DadTalk

Tough Times for All

These are tough times for most all of us. I can now honestly say I know dozens upon dozens of friends and family who are now unemployed or are about to become so. (My own situation is not so great, either, but that’s for another post. )

It’s important to recognize how the greed of a few has hurt us all. Over the last two decades, the idea of wealth has shifted in several meaningful ways:

1. Banking and investment had become the dominant form of economic growth in the United States. During this period, our best and brightest were diverted from economically and socially more important activities – such as science and health research – to firms that made money for the sake of making money.
2. Greed became not only fashionable, but expected. Dollar-minded parents pushed kids into careers they did not want, which was captured in this New York Times article. The message to many young Americans: wealth + granite countertops equal happiness.
3. Keeping up with the Joneses translated into buying and improving homes far beyond ones means. I had a neighbor who mocked my slowly decaying home in Upland, California. I told him I could not afford huge upgrades. He responded by telling me to refinance. By now, my former neighbor is probably upside down in his mortgage, while several of my other neighbors have recently foreclosed.

The point here is simple: many of my hardworking friends and families are now victims of those who indulged in excessive lifestyles: new cars every year, bigger and bigger houses, gouging of assets from corporations, etc.

My friends and family did not deserve to be punished because others were greedy. It isn’t right. And it bothers me. A lot.

Share Your Housing or Money Stories

I’m curious. Does anyone have personal stories of losing or nearly losing their homes? How about friends or family members? Are you struggling with layoffs or reduced hours? If so, post your story in my comments section.

The Unofficial Indicators of the Housing Market

By the time official housing numbers come out, they’re horribly dated. I like to look at numbers that are more current, even if less pristine, statistically.

One of my favorite places is the Countrywide REOs page. These are the properties that Countrywide is trying to sell after regaining a property in foreclosure.

When I first started watching this site a few years ago, California hovered in the 3,000+ range. A couple weeks ago, California REOs were in the low 5,000s. Today, Countrywide is trying to unload more than 6,000 foreclosed properties.

Another unofficial guide gives a quick count of distressed homes for sale. Los Angeles County, for example, was hovering in the 90,000s until recently. Today, they’re sitting at 147,000, according to HUDhouses. Maricopa County, which covers most of the Phoenix area, moved from the mid-40,000 range to about 64,000.

Meanwhile, the uber optimists at the National Association of Realtors, are happy to see increasing numbers of sales due to declining prices, reports Reuters. Distressed home sales made up about 35 to 40 percent of the market, according to the NAR.

They also reported that home values fell in 120 of 152 metropolitan areas for an average price drop of 9 percent from a year ago.

While THEY may be taking HAPPY PILLS at the NAR, I wonder if responsible homeowners feel the same way. Each foreclosed home that sells, means a lower comp for their neighbors.

Weather in Arizona

I shot this photo more than a week ago from our street. While our house isn’t pictured, you can get a good idea of our view – when outside – and the cookie cutter home neighborhood we’re living in.

‘Unfortunately, the Plan Sucks’

Even before the collapse of Lehman Brothers, supporters of the massive bailout have consistently warned that the world’s credit pipelines are clogged. But until the House failed to approve the bailout, the problem was described in terms of failing financial institutions.

After the vote, politicians in both parties changed their message – “Oops, we forgot to mention that this is a rescue of Main Street, too!” And, “Oh, don’ worry about that price tag, because someday the U.S. Treasury will sell those homes for a whopping profit.”

The Senate figured the problem with the original bill was a lack of pork, so it jumped in and passed an even larger bill on Wednesday, reports The New York Times.

The bill not only endorses the $700  $850+ billion bailout plan, but adds $150 billion in tax breaks for individuals and businesses while raising FDIC insurance to $250,000. At least that latter addition makes sense.

The Senate was helped by the Mainstream Media, which increasingly has been jumping on the bailout bandwagon. Below are some examples:

Quotes on Failed Bailout Vote

I thought it would be interesting to see what Americans are saying now that the vote to bail out America’s financial system has failed.

Interestingly, there seemed to be more supporters of the bail out than earlier comments first revealed, but as a whole the most Americans seemed relieved the bill failed. (As before, I minimally cleaned up typos and grammar.)

Dave on New York Times:
Headline “CONGRESS FINDS SPINE.”

Sheri on New York Times:
YESSSSSSSSS!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

Bob on L.A. Land:
Finally someone stood up to the moral bankruptcy and financial blackmail of the Bush administration!

SSV on New York Times:
All of those now looking for “proof” the bailout is necessary will get that proof in the next 3-6 months and then we’ll all have to listen to the same nearsighted crowd weeping and gnashing their teeth over “how could the government have done this to me?”

David on L.A. Land:
Are these people insane? The Republicans will really take down the entire country? The Republican Party has denigrated into a group of right-wing extremists, and the Democratic party had better hit them hard for doing this to the US. Only a crushing defeat for the Republicans in November will send a message that, in times of national crisis, ideology must be set aside and bi-partisan solutions must be found.

Chinese Milk Crisis, Credit Market Mess Reveal Flaws in Capitalism

While the milk contamination crisis in China seems completely unrelated to the planned $700 billion bailout being negotiated in Washington this week, there is a universal lesson coming from both crises: free and unfettered markets are not always the panacea they seem.

For those who haven’t been following the milk disaster in China, some background information: At least 53,000 children have been sickened after milk producers added an industrial additive called melamine to their products.  At least three children have died, reports The New York Times.

Why would a toxic chemical, known to cause kidney stones be added to dairy products? Because the chemical masks watered-down milk by making protein levels score falsely higher during tests. And yes, melamine is the same chemical found in feed that sickened pets across the United States in early 2007.

In China, it’s not lack of regulation or even a shortage of inspectors that allowed food manufacturers to run amok. Instead, corruption at all levels resulted in a complete breakdown of oversight.

In the housing and credit market scandals, corruption wasn’t the problem, but the lack of rules to begin with: The federal government winked and nodded at lenders, investment houses, rating firms and insurers saying, “keep up the good work,” despite any misgivings that money was being lent to homeowners with faulty credit or concern over a $60+ trillion economy known as credit-default swaps was creating a casino of worldwide proportions. For a crude explanation of credit-default swaps, read this article.

Even Ben Stein, who a few months ago was proclaiming we should keep our money in the markets, finally realized something is horribly wrong:

Quotes Against the Bailout

While it’s clear something needs to be done to shore up the world’s ailing financial system, Republicans hate this bailout, reports The Associated Press. Can you blame them?

Republicans get elected in districts in which the general population favors less government and a no bailout mentality. Why the Democrats are willing to thumb their nose at their electoral base is not as clear.

What is totally clear is how much Americans HATE this bailout. California Democratic Congressman Brad Sherman says phone calls to his office are running 300-2 against the original massive bailout plan, reports L.A. Land.

So, I thought it would be interesting to post some of the best comments and quotes from some of my favorite sites:

Where’s My Bailout Money?

The supposed $700 billion bailout is the single largest rip-off scheme in the history of America. I say supposed $700 billion because the scope of the bailout has already been expanded to include foreign financial institutions while Democrats want to help homeowners and credit card companies are waiting in line asking, “What about us?”

And the $700 billion doesn’t include the several hundred billion dollars spent to bail out AIG, Freddie Mac, Fannie Mae and Bear Stearns. Add in the shoring up of Money Market Funds, the tax stimulus effort earlier this year and other programs to rescue homeowners, and we’re talking well over $1.5 trillion.

Worse, there seems little evidence that this bailout will even fix the root problem: the declining housing market. From CNN Money:

Massive Bailouts Hide Behind Housing; Nastier Problem Looms

The rules of Capitalism are being rewritten by the U.S. government, but few people are being told the entire reason why. The scapegoat is the housing market, but in reality a more complex set of problems threaten the global economy.

I’m not saying there aren’t serious problems in the housing market. Prices continue to freefall, Americans are losing their homes and overleveraged financial institutions were caught with their pants down.

Worse, a lack of transparency among financial institutions results in them not trusting each other. Would you lend to another bank that might be holding billions of bad housing securities?

But a big part of the problem is a shadow economy know as credit-default swaps. What the heck are they?

Here’s how I describe credit-default swaps as I understand them. I will use the word “insurance” in place of “swaps” to minimize confusion: