11. November 2008 by David A. Peterson.

Guess what I read over the summer… Barbarians at the Gate by Bryan Burrough and John Helyar. This book was written about 20 years ago and details the Wall Street and corporate greed of the 1980s. 

No sooner did I get ¾ of the way through the book - BAM the US housing market melts down and all fingers started pointing to… Wall Street and corporate greed, go figure.

This fall the government passed the Troubled Asset Relief Program or TARP. This $700,000,000,000 (as in $700 billion) Wall Street bailout program is supposed to be used to buy up of toxic mortgages. These mortgages were sold by the unregulated greedy bankers that got ungodly rich. Unfortunately the home owners that needed the loans were sold way too much house and thus had very large notes to pay.

To make matters a little worse besides allowing unqualified people the ability to buy very big expensive homes, the greedy little bankers went a step further and allowed the same loans for investment properties and 2^nd homes. I read an example of one of these buyers over the weekend. This poor women was to “give up to foreclosure” two of her homes. 

I really don’t blame the women in this case. Here she was setting up investment properties to rent. She is trying to live the American dream. I blame the greedy little bankers – I mean really, should you really lend money to a 25 year old to buy more than one house? Should some banker somewhere had stood up and said… “What happens if she can’t rent one of her houses?”

I’m past the point that greed was everywhere in this housing debacle. I often wondered over the past few years – who were buying all of these $500,000 homes in the Atlanta suburbs. I mean everybody can’t be a drug dealer – some of these people probably have regular jobs.

My concern now is that my own home’s value begins to stabilize. The stabilization is supposed to come from the TARP buying up the toxic mortgages. This makes a little sense - you already have a crap load of homes foreclosed and a whole bunch more about to be foreclosed on in the next 180 days.

If the TARP just did that it would probably bring some relief. Those unregulated greedy bankers could free up their balance sheets and begin to loan money to people who could actually be expected to pay back the loan – even in bad economic times. 

What I don’t want to see is the TARP used to “help” people who can’t afford their home in the good economic times by lowering the principle amount of the loan to a new amount. If you want to “help” them by assuming the interest on the loan while the house is being sold or the mortgage is being made whole, I would be okay with that.

Or for those people that have a real economic crisis going on like a health care crisis or the loss of their job – I would be okay with assuming the loan for a fixed period of time as a reverse mortgage where amount of money in the emergency loan is actually placed back on the principle of the mortgage.

What I don’t want to see with the TARP is principle forgiveness or interest rate adjustment. Here’s why.

Example: Let’s look at a $300,000 home where the principle is to be devalued by 20%.

From a macro economics point of view lowering the principle of the problem homes will just devalue an entire zip code. Thank you but please I don’t need any help devaluing my home. Using this devaluing method the only way you wouldn’t devalue all of the homes in that particular zip code is to go wink, wink and let the property appraisers say the devalued houses are still actually worth $300k. You can’t do that… the home owner will just borrow the equity.

From a micro economics point of view let’s look at one home that is devalued by 20%. The problem with all of these troubled notes is that the owners do not have any equity to borrow from – they have spent it paying their normal everyday bills. If you lower a mortgage by 20% you still don’t have any equity in the home. Note to all sane people out there I have a sneaky suspicion that the people who couldn’t afford a $3k/month mortgage will also have trouble paying for a $2.4k/month mortgage in these bad economic times. This is also true if you forgive a portion of the interest rate.

Again there are other ways to give temporary help to keep families in there homes like a reverse mortgage, or partial payments for a fixed time until the house is sold or the mortgage is made whole. These will help keep the value of your neighborhood and your zip code at the proper level.

We have to let the system penalize the bad behavior of the greedy corporate bankers. I mean if you were dumb enough to lend a 25 year old a lot of money to buy a couple of houses then I’m smart enough not to help you out.

One last point – the family that bought the foreclosed home next to me got it at a 20% discount. I bet just watching them that they have put at least 20% back into the home for improvements. Hmmm – the system can work if you let it.

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10. November 2008 by David A. Peterson.

If the Republican Party got anything really wrong in this past election cycle it was the message. Jut about every news cast that I have looked at and every article that I have read since John McCain wrapped up the Republican primary dealt with the message of the Republican Party?  The message was a mess!

Since the leaders of the GOP had such a tough time getting a coherent message out the Democratic Party did it for them. Who hasn’t heard this a thousand times this fall “John McCain will just continue George Bushes failed policies of the past 8 years.” I’m not quoting anyone specifically here since we all know that to a person every Democratic commentator, candidate, and probably even their children recited that message. What an awesome straight forward message. Weather you believe the Democratic message or not you at least knew what it was.

Here we are almost one full week since the 2008 election was held and what do I read in the editorial section of yesterdays Atlanta Journal – Constitution (November 9, 2008)? One of the GOP leaders John Boehner, the congressman from the 8^th district of Ohio is commenting on how the “GOP must recommit to its principles.” 

The problem with recommitting to the GOP principles is the message – how do those principles help people get a job? As an example Boehner says “while Republicans have put forward a plan for economic growth and job creation….,” What exactly was that jobs plan, lower taxes on businesses to stimulate growth? I would guess that 95% of Americans don’t understand how that helps them as individuals. Wouldn’t it be a better message to say “We need to lower employer federal payroll taxes on businesses so they can meet payrolls today and we can avoid additional layoffs?” 

Now President-elect Obama’s plan was clear from the beginning, give people a tax break so they could pay for necessities and stimulate jobs by feeding federal programs a finite amount of tax dollars. It doesn’t take a genius to figure out that you will need workers to expand the federal programs, be it building roads, fixing bridges, or even expanding the Federal Education Department.

Republican’s leaders like Boehner need to focus on WHY President-elect Obama’s plan is wrong for the United States, and why Republican plans are the correct path.  As an example expanding the government, like the Democrats want to do, by itself isn’t evil. Case in point – as the population of the United States increases you will certainly need more infrastructures and just about everything else.

If Republican’s want to criticize a Democratic program they need to be clearer about the pitfalls of government programs, they need to explain to their constituents why a plan is wrong. Here is a good example about job creation; there is only so much money in the tax coffers, President-elect Obama’s job creation programs will only be temporary. Once the “stimulus” has run its course, and the road is built or the bridge is fixed then the government cancels the remaining projects until funds can be raised. Everyone that was hired for the project has to find new jobs i.e. - layoffs. Now there is a message, “The Democratic party wants to hire you as a temp – just to fix one bridge in your town.”

Republicans need a clear message. Instead of attacking everything the other side is doing or listing everything that our side needs to do, how about concentrating on one issue at a time – like jobs. I don’t mean to pick on congressman Boehner, but that editorial he wrote is exactly why there are so few Republicans left standing this election cycle.

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