Friday, March 26, 2010

Housing Market Support: Enough is Enough Already

This will be a quick post as Mrs. Disconnect is a huge Twilight book/film obsessed fan and we are set to watch "New Moon" tonight. She is chomping at the bit for an 8pm start and I do what I am told!

Tax Time
I get to have my taxes done by the accountant tomorrow. I am going to owe because I made out pretty well last year on the limited number of moves that I made. Paying taxes on money I made when it is done using after tax money I already paid on reminds me of a scene from an obscure film "Kidco". The set up is the owner of the all kid fertilizer business is taken to court on a charge of not paying sales tax on his product, which is horse manure. The lead kid represents himself and calls as a witness the man that sells hay and oats to his father to feed the horses that make the manure he uses as fertilizer. The exchange goes like this, but it is from memory so I may be off:
Kid: Mr. Jones, does my dad buy all his feed from your store?
Mr. Jones: Yup.
Kid: Does my Dad pay you sales tax on said items?
Mr. Jones: Yup.
Prosecutor: Your honor, the question is not whether the defendants father paid sales tax....(interrupted)
Kid: Good. Good. Your honor, you see all Kidco sells is manure, which used to be hay and oats! Don't you see!? We are getting taxed at both ends!!!
Court erupts with laughter.
A funny film if you can find a copy.

New Earnings Guidelines
Market Ticker does a good job with estimating the hit to earnings and margins increased health care costs will have on stocks:
Consequences of Health Care: Valuations
Karl looks at AT&T, Caterpillar, and John Deere and sees a real hit. I cannot argue with his math, he is correct and two years ago I would have said "stock market will go lower". I am much smarter now.

What WILL happen (you read it here first) is that earnings will be reported as ex-health care costs. Just like inflation, ex-inflation is done. No material difference will be attributed to this and the market will accept that. Going further out in time, expect that when the government takes over the whole show companies will be allowed to go back and write off as tax credits what ever money they did lose on health care costs (much like the homebuilder tax credit gift). I am 95% sure of this prediction.

Housing Market Support: Enough is Enough Already
This section is going to be short both due to vampire film time constraints and my own interest in not getting so aggravated that I have to do 10 rounds on the heavy bag just to relax.

By now all should know that every housing support program is another tweak for the good of the banking system that has overextended itself to the point of insolvency on real estate loans gone bad. I have had it with all this crap. Can anything be done to penetrate the small circle jerk of fools running this show and point them towards another avenue? All the best writers and thinkers see what is going on and know this is not working and is terribly hazardous as well. The only people that like the current waste of capital are:
A.) The big banks
B.) The Academia Economists
C.)Some of the book wise, world lost economic writers like those found at the Calculated Risk blogroll, ok B and C are the same.
D.) Politicians that want to be seen as doing something, anything to help the poor souls in mortgage trouble
E.) All those lucky ones living payment free for years at a time while extend and pretend passes them by

Not much of a list. Pretty piss poor actually.

I will make it simple for anyone at the helm and I will use small words as not to confuse them:
Housing is still too expensive and has to fall further

So you know I am not a lone crazy nut on this, consider the following sage write ups over the past few days that make this point so clearly that there can be no debate as to what has to happen:
Kid Dynamite
The Automatic Earth
Bruce Krasting
Barry Ritholtz
There are plenty more.

My spotlight article for the night touches upon something I have discussed for some time: Why not bailout all stock market losses as well? Why is that different from housing? You know that answer; poor saps on the street got left holding the bag on stock rashes while the banks hold all the bad mortgage paper. Guess who is too big to fail and has the ear of the government? Not you, correct!:
What's Next? Is Obama Going To Protect Investors Against Loss In The Stock Market
The headline could read "Is Obama-Bush-Whomever" as I do not think that matters at all. Hilarious side by side comparison:
The Obama administration will announce a major new stock market initiative on Friday that will directly tackle the problem of the millions of Americans who lost money betting on stocks. The government will buy loans from stock brokerage houses at the current value of the stocks in an investor’s portfolio, in an effort to stabilize the stock market, people briefed on the plan said. The government will also increase incentive payments to stock brokers who loaned on margin to their investing clients and now assume some of the losses of those clients. And it will require those stock brokers to cover some of the losses of unemployed investors for a minimum of three months.

OK, I made that up. But how is it different from this, which is real?

The Obama administration will announce a major new housing initiative on Friday that will directly tackle the problem of the millions of Americans who owe more on their houses than they are worth. The government will buy loans from investors at the current value of the house in an effort to stabilize the market, people briefed on the plan said. The government will also increase incentive payments to lenders that cut the principal of borrowers in modification programs. And it will require lenders to cut the monthly payments of unemployed borrowers for a minimum of three months.
Creepy!
The whole piece is a must read so please check it out.

Friday Night Entertainment
Enough down, let's get up!

Free T-Shirts
I think every member of CONgress that passed the "Big Fu#king Deal" known as Health Care should get one of these T-Shirts:

NICE!

Book Review
A little while back some of us got to talking about swords, samurai swords to be exact, and reader Gawains pointed out a book titled "The Book of Five Rings" by legendary duelist master Miyamoto Musashi. I had of course heard of the man, but not the book. I read the translated version I picked up on Wednesday night and I can tell you this book holds many lessons that can be applied to all aspects of life. It is well worth your time. One of my favorite sections from the book:
The eyes are to be focused in such a way as to maximize the range and breadth of vision. Observation and perception are two separate things; the observing eye is stronger, the perceiving eye is weaker. A specialty of martial arts is to see that which is far away closely and to see that which is nearby from a distance.
Great stuff.

Picture Pages
Time to get your markers and your pencils!

"Permission to buzz the tower?"
"Negative ghost rider, the pattern is full!":
funny pictures of cats with captions
see more Lolcats and funny pictures

I would have won this round of "Wheel of Fortune":

What was the correct answer????

New "Predators" Film
The Robert Rodriguez film "Predators" figured to be a crappy film but based on the top cast they have and the trailer, I think this movie could be pretty good:


Rock Blogging
It is time to start the show; the curtain must go up!

I will lead off with a song I had never heard until Ilargi, writer of The Automatic Earth (you do read it don't you???) relayed it to me this evening. Check out the funky Comsat Angels and "Waiting for a Miracle":


Plenty of requests this week, so lets go Anon's (grab a name!) request for Flock of Seagulls and "I Ran":

"Hey, do you like Flock of Seagulls?"
"I can see you do!"

Another winning request, this one is Cheap Trick's "I Want You to Want Me":


I feel the need for hair band metal. You too? Great!

How about one of my favorite Motley Crue songs, and one of the their best, "10 Seconds to Love":


I guess two more should about cover it! What to play.....

Found a nice live Joan Baez version of "The Night They Drove Old Dixie Down", a song I like very much:


Lighters up! Last call and the lights go out! Well not really...you know what I mean.

Just to stretch the range here, I offer No Doubt (whom I have seen in concert, they rock!) and "Hey Baby". Just to make the record straight, after I dumped Gwen Stefani she ran off and married that actor on the rebound. No accounting for taste!:


Have a good night.

8 comments:

Anonymous said...

I'd pick a name but I don't know how.

getyourselfconnected said...

Anon,
LOL!

I can say the "New Moon" film was ok, not as good as the first.

GawainsGhost said...

To answer you question, there is one thing that could penetrate the small circle jerk of fools running this show. You could take a samurai sword to their ass.

Ha! But seriously, GYC, I'm glad you enjoyed The Book of Five Rings. It is the definitive study on strategy, which is why it's required reading at most prestigious business schools. Or it used to be anyway, before the idiots overhauled the curriculum. Still, it is a fascinating book that requires close reading and careful study. The more you read it, the more you learn and understand.

Anyway, those were great articles by Kid Dynamite and Automatic Earth. Both are spot on, all of these programs are aimed at bailing out the banks and papering over losses. In other words, covering up the lending fraud and appraisal fraud and brokerage fraud that created this financial mess. Eventually though the losses will have to be realized, and then there will be much wailing and gnawing of teeth.

However, I think most commentators are missing something in their analysis. Prudent borrowers who bought their homes before or even after the bubble are not threatened by declining house prices. The golden rule of real estate is this--you only lose money if you are forced to sell. If you 1) bought your house to live in it, and 2) made a substantial downpayment on a fixed-rate mortgage, then the market swings, up or down, really have no effect on you. Just live in the house, pay off the mortgage, and when the market recovers, as it will, then you can sell and recoup your investment and probably even make a profit.

Naturally, if you are forced to sell in a declining market, you're going to lose money. Or if you took out a toxic loan--0% down, interest only, adjustable rate mortgage, or even worse rolled over closing costs--well, then you're in deep doo doo. Especially if you bought at the height of the bubble.

(con't)

GawainsGhost said...

I had a good friend of mine call me the other day. He asked if I could write an appraisal for him. I explained that I could not, since I am not a licensed appraiser, but that I could do a market analysis and write a price opinion. Then I asked him why he wanted an appraisal.

Well, it seems his mortgage payments (PIT) had gone up over $300/month over the last few years, from just over $700 to more than $1000, and it was killing him. I told him I would look into it.

He bought his house for $80,000 some years ago. But now the county is taxing it at over $116,000! Whoa. (Or Woe.) I looked at some comps and estimated a reasonable fair market value for his house at around $105,000. That would be what he could expect to get in the current market, if he had to sell, although that might take several months. But it's still more than $10,000 below what he's paying taxes on.

So I printed some information to provide him with evidence and told him to go talk to the county appraisal district. Maybe he could convince them to lower the assessed value. (No small task, mind you.)

I also told him the problem might also be the type of mortgage he took out, and that he should look into refinancing to a fixed-rate mortgage at a lower interest rate. Since he obviously has considerable equity in the home (it's now worth $25,000 more than he paid for it), that shouldn't be difficult.

For this service I of course charged him nothing. Friends help friends, you know. But I think this example illustrates the larger problem.

(con't)

GawainsGhost said...

In this economy, with high unemployment, stagnant wages and tightened credit, housing prices have nowhere to go but down. But property taxes keep going up. This is incongruent and unsustainable.

The reason why housing prices went up so dramatically, especially in the bubble states (CA, AR, NV, FL), was because of the credit bubble. Easy money, "creative" financing, liar loans and the like, seduced people into taking on way too much debt to buy houses at grossly inflated prices.

Prudent borrowers who sold at the height of the bubble made a killing. Imprudent borrowers who bought at the height of the bubble are in a world of hurt.

So are prudent borrowers who live in their homes, because the rapid increase in prices led to a dramatic increase in property taxes. This to fund the bloated salaries of public employees.

And that really is the rub. Mish harps on this constantly. Public employee unions, their salaries and benefits, are bankrupting cities and states across the country. Yet nothing is being done to address this problem, other than raising taxes on working people and their property.

The banks are insolvent, due to their fraudulent lending practices. The government is growing at all levels, while spending way more than it takes in, and paying itself richly I might add. Corruption, fraud and deceit are the rule, not the exception. Rising deficits, debt piled upon debt, health care deform, tax increases on wage decreases. It's insane.

You ask what can be done to stop the madness. Well, it's very simple really. The American people must take back their country from the financial oligarchs and their bought-and-paid-for lackeys in government. That won't be easy, nothing ever is, but it is necessary.

I close with Travis's letter from the Alamo.

"The enemy has demanded a surrender at discretion, otherwise, the garrison are to be put to the sword, if the fort is taken--I have answered with a cannon shot, & our flag still waves proudly over the walls--I shall never surrender or retreat. Then, I call on you in the name of Liberty, of patriotism & everything dear to the American character, to come to our aid, with all dispatch--The enemy is receiving reinforcements daily & will no doubt increase to three or four thousand in four or five days. If this call is neglected, I am determined to sustain myself as long as possible & die like a soldier who never forgets what is due to his own honor & that of his country--VICTORY OR DEATH."

Let that be the rallying cry for all real Americans.

getyourselfconnected said...

Gawains,
seriously, your input on this is amazing! Thanks for the great information and insights, I hope all the readers are checking the comments section.

Anonymous said...

GawainsGhost,

Hey! You have way too many letter Gs in your screen name! ;)-< Though I do like your method of dealing with problems by samurai sword. Maybe we can just call it Kill Bill for stopping all the stupid bills we see getting passed each year.

getyourselfconnected,

So now that I am fully sheltered under the USGOV (and work at the pleasure of the president) I will be looking to buy a home in the next 6 months. Currently looking for a good starter home 80K-120Kmax. Good news is I have been saving my golden and silver nest eggs for this very point in life. So the question comes, have I finally lost my mind or have I finally had it with renting. You decide...

At least it's a buyers market!

LT G.

PS: I just love the way my boss spends even more and the USD get stronger. (On paper at least.) JK

getyourselfconnected said...

LT G,
Hey man! How are things?

I thik that depending on where you are som eplaces have reached a great buy point for a home. Here in metro Boston things are still WAY overpriced. If you get somehting you can afford easily then I think you should be fine.

Don't blow all the gold and silver eggs, I think they will be worth more down the road.

So glad to hear from you Sir!