Sunday February 15 Housing and Economic stories

KeNosHousingPortal.blogspot.com

TOP STORIES:

The Senate's Flawed 4 Percent Mortgage Refinance Plan - (www.heritage.org) Recently, there has been a great deal of discussion about the Senate Republicans' 4 percent housing stimulus and mortgage relief plan (proposed earlier by Chris Mayer and Glenn Hubbard of Columbia Business School). While this plan is correct in assessing the severity of the current housing situation, refinancing mortgages at very low interest rates would be a costly initiative and a massive new government intervention in housing and finance markets that would yield few if any of the promised benefits. High Mortgage Rates Are Not the Problem: Too-high mortgage rates are the least of the problems facing housing today, and mortgage interest rates on the open market are already approaching the level that Mayer and Hubbard propose without government interference, mandates, or subsidies. In fact, the 5.25 percent interest rates first proposed by Mayer and Hubbard in The Wall Street Journal are already higher than the rate offered to many borrowers, which led them to revise their proposal to a 4 percent rate. The biggest issues currently facing the market include:
· The low credit quality of the existing group of non-owners;
· The continued declines in home prices in many areas as previous speculative bubbles continue to deflate;
· The enormous stock of excess housing units; and
· The fact that the uncertainty of future employment is deterring many potential home buyers.
A decrease in mortgage interest rates will do little to address these issues. As Mayer describes it, this new 4 percent mortgage interest rate will also be available to those wishing to refinance their mortgages, which he claims will add an extra $175 billion per year of disposable income to households and thereby provide a significant stimulus to the economy. Why our government would also want to provide deep subsidies to those not needing them is unexplained. However, the truly catastrophic aspect of this proposal is that the $175 billion represents a transfer of income from the badly battered and nearly insolvent financial sector to 25 million relatively untroubled homeowners. Raising the purchasing power of individuals and families is sensible to stimulate the economy, but it should be done directly through reductions in marginal tax rates.

Lawmakers in 20 states move to reclaim sovereignty - (demonsanddialog.wordpress.com) Obama’s $1 trillion deficit-spending ’stimulus plan’ seen as last straw. As the Obama administration attempts to push through Congress a nearly $1 trillion deficit spending plan that is weighted heavily toward advancing typically Democratic-supporte d social welfare programs, a rebellion against the growing dominance of federal control is beginning to spread at the state level. So far, eight states have introduced resolutions declaring state sovereignty under the Ninth and Tenth Amendment to the Constitution, including Arizona, Hawaii, Montana, Michigan, Missouri, New Hampshire, Oklahoma and Washington. Analysts expect that in addition, another 20 states may see similar measures introduced this year, including Alaska, Alabama, Arkansas, California, Colorado, Georgia, Idaho, Indiana, Kansas, Nevada, Maine and Pennsylvania. “What we are trying to do is to get the U.S. Congress out of the state’s business,” Oklahoma Republican state Sen. Randy Brogdon told WND. “Congress is completely out of line spending trillions of dollars over the last 10 years putting the nation into a debt crisis like we’ve never seen before,” Brogdon said, arguing that the Obama stimulus plan is the last straw taxing state patience in the brewing sovereignty dispute. “This particular 111th Congress is the biggest bunch of over-reachers and underachievers we’ve ever had in Congress,” he said. “A sixth-grader should realize you can’t borrow money to pay off your debt, and that is the Obama administration’ s answer for a stimulus package,” he added. The Ninth Amendment reads, “The enumeration in the Constitution, of certain rights, shall not be construed to deny or disparage others retained by the people.” The Tenth Amendment specifically provides, “The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.” Brogdon, the lead sponsor of the Oklahoma state senate version of the sovereignty bill, has been a strong opponent of extending the plan to build a four-football- fields-wide Trans-Texas Corridor parallel to Interstate-35 to Oklahoma, as WND reported.

Obama . . . Hypocrite or Psychopathic Liar – (realestateandhousing2.blogspot.com) Despite Obama’s pledge to control lobbyists, I am being bombarded this week about the efforts being made in Washington on behalf of the builders. It’s not just bad, it’s downright criminal. We ARE going to see a huge Builder-Bill pass as part of the StimUseless package. I’ve received more communication about the lobbyists efforts on behalf of builders, than anything else in the last few months. It’s stunning just how powerful they are and how these guys have both the Republicans and the Democrats in their pockets. The sad thing is . . . Washington is not helping homeowners, but they are actually going to make the problem worse. 1 - By keeping the builders in business, they will continue to add inventory that we don’t need. 2 - The proposals we are seeing are builder and banker friendly at the expense of the taxpayer. 3 - The proposals appear to be homeowner friendly on the surface, but long term the effects are devastating. Trying to keep people in homes they cannot afford is a losing proposition. Lower interest rates and providing complicated tax credits will backfire. It sounds good, so both sides vote for this . . . because it helps them get re-elected. Moreover, no one will be able to point a finger two years, from now, because what these crooks are doing will be lost in the shuffle. This is why the builders are rallying. I obviously underestimated the failure of Obama to honor anything he seems to have been elected to do, and I underestimated the power of the lobbyists these builders have hired . . . with our money. But the end result is the same. The builders will eventually move lower, as most of them will be out of business. As we move into the Depression, which Obama seems to be guaranteeing on a daily basis with his inactions and turnover of government to the lobbyists he said he loathes, the housing market will deteriorate further, harder and into an abyss that nothing but rock bottom despair will turn around. One final note. The level of foreclosures coming through our residential real estate business is at a peak now. I am turning away 75% of the emails we receive with foreclosures!!!! I still want to be short the builders, but it may take longer than initially expected to close out all of our trades at the profits we want. With all that is going on, I would wait till next week to short more. Wait till this news hits the media, and then you can short more.

With Allstate, you’re NOT in good hands - (www.ml-implode.com) Is the insurance industry going to follow the banking industry into oblivion? Reader Marty passed on two fantastic Washington Post (WaPo) articles from this past week about how insurance companies are shopping state regulators for more lenient capital adequacy requirements. And getting what they want. The lead from the first article: Allstate, the big insurer, last week declared that despite unprecedented trouble in the markets, it remains financially strong. But tucked deep inside a company report is evidence that Allstate changed its bookkeeping last year in ways that improve its financial appearance. One accounting change added $347 million. Another delivered a year-end boost of $365 million. Allstate’s actions illustrate a broader risk to investors, policyholders and people looking for insurance. Insurers have been asking regulators to let them operate with thinner financial cushions or to pad those cushions with assets they could not otherwise count. For anyone trying to assess the companies’ financial strength, the changes can cloud the picture. That could make it harder for people to make sound decisions when buying policies or annuities to protect their families. The whole point of insurance regulation is to force insurers to keep adequate capital on hand in case they have to pay claims. The insurance business is not unlike the banking business in that companies maximize profit by taking risk with the capital provided by their customers. In banking, depositors fork over their savings to banks for safe-keeping while the banks put the cash to work making loans. With insurance, policy-holders pay premiums to insurers to protect them from loss while the insurers put the cash to work to make a profit in the market. But the banks and insurers are taking risks with your money. If the bank makes a bunch of bad loans, then your deposits disappear. If an insurance company makes too many crappy investments, they’ll have nothing left over to pay hurricane, car accident or life insurance claims.

Insurers' Finances Clouded by Bookkeeping Changes – (www.washingtonpost.com) Allstate, the big insurer, last week declared that despite unprecedented trouble in the markets, it remains financially strong. But tucked deep inside a company report is evidence that Allstate changed its bookkeeping last year in ways that improve its financial appearance. One accounting change added $347 million. Another delivered a year-end boost of $365 million. Allstate's actions illustrate a broader risk to investors, policyholders and people looking for insurance. Insurers have been asking regulators to let them operate with thinner financial cushions or to pad those cushions with assets they could not otherwise count. For anyone trying to assess the companies' financial strength, the changes can cloud the picture. That could make it harder for people to make sound decisions when buying policies or annuities to protect their families. For regulators, the insurance companies' requests can pose a dilemma. At a time of financial peril, is it better to loosen financial standards for insurers and hope they pull through the crisis still able to keep their promises to policyholders? Or would it be more prudent to hold insurers to existing standards, even if that forces them to take costly and painful steps to shore up their financial stability? Using accounting changes to make companies look stronger can actually make them weaker. Increasing companies' reported capital could enable them to pay out more money in the form of dividends, leaving them with less money in hand to deal with unexpected problems and make good on their policies.

Senators Go Wild!, Approve House Flipping Subsidy - (www.huffingtonpost.com) The reporters covering the stimulus have been so busy editorializing against it that they haven't had time to pay attention to what Congress is doing. Last night Congress approved the Isakson amendment which gives $15,000 (or 10 percent of the purchase price, whichever is lower) to every person who buys a home in 2009. Somehow, Isakson puts the cost of his tax break at just $19 billion. Let's break the Washington rules and try a little arithmetic. Even with weakness in the housing market, it is still virtually certain that we will sell close to 5 million homes in 2009. The overwhelming majority would qualify for the full credit. So, we get 5 million times $15,000. That sounds a lot like $75 billion. And this is before we get to any gaming. It's hard to see why tens of millions of people wouldn't figure out a way to buy a house from a friend or relative and get their $15k. If we can get one-third of the country's homes to change hands (lots of jobs for realtors) that would be good for $375 billion. It also is worth raising a question or two about the wisdom of having Fannie and Freddie buying up mortgages at 4.0 -4.25 percent, as required by Isakson's amendment. Suppose that the economy recovers in a few years (not likely if this crew is controlling economic policy) and mortgage interest rates rise back to more normal levels. The 30-year mortgages that Fannie and Freddie issue today at 4.0 percent interest will be worth about 20 percent less in 3 years if the interest rate has risen to 7.0 percent. If we get $2 trillion in mortgages at the 4.0 percent rate, then this gives Fannie and Freddie losses of $400 billion. This may be a cost worth enduring to boost the economy, but it would be worth at least noting in assessing the proposal. After all, a few hundred billion here and a few hundred billion there can add up to real money.

Too much debt will never be solved with more debt - (blogs.abcnews.com) If Republicans want a "take-your-medicine" presidential candidate in 2012, South Carolina Gov. Mark Sanford might fit the bill. "The bottom line is we're going to go through a deleveraging and it is going to be painful," Sanford told ABC News. "And the only question is do we stick a bunch of Band-Aids over it and hopefully ease some of the pain, but frankly prolong and deepen the pain? "Or do we rip the Band-Aid off, recognize it's going to hurt, but get this thing over with sooner rather than later?" Sanford, who was recently named one of the GOP's four rising stars by party chair Michael Steele, was in Washington, D.C., on Wednesday to deliver a scathing critique of President Barack Obama's stimulus package to supporters of the Republican Governors Association, a group he chairs. While some Republican governors back Obama's plan which includes billions in state aid for education, health care, and infrastructure, Sanford considers the plan a "mistake" and warns that it will not have the intended effect of reviving the nation's slumping economy. Sanford thinks federal efforts to get consumers buying again through increased government spending won't work because, in his view, the current economic downturn is a "balance sheet-driven slowdown" rather than a "typical recession caused by an excess in production or inventory." "We can't fall into the trap that stimulus is just checks out of Washington," said Sanford. Sanford told RGA members that the push to bailout various U.S. industries is putting the country's free-market economy at risk."With all due respect to the Fed and Treasury, they have become the modern-day equivalent of a savior," he said.


OTHER STORIES:

Taxpayer Can't handle the Truth - (www.ml-implode.com)
You Want Numbers, I’ll Give You Numbers! - (www.ml-implode.com)
In Florida, Despair and Foreclosures - (www.ml-implode.com)
Lawmakers in 20 states move to reclaim sovereignty - (www.ml-implode.com)
J.P. Morgan's Executive Bonuses more Abusive than Merrill's - (www.ml-implode.com)
U.S. Weighs Fed Program to Loosen Lending - (www.ml-implode.com)
New Plan to Help Banks Sell Bad Assets - (www.ml-implode.com)
Late Payments on US Credit Cards Reach Record High Levels - (www.ml-implode.com)
Obama Hypocrite or Psychopathic Liar - (www.ml-implode.com)

U.S. Housing Slump Has Just Begun, Says Talbott - (www.bloomberg.com)
America's mortgage misery spreads upmarket - (www.economist.com)
One million-dollar foreclosure for every two sold - (mortgage.freedomblogging.com)
Better to Rent than Buy a House - (www.seekingalpha.com)
Treasury chief to unveil overhaul plan for bailout - (biz.yahoo.com)
Parties try to pare stimulus pork - (news.yahoo.com)

Too late to avoid a depression? - (articles.moneycentral.msn.com)
Let banks fail, says Nobel economist - (www.telegraph.co.uk)
Top bank executive pay - (money.cnn.com)
Stimulus or No, Consumer Spending Has Further to Fall - (www.businessweek.com)
Unwinding Over-Consumption -- What will it Cost? - (www.chartingtheeconomy.com)
A Tax Program for U.S. Economic Recovery - (www.michael-hudson.com)

Pathetic bullshit accounting rule change fools stock market - (www.reuters.com)
Mortgage Bait for the Two-Legged Rat - (www.seekingalpha.com)
Rents dropping in Seattle - (www.nwcn.com)
Canada Invites Immigrants In - (www.albertacanada.com)
Squatter Alert - (themessthatgreenspanmade.blogspot.com)