An American Lion

Finding Brilliance on My Own,

It's a Calamity,

Money Can Buy You Everything,

Sunday

Aug082010

Megan McArdle is Blown Away by the Facts Again

Sunday, August 8, 2010

I'm not going to take sides in the dispute between Wisconsin Congressman Paul Ryan and New York Times columnist Paul Krugman. Somewhere out there is a third answer to the solution as to what to do to bring our fiscal house in order, and I haven't found that third way as of yet.

If I were to dedicate myself to finding the answer, here's what I would start with--no tax cuts and massive cuts in entitlement spending. I would cut defense spending by twenty percent and end the wars we are in. I would reduce the American footprint overseas. I would means test all spending programs, especially Social Security. Do you collect a government pension? I would cut your Social Security. Do you not need your Social Security? I would cut it. And everyone would pay Social Security on every penny of their income. I would remove the cap and never look back.

I would be the most hated son of a bitch in America (I'm used to it, sir). But I wouldn't raise income taxes and I wouldn't spend a penny more than the government needs to spend. I would eliminate HUD, Education, and most of the Department of Agriculture. I would freeze spending at last year's level and lock this country into three years of consecutive budgets that draw down our deficits and leave us with a measure of austerity that we can tolerate. You cannot stop spending and you cannot keep spending well in excess of what we take in. You can find yourself in worse shape by doing nothing.

What Ryan and Krugman advocate are extremes on an issue which no one will touch, because the answer is a series of politically tough choices that could kill someone's reelection. No one will admit this; no one will touch on the bitter pill that has to be swallowed, and soon. What you get is this nonsense from Megan McArdle:

Though I've only met him once, everything I've heard about Ryan indicates that he genuinely loves this stuff--if he could have more time with the CBO and JCT staff, he'd be in heaven. I think it's absolutely fair to point out that his Roadmap would be a heroic political sell, and would probably be watered down in ways that would seriously weaken it. I also think it is absolutely fair to point out that the tax rates needed to raise the necessary revenue would probably--not definitely; the TPC is not omniscient--be considerably less popular than what is outlined in the Roadmap.

But it is not correct to accuse Ryan of deliberate dishonesty; he asked the CBO to score it, and they turned him down. Nor is it correct to imply that this is somehow out of the ordinary. If you supported the health care plan, you supported the exact same process that Ryan is now proposing to use to tweak his proposal. Were they all brazen liars because the tweakery turned out to be a lot harder than they'd hoped?

Update: I emailed Ryan's people around noon to ask whether my recollection was correct that he was unable to get staff time from the JCT. Within 30 minutes on a Saturday morning, I had emails from two staffers, one of whom was on vacation. They affirmed that he asked the JCT for an analysis, and was turned down. Which tells us a few things: first, that Paul Ryan's people are exceptionally hard-working and responsive. Second, that Paul Ryan did his best to get the revenue side as well as the spending side scored. And third, that Paul Krugman could easily have gotten answers to his questions if he had wanted them.

I don't care how "hard working" his people are--his proposal as presented is thus flawed. McArdle's fan-girl crush on Ryan glosses over the fact that Krugman is essentially correct--Ryan's proposal doesn't flesh out because he couldn't get the numbers and never disclosed up front that he couldn't get the numbers.

The dishonesty of McArdle's position is laid bare by yet another commenter on her blog and is not answered:

Dear Miss McArdle,
According to an article written by Douglas Holtz-Eakin (that would be the former Director of the CBO) titled 'Dynamic scoring' on page 86 in 'Encyclopedia of taxation and tax policy' your claim that 'the JCT, not the CBO, typically handles the official scoring of tax legislation' only applies to tax bills 'reported out of committee' (i.e. it does not apply to Rep. Ryans proposal). Holtz-Eakin continues: 'Both CBO and JCT also provide numerous informal estimates of proposals earlier in the legislative process' (which applies to Rep. Ryans proposal). The reason that Krugman is not aware that the JCT, not the CBO, typically handles the scoring of tax proposals like the proposal by Rep. Ryan is probably that that is actually not the way it typically works.
By the way, it took 3 minutes on Google to find this information.

McArdle is punked again. And no one even bothered to call her names this time. There's nothing intellectually clever or sound when Paul Krugman can pick apart your economic proposal in minutes because it tries to use incomplete numbers. With such nonsense, the conservative movement is not advanced forward. This anti-intellectual bullshit hurts conservative ideology.

You do not put up fudged numbers and hope no one notices. You propose completely sound ideas and ignore criticisms that aren't valid; you put your case to the American people and let them decide. In the end, conservative ideas will always triumph when soundly reasoned and applied. If you can't provide the heft, don't surround yourself with dazzled sycophants and pass that off as a movement. I'm a big believer in the ideas that New Jersey Governor Chris Christie are putting forward because he has the distinction of creating enemies on both sides.

Let's put this into perspective. One of the great criticisms of President Barack Obama was that he had never held executive office prior to becoming President. I think that that criticism has borne fruit in that he certainly doesn't appear to be up to the job in a number of respects. Well, then why am I to believe that Congressman Ryan has the answers? The man was a speechwriter for Jack Kemp. He's never held executive office. Give me a Chris Christie who can and will wield executive power and the Veto pen. Enough said.

A proposal to balance our budget carries a little more credibility with me when it comes from someone who has actually had to balance a budget and work with a recalcitrant legislature. No sane proposal should ever come without "enemies" on both sides. With sanity comes the hurt, and, brother, we are in for a world of hurt in order to fix what ails us. It's just the repackaging and selling of old snake oil when we pretend there is no hurt due to an out of this world and over the top spending nation of credit card users who have long since maxed out what they can consume and spend. The first politician who says we can fix things without suffering is the last person you'd want to vote for.

Until and unless people have that moment of clarity--we are spending ourselves into oblivion because the political class has promised us everything, delivered nothing, and is accountable only to themselves--and realize that we must cut entitlements, defense spending, and hold taxes at the level they're at, forget it. We will not restore the American dream.

Norman Rogers | tagged

Opinion | in

Friday

Aug062010

Where Are the Jobs?

Friday, August 6, 2010

There are no damned jobs.

Nobody has a job.

The economy is in the toilet, you see, so, no. I'm not going to hire you. I'm thinking of letting a few people go, actually. I'm a businessman and there are no jobs and I'm not hiring anyone because that's what everyone else is doing. I'm paralyzed by uncertainty. When you know what's going on, let me know.

Sound reasonable? Or does it sound like a self-fulfilling prophecy of eternal doom?

The nation isn't creating nearly enough jobs to reduce persistently high unemployment.

For the third straight month, the private sector hired cautiously in July. And those meager gains in the job market were nearly wiped out by tens of thousands of cuts at all levels of government.

Making matters worse: Many of the new jobs that are being created do not pay well enough to significantly jump-start spending by shoppers and stimulate the broader economy.

The unemployment rate was stuck at 9.5 percent for the second straight month, the Labor Department said Friday. Analysts said it would probably climb back into double digits because the private sector is not creating jobs fast enough.

Private employers reported a net gain of 71,000 jobs for July — far below the 200,000 it takes for the unemployment rate just to hold steady and keep pace with the growing work force.

How would I fix this? Well, I'm merely an expert, having employed hundreds of people for decades, but I'll venture a guess anyway:

Nobody is hiring because they don't need to hire right now.

That's right. It all comes down to what people need. And if employers have figured out how to get by with fewer workers, then there's almost nothing the government can do about it. And this runs counter to several themes that we have gotten used to in this country. The first theme is the one where we're all special and deserve to have full employment of all able bodied adults. Uh, no. No we don't deserve anything anymore. The second theme is the one where we can't accept the idea that government doesn't have the ready-made solution for us. No, the government really isn't able to solve this problem.

But, you're in luck because I can solve this problem.

What I should first do is acknowledge that the government can help save your job but it can't do much to create a sustained, viable job. The Obama Administration's biggest accomplishment so far is the saving of the American auto industry. This saves several million jobs, from the people who design cars Americans don't really like (but Europeans and South Americans seem to like) to the people who stock and deliver spare parts for those cars to the people who are at the retail lots that are still open. The government bail out of the auto industry was money well spent, and no good conservative should decry the auto industry; it's one of the few things we still make in this country.

Government can't create jobs outside of its own sphere. It can't start a small business in Podunk, Utah and make that company sell widgets to Utah residents who want widgets that are made by that particular business. Government can create several hundred positions in Utah by opening up a branch office of the Utah widget making watchdog agency, and they can hire a bunch of old guys to stand around outside of widget making companies, hollering about loose handrails and the like. Government can make those "shovel ready" jobs that are great for Vice Presidential anecdotes but those aren't the kinds of jobs we need.

We need an abundance of jobs that are useful and have purpose. We need jobs for people who can make, design, improve, or repair things that we need every day. This is becoming a society and a nation that is more about utility, less about fancy bullshit. Gone are the days of the company that could make a $45,000 motorcycle that looks like something out of a Mexican whorehouse. Yes, there will always be that one fellow with money to burn who can afford something bent and grotesque. But, as a rule, think small cars, practicality, and making things last.

What government can't do is create jobs at companies that are worried about the taxes they will have to pay in a couple of years or the cost of the health care they will have to provide for their employees. We have spent too much time dithering over the trivial. And health care is trivial--it's a no brainer. Fine, come up with a cheap way to keep employee x and his wife and his 2.4 children in some sort of barely affordable health care coverage that won't put them into bankruptcy. Now, onward and upward. The solution? Eliminate uncertainty. Establish clearly defined parameters. Your taxes, for the next five years, are going to be this and your health care costs for employees will be that and now you can sit and do your books. When you figure out what you need, we'll give you a tax break of $1000 per new hire or something to that effect.

If we focus on rewarding companies that hire people, and build incentives for them to do so, we will see modest increases in the employment numbers. Too often, government isn't working hand in hand with businesses to make that happen. There is still a slap-down high and mighty approach that has a government agency ripping a company to shreds over something that can be sorted out through mediation and negotiation. All too often, a labor union or an advocacy group gets in the middle of the process and brings things to an extreme conclusion. Let's celebrate the efforts of unions to keep people working through compromise and good faith negotiations, however.

I want a small business that has 20 employees to feel like it can expand or double in size based on knowing that taking that risk could pay off. It's always a risk to expand and go a little into the hole and I used to love doubling down and rolling the dice. I once hired forty people just so I could tell Father that I had built a West African Riot Control Vehicle division. We had to let them all go--West African nations use a lot of tear gas and a lot of burning tires to control restless populations. Riot control vehicles don't sell well, but hey--at least I tried to get Liberia to buy a couple of dozen assembled and marketed by those 40 hapless suckers I mean, employees, that I had hired.

Now is no time to take risks. No one knows what they will pay in taxes or health care and no one knows whether or not we will talk ourselves into another double dip recession. Until uncertainty is lowered to a certain threshold, the jobs just aren't going to come back.

Norman Rogers | tagged

Power | in

American Politics,

Complete Mastery of All Things,

Conservativism is Cool Beans,

Here's My Take,

Saturday

Jul312010

You Say You Might Like to Think About Having a Possible Revolution

Saturday, July 31, 2010

Send in the clownsAre we headed for a revolution? No.

But if you subtract "Obama" and put in "Bush," this reads like the gibbering madness of a deranged old liberal with hairy legs, a bong on her lap and a plate full of soybeans under her chin. In other words, just like something you'd find on the Daily Kos.

A President Obama intent on achieving his transformative goals despite the disagreement of the American people has powerful weapons within reach. In one hand, he will have a veto pen to stop a new Republican Congress from repealing ObamaCare and the Dodd-Frank takeover of banks.

In the other, he will have a fistful of executive orders, regulations and Obama-made fiats that have the force of law.

Under ObamaCare, he can issue new rules and regulations so insidiously powerful in their effect that higher-priced, lower-quality and rationed health care will quickly become ingrained, leaving a permanent stain.

Under Dodd-Frank, he and his agents will control all credit and financial transactions, rewarding friends and punishing opponents, discriminating on the basis of race, gender and political affiliation. Credit and liquidity may be choked by bureaucracy and politics — and the economy will suffer.

He and the EPA may try to impose by "regulatory" fiats many parts of the cap-and-trade and other climate legislation that failed in the Congress.

And by executive orders and the in terrorem effect of an industrywide "boot on the neck" policy, he can continue to diminish energy production in the United States.

By the trick of letting current-law tax rates "expire," he can impose a $3.5 trillion 10-year tax increase that damages job-creating capital investment in an economy struggling to recover. And by failing to enforce the law and leaving America's borders open, he can continue to repopulate America with unfortunate illegals whose skill and education levels are low and whose political attitudes are often not congenial to American-style democracy.

A wounded rampaging president can do much damage — and, like Caesar, the evil he does will live long after he leaves office, whenever that may be.

The overgrown, un-pruned power of the presidency to reward, punish and intimidate may now be so overwhelming that his re-election in 2012 is already assured — Chicago-style.

My measure of where the country is headed is the stock market. It's above 10,000. We're fine.

Norman Rogers | tagged

Politics | in

Liberals Are a Big Pantload,

Historical Revisionism,

I Refute Your Bullshit,

It's a Calamity,

Pathetic Jackasses and Losers

Email Article

Permalink

Post a Comment

Friday

Jul232010

The Myth of Better Than Expected Earnings

Friday, July 23, 2010

Yes, that's a Shelby, sir.I've never bought into the idea that a large publicly traded company can really go out and shock Wall Street with exceptionally high earnings:

Ford Motor Co posted a stronger-than-expected quarterly profit of $2.6 billion and said it was on track for higher earnings and lower debt in 2011, sending its shares up 4 percent.

The No. 2 U.S. automaker lowered the top end of its range for U.S. auto industry sales for 2010, citing in part the slow recovery in the U.S. economy. But it said the recovery was sustainable.

Ford has now posted five consecutive quarterly net profits after recording net losses totaling $30 billion from 2006 through 2008 as it cut jobs, sold brands and began to rebuild a product lineup overly reliant on large SUVs and pickup trucks.

"It was a solid quarter, they are definitely back on track," said Mirko Mikelic, a fixed income portfolio manager at Fifth Third Asset Management in Grand Rapids, Michigan.

The only major headwind for the company would be the "weak to tepid" outlook for the economy, and Ford is positioned to do "real well" if the economy improves, he said.

If you are a shareholder in a company, you're watching things on a day to day basis. If you're charged with analyzing how things are going for a company like Ford, you're watching sales and inventory and costs and a host of other factors to the nth degree. By the time the earnings statement is released, if anything there shocks you, that's on you, brother. And shareholders don't talk to people on Wall Street about how a company is doing?

If looks could kill, then the look that Wall Street gave car companies at the dawn of the Obama Presidency would have been a withering one. It's nice that they are coming back. It's great that Ford is making money and that GM is doing well in China. Does it really mean they're "back" from the abyss?

No.

It means they're getting some good press. How much did it cost? What was done in order to ensure that there would be some positive news for American car companies this summer? Are we being manipulated?

I can tell you what I see in Germany with my own eyes. I see a large number of Ford Dealerships. I see Fords everywhere. I also see something that you don't really see in the United States, and that's cars made by Renault, Skoda, and Opel. Yes, there are the ever-present Mercedes, BMW, Audi, and Volkswagen cars on the road. Japanese cars are rare. That's what I see, anyway, and what I see isn't manipulated by anything other than my own eyeballs.

If you suspect we're all being manipulated, then join the club. I'm not buying any of this. I think our world economy is too sluggish to stop spending entirely but I am not naive enough to think everyone should spend themselves into oblivion. This is what it looks like before they show up and repossess everything and take it away in a rented van on bald tires.

Norman Rogers | tagged

Cars,

News | in

Here's My Take,

I Refute Your Bullshit,

Saturday

Jul172010

Screwing the Little People

Saturday, July 17, 2010

Harvest timeI must say, when liberals eat their own--they eat their own:

We gave [Secretary of Education Arne Duncan] $4.3 billion in the stimulus package, no questions asked. He could spend it any way he wants. … I trusted the secretary, so I gave him a hell of a lot more money than I should have.

My point is that I have been working for school reform long before I ever heard of the secretary of education, and long before I ever heard of Obama. And I’m happy to welcome them on the reform road, but I’ll be damned if I think the only road to reform lies in the head of the secretary of education.

We were told we have to offset every damn dime of [new teacher spending]. Well, it ain’t easy to find offsets, and with all due respect to the administration their first suggestion for offsets was to cut food stamps. Now they were careful not to make an official budget request, because they didn’t want to take the political heat for it, but that was the first trial balloon they sent down here. …Their line of argument was, well, the cost of food relative to what we thought it would be has come down, so people on food stamps are getting a pretty good deal in comparison to what we thought they were going to get. Well isn’t that nice. Some poor bastard is going to get a break for a change.

Is there any reason one should feel sorry for the Obama Administration right now?

To suggest that, at a time when millions are without work while the economy is stagnated and threatening to slip back and roll over onto the tender toes of what few gains have been made. that we should cut food stamps is pathetic. I would expect a Republican President to tell the truth--Fatass Nation, you should learn to grow some garden vegetables and cut back on the salt and the red meat you're buying with those food stamps. I don't expect that coming from a liberal administration.

Never let them tell you otherwise--President Bush's third term has been gangbusters for those of us with money.

Norman Rogers | tagged

Power | in

American Politics,

Crazier Than a Shithouse Rat,

Democrat Party Nuttiness,

Democrat Politicians,

Sunday

Jul112010

Ninety Banks Have Failed This Year

Sunday, July 11, 2010

National Farmer's BankIt's probably not a good thing that so many banks have failed this year--victims of a terrible economy and questionable mortgage lending practices:

With 90 closures nationwide so far this year, the pace of bank failures far outstrips that of 2009, which was already a brisk year for shutdowns. By this time last year, regulators had closed 45 banks. The pace has accelerated as banks' losses mount on loans made for commercial property and development.

The number of bank failures is expected to peak this year and be slightly higher than the 140 that fell in 2009. That was the highest annual tally since 1992, at the height of the savings and loan crisis. The 2009 failures cost the insurance fund more than $30 billion. Twenty-five banks failed in 2008, the year the financial crisis struck with force, and only three succumbed in 2007.

As losses have mounted on loans made for commercial property and development, the growing bank failures have sapped billions of dollars out of the deposit insurance fund. It fell into the red last year, and its deficit stood at $20.7 billion as of March 31.

The number of banks on the FDIC's confidential "problem" list jumped to 775 in the first quarter from 702 three months earlier, even as the industry as a whole had its best quarter in two years.

A majority of institutions posted profit gains in the January-March quarter. But many small and midsized banks are likely to continue to suffer distress in the coming months and years, especially from soured loans for office buildings and development projects.

The FDIC expects the cost of resolving failed banks to total around $60 billion from 2010 through 2014.

The shutdown of banks and the bailout of the banking industry continues unabated. With each shutdown, more and more people are thrown out of work, shades of the Depression.

The problem with making that comparison is that it allows newspapers to trot out the same old nonsense from Amity Schlaes:

President Obama may be about to repeat Franklin D. Roosevelt's mistakes -- but not the ones captured in this narrow discussion.

By fixating on the debt and stimulus plans, Obama and Congress are overlooking challenges to the economy from taxes, employment and the entrepreneurial environment. President Roosevelt's great error was to ignore such factors -- and the result was that sickening double dip.

Taxation is an obvious area the Obama administration ought to reconsider. Income taxes, the dividend tax and capital gains taxes are all set to rise as the Bush tax cuts expire. The Obama administration portrays these increases as necessary for budgetary and social reasons. A society in which the wealthy pay their share, the message goes, has a stronger economy. The administration and congressional Democrats are also striving to ensure that businesses pony up. The carried-interest provision in the tax extender bill seeks to raise rates on gains by private equity and hedge funds. If that were not enough, a so-called enterprise value tax would be levied on partnerships that sought to elude the new high taxes by selling their companies.

Roosevelt, too, pursued the dual purposes of revenue and social good. In 1935 he signed legislation known as the "soak the rich" law. FDR, more radical than Obama in his class hostility, spoke explicitly of the need for "very high taxes." Roosevelt's tax trap was the undistributed-profits tax, which hit businesses that chose not to disgorge their cash as dividends or wages. The idea was to goad companies into action.

Very high taxes didn't go away right after 1935, though. Schlaes seems to gloss over the fact that taxes stayed at a high, confiscatory rate until Ronald Reagan stepped in fifty years later. And even then taxes weren't cut enough. The interim period saw a normal series of business cycles--ups and downs--and was illustrated for all to understand as "the post-war boom." The government was thus flush but business was held back and grew at slow rates--banker's rates--and we suffered in the 1970s as a result.

It's also not true to say that President Obama is doing a bad job of managing the economy--he's doing nearly exactly what any Republican would do. He hasn't raised taxes to that magical 80% rate for people making over a million dollars a year and he's been very corporate friendly. He has done virtually nothing for the small businessman and he's kept Wall Street happy.

I hate to break it to the poorly-read acolytes of Miss Schlaes, but if the Street is happy, then things are gangbusters and we need not pay much attention to the carping of also-rans. President Obama is running things like a Republican would, and no one has the guts to admit that.

Why else would the liberal base of the Democrat Party be screaming for blood? Answer me that.

Norman Rogers | tagged

Investment Banking | in

American History,

Crazier Than a Shithouse Rat,

Democrat Party Nuttiness,

Democrat Politicians,

Sunday

Jul112010

Who Will Lose Their Grasp on Power?

Sunday, July 11, 2010

The 2010 election season should kick into full gear once Labor Day arrives. Before then, it's instructive to note that there is already a major issue that has been evident for most of the year, and that is the issue of jobs. I think the next issue will be competence, but that's iffy because I don't know if 2010 will really be turned into a referendum on President Obama's first two years (or so).

My guess is that it will; my guess so far is that the Democrat party is in for a major butt kicking.

Newsweek talks about the jobs aspect, how the economy is doing, and how things traditionally shake out for the party in power:

It’s begun. With merely four months until the elections, we’re starting to see the articles outlining the angry divisions between the president’s counselors. The fight apparently pits the political team, which wants the president to turn his attention to the political problem of deficits, against the economic team, which wants him to keep focusing on economic stimulus. Politics versus governance is, of course, an age-old choice. The job of governing is different from the job of getting reelected. Or is it?

For decades now, political scientists have been building election models that attempt to predict who will win in November without making any reference to candidates or campaigns. They can get within 2 points of the final vote, and they don’t need to know anything about the ads and the gaffes and the ground games. All they really need to know about is the economy.

“In presidential elections,” says Princeton political scientist Larry Bartels, “a 1 percent boost in election-year income growth has typically increased the incumbent party’s vote share by about 2 percent. So an incumbent party that won 51 percent of the vote in an average economic year like 2004 would be expected to win only 46 percent in a recession year like 2008.” Which is, as you may remember, pretty much exactly what happened.

That may be how things will go, but there's also the reality of demographics and how things have shifted in this country. Is all of that going to be walked back in one mid-term election? It could if enough of the people who were enthusiastic Obama voters stay home (which is going to happen no matter what anyone tells you) and if enough people show up at the polls to begin with. Mid-term elections rise or fall on turnout, and a highly motivated opposition could storm the polls and throw the Democrats completely out of power in the House and the Senate (highly unlikely, but still).

What you learn from reading about American history is that it takes more than one election to shift power from one party to the other. People tend to prefer "divided" government, but only up to a point. Whatever has happened in the past won't matter if all of the shifts that no one can predict happen in November. We could see a tidal wave or nothing much at all. The noise out there points to a tidal wave; history points to a ripple. I think that the corruption of money in politics means that the only way anyone will be thrown out of office is if they piss off the AIPAC lobby or fail to show up and electioneer.

As good as the chances of the Republican Party seem right now, please remember that Michael Steele has his hands on the purse string. He will not go until he has been beaten in an election season. To my way of thinking, he has a lock on the job until the 2012 results come streaming in. There's no question that the voters will punish the Democrats this fall. How much punishment is dealt out could rest upon the competence of Michael Steele.

Power doesn't slip from the hands like it used to. The recent death of Senator Robert Byrd is a portent for the future. There will be more and more "permanent" members of Congress established in power and churning towards their centennial before the next decade is out.

Norman Rogers | tagged

News,

Work | in

Complete Mastery of All Things,

American History,

American Politics,

Congressional Issues,

Democrat Party Nuttiness,

Democrat Politicians,

Republican Party,

Republican Politicians

Email Article

Permalink

Post a Comment

Friday

Jul092010

The Rich Are Simply Smarter Than You Are, Sir

Friday, July 9, 2010

Have some blight to go with that cheese, sirThis is another example of how the new economy is rewarding bad behavior.

No need for tears, but the well-off are losing their master suites and saying goodbye to their wine cellars.

The housing bust that began among the working class in remote subdivisions and quickly progressed to the suburban middle class is striking the upper class in privileged enclaves like this one in Silicon Valley.

Whether it is their residence, a second home or a house bought as an investment, the rich have stopped paying the mortgage at a rate that greatly exceeds the rest of the population.

More than one in seven homeowners with loans in excess of a million dollars are seriously delinquent, according to data compiled for The New York Times by the real estate analytics firm CoreLogic.

By contrast, homeowners with less lavish housing are much more likely to keep writing checks to their lender. About one in 12 mortgages below the million-dollar mark is delinquent.

Though it is hard to prove, the CoreLogic data suggest that many of the well-to-do are purposely dumping their financially draining properties, just as they would any sour investment.

“The rich are different: they are more ruthless,” said Sam Khater, CoreLogic’s senior economist.

Instead of letting people walk away from their mortgages, there should be some remedy that compels them to pay a portion of the mortgage before they can walk away or some rule that allows for their assets to be gouged. If you keep letting homeowners who have chosen to stop paying their mortgage get away with it, we will have a blighted landscape out there. I am all for the freedom of the markets and the rights of the individual to own property; that does not include ruining a community, however. And communities are being ruined by this--make no mistake about it.

I question whether these people were really wealthy, however. It makes more sense to me to survey an economic landscape, circa 2004, where the ARM mortgage made it possible for people making a combined income of two or three hundred thousand dollars a year to ease their way into a property worth five or six times their income. This was not an era where anyone paid attention to the old adage of only buying a home that was two and a half times their yearly income. This was a time when anything was in reach, even a million dollar home that was, in reality, worth far less than that once everything was adjusted and once the balloon burst.

Felix Salmon provides this analysis:

Streitfeld’s piece is bylined Los Altos, California, a town where the median home is $1.5 million. In such towns, you don’t need to be a millionaire to find yourself in a multi-million-dollar home. Let’s say you’re a tech geek who found yourself with $200,000 for a downpayment on a house over the course of the dot-com bubble. So you buy a million-dollar home, and then start up a series of companies. You need to live, of course, and you can’t afford to pay yourself a salary, so you do two or three cash-out refinancings on a home which by 2007 was worth $2.5 million. Before you know it, you’ve got a $2 million mortgage, no way of paying it, and a home which is worth significantly less than the mortgage. Realistically, you have no choice but to default.

Even after accounting for your initial $200,000 downpayment and a series of mortgage-interest payments along the way, you still took out of the house much more money than you put in: the cost of living there over the past 10 years has probably been negative to the tune of well over half a million dollars. Essentially, the house has paid you $50,000 a year — money which is easy to spend, and is now long gone.

In any event, these were jumbo mortgages when they were taken out, and they’re jumbo mortgages now — none of this has anything to do with Fannie or Freddie, except insofar as the homeowning majority of the population might yet wake up and, emulating the rich, default on their underwater homes.

I agree with his take on this. There is a real possibility of panic once the average homeowner sees the wealthy carry out their strategy of dumping an asset that is worth less than what they owe on it. The gravy train is over and the refinancing money has been spent on crap you can't afford to keep because the home you're being forced to move into is much smaller than the one you're walking away from.

There is the real possibility that mountains of accumulated crap will force the average American to embrace a religion of reducing the amount of stuff they have. Does anyone need five couches? No, but how many Americans can boast that that's what they have? I certainly can. We have seven couches. One for me, one for Peej, one for Miranda, two for Byron, one for company and one to put the cooler on when we're having a barbeque.

The American economy will never recover if the hoi polloi get it in their heads to dump their homes and go rent a townhome. Not that this isn't just a gangbusters economy for people with high-end rental properties, but still.

Norman Rogers | tagged

Home,

News,

Opinion | in

Miranda Rogers,

Money Can Buy You Everything,

Peej,

Thursday

Jul082010

You'll Never Get What You Want (But You Might Just Get What You Don't Need)

Thursday, July 8, 2010

Brad DeLong wishes for a pony:

I had expected that we economists would have to fight Democratic political advisors who would be pushing for policies that were bad in the long run but that gained votes in the short run. I had never expected to be fighting Democratic political advisors who are pushing policies that are:

bad in the long run.

bad in the short run.

lose votes too.

And Ed quotes me:

“It looks like President Obama’s political advisers are getting the upper hand in the debate about the need for a second stimulus,” says Brad DeLong, an economist at the University of California, Berkeley. “If they talked to political scientists, they would know that in an election year the health of the economy determines the voters’ mood and right now that mood is looking ominous.”

I wish... I wish... I wish for an administration that would commit itself to attempting to pursue the best possible policies, and to go out and publicly make the case for them.

There's no pony under that particular manure pile, but there is a lot more manure, and most of it won't do anything to create a single job in this country.

Look, I'll spell it out for you.

If you want to see Americans go back to work, the engine of our economy right now should be the small businessman. There was an opportunity to make the health care burden on the small business owner much easier to bear. But the Democrat Party made health care a large, all-encompassing issue that skirted past what the small business owner needs in the short term and that's a way to give 25-50 employees (roughly) affordable health care coverage for their families. If the Obama initiative to fix health care had focused on small businesses in the short term, and if it had actually done something to ease that burden, then, right as we speak, small businesses would be gearing up to hire.

That is, if there were markets for their services or products. Simply making things is one thing; providing valuable services is entirely something else. Rather than making things and serving the needs of others, small businesses should be at the forefront of innovation when it comes to transportation and "green" technology. That requires tax cuts for developing these things.

Suppose you gave tax incentives for small companies to start up, all over the country, and start "greening" commercial buildings that are being used by the government to house bureaucrats who sit on their thumb all day? Suppose you got those businesses started on putting in green roofs, better windows, more space-efficient workspaces, better cooling and heating equipment and yes, even solar panels and the like. Suppose then that, once these businesses were fattened up a little with government cash they could then turn to making privately owned commercial spaces more efficient? Commercial real estate is now, effectively, dead in this country. Why not start up a few companies to convert that space for better use? Or no use at all? Or use that doesn't bankrupt someone holding a crappy mortgage on the property? Or someone who could sort out the failing mortgages and refinance them with better rates that someone can actually afford?

We have an infrastructure problem. Instead of shovel-ready big projects that will only employ seasonal or temp workers, how about using smaller companies to spend a year or two fixing something that needs more tender loving care than a stretch of road that is going to be idled for that same period of time anyway? Would you rather have a small team of dedicated workers get to know that bridge over the river and fix it or would you rather have a few hundred clowns leaning on brooms while the thing it bandaged over by half-wits put there by the unions?

And, no. Unions aren't the evil they once were. But damned if small businesses don't take it in the shorts because the Democrat party is owned by the handful of unions that still exist.

We have untold numbers of homes that are now empty and neglected. How about financing the start up of small businesses that can rehabilitate or knock down or make better use of blighted properties and help fix neighborhoods?

I don't have all of the answers, but I like mine better than anyone else's.

Norman Rogers | tagged

Home,

Work | in