Is the target for this one another 4 million homeowners?

HAMP 2nd lien program. I don't have high hopes for this program.

I could see an argument to be made for a government program to arbitrate between borrower and lender for a set of standards to reduce principal and split the difference between what the bank would get for the property in foreclosure. Somehow I doubt HAMP is it though.

Pigs at the trough

Freddie Mac Said to Consider Financing Stuytown Purchase - Bloomberg.com

Freddie Mac to provide financing to 'potential buyer' of Stuytown...maybe the deal can be closed in 30 days...hey couldn't Tishman Speyer buy it back somehow...

Mirror, mirror on the wall
Who's the biggest buyer of all?

with the release of final program policies and guidelines by federal regulatory agencies, which is expected soon.

Coming soon from your Department of Timmy.

HAMP for 1st liens don't work, so the plan is to do the same bad job on 2nds.

How far are FRE/FNM from financing commercial RE projects deemed "valuable" by local politicians and business leaders?????

Wide Fallout in Failed Deal for Stuyvesant Town - NY Times

It depends on where you live. If you live in Manhatan, only a few blocks away, according to today's NY Times.

"Fannie Mae and Freddie Mac may be in the best position of anyone involved in the deal’s financing. They acquired over $2 billion in securities backed, in part, by the $3 billion Stuyvesant Town mortgages. Fannie and Freddi Mac have to be paid before any other debtholders, but they are not parties to the negotiations over the property.

They may well become an integral part of the solution. In a report issued Monday, Deutsche Bank suggested that CWCapital’s most likely action will be to wipe out the existing mortgage and attempt to sell the complexes. “Given the size of the properties and an asking price likely to be well in excess of $1 billion, a sale may necessitate Fannie Mae and Freddie Mac providing financing to a potential buyer,” the report said."

It's gotta look like something is being done in the meltdown. Obama is reconnecting with voters now going after the banks. (wink)

Slip

Toyota now seeing floor mats are not the problem. They got a hot one on their hands. If these are fly by wire throttles then any electronic gremlin could set it off. Very bad.

Under 2MP, when a borrower’s first lien is modified under HAMP and the servicer of the second lien is a 2MP participant, that servicer must offer either to modify the borrower’s second lien according to a defined protocol or to accept a lump sum payment from Treasury in exchange for full extinguishment of the second lien.

Quite a present for a portfolio of second liens that shouls by all rights be valued at less than zero.

More evidence that it is all about the banks and their needs. It's a good thing this isn't going to work lest be be left with an intact FIRE segment and nothing else.

Rich good point

RD

Good analysis

FNM to "provide financing"?

Bahahahaha.

Home Affordable Second-Lien Modification Program

???

I wasn't aware that there were any seconds out there still worth the paper they were written on.

I'm waiting for the new 1/2 OFF PRINCIPAL program. Every single mortgage gets 50% of principal wiped. DO-OVER.

A Second Lien Program to reach up to 1 to 1.5 million homeowners, and potentially reduce payments further for up to 50 percent of participants in the Home Affordable Modification Program:

http://www.financialstability.gov/docs/042809SecondLienFactSheet.pdf

For amortizing loans (loans with monthly payments of interest and principal), we will share the cost of reducing the interest rate on the second mortgage to 1 percent. Participating servicers will be required to follow these steps to modify amortizing second liens:

sportsfan wrote:

Yeah, mostly OPM, but those 9 figure losses still don't go over well in the home office.

If you're batting 30% on 10:1 shots, the home office will NOT care.

Eric,
So no mystery really...just business...and huge losses for pensions...

Ok, here is where I repeat my piece of gossip about how B of A really
has no intention of modifying anything.

I suppose they MIGHT condescent to mod a 2nd, because there is almost
no chance of getting paid otherwise.

I wish someone would look into this. The person repeating this to me seem at
least moderately believeable.

Does no one make them sign guaranties?

Why halting production?

What was the 'sales pitch' to get the pensions or the pension 'representatives' to invest in Stuytown in 2006?

Tishman looses $112m that will count against their tax bill while California taxpayers are expected to backfill the $600m losses at CalPERS ($500m) and CalSTRS ($100m).

It's like a punching clown that just won't stay down and continues to mock no matter how many times you hit it.

Dawg:

Did CALPERS write down their Tishman losses to 0? I know Florida did, but I heard CA was holding out for some recovery.

ghostfaceinvestah wrote:

After five years, the interest rate on the second lien will step up to the then current interest rate

Is it just me or will the average J6P see that and default anyways? The again, maybe not. For most of these people, it's about buying time and not paying off a house.

One thing that did occur to me though, if your interest rate is super low, doesn't that mean your Mort Ins tax credit is reduced to peanuts? So the gov may have to pay the point spread but they'll make it back on the 1040. A mortgage you can walk from but taxes are forever.

The Economist had a very timely article about the recent decline of Toyota a few weeks back. A shame, my brother's 2002-era Highlander is one of the best built cars I have ever driven.

Yup, I guess they can't fix it if they don't know what is wrong.

But--how long has this been going on?

We all have low hopes now.

January 24, 1938

The depression continues with increased intensity. Stocks are at a low point and business is at a standstill. It is thought now that government will start spending money again in the spring in order to bring revival before the fall elections. If so it will be an inflation spurt.

This depression seems harder to bear for people than in 1932. During the 1935-37 spurt they bought autos, furniture, etc on the installment plan and now they cannot pay.

That was my reaction too. Ghost, I'd wonder about the following:

Roll the first and the second into one loan at 0%. Pay it down in 360 equal payments.
What fraction of borrowers would that save? (ie, what fraction are still above 33% monthly DTI?)

As far as I am concerned, 2nds exist to ignore, and turn into
equity (or less loss) after the Statute of Limitations expires.

If you had told me 5 years ago that I would be saying what I am
saying now, I would have told you you were crazy, I would never
say that.

"Is it just me or will the average J6P see that and default anyways? "

I don't know if they WILL, but they are better off if they did. It is the exact same issue with the first lien mods - it tackles an equity problem by attacking payments.

First extraordinary expense, and the borrowers is done paying.

This isn't about the borrowers, it was never about the borrowers, it is about allowing the banks to delay recognition of their losses and finding a hidden way to funnel taxpayer dollars to them through "incentive fees".

You can't mean the Bank of America that ate Mozilla's Countrywide is going back to the table for HAMPS?

"And what thing soever besides cometh within the chaos of this monster's mouth, be it beast, boat, or stone, down it goes all incontinently that foul great swallow of his, and perisheth in the bottomless gulf of his paunch.....Steady, sir." "Mast-head ahoy! Do you see that whale now?" "Ay ay, sir! A shoal of Sperm Whales! There she blows! There she breaches!"

nyanalyst wrote:

This was probably discussed before but just in case.

Thanks for the link. Insightful and inciting.

ghostfaceinvestah wrote:

This isn't about the borrowers, it was never about the borrowers, it is about allowing the banks to delay recognition of their losses and finding a hidden way to funnel taxpayer dollars to them through "incentive fees".

I think this is a sensible interpretation. I would add: It is also about having the politicians appear to act on behalf of their unfortunately constituents.

lawyerliz wrote:

As far as I am concerned, 2nds exist to ignore, and turn into
equity (or less loss) after the Statute of Limitations expires.
If you had told me 5 years ago that I would be saying what I am
saying now, I would have told you you were crazy, I would never
say that.

Look at the discussion from 2007: Exurban Nation: Stop Paying Your 2nd Now 

Face it, next time say 3-4 years from now after our theoretical FB has stopped paying their second they go into the auto dealer to buy. The credit manager asks about the "discharged debt" black mark. The FB says they stopped paying their second because there was no equity and the loan was worthless. Instead the FB explains they used the savings to keep current on all other debts and taxes. The manager ponders for all of 3 seconds, slaps the FB on the back and says smart man! Welcome to our Toyota family, enjoy your new car!

RATM wrote:

Forbearance does not equal reduction.

Exactly. It goes on the end and hits when the loan resets in 5 years. That way, if you weren't underwater when you got the mod - you will be in 5 yrs. And that fixes nothing, it sets up failure. Why do they want to do something that stupid?

Because they are banks.

"Without the internal savers and external/export markets to provide some socio-economic stability to the venture? "

Good point. So we will owe more to our foreign creditors than Japan, and the government will continue to grow to provide some employment.

Those are the only differences.

ghostfaceinvestah wrote:

Those are the only differences.

We are currently the world's reserve currency, and Japan isn't. That is another difference--however small.
.
Don't get me wrong. I don't disagree with your analysis of the situation, and your insight into the mortgage fiasco is more valuable than almost anything I can provide to the commentariat. However this meme that we will be/function/work like Japan just seems wrong to me for social and cultural reasons. Americans aren't Japanese in so many ways that I don't think we will be able to mimic their lost decades just because we aren't Japanese in many of our social and political goings-on.

no one is going to bite on my idea that the interest rate spread that the program covers will be recovered by a reduced MI deduction on the borrowers 1040?

WestSac_grrl wrote:

no one is going to bite on my idea that the interest rate spread that the program covers will be recovered by a reduced MI deduction on the borrowers 1040?

Have you worked out any examples to see what the net effect is going to be? Off the cuff, I would think reducing mortgage interest would outweigh the MI write off, especially if your marginal tax rate is 28% or less.

Rajesh wrote:

The U.S. didn't wait twenty years to throw out the party in power.

I'm not sure the policies or party in power matters much at this point. The only way to prevent the debt deflation would be some very risky monetary action that might cause a worse unintended outcome.

Oxtail wrote:

They're trying to figure out what's causing the problems with the accelerator getting stuck.

Sounds like they could use some help from Geithner and Bernanke.

Mr Slippery wrote:

prevent the debt deflation

You can't prevent debt deflation, it's already here. But you can prevent the ravages of trying to throw good money after bad. That was the problem in Japan. They drained money from the real economy to prop up the paper economy. Now the real economy is hurting as well and they are out of options.

We have already put GM and Chrysler through bankruptcy. Japan Airlines is the first major bankruptcy (after three previous government bailouts and before the fourth) since the 89 stock crash. We are further into recovering from our bank crisis than Japan is from theirs.

Rajesh wrote:

The U.S. didn't wait twenty years to throw out the party in power.

When did that happen? Last time I checked, the banker party is still in power...

"We have already put GM and Chrysler through bankruptcy. Japan Airlines is the first major bankruptcy (after three previous government bailouts and before the fourth) since the 89 stock crash. We are further into recovering from our bank crisis than Japan is from theirs."

and we're busy re opening many of the dealerships that were closed as part of the restructuring. How again are we different?

Rob Dawg wrote:

Welcome to our Toyota family, enjoy your new car!

And then the accelerator sticks on.

josap wrote:

Or that he has any clue how inflation can happen in the next few years.

Commodity inflation is already here and going to get worse. Then, you can enjoy some deflation as businesses go because they can't service their debt or fixed expenses. Then, we will probably get inflation again as people try to outgod Mother Nature and Human Nature.

Usual savers rant. No mention of

Jan 25, 2010 We Are All Speculators Now Craig Harris 321gold ...s

yagij wrote:

Commodity inflation is already here and going to get worse.

Agree. But he really thinks that house prices will be part of that inflation, in Az.

I'm getting bored.

I get in trouble when I get bored.

lawyerliz wrote:

I get in trouble when I get bored.

on the ground?

broward wrote:

I agree that it's the percentage bet.
What happens after the inflation period is going to suck even bigger.

yes but what makes you think there will be an "after" following the great inflation?

Over / under on the number of outbursts during the State of the Union: 5

3 group, 2 individual.

I am going to go watch tv and brood.

Rob Dawg wrote:

what makes you think there will be an "after" following the great inflation?

The 1970s.

"but once the inflation accelerator gets traction we are going to smoke the tires."

smoking tires tends to lose traction. You lose your steering and hit a wall or guard rail and slow down real fast.

Rajesh wrote:

We have already put GM and Chrysler through bankruptcy.

The only reason either got through bankruptcy is the huge cash injections from taxpayers, which we now owe.

The weakness in the barbarous after the announcement of a $1.3 Trillion dollar deficit (~10% GDP) portends a coming downdraft coming in all markets. The weakness in quality (selling in volume into good news) reminds me of Fall 2008.

yagij wrote:

as businesses go because they can't service their debt or fixed expenses

A rise in interest rates should wipe out companies effectively "borrowing short / loaning long" to keep operating.

I can't believe they're talking about FNM financing a dead CRE deal.

How can you NOT get inflation with this type of embedded mindset?

When you see politicians from both parties in agreement on an issue, that is the time to be very, very afraid, because they may both be very, very wrong.

Does anyone here have something constructive to suggest, beyond: Let's fix this stalled car by smashing the engine? This doom is becoming monotonous.

You want to get to recovery (D)? How do we get from now (A) to D?

I bet nobody knows, here, there or anywhere.

In the country of predominant self interest, every nose is cut off to spite every other face.

Comrade Kristina wrote:

smoking tires almost inevitably results in losing the race...You gotta hook up...

Whew, you got here just in time.

My personal favorite are the imbeciles with "honk if I'm paying your mortgage" bumperstickers. No, asshole; you're paying for Lord Blankfein and friends to have a fifth home in Paris..,.

from the article: "Say goodbye to the country you once knew."

and good riddance

Smoking the tires? lower the final drive number and set the two step down and put another quarter in the slip tubes and add 10# on the nose!

I can't see the mechanism for inflation to take hold right now.

$1.3 trillion dollar deficit. Obama's proposal to freeze discretionary spending will shave $24 billion off that number though. So it's really a $1.276 Trillion deficit.

Balancing the Federal Budget would require eliminating ALL discretionary spending (including the DoD). Just imagine: No Defense, No USPS, No National Parks, No FDA, No DHS, No FAA.

It would be a Libertarian paradise.

Listen up!:

January 27, 2010 | 0040 GMT

"Standard & Poor’s (S&P) said Jan. 26 that it may downgrade Japan’s sovereign credit ratings if the government fails to rein in its rising public debt and budget deficits. The S&P warning, the first since it cut Japan’s ratings by a notch in April 2002, draws direct attention to the country’s fiscal health and risk of defaults, which will increase yields on long-term government bonds. It will also further challenge the new government, led by the Democratic Party of Japan (DPJ), as it tries to restore the fiscal condition of the world’s second-largest economy.*

broward wrote:

How can you NOT get inflation with this type of embedded mindset?

I think Inflation & Deflation feed into each other and we get whipsawed by both sides just at different places and different times.
.
e.g. Mediation wages are at their lowest level ever in my jurisdiction (SE US). Mediators charge 100 USD/hr for their time and services. 2 or 3 years ago, that price would have been 300 USD/hr easily. At the same time, my cereal of choice was 3 USD/box and now can set me back 4.50-5.00 USD/box. I eat more cereal that I need mediation so goes the economy!

They keep screwing with me and nobody is gonna be payin' mine. I have two patrons that are not paying theirs right now. One is 8 months behind and one that is 5 months behind. No foreclosure yet....

Talking point for tomorrow's state of the union address.

Comrade Kristina wrote:

One is 8 months behind and one that is 5 months behind

Either one efficient? I'm thinking an "efficient defaulter" can be identified because they'll keep a running total of how much they've "saved".

pavel.chichikov wrote:

every nose is cut off to spite every other face.

We are just lost. I am getting the feeling that the fixing will come, but it is going to take a good withering to get there. Have faith

Rob Dawg wrote:

Inflation in the things you need, deflation for the things you cannot afford.

Yep. Then comes the price wars to things we need or businesses go . Deflation will rear its ugly head again.

josap wrote:

he is underwater and just can not grasp the reality of that, or that this won't get all fixed in a year or two.

This is the source of the current political crisis. First we had subprime, and it was "contained". Then we had a major financial crisis, but it wasn't a "recession". Then we had a liquidity panic and a staircase downstep in the economy, but it was "stabilized" and thanks to the same people who failed to see (much less contain) subprime and the financial crisis, we're told we've averted another Depression.

But nothing is getting fixed and people are waking up to the fact that the depression is here whether we like it or not, and there's not much anyone can do about it because we mortgaged more than the house, we mortgaged the entire productive output of the country over the past 30 years. We borrowed-and-spent our way out of every crisis, and now we cannot borrow no mo'. We printed-and-spent our way out of the liquidity panic, but no one thinks we can do that for very long, and the bills are still a-comin' due.

The real problem is that far, far too many people are doing "work" that isn't actually work, and far too many others aren't even doing work but still expect to be fed and housed by way of "investment interest" and "entitlements". These people are not productive. They do not make things, or put bread on the table, or even make people's lives better in any other noticeable way. We have too many lawyers and bankers and mortgage "brokers" fighting over money, and too many politicians and panderers and interest groups fighting over words. We have too many soldiers fighting overseas. We have too many highly paid committee members fighting over policies, and managers fighting over the rungs on burning ladders. We have too many beancounters and PowerPoint jockeys and not nearly enough techs, engineers, and factory workers. Too many insurance apparatchiks and not enough doctors or nurses. Too many unionized slackers and not enough quality teachers, nor enough public-spirited city workers. On the plus side, we still have enough food, water, coal and sunshine, and with a few lifestyle adjustments we also still have enough energy and raw materials. So perhaps the crash will not feel like a Haitian earthquake or an Indonesian tsunami, nor a Zimbabwean or Weimar hyperinflation. It will just be a long drawn out muddle-through. But now instead of a choice between the Swedish Model and the Japanese lost decades, it appears we get a choice between Japan and Argentina...

We are just lost. I am getting the feeling that the fixing will come, but it is going to take a good withering to get there. Have faith

I hear you, tg.

Nope. The one is a Realtor that had bought several rental properties during the boom. She has let her renter stay since June without paying rent. She's just a really nice woman that hasn't the heart to throw them out (both lost their jobs). She's underwater in a big way and just wants the bank to take it but they won't. The other is a spoiled rich woman (Parents were wealthy) that has done precious little in her life besides sponge of Mom and Dad. She has a freaking 3% owner financed sweetheart deal via a friend of her parents and can't manage to make the 500 dollar a month payment on her condo. I'd kill someone for that deal....

Kristina:

How's business? My local bar up here is doing lousy of late (a little dive bar on Caroline Street).

yagij wrote:

Yep. Then comes the price wars to things we need or businesses go . Deflation will rear its ugly head again.

Yup. Home Depot going out of business sales would kill the sector. Repeat for Office Depot/Stapes/OfficeMax. Repeat for any number of other sectors. Then when KMart closes there will be a round of CRE rent deflation that will allow new businesses to charge lower prices and still make a profit.

...not enough quality teachers, nor enough public-spirited city workers.

Wisdom Speaker, self sacrifice is needed, but if it isn't equally shared it will end in bitterness, supposing it's even effective.

sdtfs wrote:

OMG** ETF**! It all makes sense.

LOL.

josap, I wrote the above before I read your post, so yep.

Remind me which one Crist is?

bearly wrote:

I'm waiting for the new 1/2 OFF PRINCIPAL program. Every single mortgage gets 50% of principal wiped. DO-OVER.

So am I. Unfortunatley I bought in the wrong time frame. Now I am on the hook for all the problems that were not known at the time. I am over 65, on a pension and will never recoup what I invested. It looks like pauper's field for me. Great country, America./snark/

pavel.chichikov wrote:

[Wisdom Speaker wrote] When you see politicians from both parties in agreement on an issue, that is the time to be very, very afraid, because they may both be very, very wrong.
Does anyone here have something constructive to suggest, beyond: Let's fix this stalled car by smashing the engine? This doom is becoming monotonous. You want to get to recovery (D)? How do we get from now (A) to D? I bet nobody knows, here, there or anywhere. In the country of predominant self interest, every nose is cut off to spite every other face.

Thanks for that; I am feeling chastened and thinking through a more positive reply... but I'm also on the phone, so please be patient.

From what I'm reading tonight, it sounds like we have to (a) accept that there will be national pain, and (b) stop fighting over who gets excluded from the pain, and agree to share the pain equitably. What we are facing is not any worse than many of the other crises America has face... Civil War, pandemic flu, 2 world wars, and of course the other great depression. We will get through this. But we cannot get through it peacefully if those currently power think that only those not in power will have to pay for it...

Nuke wrote:

Dawg:
I don't think HD is in danger of going under. Kmart, yes. Same with Borders and one of the weaker Office chains (Office Depot has been doing poorly for years), but not HD.

I suspect their CRE exposure while internal is just too high to sustain.

pavel.chichikov wrote:

You want to get to recovery (D)? How do we get from now (A) to D?

Lots of people have made good suggestions, Pavel, but they don't suit our politicians, like:

1. Extend UE benefits generously, but on a declining scale to encourage people to look for a paying occupation
2. Withdraw support for high home prices (FNM, FRE, FHA, Fed etc)
3. Choose the worst 30% of the banks, and close them down. Pay off their depositors and pay their counterparties 90 cents on the dollar. Pay nothing to the equity holders and bond holders.
4. Enact a large stimulus program focused on increasing the future efficiency of our economy, and on WTO-legal promotions and support for US exports and import substitution. This would encompass subsidies for changes that reduce our oil consumption.
5. Enact a 50% gains tax on all capital gains, including interest. Apply it to total annual gains in cash + market value. Define gain with reference to the increase in CPI over the same year. Apply a symmetric tax credit for all losses. Allow payment of large amounts over some limited period, like 5 years. This will reduce asset speculation and bubbles, be countercyclical, protect savers against inflation, act as a moderate redistributive wealth tax, and force movement of highly appreciated assets to the strongest hands.
6. Enact a scheduled increase in taxes on imported oil, increasing the price on a predictable basis by 3-5% a year over 20 years.
7. Limit existing tax incentives for personal leverage by removing deductibility for a taxpayer's loans up to their net worth.

Bank of America Corp. and Morgan Stanley are encouraging clients to buy swaps that pay higher yields for speculating on the extent of losses in corporate defaults

old news or new?

rich wrote:

To lose 100% of a huge pension investment THIS FAST is rare.

Well, there was that internet investment thing about 10 years ago, but I get your point.

Comrade Kristina wrote:

That's a long time to be flat freaking broke

You own your own home. Many other readers here cannot afford a home, because the price is too high, and if they paid it they would not have enough money to pay for their other obligations, such as future medical care etc. I don't consider anyone to be flat broke if they own a home.

Wisdom, I don't intend to chasten anybody. Nobody around here needs to be chastened. I wish there wasn't such a palpable sense of deadlock in the country.

I just heard Mitch McConnell say he was against a deficit commission because it wouldn't propose enough of a budget reduction. Bloody hell, are they all going to deadlock the country for two years? What the hell is the matter with our political class?

I don't own a home. The bank owns my home. I wouldn't ever have been able to buy one either had my Mom not died and left me some equity above what she owed on her mortgage (and even that is questionable because the equity was during the boom). I'm a home debtor. In other words I just pay higher rent than you do along with taxes and maintenance but will never actually own my home. Still think I have a great deal?

I feel that is what will happen as well. Going forward around here is bleak. When hubby's job finishes up in May there is NO and i mean NO work on the horizon. The company he works for just laid off 40 electricians in Orlando (their home base). We'll be OK but I am not sure if we'll be able to hang onto the house or not. I sure would like to as I love this place but if not, I'll survive.

Comrade Kristina wrote:

I don't own a home. The bank owns my home.

I apologize. I didn't realize the foreclosure and eviction had already happened. I hadn't seen you post that. The good news is that, although flat broke renters are indeed flat broke, rental accommodations aren't all bad.

pavel.chichikov wrote:

What the hell is the matter with our political class?

Political class.
That is one problem.

It hasn't but the idea that I "own" my home is silly on its face. Morgan Stanley owns my home and so long as I send in 1100 dollars per month to them and I continue to pay for the upkeep on their home and the taxes and insurance, I can keep living in it. If I'm really lucky and can manage to keep paying them that or more (ARM) in the future I can "own' my home when I'm 73 years old...if I'm lucky enough to live that long.

pavel.chichikov wrote:

are they all going to deadlock the country for two years? What the hell is the matter with our political class?

I think part of the problem is that they're more interested in maintaining personal power (and political "employability") than in promoting the general welfare.

Another part of the problem is that the same people have been arguing with the same other people for so long, that they've forgotten how to trust each other, come together, and get the job done. I see this at work too, maybe it's something endemic to the baby boomers?

There should be no reason whatsoever why the Dems need 60 senators to produce meaningful legislation. They just have to admit that they cannot produce such legislation entirely on their own. 2010 will be like 1994, or 1984 for that matter, or whatever year it was that the Republicans gained control of Congress after the New Dealers had their way.

Personally I expect to continue to feel poorer for a few years, but I think there's a bottom about 10 years out. American optimism and persistence will win out. What was it Churchill said? "You can always count on the Americans to do the right thing... after they have tried everything else." We're still in the "everything else" stage.

BTW, what was the political climate like in 1930-1932 when the standard solutions weren't working? I bet it was a bit like now...

flat broke renters

I'm so broke, I wish I were flat broke.

April 15th is around the corner.

Badger boy wrote:

As a renter who gets mugged on April 15th while looking longingly at all those sweet deductions homeowners get, yes I do think you get a sweet deal.

The tax system subsides home ownership, and the ponzi game. Renters will always get screwed, as they are outside of the credit economy, and it is the only game that keeps this delusion going.

If renting is cheaper then owning then those imaginary tax deductions are all the more useless. Making money is the cost savings between rent and the cost of home ownership.

Badger boy wrote:

Still think I have a great deal?
As a renter who gets mugged on April 15th while looking longingly at all those sweet deductions homeowners get, yes I do think you get a sweet deal.

Your landlord bases your rent in no small part on his costs so you most certainly indirectly benefit from the mortgage interest deduction.

Wisdom Speaker wrote:

ideas but to this one I would add that

And I agree with all of your ideas. They are actually very good.

On the dividend issue, I'd expand to say that one of the biggest problems we have right now is a lack of public company management accountability to the company's owners - the shareholders. That's the biggest reason that top manager pay has gotten out of hand. If company owners were allowed to act like company owners, they'd slash the pay of managers who lost money, and they'd block a lot of asinine mergers. I own shares in BOA. I guarantee you that I'd have fired Ken Lewis on the spot if I had the power and he'd proposed taking over Countrywide (and then Merrill) as he did. Most public companies would pay reasonable dividends if their owners called the shots, and there weren't double tax penalties on dividends.

Today, it is not necessary for a company's managers to get a positive vote from their shareholders before buying another large company. Nor is it necessary for the top managers to cleat the same hurdle for their own pay package. If a private company's managers treated the owners that way, they'd be fired immediately. We need radical reform of corporate governance, along with a lot of other improvements.

pavel.chichikov wrote:

Have anybody in mind?

Seeing how easily manipulated I've been, despite my very best efforts, I'm in a state of resolute disbelief in anyone. I was hinting above that Krugman himself should go that one step further... I think he was obviously thinking it. Krugman and Ron Paul, strange bedfellows? Did you read it?

I read your report of your nightmare, and your poem, with concern. Come to think of it, I believe in you, pavel.

adornosghost wrote:

The tax system subsides home ownership

Broken record comment: I have wondered when the insanity of redistributing from renters to homeowners (= mortgage interest tax deduction) will become an issue.

Rob Dawg wrote:

Your landlord bases your rent in no small part on his costs so you most certainly indirectly benefit from the mortgage interest deduction.

The landlord bases rent on what he or she can charge within the available market.
The welfare tax deduction of home ownership benefits a real estate lobby, and a ponzi scheme economy.

Stimulus now $75 billion more expensive - Jan. 26, 2010

"The Congressional Budget Office hiked its forecast Tuesday for how much the stimulus bill will add to the nation's deficit, raising its estimate by $75 billion to $862 billion"

$20B towards UI
$20B towards food stamps
rest Build America Bonds

>

hoocoodanode?

patientrenter wrote:

On the dividend issue, I'd expand to say that one of the biggest problems we have right now is a lack of public company management accountability to the company's owners - the shareholders. ... I own shares in BOA.

This is part of the problem. The sensible reaction for a shareholder to a poorly run company is to sell the stock. Eventually, the share price drops so low that a well-run company takes it over and knocks heads together until it runs sensibly.

And the sky in my world is filled with ponies, in case you're wondering.

Been there done that sdtfs. Hubby was laid off from October 2008-April 2009. He grew very depressed. We stuck together but it was hard. He felt useless. He did take to doing all the housework to "do his part" and I did everything I could to encourage him and keep his spirits up. We're solid. Nothing can break us apart...nothing. We've been through to much in the last decade.

The home mortgage interest deduction does benefit a select group. I am saying "even more select" when looking at the states where the deduction is taken the most often for the largest amount.

Landlords, by contrast, get an investment interest deduction if they have a note on their building.

You could eliminate the former without affecting the latter (though the political fight would be horrific).

JP wrote:

The sensible reaction for a shareholder to a poorly run company is to sell the stock. Eventually, the share price drops so low that a well-run company takes it over and knocks heads together until it runs sensibly.

This is challenging when there are only 10 choices in the 401(k) plan. Another bubble-era financial product whose unintended consequences are a disaster.

But, on a personal level, my spouse and I have discovered that we've got a "brokerage window" option and we're going to do our job to be careful stockowners of 10-20 carefully chosen individual companies going forward. Mainly smaller companies off the radar of the 401(k) fund-runners...

3TRILLION in deficits so far - FAIL
8% Max UE - FAIL
Troop ramp in Afghan - FAIL
Bankers ruling Washington by fear - FAIL
Health Care - FAIL
FAIL
FAIL FAIL....

Going to meet hubby for a ....Need to de-stress.

JP wrote:

Eventually, the share price drops so low that a well-run company takes it over and knocks heads together until it runs sensibly.

Eventually, the shareholders have to be able to exert power over the managers. Even in the scenario you describe, nothing will improve unless someone ultimately takes on the mantle of ownership, and exercises the rights of a true owner to turn the organization around. That is all that's happening in the takeover you describe as the end-game. One entity (a new company) finally gets to treat the entire failing company as its own, and can hire and fire managers, and pay them what it thinks they are really worth.

Why have a system that waits until utter failure before reining in managers? Our system should allow, even encourage, public company owners to exert the full rights of ownership over a company, including keeping the managers in line and on track. Instead, the SEC has facilitated the transfer of owner powers to a public company's managers. It's a big reason for our current problems.

Ahhh Nuke. Back to the parents...I DO like this house. It is all I have left of the folks and I do love being away from people back here on the dead end street. I just understand that "owning" a house is imply a means to dump all your money into a hole in the ground. Kinda like boat owners say " a boat is just a hole in the water your pour money into"...I also have a whole lot of critters and an elderly uncle counting on me to keep a roof over their heads. I can do the most good with the house as compared to renting. And that is really what it comes down to. I have six rescue cats, a rescue Greyhound and a homeless Uncle living with me. That is really the only thing that has ever mattered to me, helping as many souls as I can

After reading through this thread I realized that patientrenter can type really fast. And with cogent thought, to boot.

Kudos.

adornosghost wrote:

CK-The whole thing is going to crash, so everything is going to jubilee shortly.
With your quick on your feet survival skills, and economic literacy, you should be head of the curve.
Almost all posters on CR are like the Austrians in 1913, arguing who their next Hapsburg ruler is going to be.

For some pretty compelling fiction (with a strong dose of realism) aside from nova's excellent writings do a search for "the day the dollar died".

patientrenter wrote:

Our system should allow, even encourage, public company owners to exert the full rights of ownership over a company, including keeping the managers in line and on track. Instead, the SEC has facilitated the transfer of owner powers to a public company's managers.

You know, in principle we already have that. It's the Board of Directors, which is supposed to act as the fiduciaries for the shareholders.

Unfortunately, the BoD system is broken, due to inbreeding/cross-fertilization of management. Directors from the large mutual funds are often on the hunt for their next positions, so acting up in a board meeting is verboten.

The system is well and truly broken imho. Today, I own no shares in any public company. The only reason I would go long or short would be for reasons of psychology (eg greater fool) not for reasons of anticipated streams of future earnings, checked by an accountant, and passed onto the shareholders via dividends.

Sorry Pavel, I'm definitely contributing to the doom-loop ennui. I admit it would be worthy goal to do better.

pavel.chichikov wrote:

I have no right to chasten anybody. Anyway, if you want people to work they need some hope. It's more than just a slogan.

Agreed. We need hope ... and change ... we just can't get no satisfaction!

Some more proposals that we've talked about here over the 18 months or so that I've been reading:

(1) Reduce the workweek to 3.5 or 4 days, 28-36 hours, with the possible exception of professions where deep expertise is critical (e.g. doctors). Factories running 24/7 can have (e.g.) 5 or 6 sets of shift workers instead of 4. Retail businesses can have two employees sharing the same shift but each working 3.5 of the 7 shopping days. And so on.

(2) Extend the school year to run year-round, with a few 1-week or 2-week vacations instead of the long summer vacation. Kids will learn more and be more competitive in the global economy. Working parents will not have to scramble for childcare in the summer. There will be more work for teachers. School hours could be slightly reduced to balance out the extra hours in the summer, but at least the kids won't get summer amnesia, and will learn that life is about a steady diet of real work.

(3) Adjust social security and medicare to support early retirement with reduced benefits. There are a lot of folks who get hurt or sick in their 50s who could "almost" retire, but instead have to struggle to make it to the entitlement years of 65+. I'm talking about folks who have actual savings and could retire (and make room in the workforce) earlier if they just had that small steady income stream and a way of coping with medical costs. There's no reason the same social security "annuity value" couldn't pay out over a longer term in smaller monthly amounts. This would also free up room in the workforce for more young go-getters.

(4) Deep uprooting of entrenched stupidity in the health care sector. Health insurance should be like car insurance; health maintenance should be like car maintenance. The human body is not that much more complex than the modern automobile. The one difference should be that if you do something stupid through personal choice and "total" your body, the insurance shouldn't cover it (well, maybe once, but not indefinitely). Maybe with surcharges for smoking, "recreational" drug use, and "extreme" sports???

what do you make of this report from the associated press?? (is there a story behind the story regarding security at davos??)

Associated Press

"A regional official said that the police commander in charge of security for the World Economic Forum has died in an apparent suicide.

The regional governor said Markus Reinhardt was found dead Tuesday in his Davos hotel room.

The five-day forum starts Wednesday and will attract 2,500 of the world's business and political elite to the Swiss Alpine resort.

Reinhardt, 61, was captain of Graubuenden's cantonal police and was responsible for organizing Davos' security."

Wisdom Speaker wrote:

The human body is not that much more complex than the modern automobile.

You do not know anyone with an autoimmune disorder.

noob goldberg wrote:

For compelling non-fiction, and something I'm due to re-read, I loved Traders, Guns, and Money. I'd love for Satyajit Das to sit beside Brooksely Born at some high-powered regulatory agency and clean up the derivatives mess.

Thanks I've added it to my wish list on amazon.

Wisdom Speaker wrote:

Some more proposals that we've talked about here over the 18 months or so that I've been reading:

(5) Undertake an inspirational project or two that coalesces the populace behind a strong futuristic and optimistic theme, and provides them with an external distraction that enhances cultural ties and reminds American's what makes them so damned powerful to begin with.

This infernal navel-gazing and self-pity is completely uncharacteristic of the American people and we, the rest of the world, expect better of you.

Just sayin'.

JP wrote:

You know, in principle we already have that. It's the Board of Directors, which is supposed to act as the fiduciaries for the shareholders

Back in the old days, it made some sense for shareholders to delegate even critical owner rights to shareholders, such as the right to decide on the purchase of another large company, or to decide how much the top company managers got paid. Why? Because shareholders might be scattered all over the country, and mail was slow, and these decisions just couldn't be organized effectively amongst the shareholders.

Now we have easy communication, and we could force direct votes on these really important items. But the SEC isn't even trying, because it is captive to company managers, who pay the lobbyists to pay the politicians who oversee the SEC.

Another huge obstacle to better corporate governance is unnecessary third party indirect ownership of company shares. We got so excited by diversification that we allowed mutual funds, insurance companies, 401k funds and so on to step between us and our ownership of companies. These entities vote in company elections according to their own interests, not the interests of the ultimate beneficiaries - us. We have people with $100,000 in their 401ks believing that they couldn't simply go out and buy their own stocks and diversify adequately across 10 shares. All this encouragement to got through these intermediaries is good - for the intermediaries. We spend 7-8% of our GDP on FIRE on this country, to better allocate capital for our investment needs, which amount to less than 15% of GDP. It's incredibly inefficient, on top of insulating company managers from the company's true owners.

become less likely now that corporations have the green light to spend unlimited amounts of corporate funds to elect whoever the CEO wants to see get elected.

I have to assume that what the Court decides is good law, but I believe this decision hurts the Republic.

patientrenter wrote:

All this encouragement to got through these intermediaries is good - for the intermediaries. We spend 7-8% of our GDP on FIRE on this country, to better allocate capital for our investment needs, which amount to less than 15% of GDP. It's incredibly inefficient, on top of insulating company managers from the company's true owners.

That's an excellent point, patientrenter. I have nothing to add that would enhance that argument.

Forgive me. I'm a jerk for speaking about things that are going on in my immediate vicinity.

The bigger point you made: Deep uprooting of entrenched stupidity in the health care sector. is something that I heartily agree with.

Wisdom Speaker wrote:

Mainly smaller companies off the radar of the 401(k) fund-runners...

Good luck with that strategy. If you're lucky, 3 out of 10 will still be here in 5-6 years.

noob goldberg wrote:

Undertake an inspirational project or two that coalesces the populace behind a strong futuristic and optimistic theme

Yep, and the 1930s had the Hoover Dam, Seabiscuit, a whole host of great movies... development of meaningful air travel... Note that all of those had swift economic payback times, and did not require "bridge to nowhere" government financial waste.

FWIW, speaking of bridges, the kids and I have been daydreaming about building a real bridge between Alaska and Russia. The technical challenges are huge, and the weather's usually not so great, but the potential for tourism seems large, and if global warming does get out of hand then it will have a better future. Plus it would be a huge international step, sort of like the Chunnel or the Panama Canal... Heck, even a good ferry service might make it interesting for the summer Winnebago crowd to "explore Kamchatka"... and if Russia goes BK before we do, maybe they'll sell us a chunk of the Eastern Hemisphere the way they sold us Alaska??? (just being silly now).

rich wrote:

Too much money goes to management, not enough to dividends, and the management teams don't care much about building long-term value for shareholders.

I attempted to read early versions of both Graham and Dodd's 'Security Analysis' and Graham's 'Intelligent Investor', and the lengthy discussions on locating companies with strong management that held long-term perspectives and provided healthy dividends made it seem as if it was referring to some alternate universe.

JP wrote:

The bigger point you made: Deep uprooting of entrenched stupidity in the health care sector. is something that I heartily agree with.

And don't get me started on the health care sector!

We spend twice as much on health care as other rich developed countries, but only have middling aggregate outcomes, as measured by life expectancy. Clearly, we could do much better if we simply imported the entire system of some other reasonably well-run country. Instead of arguing about what works for prescription drugs or emergency care, just copy Japan's system, or France's, in its entirety.

I couldn't care less about the details. It would cost half as much, and would be as good as what they have in countries where people live longer than us. If this were any other commodity, we'd buy the package on the spot. Too many vested interests in the US are getting what they want.

While I would also like to assume that what the Court decides is good law, when they have to overrule what previous Courts of equal stature decided over many generations, a question can arise as to their motivation.

The law can be as impenetrable to the layman as medicine. They can prove to you that you're your own grandpa.

Wisdom Speaker wrote:

Yep, and the 1930s had the Hoover Dam, Seabiscuit, a whole host of great movies... development of meaningful air travel... Note that all of those had swift economic payback times, and did not require "bridge to nowhere" government financial waste.

I'm of the opinion that people want to believe in the people who are leading them, be them pastors, CEOs, or Presidents. It doesn't take much to repay this belief, and it takes an awful lot to rid the population of this intrinsic desire, in my opinion.

The fact that it's sunk this low is deeply disturbing; however, for the time being, I remain of the opinion that--if nothing else--the tide of public opinion can be swayed. I must believe that, for my own sanity.

pavel.chichikov wrote:

I have to assume that what the Court decides is good law, but I believe this decision hurts the Republic.

This, like the Eminent Domain case, is an invitation to the legislative branch to make the necessary changes. It's not saying that the current law is good, and we don't want the Courts legislating anyway. Unfortunately the legislative branch has been bought by the corporations so there's a chicken-and-egg issue which we need to address with our current proposed populist agenda...

rich wrote:

Most stocks really haven't been a good buy for 15-20 years. Too much money goes to management, not enough to dividends, and the management teams don't care much about building long-term value for shareholders. A lot of small companies are too highly leveraged, and they have hocked everything of any value they own on terrible terms. Lately, the only way they can jack up earnings is by firing people.

Hearty agreement. The whole "Dividends are taxed twice" was a terrible distraction IMO. It allowed the management to keep (and squander) the cash being generated.

I believe dividends. It's honest-to-god cash being put in my hands for my investment, and is very hard to lie about it. (OK, you can go borrow to pay the div, but when I'm king that will cause a stock's price to plummet.) I suspect that a more rational market will have a dividend that returns to the historical mean.

Lobbyist Ben Dover wrote:

I like the idea of tying the CEO and management compensation to the stockholder dividend.

When I'm king: His pay is determined by the dividend payment 5 years hence.

RockyR wrote:

bearly wrote:
3TRILLION in deficits so far - FAIL
8% Max UE - FAIL
Troop ramp in Afghan - FAIL
Bankers ruling Washington by fear - FAIL
Health Care - FAIL
FAIL
FAIL FAIL....
Fail you can believe in

A friend of mine who was a big Obama supporter told me today that never before had someone with so much (majority in both houses, popular support intitially, etc.) done so little. He is extremely dissappointed.

And on that note I must part company with the commentariat for the evening.

pavel.chichikov wrote:

I have to assume that what the Court decides is good law, but I believe this decision hurts the Republic.

Another example was a case I linked to earlier today:

United States v. Reynolds

Perhaps the facts supported the decision, but to provide the legal precedent without ensuring judicial oversight basically neutered the judiciary. And it's never been fixed; quite on the contrary, it's become much worse.

Lots of good food for thought today. My dreams have been coming so fast and strong the last week, I'm not quite sure what to make of it yet. Good night everyone. Sweet dreams, and write them down if you can remember them.

Gotta crash, big day ahead tomorrow. Thanks for the great discussion.

Anyone object if I snarf up the "positive agenda" and post it on my blog for further reference/discussion? (I'll look for dissenters tomorrow and adjust...)

JP wrote:

Hearty agreement. The whole "Dividends are taxed twice" was a terrible distraction IMO. It allowed the management to keep (and squander) the cash being generated.
I believe dividends. It's honest-to-god cash being put in my hands for my investment, and is very hard to lie about it. (OK, you can go borrow to pay the div, but when I'm king that will cause a stock's price to plummet.) I suspect that a more rational market will have a dividend that returns to the historical mean.

This is a very important point. Let me explain why. Let's suppose for a second that all stocks stop paying dividends, promising instead that they will be growth stocks. For years, they show 15% ROE, and people start believing that they can earn 15% a year from owning these stocks, selling them off whenever they want to cash in the accumulated profits. Everyone buys more on this idea, and the price goes up quicker and quicker. Now we have the entire market going up at 10% a year, year after year. Meanwhile, no cash is being paid out. This goes on for 20 years, and the market quintuples. How much more have the shareholders in aggregate really earned over this 20 years because no dividends were paid?

The answer is Nothing. They have Nothing extra. Why? Because the ownership of those companies just gives the owners rights to the companies' share of GDP (=profits), typically 8-15% over the long run. That share will be worth more over time as GDP grows, but its value won't grow much faster than GDP. So all the retention of earnings (vs dividends) has done in the aggregate is reduce the owner's income while they wait to sell, without increasing their ownership of the economic pie in total.

My advice is to almost always buy companies that pay good and growing dividends. Our failure to demand dividends accommodated the bubble.

Wisdom Speaker wrote:

Anyone object if I snarf up the "positive agenda" and post it on my blog for further reference/discussion? (I'll look for dissenters tomorrow and adjust...)

Not at all. I wish someone went through and summarized the message coming out of every thread here!

An aside.

Friend of ours just left. He will close his business in June. Just no business. He laid off 1/2 his work force about 6 months ago. He has been in business for over 10 yrs. TV repair, warnentee work, VCRs. sound systems.

He is a hard worker. His employees are hard working, honest and good people.

Vonbek777 wrote:

Sweet dreams, and write them down if you can remember them.

So have mine. I write them down. Would be interested in exchanging ideas on this subject. (This is way OT of course.)

Lobbyist Ben Dover wrote:

I like the idea of tying the CEO and management compensation to the stockholder dividend. Real performance pay and not shorting the stockholder.

This is exactly what I was thinking over the Xmas break! It could go too far, encouraging companies to over-distribute cash. So I think it needs adjustment, but it's a start.

So if law abiding citizens just shoot these imbeciles will anybody care? I could really use some target practice (moving type). I saw a great bumper sticker today it read: "Sniper, don't bother running you'll just die tired"...hahahahahaha

Nuke wrote:

Cramer is bitching about recent market weakness. He doesn't understand how the market can go down with "better than expected" earnings.

Cripes, even Seb is aware of the concept of "buy the rumor, sell the news".

Agreed that this is related to the beginning of the end of QE. The training wheels are coming off and everybody is holding their breath to see if junior can keep pedaling or if he puts it in the ditch. Gonna be a rough couple of weeks.

Blackhalo wrote:

I'd rather hear from CSC...

I think we all would, Blackhalo. Where the hell is ?

Has he even made a drive-by in the past year?