Fear Rules

Some months ago I was reading a report by an organization that tracks first mortgages, not first time mortgages, but mortgages on our primary residence. At the time there were roughly 51 Million first mortgages outstanding, of which about 3.4 Million were at risk or in foreclosure. That is less than 10%. I thought then, that if these mortgages were folded into the investment instruments that are considered toxic, then the exposure to the investor is really minimal, unless most of the bad mortgages ended up in one investment security which would be unlikely. The rule that forced investment firms to write down their investments should they be considered excessively risky was not a good rule, and I believe the government has rescinded that rule. Regardless, the investments supporting the underlying debt load were too bad.

What became bad was when financial institutions were forced to write down these securities as the housing bubble burst. The balance sheets of our largest financial institutions, not only in this country, but around the world became suspect and then began the run. So what about now?

Yes, foreclosures have gone up dramatically. There are several reasons, one is that mortgages were approved for people who were poor credit risks. Another reason is that as the home values plummeted in some areas people became upside down on their mortgages and could not get refinanced because they were now a credit risk, the underlying collateral didn't support the loan value, and banks were unwilling to take a hit on the value of the mortgage so no refinancing was available to those who needed it. There were those unscrupulous firms and/or persons who rushed loans through, committed fraud and deception, or out right lied to persons wanting to buy a home and got high risk mortgages approved. We still fall for the lure of "easy" money.

I have long maintained that our economy is in trouble because of perception. A lot of the jobs that have disappeared should've, real estate brokers, mortgage originators, financial analysts and securities brokers. I think a whole bunch of other spongers should be gotten rid of and the idea of actually working and creating objects of value be reinstated.

There are signs the economy is turning. I do hope the overvalued homes have shaken out, although I have a feeling home prices have not fallen enough yet. However, home sales have started to perk up. Yes, many of the homes being bought are foreclosures being snapped up for investment or by those who can afford the distressed prices. To build the strength of our economy on the practice of building newer and more expensive homes to replace smaller and very adequate homes simply to service a life style is not sound economy. It has to stop someplace, and perhaps it did. It was not the majority of the population that put our economy in the toilet, it was the minority and they should be accountable, instead we all pay.

Bunch of bullshit if you ask me.

What is going on?

Yesterday driving back from work I met a small caravan of three pickup trucks hauling three new grain augers to some destination. At the corner of Highway C & N and U.S. 412 a farmer has his equipment sheds. Many times there are vehicles or equipment for sale on his property and they seem to move pretty well. Yesterday he had a fairly new John Deere cotton picker for sale and a Module Maker beside it. I wondered if he was getting out of the business or had he upgraded to a new piece of equipment I started to see in this area last year which is a combination cotton picker module maker made by both Deere and Case. Sure enough, there back in one of the equipment sheds sat a great big new John Deere picker with the module maker extension on the back end. So he upgraded.

A friend who is a John Deere dealer here in Paragould had let his inventory of equipment drop to very low levels last fall. When I talked to him about that he said he was very uncomfortable to see his inventory that low, but he had to do it from and economic standpoint. This spring driving past his dealership I see his lot is chuck full of new combines, pickers and sprayers. Big stuff, high ticket items. Now that could be because Deere is making incentives available to dealers that allow them to obtain large amounts of inventory, but Deere has been in this game for many years and knows the danger in artificially generating sales. Case damn near went bust of that issue back in the 70's.

Bo Adams, a very rich man who owns 48,000 acres of prime delta land is propping up his farm renters by forgoing rent charges. He will take a piece of the action at harvest time, but he will weather the storm.

My cousin Maureen who is a loan originator in California is back at work full time instead of one day a week a month ago. The low mortgage rates are stimulating all kinds of refinancing activity. Used home sales were up over 5% last month when experts predicted a fall. Even though much of the activity was in foreclosed homes I take that as a price adjustment to an over inflate housing values in the market as opposed to any other sign. The Real Estate boards aren't going to admit to an inflated market. They are a bunch of parasites as responsible for driving the price of homes up by 6% for every transaction along with the forces of greed that operated in house flipping strategies. In many large markets in this country everyone was forced into paying inflated prices for homes because of these forces.

So what does all this say to me. I think the economy has made its adjustment. There may be some more downward swings, and perhaps our little sample of what's going on is not correct. I just don't get the feel we are living in as desperate times as some pundits make out to be.

Thoughts on the economy

Like many I am somewhat worried about the economy. I've seen my retirement fund shrink by almost half and am only two years away from 66. I probably won't retire when I hit 66 as I really enjoy the job I have, and I doubt if the market will recover that fast. There are many younger than I who are worried about the turn of events in our politics. I tend to be fiscally conservative but socially progressive. Frankly, the Republicans have screwed up their chance. I find the imposition of morality being fought for by the Religious Right to be divisive and out of context with our Constitution. Jesus once said, render unto Caesar that which is Caesar's and render unto God that which is God's. I take that to mean God will take care of the moral issues, we need to attend to the secular issues. I am citing ideas that I may or may not necessarily agree with, but it religious teachings also say man has free will. Isn't the imposition of moral values by making them laws of the land an infringement on my free will. I realize that society has to set up some rules to govern our behavior, however it should not infringe upon my personal values to the extent that a decision that effects my person requires government approval. I may face a horrible illness, I should be able to choose my means of dealing with that. A woman or couple may face a personal dilemma that in the short term may lead to a decision one or both may regret later, such as abortion, but they will have to deal with that when the time comes.

I find Republican criticism of Obama to be correct. John McCain made a statement that essentially said, he will not rubber stamp Obama's plans. That is correct. Debate furthers the quality of the decision. However, there comes a point when debate serves no more purpose and any further fighting is just delaying the decision. I hope the Republicans can exert some wisdom in being the party of opposition.

It seems to me that this so called stimulus package will result in a one time tax rebate similar to last year. Many democrats are arguing that the tax rebate did not impact the economy because it was used to offset debt or saved. No shit! I saved mine. It will be spent this year on new flooring for our bedroom, when I get ready to lay the floor. In the meantime I would spent the tax rebate if it showed up in my paycheck twice a month. The $1200 I got last years would've been a $50 per pay period increase in my wages. I would've spent that. The idea of the stimulus is to spend money, yet the democrats seem to object to a tax cut that impacts the paycheck because tax rates would have to be lowered. The "tax and spend" party would not want to be associated with a tax cut, heavens. Yet we'll spend on projects that may hit the ground in a couple of years, in the meantime lets just bitch about it. By then the natural forces of recovery will begin to act and the public works may not be needed.

I wish both parties would show some "Statesmanship" instead of the petty political bickering that has already started. Nancy Pelosi is a lightening rod and would do a lot more good taking the upper road, but I do not think she is inclined to do that. The "Commonweal" is not her bag, get back at, is. Shame on her.

Obama's Economic Recovery Plan

Senator Obama has five new ideas in and article on CNN Money this morning. Some aren't too bad. Here is my opinion:

Relax rules on emergency withdrawals from retirement funds.

A plant in our area pays its workers extremely well. The average production worker can make over $70,000 annually and with overtime it is not unusual for workers to make in excess of $100,000 a year. Yet, every three months their pay system has one week where the hours of work on the pay check are 36 instead of 48. When that happens there is a rush to the personnel department to borrow against their 401(k). My point is I'm not sure if people would use the money to stave off the wolf from the door or it would be just a means of sustaining a life style they shouldn't be at anyway. It probably won't be repaid, plus the tax liability will be foregone and Uncle Sam will be down in tax receipts. I do not think this is a good idea unless they could come up with a method of proving need, for example to be applied against a mortgage payment, or in an unemployed situation.

Give Seniors a break in a bad market.

While this won't effect me, I agree with this position. Why penalize a person's IRA with a withdrawal made when the market was high. This economic difficulty should not penalize those who saved and developed enough savings or investments on their own that they wish to protect. The article goes on to say that in this instance, Obama agrees with McCain's idea. Hmm!

Have the federal government finance state and local governments.

I don't know about this one. Some of those governments are in areas that went through an inflated economic real estate boom that has turned out to be more speculative that real. Yesterday I hear the mayor of San Diego say that his city has simply lived beyond its means. Departments that may not be needed have been created, services that are nice to have may have been created, perhaps there should be some real retrenching before we finance overspending at the local and state level.

Encourage job creation

On the surface it sounds good. However, it is the usual liberal ploy that won't work. They would give a $3-5000 tax credit to companies for every full-time job they create. It doesn't work that way. What you are really telling businesses to do is create jobs when they are not needed. Business operates in a competitive, fairly free market condition. They are not going to add jobs simply for the sake of a tax credit. The tax credit does not even come close to offsetting the cost of a new job creation. This is a stupid idea. Better to resurrect the public works programs FDR created back in the 30's to get income into the hands of people. At least you would get some work done, and the program could be phased out as the economy recovers.

Extend unemployment benefits for 13 weeks beyond the 24 week period.

As much as I do not like something for nothing, this may have to be done. However, I like the idea of redistributing the money through public works. There are a lot of roads and trash that need picking up. There are public areas that need to be refurbished. How about the idea of getting something instead of just giving money away so a guy can go fishing every day.

In general I don't think Obama's plan will be implemented in time to do much good. I question what good it will do. There are a couple of items that I think will have to be implemented, however one of them appears to be an idea put forth by John McCain. So where is the change, the new ideas in this proposal. Many of these ideas are old hack ideas that have surface and been implemented in past years. Nothing new here.