51 posts tagged “finances”

According to Goldman Sachs, errr, the Federal Reserve, it is. But, retail sales are still down, and unemployment is still up. Maybe the rich guys are going to be a-OK, but I think it's safe to say that the rest of us play by a different set of rules. It ain't over until we've got jobs, and sales, at a minimum.

Read this in Forbes. Honestly, I hope it really is as good as all that. But, maybe I'm cynical, I just don't buy it. Forbes is notoriously rah-rah about absurd business practices, and I've never seen workouts like that. Anywhere, at all. But, Ed Fay? If you're really able to keep people in houses for 50 bucks a month, and it's not some secret scam, where you own the Deed now, or something shady, I say I would love to work for you.

Predicting the future isn't a good gig. About the only thing I can predict with certainty is that I'll be wrong. At the same time, is it really a prediction if it's already set in motion? I mean, if you and I have a date to play chess, and the chessboard is out, and you and I are both there, is it too much of a prediction to say that we're going to play chess?

Well, that's how I feel about this: there will be an even bigger wave of foreclosures in the coming years than what has come already. There are too many Alt-A, Interest Only, and 80-20 splits out there. All of these aren't considered "subprime" but should be. All of them are loans for people who cannot really afford their homes. We've shook out most of the really, really bad loans. But that's just the tip, and there's a whole shaft behind it.

The fact is, in the wake of the dot-com bust people not only were looking for a quick regulation-free buzz, they tried to dress it up in massive amountsof buzzwords and jargon. So, I fully understand why this might seem like a nostradamus-like vaguely-worded vision of the apocalypse, so here's a way to look at it that you're certain to understand: more people than just those with loans called "subprime" promised to pay more money than they will ever have. Those promises are still outstanding, and the money is even less, so it's no stretch to say that they will not be able to make good their promises, and this will result in all of us having to deal with some very harsh reality.

So, just so's you get a horoscope-like prediction out of this: We're so far from being out of the woods, we haven't even seen the larger saplings, yet.

I'm like a doctor or lawyer in that I'm in a position that everybody knows a little something about, and so they have formed some opinions about the subject.

So, this is not quite a FAQ, but it covers some of the ground I cover often.

1. When will it get better/like it used to be/over?  The short answer: Hopefully, never. The financial system, pumped up by derivatives, was an artificial market. People were basing wealth off of selling debt, frosted with debt. It was lubricated by false assessments of value, and driven by blind greed.Gordan Gecko was right to a certain extent: Greed is good, insofar as it powers ambition, and fuels a healthy market. But, sheer, blind greed: the desire to acquire based upon itself? Yeah, that's apretty sure sign that you're barking up the wrong tree. Until, or unless we base our market upon something firmer, and control our market, it's not going to get better. Even then, no we will never see in our lifetime another market like what we had from 2002 until 2006, and that's a good thing.

2. What caused this mess? Everybody likes to blame everybody else, and in this case, they're all right! The fact is, on an international level, the cause of all of this was massive amounts of lying. It was you deciding that you needed a 3000 square foot house and an Escalade on a fireman's budget. It was also you with an IRA, and CD and 529 plan for your kid and you never managed any of them. It was also you who watched "Flip this house" and "extreme Makeover" and decided to get a home equity loan to do cosmetic upgrades to your house. Yes, it was greedy markets, but, just like a democracy, the part you're missing is that you're it. The market is you.

3. So, will Obama's plan work? Nope. First of all, it's not really his plan. It's extensions of Bush's plan. Talk about "change" all day long, 95% of the plan was set up before Obama took office. Second of all, it's just been a cash dump, and as such, it's just another artificial inflation of the market. Wealth is earned, not given. You ever read the Bible? You know that line about pouring new wine into old wineskins? What we're doing is over-filling old wineskins with water, not wine. So, short term, you see a swelling. Then, leaks, and then, it breaks. Without oversight, without new regulation, and without an entirely different approach (and I mean on a "socialist" level of radically different) all we're buying is 10 more years of roughly as good as it is, now. Yes that sucks, and yes, you should be angry. But, be angry with the right people: everybody is just doing their role. If you're gonna be angry, be angry with the casting director, and that's your government, and guess who's responsible for them? You are.

So, get the picture, yet? You ask me why the credit rate jumped up a little? It's because you're still a bad risk. You're jobless, and shiftless, so what makes you a good risk? Will Making Home Affordable save your mortgage? No. You learning how to live within your limits might be a good start, though. Your house lost 300,000 dollars worth of "value"., should you walk away? Well, do you like your house? if not, why did you buy it? What do you mean a "good investment"? You bought a house you cannot use, for a value you knew to be inflated, because you lied on your application about your income. So, now that the market value settled a little closer to reality, you're unhappy because you're stuck with your lie? Well, cry me a river. You walk away, andyour bills will follow you. Look up a form 1099 A and 1099 C. Then, look up the definition of a charge off. Your debt is a contract, and contracts are more real than your feelings. 

Not much to say about it, but I read this in the NYT a few days back and it stuck with me.  First, I work in the lending industry, and quite frankly, no, he has very little of it correctly. That's not news. I mean, when the guy starts out by calling federal incentives that aren't even a tenth of the cost "bribes" and ends with calling for a special tax just for being poor, you know we're not dealing with either praxis or theory, we're dealing with a political screed . But the thing that sticks with me is here is an adjunct at Harvard, suckling on endowments and grants to be at the most overpriced institution of higher learning in the country who is writing in some kind of gadfly role at the best newspaper in the country, and the best he has is something that Newt Gingrich wouldn't have bothered with, 15 years ago? Gads, but the standards have sunk...

Anyway, just to clarify, two things: one there's more than just "social" costs to foreclosure to both the lender and the mortgagor. He's conveniently mislabelling and forgetting 1099 forms and bringing up legislation that is not in place, as of yet (Hey, we're barely getting into  either the Hope Now programs and the Hope for Homeowners program. The Making home affordable isn't completed, yet, and not all Mortgages can avail themselves to it.

Theives and liars abound, kiddies....

Over spending time again. But, I've got Court cases, Prom, Birthdays, Mother's Day, new Driver's license, AP Tests, and who knows what else going on.

Yeah, kinda busy Chez Max, and that doesn't just cost time and opportunity, it costs dollars.

But, that's the deal, always, in our country. You want to see the show? Gotta pay at the door! I think it's no coincidence that despite our emphasis on spending, we don't teach even Macro Economics on a high school level. If people had it drilled into them, what it is that we're doing, they'd rebel in the streets.

I don't want to add to the already super-pressurized hysteria concerning the economy and the "bailouts" , but I wonder if anybody ever thought about how much the securitization of mortgages resembles money laundering? I doubt that anybody could ever confuse the two.

I don't want to make too much of it. But, at the heart of it, a lot of capitalism really is like what Proudhon said it was. I prefer, however to stick with a more restrained thought: so long as we live in a 'I got mine" kind of  Crony Capitalism, fraud is an inevitable outcome. I'm not quite ready to throw out the baby with the bathwater, here, but we may want to think about the decision every Robber Baron asks us to make: Your money OR your life.

One part about the current economic mess that I don't hear said often enough is how much of the lost "value" was abstract at best. That is: just because you could buy your house for 750,000 in 2006 doesn't mean that your house has an absolute value of 750,000. So, if you could possibly sell it for 1,000,000 in 2007, but now,could only sell it for 500,000, I'll hear about how it has lost "half" of its value. You bought it at 750,000, and it now could be sold at 500,000, so that million? Purely abstract. There's a whole lot of abstract money that's been discussed. For example, if you got paid to be an IT consultant in 1998 at 75,000 a year, but got no contracts in 2000, when similar IT consultants were getting paid 50,000, they (the statistics folks who report to financial agencies) were still counting your "lost" dollars at 75,000. Those dollars never existed!

So very much of the "wealth" in this world is built upon these abstract figures that there is no way to determine what shape the actual, physical economy is in. I suspect it's actually much much MUCH worse than what is currently reported. (Cheerful little cuss, ain't I?)

But, if you can decipher the jargon in this document you'll start to see what I'm talking about. Derivatives are literally by definition abstract money.

The fact is, we've been screwed for awhile, we just were lying to ourselves that we weren't. The funny thing  (in a bitter, ironic way, mind) is that you can't prove me wrong for the same reason why I can't prove myself right: the numbers were made up!

I don't want to get into it because a. it would court too much controversy, and believe it or not I'm not too keen on having any spotlights drawn on me and b. the resulting discussion would involve such complexity and such wonkiness that nobody would sustain interest anyway.

But, I have to mention something because my blog is supposed to be my out let for what I'm thinking about, and I've been thinking a lot about Maxine Waters .

See, she's exactly the kind of hypocrite that puts a bad name on me. I'm a believer in socialism and otherleft wing causes, but I just can't believe in the left wing in America when their representatives are such liars, and theives.

So, rather than get into it, just follow the links here in order. My only other statement is that you can expect me to have a word about all sides on this thing. The fact is, you'll never see a full prosecution Enron style on the financial/credit/mortgage problem because the fraud was systemic as in: the whole system is based upon frauds, as well as many of the players.

I can't speak for all private industry, but I can speak for what I've seen. Public services left in private hands almost always means a terrible job that helps no one.

For example, "loan modifications" when carried out by the lender almost always favor the lender. Pretty obvious, yeah? The bank, being a private entity, is looking out for investor interests. So, if they're going to change terms, they'll change it in their interests. But, if they're doing transactions in their interest, how much effort will they put into your interest? Ever wonder why customer service is a bunch of 18 year old temps, and foreign nationals whodon't know any conditions of the American economy? It's because there is no "service" in a private institution.

So, why do we put such faith in private institutions? Why is it necessarily better to have banks do loan modifications for a public policy? Why is it a good idea to leave health care in the hands of privately run practices and private insurance companies? Why run prisons and security on private firms?

Related to that, I guess I've got a different perspective on what constitutes "waste" than most folks. While 400 dollar screwdrivers don't seem like efficient business transactions, at least there is a screwdriver in the bargain. What seems a real waste is when billions go out and nothing comes back at all, which would appear to be the case with much of the subsidies that have gone out to these private businesses, in the name of the public good. Now, I'm not stupid. I know that in a situation of international credit crunches and zero confidence in the security of investments, you don't want banks turning around a spending all their money on yet more risky loans. I don't think that the billions in bailout money should have been used to flood the market with cash. But, the billions should have bought us a more firm foundation. Keeping the banks private is the waste that I see. Because there is a reason for the lack of credit, both economic and metaphoric in these lending institutions: they are clearly squandering everything they have, through waste and inefficiency. So, my definition of waste is a lot closer to throwing money at the market. We cannot spend our way to savings. So, yes, I do think that the less wasteful method would be to nationalize the banks, and while we're at it, our health care system, and the rest of what's held in public interest. I'm not talking about forever. Some banks could probably be re-organized in a few days. Some Doctors are already working for the public good.

But, my bottom line is this: we have to stop protecting private business and calling that the public's good. The public needs to protect public interests.