Monday, November 8, 2010

Getting to Phil's Trail in Bend with Observations on the Way

Last Friday, I took one of my favorite drives over the mountain to Bend for the day, to be by myself on the sunny side of Oregon. After spending 8 years in Southern California, I expect to suffer sunlight withdrawls during Oregon's grey and endlessly dreary winters, so I gotta chase sunshine or else I'd wind up in a mental institute like Costanza's nemesis Lloyd Braun.

Everything was smoothe sailing in the 110,000 mile Audi, moving at a comfortable 80-85 mph all the way into Warm Springs, making use of the rest stop along The Deschutes River, directly across from the highly rated Rainbow Market. Somehow, I always have to stop here to get out and walk, taking in the fresh air, and watching the rafters setting out on their two day trip down river into Maupin.

I arrived in Bend at 11am, with my first stop at the Bend Burger in the heart of downtown, where I watched a Knife River road crew employee devour a big cheeseburger, enjoying his "Putting Oregon Back to Work" per diem from this year's "Federal Re-Pave Already Well Paved Roads" campaign.

After watching Knife River guy doing his Audrey Griswold in European Vacation impersonation, just with a cheeseburger, I watched about ten COCC and OSU-Bend students nibble on their food like a meek pack of OSU-Corvallis sorority girls at Togos ordering a "6 inch turkey on whole wheat with mustard, lettuce, tomato, and pickle" AKA "The Sorority Girl Special." The COCC/OSU kids were sporting the hipster/punk look (I think that's what it is), with the pegged black jeans, pants up to the bottom of the butt, and flat-billed black hat with some kind of ass-kicking MMA/TapOut/Ed Hardy/insert Skater Company Name here logo on it.

What's with the pegged pants look anyway? I last remember it in 2nd grade. Now, it's everywhere. Strange to think of Bend, a year around outdoor paradise, is now filled with boys wearing girls pants yet doing the MMA cage fighter thing. Hmm.

Beyond hungry and finnicky eaters, it was fun watching all the dogs walking by with their owners. Everyone in Bend seems to have a dog. Mostly, the mixed breed combos you get from rescue shelters. Every store has a fresh water bowl out front. Reminds me of Del Mar, CA in that respect.

Next, it was out Century Drive to Phil's Trail, the purpose of the trip, past eye-catching new home construction. I say eye-catching, because, me, being a completely bearish and realistic housing observer and participant, can't believe they're still building new homes. Why? And don't give me that crap about "Well, their not building any more land. The price can only go up." That stupidity was acceptable in 2005 when you justified getting caught up in a $100,000 bidding war to get some sterile, "Tuscan inspired," tract house out in the middle of nowhere, in places like Temecula or Murrieta, CA, where the nearest $60,000/yr job could be found 75 minutes away.

God, I suffer from serious bouts of getting sidetracked, and repressed hostility over all the ridiculous stuff I heard people say during the fraudulently "frothy" financial bubble.

Okay, really, onto Phil's Trail. I'm serious this time.

Heading out Century Drive I see giant houses on the left and know I'm getting close. Phil's Trail awaits me at the next road, some Forest Service road marked by a little green sign with four numbers. About a quarter mile down the road, I came to 40 or so cars parked. I'm impressed, this is noon on Friday and the place is packed. People, kids, dogs, mountain bikes. Bend-onians, or Bendonites, or Bendiegoans, definitely live the good life all year around.

I set out on Phil's Trail, which is just one of a half dozen trails leaving from the parking lot for a 3-4 mile hike. The scenery is everything you'd expect from The Deschutes National Forest - sparsely placed Lodgepole Pines, creating lots of open space and visibility, where if you have to go #1 in the woods, you better be quick or else a mountain biker will be watching you from 1,000 yards out, closing in within 45 seconds. (Happened twice).

Phil's Trail has great single-track. I probably had 100 mountain bikers pass me. Every one of them was extremely friendly. It was like The Truman Show for friendliness, only with extremely fit, outdoorsy people. Gotta love Phil's Trail.

I'm heading back in two weeks to get my fill of sunshine in the high desert. By then, we should have had 14 days of rain and lots of snow on Mt. Hood. Gotta hold true to my personal pact to chase sunshine this winter.

Friday, October 8, 2010

The Mosque in NYC and Tolerance - Funny stuff

A friend sent me this funny email about the Mosque controversy in NYC. Enjoy...

"I am perplexed that so many of my friends are against a mosque being built near Ground Zero. I think it should be the goal of every American to be tolerant. The mosque should be allowed, in an effort to promote tolerance.

That is why I also propose, that two gay nightclubs be opened next door to the mosque thereby promoting tolerance within the mosque.We could call the Clubs "The Turban Cowboy" and "You Mecca Me So Hot."

Next door should be a butcher shop that specializes in pork and have an open BBQ with spare ribs as its daily special.

Across the street a very daring lingerie store called "Victoria Keeps Nothing Secret" with sexy mannequins in the window modeling the goods.

Next door to the lingerie shop, there would be room for an Adult Toy Shop, called "All Ah Need," in flashing neon lights.

If you agree in promoting tolerance and you think this is a good plan, pass it on."

Ted here: The more we laugh at funny religious rules the faster we can evolve.

Have a nice weekend.

Tuesday, September 14, 2010

Union's Responsible for America's Downfall? I Think Not

A friend called this morning and shared a conversation he had with some relatives, who are extremely politically conservative, having adopted the Fox News view of the world. The jist of the discussion was how the Unions have destroyed America and made, you guessed it, made us a Socialist country. And somehow, it's that Muslim Socialist Obama's fault!

Now, one of these relatives can give thanks to 20 of their 30 working years being spent within a public employee union (the other 10 outside the union, in a six figure, management position in the public sector, and still within the Oregon PERS 1 Retirement plan). Their quality of life has been pretty good for the 30 working years and possibly better in retirement, living a life of leisure that wouldn't be possible if not for the union benefits or public retirement benefits they earned.

The other relative was a non-union tradesman, who's income is similar to his union counterparts. I'm uncertain if his employer had a pension plan (defined benefit) like the unions, or if he was in a 401K (defined contribution). However, the income was nearly the same as a journeyman from the union which was plenty sufficient to raise a family for 30+ years.

I was laughing a little bit when talking to my friend about the conversation, because, in my opinion, it sounded like a bit of misinformation, that a certain television news station unfairly and unbalancedly spews out around the clock.

First, a quick history of US Organized Labor, off of the top of my head, from 15 years of studying economics and US History:

America's history with Organized Labor dates back over 100 years, as industrial workers fought to reverse the oppressive working conditions during American industrial expansion. Things like working in a coal mine 6-7 days a week for 12-14 hours a day were commonplace, while living in company owned cities, where the company charged you rent in their home and sold you groceries in their grocery store were a few of the complaints. Back then, time off for illness wasn't possible. If you were sick, you were fired. A new warm body would replace you. Basically, America 100 years ago was what Asia, with it's sweatshops, is today.

The workers revolted and fought for better wages, benefits, and working conditions against such Amerian icons as Carnegie, Frick, Rockefeller, and Gould. Labor eventually prevailed after a few decades of riots and numerous deaths. Henry Ford changed things permanently by raising the wages of his assembly line workers to a level where they not only could produce the Model-T, they could also own one.

Fast forward to 1946, with US victory in World War 2, which became the golden age of American manufacturing and organized labor. The US was the only major industrial nation untouched by war, with factories still humming from the war effort. America produced the products and materials to rebuild Japan and Europe.

People like Jimmy Hoffa and the Teamsters emerged, "to provide a living wage for the workin' man." And the unions helped ensure that the workin' man made a good wage to support a growing family. My grandfather went from being a teacher in Minnesota to building ships during the war in Portland to working 30+ years for Stimson Timber while raising 3 children, sending all 3 to college, on just one income. Not only that, but they saved money out of every single paycheck.

Today's argument that union's are destroying America is a complete fabrication. The real culprit of America's problems are the direct result of over-indebtedness, from the citizens to the governments.

Debt hyper-expansion started with the conservative hero, Ronald Reagan, and his 8 years in the White House. Public debt exploded, as Reagan talked about reduction in government headcount while doing the exact opposite, increasing the size and expense of government, while simultaneously cutting taxes. What's a business or government with a cashflow shortfall to do? Borrow money to make up the difference. Thus, we get the rapid expansion of US national debt during the 80's, made possible by a little something called "VooDoo Economics."

Bill Clinton came along with the NAFTA days and we started seeing Volkswagon's built in Mexico. More high paying manufacturing jobs were sent overseas, thus, putting the skilled "workin' man with the living wage" out of a job. All was well during his 8 years in office with the bull market in stocks and "balanced budget." Yet, under the surface, wages in real terms, continued to fall, ever so slightly, as the expansion of the money supply (inflation) continued to erode savings.

George W came in and spent money like crazy. The Fed fought the dotcom induced recession with more money flooding into the financial markets (liquidity), by lowering the Federal Funds rate. Thus, the housing bubble (inflationary) emerged from all the extra money thrown into the credit markets. W's term ended with the freezing of the credit markets in September 2008 as banks refused to lend money overnight to each other, let alone businesses. Enter the recession and rapid deflation in the value of assets worldwide.

What's a good Federal Reserve to do during a crisis? Flood the markets with more liquidity through TARP and other alphabet soup programs to save banks (not unionized workers!) with the belief that, "A healthy Wall Street will lead to a healthy Main Street." Uh, we know how that one has worked so far.

What happens when you flood a market with too much credit? ANS. Asset Bubbles! (Grab that net and catch that beautiful butterfly, pal!).

So here comes Obama at the beginning of the great unwind. He's not the man we elected, but he's trying in a no-win situation. In my opinion, he should be focusing on jobs, since the 17% unemployed just want to work, contribute, and be self-sufficient. (Note: he's been a goldmine for road crews and AM/PM's, ensuring robust sales of corn dogs (for breakfast), cigarettes, and Rock Star energy drinks.)

What's killing America isn't Organized Labor, who's numbers have been in a steady decline for 30+ years. It's the unwinding of the "debt supercycle," as John Mauldin refers to it. The Ponzi Scheme finally stopped and the tricks of financial alchemy reached their breaking point.

As union membership was decreasing in size and governments were forced to make up revenue shortfalls (from lower real wages or political promises of lower taxes), they had to keep borrowing more and more money, year after year, in one big pyramid scheme.

The big winner in this thing has been the American banking system. Think about it. Who benefits from lending money, a bank or labor union? Banks. Who's size has been growing the last 30 years, banks or labor unions? Banks.

This story of the unions destroying America is absolute bullshit.

The reason we are where we are in this Great Recession (technically a Depression), is because we've become over-indebted at all levels of society - citizens and governments, and have sent thousands of high-paying, high-skilled, technical jobs overseas, decreasing living standards for the American middle class.

If one were a conspiracy theorist, he'd think the banks, as advertisers, are influencing the topics the nitwit talking heads unfairly and unbalancedly discuss on their "news" show, to keep the citizens doped up on misinformation like the evil, socialist agenda of dwindling labor unions, who are a mere shell of their former selves. Didn't a certain African American President campaign hard to win the vote of these labor unions? I'm just sayin'...

Tuesday, August 24, 2010

Thank You For Smoking = National Association of Realtors

So the report just came out for July sales, and sure enough, sales volume is lower. However, the National Association of Realtors (NAR), came out with a nice little spin, "July Existing-Home Sales Fall as Expected but Prices Rise." Look at that, prices rose!!!

Unfortunately, they are horrible spinmasters. They didn't get any of the Nick Naylor gift of bullshitting people from "Thank You For Smoking" (shown above with "Cancer Boy").

American people are not really stupid enough to believe the stuff that comes out of NAR. Everybody knows there's a lot of inventory being held back by banks, that "extend and pretend" is government policy in the form of PR stunt known as HAMP (victor = banks and our grandchildren, loser = delinquent, over-extended homeowner, sorta*), that we face another 10 years of bad loans that need to be cleared off the books, working their way through the system, ever so slowly.

*Delinquent, badly underwater homeowners are kind of the "loser" until they fully understand that they can just keep re-defaulting on a HAMP loan and then play the "contest the foreclosure" charade then game the Bankruptcy system by filing Chapter 13 at least four times, stretched out over 3-5 years. Essentially, living in the house rent-free. Hey, gotta do what you gotta do. They're a loser until they realize they're a pawn, and actually can feel like a winner once again.

Anywho, the NAR President, a Realtor from Tucson, Vicki Cox, gave the usual cheerleading comment, "“Mortgage interest rates are at record lows, home prices have firmed and there is good selection of property in most areas, so buyers with good jobs and favorable credit ratings find themselves in a fortunate position.”

Back in 2007, when the market had already started to turn, NAR was encouraging homeownership since mortgage rates were still "at record lows, thus making it a great time to buy." I guess any trade association is going to tout the virtues of their product." Being the publisher of the NAR report, can best be described by our friend, Mr. Naylor, "My job requires a certain... moral flexibility."

Thank you for buying a product who's value will fall 5-15% and be stuck there for the next 10-15 years.

Wednesday, June 23, 2010

General McChrystal Relieved of Groundhog's Day Purgatory

President Obama fired General McChrystal today after the Rolling Stone article brought to light McChrystal and his braintrust's lack of respect for Obama and his civilian braintrust. Not much of a surprise that the employees collecetively and openly share a disdain for their employer.

We've all been there and have held our employer in a negative light from time to time, making jabs and sharing funny nicknames with our co-workers at our bosses expense.

General McChyrstal and his men are no different from you and I in that respect. They're frontline career soldiers, carrying out orders from frontline career politicians, who most likely, never experienced combat beyond a verbally combative Jim Lehrer moderated political debate.

To keep their sanity, especially being away from their families for several years at a time, they have to keep each other laughing. I admit, it's hard not to laugh at the politicians calling the shots since they haven't exactly been forthcoming about this war/invasion/occupation from the beginning. (Recall, this was about 9/11, the hunt for Osama bin Laden, WMD's, Democracy (for who?), Saddam the terrorist, Al Queda, removing the Taliban, control of the worlds second largest oil reserves, and now $1 trillion natural resource deposits).

Most American's understand this is not a war, but an invasion and occupation to take control of oil and natural resources. American politicians have committed the young men of our military to conquer this strategic region of the world, ensuring another American century of economic prosperity.

It appears that the American military serves American commercial interests throughout the world, rather than providing safety and peacekeeping. It's Corporate Imperialism 101.

There's a strong demand for free-flowing shipping routes and oil pipelines to freely transport inexpensive energy and resources that keep the world's economy running at maximum capacity (for the countries that get to participate in global monetary system). And as we know, our monetary system is built upon continual growth (population, money supply, industrial output, etc) and needs cheap natural resources to keep the growth machine firing on all cylinders.

The General and his men are doing what they were sent in to do - liberate the natural resources. It's probably a thankless and stressful job that needs daily laughter to keep a healthy balance on their psyche. If they can't have Hillary Clinton fly in with Sinbad for comic relief (remember their previous Bosnian landing amidst heavy sniper fire?, they need to create their own comedy sketch. If Obama and his men have become the butt of jokes for the top military brass, so be it. The politicians are half a world away, making international military decisions for domestic political and economic outcomes. Guys on the battlefield probably see what needs to happen to "win" the war, but may realize their trapped in an endless groundhog day that feels like it's never going to end.

Friday, June 11, 2010

2012 Presidential Election - Bull Moose or Tea Party?

I started writing some stuff this morning, after it hit me that the 2012 presidential election may be a Tea Party candidate or independent like Ron Paul. There's a logical progression leading up to the election:

First was subprime in 2007, then US financial fallout in 2008. Last year was a carry trade of profits and asset appreciated, perpetuated by banks borrowing at 0.25% from the Fed (taking on more debt), investing in Treasuries at 3.25% and everything else they could get their hands on, flooding the market chasing yield, driving up prices. Nobody wants to be the last man standing, so the carry trade is unwinding, as we've seen the stock market in a sell-off by dropping 1500 points since January, after gaining 2743 points in 2009.

Big Banks and Investors were only allowed to participate in the carry trade. Ordinary citizens were once again shut out, subjected to reduced credit, loss of jobs and homes, while the banks celebrated record profits (which would have been billions of losses had the loss reserve levels not been drastically reduced and Mark-to-Market accounting suspended). The profits were merely accounting gimmicks, not actual new sales and cash flow.

This year in Europe, we're seeing many of the Euro nations true subprime-ness, and a $1 trillion bailout 3 weeks ago, which was done to protect European banks from suffering losses on loans and bonds of sovereigns. Investors have seen this before and pushed bond prices lower in Europe. Nobody bought it. Tarp 2.0 Euro-style. "Fool me once. Shame on me. Fool me twice. Shame on you."

The US and US Dollar now look good. But for how long? Is it just the best of the worst? When does the Dollar carry trade turn? When do bond yields start rising in the US, suggesting diminishing confidence in the US to repay it's debt? Does it drop when the carry trade really starts accelerating? Will it be like when people tried selling Subprime MBS and couldn't find a buyer, unless they were willing to take $0.20/$1.00?

It's coming, and with that run on the US Dollar and US bonds, will be a run on incumbent Democrats and Republicans, including the current False Hope President. Both parties supported Wall Street over individual citizens. They've defended the corporataucracy over the people. They've allowed the pilfering and plundering done throughout the world (Iraq, Afghanistan the most recent) to be done on our own soil. It has happened before our eyes and most people aren't even aware of it.

All it takes is the run on the dollar pretty soon. Probably early next year. People will finally wake up. It will be impossible not to notice, despite the best efforts by The Fed to prop things up, to no avail. Somebody like Ron Paul has a realistic shot at winning the election. He's been the one guy to continually challenge The Fed and the political establishment for years. By 2012, enough stuff will hit the fan that it'll be impossible to sweep under the rug the financial state of the country, as reflected in the stagnant 10-20% unemployment, even after $6-10 trillion in stimulus money thrown down the drain.

Trivial issues like abortion, prescription drugs for senior citizens, and boxers/briefs won't distract people from the real issues in this upcoming election. Time for a new leader to emerge outside the mold of the failing two party establishment.

Saturday, March 27, 2010

Latest Foreclosure Prevention Initiative Written For Banks, Not Homeowners

This week the Obama Administration came out with some upgrades to the already unsuccessful HAMP program called "Making Home Affordable Program Enhancements to Offer More Help for Homeowners." The two items that stand out to me is the assistance for unemployed homeowners and principal reduction on both first and second mortgages,which on the surface look like they are being done to help borrowers.

It may sound sincere in aiding homeowners through modifications and principal reductions, but it's not. Remember, we're still in the Bailout Era, so this is being done as a sincerely worded, homeowner helping bailout of taxpayer money designed to benefit the Investment Banks and the four largest holders of second mortgages: BofA, JP Morgan Chase, Wellss Fargo, and Citibank. Here's the size of their second mortgage holdings:

BofA: $147 Billion
WF: $124 Billion
JPMC: $118 Billion
Citi: $53 Billion

You have to think that many of these second mortgages are upside down, having reverted to Unsecured Debt status (Ex. $500,000 Purchase Price in 2006 - $400,000 First Mtg, $100,000 Second Mtg. 2010 - $325,000 Home Value - $175,000 is actually unsecured debt).

The housing market the last 1.5 years has been propped up by TARP, TALF, HAMP, HAFA, PPIP, FASB suspension of Mark To Market Accounting, $8000 First Time Homebuyer Credit, The Fed buying $1.25 Trillion of Fannie/Freddie/Ginnie new mortgage issues, etc. All of these programs have had an impact in stabilizing home values after prices dramatically fell in 2007 & 2008. Some markets have even seen price increases. And all of these programs have been done at a very significant cost to American citizens, paid for up front by our dear friends in the People's Republic of China and the Federal Reserve's printing press, all to be paid back by future generations of Americans. And, all of this was done in an effort to keep large banks from failing one after the next.

TARP basically flooded the banks with $700 Billion of new cash and calmed the market right after Lehman Brothers went bankrupt, on the eve of Morgan Stanley collapsing which would have led to Goldman Sachs collapsing, and so on. Investors and uninsured depositors were amidst a run on the bank. The government stepped in to keep everyone from collapsing.

TALF provided $800 Billion government guarantees on consumer loans for credit cards, auto loans, and student loans. These loans were primarily securitized, but the securitization pipeline dried up, as losses started to snowball for prior investors, who were now spooked to invest in new issues of debt. The economy relies on the inexpensive financing of these products, so the government had to guarantee the debt to get investors to buy them and get cars off the showroom floors.

HAMP was created to force banks to work with homeowners to stay in their house through loan modifications. Under the surface, it was the administrations boldest attempt at "Extend and Pretend," meaning "extend" out the inevitable foreclosure as long as possible and "pretend" the value of the underlying $500,000 mortgage against a $250,000 home still is $500,000. It's better to book that loss way out in the future than to book it now. Keep kicking the can down the road. HAMP has had a low success rate, getting permanent modifications to delinquent or underwater homeowners. I've seen re-default rates of modified loans anywhere from 50-80%. The main problem was no principal balance reduction and it changed the logic taken by homeowners, who soon realized, "Gee, I can live rent-free for a long time because the bank is so slow in approving or denying my loan modification. Not a bad gig."

HAFA makes more sense to me. It's basically for all the homeowners who couldn't get a HAMP modification, if they have a Fannie/Freddie mortgage, they can Short Sell their house and the bank/servicer has 10 days to accept the offer. Anyone who's tried a Short Sale, knows that it's often a 3-6 month process to get an accepted offer from the bank. Why? Extend and Pretend. Book losses way out in the future rather than now. Stave off insolvency a little bit longer while building the warchest of cash reserves right now.

PPIP simply allowed a bank to sell their mortgage backed security (MBS) or Derivative Products or other "toxic asset" (worthless CDO's) to The Fed at par (100 cents on the dollar) whereas the market was only offering 1-10 cents on the dollar. The Fed would "loan" the bank money, backed and insured by the FDIC. ("Uh, Mr Bernanke, can I get an FDIC backed loan against this laptop I'm typing on, saying it's worth $1000, even though somebody would only pay me $50 right now?" "Sure Ted. Makes perfect sense to me. Do you want that in large or small bills?").

FASB suspension of Mark-To-Market accounting on long-term mortgage related assets in April 2009, allowed a bank to mark an asset (mortgage) or security (pool of loans/MBS) to a reasonably defensible level. Reasonably defensible are the key words. As long as you can defend it, and a regulator believes you with a "wink-wink," this will work. This is different than marking it down to it's actual value, which would result in paper losses and create greater demands on a bank to raise more capital. I see the logic in this one, since these investments are designed to mature on a 10-30 year time table.

$8000 First Time Home Buyer Credit. It was pointless in my opinion. A Realtor would tell you "It's great and embodies all the joys of a stable neighborhood and the pride of homeownership." Don't listen to them. It cost billions of dollars to American taxpayers and really didn't benefit the economy much besides the commissions and fees earned for the transactions, that would have taken place anyway, just at a slightly lower purchase price.

The Fannie/Freddie/Ginnie (Agency Paper) $1.25 Trillion mortgage purchase program by The Fed gave many of you a 4.50% 30 year fixed rate mortgage and provided liquidity to the mortgage market, which had come to a halt in 2008 with the mortgage market collapse, resulting from rising defauls in the pools of mortgage-backed securities (MBS). What happens with Agency paper, is Fannie/Freddie/Ginnie insure the MBS investor from loss, not the homeowner. They were chartered to provide liquidity to the housing market. They've done that for a long time. But they went a little too far, dabbling into subprime and raising their "conforming limit from $322,500 to $417,000 from 2002 to 2006, in stride with the housing bubble. Fannie & Freddie were taken over by the government in 2008 amidst major losses that year. Investors had always believed the US Govt would step in to cover losses at FNMA/FDMC, which it did. But investors were still leary of diving back into the market. In stepped The Fed with a $1.25 Trillion commitment to buy mortgages. This program ends in a few days and we'll probably see Phase Two starting in the near future to keep housing prices propped up, running counter to realistic fundamentals of an economy where 17% of the citizens are under and unemployed. Home prices should still be going way down, eh?

I think the eight separate items I outlined above should give you a clear pattern of what has been done since 2008 to keep the housing market inflated and the banks solvent. Obama's latest attempt is masked as a benefit to homeowners. This is a behind the scenes way of sending more taxpayer dollars toward the largest commercial banks for their upcoming next wave of mortgage-related losses.

The last decade was the crescendo of the credit bubble and it popped in 2007. Individuals, businesses, and governments became over-extended. In this country we have bankruptcy. In a personal Chapter 7 BK, you get to wipe away all your unsecured debt, re-affirm your car and your home, and start over. Chapter 11 BK's for businesses either dissolve an insolvent entity or restructures the debt to a manageable level in relation to the cash flow to hopefully thrive again. (Or not, like the airline industry which seems to flirt with bankruptcy protection every few years).

What's happening in the US, is that everyone is being allowed and incentivized to push out their eventual bankruptcy to keep the financial system from collapsing. Fed policy the last 25+ years was to incentivize debt creation to support greater and greater asset appreciation to offset declining real wages (from globalization and the arrival of America's predominant service economy), which would perpetuate more borrowing against these same appreciating assets (leveraging), driving prices higher for other assets as a result of more money chasing limited opportunities for assets.

(Think of leveraging this way - you bought a house for $100,000. The value doubled to $200,000. You pulled out $60,000 to buy another 3 houses for $100,000 - putting $20,000 down on each. Your neighbor is doing the same thing, and he offers you $150,000 each for the three houses. You sell to him, netting $210,000. So you buy 7 more houses at the new price of $150,000, putting $30,000 down on each. Everyone is doing this because it's so easy to get a loan. Finally, the credit market collapses, all the buyers have vanished, you and your 7 tenants have lost their jobs. You wind up selling each house for $60,000).

All of this leveraging was made possible by securitization of debt (individual loans packaged into a large pool) sold off to investors as a security instrument, insured by an bond insurance company, investment bank, or hedge fund (think AIG Financial Products insuring Subprime Mortgage Credit Default Swaps), lowering the cost of borrowing to millions of Americans who never should have been homeowners in the first place along with millions of speculator/flippers looking to cash in on the party.

Well, the credit bubble popped and brought down the asset bubble. Obama keeps using a harsh tone with bankers who won't lend money to struggling consumers and small businesses, but that's the last thing people need right now is take on more debt. He knows it too. It's good for a small uptick in his approval ratings.

Lending is the last thing a bank needs to do as well. Hoarding cash to offset the potential $400 Billion in second mortgage losses along with all the other eventual mortgage and credit related losses, is what the banks should be doing and ARE doing.

If people cannot afford their homes, they need to sell their home. There's nothing sacred or special about the four walls and roof that provide shelter to their family. It can be replaced. There's no sense in paying a $500,000 mortgage on a $250,000 home when you cannot afford to pay for your essentials. The government will not come to the rescue of the homeowner, no matter what new initiative they come up with. They are too busy coming to the rescue of the banks with taxpayer money, which is a much bigger problem.

Hope you all have a nice weekend.