Tuesday, September 30, 2008

The C.A.R. Makes It's Position Known On H.R. 3997

I don't think it would surprise anyone in America, let alone the state of California, to know that the 175,000 member-strong California Association of Realtors (C.A.R.) is pretty pissed off that Congress didn't ignore the opinions of millions of American taxpayers this week and just pass H.R. 3997, the so-called "Emergency Economic Stabilization Act of 2008" anyway.

Congresspeople received a barage of angry faxes, emails and voicemails, in some cases 200 to 1 against H.R. 3997.

For a response, here is the C.A.R.'s president, Mr. William E. Brown:

"We are extremely disappointed that the U.S. House of Representatives failed to pass the Emergency Economic Stabilization Act of 2008," said C.A.R. President William E. Brown. "The tenuous health of the financial system called for a swift yet thoughtful bipartisan response by our elected representatives."

"Now is the time for Congress to act, and renew its efforts to craft legislation amenable to both political parties that will calm the financial markets, address liquidity issues and begin to restore confidence in our financial system. Americans deserve nothing less," he said. "C.A.R. wants to be certain that the needs of Californians are addressed, and that housing's critical role is recognized in whatever legislation ultimately is proposed. We will continue to closely monitor the situation as it develops."

Mr. Brown appears fixated on today, because he says "now".

"Do it now!"

"No down payment until January 2010!"

It's 2008. The housing bubble has burst. The American taxpayers and so-called "homeowners" (actually homedebtors) are completely tapped out. They don't have any money. Banks are following their customers and going broke too.

Yet the sheer greed of the realtor racket is so strong and so pervasive, a state association actually has gone on record to support a continuation of irresponsible lending (this time asking taxpayers to foot the bill back to the banks), and for what?

Why is it OK for American taxpayers to reward banks and mortgage lenders for ignoring proven principles of finance and sound lending practices? Why is it OK and only now that an association of real estate professionals, whose industry is in a tailspin, finally voice up and say we need to do something?

Who the hell are you people, and where do you get off asking voters and taxpayers for more, more, more?

Is it so that Realtors in California and around the nation can continue to earn their 6% off a $600K plus single family home sale? It looks that way to me.

First of all, those days of $600K plus home sales are coming to a quick end this week. Americans don't need a yes vote on this bank bailout plan to eradicate their wealth. The housing crash, resulting stock market nose dive, and lack of Washington leadership will have accomplished that already ten-fold.

Oh I know the bailout plan will be approved. It will be. Congress must appear to have done something.

But I also know that the American financial system was broken years ago. Where was the C.A.R. or Mr. Brown or the 175,000 members then? They were very busy making their sales commissions, ignoring the underlying truth of real California incomes and true home affordability and selling Americans into overvalued homes that they could never afford. Yes, the mortage broker they worked with could have said "no", but the realtors didn't say "no" either, and both happily cashed their commission checks into Lexus's, Hummers, Armani Suits and Louis Vutton bags.

Well, thank you, California Association of Realtors. And thank you, Mr. Brown.

Disgraceful. Disingenuous. Yet somehow very amusing all the same.

Monday, September 29, 2008

To Realtors: I'm curious

First question, so how is business and how are YOU doing?

Second question, I went to the NAR website today and found the following item for sale.

As a realtor, can you help me understand why the national sales association you belong to would still be selling such material presumeably to you and to new members?

Are you buying this NAR-scripted sales schtick?

Are you USING such sales schtick?

Is it still working?

I'm just curious.

On the bailout: Laissez Faire Could Save Us In the End

I don't agree at all with the financial aid package proposed by Treasure Secretary Henry Paulson, President Bush, House Speaker Nancy Pelosi, and Chairman of the House Financial Services Committee, Barney Frank.

I don't support it. I seriously think it's bad legislation as it was written in first draft form by Paulson, as well as its second draft which was modified by House Democrats and Republicans.

Failing to pass this legislation immediately will no doubt cause massive panic in the financial sector. I also have NO illusions that, failing a U.S. government intervention and bailout of failing financial institutions, the following events will likely come to pass:

1.) a massive and global stock market crash, destroying the "American dream and way of life" as we once knew it.

2.) a global financial market meltdown, including failures/closings of multiple national and international banks

3.) Global economic nose dive into full-bore economic depression (the economic recession is actually over in the U.S. anyway)

4.) Increased unemployment across the US and the world in all business and government sectors, except perhaps law enforcement

5.) Massive reduction in American wealth (lost 401K, mutual fund, stock and home values)

6.) Record-breaking declarations of personal bankruptcy

7.) 6 to 18 months of severe, restricted access to financing for both businesses and individuals

8.) Widespread panic of people everywhere trying to turn their acquired "things" into cash just to make ends meet

9.) Continued headlong crash of national housing prices and increased number of home foreclosures due to ongoing option arm resets.

10.) Raging deflation (no credit available to buy items, so prices start crashing)

11.) Major contraction in federal and state government spending.

12.) An overloaded American healthcare system moves from crisis mode to panic (as hospitals now cannot pay its employees or keep operating)

That's quite a list, and most of it exruciatingly bad.

So if one is against government intervention, what's the alternative?
If saying "No" to offering a helping hand to banks that made poor business decisions means the above chain of events will likely occur, then how is that a good thing for individuals, businesses, families and the very fabric of the American republic?

The truth is, there isn't much good about it. It's all very, very bad and very, very real.

It's entirely possible, under the current economic circumstances as we know them today, September 2008, that the United States of America in which you may have been born or grew up will never be the same again. This month is perhaps another 9-11 blow to the American experience.

Given what we now know, our children and their children are less likely to share our current standard of American living. Their experience may be one of going without. Going without a clean environment. Going without a quality K-12 education. Going without college-level education. Going without quality healthcare. Going without a strong currency. Going without a medium- to high-wage earning capablity. Going without affordable homeownership. Going without SUVs, vacations to the Bahamas, and second homes in Scottsdale.

But what is the alternative?

The alternative is our trusty but often rude and brutally honest friend from France called laissez-faire.

It no doubt makes the cynics sick to their stomachs, but if we open up our minds, our books and read of past experience, the dynamics of a capitalistic, market economy may actually save us in the end.

I know. But stay with me here.

It will not recover our losses.

It will not forgive our debts, nor greed nor financial ineptitude.

It will not even heed our prayers.

But if we let them be, over the long run, the markets could actually save us.

The financial institutions that Treasury Secretary Henry Paulson wishes to arbitrarily save are the same ones who greased the palms of Republican and Democratic representatives for years, demanding that they look the other way as they proceeded to sell high-risk, no money down, adjustable rate mortgages to millions of underqualified or completely unqualified Americans. Their greed was exhilarated as housing prices skyrocketed beyond common sense, real incomes and fundamental supply & demand. These same banks then repackaged these loans into CDOs and sold them at a profit to brokers on Wall Street who also flogged them off to unsuspecting investors in China, India, Russia, the E.U., the Middle East and even the United States. The CDOs were like sausages, machine mixed, filled with good loan bits and bad loan bits and gobs of artificial ingredients like AAA-ratings.

Many of these banks then could not continue to sell these loans off because the market's sweet tooth was soon satiated. Their balance sheets are now stuck with the worthless loans that will never be repaid by the signatory. Many banks face certain failure unless the American taxpayer agrees to buy up these worthless loans (with the Treasury Secretary's sole control and guidance) and thereby clear their bank balance sheets so that they can presumeably resume business with conventional lending practices, i.e. documented loans, 20% or more downpayment, full income verification, face-to-face client qualification meetings (no more of this online-loan-qualification bullshit).

The market, in general, desperately needs information. Good or bad. It needs to know the truth. It needs to know that these loans are good and will likely be repaid. Or it needs to know that they are actually not good at all and must be written off as losses by the banks. Banks must acknowledge the toxic sewage loans they wrote to their balance sheets over the last 10 years. And some of these banks must simply be allowed to fail for their careless lending practices.

The wealth will still be lost, and never completely recovered Unemployment will soar and market confidence will crumble. All over the short-term.

The difference will come in that the market will eventually react to accurate information. The lies will be over. Better capitalized, smaller and medium-sized banks may now be in a position step in and acquire the failed banks or their remnants. Lending may still be constricted, but over time, with conventional lending practices reinstated and appropriate oversight, they will begin making acceptable and affordable loans again. More banking options would become available to consumers, competition for financial services would increase significantly, industry costs would likely begin to fall, and the level of service and customer choice would likely increase and improve. New employment opportunities would arise as demand across sectors increase.

None of this would ever happen overnight. There WILL be considerable financial loss and emotional suffering by ill-positioned individuals and families who overextended themselves and have a zero or negative cash position.

But in the end, markets can and do adjust, whether its the financial sector with banks, savings and loans and credit unions, or manufacturers of cheese, paper products, steel, sports shoes or clothing. The market wants to find that market price and it wants that price-to-market. It will get there eventually. There will be a true-up, sooner or later.

Government intervention, as proposed by Mr. Paulson, not only goes against free market and capitalistic principles upon which the U.S. success story was written, but it undermines the market's ability to do what would otherwise come naturally - to correct itself, and to punish those that made unwise financial choices and to reward those that saved, invested wisely, did not panic, and did not overextend themselves with debt and irrational exhuberance.

There is a place for government intervention however. The legislative, and particularly, the executive branches of government, and I'll include the Federal Reserve Chairman, should use their oversight powers to ensure that banks are following conventional lending rules and pracitces, operating at a profit, providing full disclosure and perhaps most importantly holding adequate bank reserves. This has not been done in the past, but should be done going forward. It is not a difficult task to execute.

The one other example of government intervention in this case could be the Swedish example from the 1990s. During that time many Swedish banks were about to fail in collossal and panic-inducing fashion due to piss-poor management, and economic recession and stupid lending practices. The Swedish government isolated which were the strongest banks and which were the weakest, and destined-to-fail banks. The weak banks were allowed to fail. Period. The Swedish government then decided to temporarily purchase percentage ownerships of the stronger banks. Then, with management oversight, the Swedish government financial committee either bought up the assets of the smaller failed banks or merged them into the stronger banks. This process was painful. Major losses were fully realized. The band-aid was ripped off slowly. But the Swedish government informed the taxpayers, kept a full and open accounting of their deeds under these measures. After 4 to 5 years, with consumer and business confidence in the financial system restored, the Swedish government shares in the banks were sold back to private investors, so that the surviving banks were still strong, but now firmly under capitalist control. Quick Temporary. Procedure-driven. With full disclosure and oversight by parliament and the consituency. If you're going to intervene, that's one way to do it.

By contrast, Paulson wants tsar-like control over portions of the $700 billion all to himself so that he alone can decide which American banks survive and which ones die. He would also decide which sewage loans to buy up, but he would have no obligation to sell off these garbage-value loans later on at the best possible price to cover the collective asses of taxpayers like you and me. For all we know, Paulson could buy this shit at $3.00 instead of $10, hold it, then sell it off 2 or 3 years from now for $0.50 each!

This whole bill assumes that the American housing market is going to miraculously correct itself in 1 to 2 years and resume itself at the previous home prices that were based on irrational exhuberance, not reality, in the first place. Paulson is full of shit. So I am not in the least bit surprised the first round of the bailout failed to pass. The only thing that surprises me is that a portion of the elected Congress members might actually have understood the technical details as to why this bailout proposal royally sucks. I think most Congress people don't understand what's going on and just looked over the shoulders of the "smart kid" next to them. They all should be voted out in November, in my view.

Again, this whole situation is really going to hurt average Americans. It could take years for this entire mess to sort itself out in the market.

But know this: With congressional intervention the housing market will take even longer to correct because the inevitable (market value correction) would be delayed unnecessarily. Our financial suffering as a nation would only be prolonged by such typical fast food, short-term, quick fix American thinking.