Wrecker Friendly Economics at Play

Lovely that I actually saw in print my favorite reminder, that Henry Ford and his followers created the greatest economy the world has ever known by paying the workers enough to enable them to afford the products they made. Thanks, Barbara Ehrenreich.

Avedon introduced us at Eschaton this a.m. to an excellent metaphor from Lance Mannion:

If the Government is a car setting out to give every one a ride to work, then for 40 years the Republicans have been puncturing the tires, pouring sand in the gas tank, stealing the distributor cap, and, whenever they can get their hands on the wheel, driving it straight into the nearest ditch and then, pointing to the wreckage as the tow truck backs up to it, saying, See, this proves that people were meant to walk. And they do this so that they don't have to chip in on gas.

The breakdown of the greatest economy of all times has ensued from just such vandalism.

Our meltdown in housing industires, mainly financial, has happened not only because wages were Left Behind by the corporate welfare crowd in the occupied White House. It is also a result of the rampant stripping away of laws and enforcement from our society by the criminals in power. In order to break laws, they had to break the law enforcement machinery, at the Justice Department and in all the other departments, including the Federal Reserve.

The worst executive branch in history stripped the gears on your Ford (no, never could resist a pun) by refusing to crack down on subprime ARM lending, enabling buyers to have more than they could afford on existing salaries. The trick was keeping those credit balls in the air while the buyer moved on to the next loan.

Credit, not products, became the object of the sale for the seller, a seller that couldn't accept simple truth.

The simple truth, of course, is that what the buyer couldn't afford would not finally be paid for. That simple truth is coming home for the holders of bundled bad loans. Those financial institutions were deceived when they bought AAA rated CDOs, because rating institutions were in league with the sellers of those bundled bonds, and took their word for it that the pig in the poke was a really fat pig. Lots of starved piggies are emerging from their pokes, showing that your investments are not worth what you paid for them.

It's almost comical to see the industry that got itself into this mess argue that they should be bailed out in the interests of all the rest of us. Not true.

In past downturns, the housing market was influenced by and was an indicator of other economic issues. This time, millions of homes have been built around the country during the past few years using a financing option that no longer exists. There may never be enough capacity to absorb all of these homes and other existing homes using 30-year mortgages, because there simply aren't enough people with the incomes to meet the requirements. Prices could not roll back far enough without damaging the economy irreparably.

The writer is head of a company that has specialized in luxury homes. Surprised?

Taking a loss is something that the industry really doesn't want to face, so it's not surprising that inventiveness comes out, creating new ways to keep the bottom from falling out of the building/financing industry. What the writer of the above article envisions is more extensive, affordable loans to keep prices from falling.

What needs to happen in the long run, of course, is that regulations that were on the books should be enforced, and strengthened. That's a step that will not happen until a law abiding administration is in charge.

Adults need to take the reins.

Deregulation has been a major object for business interests, and it is quite simply a defeat of public interest to remove protections that only were put in place at all because they were needed. Regulations of lending used to require a buyer to put down 20%, and pay not more than twice the salary the buyer earned, as is pointed out in the article linked above. That equation had been worked out as reasonable over many years of sensible home sales. Making a riskier loan made sense only if the buyer had the prospect of soon being able to move into a better financial condition. When that prospect was obscured, and possibility, instead of probability, made the standard, borrowing, and lending, turned into gambling. Your dollars were traded for chips, but nobody told you that real value had been replaced with 'consumer confidence'.

The odds are always in favor of the house. (Unforgivable level punning.) We involuntary gamblers are all learning a very hard lesson, and unfortunately many home buyers were bilked into gambling when they thought they were being advised by knowledgeable home salespeople. Those salespeople are struggling against the bath they are about to take, in many cases are already taking. Congress has sent us all a little check in the mail, hoping that spending will make it right.

I'm not betting on the Stimulus being a complete solution, but it will help some.

More than anything, the lesson we've had visited on the economy may be the solution, if regulations are again written into public service, and enforcement returns to the executive branch of this country.

343 days.

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Sadly, there is yet another predatory industry thriving off of foreclosures, the loan companies that specialize in lending for tax delinquencies.

Tax loan companies....offer loans with interest rates as high as 18 percent to homeowners to pay their delinquent taxes. The companies are assigned the tax liens, which trump mortgage liens. That allows them to foreclose much quicker and easier than counties and cities. Companies can foreclosure after just one missed payment and the entire process can take about a month.

Texas' property tax lending industry is relatively young, although the laws making it possible date back to the mid-1990s.

Consumer advocates say the business appears to be unique to Texas. In most other states, municipalities bundle and sell property tax liens to investors, who then can collect the taxes and foreclose if necessary.

The industry has exploded in Texas in recent years. It was largely unregulated until last year when lawmakers finally passed new laws that capped loan fees, required tax lenders to be licensed and added some consumer protections.