Tuesday February 17 Housing and Economic stories

KeNosHousingPortal.blogspot.com

TOP STORIES:

Obama's Wealth Destruction - (www.mises.org) President Obama is under the impression that history owes him $1 trillion right now to spend on whatever he wants. His language is strident and full of irritation that anyone would question his right to live out his personal dream of being Franklin Roosevelt to George Bush's Hoover. This, he says, is what the election was all about. The arrogance reminds me of George Bush after 9-11, who similarly believed that history owed him a gargantuan war in the tradition of FDR. And look how that arrogance led to disgrace and loss, as he unwittingly presided over the destruction of American prosperity while searching for bugbears abroad. It just goes to show you that the presidency is something like a drug. It makes people lose all connection to reality. Part of the reality that Obama needs to recognize is that the New Deal was a calamity far worse than the initial market downturn that began it. He needs to stop basing his policies on dumbed-down civics texts versions of events and consider the economic logic. With his rhetoric and policies, he has decided to demonize private enterprise, just as FDR did, as a way to present government as the great savior. Now, think about this. If there is a way out of the recession, it will have to be provided by private enterprise. It will come by new businesses, business expansions, entrepreneurship, new technology, and this will be the source of lasting jobs and prosperity. You cannot make a country rich by looting taxpayers and paying people to pound nails into siding at public schools! These activities amount to capital consumption. They are not sources of investment. You can say that they are stupid tasks or wonderful tasks, but it is not a matter of ideology as to whether such public projects will make us all wealthier. They will not. They drain the sources of wealth from society. They represent a cost, not a blessing. That was also true of Bush's dumb stimulus program. He was only bailing out his friends at our expense. The effect was to give a little longer life to institutions that were failing anyway. It's pathetic that the Republicans ever went along with it. You will notice that the scheme didn't actually work. Well, Obama is doing the same thing, though rewarding a different set of friends. This is not wealth production. This is wealth consumption. Do enough of this nonsense and you can destroy the livelihoods of an entire generation. Americans are proud of their system of government, but consider what it has given us this time around. We had an outgoing president who thought it was his right to grab as much as he could while leaving. Now we have a new president who thinks that the election entitled him to grab as much as he can, right from the beginning. We get looted by the state coming and going. It all amounts to one massive war on prosperity and freedom. Particularly culpable here are the official historians who have for generations heralded FDR as the great savior. It is a case study in how a civic lie can appear and fester for decades. The fact is that the New Deal did not work. It prolonged what might have been a troubling two-year downturn into a horrifying blow to world prosperity that ended up in a war that killed countless millions. It was one of the greatest acts of wreckage in world history. And Obama is inspired by this? He wants to repeat it? I'm not so cynical about human affairs that I believe that errors must be endlessly repeated. Obama can put a stop to his madness. He needs to know — someone must tell him frankly and openly — that his current path is going to lead not to recovery, but to an extension of suffering, and untold amounts of it.

Bailout Backfire: GM to Invest $1 Billion US Taxpayer Bailout Funds in *Brazil* - (www.laht.com) General Motors plans to invest $1 billion in Brazil to avoid the kind of problems the U.S. automaker is facing in its home market, said the beleaguered car maker. According to the president of GM Brazil-Mercosur, Jaime Ardila, the funding will come from the package of financial aid that the manufacturer will receive from the U.S. government and will be used to "complete the renovation of the line of products up to 2012." "It wouldn't be logical to withdraw the investment from where we're growing, and our goal is to protect investments in emerging markets," he said in a statement published by the business daily Gazeta Mercantil. Meanwhile, he cut the company's revenue forecast for this year by 14% to $9.5 billion from $11 billion, as the economic crisis began to cause rapid slowdowns in sales. GM already announced three programs of paid leave, and Ardila added that GM Brazil "is going to wait and see how the market behaves in order to know what decision to take" with regard to possible layoffs. For Ardila, the injection in Brazil's automobile sector of 8 billion reais ($3.51 billion) recently announced by the federal and state governments of Sao Paulo "has already begun to revive sales," which fell by 12% in October. The executive said that the company will operate a "conservative" scenario in 2009 with an estimated production of 2.6 million units, and another more "optimistic" that contemplates sales of 2.9 million. This year sales will reach 2.85 million vehicles, which represents a growth of 15% over last year.

Bank failures to catch fire - (www.marketwatch.com) Analyst sees more than 1,000 banks failing in the next three to five years as the recession deepens and loan losses climb. More than 1,000 banks may fail during the next three to five years as the recession intensifies and loan losses climb, an analyst at RBC Capital Markets estimated on Monday. In 2008, analyst Gerard Cassidy forecast 200 to 300 bank failures, but now he says the environment has deteriorated since then. See 2008 story on bank failures. "Residential mortgage delinquencies remain at record levels, home-equity loan defaults are steadily rising and residential construction and land loan non-performing assets are skyrocketing for lenders with excess exposure to the weakest housing markets in the U.S.," Cassidy wrote in a note to clients. "In conjunction with the slowdown in the economy, credit deterioration has accelerated in the commercial and industrial and commercial real estate loan areas," he said. Since the mortgage-fueled credit crunch erupted in 2007, 34 banks have failed in the U.S. While Washington Mutual became the biggest bank failure in history last year, Cassidy expects most of the banks that collapse will be relatively small, with less than $2 billion in assets.

California Debt Downgrade Puts Credit Below Louisiana - (www.bloomberg.com) First, Superintendent Don Iglesias canceled plans to update science laboratories in public schools in San Jose, the center of the U.S. technology industry. Now he’s preparing to fire hundreds of teachers. The 31,000-student district is a victim of the California budget crisis, an annual event in the most populous state and the biggest ever with a $42 billion shortfall expected over the next 17 months. “We’ve been pushed to the wall,” Iglesias said. Governor Arnold Schwarzenegger, a Republican, and the Democratic-controlled legislature have been deadlocked for four months on a deficit reduction plan. Revenue is so depleted that Controller John Chiang delayed $1.9 billion in tax refunds and Schwarzenegger ordered state employees to take two days of unpaid leave every month. The governor and lawmakers met yesterday without announcing a plan. Citing politicians’ failure to act, Standard & Poor’s on Feb. 2 cut $46 billion of California’s full-faith-and-credit debt to A from A+, making the largest tax-exempt borrower the lowest rated state, behind Louisiana. California’s 10-year general obligation bonds are already paying a record 1.23 percentage points in yield above benchmark municipal debt, according to Bloomberg indexes. California 5 percent bonds due in 2023 traded at a price to yield 4.72 percent last week, almost a half-percentage point more than the 4.27 percent when they were sold in October 2007, according to Municipal Securities Rulemaking Board trade data. ‘Nervous Breakdown’: “It’s a major nervous breakdown,” said Jim Wunderman, president of San Francisco-based Bay Area Council, a business group whose members include Yahoo! Inc. and Shell Oil Co. That the government of the world’s eighth largest economy can’t pay all its bills isn’t surprising, Wunderman said. A patchwork of voter-approved ballot initiatives since 1978 left California heavily dependent on income taxes and ill equipped for what may become the longest recession since World War II, he said.

GM in Talks to Take Back Part of Delphi - (www.cnbc.com) GM in Talks to Take Back Part of Delphi. General Motors is in talks to take back large portions of Delphi, the parts supplier spun off by the automaker a decade ago, a source with direct knowledge of the talks said Monday. The discussions are part of GM's strategy to line up additional federal support as it faces a Feb. 17 deadline to prove to the U.S. government it can be made viable, the source told Reuters. GM, which was granted $13.4 billion of government loans in December, intends to submit the discussions with Delphi as part of its viability plan, said the source, who was not authorized to discuss the private talks. GM and Delphi, could not immediately be reached for comment. GM said last month it was in discussions with Delphi and Delphi's stakeholders to resolve financial troubles at the bankrupt supplier as part of its own restructuring plan. Delphi, which filed for bankruptcy in 2005, has been a major financial drag on GM at a time when the U.S. automaker is struggling to survive a deep downturn in global auto demand. GM has taken more than $11 billion in charges for Delphi's reorganization. GM agreed when it spun Delphi off in 1999 to assume pension and health-care obligations for thousands of union workers should the supplier be unable to do so. GM started talking to Delphi last month about buying back parts of the supplier, including some plants, the source said.

US plan to curb mortgage rates falters - (www.ft.com) The US Federal Reserve’s efforts to drive mortgage rates lower by purchasing home loans have faltered and rates have risen over the past month. The rise in rates is a disappointment to government officials, who had hoped that a steep fall in house prices and low financing costs would lure new buyers into the nation’s depressed housing market.

Jaguar Inflation - A Layman's Explanation of Government Intervention - (www.bullnotbull.com) I am tired of hearing people insist that the Fed can expand credit all it wants. Sometimes an analogy clarifies a subject, so let's try one. It may sound crazy, but suppose the government were to decide that the health of the nation depends upon producing Jaguar automobiles and providing them to as many people as possible. To facilitate that goal, it begins operating Jaguar plants all over the country, subsidizing production with tax money. To everyone's delight, it offers these luxury cars for sale at 50 percent off the old price. People flock to the showrooms and buy. Later, sales slow down, so the government cuts the price in half again. More people rush in and buy. Sales again slow, so it lowers the price to $900 each. People return to the stores to buy two or three, or half a dozen. Why not? Look how cheap they are! Buyers give Jaguars to their kids and park an extra one on the lawn. Finally, the country is awash in Jaguars. Alas, sales slow again, and the government panics. It must move more Jaguars, or, according to its theory — ironically now made fact — the economy will recede. People are working three days a week just to pay their taxes so the government can keep producing more Jaguars. If Jaguars stop moving, the economy will stop. So the government begins giving Jaguars away. A few more cars move out of the showrooms, but then it ends. Nobody wants any more Jaguars. They don't care if they're free. They can't find a use for them. Production of Jaguars ceases. It takes years to work through the overhanging supply of Jaguars. Tax collections collapse, the factories close, and unemployment soars. The economy is wrecked. People can't afford to buy gasoline, so many of the Jaguars rust away to worthlessness. The number of Jaguars — at best — returns to the level it was before the program began. The same thing can happen with credit.



OTHER STORIES:

Obama Backs Rule Change to Modify Mortgages - (www.cnbc.com)
Battle Looms Over Stimulus - (www.cnbc.com)
Compare House-Senate Plans - (www.cnbc.com)
What's In the Bank Rescue Plan So Far: Busch - (www.cnbc.com)
Mortgage Rates Likely Headed to 4.5%: Pimco's Gross - (www.cnbc.com)
GE Shares Jump on Hint of Dividend Cut - (www.cnbc.com)
Madoff Agrees to Partial Judgment in Civil Case - (www.cnbc.com)

So You Married A Spender - (www.cnbc.com)
Sirius Got, and Rebuffed, Ergen Bid: WSJ - (www.cnbc.com)
New US Football League to Kick Off in October - (www.cnbc.com)

Official: Plan will buy some of banks' bad assets - (finance.yahoo.com)
U.S. Delays Finance Plan as Officials Debate Debt - (www.bloomberg.com)
Geithner Plans to Bring in Private Investment for Toxic Assets - (www.bloomberg.com)
Stimulus Pitch Absorbs Agenda - (www.washingtonpost.com)
Fed Lacks Consensus on Treasury Purchases Even as Yields Climb - (www.bloomberg.com)
EDITOR’S CHOICE

Job losses at small companies could reach 2 million by 2010 - (www.latimes.com)
Securitisation faces long odds on stability - (www.ft.com)
Fannie, Freddie to channel mortgage rescue: sources - (www.reuters.com)

New bailout may be less attractive to some banks - (www.marketwatch.com)
CEOs know how to handle hard knocks - (www.marketwatch.com) Memos are flying fast and furiously from executive suites announcing cutbacks on corporate perks — like going from the private jet to flyingfirst class, according to Bill MannPresident Seeks Grass-roots Support for Stimulus - (www.ap.com) Treasury Delays Bank Bailout Announcement - (www.reuters.com) Fed Lacks Consensus as Long Term Treasury Yields Rise - (www.bloomberg.com) Central Banks Sacrifice Independence as Crisis Grows - (www.bloomberg.com)Gary North: Economic Fascism and the Bailout Economy - (www.lewrockwell.com)Nissan to Cut 20,000 - (www.nytimes.com)WTO Chief Warns of Looming Global Unrest - (news.yahoo.com/s/ap) America Will Pay a Heavy Price for Obama's Economic Illiteracy - (www.safehaven.com) Five Reasons Not to Buy a Home This Year - (www.marketwatch.com)