Category Archives: Uncategorized

Nation’s Angry Eyes Turns Toward Traders

Coming soon to a headline near you: Investors Fed Up with Wall Street Traders – Manipulators Will Be Hunted Down and “Dealt With”.

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Cox Sucker

Christopher Cox is too smart for our own good.

From his bio:

“In 1977, Chairman Cox simultaneously received an M.B.A. from Harvard Business School and a J.D. from Harvard Law School, where he was an Editor of the Harvard Law Review. He received a B.A. from the University of Southern California in 1973, graduating magna cum laude after pursuing an accelerated three-year course.”

Obviously he is so smart he can’t see what is right in front of his own face. And he is way too smart to protect anyone’s money. He’s been asleep at the wheel since he learned how to drive. I say run his ass out of Wall St. now.

Foreclosure Mop Up Operation

How are we going to absorb the excess housing inventory being thrown off by foreclosures and new home construction (spec homes)? And how are we going to get American buying homes again?

Is it going to be enough just to lower interest rates? Will that get people buying homes again — enough homes to actually absorb all of the excess inventory or at least enough to reduce for sale inventory down to about a 90 day supply? I doubt it. I say it’s going to take something more and I’m proposing what it will take to get things accomplished.

The Way to Mop Up Excess Housing

Here’s  what I propose.

Let’s take two main categories – First Time Buyers and Second Home Buyers.

Why these two categories? Because they are the only ones that count in the home buying business.

New household formations by the children of baby boomers are the driving force in housing demand in the U.S. As they graduate from college, get jobs, gain earning and spending power, many can soon afford to buy a home. Especially those who marry and become two earner households.

Second home buyers are the “heavy users” of residential real estate “products.” They are like housing addicts and we need them.

What About Foreclosed Owners?

Well, what about them? I say no matter what you do to keep the foreclosed owner in their home, very few will succeed. The problem is not with any particuluar owner for any particular home. The home does not care who owns it. What the home needs is an owner who is financially able to pay the mortgage and maintain the home – and that’s what our economy and our credit markets need. If by some miracle of god or fate or government the foreclosed owner can somehow suddenly afford their home, more power to them. But they will be few and far between. Foreclosed homes owned by the others should be sold to owners who can afford them. Which brings us back to the two main categories of owners – first time buyers and second home owners.

For first time buyers who purchase a foreclosed home, I propose something along the line of a 200% interest deduction for the first three years of ownership and then a phase down to 100% interest deduction over the next 3 years. You should have to be otherwise qualified to purchase with at least a 10% down payment. If you stay in the home, stay current in your mortgage payments and real estate taxes and do so for 5 years, you may sell the home without recapture of any deductions. However, if you sell before 5 years, then your deductions would be recaptured in the year of the sale.

For anyone who already owns a home, I propose something similar for those who can afford to purchase an additional home provided it is a foreclosed home and provided they purchase in 2009, a 200% interest deduction for 3 years. Then, in addition, if the home is a rental property and the annual rental income is equal to or greater than 90% of the mortgage payments, you should be able to claim accelerated depreciation based on say 15 years instead of 29 years. The excess deduction and accelerated depreciation should be recapture if you sell the home sooner than, say, 5 years.

I have no idea what the revenue impact on the government would be from these ideas.  I suspect it would be positive or at worst neutral. But quite frankly I don’t care. Tax revneues will take care of themselves when homes are owned by those who can afford them and the economy and credit markets return to some form of sanity.

We might also consider creating a new type of investment company that receives favorable treatment for investing in large numbers of foreclosed homes, say 100 or more, provided they put occupants in the homes.

There are many ways to solve this problem, but I don’t observe much discussion of anything except interest rates and bank bailouts. What are your ideas?

Either a lender or a borrower be.

Remember the old saying, “Neither a lender nor a borrower be”? Well, that’s what too many people are thinking right now, and unfortunately, they are wrong.

To get this economy moving, we all have to do our part. That means spending money even if you have to borrow it. But credit is tight and there are trillions of dollars sitting on the sidelines and even more in other currencies.

Well you can be a bench player if you want (if you’re a pussy) or you can be a man and get back in the game. There is no margin in stalling or dragging your feet.

The bottom line: If you have cash, you need to spend it or lend it. It’s your patriotic duty not just to your own country, but now to the world, in other words, to humanity itself. 

That goes for individuals, companies, banks, and governments.

How do you want to be remembered? As the miser who hoarded his gold until he died, or as the one who did his part to make the economy right?

You know what to do. So what are you waiting for?

Credit Markets – Where are the simulators?

We have stock market simulators. A Google search will turn up many. But where are the credit market simulators?

Dan Travers, Product Manager Adaptiv Analytics for SunGard Capital Markets & Investment Banking discusses the need for them in Toward Comprehensive simulation of Complex Credit structures  and advocates for affordable simulators to make them widely available. But this may be more focused on bank risk and derivatives.

And so is Misch’s great post, Monte Carlo Simulation of CDO’s.

What we actually need now, apparently, is a simulator of the entire world economy. Here’s one for the U.S. economy Microsimulation model of national economy – Dan Kozub

The web site for Nations and Firms in the Global Economy by Brakman, Garretson, van Marrewijk and van Witteloostuijn provides some excel spreadsheets that might come close.

 EconGuru has a link to Virtual Bank simulator for the relationship between banks and central banks and bank policies and their affect on the economy.

Maybe these guys at EconomySim will have one when they are finished.

And if the world is finite, this may tell the story.

Apparently there was a World Without Oil game in 2007. Do we need a World Without Credit game next?

The straight line on McCain.

Look I like McCain. I think he has displayed some very admirable personal qualities as a Senator.  But he has some weaknesses that must be factored in with a run for the White House.

McCain is wedded to the government like nobody I know. He is a third generation government employee. In fact, as far as I can tell, he has never worked a day in his life or ever received a paycheck from anyone other than the federal government. Both his father and grandfather were in the military. McCain attended the Naval Academy – a government college, then entered the Navy. When he came back from Vietnam, he took a job as a liaison between the Navy and the government. Then he ran for Congress and then the Senate.

Now he wants to be President. The man will go to his grave never having worked a day in his life for any private enterprise. 

So, his granddaddy was paid by the government, his daddy was paid by the government, he attended a government college, he has only ever been paid by the government and now the government is paying for his campaign financing. No wonder he picked as a running mate the governor of the only state in the country where every citizen is paid by the government every year! The odds of him changing government are slim. He is a creature of government!

Heroics

John McCain is a war hero. But why? Because his plane was shot down and he was tortured in a POW camp for 5 years. Ok, no argument on the facts. But let’s be clear on heroes in the Vietnam War. First of all, there are more likely more heroes among the Vietnamese in that war than among Americans. But among the American heroes surely the men and women who died in the war are the real heros and those who came back – in any shape – are far better off. This does not diminish the courage and bravery that McCain demonstrated nor the torture he endured. No one would wish that on anyone. But there is a limit to the  number of Brownie points McCain gets for coming back from Vietnam.