Friday, January 30, 2009

Mortgage Market

What is the target for the mortgage market? The constant blather is that the market needs to open up. But the paper and TV ads are still hawking mortgages and the no longer daily mail still contains offers. The difference is that borrowers apparently have to be qualified to obtain a loan. Banks are providing mortgages but are forcing people to make downpayments, prove their income and other similar restrictions. Our legislators apparently do not consider this open enough and want the return to requiring borrowers to be able to fog a mirror. More trouble awaits.

Bailout?

It would be instructive if the reporting would properly define the money Washington is giving away.
The mortgages made according to Freddie Mac and Fannie Mae rules and purchased by them are guaranteed by the US Treasury. The federal government had an obligation to make the banks whole for any of those mortgages. This is not a bailout. It is paying a contracted debt - ill conceived though it may have been. Of course, they could have repurchased all of those mortgages for less than half of the additional “bailout” money. The difference went to pet projects of our bipartisan scoundrels in Congress.
Money given to the auto industry is a true bailout. Giving non-competitive companies large amounts of money, with no reason to suspect that money will resolve their operating problems, is a truly absurd. What will make the Big Three any more viable when that money runs out? The problem is their non-competitive labor contract. No amount of money will make then viable when their labor costs to build the same car – if they could build the same quality car – are over $4000 per car higher.

Reporting

What has happened to the idea of investigative reporting? We are in the midst of the greatest economic story in 80 years and the best analysis of what happened that the media can come up with is that it is the result of greed and lack of regulation. As attempts are made to recover from this debacle is would be instructive to know the answers to the traditional Who, What, When, Where, Why, and How questions. This can only help to identify what went wrong, who to listen to (and who not to listen to) and what to do next.
To help the next budding Pulitzer prize winner:
Who at Fannie Mae and Freddie Mac change the time tested lending guidelines (20% down payment, etc.) necessary to obtain a mortgage back by these agencies? This Agency guarantee placed the full faith and credit of the US treasury behind the loan.
Who in Congress or the Executive Branch appointed these people?
Where are the people now? How are they involved in any potential "solution"?
When were these guidelines changed?
When the Banks made these mortgages according to the Agency guidelines, were they wrong to make loans mortgages that were full guaranteed by the US Treasury?
Who in Congress blocked any investigation into what was happening? Where are they now?
Why is the money given to the Banks a “bailout” if the mortgages were guaranteed? Why isn’t that called fulfilling the contract? Does the money provided exceed the total of the loans made?
Now there are efforts to help the borrowers retain the homes even though they can’t pay the mortgage. But before that happens, does anyone know:
How many of these loans were refinances where the borrower received cash based upon the appreciation in the house value. Where is that money? Why should anyone who did a cash out refinance get relief unless the cash that was taken is given back?
How many of these foreclosures are on second homes or investment properties? Why should the government guarantee bad investments?

Answers to these questions, and the many questions that further investigation with generate, will go a long way to clarifying the situation so that the proper course came be charted, determining who to listen to in the future, and ridding ourselves of the Congressional dolts who put us in this situation.

Geithner

The editorials about Geithner is beyond belief. They support a Treasury Secretary nominee who is a tax cheat. “Careless mistake” is not a defense that the Treasury Secretary should employ. The head of the IRS should have a clean record – at least on tax payments.
Your defense incredibly compares his “error” to the size of the bailout and determines it “just isn’t a big deal”. What percentage of the bailout has to be stolen to qualify as a big deal? Madoff?
Presidents should be given some latitude to assemble the team they want”. The issue is whether this concept applies only to President Obama, to any Democrat, or whether the same courtesy would apply to a President of any political party.

What help?

Once upon a time there was economic turmoil. An unpopular President was turned out and a new messianic figure was installed and immediately went to work. That time (1932), President Roosevelt gave us the WPA, CCC et al, an alphabet soup of Federal Agencies and their accompanying regulations. The Federal Government expanded exponentially. The results are instructive. After 8 years of this furious action, the unemployment rate was still over 17% (Bureau of Labor Statistics).
Based upon this result, there is no reason to for any of our elected officials believe that this package will have the desired impact.
But they plod on under the same plan: The Government extracts money from the economy, passes it through the Federal bureaucracy and (re)distributes it back in the economy under their rules. The result is more debt, the amount of money is reduced by the mechanics of the government distribution, and there are more regulations to stifle industry.
The answer is to spend less money at every level of government. There is a war that the incumbent promised to stop (now that will take 16 months), there is an endless list of things that the government is involved in that it shouldn’t be doing and our politicians all have their pet projects which should be investigated. The list of expenditures involved in this package should be made public in excruciating detail. The public must be made aware of how these funds are spent.

Autos

The President signed a bill that allows states to set individual regulations on car emissions. This is a worthy goal but it is consistent with many government actions in that the consequences are not considered. The immediate result of this one is that there are 10-12 states that are poised to write their own regulations. Each is guaranteed to be different. These differing standards will have to be met in a combination of ways. Car emission systems will have to be different from state to state. Detroit will have to make different versions for each state. Auto manufacturing will become less efficient and more expensive. The companies suffer and the buyer will pay more. The other thing that will change is gasoline production. Without having any sympathy for the oil companies, it is clear that a limited number of refineries will have to make more different types of gasoline. This will make that process even less efficient and it is a certainty that these companies will simply pass along any additional expense. Regional shortages are also a probability as it will be impossible to reallocate gas to where it is needed because it will not be the same product.

Equal Pay

The transparent Administration is living up to its promise. It is transparently paying back the lobbyists that supported its campaign. This time it is with the Equal Pay amendment. This Act is based upon well publicized headlines from studies showing that women earn less then men. The immediate conclusion is that there is widespread discrimination in the workplace. But these studies only compare the total salaries of men and women and the hours worked to identify this difference. No mention is made of a comparison of men and women in the same job in the same company with the same seniority. Where anything more specific is cited, comparisons are based upon “similar” jobs – where “similar” means jobs that the study thinks are the same or should be paid the same. The resulting misinformation is used to generate outrage at the companies who are discriminating.
This is not to advocate discrimination of any type. Only that the problem are we trying to solve should be properly identified before enacting legislation requiring businesses to spend more money to fill out more forms. This does not help economic recovery. It will help to generate lawsuits.

Sunday, January 18, 2009

Reporting

What has happened to the idea of investigative reporting? We are in the midst of the greatest economic story in 80 years and the best analysis of what happened that the media can come up with is that it is the result of greed and lack of regulation. As attempts are made to recover from this debacle is would be instructive to know the answers to the traditional Who, What, When, Where, Why, and How questions. This can only help to identify what went wrong, who to listen to (and who not to listen to) and what to do next.
To help the next budding Pulitzer prize winner:
Who at Fannie Mae and Freddie Mac change the time tested lending guidelines (20% down payment, etc.) necessary to obtain a mortgage back by these agencies? This Agency guarantee placed the full faith and credit of the US treasury behind the loan.
Who in Congress or the Executive Branch appointed these people?
Where are the people now? How are they involved in any potential solution?
When were these guidelines changed?
When the Banks made these mortgages according to the Agency guidelines, were they wrong to make loans mortgages that were full guaranteed by the US Treasury?
Who in Congress blocked any investigation into what was happening? Where are they now?
Why is the money given to the Banks a “bailout” if the mortgages were guaranteed? Why isn’t that called fulfilling the contract? Does the money provided exceed the total of the loans made?
Now there are efforts to help the borrowers retain the homes even though they can’t pay the mortgage. But before that happens, does anyone no:
How many of these loans were refinances where the borrower received cash based upon the appreciation in the house value. Where is that money? Why should anyone who did refinance get relief unless the cash taken is given back?
How many of these foreclosures are on second homes or investment properties? Why should the government guarantee bad investments?

Answers to these questions, and the many questions that further investigation with generate, will go a long way to clarifying the situation so that the proper course came be charted, determining who to listen to in the future, a ridding ourselves of the Congressional dolts who put us in this situation.

Saturday, January 3, 2009

Media

They media (print and television) have completely lost any semblence of impartiality. The overwhelming media support given to Obama should have embarassed even Barbra Steisand. Thanks to the media and the incredible unpopularity of George Bush, we now have the least vetted President-elect since the advent of radio.
Any criticism of Obama's history was branded as racist while SNL could say anything about McCain/Palin (even ridiculing an autistic child) which were reported as news the next day. It is interesting that SNL has been criticized for their take on Gov. David Paterson but, of course, people from his party are off limits.