Bush Acknowledges World War III (October 29, 2007)

Posted in Bush, Iran, Iraq on October 29, 2007 by e-commentary.org

Bush and Dr. Strangehate are intent on expanding World War III into Iran.  Bush has exhausted the Army and the Marines and will now launch the Navy and the Air Force into the fray.  He may simply hire more mercenaries such as Blackwater, the Hessians who helped undermine Hussein, the Kelly Girls of the killing profession.  Greed in the Green Zone expands.

With a little (a lot of) creative diplomacy, the Iranian people could be converted to allies or at least not adversaries.  When the Iranian people are allied with the West, their leaders will follow.  Bush intends to unite the Iranian people.  In opposition to the United States.  Russia senses an opportunity to pursue its own Operation Iraqi Liberation (OIL) or Operation Iran Liberation (OIL).  Bush will encourage the courtship of our enemies.

Organized resistance in America will not develop until Bush calls up the Cub Scouts or reinstitutes the Front Door Draft.  When the children of the Ruling Class must obtain draft deferral consultants in addition to college admission consultants, some influential Americans may quit following their stocks and take stock of America’s situation in the world today.  Bush + Cheney + Giuliani Draft Dodging Consultants, LLC; “When you have other priorities”; Since 2009.

Bumper sticker of the week:

Be nice to America or Bush will invade and bring democracy to your country.

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Greed on Steroids (October 22, 2007)

Posted in Bankruptcy, Economics, Society on October 22, 2007 by e-commentary.org

One score years ago, Greed was just good.  Now Greed is God.  God is Greed.  Those who embrace one seem to embrace the other.  Greed is now on steroids.

In theory, Chapter 11 of the Bankruptcy Code addressing business reorganization exists because of an assumption that a “going concern” business is synergistic and provides positive public externalities such as steady jobs, established customer networks, etc.  In other words, the business provides some value beyond the price of the individual assets.  Liquidating the business rather than rehabilitating it, the argument goes, expunges the possible public benefits.  In practice, however, Chapter 11 often is like a second marriage, the triumph of hope over experience.

Today, the hedge fund managers and private equity boys pursue an opposite tack.  They take a going concern, sell the assets and vaporize the “going concern” value.  They finance the disintegration with OPM (Other People’s Money) and pay reduced taxes for their assault on the public weal.  Instead of an “invisible hand” promoting the common weal, we are allowing others to cut off our hands.

America now rewards the destruction rather than the creation of wealth.  Once upon a time, risk was the handmaiden of reward.  Envy–the desire for something that someone else has–can be a positive incentive particularly if the owner of the coveted item seeks something owned by someone else.  Markets develop.  In a properly functioning capitalist system, an individual presses his nose against a showroom window and then goes out and puts the same nose to the grindstone to acquire the wherewithal to acquire the good.  However, those accumulating money today are not taking any personal risk or making a sacrifice, although their actions risk the stability of a precarious Economy.

In a short time, the hedge fund managers and private equity boys also have managed a non-hostile takeover of both the Democratic and Republican Parties with little resistance.  They own C. Schumer and H. Reid and H. Clinton.  No one is protecting the public.  The SEC (Securities and Exchange Commission) is now a wholly-owned subsidiary of the NYSE (New York Stock Exchange).

Bumper sticker of the week:

Feed The Homeless To The Hungry

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The Legacy Of “Easy Al” And Easy Money (October 15, 2007)

Posted in Economics, Federal Reserve, Gold Standard, Greenspan, Housing on October 15, 2007 by e-commentary.org

John and Johanna, Juan and Juanita, Ivan and Ivana, their story is archetypical in architecture today.  They should have purchased a 1400 square foot starter apartment, but they were induced and seduced into purchasing a 2200 square foot single family two-story home.  They could not afford much more than the down payment.  They could not afford the subsequent 359 monthly payments.  They are being evicted.  They will have to live somewhere, someone observes.  They need to find a 1400 square foot apartment, but there are few available and many other evictees and evacuees competing for them.  And what about the 2200 square foot abode?  It sits empty.  (See the e-ssay dated April 24, 2006).

“Easy Al” Greenspan never met a problem he would not fix with a fix of easy money.  The Fed is charged with addressing monetary policy not fiscal policy.  He set fiscal policy without even acknowledging the need for safeguards against the irrationality his monetary policy unleashed.  Be suspicious of someone who falls under the spell of one and only one cult commentator; someone should distill the thoughts of 371 (give or take) thinkers in developing a worldview.  The Gold Standard crowd almost appears reasonable.  At least a gold standard sets a standard for the money supply.  Sound monetary policy requires a “goods and services” standard/benchmark.  The amount of paper injected into the economy should be measured against the goods and services.  Instead, more money than necessary was hurled at problems thereby begetting more problems.

Bumper sticker of the week:

“A cynic is a man who knows the price of everything and the value of nothing.”  Oscar Wilde

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Housing Again (October 8, 2007)

Posted in Economics, Housing on October 8, 2007 by e-commentary.org

A house is a bundle of 1) sticks, 2) dirt, and 3) money/interest obligation.  The Truth In Lending Act requires the lender to provide basic information about the terms of a loan.  A $100,000 house subject to a 30 year mortgage at 10 percent requires the borrower to pay a total of over $316,000 during the life of the loan.  Thus, more than 2/3rds of the money ($216,000) pays for the money; less than 1/3rd ($100,000) pays for the sticks and the dirt.

When interest rate drops to 5 percent, the borrower pays a total of over $192,000 during the life of the 30 year loan.  Thus, less than 1/2 of the money ($92,000) pays for the money; more than 1/2 ($100,000) pays for the sticks and the dirt.

Reducing the interest rate reduces the total purchase price of the sticks, dirt and money/interest obligation needed to acquire the house.  When Greenspan reduced the Federal Funds Rates in 2001 and mortgage interest rates dropped, the price of the money/interest obligation dropped correspondingly.  Those who had the sticks and the dirt at the time were in the money.  Others were able to acquire a house (sticks, dirt, and money/interest obligation), for at least a few years.  Those who obtained a house in the early days of the run-up with a fixed rate mortgage of 5 to 6 percent have a “bird’s nest on the ground” if they keep a cool head.

The interest rate in a typical adjustable rate mortgage (ARM) adjusts upward in the next months and years even if other interest rates do not rise.  When the interest rate rises to 15 percent, the borrower pays a total of over $455,198 during the life of the 30 year loan.  Thus, almost 4/5ths of the money ($355,198) pays for the money; little more than 1/5th ($100,000) pays for the sticks and the dirt.

Many of the ARMs are more difficult to refinance because they include “pre-payment penalties” if the notes are paid early.  A borrower could pay off all but the last month’s obligation and then pay off the last month according to the terms of the note.  Some judges might allow it; some would not.  The pre-payment penalty provisions should be stricken because they are 1) against public policy, 2) unconscionable, 3) fraudulently obtained, 4) buried in adhesion contracts, and/or 5) _________.  There will still be an economic impact because so many investors were fooled and/or fooled themselves into believing that they would receive the substantial returns from the ARMs and other bogus instruments.

The “wealth effect” now has been supplanted by the “poverty effect.”  The “multiplier effect” is being supplanted by the “divider effect.”  And there is not a whole lot that the Fed can do to improve our lot.

However, Al Greenspan recently announced unambiguously that the credit crunch is behind us.  In the near future, no one will even remember this latest pronouncement and hold him to it.

Bumper sticker of the week:

“Time is money, money is time, that is all ye know on earth, and all ye need to know.”    John Maynard Keats

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The Right To Give Offense (October 1, 2007)

Posted in First Amendment, Iran, Law on October 1, 2007 by e-commentary.org

A wing nut like Ahmadinejad, the President of Iran, is invited to speak at Columbia University.  Let him speak.  The First Amendment “right to give offense” among other rights does not excuse a fusillade of offensive comments as part of a long-winded introduction.  Why would some wing nut like Lee Bollinger, the President of the U, trash the guy in his introduction.  A university president at a large, profitable corporate American university is primarily interested in the bottom line, the profitability of the entity, the endowment at the end of the day.  Columbia could have run a profit by running a polite conversation.  Again, America looks rude, petty, coarse, uncivil, uncivilized, arrogant and intolerant.  Again.  And again and again.

Bumper sticker of the week:

Love Your Enemies
It Confuses Them

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The Fed: Doin’ What It Can? (September 24, 2007)

Posted in Economics, Federal Reserve, Housing on September 24, 2007 by e-commentary.org

Reducing the FFR by .50 and the discount rate by .50 may work.  May not.  The Fed is mainlining more junk to the junkies who marketed and continue to market junk.  “Easy” credit in recent years produced “hard” credit this year.  Providing more “easy” credit may soften the current credit crisis for a few weeks or even months.  The availability of ARMs (adjustable rate mortgages) in recent years and other dubious instruments allowed individuals to acquire and occupy a house and use it as an ATM (automatic teller machine).  With a short term decline in interest rates, a few ARMs may not reset upwards as quickly.  The fix is only effective in the short term.  The underlying problems are unchanged.

In a rising real estate market, prices often accelerate quickly because buyers try to outbid each other.  In a declining market, prices do not fall quite as quickly because many sellers refuse to outbid each.  Some homeoccupiers will not lower a sales price lower than 1) the price they paid for the structure, and/or 2) the amount due on the loan.  Some borrowers fear paying all of the deficiency that would become due immediately if they sold for less than the remaining obligation, so they hold on for a few more months.  This “stubborn irrationality” offends economists, but they live with it.  This propensity to repudiate the market in the short term is ineffective in the intermediate run, although it slows what otherwise could be a spiraling decline in prices.

The financial markets, however, could enter a declining spiral with little notice.  The financial markets are benefiting from the recent flood of money.  However, even those who want to appear to believe in the Economy so that others stay in the game and hold up the market will get spooked.  Those who invest other people’s money (OPM) are not particularly concerned because they benefit as prices gyrate; those who are investing their own money do not want to be the last one to sell and end up the last chump standing.  The Economy is best served by a soft decline rather than one that accelerates downward uncontrollably.  In light of the fundamentals (realistic profit predictions; realistic price/earnings ratios for the respective industries), a Dow (Murdoch ?) of 12,000 is more realistic.  However, the “exuberant irrationality” that underpins the financial markets could drive the Dow (Murdoch ?) down even lower in a panic.

Bumper sticker of the week:

Do Anything.  Something.

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Stagflation And The Fed (September 17, 2007)

Posted in Federal Reserve, Inflation on September 17, 2007 by e-commentary.org

Inflation is rising.  (See the e-ssay dated July 16, 2007 entitled “Back Door Inflation”).  Examples abound.  The standard venerable five (5) gallon container of paint now hauls only four point six eight (4.68) gallons.  The benchmark basket of goods and services used to calculate the consumer price index is getting much smaller.

The housing boom has played out.  Consumers would like to spend more, but they completed thirty years of spending in three (short) years.  The bills are arriving monthly for the next twenty seven years.  Consumers will not be able to consume.  The economy is stagnating and will continue to stagnate.

The economy is in a state of “stagflation” with both inflationary and recessionary pressures.  (See the e-ssay dated August 7, 2006 entitled “The Fed:  Deal with ‘Stag’; Deal with ‘Flation’?”).  This past August 7, the Fed expressed concern about inflation.  Now the concern du jour is recession.  The Market anticipates a drop in the Federal Funds Rate (FFR).  What should be done is problematic and a problem.  The Fed likely will reduce the FFR by .25 to appear to be doing something.

Bumper sticker of the week:

Do something.  Anything.

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Potemkin Estates, Parvenu Palaces (September 10, 2007)

Posted in Architecture, Housing, Society on September 10, 2007 by e-commentary.org

The drive to impress in America is driving us to buy more expensive rides and bigger homes.  Architecture is about scale and proportion, among other considerations.  Bigger is not better; bigger is usually garish and gaudy and not better.  Pumping steroids into a house plan is counterproductive.  Some Americans commission monstrous McMansions and only finish enough rooms to obtain a certificate of occupancy.  Potemkin Estates.  Parvenu Palaces.  “Staging a home” before a sale is undertaken to make the house look like a movie set and presumably more appealing to prospective buyers.  However, the staging is now done at an earlier stage.  Talk to a furniture deliver person.  Some individuals finish a room, furnish it with tony furniture and cordon it off from use.  The thinking is that the house will look more comely when it is put on the market for sale at a later stage.  The house today has lost its essential purpose.  The bigger houses in particular have no heart and no soul; they are somber museums, monuments, mausoleums.Bumper sticker of the week:

Only you can prevent narcissism

Consume Inconspicuously

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Housing, Again (September 3, 2007)

Posted in Housing on September 3, 2007 by e-commentary.org

The root word of “mortgage” is “mort” – death.  Pay until you die.  Die trying to pay it off.  The concept of “equity” was created by the British Courts of Equity and represented a promising development.  Before the creation of “equity,” if an individual missed one payment, even the last payment, he lost the house and forfeited his payments.  The Courts of Equity allowed individuals to acquire a house brick by brick, month by month, payment by payment without losing everything if they missed one payment.  Today, by contrast, without making a payment, a homeoccupier can take a loan against “equity” he or she does not have in a home.  Too many individuals have spent “equity” that does not and will not exist.  They are killing themselves financially.

A few years ago before effective spam filters were available, the offers streamed in from the Internet.  “Do you want a smaller penis?”  “Do you want a bigger mortgage?”  Or similar enticing messages.  The public devoured them.  The loans were aptly described as “Liar Loans” because they did not require one to provide tax returns or wage statements.  Having a job was not relevant.  The lenders/originators encouraged the borrowers to lie.  The borrowers obliged.  The prospective purchasers confronted a 1) small down payment if any, 2) initial payments that were manageable, and 3) a real estate market that appeared only to be skyrocketing.  Their response is not surprising.  The appraisers provided whatever appraisal price was required under the circumstances.  The real estate agents and brokers and facilitators facilitated things.  The loan brokers are largely gone and cannot answer for their crimes.  The borrowers are obliged to pay third parties who acquired the loans perhaps with some inkling that they were dubious.

The Enron and related scandals were created by a small cabal operating behind closed glass doors in glass towers.  By contrast, the real estate apocalypse was created and fueled by the greed and short-sightedness of millions of individual citizens.  The short-term drop in interest rates in the last few years has come at a great long-term social and economic cost.  (See the e-ssay dated January 30, 2006 entitled “Greenspan’s Legacy – Apres Moi, Le Meltdown”).  The collapse was predictable and predicted.  Everyone seems to be living in a glass house.  There are no easy solutions.

Bumper sticker of the week:

We have met the enemy

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Housing And The IRS (August 27, 2007)

Posted in Housing, Taxation on August 27, 2007 by e-commentary.org

Taking the first of what may be a dozen steps to address the housing collapse cannot be done until the extent of the addiction is admitted.  Looking up and around and conceding the truth might create panic.  The monthly mortgage payments must be made this month, and next month, and next month, and next month, and next month, and next month, and next month, . . . . . . . . . . . . and then they are adjusted upwards and must be paid the next month, and next month, and next month, and next month, and next month, and next month . . . . . . . .  and yet there is little money to make the payments.  There are no easy solutions.

The Internal Revenue Code should be amended to eliminate the tax on debt forgiveness.  Few taxpayers realize that a debt forgiven either by the action of the creditor or a foreclosure or the like is still considered taxable income by the IRS.  The New York Times recently ran an article discussing the tax provision and its consequences for taxpayers who have lost their homes.  Individuals either must file bankruptcy at the right time or prove insolvency.  Eliminating the tax would perforce reduce tax revenue, although the provision is not taxing what most individuals generally and reasonably regard as income.

Pursuant to section 121 of the Internal Revenue Code, if a taxpayer lived in a “principal residence” for two out of the five year period before it is sold, the taxpayer can exclude up to $500,000 of gain if married and filing a joint return or up to $250,000 of gain if filing a separate tax return.  There should be some consideration to changing the residency requirement to five out of the ten year period before the residence is sold.

The mortgage interest deduction is the last major tax relief for the middle class.  The interest deduction for other consumer purchases was eliminated years ago.  Taxpayers simply refinanced their homes, used the funds for consumer purchases and took one obese mortgage interest deduction.  (See the e-ssay dated February 7, 2005 entitled “The Microeconomics of Suburban Subsistence”).  The deduction phases out at higher income levels.  Revisiting and fine tuning the deduction seems prudent.

These suggestions are not adequate.  There are no easy solutions.

Bumper sticker of the week:

It will get worse

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