Liberty Stop - Recommended Reading

Free Market Price, Government Rationing Not the Same

nospam@example.com (Terry Kinder) — Wed, 09 Sep 2009 03:27:36 -0400

Terry Kinder

With the Health Care Reform debate raging, some are attempting to equate free market prices and government rationing as the same - they aren't the same.

Downsize DC shows the difference in their article, "Are free market prices and government rationing the same thing?"

GM Reinvention Parody Site

nospam@example.com (Terry Kinder) — Tue, 09 Jun 2009 02:28:11 -0400

Terry Kinder

Every once in a while, a parody really captures the public mood. This parody of GM Reinvention does a brilliant job skewering GM's BS.

Also check out the link to the spoof of the GM Reinvention site.

Listen to GM Reinvention Parody Site

Economic Stabilization is not Recovery

nospam@example.com (Terry Kinder) — Sun, 31 May 2009 17:28:57 -0400

Terry Kinder

Image via Wikipedia

Let me beat a poor dead horse a little more. All of this talk about “green shoots” is a load of horse manure. Edward Hugh, writing an article titled Seeing is Believing, But Stabilising is NOT Recovering, in the Global Economy Matters blog.

Regarding the German economy he writes:

But to go from this…fact to drawing the conclusion that a full recovery is now in the works would be a very fast and loose use of both logic and economic theory. Production is falling less slowly (on an annual basis) and even increasing slightly (on a monthly basis) in some countries as orders can no longer simply be met from what are now very depleted inventories.

But as I suggest in this post, upping output to meet current orders is not a recovery, for the win-win dynamic to move us back into a new cycle investment activity has to increase. And on this front there is precious little actual evidence to back the more positive discourse, and indeed the data we are seeing indicate rather the contrary.

When I last wrote we did not have detailed data for Q1 GDP for the eurozone economies , so I took a look at the evidence from Japan, where investment activity slumped massively between January and March (pointing out that there was no good reason why we should expect the situation to be very different in Europe). Japanese business investment was down a record 10.4 percent year on year in the first three months, and a massive 35.5% over the last quarter.

But now we have detailed German Q1 GDP results from the Federal Statistics Office, and we find a very similar picture. Total investment was strongly down (– 7.9% quarter on quarter), while capital formation in machinery and equipment, was 16.2% lower than in the last quarter of 2008, and 19.6% lower than in the first three months of last year.

But all of that is to some extent history. Much more preoccupying - certainly for the "onward-and-upward-we-go" thesis - is that German plant and machinery orders declined the most on record in April from a year earlier. Orders dropped an annual 58 percent, the most since data collection started in 1950, after falling an annual 35 percent in March, according to the Frankfurt-based VDMA machine makers association in a statement today. Export orders slumped 60 percent while domestic demand dropped 52 percent. So things actually seem to have deteriorated in April with respect to March. No good news this.

Especially when you read the same day an interview with Hans-Joachim Dübel - CEO of Berlin based FinPolConsult, one of the leading and few relatively independent voices in the German housing finance community - where he says: "My guess is that the Landesbanken alone will cause ultimate losses of 8-10% of German GDP, which is real money. Compare that sum with the 5% of GDP costs for the US S&L crisis".

So, while happy talk of green shoots may be spreading, encouraged by healthy amounts of government and economist manure, liberally spread through the media, the reality is that a slower rate of decline – or even tiny amounts of “growth” on a monthly basis – do not a recovery make.

Listen to Economic Stabilization is Not Recovery

More Taxpayer Looting: This Time for Mortgages

nospam@example.com (Terry Kinder) — Sun, 31 May 2009 16:08:43 -0400

Terry Kinder

Image by through via Flickr

Not tired yet of getting looted by government bailouts? Well, Michael Shedlock of Mish’s Global Economic Trend Analysis has an article titled More Prime Foreclosures; More Re-Defaults that will get your blood boiling. You would think our government would have learned its lesson about bubbles after Alan “Bubble Blower” Greenspan and Fed Chairman Ben “Fannie Mae Freddie Mac Daddy” Bernanke pushed our economy to the edge of the abyss by holding interest rates down at artificial and unsustainable levels. You would be wrong. No, instead the government is going to provide taxpayer-funded incentives to refinance mortgages through the Making Home Affordable program. These newly refinanced mortgages will likely re-default in 6-12 months. Yes, you read that right. You are paying many of the same mortgage servicers who made bad mortgage loans to make more bad mortgage loans.

Details highlighted my Mish are provided by John Mauldin in his weekly newsletter titled This Way There Be Dragons.

Yesterday Fitch ratings estimated that up to 75 percent of the modifications now being done through the administration's Making Home Affordable program will re-default in six months to a year. I'm not talking about the old modifications, which were largely repayment plans that could actually raise monthly payments. I'm talking about the new mods, which lower monthly payments to 31 percent of a person's income. I couldn't understand Fitch's reasoning, so I called them.

Diane Pendley, managing director at Fitch, said the problem is not on that "front-end" ratio, but on the back end, which is all of the borrowers other debt (credit cards, car loans, student loans, etc.). She said that in talking with servicers, she's hearing other debt is so high that most of today's troubled borrowers cannot afford any loan payment at all, even at a very modest debt-to-income ratio. 'Just getting the house payment done doesn't mean their lifestyle is sustainable,' she said.

"Another problem is that with home prices continuing to fall, more and more borrowers, who are essentially just renting their mortgages now because they will never see any home equity, are walking away. Even if the mortgage payment is low, the property taxes and home maintenance costs are padding that payment, and without an upside to the investment, there's simply no reason to pay. Suffice it to say, the foreclosure crisis, on the high and low ends, is not getting any better."

And it gets worse.
More Prime Foreclosures In Our Future

The Mortgage Bankers Association noted that a record 12%, or 1 in 8 homeowners, in the US are now behind on their payments or in foreclosure. 10.6% of the mortgages in Florida are now somewhere in the process of actual foreclosure. (My seatmate here on the flight says the prices on the condos where he lives are now back to 1998 levels. It would be scary, he said, if you had to sell. There are new developments that only have 10% actual occupancy, as the bulk of the condos were bought for speculation. Now those 10% of buyers are having to shoulder all the fees for upkeep. Nobody will buy, because the upkeep costs can be more than the mortgage. It is a vicious cycle.)

In Nevada foreclosures are 7.8%, Arizona 5.6%, and California 5.2%. 25% of subprime loans are now in foreclosure, 14% of FHA (government, taxpayer-guaranteed) loans and a growing 6% of all prime loans are now in foreclosure. (Note: the seasonal adjustments may overstate the actual numbers, as we are in new territory in terms of actual foreclosures.) Quoting from the MBA press release:

"In looking at these numbers, it is important to focus on what has changed as well what continue to be the key drivers of foreclosures. What has changed is the shifting of the problem somewhat away from the subprime and option ARM/Alt-A loans to the prime fixed-rate loans. The foreclosure rate on prime fixed-rate loans has doubled in the last year, and, for the first time since the rapid growth of subprime lending, prime fixed-rate loans now represent the largest share of new foreclosures. In addition, almost half of the overall increase in foreclosure starts we saw in the first quarter was due to the increase in prime fixed-rate loans."

Mish also points out that mortgage servicers will get the following incentives as outlined in the Home Affordable Modification Program Guidelines.

Servicers will receive an up-front Servicer Incentive Payment of $1,000 for each eligible modification meeting guidelines established under this initiative. Servicers will also receive Pay for Success payments –as long as the borrower stays in the program – of up to $1,000 each year for up to three years. Similar incentives will be paid for Hope for Homeowner refinances.

One-time bonus incentive payments of $1,500 to lender/investors and $500 to servicers will be provided for modifications made while a borrower is still current on mortgage payments.

So taxpayers will be on the hook through Fannie Mae, Freddie Mac and the FHA (hello Three Stooges). What the government is doing with these programs to refinance mortgages doesn’t make any economic sense. Our country is awash in debt at all levels. Household debt is at levels unseen since the Great Depression. What is needed is for the debt to work its way out of the system. This means personal pain for many of us. It means we need to learn to live within our means. Many of us can’t afford to live in our current home even if we have little or no monthly payment. We have too much credit card and other consumer debt. We have spent too much and saved too little. Instead of being honest with the public, the government prefers to blow smoke and give even more of our money (so long getting out of debt) to their cronies in the banking, mortgage, and home building industries. Meanwhile, we’re still losing jobs at an over 600,000 per month clip. Until the debt is allowed to work its way out and each household makes adjustments to get back on solid financial ground, the situation won’t improve. No matter how much of our money the government shovels at their buddies, that isn’t going to change.

Listen to More Taxpayer Looting: This Time for Mortgages

Oppose Treasury Bailout Plan

nospam@example.com (Terry) — Sun, 21 Sep 2008 17:53:22 -0400

David Merkel, in an article appearing at Seeking Alpha, recommends you oppose the Treasury Bailout Plan.

Mine is not a political blog. I have political views, but I try to keep them out of my writing here, because they aren’t relevant to my readers. This is a rare point where the two worlds collide, and I have to take a political stand.

Let me state this plainly at the beginning of my piece, so that you know where I am going: I am asking all of my readers, and all of the financial bloggers that read me to call their Congressmen, and ask them to oppose the Bailout Plan as currently structured. I am also asking the financial bloggers to ask their readers to do the same thing.

I don’t do things like this often, so understand that I think that this bailout plan is very ill-conceived. I also think that opposing the bailout should appeal to all, regardless of party affiliation.

Okay, now let me explain why, and propose an alternative. Some links to begin:

Read the rest of the article here.

Liberty Stop - Recommended Reading

Free Market Price, Government Rationing Not the Same

GM Reinvention Parody Site

Economic Stabilization is not Recovery

More Taxpayer Looting: This Time for Mortgages

Recommended Reading: Government Ignores the Constitution

Recommended Reading: Why Austrian Economics Matters More Than Ever

Oppose Treasury Bailout Plan

Liberty Stop - Recommended Reading

Free Market Price, Government Rationing Not the Same

GM Reinvention Parody Site

Economic Stabilization is not Recovery

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More Taxpayer Looting: This Time for Mortgages

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Recommended Reading: Government Ignores the Constitution

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Oppose Treasury Bailout Plan