Notable Links

Straight Talking Common Sense

Obama Must Destroy Detroit, So America Can Live – Evan Newmark

Dear President Obama,

Who said life was fair?

You’re in office less than a month and the markets already hate your presidency, your Treasury secretary and your economic stimulus plan.

It’s time for you to destroy Detroit, so that the rest of America can live.

Mr. President, it’s time for the bankruptcy of GM and Chrysler.

Now that may seem harsh. But you really have no choice. Look around you. Everybody in America has his hand out — California and the movie industry, New York and Wall Street, homebuilders and the millions of mortgage deadbeats.

You need to send a message to all America — and fast. No more Mr. Nice Guy and no more money. Reinventing America doesn’t mean bailing everyone out. It means stopping those things that just don’t work anymore.

But such a bold gamble could mark a turning point early in your term.

It would get Republicans behind you. It would get Wall Street and America’s trading partners behind you. And it would get even more Americans behind you. Americans know when something makes sense.

Remember Ronald Reagan and the air traffic controllers’ strike of 1981?

That’s how he reinvented America. Now, it’s your turn.

Some good thoughts – worth a full reading.  Only problem is it won’t happen because there is no common sense in Washington and Mr. Obama is not Ronald Reagan.

The Burning Platform

The $787 billion 1,074 page stimulus bill has been passed. President Obama has signed it. The market immediately dropped 500 points. It will have no impact on the economy in 2009. The bill will stimulate nothing but the National Debt. Within months, plans for another stimulus plan will be demanded by the Democratic led Congress because speed and the appearance of action are how politicians get reelected. When I see Senator Charles Schumer of New York make a speech on the floor of the Senate saying, “And let me say this to all of the chattering class that so much focuses on those little, tiny, yes, porky amendments, the American people really don’t care”, I want to throttle him.Only a U.S. Senator would consider $100 billion a little tiny pork. His words prove that our leaders are so corrupted and disconnected from real Americans that they are running this country for their own self interest and the interests of their corporate money backers. Abraham Lincoln, an honest and wise man by most accounts, knew that calling pork spending stimulus doesn’t make it stimulus.

The definition of unsustainable is, not able to be maintained or supported in the future. To me, a picture is worth a thousand words.

3
Source: Robert Shiller

As Congressional moron after Congressional moron goes on the usual Sunday talk show circuit and says we must stop home prices from falling, I wonder whether these people took basic math in high school. Are they capable of looking at a chart and understanding a long-term average? The median value of a U.S. home in 2000 was $119,600. It peaked at $221,900 in 2006. Historically, home prices have risen annually in line with CPI. If they had followed the long-term trend, they would have increased by 17% to $140,000. Instead, they skyrocketed by 86% due to Alan Greenspan’s irrational lowering of interest rates to 1%, the criminal pushing of loans by lowlife mortgage brokers, the greed and hubris of investment bankers and the foolishness and stupidity of home buyers. It is now 2009 and the median value should be $150,000 based on historical precedent. The median value at the end of 2008 was $180,100. Therefore, home prices are still 20% overvalued. Long-term averages are created by periods of overvaluation followed by periods of undervaluation. Prices need to fall 20% and could fall 30%. You will know we are at the bottom when the top shows on cable are Foreclose That House and Homeless Housewives of Orange County.

Instead of allowing the housing market to correct to its fair value, President Obama and Barney Frank will attempt to “mitigate” foreclosures. Mr. Frank has big plans for your tax dollars, “We may need more than $50 billion for foreclosure [mitigation]”. What this means is that you will be making your monthly mortgage payment and in addition you will be making a $100 payment per month for a deadbeat who bought more house than they could afford, is still watching a 52 inch HDTV, still eating in their perfect kitchens with granite countertops and stainless steel appliances. Barney thinks he can reverse the law of supply and demand by throwing your money at the problem. He will succeed in wasting billions of tax dollars and home prices will still fall 20% to 30%. Unsustainably high home prices can not be sustained. I would normally say that even a 3rd grader could understand this concept. But, instead I’ll say that even a U.S. Congressman should understand this.

Another common sense analysis by James Quinn well worth the entire read.  Markets are larger than any government and ultimately cannot be manipulated by government over the long term.  The United States Congress will waste trillions trying to support a housing market that will ultimately stabilize based on free market factors – not government manipulation and price supports.  If the government had the power to control the housing market, they would not have let it crash in the first place.

Greenspan Backs Bank Nationalization

The US government may have to nationalise some banks on a temporary basis to fix the financial system and restore the flow of credit, Alan Greenspan, the former Federal Reserve chairman, has told the Financial Times.

In an interview, Mr Greenspan, who for decades was regarded as the high priest of laisser-faire capitalism, said nationalisation could be the least bad option left for policymakers.

The one man who is probably the most responsible for creating the debt bomb explosion and global collapse has more advice for us.  Mr Greenspan, enjoy life with your $150,000 per speech fees along with your fine government pension.   But PLEASE stop giving us your damn advice.

The mad attempts to avoid any and all foreclosures is counter-productive. The foreclosure process is how an over-priced market returns back to normalcy.

Today at 12:15 am, we shall learn of the Obama administration’s new housing plan. I suspect it will have many of the same doomed features as all the other misguided housing plans floating around.

Before getting to those specifics, let’s revisit and recognize several truths:

• Home prices remain elevated;

• Artificially propping up prices is counter-productive;

• Home owers (No equity, 100%+ debt) who are in houses they cannot afford are going to have to move to homes or apartments they can afford;

Foreclosures/REOs are often costly to banks; The lenders that made these bad loans to unqualified borrowers will suffer write-downs;

• It is not the responsibility of Taxpayers to bailout borrowers who are in over their heads, or lenders that made bad loans.

What are we likely to see from the White House today? I expect to see an over emphasis at stopping foreclosures; a reliance on foreclosure moratoriums; Involuntary loan modifications a/k/a cramdowns; and last, Interest rate deductions;

More sound, common sense advice from Barry Ritholtz.  The government’s constant stream of ridiculous “new plans” for solving the housing crisis with their Rube Goldberg mechanisms is sure to postpone any recovery or bottom in housing for decades.

Sovereign Default –  Which Domino Falls First?

It’s no longer a question of if, but where.  Will the first sovereign default occur in Eastern Europe or Asia?  The debt levels of many countries are no longer sustainable due to collapsing economies, destruction of asset/collateral values and the inability to obtain more credit.  Of the $5 trillion in loans made to emerging market countries, almost 75% of the lending was done by Western European banks.

Many countries no longer have the economic ability to service their debts.  Debts that cannot be paid, by definition, will be defaulted on.  The larger question is will the first sovereign default trigger a domino of defaults, resulting in a catastrophic series of defaults worldwide?

Courtesy Wall Street Journal

One Response to “Notable Links”

  1. Is there a way that this new stimulus
    loan modification proposal possibly
    might not work? I think it makes a lot of sense. Stop the tide of foreclosures..should..stop reduction of prices

Leave a Reply