Condemning a Generation to Serfdom for Financial Irresponsibility: Home Mortgages, Loans on Cars, and Credit Card Debt.

02 12 2008

Condemning a Generation to Serfdom for Financial Irresponsibility: Home Mortgages, Loans on Cars, and Credit Card Debt.

Posted by: admin in Real-estate news

You know what is shocking about the growing list of bailouts? It isn’t that we come out with a new bailout even before the ink is dry on previous action. What is striking is the amazing disregard for the future generations of our country. You do realize as a nation that we are broke right? So every action that we take to intervene in the markets is done via two methods. One, we borrow the money which has been the status quo. The second method is printing money which given the magnitude and the commitment of funds will shortly arrive at our doorstep. It doesn’t seem like many people care about the moral responsibility of leaving a better country for those that come after us and once again this selfish egocentric give me everything now mentality is dominating Wall Street and Washington. God forbid that consumers will have to watch their spending for even one freaking holiday season. You wouldn’t want your kid to go another year without that third edition of Tickle me Elmo.

What is disturbing is we have yet to hear from anyone for nearly an entire decade two simple words:

“Stop spending!”

Stop buying homes you can’t afford. Stop leasing cars that eat up 40 to 50 percent of your net income. Stop using your credit card as your personal loan shark. Stop taking on massive amounts of debt. Stop spending money you do not have!

Most reasonable people would agree with the above. But how can Wall Street and Washington ask this of our American citizens when they do the exact opposite. They spend more than they have. They run deficits as if they were going out of fashion. Fiscal responsibility is not allowed in Washington. Wall Street is the puppet master coming with hat in hand begging for money after they are the machine that created the ecological system for this credit fungus to spread. And why do they want this money? To feed the hamster so he can go back on the consumer wheel and keep on spending until he flies off it due to exhaustion.

Where is the outrage that rose up when the $700 billion TARP plan was initially announced? This is really a bipartisan issue here. In fact, much of the uproar around this came from both sides of the aisle. It is patently absurd that here we are, having Paulson announce another $800 billion with $200 billion of that going to support consumer debt! Does anyone pause for two minutes and think, “if people actually saved a little bit of money, they wouldn’t need credit to buy 2 Taco Bell Chalupas?” I saw someone using their credit card to buy a freaking $1 taco! And this is the market we are trying to unfreeze? No wonder why Wall Street and our enabling government are flat broke and begging like vagabonds for handouts.

New Home Sales and Prices Fall

You might have missed it but the housing numbers were horrific yesterday. The median price dropped to $183,000 nationwide, the biggest yearly decline on record. New home purchases in October were at their lowest point in half a century. You might have missed this important piece of information since it was a bailout free money orgy spectacular yesterday with the Citigroup bailout. Your head might have been spinning as if you jumped off a cliff with a bungee cord into a pool of money and had three bounces to collect as much cash as you can. That’s what things have been like these last few months. It has been a free money orgy. Even back in June, I recall having a debate about a $25 billion assistance to home builders and the uproar that caused. Now the U.S. Treasury can unilaterally commit us to $306 billion in one Sunday evening. What the hell has happened? Remember the outrage over the crony capitalistic FHA bailout for home borrowers? As it turns out, that program now looks like a blessing and something we should have in relation to what is currently being dished out in the buffet of stupid finance theatre.

If you carefully scour the data however, there was a piece of good news in the data. Prices in the west fell mightily. The median price dropped to $231,400 as reported by the NAR which translates to a 27 percent drop from last year. What a shock, that for the region sales are up 41 percent from last year. Who would have thought that pricing a home at a reasonable price would get people to start buying again? Seems like the market is clearing homes out so long as they are priced right.

The Case-Shiller Index data was released today and once again shows spectacular declines:

Case Shiller Index

*Source: Calculate Risk

The national index now has prices off by 21% from their peak. As you can see from the chart above, out of the 6 top declining cities 5 of them are here in the southwest. 3 of the 6 are here in sunny California. This once again supports my thesis that home prices will not bottom until May of 2011. You do realize that we have a boat load of option ARM mortgages set to recast next year? Next year will be our first test in terms of large numbers to see how the state can handle this oncoming tsunami of what is arguably the most toxic of all loans. People now point out that the government will suck these loans onto their books so all is fine. Well even if the government takes ownership of these loans it doesn’t remove the fact that the borrower is still in a load of trouble. So the government now owns the loan. All we have done is taking the problem away from an irresponsible lender to the U.S. taxpayer. It doesn’t solve the cash flow situation of the borrower. That is what we are left dealing with. And as I made the point above, we are broke.

Bloomberg has a nice little diagram showing that the government has now committed us to $7.7 trillion in “assistance” to getting us out of this mess. Take a look at this chart:

7 trillion in bailout funds

Keep in mind the above graph doesn’t include the $306 billion committed to Citigroup and the recent expansion announced by Paulson. It is simply an insane amount. Given that our GDP is $13.8 trillion we’ve just committed over 50% of that amount to the toxic welfare mortgage credit boondoggle program of America. Or if you prefer, we’ve just committed the yearly GDP of Brazil, Canada, Spain, and Italy combined to these programs:

United States GDP

And even with all these commitments the markets are still down over 40% from their peaks! You imagine what kind of amazing rally we’d have if we just flat out injected $7.7 trillion into the stock market? It would be like a 4^th of July for the markets and the ticker would be hemorrhaging green for days. We’d have to use a wheelbarrow with dollars to purchase bread but at least we’d feel better. Or we would all be issued U.S. Treasury Visa cards directly linked to the TARP fund. The catch would be this. You have to spend as much as you can and as quickly as you can because it would be on a first come first served basis. The fund would be limited to $1 trillion so you’d have to act fast sort of like how Wall Street banks are right now. They have served as a perfect model of excellence if we institute a program like this.

You may think this idea is out of the box but look at what we are dealing with right now. Can you believe no significant perp walks have taken place? We need to hold those accountable and put them in prison. We need to demand this. A bank robber who gets away with $50,000 will face many decades behind bars. Here, you lose a few billion for your bank and you get additional funds. What a great message we are sending here.

Even Franklin D. Roosevelt went after the “money changers” during his inaugural address during the Great Depression:

“Yet our distress comes from no failure of substance. We are stricken by no plague of locusts. Compared with the perils which our forefathers conquered because they believed and were not afraid, we have still much to be thankful for. Nature still offers her bounty and human efforts have multiplied it. Plenty is at our doorstep, but a generous use of it languishes in the very sight of the supply. Primarily this is because the rulers of the exchange of mankind’s goods have failed, through their own stubbornness and their own incompetence, have admitted their failure, and abdicated. Practices of the unscrupulous money changers stand indicted in the court of public opinion, rejected by the hearts and minds of men.

True they have tried, but their efforts have been cast in the pattern of an outworn tradition. Faced by failure of credit they have proposed only the lending of more money. Stripped of the lure of profit by which to induce our people to follow their false leadership, they have resorted to exhortations, pleading tearfully for restored confidence. They know only the rules of a generation of self-seekers. They have no vision, and when there is no vision the people perish.

The money changers have fled from their high seats in the temple of our civilization. We may now restore that temple to the ancient truths. The measure of the restoration lies in the extent to which we apply social values more noble than mere monetary profit.”

There better be some justice here. But seeing how we have the money changers now running the show, how likely is this in 2009? Hopefully we can see beyond party lines and hold those accountable for the biggest financial mess since the Great Depression. Keep in mind that during the 1930s trial after trial held these masters of the world in contempt and put them in jail. We should demand the same today since their crimes are equally if not worse than those of that time.

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