The Affordable Care Act creates a new health insurance marketplace (the exchange). But because of the great uncertainty about what buyers will enter the market and who will buy what product, the law creates three vehicles to reduce insurance company risk.
Politicians and bureaucrats are notorious for manufacturing euphemisms -- clever but deceptive substitutes for what they really mean but don’t want to admit. That’s how the phrase “revenue enhancement” entered the vocabulary. Some of our courageous friends in government couldn’t bring themselves to say “tax hike.”
It’s easy to be negative about the U.S. economy these days. Find a glint of silver, and folks come running to point out all of the dark clouds looming about. This, of course, is what we got last week when the monthly jobs report was released from the U.S. Department of Labor (DOL). Folks pooh-poohed the number of jobs and whining that they’re not enough or that it’s less than a bunch of economists thought that it might be. But you know what? Stuff ’em.
Facts are easy. You can check facts. What supporters of the Affordable Care Act are doing, on the other hand, transcends factual bungling. It’s far more advanced: a warping of reality so debauched it looks like something out of a tale by H.P. Lovecraft.
The east coast and parts of the southern U.S. were to varying degrees paralyzed by blizzards a few weeks ago. The snow as expected rendered the roads treacherous, and in anticipation of slick streets, shoppers flocked to the grocery stores in advance.The rush into grocery stores, and its aftermath, offers worthwhile lessons in economics.First up, […]
The highest form of charity, argued the 12th-century Jewish philosopher Maimonides, is when the help given enables the receiver to become self-sufficient.But our systems of state charity — aka welfare — have too frequently had the opposite effect: They have actually created dependency. It is time to rethink the way we help people.I’m going to […]
Last year was quite the year for Bitcoin. We’ve seen exponential growth in Bitcoin’s exchange rate and extensive coverage in the media. Another phenomenon we have witnessed is the proliferation of alternative cryptocurrencies, five of which we’ve provided below.What all of these cryptocurrencies have in common is that they rely on a decentralized network to […]
President Obama crowed in his State of the Union speech about the economy, even mentioning “a rebounding housing market.” Maybe he was referring to friends in high places, like the seller of Penthouse One in New York, which just closed for $50.9 million, all cash. Millions of mere-mortal homeowners likely wanted to throw something at […]
The nonpartisan Congressional Budget Office is acting in a bipartisan way to cover up the biggest single threat to the bipartisan political alliance that is stripping America of its wealth: the United States Congress.There is no question that the following policy is bipartisan. Democrats and Republicans in Congress are completely agreed that the following information […]
Recent difficulties with implementing the Affordable Care Act have increased opposition to the program. A majority of Americans now oppose it. Problems with the HealthCare.gov website are in all likelihood temporary. However, there are serious long-term problems, particularly considering long-term finance and labor supply issues. Given the mounting difficulties with and growing concerns about the […]
The faces of the Detroit bankruptcy are the thousands of pensioners whose promised benefits are suddenly part of the restructure negotiation. When Motown filed for Chapter 9 last July, the city had $11.5 billion in unsecured liabilities. The vast majority of this was pension and health care benefits owed to retired city employees.The images of […]
“Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime.”As the inequality gap grows, there is an ideological battle unfolding in the West.On the one hand, there are those who think government can fix things. It must do more, tax more, […]
On Feb. 7 the United States will once again reach its statutory debt limit, meaning it cannot legally borrow any more money. Since the obvious option of cutting spending to match the amount of revenue that the government collects is off the table for some inexplicable reason, Congress will have to pass a new, higher […]
The New York Times published an interminable article on health care recently. Plenty of facts — how scrupulous are these journalists! — but the article displayed absolutely no comprehension of the basics of cause and effect. I was left wondering about the whole point.The article details how the health care system rewards specialists to an […]
The Largest Company in History:“The United States Corporation of Government (USCOG)”I follow global social and commercial networks, looking for entrepreneurial opportunities.Innovation surges when industry and government models change. Buggy whips. Landline phones. Railroads. The Soviet Union. Apartheid South Africa. All marked social and commercial innovation, both bad and good.We are witnessing a new form of […]
We’d like to give the banks in Australia some credit. They’ve finally gone and done it. They have caught up with 1960s technology. They’ve figured out how to use PIN numbers.How to only use PIN numbers, that is. They’re considering scrapping signatures on credit cards to cut down on fraud. Apparently, having to verify your […]
We put in a good-citizen call to the SEC the other day.“There’s a massive scheme to manipulate stock prices,” we told the friendly agent.“I have to tell you that your call is being monitored so that we can better serve the public,” he replied.“Oh, don’t worry about that. The NSA is tapping our call anyway.”“Are […]
Dr. William C. Padgett is a retired optometrist who has been trying to bring an elderly care facility to Beaufort County, North Carolina, for over a decade.“Our senior citizens,” he laments, “are finding that it is difficult and in many cases impossible to find an appropriate long-term care facility locally.” Though he has received several […]
If you don’t have the angst out of your system concerning Wall Street banksters, Government Sachs, and the Affordable Care Act, settle in with Matt Taibbi’s Griftopia to make your blood boil one more time.Investors should be reminded of 2008 as they shrug their shoulders and put their money back in the stock market. The […]
What do 8 of the 10 wealthiest people in the U.S. have in common?Aside from being able to fly in private jets, the common thread is that each of them has made their fortune thanks to a start-up.Let me explain…From tech titans like Bill Gates and Larry Ellison (founders of Microsoft and Oracle, respectively), to […]
“Inequality is the defining challenge of our time,” according to President Obama. It’s certainly the topic of the day for Paul Krugman, Joe Stiglitz and a whole raft of liberal pundits.But have you noticed that hardly anyone else is talking about it? When is the last time you heard a shoeshine person or a taxi […]
In December of last year, I left my career to travel the world for one year.My plan was to visit as many countries as possible on my Star Alliance Around-the-World ticket in the first nine months, then, for the remaining three months, return back to the country that most caught my eye and my curiosity.Nine […]
Economic history is primed to repeat in the nastiest of ways unless the government stops distorting the price of something we use every day.Every product, good, or service has a price, which is essential to rational decision-making. We use prices every day as vital data that guide us. Without true prices, prices not distorted by […]
A new survey from Harvard University found a large majority of young Americans do not believe the law will save them money, do not believe it will improve their health, and do not intend to sign up for insurance through the new exchanges.
Uh-oh!The new pope, Francis from the Pampas, has just warned us to beware the “tyranny” of capitalism.Each man worships his own gods. Some worship at the altar of Jesus of Nazareth. Some at the altar of the Almighty Dollar. The capitalists don’t bad-mouth Francis’ god. You’d think he would cut them the same slack.Bad-mouthing Catholicism […]
The market has selected different things as money throughout history. Some of these items have served as money in isolated places for specific periods of time — for instance, cigarettes in prisoner-of-war camps. Cigarettes continue to be a currency in prisons if allowed, but if not, according to Wikipedia, “postage stamps have become a more […]
A president stands disgraced. Congress is scattering. Bureaucrats are baffled. Pundits are reaching. Industry is scared. Politicians are scrambling to do something, anything, to make it better. One political party is in meltdown and the other loving every minute of it, hoping to ride the calamity to electoral gains.The so-called Patient Protection and Affordable Care […]
What the home and mortgage market needs — and it will not recover until then — is a rebooting to current values. To do that, principal amounts must be reset. They need to be reset not by government force, but by letting the market work. Let bankrupt mortgage holders fail.
The housing market has gone nowhere since the meltdown. Some 14 million homeowners are underwater on their mortgages. A good percentage of those people have stopped making their monthly payments.
In the initial wave after the housing crash, there were millions of strategic defaulters: homeowners who could afford to make the payments, but walked away because they believed it was the most prudent financial decision to make.
Now there are vast numbers of strategic squatters. People who could pay but aren’t. Instead of walking away, they remain in the home knowing that it may be not months, but years, before the lender will evict them. The average foreclosure now takes 728 days. In a few states, it’s over a 1,000 days. And this is after the lender has filed a notice of default. Some loans have gone 500 days delinquent before Bank of America has filed a notice to start the process.
This can happen only in a market dominated by the government. Fannie Mae, Freddie Mac, and the FHA comprise 90% of the mortgage business. Private lenders could never survive holding mortgage loans en masse that are nonperforming. Lenders must collect payments or they can’t pay their bills, or pay their lenders, for that matter.
There is no political will to let Barney Frank’s favorite entities go away. However, there is a bit of market-clearing good news. FHA auctioned 9,500 mortgage loans recently, and investors, including Lewis Ranieri Selene Investment Partners, paid an average of 36 cents on the dollar for these loans. The sales prevented $1 billion in fiscal 2013 losses for the agency’s insurance fund.
FHA is in a bit of a pickle these days. It’s facing a $16.3 billion shortfall and it may be forced to thrust its tin cup in the Treasury’s direction for the first time in its history, starting in the Great Depression.
In the new edition of my book Walk Away, available to Laissez Faire Club members for free download, my solution to the housing crisis is to let Fannie, Freddie, FHA, and the too-big-to-fail banks fail. The mortgage paper these entities hold would trade in a bankruptcy auction at pennies on the dollar. The buyers of these mortgages would quickly reach out to the borrowers and attempt to restructure the notes in ways that made sense to lender and borrower.
In my book, I provided the example of the mortgage legend Mr. Ranieri, whose firm would buy mortgages at a discount. The company felt that once the mortgage was obtained, it would be imperative to contact the borrower immediately and begin negotiating. Mortgage buyers spending real money don’t wait 500 days before they do something.
The properties are valued quickly and the borrower’s financial wherewithall assessed. A rewrite of the mortgage is done right away with terms reflecting the market value of the home, or foreclosure is started.
You might be wondering why the FHA doesn’t just go to homeowners themselves and make their own deals, rather than sell to investors at a steep discount. That’s because the FHA doesn’t have the legal authority to forgive principal. The FHA also can’t foreclose on a property and turn around and lease it to the defaulted owner. There’s as much flexibility at the FHA as there is in the TSA line or at the DMV. They have their rules and they’re sticking to them.
Of course, winning bidders are building in some cushion into their bids. They aren’t bidding 36 cent dollars if they think that’s what the underlying collateral is worth. They might think on average the houses securing the mortgages are worth 60 or 70 cents on the dollar of the loan amount.
But let’s not cry over spilled loan principal: It’s great news that these mortgages will end up in private hands. But (you knew a “but” was coming) these not quite 50,000 mortgages that may be peddled by the end of next year are a sliver of the 734,290 seriously delinquent loans in the FHA portfolio. Seriously delinquent loans are 9.6% of the 7.62 million loans on its books.
That’s more than 2.5 percent points higher than the 7% overall rate of serious delinquency tracked by the Mortgage Bankers Association, which tracks 50 million home loans.
Also in the good news department is Fannie and Freddie might start getting rid of some of their bad paper. If they do, the delinquent loan sale market might be $30 billion next year. According to American Banker,
“The two taxpayer-owned companies are under a mandate from their federal regulator to dispose of nonperforming assets. Fannie Mae, which has nonperforming loans with a total unpaid principal balance of about $233 billion, is planning to begin qualifying potential bidders for some of those mortgages as early as the first quarter of next year.”
To sit on foreclosures is expensive. After FHA acquires a delinquent mortgage from the servicer, it pays for upkeep and marketing to the tune of $28.78 per day per house. Depending upon whom you believe, FHA is losing 63-71 cents on every foreclosure. Selling the delinquent loans seems to make sense. Especially in Florida, where the loans they auctioned were an average of 1,114 days delinquent.
“We’re seeing between a 15-20% better recovery than we would if those same loans went all the way through to foreclosure, and that’s a pretty big change,” Carol Galante, the FHA’s acting commissioner, told American Banker.
But Ed Pinto, Fannie Mae’s chief credit officer in the 1980s, wonders. “I’m having a hard time figuring out where they’re making up much financial benefit,” he said. He sees the auction as just a “backdoor” way of doing principal reductions and “doling out other pots of money.” It turns out that some of these mortgages may be eligible under a Treasury program for reimbursement up to 63 cents on the dollar of principal forgiveness.
So there is a ray of hope for market clearing. But alas, it will be on government time. An unfettered market would have taken care of this years ago. At this rate, it will be decades.