Same as it Ever Was

One thing that has angered me so much about the housing bubble was how something as basic and necessary as a home was now treated like an investment and a cash machine. This change in attitude towards such a basic need was, of course, all just one small part of an unfortunate transition towards a society where jobs are transitory, where people likely face having more than one "career", lost pension plans, layoffs, outsourcing, bankrupt social security and Medicare, and all the rest. In response we became a nation of self-proclaimed investors and traders. We allowed ourselves to be convinced that 401Ks, IRAs, ROTHs, stocks, bonds, REITs, etc. and, oh of course, houses were viable proxies for retirement savings. There was (almost) no risk because we were so willing to believe what we wanted to believe: it was "different this time", it was a "new era", stock market valuations no longer mattered, debt no longer mattered, the development of "wealth creation technology", "almost all if not all of those gains are here to stay", "Fifteen percent is pretty much in the bag", "buy now or be priced out [of the housing market] forever", etc, etc, etc. And it had the added benefit (some might say delusion) that we could "live it up" and spend 100% of our earnings since our houses and Wall Street were saving for us.

I have absolutely no problem with people who choose to invest or trade. But I think there are some things that are just too important to people, our communities, and society to risk being treated as an investment (and therefore prone to becoming a bubble or speculative mania) and housing is definately one of them.

You see, the problem with investing is that sometimes you lose. It has to be so; there are always two sides of a trade; someone wins and someone loses. We seem to have forgotten that inconvenient fact or, rather, we no longer take personal responsibility for that fact -- we are entitled to a profit don'tchyaknow. We seem to have allowed ourselves to believe all the hype and garbage that bankers, realtors, Wall Streeters, Fedsters, and everyone else with a vested interest, would like us to believe... that we can all be winners if only we bring "a bucket of money and a box of stupid" to the bargaining table. And what's worse is that The System has become so dependent on debt and investment dollars, the transition from a nation that produces to one that consumes has been so complete, that losses can no longer be tolerated and certain businesses are believed to be "too big to fail". Hence, massive bailouts of the very people and institutions that got us in to the current economic mess and a recession that has been called the "worst since [the] Great Depression".

Which (finally) leads me to my point (if I even have one): you would think that now, finally, we would understand the folly of our ways and, you know, try and fix things at least as far as housing is concerned. But you would be wrong. You see, the debt-based consumption economy in combination with the "too big to fail"/bailout mentality means that reckless risk-taking is officially encouraged by even the highest echelon of government. We are content to just pretend that everything is now fixed, everything is ok, and while no one is looking, conduct business as usual but just disguise it a bit and pretend it is a fix because, after all, if it blows up we can just bailout the system with taxpayer dollars and burden future generations with more of our debt... they won't mind:

Much to their dismay, Americans learned last year that they “owned” Fannie Mae and Freddie Mac. Well, meet their cousin, Ginnie Mae or the Government National Mortgage Association, which will soon join them as a trillion-dollar packager of subprime mortgages. American taxpayers own Ginnie too...

Herein lies the problem. The FHA’s standard insurance program today is notoriously lax. It backs low downpayment loans, to buyers who often have below-average to poor credit ratings, and with almost no oversight to protect against fraud. Sound familiar? This is called subprime lending—the same financial roulette that busted Fannie, Freddie and large mortgage houses like Countrywide Financial...

On June 18, HUD’s Inspector General issued a scathing report on the FHA’s lax insurance practices... The FHA’s reserve fund was found to have fallen in half, to 3% from 6.4% in 2007—meaning it now has a 33 to 1 leverage ratio, which is into Bear Stearns territory. The IG says the FHA may need a “Congressional appropriation intervention to make up the shortfall.”

...at the FHA, the [mortgage] down payment requirement remains a mere 3.5%. Other policies—such as allowing the buyer to finance closing costs and use the homebuyer tax credit to cover costs—can drive the down payment to below 2%.

Then there is the booming refinancing program that Congress has approved to move into the FHA hundreds of thousands of borrowers who can’t pay their mortgage, including many with subprime and other exotic loans...This program is intended to reduce foreclosures, but someone has to pick up the multibillion-dollar cost of the 30% loan forgiveness. That will be taxpayers.

In some cases, these owners are so overdue in their payments, and housing prices have fallen so dramatically, that the borrowers have a negative 25% equity in the home and they are still eligible for an FHA refi.

A few weeks ago a House committee approved legislation to keep the FHA’s loan limit in high-income states like California at $729,750. We wonder how many first-time home buyers purchase a $725,000 home. The Members must have missed the IG’s warning that higher loan limits may mean “much greater losses by FHA” and will make fraudsters “much more attracted to the product.”

...Is anyone on Capitol Hill or the White House paying attention? Evidently not, because on both sides of Pennsylvania Avenue policy makers are busy giving the FHA even more business while easing its already loosy-goosy underwriting standards.

Source.

When does We the People get fed up? Or are we just a nation of hypocrites who will tolerate any wrong as long as we think we can profit by it?

Take a Look in the Mirror

As I am just catching up on reading the news from the last few weeks (I was traveling abroad), I saw this quote over on the Ben Jones blog:

If society just followed the advice of its grandparents, there wouldn't be an ongoing crisis with foreclosures that helped trigger the nation’s economic woes, according to the author of a new book. Shari Olefson, a Tampa, Fla., attorney…says simply blaming Wall Street, government regulations or predatory lenders — all who share culpability — is just shifting responsibility away from those who bought the homes.

I don't know how many times I got creamed by readers when I expressed that very same opinion on this blog.

If you want to know who is most to blame for this housing (and the ensuing economic) mess, just look in the mirror. You know who you are. You ignored that little cautionary voice in the back of your head, didn't stop to think for yourself, you let your friends/relatives/neighbors do the thinking for you when you said to yourself "everyone else is doing it, so..." and agreed to pay that stupid/ridiculous price for your house. Blame the enablers all you want, but at the end of the day the final responsibility rests on the shoulders of those who decided to "pull the trigger".

Fiscal Crisis Brings Prop 13 Up For Discussion (Again)

Well, this is certainly blogworthy and so I am forced to break this hiatus.

It seems that the fiscal crisis in California -- Californians' long overdue day of reckoning -- is fueling discussion regarding the viability of Proposition 13.

It's about time! But don't get too excited. Talk like this has happened before following other crises, but there was always some new boom just around the corner to derail any serious reconsideration of Prop 13; the last one being the .com bubble. I can only hope that there won't be another boom anytime soon to distract determined discussion of at least seriously modifying Prop 13. But it'll never happen, of course; Californians form opinion using their pocketbooks and not their brains.

The Quiet Coup

Please check out this article in The Atlantic by a former chief economist at the IMF.

Fellow Americans, you have been duped long enough. Considering to whom the government is giving your hard-earned money, how do you feel about having just paid your taxes? When do you finally say "enough is enough"? When you no longer have anything left to lose? By then it will be too late.

Summary:

The crash has laid bare many unpleasant truths about the United States. One of the most alarming, says a former chief economist of the International Monetary Fund, is that the finance industry has effectively captured our government—a state of affairs that more typically describes emerging markets, and is at the center of many emerging-market crises. If the IMF’s staff could speak freely about the U.S., it would tell us what it tells all countries in this situation: recovery will fail unless we break the financial oligarchy that is blocking essential reform. And if we are to prevent a true depression, we’re running out of time.

Open Thread

We desperately need a new thread. Discuss what you want.

South Park: How the Financial System Really Works

Dollar Devalued Yet Again

Check out this post. Here's a summary (emphasis mine):

On Wednesday, right around the time the US markets were winding down, the Dollar was deliberately devalued. Everyone in the world watched it happen, except for Americans, who were outraged or offended by some manufactured distraction, as usual. The Federal Open Market Committee {FOMC] published an historic press release. Here's an excerpt:

"Job losses, declining equity and housing wealth, and tight credit conditions have weighed on consumer sentiment and spending. Weaker sales prospects and difficulties in obtaining credit have led businesses to cut back on inventories and fixed investment. U.S. exports have slumped as a number of major trading partners have also fallen into recession...."

So what does that mean?...

It means the Federal Reserve is now printing its own money. It's a defacto devaluation of the U.S. Dollar, with a promise of more to come. The Federal Reserve is going to buy everything in America that's not nailed down, throwing another $1,150,000,000,000 lifeline at markets...

President Obama may have no other choice than to take this route as foreign investors grow wary about the capability of the USA to service its debts. We will see less participation in Treasury auctions, since sovereign wealth funds will likely decide that domestic investment is probably a better idea that depreciating Treasuries. For the time being gold investments will look like a safer place to hold wealth, along with oil, silver, and certain other commodities.

Maybe Ben Bernanke will be able to do what no central banker has ever done before: put in just the right amount of inflation... not too much, not too little.

[How successful will Bernanke be at 'quantitative easing'?] In the past, they tended to overdo it.

There are not many examples. France, England and America in the 18th century. Practically no examples we know of in the 19th century (they'd learned their lesson!). And in the 20th century - only marginal countries... or countries with nothing left to lose... engaged in 'quantitative easing.' Germany did it in the 1920s, because her war reparations burden was greater than she could sustain. Argentina did it in the 1980s, because it owed too much money to too many foreigners. And Zimbabwe did it in 2003-2009, for reasons of its own.

There are not many examples because the consequences of over-doing it are so horrible, central bankers have generally not done it at all. Quantitative easing was always a possibility... but it was always a last resort... like blowing up the powder and spiking the guns; it was something you did when you knew you'd lost the battle already.

While all this was happening, the American people were off gnashing their teeth over the relatively miniscule AIG bonuses. And then Obama went on Jay Leno, which had to be discussed, and then he spoke to Iran, which was a big deal. And then there's Limbaugh and Beck to bash. Plus, the Special Olympics. And so it went.

Want more? How about this post over at Seeking Alpha which probably should have been titled "The United States of America is Now a Banana Republic".

Anyway, I think it's pretty clear that the U.S. government doesn't need our money. I mean, if the Fed can manufacture money, any amount, at will, out of "thin air", whenever it feels like it, then the Federal government doesn't need nor deserve our hard-earned tax dollars. We might as well keep it for ourselves (to buy gold, as kindling for a fire, you know, for stuff of real value).