KeNo's Housing and Economic Portal: Sunday August 21 Housing and Economic stories

KeNosHousingPortal.blogspot.com

TOP STORIES:

Have to love the Liberal economists:

· REICH: "Who Gave S&P The Authority To Say How America Pays Its Bills?" - (www.businessinsider.com) Standard & Poor’s downgrade of America’s debt couldn’t come at a worse time. The result is likely to be higher borrowing costs for the government at all levels, and higher interest on your variable-rate mortgage, your auto loan, your credit card loans, and every other penny you borrow. Why did S&P do it? Not because America failed to pay its creditors on time. As you may have noticed, we avoided a default. And not because we might fail to pay our bills at the end of 2012 if tea-party Republicans again hold the nation hostage when their votes will next be needed to raise the debt ceiling. This is a legitimate worry and might have been grounds for a downgrade, but it’s not S&P’s rationale. S&P has downgraded the U.S. because it doesn’t think we’re on track to reduce the nation’s long-term debt enough to satisfy S&P — and we’re not doing it in a way S&P prefers. “The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government’s medium-term debt dynamics,” says S&P. It also blames what it considers to be weakened “effectiveness, stability, and predictability” of U.S. policy making and political institutions.

· KRUGMAN: "S&P Is Just Making Things Up" - (www.businessinsider.com) OK, so Standard and Poors has gone ahead with the threatened downgrade. It’s a strange situation. On one hand, there is a case to be made that the madness of the right has made America a fundamentally unsound nation. And yes, it is the madness of the right: if not for the extremism of anti-tax Republicans, we would have no trouble reaching an agreement that would ensure long-run solvency. On the other hand, it’s hard to think of anyone less qualified to pass judgment on America than the rating agencies. The people who rated subprime-backed securities are now declaring that they are the judges of fiscal policy? Really? Just to make it perfect, it turns out that S&P got the math wrong by $2 trillion, and after much discussion conceded the point — then went ahead with the downgrade. More than that, everything I’ve heard about S&P’s demands suggests that it’s talking nonsense about the US fiscal situation. The agency has suggested that the downgrade depended on the size of agreed deficit reduction over the next decade, with $4 trillion apparently the magic number. Yet US solvency depends hardly at all on what happens in the near or even medium term: an extra trillion in debt adds only a fraction of a percent of GDP to future interest costs, so a couple of trillion more or less barely signifies in the long term.

· The S&P Downgrade Is Incredibly Irresponsible - (www.businessinsider.com) Three days ago, I wrote a quick post that said, basically, that no ratings agency would downgrade the credit rating of the United States at this time. Wrong again. Not that a downgrade isn't deserved. It is deserved. But that's beside the point. The global financial system is particularly fragile at the moment. Now is not the time to be adding greater elements of risk into the mix. To quote myself (and why not, it's Friday night): Any kind of credit "event," no matter how distant geographically, has the potential of being "disruptive," in the way that Lehman was "disruptive" in the autumn of 2008. The simple fact is that the global economy cannot handle a "Lehman event" right now.

Attorneys criticized for advertisement to induce strategic default - (www.irvinehousingblog.com) Their television commercials about mortgage defaults ignited a debate about ethics and financial responsibility. Now, the two Las Vegas lawyers behind the ad campaign say people are misunderstanding their message. The Haines & Krieger TV spots advise homeowners that their friends and family are staying in their homes without paying on their mortgages, and offer to show clients how to do the same. But George Haines and David Krieger, the lawyers who appear in those ads, say the message is not that those homeowners with the means to pay should skip out on their mortgages. Actually, yes, the ads do tell loan owners they should skip out on their mortgages. In Las Vegas, with many loan owners 30% to 50% underwater facing payments double a comparable rental, they should strategically default. These attorneys are being wimps and offering lawyerly evasions. If they really wanted to tell people the truth, they should stand behind their words and the implications. Most of Nevada is so far underwater they should default. It's in the best interest of their families to do so.

Appraisals stymie deals as market values drop in Seattle - (www.nwsource.com) After a six-month search, Alan Wilson, a 38-year-old IT auditor, thought he'd found the perfect house in Federal Way. The 1980s home was on a lake near a green belt and had a large lot with a sports court perfect for his sons. So in April, he made a full-price offer for $319,500 on the house, using a zero-down Veterans Affairs loan. The home's inspection didn't yield any deal-scuttling details, and he and his agent persuaded the seller to make a few minor repairs as part of the transaction. To Wilson, who has bought homes four times before, it all looked like smooth sailing — until the appraisal. Wilson learned that the home was worth only $292,000. The seller wasn't willing to drop the home's price to $292,000, a requirement for Wilson to get his loan approved. And though Wilson says he'd fallen in love with the place, he wasn't so enamored that he was willing to bring extra cash to the table to keep his loan total below $292,000, in effect overpaying for the property. The adage is that a home's value is worth whatever a buyer is willing to pay for it.