Sunday, April 25, 2010

Solutions

The really good thing about the health care bill is that it has created the means to resolve all of the countries economic problems. Having determined that the Constitution contains the right to health care and the power mandate everyone to exercise that right, it only remains for Congress to discover a few other rights in the Constitution and mandate their enforcement. Clearly the rights to buy another house, to buy another car and to get really cool stuff are in the same clause as the right to health care. So, all Congress has to do is:
Mandate that everyone buy another house. This would immediately put all the construction workers and trade guys back to work. It would also increase housing prices and resolve the problem of people being underwater on their mortgage.
Mandate that everyone buy another car – an electric one. This would get all the UAW guys back to work and reduce oil imports.
Mandate everyone buy a flat screen TV, get new green appliances, get a new wardrobe and redecorate all their houses. The increase in consumer spending would complete the economic rebound.
The last mandate (maybe this should be first) is to mandate that the minimum wage be raised to over $250,000 per year. This would mean the end of welfare (again) and all the other entitlements would no longer be necessary. The budget problems would be eliminated and everyone would have to pay taxes to pay for the health care bill.
This would also be a self perpetuating system. Congress could periodically declare it found the Constitutional right to a bigger house, bigger car, bigger TV, etc.
What could go wrong?

Redistribution

Some day people will understand that every single thing that the current President is doing is designed to redistribute income:

Cash for Clunkers – you had to have a car worth less than $4,500 for it to be worth doing.

Aid to “underwater” mortgages – if you bought a house you could actually afford, saved money for a down payment, didn’t borrow 100% of the value, were bright enough to know that adjustable rate loans actually – you know – adjusted, have had a home for 5 years or more, you are probably not underwater (maybe close but not underwater) and not eligible for government assistance. But, if you never saved a nickel, made no down payment, and took a loan you could never repay, you are underwater. So, you are then eligible for government money. They reduce your loan and when the value goes up, you have equity. Democratic wealth creation at its finest! And if you get a nutty judge, the Bank has to give you a cash payment for your “pain and suffereing”.

Health care - There is nothing in the bill that addresses the constant increases in health care costs. Nothing. If you were covered before you (defined as working and paying taxes) are still covered but it will cost you and your employer more. This was no effort to control health care costs – no effort to help the recently unemployed. It is an expanded entitlement to “those who need it most”.

Student Loans – increased in Pell grants is directed toward the “neediest students”. The people who actually pay taxes get nothing. The bogus beauty schools will again cause massive defaults. Colleges will continue to lower standards to let more people in to get more money for not educating people. Does anyone really believe that college graduates are better educated now than 30 years ago?

He campaigned to do it and he is coming through. It isn't helping most people but he is doing it anyway.

Pensions

The basic factors of the municipal pension system were that in return for lesser pay than private industry, there was a guaranteed job. This original deal has been lost. Municipal salaries are higher than most positions with similar qualifications in private industry. Raises are automatic; there are COLA adjustments that no one counts as a raise; pensions are better; lifetime medical coverage is better. Most workers in private industry have seen their raises disappear in the last 2 years while their taxes increase to meet municipal workers needs.
For municipal workers to claim that they are being singled out is absurd. They are the only ones who have not been impacted.

No you won't

The “Party of No” designation needs to be looked at in the context of the differing political positions. The Democrats have the opinion that government should be resolving issues. They want government to determine the price of carry on luggage, how much people should be paid, and what products people should be forced to buy. The Republicans and Conservatives disagree with all of the above and believe that people should be responsible for their own actions, purchase what they want when they want, and that the whole system works better if the government does what it was designed to do and limits itself to those tasks. Both sides agree that the government has certain responsibilities but completely disagree with where those responsibilities begin and end. It is a small wonder that whichever group is in the minority is devoted to obstruction the plans of the other.

Balancing

They arrested 9 nut jobs who should certainly be taken out of the general population. These guys were running around in the woods playing soldier and being mad at the government. The media has been determined to associate these nuts with anyone who disagrees with the Obama path and takes every opportunity to say these nuts were Christians – which is at best a debatable point.
In the meanwhile, there is an unlimited supply of Muslims who will strap bombs to themselves in order to blow up non-Muslims anywhere in the world; numerous Muslims cells arrested for making/planning to use illegal munitions from Denver to NYC; and a nut job in Iran who is really, really anti-social. But the media is careful to say that Islam is the “Religion of Peace”. No problem with media fairness there.

Doing the Right Thing

A company announces that it will institute a new fee for its services. In response, Senator Schumer announces legislation that will prevent any of the companies in that industry from instituting the fee. The Senator seems to have some mechanism for determining when price increases are inappropriate. This mechanism is somewhat mysterious but takes effect whenever he sees a public relations opportunity for himself. He has taken a firm stance that prices should not go up - a can’t lose position. But the issue is determining who should set the appropriate price consumers should pay for goods and services.
There is no reason other than the Senator’s self-promotion efforts for this legislation. The airline industry has plenty of competition. Customers are free to determine whether they want to pay this fee or fly another airline. It is another instance of elected officials doing things that they should not be doing and a step toward price controls that never work.

Fables

A short fable is instructive:
Mr. Ant and Mr. Grasshopper have identical jobs. They buy identical houses for identical prices. The only difference is that Mr. Ant uses his savings to make a 50% down payment; Mr. Grasshopper gets a mortgage from a bank for 100% of the purchase price. The value of their homes goes down 50%. Mr. Ant has lost the equity in his house (his savings); Mr. Grasshopper has lost – nothing.

The Obama solution to adjust Mr. Grasshopper’s loan so he is no longer underwater. Mr. Grasshopper has not lost any of his own money; Mr. Ant’s savings have been wiped out. But the plan assists Mr. Grasshopper while Mr. Ant gets - nothing. Besides helping the wrong guy, he does not explain how encouraging behavior that should not be repeated assists in the economic recovery. It does transfer wealth to people who do the wrong thing. So, the more money people saved to make a down, the less likely they are to be underwater and so would be ineligible for this program.

After lowering the mortgage for Mr. Grasshopper, the value of the home increases as it eventually will (we hope). In our fable, it goes up 25%. Mr. Grasshopper – who started with nothing invested - now has 25% equity in his home. The government creates wealth for the first time! But Mr. Ant has now lost only 50% of his savings. This makes sense to the economic wizards supporting it

The President does not even propose that this would help that housing market; nor does he suggest that it would free up credit. In fact, it would restrict the availability of credit. Invalidating lending contracts will not encourage more lending; nor will destroying the value of contracts help businesses recover. Again, it does transfer wealth to people

The program does not ask about the down payment? Or if there was a cash-out refinance (where is that money?) It just gives out money.

President Obama said multiple times during the campaign that he was going to redistribute wealth. He is honoring that pledge.

Media Inaccuracy?

There were some unasked questions and possible inaccuracies in today's Newsday story about Mortagges Foreclosures [Their 2nd chance].

The article says that the couple had an adjustable rate mortgage for 11.625% and that it “would reset at least at 6.375 points higher every August”. There are several things wrong here. First, that level of adjustment would put their annual interest rate at almost 200% by the end of the loan term. That just has to be wrong. Second, the 1 year adjustable rates at the time of their loan were about half of the 11.625% that they received. Why did they get a rate that was twice the market rate at the time?? (Previous defaults? no down payment?) Why did these people select this loan over other available options?

Iy also notes that there were “as much as” (whatever that means) $119,330 in “questionable” (whatever that means) late fees. Your inset box shows that this is made up primarily of $95,154.65 which was almost 2 years of interest. Interest is not a late fee. It is interest that is part of payment required when you get a loan.

Most similar stories miss several background questions that would be relevant to the story. For example: Was a cash-out refinance? If it was, where is that money? Did they ever have a chance of carrying this loan? If not, why did Emigrant make the loan in the first place?

Kicking financial institutions is currently populist hobby and there is no doubt that lenders/brokers that committed fraud should be prosecuted. But there are two sides to every story and Newsday's consistently inaccurate reporting does not help to identify what went wrong.

Here it comes

The Obama administration has issued instructions to employers regarding next year’s tax reporting requirements under the health care bill. Employers will add the value of any health care benefits to your w-2. That means everyone’s taxable income goes up. Wait, not everyone, only people who actually work and get a w-2. Whatever happened to bit about only taxing people who make over $250,000 Deluded Kool-Aid drinkers bought the lie.

http://www.ssa.gov/legislation/legis_bulletin_122409.html

Look at the section “WAGE REPORTING AND TAXES”.

Blame game

This never stops.
A group of politicians determined that everyone should own their own house. They quickly discovered that there were (prudent) lending rules everyone followed that were preventing people from getting mortgages so they could These evil and unfair requirements for a mortgage included a 20% down payment, spending less than 1/3 of your income to service the debt, proving your income and having a history of paying your bills. Since these rules were such a barrier to the goal that everyone should”, they just changed the rules. The government agencies (Fannie Mae and Freddie Mac) that controlled the mortgage business invented “sub-prime” mortgages because a group of politician told them too. They told the banks that they would guarantee any mortgage that was made according to these rules. A guarantee was based upon the US Treasury. Making loans that are guaranteed by the US Treasury is a very prudent thing to do and banks are supposed to make prudent loans – so they did. And they made money doing it.

Because of all this, people were able to get loans so they “own their own house". The problem was they bought houses that they could never support with money they could never pay back. We all know how that worked out. The people that borrowed needed someone to blame and the banks were a convenient target. Saying that they didn’t know that their adjustable loan would actually adjust or the broker misled them (how?), was better than admitting that they were the greedy ones that had to have a 5 bed room house with granite counter tops and a kitchen island that they knew they couldn’t afford.

Now we are where we are. The populists and the media have agreed that the bad guys in all of this are the banks and it is Bush’s fault.

But there is the internet. People who are interested should search the quote: “everyone should own their own house” and Barney Frank. Search for the NYTimes article of 9/11/2003. The NY Times!!
Educate yourselves.
Try this one: http://www.c-spanvideo.org/videoLibrary/clip.php?appid=595231322

Not an Entitlement

It is infuriating to constantly hear from assorted TV talking heads that Social Security is an entitlement. It is decidedly not an entitlement. It is a program that working people and their employers contribute. The rate of this contribution is currently over 12% of salary. The problem here is that the Democrats in 1966 decided to stop separating Social Security tax receipts and just consider Social Security taxes as part of the general tax fund. It became just another pile of money that Congress could spend. As a result, what should be the Social Security Trust fund has no money. If it could be considered to contain anything it contains only debt instruments of the US Government – Treasury Bonds. This is like saving for your retirement by putting money in a jar every week and then taking out the money and replacing it with an IOU to yourself. After 40 years of this, you would have a worthless pile of IOUs to yourself – tough to spend. On the other hand, if you left the money in the jar you would have the money; or, even more extreme, had invested it in a savings account it would have at least doubled. The plan now is that people will just have to work longer and get an even lower return on their money. (Note that the term is not lower “benefits”, it is a lower “return”. Again, people contributed to the fund and have a right to expect to get their money back.)

So, the US Government after proving that they cannot be trusted with Social Security funds. There was a plan to privatize Social Security for people under 40. This would not have impacted anyone over 40 and would not have cost anything. But the same people (Democrats again; see a pattern?) who thought up this Ponzi scheme in the first place blocked it by scaring the seniors who it would not have impacted in the first place.

My scheme

My business plan was to get people to invest in a plan that promised a future return for the rest of their lives. I am going to spend the current receipts to get stuff I want and fund the current payments by constantly getting new people to invest in the plan. Unfortunately, further research indicated that that this is called a Ponzi scheme and people have gone to jail for running them. My research also indicates that this is exactly the same as what Congress does with the Social Security program.

Tuesday, April 20, 2010

Investments

The US government is being civil charges against an investment firm for trafficking “troubled subprime residential mortgages”. The fact of the matter is that these subprime mortgages were invented and pushed by the US Government. There seems to be surprise that these loans were "troubled" . They were troubled by definition because they were subprime and they were subprime because there were no down payment or income requirements. That is what the government wanted. At the urging of Barney Frank, Andrew Cuomo and Chris Dodd et al, Fannie Mae and Freddie Mac dropped any kind of prudent lending guidelines so that anyone could qualify. The Financial industry did not change the rules for mortgage approval; the US Government did.

Government caused the problem and now more government intrusion is being sold as the way to resolve the problem that government intrusion caused. It is troubling that the Administration thinks that giving us more of the cause of the problem is the cure.

Loan Approval

Once upon a time, a group of politicians determined that everyone should own their own house. They quickly discovered that there were (prudent) lending rules everyone followed that were preventing people from getting mortgages so they could These evil and unfair requirements for a mortgage included a 20% down payment, spending less than 1/3 of your income to service the debt, proving your income and having a history of paying your bills. Since these rules were such a barrier to the goal that everyone should”, they just changed the rules. The government agencies (Fannie Mae and Freddie Mac) that controlled the mortgage business invented “sub-prime” mortgages because a group of politician told them too. They told the banks that they would guarantee any mortgage that was made according to these rules. A guarantee was based upon the US Treasury. Making loans that are guaranteed by the US Treasury is a very prudent thing to do and banks are supposed to make prudent loans – so they did. And they made money doing it

Because of all this, people were able to get loans so they “own their own house. The problem was they bought houses that they could never support with money they could never pay back. We all know how that worked out. The people that borrowed needed someone to blame and the banks were a convenient target. Saying that they didn’t know that their adjustable loan would actually adjust or the broker misled them (how?), was better than admitting that they were the greedy ones that had to have a 5 bed room house with granite counter tops and a kitchen island that they knew they couldn’t afford.

Now we are where we are. The populists and the media have agreed that the bad guys in all of this are the banks and it is Bush’s fault.

But there is the internet. People who are interested should search the quote: “everyone should own their own house” and Barney Frank. Interestingly search for the NYTimes article of 9/11/2003. Educate yourselves. Try this one too http://www.c-spanvideo.org/videoLibrary/clip.php?appid=595231322