What positive steps can we take? The energy that is now expended by well intentioned, freedom-seeking individuals on the destructive course of politics can be turned into powerful steps that will have a positive effect on the future. All are moral, right and just. None require aggressing. Consider the following...
The first principle in dealing with government is: Don't be awed by it. What little the government achieves is almost always due to the voluntary participation of its citizens. Those who don't want to help the government can go their own ways without running into much trouble.
National Treasury Union President Colleen M. Kelly recently described the 2014 IRS budget allocation as “woefully inadequate.” But the agency has not proven itself to be an efficient steward of taxpayer dollars. Here are ten ways the IRS lost the trust of the American people.
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.
Given how poorly states like California and Illinois have funded the pension funds for their own employees, one would think that this would stop dead in its tracks any plan to have the government assist in managing private sector funds too. The spate of recent activity, however, suggests otherwise.
The financial world is plodding along like a drunken sailor avoiding debt collectors by keeping no cash in his wallet. It’s not the kind of calm that’s going to last or end well. But the storm will have to wait until after the Olympics.What a game! We’ve never watched ice hockey closely before. But watching […]
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 […]
Amidst all the revelations about how the American people, many of whom are absolutely convinced they live in a free society, have their telephone calls, emails, website visits, and who knows what else under surveillance by their own government, let’s not forget the massive infringements on financial privacy that have gone on for decades.Consider, for […]
The exercise had an awesome name, inspired by the movies: “Quantum Dawn 2.”On July 18, scads of U.S. banks, stock exchanges and government agencies took part in a digital fire drill — a practice run in the event all of Wall Street came under massive cyberattack.This isn’t the first time banks have come under an […]
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 […]
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 […]
No other price pops during a boom like that of condominiums. The common view among savvy real estate types is condos are the last to jump and the first to crash. A decade ago, Bernanke’s post-Sept. 11 easy money fueled condo prices and in turn high-rise residential construction from coast to coast.In downtown Miami, 22,200 […]
Our grandparents believed in the value of thrift, but many of their grandchildren don’t.That’s because cultural and economic values have changed dramatically over the last generations as political and media elites have convinced many Americans that saving is passe. So today, under the influence of Keynesian economists who champion government spending and high levels of […]
So Janet Yellen’s first hearing took place a few nights ago. It was fairly boring. She’s expected to sail through and become the next chairperson of the Federal Reserve. Given that the last few years of extraordinary monetary policy have achieved a miserable recovery, what’s she going to do differently?Nothing. Just more of the same. […]
Imagine that everyone in your community is issued a credit card with the same account number. At the end of every month, the bill is totaled and divided equally among you. Suppose that during the first month, you choose not to use the credit card, yet you receive a bill for $100. The next month, […]
From the Tongue-in-Cheek Department of Laissez Faire Books…Washington, D.C. – Jeff Incast, a Democratic representative from California, has tabled a bill that would expand current insider trading laws.He said he was “distressed” by the acquittal of Mark Cuban, whom a jury cleared of civil charges of insider trading brought by the Securities and Exchange Commission […]
Hanging out in Rome, surrounded by ruins of all ages, you can’t help but have big thoughts about the state of the world. Here are a few of mine.No generation during the long fall of the Roman Empire was really aware of it. Each generation accepted the conditions they inherited and worked to survive as […]
I just spoke to a friend, Skinner Layne, who is from Arkansas, but now lives in Santiago, Chile. He emigrated there and is now heading a startup enterprise that is showing great promise. It is called Exosphere. I asked him about the backstory to the company. It turns out that he moved in 2008, six […]
The dream of virtually every American is to retire as early as possible. Who doesn’t want to have each and every day to do exactly what he or she wants to do?Sure, for some people, that would be work. They like having somewhere to go every day, being valued for their services, and the interaction […]
It’s come to this: A typical family’s health insurance costs as much as a typical family car.If you’re a typical American family, your “health” will set you back $20,728 every year. That figure comes gratis of Milliman, a benefits consulting group. A base-model Toyota Camry… the typical family’s most-popular make? It costs $22,055.Milliman’s numbers account […]
The study of crowds has always fascinated people in finance. It’s not hard to understand why. Markets can go to crazy extremes, extremes no one can make sense of. So, one favorite way to explain it away is to say that crowds do dumb things that individuals, upon cooler reflection, would never do. In a […]
Since before the tech bust, we’ve been suggesting that while Americans “think” they’re getting richer… they’re actually heading in the other direction. They’re getting poorer.This proposition has been easier for folks to entertain since housing busted and the financial crisis reversed the “wealth effect” in 2008. With that in mind, let’s take a look at […]
People will be paying more and getting less from their governments as health costs and pension obligations will force state and local governments to adjust their budgets over the next 50 years, according to a new report.The new report from the Government Accountability Office, a nonpartisan congressional agency that audits federal programs, paints a dreary […]
The countries of the developed world are experiencing a new class of refugee — members of the middle and upper classes. These rungs of the socioeconomic ladder are realizing that their countries of residence are in many ways going rapidly downhill without much hope of a short- or medium-term reversal. This is particularly true for […]
“Half of the nation’s 40 biggest publicly traded corporate spenders have announced plans to curtail capital expenditures this year or next.” This is The Wall Street Journal further confirming the mounting evidence that the presidential election did not cure what is fundamentally sick.
The supposed recovery of the last two years is the least convincing in anyone’s living memory. Domestic investment has only recently returned to 2005 levels and business lending trends suggest that it is going to take another hit.
But let’s return now to what marked the beginning of this whole fiasco: housing. The current housing price numbers have shown improvement. Some people claim that now is a once-in-a-lifetime opportunity to buy a house. Housing prices will bubble up again and you don’t want to miss it.
I doubt it.
Here, however, is the indisputable fact: We still have a housing crisis. In cities like Las Vegas, 60-70% of homeowners are underwater. As Paul Jackson, CEO of HousingWire, told banking analyst Chris Whalen recently, “Just because we are all tired of the housing crisis does not mean that it is going away.”
Judging by the presidential campaign, you’d think the effects of the housing crash are yesterday’s news. After all, wasn’t there that $25 billion government settlement with the big banks that was supposed to take care of underwater homeowners. Where did that money go?
Well, like the tobacco settlement money years ago, state governments have siphoned half this dough into their general budgets or other pet projects. For instance, HuffPost reports:
“In South Carolina, the Republican-led state legislature recently voted to override the veto of Republican Gov. Nikki Haley, who sought to spend the money on housing programs as intended. Instead, about $10 million will go to a fund that incentivizes companies to relocate to South Carolina, while $21 million will go to the state’s general fund.”
In foreclosure-ravaged Georgia, all $99 million of the settlement money was redirected to that state’s economic development programs. In California, Gov. Moonbeam managed to redirect all of his state’s allocation ($400 million) to the Golden State’s general budget, which is $15.7 billion underwater itself.
Even if the money went where it was supposed to, it was to go to “housing counseling” and other fuzzy, feel-good government nonsense that does nothing to clear the massive malinvestment in housing.
There is the appearance that housing markets are tight, leading to some price bumps in various markets. But as Mr. Whalen points out, there are millions of homes in the process of foreclosure that are not yet available for sale.
“There are 2 million-plus foreclosed awaiting movement to sales category,” says professor Anthony Sanders at George Mason University. “But there are still millions of borrowers who can no longer qualify. Count the number who went through foreclosures and add some percentage for people who avoided foreclosure, but went late.”
This housing situation reminds Whalen of the computer chip market. There is a transition period between old and new memory chips when the supply is tight. “Then comes a flood of product.”
What’s keeping the homes off the market are government rules, as in the case of FHA, which has strict limits on the number of homes it can release for sale in a given neighborhood. In various subdivisions in the sand states, entire blocks of homes are underwater with homeowners not making payments. Whalen explains:
“No more than 50% of the REO properties purchased from FHA, for example, can be put on the market for sale as a vacant foreclosure, FHA acting commissioner [Carol] Galante said last month. Instead, the buyer needs to put in place another solution, such as leaving the homeowner as a renter of the home.”
Also, banks have every reason to delay foreclosure. “By dragging their feet on foreclosure, banks delay the day of loss recognition and also keep supply off the market. This is good for prices in the short term, but does not solve the supply problem,” Whalen writes.
In Las Vegas, Ken LoBene, director of the U.S. Housing and Urban Development office, says 65% of FHA loans are nonperforming, or delinquent. It a normal market It would be 8-13%. He added, “We lose about 77 cents on the dollar on every foreclosure.”
According to Venicia Considine, attorney with the Legal Aid Center of Southern Nevada, more and more people who can pay have stopped paying and are strategically defaulting. “I have more people calling me saying they’re the last owner on the block, they paid $300,000 for their home, and everyone else is a renter. That’s the shadow inventory we’re worried about.”
With the banks, the GSEs and the FHA sitting on their hands, more people have become “strategic squatters,” living in homes making no payments and waiting for their inevitable eviction.
At the same time, taxable sales are up in Las Vegas, and local experts point to strategic squatters as the reason. Steve Brown, director of the Center for Business and Economic Research at the University of Nevada, Las Vegas: “I think there’s a good chance that unpaid mortgages are affecting taxable sales. If they have a job, people who aren’t paying their mortgages might have some extra disposable income.”
Realtor Chris Rubeis told the Las Vegas Review-Journal, “It’s certainly more common than ever. The stigma of short sale, foreclosure or bankruptcy is long gone. Seventy percent of the market is underwater. Those people are saying, ‘I bought for $300,000. My house is worth $100,000. Why should I stay? I’ll never get the equity back.’ So they stop paying.”
And if you’re not making a mortgage payment, it’s “common sense” that the consumer economy would get a boost, according to Rubeis.
Yet perversely, builders are scrambling for land to build on in Las Vegas, pushing prices up. Homebuilders are getting more aggressive at buying land, according to John Prlina, president of land acquisition and development for Discovery Homes. His company purchased several lots this year in southwest Las Vegas.
“Things are coming back in the valley because there’s nothing in the resale market and the foreclosure process is just a drip,” Prlina told the Review-Journal. “We don’t know what the banks are going to do. As a builder, that’s OK as long as they don’t pour them out at one time.”
However, the co-creator of the S&P/Case-Shiller index is not so sure about a housing recovery. “It can get as big as it was again maybe in 50 years. This housing bubble was a once-in-a-lifetime thing, I imagine,” Robert Shiller told CNBC’s Futures Now program. “Although, you know, the market might be more volatile, so the future is always unknown.”
Once upon a time, a house was a place to live in. And the mortgage debt was considered a yoke around one’s neck until the loan could be paid off, and a mortgage burning party was scheduled to celebrate. “Fifty years ago, hardly anyone thought of houses as investments, but now people are focused on it like never before,” Shiller said.
Like it was once said about politics, all real estate is local. But post-9/11, the boom went coast to coast. “The funny thing about this recent experience is it became so nationwide. Housing markets aren’t supposed to be correlated all over the country like that. It was a rare phenomenon,” Shiller said.
The housing market hasn’t been allowed to completely correct. At the same time government has thrown every bit of stimulus it has at housing, the outsized government presence in the market and law has all combined to keep the housing market from bottoming. Some of this is easy to understand: tax incentives for first time purchasers, record low interest rates, and legislation making foreclosure cumbersome.
What’s not so easy to understand is why builders want to rush in and buy land, knowing there is this overhang of supply waiting to come on the market. But homebuilders were cashed up with the Worker, Homeownership, and Business Assistance Act of 2009, which, as many people know, extended unemployment benefits and the first-time-homebuyer tax-credit program.
But quietly included in this political potpourri was a provision allowing big businesses to offset the losses of 2008 and 2009 against profits made as far back as 2004. This provision generated corporate tax refunds of $33 billion, according to The New York Times. Previously, only small companies could offset losses against past years’ profits.
Big homebuilders were the prime beneficiaries. After racking up monster profits during the housing boom, the industry booked huge losses in the bust, accentuated by write-downs of their land positions totaling $28.5 billion for the 14 largest publicly traded homebuilders. These large homebuilders are recapturing some of what Uncle Sam took away during the boom years and they’re buying dirt.
Returning taxes to businesses is great, but homebuilders are reading distorted economic tea leaves. In September, builders started construction on homes at the fastest rate since July 2008, “a further indication that the housing recovery is strengthening and could help the economy grow,” gushed a wire service story. Both construction starts and permits were up at double-digit rates from a year ago.
What all this means is that more supply is being added to the hidden supply of homes that already lurks in the foreclosure shadows. However, builders are being fooled again. So are Wall Street investors who have sent homebuilding stocks through the roof. The SPDR S&P Homebuilders ETF (XHB) is up 56% from the start of the year.
Keep your housing powder dry. This crisis is far from over. No matter what government does, market forces will eventually have their way.