought by lower-income home buyers, who rarely itemize and get little benefit from the deduction.”
Mallach cites one study found that “barely 10 percent of homeowners earning less than $30,000 take the deduction, but they pay higher prices for their homes to benefit more well-off homeowners. On top if this, it is projected to add $120 billion to the federal deficit next year.”
Will getting rid of the write-off deep-six the already flagging U.S. home market? Mallach noted that Italy pared its residential housing deduction in 1992 and maintains a higher home ownership rate than the U.S.
Why give a break to entrepreneurs? Won’t they squander it? True, many businesses won’t make it out of start-up mode, but those that become profitable become employment engines. Small and medium-sized enterprises account for 60 to 70 percent of most jobs in industrialized countries. Why not give those that are struggling to survive a tax break if they can create more employment?
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Best way to encourage entrepreneurs? I say give them health insurance.
Health insurance costs caused us to delay hiring anyone when I was starting my business 8 years ago. It’s even worse now.
Back in Sept, the Repub successfully defeated a bill put forth by the Dems to end tax breaks for offshoring jobs.
Not only were the tax breaks to end, but those tax breaks were then to be given to LOCAL BUSINESSES for hiring.
So “we the people” decided to give the Repubs more power.
People is be smart.
Somebody also decided to give the clown brigade at the Fed more power in the wake of the Fall 2008 financial collapse which they claimed “nobody could have seen coming.”
Yes we is smart, isn’t we?
Just got back from a coin show. Much less “junk silver” than usual. The term “junk silver” refers to circulated 1964 and earlier US coinage that has no collector’s premium. They are usually sold at or slightly below melt value. Today they traded just slightly above melt value. Supply was extremely limited as compared to prior month. It might just be an outlier, not sure. Will see next at next month’s show.
I call bullshit on this guy’s point. The use of home equity gains to finance small business expansions was a housing bubble anomaly which should NOT be institutionalized.
* FEBRUARY 14, 2011
Credit Squeeze: Blame The Housing Slump
By SCOTT SHANE
Why is financing so tight for small businesses?
Journal Report
We’ve all heard the explanations. Regulators and banks have higher standards these days, while companies aren’t as creditworthy as they used to be.
Those factors play a big part. But an analysis I conducted with a colleague at the Federal Reserve Bank of Cleveland found another elephant in the room: the housing slump.
It’s no secret that some entrepreneurs use home equity to finance their companies, but during the housing boom they leaned on it harder than ever. That set them up for a credit crunch when the market collapsed—since home-equity lending shrinks when home prices decline.
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“…some entrepreneurs use home equity to finance their companies…”
This is what Schwarzenegger did to launch the movie, “Pumping Iron.”
No wonder Ahnold is so fond of the REIC.
There has never been a better time to not have your net worth tied up in highly-leveraged home equity investments!
Home Equity Declines More than 60% During Great Recession says Fed Report
February 13th, 2011 | by admin Published in News, Reverse Mortgage
A new report from the Federal Reserve Bank of New York shows that the rise and fall of home prices between 2007 and 2009, had a dramatic impact on home owners equity.
“Perhaps the most defining aspect of the 2007 recession, and by many considered to be the origin of the financial crisis, has been the decline in the housing market,” said the report. After reaching peak levels in April 2007, US home prices as measured by the FHFA price index had fallen 13% nationwide by the end of 2009.
The amount of decrease varied across the country with some areas getting hit harder than others. For example, average prices dropped by 39% and 38% from their peaks in California and Florida, while average home prices fell by 4% in Colorado and increased by 1% in Texas.
When home prices increased, the total equity of homeowners rose, but it do so at a much lower rate with homeowner’s equity share in their homes actually staying relatively constant until the end of 2006. ”On average for each 1% increase in home prices, homeowners increased their mortgage debt by 1% (through higher balances on first mortgages, cash-out refinances, second mortgages and home equity lines of credit), so that proportionally their equity share in their homes actually remained constant,” said the report.
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Comment by Professor Bear, “What makes you so sure that defaulting would make dollars worth less than they are currently? Isn’t it possible that by reducing the outstanding value of debt owed, the value of the dollar would actually see an increase?”
Isn’t Argentina a good historical example of that not happening?
Is there an historical example of a nation experiencing an increase in the purchasing power of its currency as a result of default?
PB is a theoretician but I see that you are a realist.
Future expectations mean everything. If in default, expect inflation to soar in dollars.
But FPSS, you recently said that defaults on long debt is deflationary.
Freshwater (aka Chicago school) theorists make saltwater theorists look like engineers by comparison.
Inflation is happening no matter what.
I lived through the 1970s stagflation. It was not pretty.
http://www.trulia.com/homes/California/Oceanside/sold/6556622-1305-Cornish-Dr-Oceanside-CA-92054
here’s another foreclosure in my south oceanside neighborhood.
325K
Oceanside has corrected in a way that RB hasn’t.
Is it me, or are they trotting out big names to get people to buy housing? I was surprised to see bottom calling in this publication, with no mention of increasing foreclosures, and I noticed out of 17 comments, not one agreed with the main thrust of the article:
Housing Is a Buy
“John Paulson, the billionaire hedge fund manager who switched from betting against housing to now telling people they should buy a house…
Bill Ackman,… saw the housing bubble before it popped… netting Ackman more than $1 billion… But now, like Paulson, Ackman is bullish on US housing.”
http://dailyreckoning.com/housing-is-a-buy/#ixzz1DtRddlZn
It is so good to see the usual posters being well usual. Nice. I can only take so much change.
FPSS how the heck was your trip?
Hey, how are you? Doing well I hope.
It’s no longer different there in Seattle. Makes one naturally wonder whether they are decoupled from Vancouver, BC, just across the border? The fact that WaMu was headquartered in Seattle suggests it should not be all that surprising that their housing crash turned out “worse than expected.”
Housing Crash Is Hitting Cities Thought to Be Stable
By DAVID STREITFELD
Published: February 13, 2011
SEATTLE — Few believed the housing market here would ever collapse. Now they wonder if it will ever stop slumping.
The rolling real estate crash that ravaged Florida and the Southwest is delivering a new wave of distress to communities once thought to be immune — economically diversified cities where the boom was relatively restrained.
In the last year, home prices in Seattle had a bigger price decline than in Las Vegas. Minneapolis dropped more than Miami, and Atlanta fared worse than Phoenix.
The bubble markets, where builders, buyers and banks ran wild, began falling first, economists say, so they are close to the end of the cycle and in some cases on their way back up. Nearly everyone else still has another season of pain.
“When I go out and talk to people around town, they say, ‘Wow, I thought we were going to have a 12 percent correction and call it a day,’ ” said Stan Humphries, chief economist for the housing site Zillow, which is based in Seattle. “But this thing just keeps on going.”
Seattle is down about 31 percent from its mid-2007 peak and, according to Zillow’s calculations, still has as much as 10 percent to fall. Mr. Humphries estimates the rest of the country will drop a further 5 and 7 percent as last year’s tax credits for home buyers continue to wear off.
“We went into 2010 feeling gangbusters, thanks to Uncle Sam,” Mr. Humphries said. “We ended it feeling penniless, with home values tanking.”
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I share the WSJ editors’ amazement at the amount of sanity expressed within the Obama housing proposal, in plain English even. It is truly a stroke of political brilliance, as I don’t see how the Republicans can possibly attach Obama for proposing what looks a great deal like what the Republicans might themselves have proposed if they were in the driver’s seat.
* REVIEW & OUTLOOK
* FEBRUARY 14, 2011
The End of Fannie Mae
Treasury wants the company phased out but punts on how to do it.
It’s enough to make you believe in miracles: The Obama Administration is now on record as saying that Fannie Mae and Freddie Mac should go out of business. It took a global financial panic and $140 billion in taxpayer losses, but on Friday there it was in black-and-white in the U.S. Treasury’s report to Congress on reforming the mortgage market: The Administration will “ultimately . . . wind down both institutions.”
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Under the Administration’s proposals, Fan and Fred wind down over five to seven years. The two mortgage giants would, in effect, gradually price themselves out of the mortgage finance market by raising guarantee prices and down payment requirements, while lowering the size of the mortgages they could securitize and guarantee. This sounds like a plausible set of first steps to lure private capital back into the mortgage market, where some 92% of all new mortgages are currently underwritten or guaranteed by the government.
The $5 trillion question… is what would replace Fan and Fred. And here the Obama Administration has punted, offering the “pros and cons” of three broad proposals without endorsing any one of them.
Door No. 1 is the best of the lot by our lights. Under this option, federal guarantees would be limited to Federal Housing Administration (FHA) loans for lower-income buyers and VA assistance for veterans and farm programs—each a narrowly targeted market segment. A Treasury official says this would reduce the taxpayer backstop over time to about 10% to 15% of the mortgage market.
The Administration puts the case for federal withdrawal from the broader housing market in compelling terms: “The strength of this option is that it would minimize distortions in capital allocation across sectors, reduce moral hazard in mortgage lending and drastically reduce direct taxpayer exposure to private lenders’ losses.” Bravo.
Treasury points to other benefits: “With less incentive to invest in housing, more capital will flow into other areas of the economy, potentially leading to more long-run economic growth and reducing the inflationary pressure on housing assets. Risk throughout the system may also be reduced, as private actors will not be as inclined to take on excessive risk without the assurance of a government guarantee behind them. And finally, direct taxpayer risk exposure to private losses in the mortgage market would be limited to the loans guaranteed by FHA and other narrowly targeted government loan programs: no longer would taxpayers be at direct risk for guarantees covering most of the nation’s mortgages.”
Those two paragraphs more or less sum up 20 years of Journal editorials on housing.
So what’s not to like? The Administration says this option could reduce access to credit for some home buyers, and that it would leave the government without the tools to intervene in a future crisis. As for the credit point, other countries have high rates of home ownership with far less government support. If the government stands aside, it would open the way for alternative forms of finance, such as covered bonds, that now can’t compete in the U.S. because of government favoritism for the 30-year mortgage model. This would open options for borrowers by increasing the diversity of financing.
As for a future crisis, government intervention is less likely to be needed if the market isn’t distorted by government subsidies in the first place.
Behind Door No. 2 is a rump Fan or Fred, one that would stay small in “normal” times but stand ready to step in with Uncle Sam’s firepower in a future housing-finance crisis. But as the Administration acknowledges, it would be difficult both to stay small and retain the capacity to go large when needed. We’d add that the political pressure to expand any federal mortgage-lending program would be too great for lawmakers to resist. Within a generation, the winding down of Fan and Fred would be unwound.
But the greatest danger lies behind Door No. 3, which looks like Fannie in a new suit. Under this last option, the Administration envisages a group of tightly regulated, well-capitalized private mortgage insurers whose policies would be backstopped by government reinsurance. The government would charge premiums for this insurance, “which would be used to cover future claims and recoup losses to protect taxpayers.” This reintroduces the lethal mix of private profit and public risk by other means.
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Our view is that there should be no federal housing guarantee. If Congress wants to subsidize housing for the poor, it ought to do so explicitly through annual appropriations. One lesson—perhaps the most important—of the financial crisis is that broad policy favors for housing hurt every American by misallocating capital and credit. The feds created incentives to pour money into McMansions we didn’t need while robbing scarce capital from manufacturing, biotech and other uses that might have created better jobs and led to a more balanced and faster growing economy.
We realize this is political heresy, but it is the beginning of wisdom in getting government out of the mortgage market. We’re glad to see the Administration concede this rhetorically, even if it lacks the courage to embrace its logical policy conclusions.
“…that might have created better jobs and led to a more balanced and faster growing economy.”
Given that the economy practically died of a heart attack in Fall 2008, this has to be the understatement of the century thus far.
This article brings to mind Ben’s advice to those who have stopped paying their mortgages but are still living in their soon-to-be bank-owned homes: Time to get some boxes and move on.
Still holding Fannie, Freddie stock? Sell and move on
Ask Matt
By Matt Krantz
Posted 5h 43m ago
Q: I chose to ignore your warning and bought shares of Fannie Mae and Freddie Mac, and am now losing quite a bit of money. What do you think now?
A: Sorry to hear you didn’t heed my advice to avoid both Fannie Mae and Freddie Mac stock.
I’ve been very clear in explaining how both these stocks are not good places for investors to be. My advice is the same now.
Since these stocks, for whatever reason, were popular with investors, I repeatedly wrote strong warnings to avoid both of them. Consider some of my stories about these stocks, which couldn’t be any more clear of why they are a bad idea.
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This is truly remarkable: The Obama administration is taking steps to end decades of anti-renter discrimination in federal housing policy. I am beside myself with amazement. Renting truly is the new black!
WSJ Blogs
Developments
Real estate news and analysis from The Wall Street Journal
* February 11, 2011, 6:08 PM ET
Rental Market Gets Respect in Fannie, Freddie Reform
By Dawn Wotapka
Big news out of Washington today: The Obama administration released a long-awaited “white paper” about winding down mortgage giants Fannie Mae and Freddie Mac. While it isn’t filled with concrete specifics about the future of housing, one thing is clear: Renters are about to get some long-due respect.
The long-awaited report shows the government realizes that, in the wake of the housing crash, more Americans are eschewing ownership in favor of renting, dragging down the home ownership rate. The nation’s renter households now top a record 37 million, and another 4.4 million households could be added by 2015.
For apartment owners, this represents a big win. The government has long thought that home ownership is the way to stabilize communities. Need proof? Home owners get generous tax benefits. Renters? No deduction.
“They finally understand that renters are not second-class citizens and there’s a place for rental housing in America,” says Richard Campo, chief executive of Camden Property Trust, which owns about 68,000 rental units.
Now, the government isn’t saying going by-the-month is better than owning. It just wants people to be able to pick what works for them. “Americans should have choices in housing that make sense for them and for their families. This means rental options near good schools and good jobs,” the report states. “As we wind down Fannie Mae and Freddie Mac, it will be critical to find ways to maintain funding to this segment of the market.”
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You can tell the Obama housing proposal must be somewhat sensible, as left-wing extremists are already attacking it.
Housing loans made sensible
Saturday, February 12, 2011; 6:34 PM
ANYONE WHO still thinks that President Obama is a “socialist” hasn’t read the 31-page white paper on housing finance his administration released Friday.
The document’s market-based approach emerges on the very first page: The government’s “primary role should be limited to robust oversight and consumer protection, targeted assistance for low- and moderate-income homeowners and renters, and carefully designed support for market stability and crisis response.” It says that a gradual shutdown of Fannie Mae and Freddie Mac, the failed government-sponsored mortgage securitization entities, will begin this fall, with a reduction in the size of loans they are permitted to guarantee. Within a matter of years, they will disappear altogether. Given past Democratic support for Fannie and Freddie, the fact that a Democratic administration emphatically supports their gradual elimination and a smaller government role for the future shows that Mr. Obama’s team has considered the issues pragmatically and objectively and - crucially - resisted pressure from housing lobbies that want to preserve a much larger role for government.
In our view, the best replacement for Fannie Mae and Freddie Mac would be a private system for mortgage securitization. There is no principled reason why government should insulate housing, alone among all market sectors, from the business cycle. Privatization would entail some risk to household wealth, it’s true. Yet homeownership rates are still high in some countries that do not have government-sponsored mortgage securitization. And if government doesn’t steer capital into housing, the capital doesn’t disappear; it could fund other job-creating businesses. The administration, to be sure, does not adopt our position. But it does describe it as one of three viable options, the others of which would have government support a more or less limited amount of mortgage liquidity by selling reinsurance for mortgage-backed securities issued by the private sector.
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Chinese Analyst: Sell Fannie & Freddie
Published: Thursday, 10 Feb 2011 | 11:03 AM ET
By: Ash Bennington
NetNet Writer, Special to CNBC.com
The Chinese currently hold about half a trillion dollars in US agency debt.
Perhaps more than half a trillion—no one knows for sure, because current U.S. Treasury statistics do not include purchases the Chinese make from offshore affiliates.
Today, a senior economist at China’s Industrial Bank named Lu Zhengwei issued a report critical of Fannie Mae and Freddie Mac—and suggested that “China sell the securities soon,” according to a report in the Wall Street Journal.
Two points worth remarking:
First, the timing: The Chinese report comes ahead of a report expected from U.S. Treasury on ways to reform Fannie Mae and Freddie Mac. What significance may be attributed to that fact remains unclear.
Second—and perhaps more ominous—this quote: “However, looking at the current political situation in the U.S., for the U.S. Congress to give a clear guarantee on this issue is almost impossible,” Lu said.
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“However, looking at the current political situation in the U.S., for the U.S. Congress to give a clear guarantee on this issue is almost impossible,”
Yet another reason to celebrate the potential for bipartisan policy gridlock!