Monday, February 23, 2009

Virtues and Vices: Sin in the 21st Century

Cooney was a character, loved and hated in our little Irish village. We knew we'd see him wandering the streets, whether or not it was raining, and it was usually raining. He'd skip down the street, with the umbrella over his shoulder, unopened despite the pouring rain. Cooney loved life, and drink. His habit of wandering into the pub and simply picking up the nearest drink, regardless of whether someone else owned it, caused the pub owner to simply offer him a free pint of beer. Known as a mixed pint, it was comprised of the runoff of leftover beer left in the drip tray of the beer taps. Cooney never seemed to mind.

Cooney was a mirror for us. He showed us ourselves, and didn't pull his punches. He was the beggar, reminding us how selfish we were. He was the happy drunkard, reminding us how ridiculous we could easily look when we thought we were above others. He was the tester, taunting us to debate issues that torment our souls. He owned a home, but often slept in the doorway of his favorite pub. Noone knows why. He was a little touched, but he was harmless.

Most of all, he lifted spirits when we were low. Once, when I was feeling homesick and missing my kids, he saw me gazing out the window at him. He simply lifted his umbrella to me and smiled. He didn't mind being the clown. He knew that despite the silliness of his antics, his life was valuable and his contribution to society, important.

Sadly, Cooney was struck by a car Saturday and killed, just outside his home. We all knew it would happen this way. We enjoyed him while he was with us, and we will miss him, now that he is gone. Cooney hitchhiked into town every morning to attend daily Mass, and often argued with the parish priest, only to humbly bow his head and ask Father O'Shea to bless him. He knew he was part of the fabric of something much greater than himself.

Everyone has value, virtue and vice. People like Cooney show us the virtue of self reflection and humility. Even when we look at the recent events in the financial industry, we see the myth that sin doesn't exist as a lie perpetuated to lull us into complacency. But when greed damages the soul, it often injures innocent ones along the way. In the last ten years, many people have been guilty of ignoring their own greed, resulting in countless thousands suffering. Banks in Ireland falsely reported their balance sheets by borrowing billions from each other, just before finalizing their books for the year. When their share price fell, they coerced 15 of their closest friends to 'borrow' $500 million each to buy up their shares, never to be paid back. Now, the entire country is teetering on the brink of having the International Monetary Fund come in and restructure their budget. All because greed lead others to look away long enough to dip their hand into the cookie jar.

The exploitations are endless, but it has had one positive effect. We now realize that sin exists. Like Cooney, the greed of bankers gives us a chance to reflect on our own greed. It also shows us the end result of the "Me Generation." Selfishness is the inescapable outcome of looking out for number one. Greed is simply a symptom of that. But it results in horrible damage to society at large.

Baby boomers are not all a part of this mindset, but they looked the other way by caving into the thought that all opinions are equally valid. We have now learned they are not. We must learn that there really is evil in this world, and evil thrives when the good do nothing. Right now, it is the evil of greed, but how long before we learn the evil of other vices that we chose to ignore? The evil of other selfish actions, in the effort to make our lives more convenient, will have additional manifestations. We cannot escape the consequences, no matter how much legislation or accomodation we demand. Inevitably, it will surface, and the damage will show, no matter whether we will it to or not.

We can either look in the mirror of these times or ignore them. But if we continue to buy into the concept that sin doesn't exist, or that vice is as valid as virtue, we are destined to feel the pain more acutely each time the consequences of that vice surface. We need a Cooney everywhere to remind us all that humility is a special gift that allows us to see everything clearer.

I watched the Oscars tonight and heard Mr. Sean Penn preach of how ashamed those who voted for the preservation of traditional marriage should feel. No, Mr. Penn. The shame is in caving into the pressure of people like you. Just because you can portray a gay man does not mean you are an authority on all issues affecting the gay community. Just because you were raised Catholic does not mean you understand theology perfectly. You are simply an actor, and you are a mirror of our society. A mirror that is currently very cloudy. With any luck, it will be a much clearer reflection of what Americans REALLY believe,once they speak up and object to the evil of sin.

What is Obama Smoking and Where Can I Get Some?

I apologize for the delay in this one. I was so busy laughing, I thought the punch line, "Just Kidding!" was eventually coming. I didn't think the President was serious on this one. All I want to know is: What is the President smoking and where can I get some? Whatever it is, it sure is good stuff because the concept of reality is eradicated by it.

Then I realized, President Obama has buyer's remorse when it comes to the stimulus. He did the Ping Pong thing by proposing to cut the federal deficit in half by 2012. Aside from the obvious, he is clearly showing the world his Obamanomics are based on flying by the seat of your pants. Let's look at the last month and you'll see what I mean.

The nimnuts in Washington vote for a bill that spends more than 787 billion dollars but never bother to read the damned thing. America proclaims its collective voice of disgust, since the stimulus does nothing to address the key cause of the current economic crisis. So, in the classic ping pong response, Obama's right hand man, Timmy G, (sounds like a rapper handle, huh?) suggests through the Big Guy, that we support homeowners who wish to refinance their mortgages (in order to exploit lower interest rates) by allowing Fannie Mae and Freddie Mac to refi houses at more than 80% Loan To Value so the homeowners who are upside down or who are in a mortgage greater than 5% can take advantage of the lower rates. Wait a second...isn't that what got us all INTO this mess in the first place?

He threw a bone to those who are already in foreclosure to get their foreclosure stalled by allowing basically a five year ARM at whatever will bring their payments down to 31% of their income. After five years, the mortgage returns to whatever rate is going at that time. Um, I hate to be a party pooper, but after spending a trillion on banks, a trillion on spending and billions on various other industries, we're gonna be facing soaring interest rates. Don't believe me? Check history. Does the phrase 'Carter Administration' mean anything to you? Mortgage rates soared to astronomical heights. The president will be sending those who are struggling at 10% to the wolves of 17%! Consequently, he just postponed the inevitable foreclosures to come. The only way to avoid this is to (drum roll please) CUT THE DEFICIT!

Why? Well, it's kinda complicated, but here goes: If the government borrows two trillion dollars in four years they drive up the competition for those borrowing dollars. Consequently, the banks can reset interest rates to meet the demand. Even with the prime rate being set at less than one percent, we're still seeing mortgage rates at 5%. That's because the supply and demand factors are at play. So if the government is spending a trillion, it pushes interest rates up, causing the 5 year ARM mortgages to be reset at 15% (or more, based on past results.) Gotta stop the spending to stop the rate climb or you just force all those who refinanced with 5 year ARMS to foreclose in 5 years.

So, now he's going to cut the deficit in half by 2012. With what? Taxing businesses and the rich? Who does he think employs people? Oh yeah...businesses and the wealthy. And what happens to states that overtax business? Well, look at California and you'll know. When the Left Coast increased corporate taxes, the businesses left in droves. They went to Nevada, or laid off workers.

It is almost as though the President is listening to economists that comment on his proposals AFTER he proposes them. So rather than consulting them first, he throws it out there and waits to see the reaction. You can almost predict what he'll do next, based on the reaction. Is this is what happens when you put an attorney in charge of an economy? Let the jury decide, then change your defense strategy? So now he wants to do the very thing that EVERY economist says is a bozo no-no during a recession...increase taxes.

Apart from looking as though he's making this shit up as he goes, I'm kind of wondering if he's still smoking some really good stuff. Maybe he should just legalize marijuana and tax it. He'll make LOTS of money and he could smoke his peace pipe with other heads of state as Native Americans used to do.

Or maybe the President should take his proposals to a number of non-political economists and ask for help. Either that, or just take Economics 101 again, and let the MARKET CORRECT ITSELF!

Friday, February 13, 2009

A Simple (and Less Expensive) Solution to The Economic Crisis

How to Fix the Economy Without Giving Away The Store (or the U.S. Treasury)

Here is an example of why people aren't spending money. It isn't because the gas crisis took their disposable income. It isn't because the banks aren't loaning money. (Well, they aren't, but that's not the reason.) You can add it all up on ten fingers (each representing one thousand dollars a month) and see it plainly. All the tax cuts, construction of DOD buildings, Pell Grants and Watershed Projects won't make any impact on it. You have to hit the problem at the core. Bottom Line: People have to have money TO SPEND!

Stefanie and James Smith of Santa Clarita, Calif., fear they may need the
help of a bankruptcy court if they are to keep the subdivision home they bought
for $579,000 in November 2005. Stefanie, 37, a university human resources
coordinator, and James, 40, a federal law enforcement agent, borrowed the entire
amount in two subprime loans that required a total monthly payment of $3,000. A
representative of their lender, Countrywide, told them not to worry, says
Stefanie: They would be able to refinance in a year.
By mid-2007 they were running late on payments, and refinancing options had dried up. With their monthly bill scheduled to jump to more than $4,000 this January due to a rising mortgage rate, Stefanie contacted Countrywide last summer. She asked for a loan modification so they could avoid default. In December the lender said it would be willing to increase their payment by $600. That was better than the scheduled rise of $1,100, so the Smiths agreed. But now they are struggling to pay the higher amount. Countrywide's parent, BofA, declined to comment, citing the
Smiths' privacy. After BusinessWeek's questions, though, Countrywide called them
to discuss cutting their payments.
"We knew when we bought that the payments
would be a stretch," says Stefanie. She regrets assuming they would be able to
refinance at a lower rate. "We are not deadbeats," she adds. "All we want is a
mortgage we can afford."

I live in Ireland but my home is still in California. This is commonplace all over my state. People bought homes, under pressure with loan officers promising the hope of refinancing at lower rates late, only to discover the bubble had already burst on the housing market. Yes, these are critical times, but a stimulus is window dressing. What has to happen will be painful, across the board, because housing prices have to get back to a workable mortgage payment amount. There is another option, so hear me out. There is a light at the end of this long tunnel.

People bought houses when I was a kid in 1971 for about $25,000 to $33,000. These were modest but not cracker boxes. The square footage, in a 'burb of Los Angeles, ranged from 1500 to 1800 sqare feet. They had reasonable yards, upwards of a tenth of an acre, and a reasonable interest rate of 5.25 to 6. The payment for a 30 year fixed mortgage was about $182 a month. Taxes and insurance would add another 75. At most, you were paying $250 a month and your monthly median household income was about $11000 a year, or 916 gross a month. That meant you were only paying a little over 30% of your income for your mortgage.

Flash forward to 2005. Home prices range at $524000. At 7% interest, the payment is $3486. The median income is $53629, (this comprises 82% of American households or $4469 gross a month. At the peak of the Housing Bubble, Americans buying homes for the first time were paying approximately 80% of their GROSS monthly income on their mortgage!

I am not an economist, or a banker, or a genius, or even a math major. I am an average American who is looking at the numbers and even I can see why we're in trouble!!! 20% of your gross income is what most people pay in payroll taxes!

In other words, the bankers bled the system for all they could get. Homeowners selling during that time made an unmitigated killing, but it was a fleeting opportunity. They maxed it for what they could, but like a plane going up at a 90 degree angle to the sun, it reaches a point where it ceases to go up and it starts to tumble down. Gravity is inevitable. People have to EAT!! (You moron loan officers!)

I am going to stick my neck out, but here goes: All the spending in the world won't change the fact that people can't pay more than they make for a house and living costs! And even more, until the banks get out a calculator and take their heads out of their asses, they will continue to face HUGE losses until equalibrium is acheived. In other words, until the average mortgage payment goes back to 30% of monthly, they will find people not making their payment and going into foreclosure. To make it worse, if the average American does NOT have their heads up their asses, they will get a little calculator out (they are pocket size now) and figure out that they must have money to eat. They will figure out that food, gas, utilities, and daily living expenses usually amount to about 50% of their income, and they will avoid purchasing a home until they can afford to do both.

President Obama can only do one of two things: Either mandate a minimum wage of at least $14 per hour, or LET THE BANKERS BITE THE BIG ONE! Since I take great offense to the idea of a teenager who fries my burger making as much as me, the only solution is for President Obama and Timothy Geittner to acknowledge that the situation mandates underwriting all the homeowners who have loans above $225000. Either force the banks to write down all loans to the actual value of the properties as they stand now, then supplement their losses based on the TARP funds the Treasury has already given the banks, or supply those homeowners directly with a low interest loan (based on the lending rate they currently offer banks) at .5% for the full value of the principal. This would take a loan of $524000 to $1568 a month. Hell, just so we give the taxpayer a return on his investment give it to 'em at 2%.($132,840...This is a little better than a 20% return on the original investment.) The payments would be $1937 a month. That puts percentage of a person's income to the mortgage at roughly 40%. Not exactly what it was in 1971, but a helluva lot better than 2005.

Oh, and if the asshole bankers want to offer the same thing, they are welcome rework the loans. In fact, if they are determined to maintain their investment value and see home prices stay where they are or go up, they should think about offering that rate to everyone...PERMANENTLY!!!

Otherwise, watch the housing market fall back to earth.