06.13.08

Speculation and the Housing Bailout

Posted in Culture, The Make-Believe Middle Class, 2008 Campaign, Dogmatic Socialism, Critical Thinking, Recovering Founding Principles at 10:50 am by Brian Schuettler

The Government creates or helps to create the problem and then the Government pretends to solve the problem.  

From Mises.org >>>>>

by Mark A. Pribonic  

Reminiscent of a juvenile accepting a dare to do something stupid, the chairman of the Senate Banking Committee, Senator Christopher Dodd, crowed to reporters the other day that committee members had done what many thought would be impossible: the committee agreed to legislation that would rescue homeowners facing foreclosure.

Not to disappoint the senator from Connecticut, but few of us ever doubted the ability of politicians to dilute the risks and rewards of voluntary exchange.

The basis of the proposed legislation is the creation of a new bureaucratic process that would provide government insurance of $300 billion in new home loans for at-risk borrowers. In order to qualify for this insurance, lenders would agree to write down loan balances that are below the appraised value of the house. In agreeing to the deal, Alabama Senator Richard Shelby declared that taxpayers would not be at risk. But since government creates no wealth of its own accord, citizens are always at risk of picking up the tab for a government program either through taxation or through higher prices due to government-created money. Senator Shelby’s premise about risk bearing is the start of several points of failed logic in this plan.

The factors that caused the defaulted loans in the first place still exist. The inability to make timely payments is usually the result of excessive debt exposure or loss of income, which may be due to either unemployment or divorce.

For many facing foreclosure, debt is not just confined to a single mortgage balance. In many cases, multiple loans in the form of second mortgages and equity loans were made against the hypothetical value of the property. This brings to question the part of the legislation requiring loan balances to be reduced. Does this include the balances outstanding for second- and third-tier loans? Of course, debt is not just confined to home loans. By some accounts, current credit-card debt in this country stands at over $1 trillion. It would be safe to assume that those facing foreclosure have hearty credit-card balances as a consequence of trying to make ends meet.

One of the grand fallacies about the nature of foreclosures is that the causes of the financial peril are the upward resets of interest-only real estate loans, which naturally cause the monthly payment to increase. Most believe that if these people had standard fixed mortgages, then the despair of losing their homes would be a passing nightmare. The possessive adjective “their” is itself a fallacy, since it implies a claim to ownership of property in which little or no money was invested. But the believers in this adjustable-interest-rate theory overlook the high probability that many of those in default would fare no better under a standard mortgage. For example, today a 30-year fixed mortgage with an interest rate of 6% on a principle of $250,000 would require a monthly payment of $1,490, and this figure does not include property taxes and insurance, which would increase the monthly outlay by a few hundred dollars more — an amount equal to that of the defaulted interest-only loans.

In order for any housing rescue plan to receive a presidential signature, the legislation must not rescue speculators or lenders. But speculation is inherent in any transaction involving debt. When debt is assumed, we speculate that we will be able to meet the terms and the eventual retirement of the loan. We therefore speculate as to the future status of our income, which consists of factors such as health, employment, and marital status. Without speculation, money would never be lent, and few houses would be built.

Yet this or any other government-guarantee plan relies exactly on the economic forces that posturing politicians publicly abhor. It forces all of us to put our faith in those who failed with their own money to honor the commitments made with the money of strangers. If Congress wants to end speculation, then I would suggest beginning with the deal makers at the Federal Reserve.

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Mark A. Pribonic is a managing director and block trader for an investment bank.

06.06.08

Goodbye To All That…Sic Transit Boomer Prosperity

Posted in Culture, Study History-Avoid Failure, The Make-Believe Middle Class, All Things Must Pass at 4:22 pm by Brian Schuettler

Bill Bonner at the Daily Reckoning…

BOOMER TRENDS COMING TO AN END
by Bill Bonner

George Soros says the great credit expansion that was born with the baby boomers…and has lasted as long as we have…is now over. And this week comes word that the “end of abundance” is here too. That’s what it said on page nine of Monday’s Financial Times . And then, Bo Diddley died.

All the palmy trends of the boomer generation seem to be coming to an end.

Naturally, the world’s leaders are worried. They gathered in Rome this week for the customary monkeyshines. Even Robert Mugabe – who is banned from traveling in Europe – put on a false mustache so he could dine out on the Via Veneto, leaving his lieutenants in Harare to beat and starve Zimbabwean voters. Poor Mugabe. Goebbels would have gotten a warmer reception at a meeting of Jewish orphans.

At 84, Mr. Mugabe is almost living proof of Haeckel’s biogenetic law. It maintains that the history of the individual rehearses the history of the species. In Mugabe’s long life, from prison cell to presidential palace, he is the history of revolution…a Kerensky and a Stalin… the liberation struggle’s saint and its monster, too…all in one. To black Africans he is a big disappointment. To whites he is proof that Ian Smith was right all along. When Ian Smith left the top man role in Rhodesia, the country was the ‘bread basket of Africa’ with a currency as strong as the pound. Now it is a basket case whose peoples’ bones stick out and whose dollars are already as worthless as a campaign promise.

But everything follows the same laws – from embryo to corpse…from boom to bust…from seed to fruit to rot…nothing escapes, neither an individual, an empire, a species, nor a market.

This is not the first time in our lifetimes that the world has seen this kind of show. In the ’70s, Paul Ehrlich, like Malthus before him, foresaw a crowded, hungry world. In his popular book, “The Population Bomb,” he said hundreds of millions of people would starve to death. This was a world in which England couldn’t even exist; he said it would disappear by the year 2000. He was wrong about that. He was wrong about a lot of things. Julian Simon challenged him, arguing that a free economy always reduces real prices. On September 29th, 1980, the two made a famous bet – on whether the prices for 5 basic metals – chromium, copper, nickel, tin and tungsten – would actually go down, inflation adjusted, in the following ten years – despite population growth. What happened? Simon won. On the 29th of September 1990, the prices of all five were lower. Ehrlich settled up with a check for $576.07.

In theory, Simon will always win a bet like that; competition and technology always force prices down. But Ehrlich wasn’t wrong about everything. And Simon wasn’t right about everything. While one believed the weight of numbers would send the world to Hell…the other had a god-like faith that the market would always save it, guided by an invisible hand to progress and prosperity. But while Simon is right in theory, the invisible hand is not always the gentle paw that he imagines; it does not necessarily call out for more booze just because the crowd gets thirsty. In fact, sometimes it vanishes altogether, allowing a Mugabe to ruin a country…instead of permitting the free market to build it up.

Simon had the good luck to make his bet at the beginning of a major decline in commodity prices. Oil, for example, hit an all-time high over $100 a barrel, in current dollars, in December 1979. Ten years later, it was trading near $30. And by 1998, the price had fallen to $10. Had he made his bet ten years earlier or ten years later, he probably would have lost.

Back to the raw facts facing the Roman holidaymakers: Over their plates of crespelle all fiorentina, delegates will learn that high food prices are putting millions of people on the verge of starvation. Then, as they wash down their peposo with a tide of Barolo or Chianti Classico, they will reflect on how this came to be. The “green revolution,” someone will mention, seems to have run its course. (Out of politeness or imbecility, no one will mention the Fed’s easy money policies.) Ehrlich’s population bomb never exploded, they might come to believe, because irrigation, selective breeding, and the use of petroleum-based products greatly improved farm productivity.

But now, the green revolution has turned brown. It is as mature as the credit cycle…or Robert Mugabe himself. The water is running out. Opposition to bio-engineering is growing. And petro-chemical inputs are both less effective and much more expensive than they used to be. Result? In 1961, crop yields grew by 10% per year. Lately, they’ve increased less than 1% per year.

Meanwhile, in 1970, there was about 1 acre of arable land on the surface of the planet for every pair of feet. But the feet have multiplied – just like Erhlich said they would – from a bit over 3 billion people to more than 6 billion; and now the species is expanding like sub-prime debt. Just look at a chart. Human population looks just like the NASDAQ in ’99 or oil in ’08. This bubble-like population explosion, along with urbanization, highways, pollution, desertification and so forth, has cut the amount of farmland per person in half. Meanwhile, the number of people bellying up to the bar continues to grow by 11% per year – more than 10 times faster than crop yields.

Everyone wants a drink; but there’s only so much beer on tap. Who knows? This may be a good time to short the whole damned race.

Enjoy your weekend,

Bill Bonner
The Daily Reckoning

http://www.dailyreckoning.com/

05.13.08

The whole question hinges therefore on whether man’s claim that he is god is justified.

Posted in The Importance Of Authority, Culture, Belief and Disbelief-The Debate, the concrete reality of a being, It Starts With Obedience at 9:10 am by Brian Schuettler

The whole question hinges therefore on whether man’s claim that he is god is justified. The big obstacle to this claim is death. Is not the freezing of embryos a pitiful attempt to make us immortal — in a frozen state and eagerly looking forward to the day when death will be defeated? In the meantime, facing death — this fearful moment of truth — is a grace, for it makes us experience our metaphysical impotence. To deny one’s creaturehood does not make us gods; it just proves our stupidity. This attitude of revolt gives us the key to the “drama of humanistic atheism,” as de Lubac’s put it, which is the cancer of our society.
           
The intelligent attitude of someone who realizes that he is but a creature is to listen and obey. Once again, the Bible gives us examples of these religious men who became heroes of faith. Abraham was told to leave his country; he did not discuss with God — he obeyed. Moses, although afflicted by a speech defect, was ordered to go to Pharaoh and tell him to let the persecuted Jewish people leave Egypt. He certainly had to overcome himself in order to fulfill what seemed to him to be an unwise order. He obeyed.
When the young Samuel heard a voice calling him by his name, he got up immediately assuming that Eli had called him. He was told that it was not the case. The same scenario was repeated twice, then Eli said to the young boy: “It is God who is calling you.” When the voice was heard again, the young boy only said; “Speak O Lord, thy servant is listening.”
When Deacon Philip, on his way to Gaza, was told to join a pagan in his chariot, he obeyed, and brought a soul to God. This is the attitude adopted by all saints.
Modern man seems to find his inspiration in the witty opera of Pergolese, La Serva Padrona (The Bossy Servant). Instead of saying, “Speak O Lord, thy servant listens,” she says, “Listen, O Lord, thy servant commands.”
John tells us that at the end of times, the diabolical attacks will increase in intensity because the Evil One is running out of time. In spite of the darkness in which the world is now living, there is ground for rejoicing because the Lamb of God will triumph.
—–   Alice von Hildebrand is professor emerita of philosophy at Hunter College of the City University of New York and the renowned author of many books, including The Soul of a Lion (Ignatius, 2000) and The Privilege of Being a Woman (Veritas, 2002).

Taken from “Sacred Discrimination” at Inside Catholic

 

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