My apologies for the long hiatus. I spent the first week of June in New Orleans on a mission trip to provide hurricane relief, and the next two weeks rehearsing with the praise band I play in for a concert at the state prison in Lansing, Kansas - both of which were amazing experiences, but more on that later.
For now, here's an interesting news item - with an important lesson - from the United Arab Emirates, home of Dubai, which has become a global playground for the rich and famous, with its mind-boggling real estate developments and resorts.
Consumer spending in the UAE - the Arab world's second-largest economy - grew 17.7% last year, more than doubling the pace of half a decade earlier. Per capita spending has grown to eight times the average for the rest of the Middle East in the nation that imports about 85% of consumer goods, and spending as a percent of earnings is approximately 60%.
The UAE's Department of Planning and Economy is concerned that the rampant "consumer spending at the expense of savings and investments has, and will continue to have, adverse effects on the local economy. This alarming consumption rate could, in the future, constitute a big hurdle in the face of any plans to transform the country" to self-sufficiency. "The combination of easy loans in addition to advertising and media propaganda have all combined to plunge consumers into a quagmire of spending. Some of the woes that have beset the UAE's economy have to do with this pervasive culture of consumer spending."
Sound familiar? The US has fully embraced this culture, eschewing savings in favor of consumerism. Our own government has turned a blind eye to the resulting economic problems, proclaiming consumption as the engine for growth in a once self-sufficient economy increasingly dependent on exports. Consumption comprises 70% of US GDP, vs. less than half that for the world's fastest-growing economies, those of India and China, both of which boast double-digit savings rates, while that of the US hovers near zero.
China gets it. So does India. Even the UAE acknowledges that "consumer spending at the expense of savings and investments has, and will continue to have, adverse effects on the local economy." When will US economists and government officials recognize that savings, not spending, is the true engine of sustainable economic growth?
Monday, June 30, 2008
Thursday, May 22, 2008
Hillary, the Obamas, and "The Working Man"
Well, Hillary's gone and done it. She's gone off the deep end. And I knew she would.
Like Bill, she's too full of herself to concede, even when she's clearly defeated. So she's taking the fight all the way to the convention, and trying desperately to get the Michigan and Florida delegates seated. Michigan - where Obama wasn't even on the ballot - offered her a compromise: 69 delegates for her, 59 for Obama (she beat "uncommitted" by a margin of 65% to 35%).
But Hillary wants them all. Why? Because she needs them all, if she's to claim the nomination.
In Florida, she's trying a populist approach, whipping voters into a frenzy. "You didn't break a single rule," she tells them. No, but the party did, and she didn't protest back then. "The outcome of our elections should be determined by the will of the people," she tells them, "and we believe the popular vote is the truest expression of your will."
Oh, really? Funny, I can't find a single speech she gave before the primaries and caucuses got underway where she argues that the delegate system should be discarded in favor of the popular vote. Why? Because she didn't feel that way until it suited her (lost) cause.
Yet she wants delegates seated. Hypocrisy? You bet.
This will only continue to divide Democrats, and it can't be good for the party. But I don't think that's what she wants. I think she knows she's lost, but she wants to wound Obama to the point that McCain beats him, so she can run again in four years. She doesn't want a solid Obama to win, then perhaps win a second term, then endorse his veep (which certainly won't be her), forcing her to wait anywhere from four to 12 or 16 years for another shot.
********
Speaking of hypocrisy, when asked why, on an income of $240,000 a year, Barack and Michelle Obama didn't give more money to charity (they contributed less than 1% of their income), they complain about the high cost of raising kids, and having to pay back expensive student loans. (Gee, I make less than that, and I have a kid and some debt, but I manage to give a heck of a lot more than 1% of my income to charity.)
But now that they're millionaires (and giving more to charity, but still not a significant percentage, and they've only been doing since Barack declared his candidacy), Barack apparently feels differently about the bracket that he formerly struggled to live in.
Justifying his planned tax hikes, he said, "Once people are making over $200,000 to $250,000 they can afford to pay a little more in payroll tax." But wait - they can't afford to give to charity, not if they have kids or loans. So how can they afford to pay more in taxes?
This is what's wrong with big-government types. The world is better off if we direct our money to charity, under our own guidance, than if we trust politicians with it. Case in point: Obama himself, who has already - in his notably short tenure in Washington - proven himself adept at serving up pork. He requested $330 million in pork for his home state in a single year.
One example was the $1 million he requested for the University of Chicago Medical Center. A worthwhile cause, perhaps. Though maybe the fact that one Michelle Obama is a vice president of the hospital has something to do with the request. Or the fact that her pay for that role nearly tripled shortly after her husband got elected as Senator.
But it's probably just a coincidence. She probably just went plaintively to her boss, hat in hand, and explained how difficult it was for her and Barack to pay for their kids' dance lessons and sports supplements (which she recently complained cost about $10,000 a year - good Lord, what kind of supplements are they giving those kids?), and repay those darned expensive student loans, so could she please have a raise? And voila, her boss tripled her salary. Yeah, I'm sure that's how it went.
********
More on the Obamas: Barack - who's been seen by some as lacking the backbone to be Commander-in-Chief - showed his moxie in a recent interview, when he said that making Michelle a campaign issue was "unacceptable." Well, sorry, sport, but you're not dictator - er, President - yet, so you don't get to make that call.
Hey, he trumps her out on the campaign trail, uses her to appeal to the female vote, with which his opponent has an edge, encourages her to campaign on his behalf. So anything she says - especially things like "I've never been proud of my country," or "America is a mean country" - is fair game. Just ask Hillary, whose spouse's acute case of foot-in-mouth has cost her numerous times. Or ask John Kerry.
And another curious thing: Michelle's Princeton thesis, which addressed the topic of race, has been shelved by the University until November 5. Hmmm. Wonder who Princeton supports for President?
********
Finally, a thought from my good friend Rick Maner. The Democratic candidates often appeal to the blue-collar crowd by talking about how they're going to tax the "rich" to take care of "the working man." Well, Rick takes umbrage to that reference, as do I.
While certainly not "rich," we fall into the tax bracket to which both Clinton and Obama plan to put the screws (and I daresay we give more to charity than either of them). So their implication is that we're not "working men." Just because we don't carry a union card, or come home with grease on our pants and dirt under our fingernails.
Don't get me wrong, there's nothing wrong with those that do. I admire the work they do. But I work equally hard. Granted, what I do uses my brain more than my hands. But the average mechanic or plumber could no more do what I do, than I could do what they do. Someone apparently values what those of us in the higher tax brackets do - those of us that earn our living working for someone else, not trust fund babies or the like - or they wouldn't pay us what they do.
So, Hillary and Barack, when you say you're going to take care of "the working man," I'm curious: what are you going to do for me? At least I don't take two years away from my desk, while still drawing a salary, to run for President.
Like Bill, she's too full of herself to concede, even when she's clearly defeated. So she's taking the fight all the way to the convention, and trying desperately to get the Michigan and Florida delegates seated. Michigan - where Obama wasn't even on the ballot - offered her a compromise: 69 delegates for her, 59 for Obama (she beat "uncommitted" by a margin of 65% to 35%).
But Hillary wants them all. Why? Because she needs them all, if she's to claim the nomination.
In Florida, she's trying a populist approach, whipping voters into a frenzy. "You didn't break a single rule," she tells them. No, but the party did, and she didn't protest back then. "The outcome of our elections should be determined by the will of the people," she tells them, "and we believe the popular vote is the truest expression of your will."
Oh, really? Funny, I can't find a single speech she gave before the primaries and caucuses got underway where she argues that the delegate system should be discarded in favor of the popular vote. Why? Because she didn't feel that way until it suited her (lost) cause.
Yet she wants delegates seated. Hypocrisy? You bet.
This will only continue to divide Democrats, and it can't be good for the party. But I don't think that's what she wants. I think she knows she's lost, but she wants to wound Obama to the point that McCain beats him, so she can run again in four years. She doesn't want a solid Obama to win, then perhaps win a second term, then endorse his veep (which certainly won't be her), forcing her to wait anywhere from four to 12 or 16 years for another shot.
********
Speaking of hypocrisy, when asked why, on an income of $240,000 a year, Barack and Michelle Obama didn't give more money to charity (they contributed less than 1% of their income), they complain about the high cost of raising kids, and having to pay back expensive student loans. (Gee, I make less than that, and I have a kid and some debt, but I manage to give a heck of a lot more than 1% of my income to charity.)
But now that they're millionaires (and giving more to charity, but still not a significant percentage, and they've only been doing since Barack declared his candidacy), Barack apparently feels differently about the bracket that he formerly struggled to live in.
Justifying his planned tax hikes, he said, "Once people are making over $200,000 to $250,000 they can afford to pay a little more in payroll tax." But wait - they can't afford to give to charity, not if they have kids or loans. So how can they afford to pay more in taxes?
This is what's wrong with big-government types. The world is better off if we direct our money to charity, under our own guidance, than if we trust politicians with it. Case in point: Obama himself, who has already - in his notably short tenure in Washington - proven himself adept at serving up pork. He requested $330 million in pork for his home state in a single year.
One example was the $1 million he requested for the University of Chicago Medical Center. A worthwhile cause, perhaps. Though maybe the fact that one Michelle Obama is a vice president of the hospital has something to do with the request. Or the fact that her pay for that role nearly tripled shortly after her husband got elected as Senator.
But it's probably just a coincidence. She probably just went plaintively to her boss, hat in hand, and explained how difficult it was for her and Barack to pay for their kids' dance lessons and sports supplements (which she recently complained cost about $10,000 a year - good Lord, what kind of supplements are they giving those kids?), and repay those darned expensive student loans, so could she please have a raise? And voila, her boss tripled her salary. Yeah, I'm sure that's how it went.
********
More on the Obamas: Barack - who's been seen by some as lacking the backbone to be Commander-in-Chief - showed his moxie in a recent interview, when he said that making Michelle a campaign issue was "unacceptable." Well, sorry, sport, but you're not dictator - er, President - yet, so you don't get to make that call.
Hey, he trumps her out on the campaign trail, uses her to appeal to the female vote, with which his opponent has an edge, encourages her to campaign on his behalf. So anything she says - especially things like "I've never been proud of my country," or "America is a mean country" - is fair game. Just ask Hillary, whose spouse's acute case of foot-in-mouth has cost her numerous times. Or ask John Kerry.
And another curious thing: Michelle's Princeton thesis, which addressed the topic of race, has been shelved by the University until November 5. Hmmm. Wonder who Princeton supports for President?
********
Finally, a thought from my good friend Rick Maner. The Democratic candidates often appeal to the blue-collar crowd by talking about how they're going to tax the "rich" to take care of "the working man." Well, Rick takes umbrage to that reference, as do I.
While certainly not "rich," we fall into the tax bracket to which both Clinton and Obama plan to put the screws (and I daresay we give more to charity than either of them). So their implication is that we're not "working men." Just because we don't carry a union card, or come home with grease on our pants and dirt under our fingernails.
Don't get me wrong, there's nothing wrong with those that do. I admire the work they do. But I work equally hard. Granted, what I do uses my brain more than my hands. But the average mechanic or plumber could no more do what I do, than I could do what they do. Someone apparently values what those of us in the higher tax brackets do - those of us that earn our living working for someone else, not trust fund babies or the like - or they wouldn't pay us what they do.
So, Hillary and Barack, when you say you're going to take care of "the working man," I'm curious: what are you going to do for me? At least I don't take two years away from my desk, while still drawing a salary, to run for President.
Monday, May 19, 2008
Random Musings
Just a few thoughts rolling around my head after a great week in Charleston, SC. What a beautiful city, and a living history museum.
********
This blurb, taken from a paper titled "The Financial Instability Hypothesis" by Hyman P. Minsky, is an excellent technical description of the current state of economic affairs:
"Over a protracted period of good times, capitalist economies tend to move from a financial structure dominated by hedge finance units [defined as those that can fulfill all their contractual payment obligations by their cash flows] to a structure in which there is large weight to units engaged in speculative [units that can meet interest payment obligations out of cash flows, but often must roll over liabilities to re-finance] and Ponzi finance [as the name implies, units that must borrow or sell assets to meet principal and interest payment obligations]. Furthermore, if an economy with a sizeable body of speculative financial units is in an inflationary state, and the authorities attempt to exorcise inflation by monetary constraint, then speculative units will become Ponzi units and the net worth of previously Ponzi units with cash flow shortfalls will be forced to try to make position by selling out position. This is likely to lead to a collapse of asset values."
Likely, indeed.
********
Much has been made of John McCain's vision of the world in 2013, but many have missed the subtlety of the date he chose, which is significant. The next Presidential election is in 2012, so by choosing 2013 as the year in which all this will come to pass, he's basically saying, "Elect me, then re-elect me, and all my campaign promises will be fulfilled - but you've got to give me two terms to get it done." White House hopefuls have used this tactic for years.
********
Everybody seems to be trying to talk us out of this recession. There's jawboning coming from every angle: the obvious, like the President, Hank Paulson and Ben Bernanke; bank economists; CNBC pundits (naturally); other economists; and general media talking heads. But talking this recession down won't work. Everyone's ignoring the 15% additional decline in real estate values that's coming, the continued increase in homes on the market, looming defaults and foreclosures, and the coming crimp in consumer spending (despite stalwart assertions that the third quarter will see a boost in spending from the tax refunds, the majority of which will be saved, used to reduce debt, or channeled directly into the gas tank.
Word to the wise: brace yourselves.
********
Speaking of the rebates, let's put them in their proper perspective. The sum total of the rebates, as part of the overall stimulus package, is about $100 billion. File that factoid away for a minute.
Much of the spending spree of the early years of this decade was fueled by using homes as ATMs. Let's break those numbers down. From 2000 to 2005, mortgage debt grew by about $4 trillion. Half that volume came from refinancing. That's $2 trillion.
A 2002 Fed survey found that 25% of refinance funds were used to make consumer expenditures (dumb, dumb, dumb, but we'll leave that rant to Dave Ramsey). That's $500 billion, over five years, or $100 billion a year. That works out to about 1% of total personal consumption expenditures, or about 0.7% of GDP. And it's dried up now - there's no equity left to tap, and lenders are increasingly reluctant to let homeowners even try to tap it if they have it - so that's a 0.7% drag on output growth, in an economy that's only growing by 0.6% annualized.
Back to the rebates. If 100% of them get spent, that only boosts GDP by 0.7% (and please don't feed me the multiplier effect crap). That only offsets one year's worth of the now-vaporized home equity spending boost, which will remain vaporized for several years. What then?
And, if the more likely scenario of just about 25-40% of the rebate money getting spent materializes - and I'll bet much of that spending would go toward necessities, which now account for about 57% of the average American family budget, vs. less than 52% at the beginning of this decade - the impact is far less, on the order of about 0.2% of GDP.
Some stimulus.
********
This blurb, taken from a paper titled "The Financial Instability Hypothesis" by Hyman P. Minsky, is an excellent technical description of the current state of economic affairs:
"Over a protracted period of good times, capitalist economies tend to move from a financial structure dominated by hedge finance units [defined as those that can fulfill all their contractual payment obligations by their cash flows] to a structure in which there is large weight to units engaged in speculative [units that can meet interest payment obligations out of cash flows, but often must roll over liabilities to re-finance] and Ponzi finance [as the name implies, units that must borrow or sell assets to meet principal and interest payment obligations]. Furthermore, if an economy with a sizeable body of speculative financial units is in an inflationary state, and the authorities attempt to exorcise inflation by monetary constraint, then speculative units will become Ponzi units and the net worth of previously Ponzi units with cash flow shortfalls will be forced to try to make position by selling out position. This is likely to lead to a collapse of asset values."
Likely, indeed.
********
Much has been made of John McCain's vision of the world in 2013, but many have missed the subtlety of the date he chose, which is significant. The next Presidential election is in 2012, so by choosing 2013 as the year in which all this will come to pass, he's basically saying, "Elect me, then re-elect me, and all my campaign promises will be fulfilled - but you've got to give me two terms to get it done." White House hopefuls have used this tactic for years.
********
Everybody seems to be trying to talk us out of this recession. There's jawboning coming from every angle: the obvious, like the President, Hank Paulson and Ben Bernanke; bank economists; CNBC pundits (naturally); other economists; and general media talking heads. But talking this recession down won't work. Everyone's ignoring the 15% additional decline in real estate values that's coming, the continued increase in homes on the market, looming defaults and foreclosures, and the coming crimp in consumer spending (despite stalwart assertions that the third quarter will see a boost in spending from the tax refunds, the majority of which will be saved, used to reduce debt, or channeled directly into the gas tank.
Word to the wise: brace yourselves.
********
Speaking of the rebates, let's put them in their proper perspective. The sum total of the rebates, as part of the overall stimulus package, is about $100 billion. File that factoid away for a minute.
Much of the spending spree of the early years of this decade was fueled by using homes as ATMs. Let's break those numbers down. From 2000 to 2005, mortgage debt grew by about $4 trillion. Half that volume came from refinancing. That's $2 trillion.
A 2002 Fed survey found that 25% of refinance funds were used to make consumer expenditures (dumb, dumb, dumb, but we'll leave that rant to Dave Ramsey). That's $500 billion, over five years, or $100 billion a year. That works out to about 1% of total personal consumption expenditures, or about 0.7% of GDP. And it's dried up now - there's no equity left to tap, and lenders are increasingly reluctant to let homeowners even try to tap it if they have it - so that's a 0.7% drag on output growth, in an economy that's only growing by 0.6% annualized.
Back to the rebates. If 100% of them get spent, that only boosts GDP by 0.7% (and please don't feed me the multiplier effect crap). That only offsets one year's worth of the now-vaporized home equity spending boost, which will remain vaporized for several years. What then?
And, if the more likely scenario of just about 25-40% of the rebate money getting spent materializes - and I'll bet much of that spending would go toward necessities, which now account for about 57% of the average American family budget, vs. less than 52% at the beginning of this decade - the impact is far less, on the order of about 0.2% of GDP.
Some stimulus.
Monday, May 5, 2008
Long Time, No Blog
It's been a lengthy hiatus from the blog for me. I've actually been doing so much music writing and recording of late that I haven't had much free time, but I wanted to get a brief post out here.
From Reuters: "Prosecutors ... are stepping up their scrutiny of players in the subprime-mortgage crisis ... A task force of federal, state and local agencies will look into potential crimes ..."
I was glad to read this. Let's go after the people who promulgated this mess. But as I read further, my hopes were dashed.
The range of crimes being looked into? Mortgage fraud by brokers, securities fraud, insider trading and accounting fraud. The targets? Wall Street firms like UBS and Bear Stearns, lenders like Countrywide, builders like Beazer Homes, and major insiders.
How about going after the ratings agencies for totally missing the boat on assessing risk, which is their one and only job? How about going after the bond insurers for taking on excessive risk? (Sure, in a free market you should be able to take on as much risk as you want. But some of the monolines still carry AAA ratings, even after losing 95% of their value and having to borrow at rates up to 14% to raise the capital they have to raise to stay alive. So maybe it comes back to the ratings agencies.)
Finally - can we prosecute the people who lied about their incomes, assets and ability to make the payments on their loans? Who knew they wouldn't be able to make the payments on a low-teaser rate ARM once it reset, but didn't care because they just knew their new McMansion's value would go up by double digits every year until the end of time? Or the people who just stop paying their mortgage because their house is now worth less than the loan balance, even though they can make the payment?
Barney Frank doesn't think so. Ol' Barn wants to bail those people out, to the tune of $2.7 billion of taxpayers' money, including taxpayers who also happen to be responsible homeowners and renters. (For more details, read my article "Kill (This) Bill" in our company's newsletter for May - go to www.cnbsnet.com, and click on the story in the MarketCast box.)
Well, I think Barney should be prosecuted with the rest of them for even proposing such a notion. I'll bet less than 1% of delinquent subprime borrowers were unwittingly duped by a rogue lender. The rest were as criminal as the lenders, Wall Street, the builders and the ratings agencies. Or at least criminally stupid, as Barney Frank appears to be.
From Reuters: "Prosecutors ... are stepping up their scrutiny of players in the subprime-mortgage crisis ... A task force of federal, state and local agencies will look into potential crimes ..."
I was glad to read this. Let's go after the people who promulgated this mess. But as I read further, my hopes were dashed.
The range of crimes being looked into? Mortgage fraud by brokers, securities fraud, insider trading and accounting fraud. The targets? Wall Street firms like UBS and Bear Stearns, lenders like Countrywide, builders like Beazer Homes, and major insiders.
How about going after the ratings agencies for totally missing the boat on assessing risk, which is their one and only job? How about going after the bond insurers for taking on excessive risk? (Sure, in a free market you should be able to take on as much risk as you want. But some of the monolines still carry AAA ratings, even after losing 95% of their value and having to borrow at rates up to 14% to raise the capital they have to raise to stay alive. So maybe it comes back to the ratings agencies.)
Finally - can we prosecute the people who lied about their incomes, assets and ability to make the payments on their loans? Who knew they wouldn't be able to make the payments on a low-teaser rate ARM once it reset, but didn't care because they just knew their new McMansion's value would go up by double digits every year until the end of time? Or the people who just stop paying their mortgage because their house is now worth less than the loan balance, even though they can make the payment?
Barney Frank doesn't think so. Ol' Barn wants to bail those people out, to the tune of $2.7 billion of taxpayers' money, including taxpayers who also happen to be responsible homeowners and renters. (For more details, read my article "Kill (This) Bill" in our company's newsletter for May - go to www.cnbsnet.com, and click on the story in the MarketCast box.)
Well, I think Barney should be prosecuted with the rest of them for even proposing such a notion. I'll bet less than 1% of delinquent subprime borrowers were unwittingly duped by a rogue lender. The rest were as criminal as the lenders, Wall Street, the builders and the ratings agencies. Or at least criminally stupid, as Barney Frank appears to be.
Thursday, April 17, 2008
Random Political Musings
Lots of politics in the news these days. So here goes, in no particular order.
McCain is in Phase Two of the textbook Presidential Candidate's Strategy, which is to hang out in the center through the primaries, then run to the extreme - in his case, the right - when you've got the nomination sewn up.
During primary season, he touted his ability to cross the aisle. Now, in an effort to shore up support from his party's base, he's announced an economic plan that would go well beyond just extending the Bush tax cuts. That will have broad appeal with the Republican base, but it won't excite Independents much, and it'll definitely turn off liberals. Tax cuts in general are a good thing, but may not be the best thing right now.
McCain has also announced that he won't entertain a VP candidate who's pro-choice. That rules out Rudy Giuliani, and in the eyes of some, it also rules out winning California. But a certain Ronald Reagan carried the Golden State, and he was pro-life. Of course, he was also from California.
Some observers have started to harp on McCain's age, trying to raise concerns as to whether he can handle the job of Commander-in-Chief at his ripe old age.
For one thing, this guy has survived stuff that you and I probably couldn't even imagine in our worst nightmares. And second, as his defenders have pointed out, he's handled the rigors of a Presidential campaign - a pretty exhausting undertaking - rather well.
In fact, he's fared better than at least one of his opponents: he hasn't gotten so tired that he "mis-spoke," or broke down in tears.
Speaking of Hillary, she's really trying to get maximum mileage out of Obama's gaffe about Pennsylvanians. She's released a series of ads talking about how we cling to our religion all the time, not just in times of trouble.
That sounds great, but I saw her interviewed last weekend at a Jewish college, and someone asked her what her favorite Bible passage was. She rambled on at length about Esther - what a great book it was, how she asked her mother to read it to her every night, how many great stories were in it, what a role model Esther was, how much she'd like to learn even more about Esther than just what's in the Bible. But she couldn't cite a single verse. She probably forgot the ones she knew when she was dodging bullets in Bosnia.
As for Obama, his explanation of his comments was pretty lame. He said in last night's debate that this wasn't the first time one of his statements "got mangled up." That sounds to me like a classic responsibility dodge: he didn't say, "I mangled my statement," he said it "got mangled." That implies to me that he's blaming the media.
His initial response was to stand by his statements, until somebody pointed out to him, "Uhh, Barack, some people in Pennsylvania are a bit peeved at you." So then he began to back-pedal. He did the same thing after the Rev. Wright debacle.
The more somebody has to explain their comments, the more weight I tend to place on the original comments as being indicative of their true character and convictions, and the less credence I lend to the explanations. Explanations benefit from the time to reflect, gauge reaction to the initial comments, and be coached by one's handlers. Increasingly, this guy is showing more audacity than hope.
Meanwhile, the Democratic leadership is stepping up its calls for the super-delegates to make a choice in early June. Hillary doesn't like that, of course; she'd rather seal a GOP victory and take another shot in four years than concede before the convention. Meanwhile, it's "pass the popcorn" time for the Republicans.
McCain is in Phase Two of the textbook Presidential Candidate's Strategy, which is to hang out in the center through the primaries, then run to the extreme - in his case, the right - when you've got the nomination sewn up.
During primary season, he touted his ability to cross the aisle. Now, in an effort to shore up support from his party's base, he's announced an economic plan that would go well beyond just extending the Bush tax cuts. That will have broad appeal with the Republican base, but it won't excite Independents much, and it'll definitely turn off liberals. Tax cuts in general are a good thing, but may not be the best thing right now.
McCain has also announced that he won't entertain a VP candidate who's pro-choice. That rules out Rudy Giuliani, and in the eyes of some, it also rules out winning California. But a certain Ronald Reagan carried the Golden State, and he was pro-life. Of course, he was also from California.
Some observers have started to harp on McCain's age, trying to raise concerns as to whether he can handle the job of Commander-in-Chief at his ripe old age.
For one thing, this guy has survived stuff that you and I probably couldn't even imagine in our worst nightmares. And second, as his defenders have pointed out, he's handled the rigors of a Presidential campaign - a pretty exhausting undertaking - rather well.
In fact, he's fared better than at least one of his opponents: he hasn't gotten so tired that he "mis-spoke," or broke down in tears.
Speaking of Hillary, she's really trying to get maximum mileage out of Obama's gaffe about Pennsylvanians. She's released a series of ads talking about how we cling to our religion all the time, not just in times of trouble.
That sounds great, but I saw her interviewed last weekend at a Jewish college, and someone asked her what her favorite Bible passage was. She rambled on at length about Esther - what a great book it was, how she asked her mother to read it to her every night, how many great stories were in it, what a role model Esther was, how much she'd like to learn even more about Esther than just what's in the Bible. But she couldn't cite a single verse. She probably forgot the ones she knew when she was dodging bullets in Bosnia.
As for Obama, his explanation of his comments was pretty lame. He said in last night's debate that this wasn't the first time one of his statements "got mangled up." That sounds to me like a classic responsibility dodge: he didn't say, "I mangled my statement," he said it "got mangled." That implies to me that he's blaming the media.
His initial response was to stand by his statements, until somebody pointed out to him, "Uhh, Barack, some people in Pennsylvania are a bit peeved at you." So then he began to back-pedal. He did the same thing after the Rev. Wright debacle.
The more somebody has to explain their comments, the more weight I tend to place on the original comments as being indicative of their true character and convictions, and the less credence I lend to the explanations. Explanations benefit from the time to reflect, gauge reaction to the initial comments, and be coached by one's handlers. Increasingly, this guy is showing more audacity than hope.
Meanwhile, the Democratic leadership is stepping up its calls for the super-delegates to make a choice in early June. Hillary doesn't like that, of course; she'd rather seal a GOP victory and take another shot in four years than concede before the convention. Meanwhile, it's "pass the popcorn" time for the Republicans.
Wednesday, April 16, 2008
What Goes Around, Comes Around
The Mortgage Bankers' Association is a trade group for mortgage lenders - you know, the people who spent the last several years writing loans with shaky terms to buyers with even shakier credit. It seems last year, they decided to build a new headquarters in pricey Washington, DC. They figured if they built a bigger, fancier building, they could lease the excess space in the hot DC commercial real estate market, thereby making the building affordable. Besides, money was cheap, and their revenues were swollen by the hordes of people that had joined the mortgage lending business, lured by the promise of an endless stream of fat commissions.
That was then. This is now.
Money's not so cheap anymore, and their own lender wants an extra 10% down on the $100 million, 160,000 square foot building. Gulp.
Their revenues are down 10-15%, because of all their member firms that have gone belly-up and/or fired scores of loan officers. Double gulp.
And the housing-bubble-caused recession has resulted in such softening of the commercial real estate market in DC - which is undoubtedly as overbuilt as the subdivisions the mortgage bankers tried to fill - that the MBA can't lease their vacant space. Ouch.
As a result of this triple-whammy, the Mortgage Bankers' Association may face difficulty paying their own mortgage.
Cost of a new building in Washington, DC for the Mortgage Bankers' Association: $100 million.
Additional down payment required by commercial mortgage lender: $10 million.
The prospect of the Mortgage Bankers' Association defaulted on its own mortgage: Priceless.
That was then. This is now.
Money's not so cheap anymore, and their own lender wants an extra 10% down on the $100 million, 160,000 square foot building. Gulp.
Their revenues are down 10-15%, because of all their member firms that have gone belly-up and/or fired scores of loan officers. Double gulp.
And the housing-bubble-caused recession has resulted in such softening of the commercial real estate market in DC - which is undoubtedly as overbuilt as the subdivisions the mortgage bankers tried to fill - that the MBA can't lease their vacant space. Ouch.
As a result of this triple-whammy, the Mortgage Bankers' Association may face difficulty paying their own mortgage.
Cost of a new building in Washington, DC for the Mortgage Bankers' Association: $100 million.
Additional down payment required by commercial mortgage lender: $10 million.
The prospect of the Mortgage Bankers' Association defaulted on its own mortgage: Priceless.
Thursday, April 10, 2008
Your Tax Dollars at Work
Congress is at it again. The Senate passed a bill that would, among other things, give a $7,000 tax credit to buyers of foreclosed homes. This is the stupidest idea yet for dealing with the housing crisis.
Let's say I'm a mortgage lender, and I've got a borrower who's behind on the payment on his adjustable-rate mortgage, which has reset to a rate he can't afford. I'm supposed to be working with him to keep him in the house, right (yet another stupid idea)?
Well, if I foreclose on the house, it's suddenly more attractive to a prospective buyer than the house next door, which also happens to be for sale, but the seller is a responsible homeowner who didn't buy more house than she could afford, always made her payments on time, and now just wants to move to a bigger place.
Why is the foreclosed property more valuable? Simple. If I buy the responsible lady's house, I just get the usual tax breaks associated with homeownership. If I buy the foreclosed house, I get those benefits, plus a $7,000 credit. Easy choice.
So this results in another foreclosure, one that perhaps could have been avoided with a workout. Multiply it by the huge numbers of serious delinquencies out there - which, for the first time in history, are double the number of foreclosures because of the bulging backlog of serious delinquencies that lenders face - and you have a sizeable increase in foreclosures on your hands. The Senate, in other words, would basically provide an incentive to lenders to become foreclosure trigger-happy.
It also hurts the responsible lady who's always made her payments on time, in that it will require her to discount her house to offset the advantage to the buyer of the tax break on the foreclosed property. And it brings with it the usual problems of increased foreclosure, such as devaluation of properties in the neighborhood, vandalism of the unoccupied foreclosed house, etc.
The bill's backers say that it would move foreclosed homes off the market more quickly, and they point out that it would "only" cost taxpayers $1.6 billion. But they're missing the point that it would increase foreclosures, as noted above. More foreclosures means more tax breaks. More tax breaks means higher costs. Potentially much higher.
This is yet another taxpayer bailout, and even worse, it only bails out the lenders, who were among the most culpable parties to begin with. Thankfully, the bill will likely either get modified beyond all recognition by the House, or vetoed.
********
Thought for the day: the credit crisis is the new Mark Twain - rumors of its demise are greatly exaggerated.
And we have another stupid rally in equities today, with the Dow up about 100 points. Why? Because Wal-Mart reported higher-than-expected sales for the first quarter. And why did Wal-Mart do so well? Because other retailers sales have fallen out of bed, as recession-wary Americans do their shopping on the cheap. In other words, the economy is so bad that everyone's shopping at Wal-Mart to save as much money as they can. This is bad for the economy overall, but good for Wal-Mart.
So of course, the entire market rallies. I'm still glad I'm short.
Let's say I'm a mortgage lender, and I've got a borrower who's behind on the payment on his adjustable-rate mortgage, which has reset to a rate he can't afford. I'm supposed to be working with him to keep him in the house, right (yet another stupid idea)?
Well, if I foreclose on the house, it's suddenly more attractive to a prospective buyer than the house next door, which also happens to be for sale, but the seller is a responsible homeowner who didn't buy more house than she could afford, always made her payments on time, and now just wants to move to a bigger place.
Why is the foreclosed property more valuable? Simple. If I buy the responsible lady's house, I just get the usual tax breaks associated with homeownership. If I buy the foreclosed house, I get those benefits, plus a $7,000 credit. Easy choice.
So this results in another foreclosure, one that perhaps could have been avoided with a workout. Multiply it by the huge numbers of serious delinquencies out there - which, for the first time in history, are double the number of foreclosures because of the bulging backlog of serious delinquencies that lenders face - and you have a sizeable increase in foreclosures on your hands. The Senate, in other words, would basically provide an incentive to lenders to become foreclosure trigger-happy.
It also hurts the responsible lady who's always made her payments on time, in that it will require her to discount her house to offset the advantage to the buyer of the tax break on the foreclosed property. And it brings with it the usual problems of increased foreclosure, such as devaluation of properties in the neighborhood, vandalism of the unoccupied foreclosed house, etc.
The bill's backers say that it would move foreclosed homes off the market more quickly, and they point out that it would "only" cost taxpayers $1.6 billion. But they're missing the point that it would increase foreclosures, as noted above. More foreclosures means more tax breaks. More tax breaks means higher costs. Potentially much higher.
This is yet another taxpayer bailout, and even worse, it only bails out the lenders, who were among the most culpable parties to begin with. Thankfully, the bill will likely either get modified beyond all recognition by the House, or vetoed.
********
Thought for the day: the credit crisis is the new Mark Twain - rumors of its demise are greatly exaggerated.
And we have another stupid rally in equities today, with the Dow up about 100 points. Why? Because Wal-Mart reported higher-than-expected sales for the first quarter. And why did Wal-Mart do so well? Because other retailers sales have fallen out of bed, as recession-wary Americans do their shopping on the cheap. In other words, the economy is so bad that everyone's shopping at Wal-Mart to save as much money as they can. This is bad for the economy overall, but good for Wal-Mart.
So of course, the entire market rallies. I'm still glad I'm short.
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