July 2, 2009

Capitalism's Dirty Little Secret

A good read: Debt is capitalism’s dirty little secret

Summary: Lightly-regulated capitalism pushes all the gains to a very few at the top.

"So why has there been no revolution? Because there was a solution: debt. If you couldn’t earn it, you could borrow it. Cheap financing was made widely available."

Well those days are over. All the benefits still flow to a very few at the top - sometimes without any masks over what is happening, as with the bailouts. But the rest of us no longer even get to borrow a lifestyle.

What comes next?

Posted by Dave Johnson at 11:51 AM | Comments (3) | Link Cosmos

July 1, 2009

Did Free Trade Cause The Recession?

For many years the world has suffered under a “free trade” regime that eliminates good paying jobs in every country, sending the work to countries that keep wages low and restrict workers' ability to organize for a better life. The profits went to an already-wealthy few and the inequities increased, wealth concentrating massively at the very top.

And now consumers around the world have run out of money. This is not a surprise.

Did these trade policies cause the recession?

Imagine a company in South Carolina that makes 20,000 pairs of shoes a week and distributes them to stores. Now, imagine that the company closes its South Carolina plant, opens a plant in a low-wage country, ships all the machines and raw materials there, ships back 20,000 pairs of shoes each week and distributes them to the same stores. Is that “trade?” Are the raw materials sent out of the country an “export?” Are the shoes brought back into the country an “import?”

The only thing that has been “traded” in this scenario is American jobs traded for huge executive bonuses. The workers in the low-wage country are not paid enough to buy any remaining American-made products. And, as the economic collapses as a result of shenanigans like this, American workers are no longer able to buy shoes so the executives won’t be getting bonuses next year.

I submit that nothing in this example is “traded” except that our standard of living has been traded away. And this exchange brings little benefit to the workers in the low-wage country. This is exploitative trade, not free trade, and we need to protect our workers, the workers in other countries and the world's economy by demanding that our trade partners provide living wages and benefits. We can enforce this demand by attaching import tariffs at a level that makes our own goods competitive. This removes the advantage gained by exploiting workers - and the revenue reduces our own tax burden to maintain our competitive infrastructure. It is an incentive to pay their workers enough so they can reciprocate and buy the things we make here. Instead of the race to the bottom that led to this recession such tariffs create an incentive to raise standards of living around the world.

We should have national policies that prevent exploitation of workers and the environment and that share prosperity. This is a choice between lifting each other up or continuing a spiral to the bottom.

Posted by Dave Johnson at 3:09 PM | Comments (0) | Link Cosmos

June 30, 2009

Who Is Our Economy FOR, Anyway?

The Seeing the Forest question: Who is our economy FOR, anyway?

If the government provides good, low-cost health care to citizens it reduces the profits of the big insurance and drug companies. This health care battle lays down a clear choice of who benefits: citizens or a wealthy few?

Republican Senator Snowe of Maine announces her choice. See Open Left:: The Problem With The Public Option Is That It Lowers The Cost Of Health Insurance,

In an Associated Press interview in Portland, Snowe said it would be unfair to include a government-run health insurance option that would take effect immediately.

"If you establish a public option at the forefront that goes head-to-head and competes with the private health insurance market ... the public option will have significant price advantages," she said.

Well, duh. That is the whole point. You can't lower the price of health insurance unless you start offering lower-priced health insurance. It's a tautology.

So, naturally, during the fight to lower the price of health insurance, so-called moderate Senators think that the problem with the public option is that it would... lower the price of health insurance. While it may be news to so-called moderate Senators, protecting the crappy products of large corporations is not their job description.

Yes, this health care battle is stripping some of the camouflage from the real fight: do the people benefit from our government, or do a wealthy few benefit?

Who is our economy for, anyway? I first asked that question here just about seven years ago, and it became the blog's tag line. I think the financial crisis and now this health care battle allow people to clearly see and understand which choice their Washington representatives make. And I think the way these twin crises are unfolding helps people to understanding the choice their own elected representatives make. I think will make a big difference come election time.

Posted by Dave Johnson at 11:10 AM | Comments (0) | Link Cosmos

June 18, 2009

Unemployment Number Dropped Because Benefits Ran Out

The "good" news in today's unemployment report was that the number of "continuing claims" dropped. The bad news is that the reason this number dropped because so many people's unemployment benefits are running out.

In the coming months you will hear more and more "good" news like this - and it will be sold as good news. But this number really means more and more people are getting into ever worse conditions because the economy is not providing jobs and the government is no longer helping. After all, regular people are not "too big to fail."

Mish's Global Economic Trend Analysis: Continuing Claims Drop First Time In 21 Weeks. Is This Worth Getting Excited Over?

. . . Government figures, in fact, show the proportion of recipients who used up their jobless benefits in May topped 49 percent, a monthly record.

[. . .] The drop in continuing claims means more home foreclosures and credit card defaults are coming because 49% of those who were receiving benefits now have no money coming in at all.

Yes,more people using up their unemployment benefits means more people who can't pay their mortgages, rent, car payments, credit card bills, or go shopping, etc. On top of this several states are running out of money and will start laying people off.

But the "recession" is over, right? I don't think so. I think we have to go through some hard times to break the "stock market always goes up" kind of thinking that is keeping people from finding real solutions to real problems.

Posted by Dave Johnson at 5:56 PM | Comments (1) | Link Cosmos

June 2, 2009

American Manufacturing

I am at the America's Future Now conference in DC (formerly Take Back America). I had a conversation today with people from the Alliance for American Manufacturing. This is an alliance of companies that make things in America, and the United steelworkers union. They have an interest in making things in America, and I'll likely be writing about this more and more.

The owner of a company that makes wind turbines for generating electricity talked about a wind farm his company is helping build. They need a special transformer -- and we don't make them in America anymore. So they have to go on a 52-week waiting list to get the transformer. This is just one example of the cost to us of giving away our manufacturing capabilities.

This loss of manufacturing capabilities comes from the increasing dominance of our economy by financial firms. They buy companies, strip things that have "costs," like pensions, and outsource what they can, then sell the company to the next financial firm.

More coming.

Posted by Dave Johnson at 1:20 PM | Comments (0) | Link Cosmos

May 29, 2009

Today's Housing Bubble Post - Recovery Myth

Go read James Boyce: The Recovery Myth: Caveat America and take a look at the chart.

While you're at it, look at this chart as well.

I think we need to go through a period of disappointment for the "always goes up" crowd before they realize that this isn't a pendulum swinging, a natural part of the cycle, a temporary setback, etc. We went through fundamental changes in the economy in the early 1980s, and since then household debt has been increasing, wages have been stagnant, and predatory capitalism has sucked the consumer dry. The consumer is tapped out and until the nature of our economic system changes, and the people start to benefit from their own work again, things can only get worse. Top-down economics doesn't work. Democracy is the only economics that works.

Posted by Dave Johnson at 8:58 AM | Comments (0) | Link Cosmos

May 14, 2009

Unemployment Stats

I'm wondering about the effect of contractors on the statistics. They have become a larger portion of the labor force in the recent decade. They are usually the first laid off. But contractors can't claim unemployment. If the stats are missing this, it affects the ability to forecast and leads to faulty decisions.

Posted by Dave Johnson at 10:58 PM | Comments (0) | Link Cosmos

May 9, 2009

Unemployment

Hey people, the government hired a bunch of people last month -- just about the same number as the "huge drop in the number of jobs lost."

The economy still isn't functioning -- the government is stepping in and helping.

And even with that losing over 500,000 jobs in a single month is a disaster. It just isn't as bad as all those months as have been losing over 600,000. That's all.

Posted by Dave Johnson at 12:30 PM | Comments (2) | Link Cosmos

May 4, 2009

Today's Housing Bubble Post - The Next Housing Bust

I came across this at the Wall Street Journal, of all places: The Next Housing Bust

The bill that passed last summer more than doubled the maximum loan amount that FHA can insure -- to $719,000 from $362,500 in high-priced markets. Congress evidently believes that a moderate-income buyer can afford a $700,000 house.

Go read

Posted by Dave Johnson at 11:31 AM | Comments (0) | Link Cosmos

May 2, 2009

Today's Housing Bubble Post - Back To Issuing Warnings

Oddly enough I find myself back in the position of warning that the housing market may be heading to a terrible crash in the near-future. The bubble mentality has not changed at all and appears to be restarting in the very places where the bubbles were the worst. This is probably because people got used to unaffordable prices and think that a drop from unaffordable to just really, really expensive is a buying opportunity. Meanwhile government and the real estate industry are trying to "reignite" the market -- hoping that starting another bubble will put off the reckoning.

People still think that what we are going through a temporary "correction" and that real estate prices are going to "go back up," that houses are "cheap" now, that they should "snap them up" before they are "priced out." They still think real estate is the path to wealth, instead of somewhat of a burden that should only be undertaken under certain circumstances. Namely, when you plan to live there for a long, long time, and you'll pay less (including closing costs, taxes, insurance, maintenance, possible price depreciation, etc.) than rent.

Here's what I am talking about. Combine this,

As of March 1, investors can now buy 10 homes (up from four) with Fannie Mae-backed mortgages. That’s also stimulating demand.

With this, Some of Us Still Think They Can Get Rich Quick from the Real Estate Bubble,

... the ad offered a mouthwatering menu of claims on "How to cash in on the biggest real estate liquidation sale in our entire United States history" and "how to maximize your profit with lucrative foreclosures."

And this:

Option ARM rates are going to be recasting soon and in increasing numbers. That's the magic moment when people can no longer make minimum payments, when they can longer make interest-only or neg-amortization payments.

When that magic moment comes, all of those people are going to look at how high their now unaffordable mortgage payments are. Then they'll look at how much their house is actually worth relative to how much though owe. Then, maybe, they'll try one of the various initiatives to modify their mortgage terms. And then, quite likely, they'll jut walk away. [. . .] as the chart tells us, hasn't even really started yet.

What that chart shows is that the foreclosure problem is about to get a lot worse. Two more huge waves of "resets" are coming. Many, many, many more homes are about to reach a point of unaffordability for a lot of their owners, one way or another those homes will also be for sale, on top of the huge inventory that already sits unsold, and this will drive prices down even further, which will trigger even more problems.

Here is what I am saying: As long as a house is considered an "investment" instead of a place to live for a long time we will continue to be in a world of hurt. Real estate does not always go up.

Here is why prices can't go up any time soon: There is a huge inventory of unsold houses. The houses that were built in the last decade are too big for regular people to be able to afford to heat and cool -- and energy prices are going up. The water for the lawns will cost more and more. The gas to get to the malls and any jobs that might exist (good luck) will cost more and more. The "boomers" are retiring and selling their houses. The median price in many areas is still way above affordability by a medium-income family. You won't get sufficient "positive cash flow" over your payments from the rent you'll receive if you are renting the house.

The psychology of this is just like the stock market bubble. Things won't get better until the bubble mentality of "it always goes up" is shaken out of people. Like I said the other day

In 1999/2000 I had a bunch of stock in a dot com. It made its way up to $35 a share. When it fell to $30 then $25 then $20 I held on because it had just been $35. When it hit $12 I thought it was really cheap but when it hit $.50 I thought that was too high. It landed at $.05 but then the company went out of business.

Think about the psychology of this. When it fell to $12 I thought it was cheap because of how high it had been but when it hit 50 cents a share I thought it was too expensive because I had left the past behind and I could finally see where it was GOING. And that is where it went.

Unemployment in my area is 11.2% and people are "snapping up" houses that are "cheap" at $580,000 because they were at $850,000 a year or two ago. But the median income here can't support that. It couldn't even support $350,000 before unemployment went up.

Here's the thing. After the stock market crash the Fed intentionally created the housing bubble to prop up the economy for a few more years. Now the consequences have arrived. If you are thinking of buying a house as an "investment" ask yourself who is going to buy it from you at a higher price, and how they are going to get that money. Will that housing demand come from a healthy job market in which people are getting raises?

Don't bet on it.

Posted by Dave Johnson at 2:35 PM | Comments (3) | Link Cosmos

April 19, 2009

America Was Created To Fight Corporate Power

Americans should all understand the reasons behind the formation of this country. We formed this country because a wealthy elite, called royalty, controlled the economy and set up legal monopoly operations for the benefit of their cronies, called corporations, and then set up the laws and tax structure to benefit those corporations and their owners at the expense of the rest of us.

We fought a revolution to change this. We set up a governement and economy that is supposed to be controlled by We, the People. Think about the meaning of that the next time you hear corporate-funded voices complain about "big government." They are complaining that the people make the decisions instead of the corporate elite -- once known as royalty.

PLEASE read The Real Boston Tea Party was Against the Wal-Mart of the 1770s

The real Boston Tea Party was a protest against huge corporate tax cuts for the British East India Company, the largest trans-national corporation then in existence. This corporate tax cut threatened to decimate small Colonial businesses by helping the BEIC pull a Wal-Mart against small entrepreneurial tea shops, and individuals began a revolt that kicked-off a series of events that ended in the creation of The United States of America.

They covered their faces, massed in the streets, and destroyed the property of a giant global corporation. Declaring an end to global trade run by the East India Company that was destroying local economies, this small, masked minority started a revolution with an act of rebellion later called the Boston Tea Party.

Later in the piece,

The citizens of the colonies were preparing to throw off one of the corporations that for almost 200 years had determined nearly every aspect of their lives through its economic and political power. They were planning to destroy the goods of the world’s largest multinational corporation, intimidate its employees, and face down the guns of the government that supported it.

A link to this was posted at Atrios' blog, by Avedon of The sideshow.

Posted by Dave Johnson at 7:51 AM | Comments (1) | Link Cosmos

April 17, 2009

Today's Housing Bubble Post -- A New Wave Of Foreclosures and Price Drops Coming

This is my prediction: there is a new wave of housing price drops and foreclosures coming as holdouts stop holding out. Only when reality intrudes on people's belief that owning a home is supposed to be an "investment" will things be able to start to stabilize. You are supposed to buy a house to live in.

The current "green shoots" euphoria will subside, and then people who have been holding out because "real estate always goes up" will stop holding out. Only then will expectations and behavior start to change in ways that begin to make a difference for the long term.

1) Unemployment is still rising, and rising fast. Unemployed people can't pay mortgages forever.

2) Houses still cost more to buy than to rent in most areas so it is still a bubble. House prices have not fallen to the level they were before the bubble, so it is still a bubble. And the average house price in most areas is still higher than the average-wage person can buy so this is still a bubble. Meanwhile there has been an increase in the number of houses (supply is up), while the boomers are starting to retire and want to sell their large house (demand is down). And unemployment is also reducing the demand side. The increase sales and price drops we are seeing is from people who are being forced to sell, not from people realizing house prices are too high.

3) Distressed people have been holding out since the recession started, but can't hold on forever and savings are running out. This includes renters so rents will have to start dropping as they run out of money for rent (feedback to #2 above) and some of the houses that aren't selling become rentals. Compare California to Michigan, and you'll understand what I am saying. Michigan stopped holding out a while back and rents and house prices have adjusted accordingly and are affordable. California still thinks things are temporary and will get back to "normal" and people are "snapping up" houses that are as "low" as $400,000 for a 3br/2ba.

4) I'm including everyone whose house is "under water" in #2, and this is an increasing number of people. Everyone thinks "housing will go back up" so they aren't walking away yet. But if it turns out that housing doesn't "always go up" they will stop holding out and go buy something based on what they can afford with no expectation that it will go up.

5) There is a HUGE inventory of houses being held off the market. Banks are holding houses off the market. People who would have sold are waiting to sell (holding out), and there are still just a record number of houses on the market now that haven't sold yet. This inventory is going to overwhelm any current increase in sales that is based on people believing we are "at a bottom." There just are many many more houses for sale or waiting to be sold than there are buyers. This is not a "crisis of confidence" where people just aren't buying because they are scared, it is a crisis of too many people not having money, just debt.

6) People buying now (those who aren't yet broke from buying real estate) will lose their shirts, too, because they are expecting that "this is a bottom" and it isn't.

What it comes down to is that expectations and behavior haven't changed yet. Real estate doesn't "always go up." Real estate is not the path to wealth, except as a bubble is developing. Real estate is not a sure thing otherwise. You would think that so many people being wiped out by thinking these things right in front of everyone's eyes would be a clue, but not yet. This is because the bubble developed over a long period, and people got used to real estate "always" going up. When people start to come down to earth and see reality and realize that owning a house can be a costly burden, then things will get to the point where stabilization is possible. As long as owning a house is seen as a path to riches things cannot stabilize.

A story:
In 1999/2000 I had a bunch of stock in a dot com. It made its way up to $35 a share. When it fell to $30 then $25 then $20 I held on because it had just been $35. When it hit $12 I thought it was really cheap but when it hit $.50 I thought that was too high. It landed at $.05 but then the company went out of business.

Think about the psychology of this. When it fell to $12 I thought it was cheap because of how high it had been but when it hit 50 cents a share I thought it was too expensive because I had left the past behind and I could finally see where it was GOING. And that is where it went.

Posted by Dave Johnson at 9:07 PM | Comments (0) | Link Cosmos

April 16, 2009

In The Real World

Have you heard this one? Powerful.

My daddy taught me that in this country everyone’s the same
You work hard for your dollar and you never pass the blame
When it don’t go your way
Now I see all these big shots whinin’ on my evening news
About how they’re losin’ billions and how it’s up to me and you
To come running to the rescue
Well pardon me if I don’t shed a tear ‘cause they’re selling make believe
And we don’t buy that here

Cause in the real world there shutting Detroit down
While the boss man takes his bonus pay and jets out of town/

And DC’s bailing out the bankers as the farmers auction ground,
Yeah while they’re living it up on Wall Street in that New York City town,
Here in the real world there shuttin’ Detroit down.
They’re shuttin’ Detroit down.”

Well that old man’s been workin’ in that plant most all of his life
Now his pension plan’s been cut in half and he can’t afford to die
And it’s a crying shame, ‘cause he ain’t the one to blame
When I look down and see his caloused hands,
Let me tell you friend it gets me fightin’ mad

Cause in the real world there shutting Detroit down
While the boss man takes his bonus pay and jets out of town/
And DC’s bailing out the bankers as the farmers auction ground,
Yeah while they’re living it up on Wall Street in that New York City town,
Here in the real world there shuttin’ Detroit down.
They’re shuttin’ Detroit down.”

Instrumental solo

Yeah while there’ living it up on Wall Street in that New York City town
Here in the real world there shuttin’ Detroit down
Here in the real world there shuttin’ Detroit down

In the real world they’re shuttin Detroit down, they’re shuttin’ Detroit down.

Posted by Dave Johnson at 9:06 PM | Comments (0) | Link Cosmos

April 7, 2009

Stocks vs Economy

All the stock market types are looking for signs and yelling "Yes! Yes!" and saying that we have "hit bottom" and this is a "buying opportunity." The same thing is happening with real estate types.

They still live in a world where the economy goes on in cycles, same as it ever was, and prices always go up. Actually that started for both stocks and real estate in the early 80s -- when the economy decoupled from the people. That's when things changed and everyone started running up debt -- people running up debt just to get by because wages had stopped rising, companies running up debt because "leverage" was the path to riches.

Meanwhile the economists are seeing the signs and running around yelling "OH MY GOD!" because they ahve never seen anything like this before, and it just keeps getting worse, and they don't see how we're going to get out.

How many times and how badly do people need to be burned before they learn a lesson?

It reminds me of something I saw some years ago. I used to commute "over the hill" from Santa Cruz to Silicon Valley. This was a winding highway over a mountain, with very steep curves. In the winter it would get very slippery and there were lots of bad accidents because people would go just too fast. I eventually learned to just drive the speed limit and relax, but others just wouldn't.

One day I was in the inevitable crawl due to an accident for maybe half an hour. Eventually coming to the accident there was a body just lying there, covered with a yellow plastic tarp. Two cars were completely smashed, obviously from driving too fast and losing control. There was only one lane open with police flagging us through, but it was moving slowly as everyone took a long look.

Within a quarter mile people were passing me at 80mph, swerving from the slipperyness, cutting people off. It's like the lesson right in front of them just had not been seen.

Posted by Dave Johnson at 9:15 AM | Comments (1) | Link Cosmos

April 3, 2009

Is The Economy Starting To Get Better?

All the financial types are saying that the recession is bottoming. They expect housing, car sales, consumption to pick up soon. So they're buying stocks, "snapping up" houses to rent out later...

All I can say is based on what? Someone tell me what is going to drive a recovery of the economy. The stimulus is going to help a lot for a little while, but there is nothing I can see for a very long time that is a reason to think real jobs will be created in this world. People can't put any more on their credit cards, they can't borrow any more on their houses of they still have one, and they certainly aren't going to be getitng a raise.

I think this current fit of economic optimism is just one more instance -- of so many -- of a lot of entitled people living in insulated, well-to-do bubbles (NY, DC), looking to each other for signs of what is going on because they don't have any contact with the people who are the economy. It's hard to understand what it is like trying to get by in America when you and everyone around you gets million-dollar bonuses.

This is how they missed the housing bubble. This is how they missed the debt bomb.

Eventually, if it really happens, massive investment in a green economy and a national health care system will start to pick things up again. But that is a loooong way off, and the powerholders of today are going to fight tooth and nail to block it. Exxon has a lot of money and influence. So do the big insurance companies. Maybe not as much as Wall Street but they're waiting their turn.

So, anyway, I'm not holding my breath that recovery is just around the corner. I don't see what will drive it.

Posted by Dave Johnson at 10:38 PM | Comments (5) | Link Cosmos

March 31, 2009

The Government's Financial Transparency Website

Take a look at FinancialStability.gov | U.S. Department of the Treasury

Posted by Dave Johnson at 8:04 PM | Comments (0) | Link Cosmos

March 30, 2009

Bank Execs Good, Auto Execs Baaad

In Bankers Will Say It Is Bankers the other day I tried to say that people see the world through a lens shaped by what they know.

Bankers will say the economic crisis is a banking problem. Bankers think banks are very, very important to the economy -- the most important component.

. . .Of course, a plumber would say that the problem with the economy is that all the pipes are clogged. Keeping the pipes working is the most important component of our economy.

And a historian will tell you that the problem is a return of the Great Depression. Not repeating the Great Depression is the most important thing to the economy.

Today at TPM: Why Does GM's CEO Get The Boot While Wall Street's Fly Free?

A manufacturing base is the foundation of a country's economy. During WWII the auto companies stopped making cars, and rapidly ramped up to make the planes and military vehicles that won the war. When Eisenhower became President he brought automobile executives into his cabinet and they brought in other executives to formulate and execute policies in their departments. And they did what auto executives know. They built the Interstate highway system, for example -- an investment that led to generations of return for all of us.

But Obama brought in bankers, and we're seeing the results.

Update - This post in no way is meant to praise the current crop of American auto execs who brought us SUVs and refused to develop hybrids and electrics. No way!

Posted by Dave Johnson at 10:43 AM | Comments (0) | Link Cosmos

March 29, 2009

What Happened To The Economy

Go read what happened. It's kind of long, but good and explains it pretty well. The Big Takeover : Rolling Stone

People are pissed off about this financial crisis, and about this bailout, but they're not pissed off enough. The reality is that the worldwide economic meltdown and the bailout that followed were together a kind of revolution, a coup d'etat. They cemented and formalized a political trend that has been snowballing for decades: the gradual takeover of the government by a small class of connected insiders, who used money to control elections, buy influence and systematically weaken financial regulations.

The crisis was the coup de grace: Given virtually free rein over the economy, these same insiders first wrecked the financial world, then cunningly granted themselves nearly unlimited emergency powers to clean up their own mess.

basically, after deregulation, the big investment banks couldn't find "enough unemployed meth dealers willing to buy million-dollar homes for no money down" tokeep the mortgage racket going.

And yes, what it comes down to is that all this means that housing prices still have a loooongggg way to fall. Every single house that sold for more than it should have, for all those years, to all those suckers, who took out all those mortgages -- they all have to go back where they should be. Bubbles unwind ALL the way down, every time, and you can't "reignite the housing market" or "stabilize" prices or anything else.

Go look at the trend line of house prices for the last hundred years, and that is where prices have to be -- where housing is relatively cheap, never more than 25-28% of your income (and that is the UPPER limit), and a mortgage plus taxes plus insurance plus maintenance is lower than rents by enough of a margin so that people can make money buying a house and then renting it out.

Posted by Dave Johnson at 2:40 PM | Comments (3) | Link Cosmos

March 22, 2009

This IS The Return To Normal.

Take a look at No Return to Normal - James K. Galbraith.

My thoughts -- this economic collapse IS the return to normal. We have been in a bubble since the early 80's. A reality bubble, too.

As I wrote below, Markets Can Recover Downward, Too. And that is what we are starting to go through.

No more using credit cards as if everything was free.

No more living like everyone is a millionaire.

No more buying things to use for a few days and throwing them away.

No more chewing up the planet and thinking you can get away with it forever.

Trust me, it's better for everyone to live within their means. It's better for the person, better for the country, better for the world.

Posted by Dave Johnson at 2:35 PM | Comments (0) | Link Cosmos

Hey Paul Krugman

Posted by Dave Johnson at 8:19 AM | Comments (1) | Link Cosmos

March 21, 2009

Let The Economy Die

LET IT DIE: Rushkoff on the economy

Using future tax dollars to give banks more money to lend out at interest is robbing from the poor to pay the rich to rob from the poor.

Oh go read it all.

Posted by Dave Johnson at 9:03 PM | Comments (0) | Link Cosmos

March 13, 2009

California's Budget: Republican Class War Against Working and Middle Class Families, Part II

California Budget Bites has a more detailed rundown of who is most impacted by the tax increases included in the recently passed California state budget... and guess what? The less money you make, the bigger the additional piece of flesh your state government now demands of you. In fact, the bottom fifth wind up paying twice as much of their income as the top 1%. Twice as much.

It is a crying shame that the Democratic Party permitted this farce of a budget to pass (the impact of which will weigh most heavily on those least able to deal with it), and even more of a crying shame that they permitted the tax increases to fall most heavily on those who could least afford it. Of course, the fact that the Republican Party is bound and determined to put the interests of the wealthiest Americans ahead of working and middle class folks (even at the cost of taking the state to the brink of insolvency) doesn't help.

We need budget reform (eliminating the archaic 2/3rds majority requirement to pass a budget), and we need authentic electoral reform (aka Instant Run-Off Voting and multi-member districts with Proportional Representation).

Posted by Thomas Leavitt at 1:11 AM | Comments (0) | Link Cosmos

March 12, 2009

More Work For Less Pay - In A Recession?

How many people are being asked to work more - for less pay? Does this make sense when we have so many people who aren't working?

Why is our economy structured like this? Who does it serve?

Posted by Dave Johnson at 10:48 AM | Comments (0) | Link Cosmos

March 8, 2009

What Is Going On With Banks

This radio show explains what is going on with the banks. It is a very good, regular-person explanation. But it will scare the crap out of you.

Also see Bankers Will Say It Is Bankers

Posted by Dave Johnson at 3:28 PM | Comments (0) | Link Cosmos

Is This Really Still The 2001 Recession?

Are we really just continuing the 2001 recession? Did it ever really end? Jobs didn't really pick up. They created the housing bubble to make it look like it was over, but...

Posted by Dave Johnson at 10:30 AM | Comments (0) | Link Cosmos

March 6, 2009

Corporate Tax Trickery

This post first appeared at Speak Out California.

Here we go again with the "corporate taxes are passed along to the consumer" lie. Instead of telling the public about harm to the public interest from budget cuts, teacher layoffs, privatizing public resources, police cutbacks, etc., instead we hear about how taxing the rich is a terrible thing.

What am I talking about? See The Tax Foundation - Tax Foundation TV, Radio Ads Show That Corporate Income Taxes Cost the Average American Household $3,190. They have a couple of ads their corporate funders are paying them to run.

And of course there is the usual scholarly proof that we should all give ever more money to the corporate rich,

"Research from the Congressional Budget Office shows that in a global economy where capital is highly mobile but workers can't easily move abroad, workers end up bearing the brunt of corporate taxes. In 2007, Economist William Randolph found that 70 percent of corporate tax burdens fall on employees through lower wages and productivity, while the remaining 30 percent fall on company shareholders."

Taxes are not a cost that can be "passed on to the customer." Taxes are calculated as a percentage of profits, after all costs are figured in. A well-run business charges the most it can get for its product or service. If the business has competitors it has to price its product or service in some relationship to competing products or services. Were a business to add to to prices to cover taxes this would increase the price above what had been determined to be the optimal price! If a company were able to raise prices to cover taxes the it would mean the company was previously negligent in not pricing as high as the market would bear.

And if the company was negligent, then increasing prices to cover taxes would increase profits, which would increase taxes, which would require an additional price increase, which would increase profits which would increase taxes. Etc. - you get the picture. It's a silly idea.

In the same way, a properly-run business has as many employees as it needs. When profitability caused them to apy taxes, it means they employed the correct number of people to realize that profit, and certainly are not going to lay someone off because they made a profit that was taxed.

But one step further on this. A corporation itself is neutral on taxes. After all, a corporation is just a bundle of contracts, and doesn't really have interests any more than a chair has interests. It is the owners who have interests and it is a good idea to think about any "passing on" involving corporate taxes is that it can lower the amount of money that is "passed on" to those people at the top of the economic ladder. Realizing this changes the way the brain understands the problem here. The fundamental question then becomes WHO is benefiting from our economy, and our legal infrastructure that creates and protects corporations. It really is about which people are getting the cash, and seen in this light, this idea of lowering or elimminating corporate taxes takes on a new meaning.

This ad plays on public misunderstanding of taxes - a misunderstanding previously created by the same crowd. (Similar to the idea that if you earn a penny over $250K all of your earnings are taxed at the higher rate.) So it is like a further step in a strategy of creating increasing ignorance, so that you can further harvest the public... (Why can't WE think in terms of multi-stage strategies, but to instead increase public understanding and appreciation of democracy?)

So, when will we start hearing about the harm caused to the public interest by reduced taxes on corporations and the rich causing us to lay off teachers, cut police and firefighters, defer infrastructure maintenance, etc.? When do we hear about how this hurts, instead of always about how taxes hurt the rich?
Click through to Speak Out California

Posted by Dave Johnson at 9:10 PM | Comments (2) | Link Cosmos

Bankers Will Say It Is Bankers

The people in charge of the economy are basically bankers. Not too many plumbers are involved in running the Federal Reserve or Treasury Department.

Bankers will say the economic crisis is a banking problem. Bankers think banks are very, very important to the economy -- the most important component. They say things like "Our economy runs on credit." And they say the way to fix this mess is to prop up the banks -- give them trillions and trillions of dollars until the economy is fixed.

And because bankers think bankers are so smart and important to the economy we can't fire them or put them in jail, or even ask for all that bonus money back.

So they are putting all the money in the world into the banks. For some reason it isn't working.

Of course, a plumber would say that the problem with the economy is that all the pipes are clogged. Keeping the pipes working is the most important component of our economy.

And a historian will tell you that the problem is a return of the Great Depression. Not repeating the Great Depression is the most important thing to the economy.

I'm a regular person. I think regular people are the most important component of the economy. I think the problem with the economy is that regular people stopped being able to share in the benefits of the economy. I think too many jobs were shipped overseas -- without the people getting those jobs being paid enough to participate in the economy themselves. I think that not providing health care caused too many bankruptcies. I think the people who still had jobs were asked to work harder and work longer hours and accept less, so that a few greedy executives could get more and more money. I think not providing sufficient vacations and day care and pensions and empowerment used everyone up. I think regular people used up their savings and then went into debt and then finally couldn't do it anymore.

I think we should fix THAT. I think our economy might work if regular people around the world received some of the benefits from that economy. I think that the economy might work better if people did not have to get into deeper and deeper debt just to get by. I think our government (which is us, isn't it?) should make sure businesses are engaging in honest and safe and sustainable practices, provide us with human rights like health care, and make sure everyone gets good wages, and sufficient vacations, and safe & empowering workplaces and some choices and some say in things. Then maybe people would be able to participate in that economy and it would start working again.

But I'm just a regular person. What do I know?

Posted by Dave Johnson at 8:28 AM | Comments (0) | Link Cosmos

California's Budget: Republican Class War Against Working and Middle Class Families

If you want an idea of what's wrong with the budget we've just passed here in California, then head on over to the California Budget Project's "Budget Bites" blog (where they post ongoing updates on various budget related issues). Here's a sample: What’s Wrong With This Picture?

In a nutshell, by changing the way the increase in the California income tax will be calculated, from a 5% "surtax" to a 0.25% increase, "this late night change dramatically shifted the impact of the personal income tax increase downward on to low- and middle-income taxpayers, in contrast to a previously considered proposal that would have had a flat impact across the income distribution." The accompanying graph on the posting illustrates this point quite starkly.

You can thank "moderate" Republican Abel Maldanado for the regressiveness of this tax increase (it was part of the price the Legislature's Democrats paid to persuade him to cast the last vote required to pass the budget in the state's upper house). I can't think of anything that better illustrates the Republicans' insistence on engaging in class war against working and middle-class folks than taking a "flat tax", and making it aggressively regressive (the less money you make, the more regressive it is)!

They also have entries that go into detail on the $1.5 billion dollar annual tax break given to multi-state/national corporations as a part of this deal, etc.

Posted by Thomas Leavitt at 2:33 AM | Comments (0) | TrackBack | Link Cosmos

March 5, 2009

A Long Way To Go Still

Stocks have fallen to where they were in 1996/7. Here is a chart that shows where stocks were in 1996/7.

Does anyone else see the problem?

Posted by Dave Johnson at 3:37 PM | Comments (1) | Link Cosmos

March 3, 2009

The Stock Market Is Not The Economy

Take a look at Progressive Breakfast: The Stock Market Is Not The Economy, quoting Dean Baker,

"The Washington Post told readers
that 'Stock Sell-Off Spurs Fears That Slump Will Worsen.' Among whom did it raise such fears? Anyone who bases their expectations for the economy on the stock market has no idea what the economy will do. As should be apparent at this point, the stock market can often be driven by irrational exuberance. Remember, it was almost three times as high in 2009 dollars back in 2000 as it is today. Did that make sense? Obviously if it can be driven by irrational exuberance it can also be driven by irrational pessimism. There is no obvious reason to believe that the market has suddenly become a better judge of the economy's prospects now than it had been in times past."

Let me add, everyone is starting to wake up from the propaganda, denial, cultism and fantasy-thinking that has been going on since about 1981. It is only starting to sink in just how much of a mess the conservatives have left us. As the denial wears off, and people start looking at what an honest corporate bottom line will look like, the stock market is going to head back to where it should be -- which is where it was before the 1980 election with improvements for productivity but not financialization and profits due to exploitation of the rest of us.

Bill Scher has been putting together a daily roundup of economic news for progressives. You might want to bookmark it.

Posted by Dave Johnson at 11:07 AM | Comments (0) | Link Cosmos

March 2, 2009

Bad Stock News -- Still Way High

Like the housing bubble, where house prices are still way, way above where they should be, the stock market is, too. In fact, the stock market has only fallen to where Greenspan famously warned it was too high due to "irrational exuberance."

Posted by Dave Johnson at 7:37 PM | Comments (0) | Link Cosmos

February 24, 2009

Who Is Our Government For?

This post originally appeared at Speak Out California

dday, writing in Giving Away The Tax Argument at Digby's Hullabaloo blog, asks why so many California newspapers have "tax increase calculators" but no calculators that show people how much the budget cuts affect them.

In my life, I have never seen a "spending cut calculator," where someone could plug in, say, how many school-age children they have, or how many roads they take to work, or how many police officers and firefighters serve their community, or what social services they or their families rely on, and discover how much they stand to lose in THAT equation. Tax calculators show bias toward the gated community screamers on the right who see their money being "taken away" for nothing. A spending cut calculator would actually show the impact to a much larger cross-section of society, putting far more people at risk than a below 1% hit to their bottom line.

[. . . The media already highlights the tax side of the equation over spending, dramatically portraying tax increases while relegating spending cuts to paragraph 27. It feeds the tax revolt and distorts the debate. And it's completely irresponsible.

In Why Are Public Assets Being Cut Right When We Need Them Most? Jay Walljasper, of OnTheCommons.org wonders why public transit, libraries and other things the government does for us are all being cut at exactly the time people need them? As the economy turns downward more people need to take the train or bus, or use the library. Jay makes the connection,

Minnesota governor Tim Pawlenty, one of the leading contenders for the Republican presidential nomination in 2012, proposes closing the state's budget gap by reducing corporate taxes and slashing state aid to local governments. This will mean painful cuts in public assets, such as transit and libraries.

. . . This loss of our public assets is an alarming threat to our society. The things we all own in common and depend upon--libraries, transit, parks, water systems, schools, public safety, infrastructure, cultural programs, social services--are being gradually but steadily undermined.

For many years I have been blogging at Seeing the Forest, often coming back to a question, "Who is our economy for?" For some time now regular incomes have stagnated, while incomes at the very top just go up and up. The GDP keeps rising, productivity keeps going up, but regular people see less and less of the benefit of this increase. In fact, if you look at charts and data, the stagnation of incomes started almost exactly at the same time as President Reagan took office and started implementing the corporate agenda of anti-tax and anti-government policies. So is this a coincidence?

Throughout human history we have seen one scheme after another wherein a few people seize power and devise a system to hold it and use it to enrich themselves at the expense of everyone else. This is human nature and through history we have seen it happen over and over.

America formed in reaction to the British monarchy's exploitation of its people. We, the People formed our government to band together and protect each other from attempts by the powerful few to exploit us. Our Constitution was supposed to be include a system of checks and balances to account for the nature of power.

It is time for the people to take back that power and use it to again benefit each other. And it is time for California's newspapers to do something for We, the People and include a "budget cuts calculator" as well as tax increase calculator. It is just as important, maybe more so, that we all understand how we're injuring and jeopardizing our future with the budget cuts the Republicans required in this year's budget negotiations.

Click through to Speak Out California

Posted by Dave Johnson at 10:31 AM | Comments (2) | Link Cosmos

Social Security and Taxes

Someone wrote to me the following. You have heard a thousand variations of the same thing:

"Starting in 2012, Social Security won’t take in enough to cover the benefits it is paying. So either we cut other federal programs to pay for Social Security, or we cut Social Security benefits."

Actually, the shortfall in 2012 has nothing to do with paying back Social Security in particular. Reagan and then Bush used the Social Security surplus to give huge tax cuts to the rich (further concentrating wealth at the top.) The government owes Social Security a lot of money, but -- and this is the thing -- it also owes all the other bond holders.

Social Security might need to start cashing in some of its bonds in 2012 or so.

Other bond holders need to cash in their bonds at other times. We never ask other bondholders to accept less when they ask for their money for their bonds. That would be called "defaulting."

So why does this bondholder, Social Security, get special treatment in our thinking? Why do we think that people who get Social Security should get less?

The answer to this and a lot of other problems is to raise taxes on the wealthiest. History shows that our economy does better when there is a VERY high tax rate on the very top incomes. It used to be 93% on money made after you hit a few hundred thousand. And that money was used to build infrastructure, educate kids, and all the things that made this a country that could compete. That is part of what got us out of the depression.

Let me add that a very high tax rate at the top removes the incentive to go for quick-buck schemes, and makes business owners plan for the long term.

Think of it this way -- if we had a 90% top tax rate hedge fund managers would only bring home a hundred million or so a year, but the rest of us would have health insurance and good roads and better schools.

Posted by Dave Johnson at 8:10 AM | Comments (1) | Link Cosmos

February 20, 2009

Today's Economic Crisis Post -- What Do We Need More Of?

Calculated Risk: Overcapacity Everywhere quotes Mish Shedlock of MISH'S Global Economic Trend Analysis,

Some analysts say over-capacity is so rampant that it will stymie government efforts to unfreeze credit markets. Banks have little reason to lend not only because they still have bad debt on their books but also because businesses don't have a pressing need to expand, said Mike Shedlock, an investment analyst with Seattle-based Sitka Pacific who writes the popular blog Mish's Global Economic Trend Analysis.

"What is it that we need more of?" Shedlock said. "Do we need more Wal-Marts, more Pizza Huts, more nail salons?" [emphasis added]

Posted by Dave Johnson at 7:19 PM | Comments (1) | Link Cosmos

The Crisis Explained

In Chocolate Covered Cotton Billmon explains the extent of the financial crisis. Yikes.

Bottom line: great big chunks of Big Shitpile aren’t "impaired," or "illiquid," or "distressed," they’re worthless, now and forever – unless the peak real estate values of the bubble can miraculously be restored and a whole bunch of deceased LBOs can be raised from the tomb.

So what about the proposed solutions?

One of the things that creeps me out about the political system's response to the crisis so far --€“ the insolvency of the banking system in particular --€“ are the increasingly desperate attempts to maintain a phony façade of free markets and private enterprise, in an economy now utterly dependent on the federal safety net. I totally expected that from Hank Paulson and the Cheney Administration, but is Obama's financial team really pressed from exactly the same Wall Street mold?

LOTS to read there. Especially read the end and follow the link.

Posted by Dave Johnson at 7:43 AM | Comments (3) | Link Cosmos

February 16, 2009

5 Million New Jobs Instantly

Dean Baker explains how to put 5 million people into jobs right away, in

Quick, What's Wrong With a Tax Cut that Shortens Work Hours?For example, if employers of 50 million workers cut hours by 10 percent, and then seek to replace the lost hours with additional workers, they would need to hire 5 million workers. If they got a $2,500 credit per worker, this would cost the government $125 billion a year.

There seem many benefits to going this route, and no obvious disadvantages. First, it can be put into place immediately. The day Congress passes the legislation employers can begin adjusting work schedules to benefit from the tax cut. In other words, this proposal is as shovel ready as it gets.

Please read the whole piece -- it is for real.

Posted by Dave Johnson at 8:36 AM | Comments (0) | Link Cosmos

February 13, 2009

Stimulus Passed

It passed the Senate. Who else would spend a Friday evening watching C-SPAN 2?

So you don't have to.

Posted by Dave Johnson at 7:56 PM | Comments (1) | Link Cosmos

February 12, 2009

Stimulus Bill Summary

While the corporate media writes about "who wins" without writing a word about matters that people care about, Chris Bowers put together a readable summary of what is in the package. Open Left:: A Readable Summary of the Stimulus / Jobs Bill

Posted by Dave Johnson at 11:52 AM | Comments (2) | Link Cosmos

February 11, 2009

First Details of Stimulus Deal

It looks like they gave up on helping the economy, to give tax breaks to people who don't need it.

Agreement in Congress Appears Near on Stimulus - NYTimes.com,

. . . sharply curtailed health care subsidies for the unemployed . . . But the final bill retained a $70 billion tax cut that would spare millions of middle-class Americans from paying the alternative minimum tax in 2009, which some Democrats decried as wasting a large chunk of the bill on something that would do little to lift the economy and that Congress would have approved regardless of the recession.

[. . .] “I am not happy with it,” said Senator Tom Harkin, Democrat of Iowa. “You are not looking at a happy camper. I mean, they took a lot of stuff out of education. They took it out of health, school construction and they put it more into tax issues.”

Mr. Harkin said he was particularly frustrated by the money being spent on fixing the alternative minimum tax. “It’s about 9 percent of the whole bill,” he said, “which we were going to do later this year in a tax bill. Why is it in there? It has nothing to do with stimulus. It has nothing to do with recovery. This makes no sense whatsoever.”

Posted by Dave Johnson at 12:48 PM | Comments (1) | Link Cosmos

Understanding The Bailout Problem

Here is what the world is going to have to face: the banks are insolvent. Thyey are going to have to be nationalized. This is what we have always done with banks that are insolvent. They just want to avoid it this time because of the word "nationalize."

Here is what is going on. They have these "toxic assets." These assets are currently on their books at the prices they paid for them. If these assets are "marked to market" -- put on the books at their real, current value -- the banks have to show that they are insolvent. They will have to declare bankruptcy. So everything you are hearing about, all the bailouts, FED loans, "open windows" etc are all schemes to try to avoid having the government step in and take over the banks, reorganize them, and put them back out there with new owners. And they all involve giving them billions, even trillions of dollars. This is what the bloggers are referring to as "lighting a big pile of money on fire" or "burying money in a hole." That money just goes away, unless somehow magically the bad assets suddenly become worth something.

WHAT "INSOLVENT" MEANS,

The banks bought the bad assets at high prices. They need to sell them at low prices. But this banker is arguing that they are too financially stressed to absorb the losses that would entail. Conversely, so long as they don't sell the assets, they can pretend they haven't lost any money on them, as they can pretend that they will rebound to a better price once the mania is over. The other way of putting this is that much of the banking sector is already insolvent, it's just not prepared to admit it.

Posted by Dave Johnson at 8:44 AM | Comments (1) | Link Cosmos

February 10, 2009

Do You Think One Leads To The Other?

Remember a few years ago everyone was complaining about having to work harder and longer hours for less money? Meanwhile a very few at the top were getting vastly richer, corporations were reporting ever-increasing record profits?

And now we have a collapse of the economy. I wonder if this is related to the situation described in the preceding paragraph?

So how come the solution to the economic crisis is to give ever more money to Wall Street and banks?

THIS is why the stimulus package is so important. It provides things that regular people need -- at least it did before the Republicans got their hands on it.

I think an important but missing component of a stimulus is to raise taxes on high incomes. I'm serious -- look at history, the economy always has done better when high incomes were heavily taxed. It's just the historical record, go look it up.

There are a lot of reasons for this. One is that high taxes at the top redistributes the money and more people having more money is good in a consumer-based economy. But another reason is that the incentive to harvest the people for the benefit of the few goes away when you have very high taxes at the top. It makes you think long term. You build a fortune by earning it over time instead of coming up with quick-money schemes.

Posted by Dave Johnson at 8:18 AM | Comments (3) | Link Cosmos

February 7, 2009

Krugman: Senate Compromise Cuts Most Needed Parts Of Plan

What the centrists have wrought - Paul Krugman Blog,

Now the centrists have shaved off $86 billion in spending — much of it among the most effective and most needed parts of the plan. In particular, aid to state governments, which are in desperate straits, is both fast — because it prevents spending cuts rather than having to start up new projects — and effective, because it would in fact be spent; plus state and local governments are cutting back on essentials, so the social value of this spending would be high. But in the name of mighty centrism, $40 billion of that aid has been cut out.

I wonder if it is worse to pass a plan that fails than to pass no plan at all?

Posted by Dave Johnson at 2:48 PM | Comments (3) | Link Cosmos

Senate Compromise Costs 1.25 Million Jobs

Go read Firedoglake » Senate 'Moderates;€ Cut 1 1/4 Million Jobs from Stimulus Bill,

Using the CBO ratio of one job per $140,000 GDP, that means that "compromising" Senators managed to cut 1,271,000 jobs from the Senate stimulus package. In other words, the Gang of Four would lose even more jobs than the country has lost in the last two months, two of the highest job loss months on record.

Posted by Dave Johnson at 2:43 PM | Comments (0) | Link Cosmos

February 6, 2009

The Senate Stimulus Deal and Republican Priorities

To get a few Republican votes to stop a filibuster and actually pass a bill to save the economy, here is what has changed:

Latest Cuts To The Stim Package: Head Start, Child Nutrition, Food Stamps Public Transit | The Plum Line,

REMOVED money for:

Head Start
Education for the Disadvantaged
School improvement
Child Nutrition
Firefighters
Transportation Security Administration
Coast Guard
Prisons
Police
Violence Against Women
NASA
National Science Foundation
Western Area Power Administration
CDC
Food Stamps

REDUCED money for:

Public Transit $3.4 billion
School Construction $60 billion

INCREASED money for:

Defense operations and procurement
STAG Grants
Brownfields
Additional transportation funding

Also, reduced tax cuts for lower incomes.

Posted by Dave Johnson at 8:50 PM | Comments (0) | Link Cosmos

February 4, 2009

Today's Housing Bubble Post - Not Gonna Happen

There is all this talk about "reigniting the housing market." This is a joke.

Let me tell you what will make housing demand go up.

One: Everyone who lost a job or now works part-time since 2001 gets a well-paying job.
Two: Every group whose income has been flat since Reagan took office gets a raise to match the raises CEOs got.
Three: Bring the price of houses back to earth. Where I live you need an income of $10,000 A MONTH to qualify for the lowest-priced house on the market -- AFTER 20% down.

See Why housing is stimulative, and politically smart,

"Unless the stimulus bill includes some fix for housing demand, it just won't be successful," says Gear, whose coalition includes homeowner and community groups and home builders.

Oh, that reminds me, Four: Make everyone forget that housing prices actually CAN go down.

After taking ALL these steps, including dropping housing prices back to where they should be, then you might see housing prices stop dropping. Any ideas that you can "fix housing" in the stimulus package are fantasy.

Posted by Dave Johnson at 6:05 PM | Comments (0) | Link Cosmos

February 3, 2009

My BBC Radio Hour Discussing Protectionism

"I'm not against globalization. I imported my wife from Bromley, Kent."

I was on BBC's "World Have Your Say" show today for an hour, taking the side favoring protectionism. You can download this segment in MP3 format here by visiting BBC - Radio - Podcasts - World Have Your Say, or just click the link below.

WHYS: 03 Feb: What's wrong with protectionism?

As the U.S Senate votes on a measure to "buy American" and when everyone is worried about their jobs and livelihood, why shouldn't each country look after their own ?

Duration: 52mins | File Size: 24MB

Download Episode

The show really starts about 3 minutes in. I'm on for the entire hour, but am introduced only as "Dave from California." I introduce myself and give out the blog URL later in the program.

Previously, with some links.

Posted by Dave Johnson at 2:16 PM | Comments (0) | Link Cosmos

On BBC in 15 Min

I am going to be on BBC's BBC World Have Your Say radio program in 15 minutes. There is a 'Listen Live' button there.

I am arguing in favor of protectionism -- protecting our workers' wages and living standards from being undercut by low-cost goods made in non-democratic countries that exploit workers and the environment.

This is based on my posts Bring Back Protectionism and Protectionism Means Protecting Ourselves.

Gotta run...

Posted by Dave Johnson at 9:46 AM | Comments (1) | Link Cosmos

February 1, 2009

After Stimulus -- Then What?

Suppose the stimulus passes. In fact, imagine that triple or quadruple the stimulus passes. Fine. Then what?

What happens after the stimulus? Isn't the stimulus just the next bubble -- the next last gasp attempt to put off the reckoning? Isn't it just borrowing another trillion or two to try to prop up an economic system that over and over again demonstrates that it just doesn't work?

Of course we want to do this and do it right -- infrastructure investment instead of squandering on tax cuts or military. People need to have jobs, so they can eat. And investment has a longer-term payoff.

But to what end? Suppose the stimulus magically enables things to get back to where they were. My favorite term from TV was that it is hoped it will "reignite the housing market." Heh. So if the stimulus "works" do we continue to chew up the planet, cut all the trees, remove all the mountaintops, create vast landfills of tossed junk, and all work as near slaves to make a few vastly richer?

Posted by Dave Johnson at 10:37 AM | Comments (1) | Link Cosmos

January 31, 2009

Bank Bailouts - Ultimate Supply-Side Thinking

Dean Baker: Do "Officials" Have Names? Post Conceals Obama Administration Effort to Hand Tax Dollars to Bankrupt Banks,

If their toxic assets have really frozen lending, although not actually jeopardized their solvency, then the shareholders would have a great lawsuit against any bank executive who refused to act in the interest of the shareholders in order to preserve their own high pay. Such instances would presumably be rare, but could nonetheless provide a great source of free entertainment to a nation suffering through a severe downturn.

In short, there is good reason to believe that the Obama administration is trying to slip hundreds of billions of dollars to bank shareholders and their top management.

My comment on the bank bailouts: The bailouts seem to be the ultimate result of supply-side thinking. The thinking seems to be that since people and businesses are tapped out from so much borrowing and no longer credit-worthy enough to risk loaning money to we should give literally all the rest of the country's money to those at the top of the finance food chain, and maybe they'll make loans again anyway, and get the bad-loan-making system rolling again.

They say that people who want to buy cars can't get loans. Well a credit-worthy buyer CAN get a loan. -I'LL- give a credit-worthy buyer a loan because then I can get a much higher return than I can get anywhere else. As long as I am sure I'll be paid back.

They say people can't buy houses. Well in the SF Bay Area the lowest-priced two-bedroom, one bath house (bad meighborhood, bars on the windows) requires an income of $10K/month to get a mortgage, now that they're again requiring no more than 28% of income be spent on housing. Is the government's idea that giving bad banks literally all the rest of our money will get them to give loans to people to take on mortgages at 50% of their income again?

And what about the GOOD banks, the ones that carefully managed their loan portfolios and didn't get into trouble? Why doesn't the government give cash to them, to help them give more good loans?

Posted by Dave Johnson at 2:41 PM | Comments (0) | Link Cosmos

January 29, 2009

Why Obama Will Fail

Obama's economic team does not see themselves as working for the PEOPLE of the country, they see themselves as defenders of the Wall Street Elite. In the words of the new Treasury Secretary, "we’d like to do our best to preserve that system."

This is the justification for the new plan to just use government money to buy up all the bad loans made by the big Wall Street firms. They screwed up the economy. WE pay for it. They stay rich. We get ever poorer.

From the referenced post,

Consider this statement from Geithner, who said that Treasury is considering a “range of options” for its financial rescue plan, with the goal of preserving the private banking system. “We have a financial system that is run by private shareholders, managed by private institutions, and we’d like to do our best to preserve that system.”

They are trying to avoid "nationallizing" the banks. But what that means is that the government takes them over, reorganizes them, and then privatizes them again -- in the process wiping out the current shareholders and selling the good parts to new shareholders.

This is what we have always done with bad banks. This is what the FDIC does. This is what we did in the S&L crisis. But they don't want to do that this time.

What they are doing instead is using taxpayer dollars to prop up the current shareholders. The ones who currently own insolvent banks will receive an infusion of taxpayer dollars.

But not the people who are losing their homes, jobs, health care. God forbid THEY should get something. All they did was pay their taxes. Unlike the current Treasury Secretary.

Posted by Dave Johnson at 9:33 AM | Comments (1) | Link Cosmos

Our Businesses Thrive On The Infrastructure We Built

This post originally appeared at Speak Out California

The key to California's successful business environment are education and infrastructure. It is not an accident that our semiconductor and computer and Internet industries, and biotechnology and pharmaceutical and genetic engineering and our other world-class competitive industries developed in California instead of in "low tax" states like Mississippi and Alabama. These industries thrived here because of our well-educated people and our modern, well-maintained infrastructure.

There has been a dramatic wealth-building return on our investment in education and infrastructure. Investors could count on California as a good place to start and grow a business, and it has paid off.

But how much would it cost if businesses had to pay fair market value for use of the infrastructure that We, the People built? What would it cost if companies had to pay the full education cost every time they hire someone who was educated at a California public school or state college or university?

What would it cost if companies had to pay to be provided with police and fire protection? Should companies pay a fee to have the police investigate, catch the perpetrators, and then put them through the criminal justice system?

What would it cost if companies had to pay fair value to use our roads and air- and seaports.

What would it cost if companies had to pay for access to the legal system that We, the People set up. We passed the laws and paid for the courts. We set up the entire legal structure.

We, the People pay to regulate (and apparently bail out) the banking and financial system. What would it cost if businesses had to pay us for setting up this system that (used to) keeps our money sound?

This is what government and taxes are for. We, the People built up California's comprehensive physical, legal, cultural, education and societal infrastructure. Businesses rely on that infrastructure, and we want them to thrive. This benefits us all. Many, many people became wealthy by betting on California as a great place to do business, and we are proud of that. Now it is tome to give something back.

Building and maintaining that infrastructure does cost money, and that is where taxes come in. For several years California has been cutting taxes and cutting back on our investment in education and infrastructure. Businesses cannot continue to thrive as they have if we continue along this path. We have reached a point where the tax-cutting has brought our state's education spending to the second-lowest per-pupil of all the states! We have been and are deferring maintenance on roads and other infrastructure. We are cutting back on all essential services and we still have a $40 billion budget shortfall!

Our companies are getting a good deal. If we charged fees that were based on the actual value of the service that the infrastructure provides businesses would have to pay much, much more than any level of increased taxes companies and wealthy individuals might be asked to pay to help California meet the budget shortfall. The businesses and individuals who thrived because of the infrastructure we built need to contribute to the future by agreeing to pay taxes to help invest in rebuilding that infrastructure.

The payoff is clear. As I wrote above, there is a reason that Silicon Valley and genetic engineering and other wealth-creating industries developed in states like California and Massachusetts instead of "low tax" states like Mississippi and Alabama.

Click through to Speak Out California.

Posted by Dave Johnson at 9:04 AM | Comments (0) | Link Cosmos

January 28, 2009

Not One Republican Voted For Stimulus

The stimulus bill passed the House but not one Republican voted for it.

Repeat: every single Republican voted against the stimulus bill.

The Democrats pre-compromised on the bill, added business tax cuts that won't stimulate the economy, threw out lots of infrastructure projects, mass transit and others, threw birth control for poor women out, got rid of health efforts to fight STDs, and lots of other nonsense, trading all of that for NOTHING.

They threw good stuff out of the bill without first securing one single Republican vote. Shame on them.

Update - I'm angry and I am going to rant. (It's what I do best.) So who were they were negotiating WITH when they threw out infrastructure, mass transit, birth control for poor women and other important things? It's like someone was just reacting to Drudge Report headlines. When I have been in negotiations I would say, "OK, I can give you that, but if I do, then what do I get in return?" You start with a bill that has in it more than you want or expect to get. Then you throw things out in exchange for a promise to vote for it. Otherwise what is the point of making the bill worse?

Posted by Dave Johnson at 4:07 PM | Comments (0) | Link Cosmos

Shorten Workweek To Reduce Unemployment

Pass the stimulus - then help shorten the work week,

One innovative policy that would provide a quick boost to the economy and jobs - and lasting gains in reduced unemployment - is a tax incentive for shorter workweeks or work years.

Who is our economy FOR? Why should high unemployment mean those still working have to work harder with longer hours?

Posted by Dave Johnson at 9:47 AM | Comments (0) | Link Cosmos

January 27, 2009

The Stimulus Bill - Giving To Republicans

I'm curious to know which Republicans, specifically, said they will vote for the bill with more tax cuts added -- like the ones they took out mass transit money for. I'd also like to know which Republicans, specifically, are now promising to vote for the bill with family planning funds removed.

The Republicans say they are being left out of the negotiations -- yet more and more real stimulus is disappearing, and more and more useless Republican-style gimmicks are being added.

Who are they negotiating with, that they are giving more and more away to? If it is buying votes they need, that's OK I guess. If it isn't, I'd like to know more about this interesting strategy.

Or, on the other hand, if Republicans say they aren't going to vote for the bill, will they put mass transit and family planning back in?

Posted by Dave Johnson at 12:16 PM | Comments (2) | Link Cosmos

Double Bubble. Double Trouble.

Last August, we wrote about the double bubble in the housing market: a more traditional bubble, then over-inflated by a massive asset bubble that drove prices up and up and up. The bigger the bubble, the bigger the pop.

In that post we wrote,

In every modern recession, the fall in housing prices follows the economy slowing down. What we have yet to see is the falling economy's effect on housing prices. So if you think prices have already dropped, and might even be reaching a bottom, we think it's the other way around: prices are about to start dropping.

And so here we are. Yesterday's news of a mind-boggling 50,000+ jobs lost in a single day brings us now to the start of this second bubble popping. Because for all of economic talk about housing markets and prices and fancy new mortgages that were created, at its economic base, housing prices are just about the simplest thing in the world.

When people make more money, or more people move into a market, housing prices slowly go up. When people make less money, or people move out of a market, housing prices slowly go down.

The housing bubble popped, leading to recession, and the recession is now going to lead to a further decline in housing prices. Where will that lead?

The problem at the root of the housing asset bubble is that over the last few decades -- since Reagan and the Republican free-market supply-side, trickle-down policies took over -- Americans have not been earning more, they've just been able to buy more thanks to a litany of mortgage and other debt-raising products that compensate for the lack of earnings.

People used to be required to put 20% down before they could buy a house. How many people do you know, honestly, that have 20% to put down on a house now? How many do you know that actually have 20% equity accrued in the house they already own? We're betting not many.

That 20% down payment requirement kept housing prices in check. But that became a 15% requirement, then 10%, then 5% then a negative 10% requirement, where you could actually get a mortgage for 110% of the value of your house. Well, they helped inflate the bubble.

On top of that, loan standards used to require that people spend no more than 25-28% of their income on housing expenses. This also kept prices in check. This was also set aside, and "liar loans" further inflated the bubble. Now that all has to be undone.

Last August, real estate experts were claiming that 2009 was to be the bottom of the market, and housing prices were going to head back up. Just like they claimed that 2008 was going to be the bottom and that 2007 was when the market would turn.

Sadly, the chances of real estate prices turning back up, in real dollar terms, has vanished for the next decade at least. There are two coherent facts behind this.

First, the size of the bubble means that someone who bought a house for $500,000 in 2005 is already 20-25% down in the price of the house. Factor in inflation, and it's closer to 35 - 40% down right now, four years later. Of the millions of Americans who will lose their jobs this year, many will be unable to cover their mortgages. And foreclosures, short sales, sales right before the short sales, these will continue to increase, driving prices down even further. This all means there is little demand for high-priced houses.

Second, the bubble caused a building boom, and along with all the foreclosures there is now a huge supply of houses and condos waiting to be sold. And only then will the "shadow" market of people waiting on the sidelines for a better market in which to sell their houses kick in.

Only after all of these factors are cleared will market conditions even start to return to normal.

By 2010, perhaps 2011, perhaps we will see signs of a bottom of the real estate market, with prices having returned to their historical norms at a level that many suggest is 30-35% below where they are today.

For many, this will be personal financially troubling, even disastrous. From an economic point of view, it is the fundamental principal of supply, demand, and income proving to be true again, and a return to economic reality.

What can be done about it? The root cause of this and many other problems in our economy is the stagnation of incomes that began when Reagan was elected. Republican policies brought a massive concentration of wealth at the top with a select few reaping all of the benefits of our economic system. But this double-bubble collapsing-economy problem is costing their wealth as well. Trickle-down doesn't, and when the rest of us are tapped out by misguided policies like these it spells disaster for everyone.

Posted by Dave and James at 11:55 AM | Comments (2) | Link Cosmos

January 26, 2009

Today's Layoff News

Just today:
Caterpillar to slash 20,000 jobs as profit falls

GM to lay off 2,000 workers, cut production

Sprint to eliminate 8,000 jobs

Home Depot cutting 7,000 jobs

Allbritton Communication Announces Massive Job Cuts

Deere to lay off nearly 700 workers

Harley-Davidson plans 425 local job cuts

Thermadyne laying off 110
Pfizer-Wyeth merger to mean job cuts: "...announced a cost-cutting initiative that will include the elimination of more than 8,000 jobs. "

That was TODAY. Actually, it's early yet.

And just the other day: Microsoft plans 5,000 job cuts

Starbucks to Lay Off 1,000

Posted by Dave Johnson at 9:12 AM | Comments (0) | Link Cosmos

January 25, 2009

Tax Cuts - Already Tried and Failed

At Economists View, The 2003 "Jobs and Growth" Plan (Tax Cuts) Didn't Work, Mark Thoma looks at Tax cut approach has already been tried and failed as stimulus by Lawrence Mishel at the Economic Policy Institute,

[. . .] Even worse were the Bush tax cuts of 2003, which the administration claimed would generate 1.4 million jobs on top of the 4.1 million jobs that were expected to be generated over the eighteen months following June 2003.
See: http://www.jobwatch.org/creating/bkg/cea_on_bush_tax_cuts_20030204_macro_effects.pdf

EPI tracked the initiative’s effectiveness through a website, www.jobwatch.org, and found that it fell far short of its goals. Not only did the promised 1.4 million additional jobs not appear, but the 4.1 million jobs expected with no action also failed to materialize. In all, only 2.4 million jobs were created—1.7 million short of the administration’s projection without their new policy. Thus, by the Bush administration’s own metrics the tax cut program fell short by a total of 3.1 million jobs (149,000 pr month).

Thoma writes,

They already screwed this up once, the initial tax cut stimulus package put into place last spring was too small and poorly targeted, it had all sorts of problems all in the name of appeasing this same group - and here they are trying to muck up the process once again, to hold jobs hostage while they try to get tax cuts in place, even though something like 40% of the package is already devoted to tax cuts. Camel, tent, nose.

Posted by Dave Johnson at 7:45 PM | Comments (0) | Link Cosmos

January 23, 2009

One Of The Ways FDR Saved Us

Republicans are trying to tell people that FDR's policies made the economy worse.

So think about this: Where would we be today if FDR hadn't implemented federal bank deposit insurance? Would there be a single bank left in the country today?

That is JUST ONE of the ways that FDR's policies and regulations helped us this time.

Posted by Dave Johnson at 11:18 AM | Comments (2) | Link Cosmos

January 19, 2009

Sirota Goes There

David Sirota yesterday U.S. moving toward czarism, away from democracy,

In sum, it explains why the age-old struggle between capitalism and democracy is once again defining our politics - and why capitalism is now winning.

Capitalism is the idea that a few people -- instead of the public -- should "own" the commons. So what do you think, is this the age-old struggle that is once again defining our politics? (And our economy I might add.)

Posted by Dave Johnson at 2:12 PM | Comments (1) | Link Cosmos

Are People Afraid To Spend -- Or Just Can't Spend Any More?

Earlier I wrote that there is a problem lending to people who are not "credit-worthy." Banks are looking for people to give loans to, as long as they can be pretty sure they will be paid back.

Today Warren Buffett said,

“We have fear which leads to people not wanting to spend, and not wanting to make investments. And that leads to more fear.”

OK, I can see how one of the richest people in the world thinks that people are just afraid to spend, and that's the only problem. But from where I live it looks a lot more like people are tapped out -- savings depleted, income stagnant or lost, debt up to the ceiling. And that is why they aren't spending anymore, because they can't spend anymore.

We have to come to terms with what happened. All the money went to the few at the top, wiping everyone else out. And so the economy finally stopped.

Trickle-down economics just doesn't work. THAT is why we are having a financial crisis. The few people who make a lot of money just can't see that. Until they do, their solutions and predictions will continue to be just wrong.

Posted by Dave Johnson at 12:17 PM | Comments (2) | Link Cosmos

Credit Crunch Or Just Not Credit-Worthy?

Is there a credit crunch? Are banks just refusing to lend and "sitting on the money?"

I don't see it. I think lenders are actually looking for people they can loan to -- that's how they make their money. I think that any "credit-worthy" borrower can get a loan.

The problem is there are too few credit-worthy borrowers. This means businesses and people with collateral, cash flow and good credit ratings.

The problem is that everyone took on so much debt that they are over their heads now, and are very risky loan prospects. Would YOU loan money to someone who isn't all that likely to pay you back?

Posted by Dave Johnson at 9:24 AM | Comments (0) | Link Cosmos

January 17, 2009

Laid Off

The Johnson's are very with-it and stylish. We are keeping up with the rest of the country, following all the trends. We are right on top of current events.

My wife was laid off from her job Thursday.

Posted by Dave Johnson at 12:02 PM | Comments (1) | Link Cosmos

Economy Chart

Here is a chart I made. I was looking at all the numbers and charts in the paper and thought I might make a chart too.

Posted by Dave Johnson at 11:26 AM | Comments (2) | Link Cosmos

January 14, 2009

How To Get Out Of Debt

Once again: The sure-fire way to get out of debt.

A simple solution -- stop borrowing money. Don't buy stuff you cannot afford. Imagine life with no payments to make.

Posted by Dave Johnson at 10:15 PM | Comments (0) | Link Cosmos

January 12, 2009

Infrastructure Investment Is The Way Out

Looking at the economy, let me ask the question: What will drive a recovery? What is there in our economy that can get things moving again? Is it manufacturing? When the dollar was falling, prices of goods made in the US were becoming attractive, but with the worldwide crisis the dollar is strong again. And, even if other countries were in a position to buy (and not in recession themselves) we have fallen behind with our manufacturing infrastructure so it would be some time before we could respond to demand.

Since Reagan's tax cuts the country has been living on borrowed money (deficits) and calling it prosperity. We have been putting off maintaining our infrastructure -- never mind investment in new infrastructure. We have been cutting education budgets. We have been cutting health care. we have been cutting everything except military budgets and now it is catching up to us.

The road out of this is public investment. We need a long effort to build a 21st-century infrastructure. We need a national wind and solar energy grid, so we are not exporting dollars in exchange for oil. We need to build energy-efficient transportation. We need building codes across-the-board that require energy efficiency in housing and commercial buildings and we need to retrofit existing buildings. We need fiber-optic internet into every home and business. We need a massive investment in public education up to the university level. We need national health care.

How do we pay for this? By restoring democracy. We return the top tax rate to 90+%. High taxes at the top drive our economy -- look up the numbers, it is just a fact. This also reduces the massive concentration of wealth we have today. Then restore the inheritance tax, and raise it, so people start life on a more equal footing. Cut the military budget to just above the amount spent by the next-highest budgeted competitor. (That would be a massive cut because we now spend more than all other countries combined.)

Posted by Dave Johnson at 12:29 PM | Comments (0) | Link Cosmos

January 11, 2009

Today's Housing Bubble Post - Somebody Always Pays

A very interesting Nightline from 2007, before the housing bubble burst. But who could have known/

Posted by Dave Johnson at 5:01 PM | Comments (0) | Link Cosmos

January 9, 2009

Technology Taking Over Jobs

How much of the unemployment is really coming because of technology taking over jobs? How many jobs replaced by the efficiency of computers? How many by machines? How many by robots? We have known for a long time this is a developing problem with our economic system, and instead of addressing it have been reacting by pushing the reckoning out into the future for decades.

So maybe this is about that - one more fundamental problem of our economic system. All the attempts to delay the reckoning collapse... all the psychological manipulation of "demand creation" that tricks people into using credit cards to buy cheap junk that they don't need... all the smoke and mirrors moves aside and we see that there really are not that many "jobs."

What is this thing, a "job?" I was on the phone with a tech support guy for Brother printers, and his "job" was to read this script to me, and I have to do everything on the script, and then the next thing on the script, and he isn't allowed to vary from the script. That is called a "job." He had a lifeless voice, and rent to pay, so he comes in in the morning and reads the script over and over.

How many "jobs" are trained-monkey jobs,shuffling paper, doing some meaningless task someone tells us to do, making someone else rich, just to keep us occupied and paid until a machine gets sophisticated enough to do it instead, and then the worker is discarded and left with nothing and no prospects (because machines do that now).

And what are our lives, in these "jobs"? How many of us even know what our own choices might be?

Who is our economy FOR? Is this really an "economic system" that is doing anyone any good? When demand creation works, and the economy is "stimulated," that just means we'll start strip-mining or clear-cutting faster, and then building more mountains of landfill.

Another perspective, if the economy was for us:

Shouldn't a machine taking over a job be a time of rejoicing? Shouldn't a new machine or process mean one less hour of work is needed from everyone?

But under our economic system, in which we pretend that a few people "own" what we really all own, a new machine or process means just a few people become immensely wealthy while the rest of us are discarded, or have to work even longer hours and for less pay, because the competition for the remaining jobs is even greater.

Imagine a life where you could actually decide what you want to do with your time.

Posted by Dave Johnson at 9:40 PM | Comments (1) | Link Cosmos

The "Cook the Books" Financial Collapse

Every book is cooked these days. This is a lot of what has led to the financial collapse. The banks lied about the assets they were holding. The ratings agencies lied about the assets they were rating. Appraisers lied about the value of houses they were appraising. Everybody lies these days...

And the unemployment rate? Great Depression jobs parallel may not be far flung | U.S. | Reuters

"... if unemployment were still tallied the way it was in the 1930s, today's jobless rate would be closer to 16.5 percent -- more than double the stated rate."

Posted by Dave Johnson at 9:37 PM | Comments (9) | Link Cosmos

Real Unemployment

Today the official unemployment rate jumped to 7.2%. But the real story is likely worse than this number. There are other ways to measure unemployment, including looking at the number of people who are working part-time but want to be working full-time. There are 8 million of these. The official number is about people who are "looking" for work but there are also the "discouraged" workers, people who have largely given up looking. they are not included. And to top it off the official unemployment rate has been changed over the years, always in ways that make this 7.2% number lower than the official number would be if measured in ways it was measured decades ago.

Another number that can be used is "U-6" which measures total unemployed. The official description is:

Total unemployed, plus all marginally attached workers, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all marginally attached workers.

U-6 is currently 13.5%

Posted by Dave Johnson at 12:23 PM | Comments (2) | Link Cosmos

Jobs Lost

Jobless rate at 16-year high as payrolls plunge

In December, U.S. employers cut payrolls by 524,000, somewhat less than analysts' prediction for a 550,000 reduction in jobs. Total job losses for 2008 were 2.6 million, the largest decline since a 2.75 million drop in 1945.

But it's even worse that what you thought, because,

November's job losses were revised to show a cut of 584,000, previously reported as a 533,000 loss, while October's losses were revised to 423,000 from a decline of 320,000.

Posted by Dave Johnson at 7:58 AM | Comments (3) | Link Cosmos

January 7, 2009

When I Ran A Business I Didn't Want Tax Cuts

When I ran a business I didn't want tax cuts, I wanted to pay taxes. Paying taxes meant I had made a profit, and a portion of it went to taxes.

Given a choice between tax cuts and more revenue I would take more revenue every single time, even though it meant even more taxes to pay later. SEND ME CUSTOMERS instead of tax cuts.

So take the money you might use to give a tax cut and instead use it on targeted programs that redistribute money to people. Instead of just giving it all back, USE IT to invest to good purpose.

Posted by Dave Johnson at 6:09 PM | Comments (1) | Link Cosmos

January 6, 2009

Wage Collapse Caused Crisis

Go look at the chart in this post: Daily Kos: Conspiracy of Silence: Wage Collapse Caused Crisis

Posted by Dave Johnson at 5:28 PM | Comments (0) | Link Cosmos

January 5, 2009

Why 40 Hours Per Week?

Question. With rising unemployment, why are we all still supposed to work 40 hours a week to be considered "full time?"

Who is our economy FOR, anyway?

Posted by Dave Johnson at 9:21 AM | Comments (0) | Link Cosmos

January 4, 2009

Big Companies Are Public Resources

Deep Thought: When companies reach a certain size, they are public resources. They are large because they do something that is important to many of us. They have a great impact on all of our lives. We all depend on their success and are hurt by their failure.

They are public resources. Do we usually leave public resources in the hands of a few people?

Think of startup companies as auditioning for a job. The ones who reach a certain size are then rewarded by getting the "contract" to, say, develop oil resources or make cars...

Update - You say this sounds radical? I never proposed that the government borrow $700 billion dollars and hand it over to giant companies. It was the "private property free market conservatives" who did that.

Posted by Dave Johnson at 10:00 AM | Comments (1) | Link Cosmos

The Next Debt Bomb?

The next bomb to go off might be US Government debt -- timed perfectly to ruin Obama's entrance. The government has been able to finance Bush's massive bailouts-of-the-rich because people everywhere are scared enough to put their money in what is perceived to be the safest place. In fact the return on short-term US T-bills is actually negative right now. People are paying the US government to hold their money! And the government has been obliging them.

But all of this short-term debt is due very soon and the government will need to find new people to lend to it. And other debt is also coming due, compounding the problem. And on top of that the Obama stimulus plan will require borrowing another $700 billion or more.

I am not predicting this will happen. I'm saying this is another bubble and at some point it has to pop.

Posted by Dave Johnson at 9:01 AM | Comments (0) | Link Cosmos

January 2, 2009

Big Box Mart

Where your job went.

Posted by Dave Johnson at 12:50 PM | Comments (0) | Link Cosmos

January 1, 2009

This Is Not The 'Business Cycle'

A quick comment: The financial crisis we are experiencing is not business as usual, it is not the business cycle. This is not like anything that has happened before. We are not going to solve this by acting as if it was just a typical downturn in the business cycle and tweaking the way things are done. A bit of stimulus and a few regulatory changes are not going to solve this.

This is a fundamental paradigm shift -- what we had before did not work, period. It was hurting all of us by forcing us into jobs we all hate and doing meaningless things, taking on debt, unhealthy habits, and is chewing up the very planet we live on! A new model for understanding how economies work is needed.

We have to rethink the relationship between people and work and who gets to share in the proceeds. Until now most people work to make someone else rich, because it has been the only way we can "make a living" -- be allowed money to eat, etc. But as machines and computers and other technologies do more and more of the work for us the result is that more and more people are laid off or paid less or otherwise discarded and fewer and fewer of us are able to get by. This is because our current economic system forces us all to pretend that a few people "own" the right to benefit from our economy, and the rest of us do not.

But doesn't this idea that a few people can "own" the right to the benefits of our economy fundamentally conflict with the idea of democracy, where we all have an equal share of America, an equal voice and equal rights?

In Alaska, for example, the people of the state benefit from their common ownership of the oil there. Companies bid for the job of extracting the oil and pay the state a lot of money to do that. Everyone in Alaska benefits, AND a trust fund is set up to guarantee that they continue to benefit forever after the oil is all gone.

Our entire economy should work that way. We should recognize that we own in common all of the resources, and these companies should have to apply for the job -- bid for the right to do things we want done -- with the understanding that they are common resources from which we all benefit.

We also have to reengineer the economy to be sustainable. We have to stop this game of "demand creation" -- making people think they need things that they do not need, in order to "keep the economy going." The economy only needs to go far enough to feed and house and clothe us and take care of our health, and then we should be deciding in common what else we want to do, up to the point where it interferes with our real lives. There is a limit to what we need, and can then get on with the other things that life is about, like thinking, art, music, reading, studying... When there is less to be done, we should work fewer hours, leaving us free for the other pursuits. More on this later.

Posted by Dave Johnson at 10:08 PM | Comments (2) | Link Cosmos

December 24, 2008

Today's Housing Bubble Post -- Different In India

India is having none of it: The Left Coaster: Greenspan (U.S.) v. Anti-Greenspan (India)

Posted by Dave Johnson at 10:41 AM | Comments (0) | Link Cosmos

December 18, 2008

Repubilcans Sabotaging Solutions -- Why?

Nationally and in California Republicans are clearly trying to sabotage economic recovery efforts. Why? Do they have some strategy at work here?

Schwarzenegger to veto Democrats' budget plan,

But Schwarzenegger said the Democrats' package lacked deeper cuts to welfare and senior assistance programs, flexibility to reduce school spending, and the elimination of two of 14 state employee holidays.

The governor also wanted assistance for homeowners facing foreclosure, broad authority to relax environmental regulation on public work projects and more toll roads.

After months and months of trying to pass a budget, compromising, giving Republicans everything they wanted, they still refused to allow a budget. So the Democrats found a way around that and passed a budget. The Governor's veto means a near-immediate layoff of as many as 200,000 workers. That will have a cascading effect on California and the nation's economy.

Why are they doing this?

Posted by Dave Johnson at 8:28 PM | Comments (7) | Link Cosmos

December 16, 2008

The Economy

This chart explains where the economy must go, and why. Sorry.

Click to enlarge

It wasn't just the housing bubble, it was debt in all of its forms.

For extra credit, see if you can identify the year Reagan and the "supply-siders" took office and any changes that occurred at that time.

P.S. I will not accept any cleaning bills.

Posted by Dave Johnson at 3:11 PM | Comments (1) | Link Cosmos

Economy Question

Question: How does it help our economy for our government to borrow money from China and use it to lower interest rates in an attempt to persuade people to borrow even more money to buy even more stuff that was made in China?

Update - What I am trying to say is, loosening credit does not help the average person. If you can't afford something, buying it on credit doesn't help you afford it. Who you need is higher wages, health care, etc. Then you can afford things.

This is a solvency crisis, not a liquidity crisis. Predatory capitalism harvested the consumer, ate the consumer, shat out the consumer, and loose credit isn't going to revive a consumer that has been through that.

Posted by Dave Johnson at 11:16 AM | Comments (2) | Link Cosmos

Today's Bubble Post -- Reckoning

James Boyce, in one of his best posts ever, says that if something is unsustainable it can't be sustained. And here we are. Go read James Boyce: The Darwin Depression: Time To Say Goodbye To How It Should Have Never Been.,

It is very dangerous for an empire such as America's, faced with ebbing influence around the world, to amp up on cheap credit and buy out the store. At the end of the day, you have a frustrated country, swamped in debt and merchandise it doesn't really need, wondering how to pay the bills. Japan has never really recovered from its bubble, and its bubble is looking pretty small compared to the one we're popping.

Look at this. Consider this image.

Of course, you have to click through to see the charts.

Posted by Dave Johnson at 9:56 AM | Comments (0) | Link Cosmos

December 11, 2008

The Day The Economy Died

Auto bailout dies in Senate

Twenty years from now people will mark today as the official end of the U.S. economy.

Posted by Dave Johnson at 9:08 PM | Comments (0) | Link Cosmos

December 9, 2008

Feel The Recession With Twitter

I just found out you can do searches to see what people are twittering about. Click here for a Twitter search on layoffs. What you read will be sad, though.

Posted by Dave Johnson at 10:19 AM | Comments (0) | Link Cosmos

December 8, 2008

Economic Narratives

Profound: Economic Growth is Political.

Really, go read.

Posted by Dave Johnson at 2:23 PM | Comments (0) | Link Cosmos

December 7, 2008

Democracy Is The Only Economics That Works

I am reading about how we got out of the Great Depression, and I think there was a clear sense of adversarial relationship between wealth, corporate power and democracy that we don't see today, but which I believe defines what is happening to us. For example I am currently
reading FDR's 2nd inaugural address. I know this address comes four years into The New Deal, but I think it reflects what I have read from when the New Deal began as well.

"In fact, in these last four years, we have made the exercise of all power more democratic; for we have begun to bring private autocratic powers into their proper subordination to the public's government. The legend that they were invincible above and beyond the processes of a democracy has been shattered. They have been challenged and beaten.

Our progress out of the depression is obvious. But that is not all that you and I mean by the new order of things. Our pledge was not merely to do a patchwork job with second-hand materials. By using the new materials of social justice we have undertaken to erect on the old foundations a more enduring structure for the better use of future generations.

In that purpose we have been helped by achievements of mind and spirit. Old truths have been relearned; untruths have been unlearned. We have always known that heedless self-interest was bad morals; we know now that it is bad economics. Out of the collapse of a prosperity whose builders boasted their practicality has come the conviction that in the long run economic morality pays. We are beginning to wipe out the line that divides the practical from the ideal; and in so doing we are fashioning an instrument of unimagined power for the establishment of a morally better world.

This new understanding undermines the old admiration of worldly success as such. We are beginning to abandon our tolerance of the abuse of power by those who betray for profit the elementary decencies of life."

I think this strongly shows that FDR's believed that the depression was caused by wealth flowing to the top (as today) and would be corrected by asserting that We, the People must take back control of our common resources.

In other words, real democracy -- We, the People controlling and making decisions about our common resources, instead of corporations and the wealthy -- is the only form of government and economics that can work for all of us.

Posted by Dave Johnson at 4:31 PM | Comments (1) | Link Cosmos

December 6, 2008

Bailout - Fighting The Last War?

To what extent is the bailout fighting the last war, instead of addressing the real issues of this crisis?

Obama's massive infrastructure investment will do a lot of good, but how much is this just another bandaid on a failed economic paradigm?

Posted by Dave Johnson at 8:31 PM | Comments (1) | Link Cosmos

December 5, 2008

Worst Jobs Report In Decades - Stocks Soar!

Today saw the most job cuts in one month in 34 years. The stock market soared, up about 300 points.

Who is our economy for?

Posted by Dave Johnson at 1:02 PM | Comments (0) | Link Cosmos

Cutting Business Taxes

Cutting taxes on business only gives a boost to companies that are ALREADY MAKING A PROFIT after all costs -- the very ones that do not need a boost.

All it does is drain resources that could be available to We, the People to use to solve problems. It puts even more money into the pockets of the very rich, further reducing the ability of the consumer to pay the bills and buy.

Posted by Dave Johnson at 10:22 AM | Comments (0) | Link Cosmos

Deep Thought

Contractors don't get unemployment pay. A significant portion of the workforce has been called contractors instead of employees in the last several years, allowing the corps to get out of responsibilities they would have if the same people were called employees.

This is going to have an effect on efforts to revitalize the economy. For example, extending unemployment benefits won't help them.

Posted by Dave Johnson at 9:27 AM | Comments (0) | Link Cosmos

December 4, 2008

Auto Company Collapse

I realized today that a collapse of any American auto companies also means a loss of tens of thousands of jobs in Mexico, further increasing migration pressures.

Posted by Dave Johnson at 5:01 PM | Comments (0) | Link Cosmos

Laid Off Contractors Don't Get Unemployment

Before reading this, realize that people who are called contractors instead of employees -- the first to get laid off as things get worse -- do not get unemployment benefits so they don't file claims for unemployment benefits. Jobless rolls at 26-year peak, factory orders drop

While first-time claims for benefits unexpectedly fell last week to 509,000 from 530,000, a four-week moving average of new claims, a better gauge of underlying labor trends, rose to 524,500, also a 26-year high.

The economy has shifted much more towards contractors, who do not get unemployment benefits. So this number of new claims understates the problem and does so much more than in previous recessions.

Also, the lack of benefits for contractors, including unemployment, means this recession will hit much harder on those unemployed than on previous unemployed. Extending unemployment benefits for 13 or 26 weeks will make no difference. What we need to do is ban this contracting scam and call an employee an employee.

Posted by Dave Johnson at 12:09 PM | Comments (0) | Link Cosmos

December 1, 2008

Too Big To Fail?

I said it before but I want to repeat it: "Too big to fail" necessarily means a company that should be under the control of the public. Our economy should not just be at the mercy of a select few. We, the People should be involved in making decisions that affect us. This is the very definition of self-governance.

Posted by Dave Johnson at 7:37 AM | Comments (0) | Link Cosmos

November 30, 2008

Protectionism Means Protecting Ourselves

Protectionism literally means protecting ourselves.

The term is mostly used in the context of economics, where protectionism refers to policies or doctrines which "protect" businesses and "living wages" within a country by restricting or regulating trade between foreign nations.

The idea of protectionism is that when a competing country gains a trade advantage by paying its workers too little or having poor or no worker safety protections, or by allowing pollution of the environment, then we apply a tariff to their goods, so their goods cost the same here as our own goods, and that advantage does not undermine our own wages or safety or pollution standards.

Under conservative ideology, of course, protecting ourselves is a bad thing. Some people make a lot of money for themselves by undermining our wage, safety and pollution standards. So they tell us that protecting ourselves is wrong. The result is that conservative trade agreements that we have now that apply downward pressure on all the wages in the world.

Imagine if the workers in China or Mexico, etc. made enough money to buy the things we make here! That would be the use of our tariffs to apply an upwards pressure on other countries.

Posted by Dave Johnson at 10:02 AM | Comments (0) | Link Cosmos

November 29, 2008

Credit Crisis

When people, companies and municipalities reach a point where they have borrowed so much that they can't pay back the loans I really don't think the solution is to make more money available to lend. But that is what all of these bailouts are aiming to accomplish.

They say credit has "dried up" and banks "won't lend." Can you blame a bank for not wanting to lend money to someone who has no savings, huge credit card bills, and might lose their job at any moment? Can you blame a bank for not lending to a company whose customers have stopped buying and can't pay them what they already owe?

It's just more of the same old top-down thinking: that if you just give more and more money to the few at the top things will get better.

At what point does the obvious become obvious? When people are tapped out, they are t.a.p.p.e.d. o.u.t. That's it. No more blood can be squeezed from that stone. You can't make a person work longer hours when they are already working two jobs. You've already taken away pensions and health care and vacations and overtime, you can't take away even more.

Posted by Dave Johnson at 11:36 AM | Comments (1) | Link Cosmos

November 27, 2008

One Way To Start fixing The Economy

Executive Compensation: Tax Them Into the Ground.

Really, really go read this.

Posted by Dave Johnson at 6:53 PM | Comments (1) | Link Cosmos

A Good Bailout

Have a read: A DIFFERENT KIND OF AUTO BAILOUT.

We need a bottom-up, not a trickle-down bailout.

Posted by Dave Johnson at 10:45 AM | Comments (0) | Link Cosmos

November 26, 2008

Bailout At $7 Trillion So Far

So far it looks like you and I have coughed up about $7 trillion dollars to bail out Wall Street and the big banks. The executives and their bonuses and the shareholders all thank you, suckers. Of course, you and I had NO SAY in this at all!

So $7 trillion comes to about $23,000 per person - including infants. This means that the average family of four coughed up almost $100K to bail out Wall Street and the banks and the executive bonuses and shareholders. This was the Republican approach to fixing the problem.

They say it's all about making money available for people to borrow. This assumes that people have any credit left. I mean, if you make $5,000 a month and your payments add up to $5,000 a month, maybe you aren't going to want to borrow any more. And maybe a lender with sense won't let you. Lending to people who can't afford to pay the money back is what caused the mess! Loading everyone up with even more debt is not the solution.

Why not make people more able to afford to buy things, and not have to borrow to get by? We could have put $7 trillion into health care, roads, bridges, schools and other things that would have created millions of jobs and provided raises to or lowered costs for regular people! I wonder what THAT would have done for the Christmas shopping season, and all the rest of the Christmas shopping seasons from now on?

But we not only didn't have any say in how the money was used, the money is all gone.

Meanwhile go read The Bail-Out Will Not Work at angry Bear to understand why giving all the rest of our money to the people who created the mess will not work.

Posted by Dave Johnson at 12:00 PM | Comments (1) | Link Cosmos

November 25, 2008

How Much Do Auto Workers Make?

Go read The media myth: Detroit's $70-an-hour autoworker.

Auto workers make $28 an hour on average. No auto assembly-line worker makes $70 an hour, even if the media repeats that figure over and over. The $70 figure includes the "labor costs" of health care and pensions for retired and injured workers and the cost of management for that worker/hour, as if it was added to the number of labor hours that goes into a car today.

Yes, GM and the others have a high cost to cover the benefits to their workers. That was the point of our laws that set up corporations -- to benefit US. Japanese and German and other car companies have many of these costs paid by the government. They did it with taxes and had the government provide the benefits, we tried to do it throught the corporations themselves, and our model hasn't worked.

The point is that we need health care reform and decent pensions for all Americans, through We, the People -- the government. It certainly doesn't mean that we should just get rid of the last major manufacturers we have. Sheesh.

Posted by Dave Johnson at 2:40 PM | Comments (0) | Link Cosmos

November 22, 2008

Sustainabilty Is The Key To The Next Economy

There is an old saying: If something is unsustainable it can't be sustained. Our economy is starting, just starting to show us what happens when you continue unsustainable practices to their conclusion.

The day will come when instead of habitually saying, "How can I make money off of this" as things happen, they will say, "Is this really sustainable?" Unfortunately we are only at the very beginning of the kind of pain that is going to teach us as a society that this is the correct way to evaluate what appear to be opportunities.

Let me explain:

We have learned that it is a good idea to store explosives in special bunkers with thick, concrete walls. Think about how we learned that it is important to require this.

We have learned about clean, safe drinking water. Think about how we learned that this is a good practice. We have learned to build sewer systems instead of dumping bedpans into the street. Yes, we used to do that and now we don't. Think about how we learned not to. Along the same lines we have largely learned to wash our hands after we go to the bathroom and before we eat. Think about how we learned that this is a good practice.

We have set up building codes that prevent fires and collapses from earthquakes. At least in California we have. In other parts of the country they don't require buildings to be earthquake-safe. We do, they will. Think about why we do and they don't but will. Think about why we have fire codes for buildings across the country.

Are you getting my drift? These are things that people didn't know to do, but now they do know. But people seem to have to go through terrible, devastating, tragic shocks before they learn. And finally we learn, and routinize safe practices. We had been through severe economic shocks and then the Great Depression and there were some things we as a people thought we had learned. Think about how bad the depression was and the things that we set up to try to prevent it from happening again: regulations, oversight, a strengthened democracy with citizen control of public resources, strong unions to serve as a counterbalance to corporate power, high taxes on the rich and corporations so income would be more fairly redistributed and the benefits of our system shared widely -- only to gradually let most of that slip away. So the control of our country's decision-making had reverted back to the wealthy and predatory capitalism was reinstated. We, the People were harvested for every last dollar and hour of labor and when we were finally tapped out the economy had to collapse.

There is every sign that this economic collapse could be worse that any before it.

So, like I said, the day will come when people look at events and instead of saying, "How can I make money off of this" they will say, "Is this really sustainable?" But I fear that we are going to have to reach the bottom before we learn this.

Posted by Dave Johnson at 11:43 AM | Comments (0) | Link Cosmos

November 18, 2008

Too Important To The System To Allow To Fail

Over and over we are hearing about companies that are "too big to fail." The meaning is that if they fail they take everything else with it, so we must bail them out.

Suppose that something happened to the atmosphere and air had to be manufactured. Suppose that all of our lives depended on the ongoing manufacturing of air. Would any of us, even the hardest-core Republicans, even consider allowing this function to be in the hands of a private company? Of course we would not allow this.

Isn't "too big to fail" the very definition of an important PUBLIC resource? If something is "too big to fail" because failure risks bringing down the entire economy, how did we ever allow such functions to fall into the hands of private companies in the first place?

Posted by Dave Johnson at 4:50 PM | Comments (0) | Link Cosmos

November 14, 2008

What To Ask For In A Bailout

Someone asked me, "If we bail out the auto companies how do we make sure they don't just go off and build gas hogs, and give all the profits to their executives again?"

The answer to this is the answer that should have been part of the Wall Street bailout: You benefit from the Public, so the Public had better start benefiting from you. You get the money and you start building cars that are lined up with the public interest. You serve the public, not harvest the public. You limit executive compensation and spread the wealth around. You pay taxes when you do well. You don't try to influence the political process in any way because We, the People tell you what to do, not the other way around. Etc.

(Question: why aren't these the explicit rules for doing business in the U.S. anyway - bailout or not?)

Posted by Dave Johnson at 7:41 AM | Comments (0) | Link Cosmos

November 13, 2008

The Money Hole

"If you love America you throw money in its hole."

In The Know: Should The Government Stop Dumping Money Into A Giant Hole?

If you are a patriot you will throw money down the money hole.

Posted by Dave Johnson at 8:48 PM | Comments (0) | Link Cosmos

November 12, 2008

The Consumer Spending Slowdown Is NOT Because Of Credit

On The NewsHour today Alice Rivlin said that we need to free up the credit markets so people can buy cars. She said there are "credit-worthy" people waiting to buy cars and trucks who can't because they can't get loans.

Then, on the NBC News tonite the reporter said, "Without access to credit, shoppers are tightening their purse-strings."

This is just wrong, and these are people who move in in important policy and reporting circles who should know what is going on! It tells me that rest of the people in these circles also don't get it.

The credit crunch is not the consumer spending slowdown. Big companies are having trouble getting credit. But if you go to a car dealer tomorrow to buy a car, and have an income and good credit, they will bow down and kiss your feet. If you can't find a loan (if you have an income and good credit you CAN find a loan) the manager will loan you the money out of his or her own pocket. It is PREPOSTEROUS to suggest that people with incomes and good credit can't get loans, and that this is why people are not shopping up a storm!

The consumer spending problem is that consumers are "tapped out." Incomes have stagnated for decades, consumers have used up their savings and then resorted to second mortgages and credit cards.

Decades of predatory capitalism have sucked the average working person dry. That is the consumer spending problem. That policymakers and reporters don't know that tells a sad story about how this has come to pass.

Limit executive pay and use the money to hire more people for fewer hours, pay them more, give them health insurance and let people start unions if you want to see consumer spending recover. That's not rocket science.

Posted by Dave Johnson at 6:24 PM | Comments (0) | Link Cosmos

Blame For The Crash

I've been thinking about something and haven't had time to write about it. The first stimulus package did nothing to help the economy, but it did put off the crash from happening for about 3 months. I mean, the worst of the crash is really just starting, just after the election.

What I am getting at is the stimulus package, sending us all $600 checks, was one more time the Dems in the Congress fell for something that was designed only to help the Republicans in the election. It didn't help and Obama won, but that was their plan.

And now the economy is starting to really crash. The bailout which obviously wasn't going to work didn't work -- and it used up all the money. I am starting to hear talk of the U.S. credit rating being lowered, with some expectation of default in the future.

Things are going to get really, really bad next year. So we need to make sure the public understands blame.

Here's how. The Congress needs to push through something popular, clearly designed to help the economy, that the Republicans filibuster, or Bush vetoes, before the end of the year. How about a whopping increase in the minimum wage? The bailout of the auto companies might be the issue. Maybe the new stimulus package, clearly aimed at creating jobs -- good UNION jobs. They would fight that.

The point is, make it clear who is for and who is against the people. This is how the Republicans have been doing it for some time.

AND, after Obama gets into office, we can even pass it.

Posted by Dave Johnson at 2:51 PM | Comments (1) | Link Cosmos

Explaining The Crash

I think this is one of the better explanations of the Wall Street crash: The End of Wall Street's Boom. Go read.

Posted by Dave Johnson at 12:39 PM | Comments (0) | Link Cosmos

November 8, 2008

Oil vs Air

No one "owns" the air. No one gets to "profit" from air -- we don't have to "pay" anyone to be able to breath air.

Why is oil different?

Thinking through this question open up some very interesting ideas about our economy and who benefits and why.

In Alaska the oil companies pay the people of the state for the oil. No one pays state taxes AND everyone in the state gets a big check every year. AND the oil companies put aside money into a fund that guarantees the people of Alaska will continue to get those checks forever, even after the oil runs out. This is because the people of Alaska understood that the oil belonged to them.

So what about the rest of the oil in the country, and the world? Why don't the people of the US and the world benefit from their ownership of that oil? Why do a few people who own and manage oil companies get the profits for themselves and grow ever richer, while the rest of us lose our jobs and pensions and health care and houses?

Why do we get taxed to provide these companies that benefit a few people with military protection? Why do we get taxed to build the roads that enable them to move their products to make this money, and then have to pay them for our oil so we can drive cars on those roads? Why do we pay taxes to provide the legal infrastructure of courts and laws that enables them to grow richer, while we all grow poorer from it? Why do we get taxed to provide an education system that invents machines that take our jobs, and that only trains us to be employees that can just be tossed aside?

I'm using oil here as just one example of underlying economic assumptions. Inheritance is another underlying economic assumption. Why does someone "inherit" the right to be rich?

Who is our economy FOR, anyway?

There are a lot of questions here that will need to be re-thought if we are going to get out of the economic mess that the few who benefit from the current corporate and economic structure have gotten us into.

Posted by Dave Johnson at 11:52 AM | Comments (2) | Link Cosmos

October 26, 2008

prescience: When this man predicted a global financial crisis more than a year ago, people laughed. Not any more...

prescience (prĕsh'əns, -ē-əns, prē'shəns, -shē-əns)
n.

Knowledge of actions or events before they occur; foresight.

...................................................................................
Nouriel Roubini: I fear the worst is yet to come
When this man predicted a global financial crisis more than a year ago, people laughed. Not any more...

Dominic Rushe

As stock markets headed off a cliff again last week, closely followed by currencies, and as meltdown threatened entire countries such as Hungary and Iceland, one voice was in demand above all others to steer us through the gloom: that of Dr Doom.

For years Dr Doom toiled in relative obscurity as a New York University economics professor under his alias, Nouriel Roubini. But after making a series of uncannily accurate predictions about the global meltdown, Roubini has become the prophet of his age, jetting around the world dispensing his advice and latest prognostications to politicians and businessmen desperate to know what happens next – and for any answer to the crisis.

http://business.timesonline.co.uk/tol/business/economics/article5014463.ece

My investment advisor at a major national bank wants me to invest my savings in stocks and bonds (50% - 50%). He thinks we have maybe a 2,000 downside, before we see a 10,000 point upside. The bank requires a 1.5% fee based on the value of the portfolio.

I started my introductory face to face conversation with my advisor by letting him know that when it comes to what comes next in the economy, that was more nervous than a long tailed cat in a room full of rocking chairs.

I still am. In fact I'm beginning to experience a palpable sense of panic.

God help us all.

Posted by Ron Sheridan at 11:03 PM | Comments (1) | Link Cosmos

October 13, 2008

Stocks Rally On Krugman Nobel Announcement

Columnist Paul Krugman wins Nobel economics prize and stocks are up almost 600 points on the news!

Posted by Dave Johnson at 10:10 AM | Comments (1) | Link Cosmos

October 1, 2008

An Alternative Plan

Here is a good alternative plan: Recapitalise the banking system.

Instead of the government (us) buying toxic debt we invest in those banks that are solvent, which gives them reserve capital for lending. Other investors will then step in as well. Current shareholders are diluted.

The public ends up profiting. The banking system recovers. The bad actors lose out.

Posted by Dave Johnson at 6:21 AM | Comments (0) | Link Cosmos

September 30, 2008

World Not Ending

The stock market is way up.

Here a "go figure": Consumer confidence unexpectedly improves in Sept.

Can someone explain that to me? Is it ALL just about gas prices?

Posted by Dave Johnson at 7:55 AM | Comments (0) | Link Cosmos

September 25, 2008

Bailout Comment

If this story, Deal said near on big financial bailout is correct I think I feel a bit better about the bailout. Not completely better, but a bit.

1) If executives are really limited in pay (and stock) by this deal they won't be involving their firms unless it is really necessary. They won't be in it for themselves.

2) If we get equity in the companies that get bailout money then WE profit if they do.

3) It is phased in, so we don't just dump all the rest of our money onto a few companies at once. Instead we can see if it is working - and a new President can change what is being done.

If we get these things, it's a start. I think we should get rid of many of the executives responsible. I also think we need to redesign the system from scratch, insist that ALL corporate money be removed from politics immediately, impost a 90% or higher top tax rate and several other things.

And about this meeting with McCain and Obama at the White house today... is it possible they're going to be injected with something, and then replaced by pod-people?

Update - Through Atrios, here is an example of what we are paying to bail out:

When we the taxpayers foot the bill for the excesses of the bubble, we are bailing out the lenders who enabled the behavior below:

* The house was purchased on 2/6/1998 for $183,000. There was a $173,500 first mortgage and a $9,500 downpayment.
* On 8/21/2002 they refinanced the first mortgage for $165,500. They actually paid down their debt.
* On 3/12/2003 they opened a HELOC for $50,000, just in case... Their first taste of kool aid.
* On 2/13/2004 they opened a HELOC for $226,000. The kool aid is flowing now.
* On 10/22/2004 they opened an Option ARM for $492,000.
* On 5/2/2005 they opened a HELOC for $75,100.
* On 10/21/2005 they opened a HELOC for $126,000.
* On 9/28/2006 they opened a HELOC for $150,000.
* Total debt on the property, $642,000 plus accumulated negative amortization.
* Total mortgage equity withdrawal, $468,500 including their tiny downpayment.

Basically, these people put $9,500 into the property and made $459,000 in 8 years.

. . . If this property sells for its asking price, and if a 6% commission is paid, the US taxpayer is going to lose $209,694.

Note - at the asking price we ONLY lose $209K. But at the asking price the buyer has to come up with $90K AND have an income of $115K for a CONDOMINIUM.

The bailout's success depends on housing prices not dropping any more.

Posted by Dave Johnson at 9:46 AM | Comments (1) | Link Cosmos

September 24, 2008

On The Crisis

This is a great blog post explaining what is really happening with this financial crisis.

Posted by Dave Johnson at 11:47 AM | Comments (0) | Link Cosmos

September 23, 2008

This Is Important Because

Since I am in New York I thought I would take a subway down to Wall Street this morning. Here it is, from behind the statue of George Washington, taken about 15 minutes ago. Now I am online from a Starbucks down the street.

Thinking about this financial crisis, I have an observation. Just a week ago there really wasn't that big of a problem as far as the Financial Elite were concerned. I mean, us out there in the hinterlands were feeling pain and trying to tell the Elite to pay attention. So we were "whiners." But the "fundamentals of the economy were found."

Now it is just ONE WEEK later and the entire world has collapsed and the Congress is working on a package to send ALL THE REST OF THE MONEY that the country can possibly borrow to Wall Street.

What happened? I think what happened is that something affected THEM, so it became IMPORTANT. This financial crisis is important because it affects the financial elite. And so we are presented with a "shut up and pay up" oackage to bail them out. Because THEY are important and we are NOT important, so the things that make them uncomfortable MUST be solved immediately.

But who is being asked to pay? We are. Not them, us. Have you once heard from Washington a suggestion that the rich and corporations start paying taxes again, to cover the costs of this massive bailout? Of course not.

They say that credit is drying up. My question is, according to the law of supply and demand is credit really drying up, or is the PRICE of credit rising to meet the cost of covering the risks of loaning to these clucks who screwed up the economy.

Posted by Dave Johnson at 8:02 AM | Comments (0) | Link Cosmos

September 22, 2008

Actually It's TWO Trillion Now

The Bonddad Blog: The 1.8 Trillion Bailout

Posted by Dave Johnson at 8:24 AM | Comments (0) | Link Cosmos

A Better Plan

By shocking us with their Plan the Bush administration have once against defined the terms of the debate, and set all of the conditions. It all has to be immediate with no time to think it over and has to be done exactly the way we say or YOU will be responsible for killing the economy (and this kitten).

Krugman says,

I’d urge Congress to pause for a minute, take a deep breath, and try to seriously rework the structure of the plan, making it a plan that addresses the real problem. Don’t let yourself be railroaded — if this plan goes through in anything like its current form, we’ll all be very sorry in the not-too-distant future.

Calculated Risk adds,

A better plan would be transparent (all deals would be publicized), involve a share in ownership for the taxpayers, and have substantial oversight. We can do better.

Democracy can work. Give it a (last) chance.

Posted by Dave Johnson at 5:59 AM | Comments (0) | Link Cosmos

September 21, 2008

Wait A Minute -- Why Just U.S. Taxpayers?

Why are only U.S. taxpayers being asked to put up $700 billion to bail out the world's financial system?

The U.S. is $10 trillion in debt.

Europe's economy is the same size as ours.

China is sitting on hundreds of billions if not trillions of surplus funds.

Middle Eastern countries are sitting on hundreds of billions in oil profits.

So why is the AMERICAN taxpayer supposed to suddenly step in and save the world's financial system? Tell me that?

I suspect it is because we're the ones who are currently set up for harvesting, and our Congress can be stampeded to do this with 48 hours notice.

Posted by Dave Johnson at 10:30 AM | Comments (2) | Link Cosmos

Root Causes

Everyone is talking about how to modify The Plan. Don't modify it, start from a new premise. The bailout plan bails out the crooks who caused the mess so throw them out don't bail them out.

The problem is that people can't pay their mortgages and credit card bills. The big financial firms are in trouble because they aren't getting their payments.

So what about attacking the ROOT CAUSES of not being able to pay mortgages and credit card bills.

Health care: People get foreclosed on when they are hit with big health care bills. This is because of our failed health care system. If we put some money into fixing our health care system we would have fewer foreclosures AND we'd all get health care.

Concentration of wealth: People can't pay their bills because most of the money in our economy goes to a few at the top of the food chain. The rest of us are the food. What about a 90% tax rate on incomes over maybe 2 million, and the money is applied to paying off mortgages and credit cards? That would bail out the financial system in a better way than just taxing everyone and giving the money to ... well, to the few at the top.

Energy costs: Paying energy bills is another cause of people not meeting their mortgages and credit card bills. So what about imposing a carbon tax and using the money to help people retrofit their houses to be energy efficient, maybe even buy solar panels, etc.? THIS would address a ROOT CAUSE of not just the financial mess, but out trade imbalance and climate change.

Taking a constructive approach to this problem would bring us long-term benefits. Don't just hand over all the rest of our money to a few at the top, let's instead use that money to fix the problems that CAUSED this mess.

ADDRESS ROOT CAUSES. Don't just give the Bush cronies authority to hand out checks to the rich.

Posted by Dave Johnson at 8:03 AM | Comments (0) | Link Cosmos

Why The Bailout Plan CAN'T Work

Here is the justification for The Plan:

If the plan works, it will attack the central cause of American economic distress: the continued plunge in housing prices. If banks resumed lending more liberally, mortgages would become more readily available. That would give more people the wherewithal to buy homes, lifting housing prices or at least preventing them from falling further. This would prevent more mortgage-linked investments from going bad, further easing the strain on banks. As a result, the current downward spiral would end and start heading up.

Sorry, if houses are overpriced because of the bubble, then they are overpriced. This idea that people are not buying houses that cost $300, $400, $500, $600,000 because banks can't lend them the money is just preposterous! Even if a bank can lend the money, they can't lend the money because TOO FEW PEOPLE MAKE ENOUGH TO QUALIFY. The other day I showed that you have to have an income of $12,000 a month to buy a low-end house in the San Francisco Bay Area.

The idea that you can stop housing prices from falling back to where they should be is like the idea that you could have stopped the stock of golfballs.com from falling after the dot com bubble. I worked at a company where the stock went up to $35 a share for no reason, and then after the crash the stock went back to WHAT IT WAS WORTH: five cents a share.

You CAN'T prop up the price of house ABOVE WHAT THEY ARE WORTH. This is why the bailout plan can not work.

Posted by Dave Johnson at 7:21 AM | Comments (0) | Link Cosmos

September 20, 2008

A Bailout Plan That Works

Firedoglake ｻ How To Bail Out Ordinary Mortgage Holders And Not Just Banks. Please read it.

Is this bailout by the American taxpayer going to be about helping the American people, or a few owners of big corporations -- the people who got us into this mess?

Someone I read somewhere (sorry, lost the link) suggested that any firm getting any bailout money not be allowed to pay executives more than 10 times the average American wage.

How about if any firm getting bailout money pay double tax rates on future profits for the next ten years?

How about if in exchange for the bailout we set the top tax rate for people making more than a million dollars a year back to 90% -- to eliminate the bad-behaviour incentive and start paying off the national debt?

Posted by Dave Johnson at 9:02 AM | Comments (0) | Link Cosmos

September 19, 2008

Shock Doctrine Bailout: Taxpayers To Cover Debts Of Wall Street Zillionaires

Treasury Secretary Paulson just used the words, "A significant investment of taxpayer dollars." That's OUR dollars. And where is the money going? The plan is for U.S. taxpayers to bail out Wall Street. Not just a few firms this time, but all of it. The financial markets are, of course, soaring on the new bailout plan.

Where did all this bad debt come from? In the last few years millions were talked into borrowing money from Wall Street using houses as collateral. Sometimes to buy those houses, other times to buy cars and ... stuff. This paid for Wall Street's multi-million-dollar salaries and bonuses for the past several years. The easy borrowing ran up the price of houses, but now the party is over and the bill comes due.

What does this bailout plan mean to regular Americans? First: It means no money for a health care plan.

Second: it means no money for retirement. It means no money to cover what the government borrowed from Social Security to give those tax cuts to the rich. (The corporations long ago quit providing pensions to the people who did the work. THAT scam -- 401Ks instead of pensions; money transferred from workers to shareholders -- is what started the big Wall Street runup.)

In summary, this plan means our standard of living will drop in order to cover the mess Wall Street made while handing out those multi-million dollar bonuses.

The plan will be presented to Congress in these last days of the Bush administration, and a climate of disaster emergency urgency will be used to get it passed before anyone has time to consider the ramifications of what is happening.

Alternative: instead use the money to retrofit the entire country to a green economy. Make every building energy efficient. Replace the oil and coal-based electricity generation with alternatives. Build efficient power lines to the new wind generation system we will build in the Plains states. This would give every unemployed person a job, create an efficient economy, and pay dividends forever. This would probably cost much less than the bailout.

Posted by Dave Johnson at 6:53 AM | Comments (2) | Link Cosmos

September 17, 2008

Will FDIC Be Able To Cover Your Accounts?

In the Seeing the Forest: Is Your Money Safe? post a few days ago I suggested that you make sure your money is in bank accounts that are insured by the FDIC.

Well, there is a possible hitch in that plan. As Atrios points out today, Washington Mutual is teetering and if they go under it could swamp the FDIC. Like so many other institutions FDIC doesn't have the necessary reserves to cover what is happening.

The Federal Deposit Insurance Corp., whose insurance fund has slipped below the minimum target level set by Congress, could be forced to tap tax dollars through a Treasury Department loan if Washington Mutual Inc., the nation's largest thrift, or another struggling rival fails, economists and industry analysts said Tuesday.

What does this mean to you? Well, it might be a good idea to have some cash literally under your mattress in case your bank goes under and it takes a while for Congress and the Treasury to bail out the FDIC. That contingency means it might take a while before you have access to your money.

I wouldn't worry that you are going to lose your money -- Congress just won't allow that. But it might be a little while before you can access it. So have enough cash at home to pay for things for a little while. I'm sure that checks will still be OK for paying the rent, etc...

Posted by Dave Johnson at 1:01 PM | Comments (0) | Link Cosmos

The Conservative Economic Experiment

The government just took over insurance giant AIG, at a cost of $85 billion to the taxpayers. They just finished bailing out Bear Sterns and Fannie Mae and Freddy Mac. How many hundreds of billions of dollars have gone into other financial bailout efforts?

Since Reagan almost all of us are getting poorer, while a very few get vastly richer. Wages have largely stagnated since Reagan's election even as GDP and productivity have gone up. Pensions are a thing of the past. Health insurance is becoming a thing of the past as well.

As a result of the Reagan and now Bush tax cuts for the rich the government's debt is just about $10 TRILLION.

And corporations now rule us instead of democracy.

The conservative economic experiment failed a long time ago. When are we going to admit it and get things back on track? Will we wait until the United States declare bankruptcy? We're almost there now.

Posted by Dave Johnson at 7:29 AM | Comments (1) | Link Cosmos

September 14, 2008

Stuff Going On -- Wall Street -- On A Sunday

Hey turn on CNBC. Yes, this is Sunday afternoon/evening. Stuff is happening. Lehman Brothers is probably filing for bankruptcy because the Fed is not bailing them out. This means the stock market will realize that the Fed is not going to just bail everyone out, and they aren't going to like that. The AIG insurange giant is in trouble. Washington Mutual is in serious trouble. Bank of America is buying Merrill Lynch. All this on a Sunday.

Update - See new post: Is Your Money Safe?

Posted by Dave Johnson at 5:44 PM | Comments (0) | Link Cosmos

August 24, 2008

Social Security Healthy For Decades

EPI: Social Security — government report shows that program is healthy for decades to comet,

The Congressional Budget Office, the agency charged with providing Congress with objective analyses of federal programs, released a new report today that shows the Social Security program is in good financial shape and will be for decades to come.

Don't believe the lies. Social Security is fine. They borrowed all the money from the Social Security Trust Fund to pay for tax cuts for the rich -- so why is that Social Security's problem?

The money for those tax cuts was borrowed from the Social Security Trust Tund, and America's rich people have had quite a party with that money. That means that America's rich people owe the money to the elderly. It was borrowed from the elderly and it has to be paid back to the elderly. It is wrong to ask elderly retirees to accept less because we gave the money away to rich people to have a big party with.

Posted by Dave Johnson at 7:51 AM | Comments (0) | Link Cosmos

August 13, 2008

That Stimulus Package

Earlier this year we borrowed $152 billion and sent checks to everyone, calling it a "stimulus package." The interest on that borrowing alone will add another $6.8 billion per year to our budget -- forever -- assuming rates don't rise. Great idea.

Borrowing another $152 billion bought us a little bit of time. But last month retail sales dropped, and the economic downturn is back on track just as bad as before. And because of that borrowing the interest that we all have to pay will make it just that much harder to get out of this.

That "stimulus package" didn't create a single job. It didn't fix a single bridge. It didn't increase the country's productivity. It didn't build light rail anywhere. It didn't make us more energy efficient. It wasn't investment. It was more consumption. Borrowing to consume.

What if we put $152 billion into hiring people to retrofit buildings to be more energy efficient? What if we put $152 billion into hiring people to install solar onto the roofs of government buildings? What if we put $152 billion into hiring people to hold summer classes so people would qualify for better jobs? That would be investment. It would lower our future costs or increase our future ability to earn. What has happened to us that this wasn't even considered -- by the Democratic majority in the House and Senate?

Update - Thinking some more about this. In 2001 Bush said that news of the dramatic change from budget surplus to budget deficit after his tax cuts started taking effect was "incredibly positive news."

President Bush said today that there was a benefit to the government's fast-dwindling surplus, declaring that it will create "a fiscal straitjacket for Congress." He said that was "incredibly positive news" because it would halt the growth of the federal government.

(He said this in August, 2001. Later, when people were upset about it the weasel tried to blame 9/11 for the deficits.)

Now we pay almost $500 billion at year for interest on the debt and this amount is rising rapidly. That $152 billion "stimulus package" was supposed to fix the economy. Think about the terrible effect on the economy of paying $500 billion each year just on debt interest.

Posted by Dave Johnson at 3:45 PM | Comments (0) | Link Cosmos

August 4, 2008

The Housing Market's Double Bubble: The Big One Still Has Yet To Pop

Look what the Republicans have done to our economy by following their core "trickle down" economic ideology, which really means borrow and spend. They have run up a massive debt which combined with no oversight, a near total removal of regulations on corporate conduct, and watched and let Neil Bush run a savings and loan (oh, sorry, that was that other Bush presidency -- when S&L owners and Republican campaign contributors robbed us blind and bribed Senators like John McCain and then got a massive government bailout.)

We have all been hearing a lot about housing prices falling, and about the effect housing prices have on the economy. The impact to date, while real, is actually overstated. Why? Well, housing markets and their impact are the turtle of economics, they happen very very slowly. Prices have to fall and people have to sell, when they sell they, if they get less than they expected, may not spend as much as they would have if they had reaped a huge profit.

Of course, the lack of higher equity is hurting those home equity lines people were tapping like McCain at an open bar. But ask yourself, honestly, how many people do you actually know who have either been forced to sell or have sold and not made a profit? Not that many -- yet. People are still holding out.

Unquestionably the economy is slowing. Consumer debt is massive, companies are cutting jobs, inflation is rising, unemployment is a full percentage point ABOVE where it was a year ago, and with a work force of 200 million plus, that's 2,000,000 newly unemployed Americans.

Just this morning, we saw that planned July Job Cuts skyrocketed to over 100,000 meaning that unemployment will continue to climb, the economic impact of those layoffs won't be felt till mid-fall at the earliest when severance packages run out and the reality becomes apparent, new jobs are hard to come by.

But now the time is arriving when we will start to see and feel the real impact of the slowing economy -- layoffs will pick up over the next year and the forecast is for increasing and increasing unemployment, it almost surely will be another point or more higher next year than it is now.

Slowing economies manifest themselves in many ways. But the most prominent is in the corresponding fall in housing prices. In every modern recession, the fall in housing prices follows the economy slowing down. What we have yet to see is the falling economy's effect on housing prices. So if you think prices have already dropped, and might even be reaching a bottom, we think it's the other way around: prices are about to start dropping.

Even Alan Greenspan agrees with us. Greenspan Says Housing Prices Not Yet Near Bottom

Former Federal Reserve Chairman Alan Greenspan said falling U.S. home prices are "nowhere near the bottom'' and the resulting market turmoil isn't showing signs of abating.

How can this be?

How can prices that have fallen 25% in Los Angeles year over year be about to start falling? Well, because unlike every other real estate boom of the past century, this past boom was, in fact, a boom and a bubble. This numbers below, from the Case-Schiller Housing Index showcase that and how the first bubble may have popped, the excess speculation bubble, but the underlying bubble remains, and now will begin to deflate.

Prices in San Francisco were set to an index of 100.00 in January of 2000.

By January 2004 prices had jumped to 155.93, a massive jump by historical standards. This alone is a real estate bubble.

By January 2007, they had already softened a bit but still were at 211.78. This is the second bubble.

Now the index stands at 162.70. Still up 60% since January 2000.

The prices have lost some of the home equity / no money down madness bubble, but have let to be impacted by the slowing economy. And they will be

How far will they go down? Well, economics is ruled by larger trends and post bubble, prices eventually revert to the historical mean.

For example in the ten years from January 1987 to January 1997, prices increased 22%. And, fyi, that's after inflation, meaning a house purchased for $400,000 in January 1987 was actually worth less, in real dollar terms, in 1997, ten years later.

That's not a rant, that's a fact, all of these prices don't include inflation.

In real dollar terms, house prices really don't escalate much. Some studies of ONE HUNDRED YEAR time frames of the US Market show, in real dollar terms, that house prices remain flat.

How can that possibly be?

Well, we've been inundated with ten years of powerful powerful advertising messages that tell us, "housing prices always go up."

We borrowed money and spent it like good Republicans, because housing prices always go up.

We just know we can buy more and more because housing prices always go up.

But they don't.

So how can you estimate what the actual value of a house in San Francisco really is? How far can they fall? Another 40% to historical norms of growth? More? Well, Dave recently calculated how far prices in the San Francisco Bay Area could fall using three different methods.

The first was the rent to price ratio. With this method you take the average rent and calculate the amount of money you need to put into a decent investment to make the same amount. For example, if you are clearing about $833.33 per month ($10K oer year) from a rental property unit (remember to account for maintenance and property taxes and something for your time...) then the price of the property would be around $100,000 for a 10% return ($10K is 10% of $100K) and $200,000 for a 5% return (sufficiently higher than a CD pays right now).

So if houses in your area are renting for about $1400-1500 per month this is a rough way to tell that similar houses might be worth around $150K at best. If you double that and they rent for $2800-3000 then house prices would be $300K. And those prices assume that rental prices are not dropping.

James lives in a rental house in Boston which at market peak might have sold for $800,000 or $900,000 but now rents for $2,400. What does the landlord clear? Not $28,000 because he pays the taxes so more like $20,000. If you had $400,000 in the bank would you be happy with 5% return? Perhaps. But that's the highest amount you can estimate the house is worth in the market. And guess what? 10 years ago, the house was worth about $350,000. So it actually is about the right value.

The next method involved the average person in the area's income affording an average priced property. Look around at prices in your area, and average wages. At what price can the average person (or husband-wife) (or husband-husband/wife-wife in Dave's California and James' Massachusetts) buy a house? Right: uh-oh.

The third method is to look at the historic mean plus inflation. When prices triple in a few years, then when they correct they have to fall to 1/3 of the peak (plus inflation). It's just the way it is.

When Dave calculated these for the Bay Area all three methods came out the same and showed that prices can still fall as much as 30-40%. We say "can" but an economist might say "should."

If it falls 30% from that index where it is now, it only drops to 112. Can't happen? Well, remember that 1987 - 1997 DECADE, it was up 22%. Now, after 8 years, it would be up 12% on that index. That's pretty normal growth to be honest.

And what is cumulative inflation of the past 8 years? Let's make it easy on ourselves, and we'll say an average of 3%. The 100 Index goes from 100 to 126 with the combined effect of eight years of Inflation at 3%.

You see, housing is not the perfect "always goes up" investment. And it is clear that the housing prices in San Francisco and many more places could have 30% - 40% to go down from where they are today.

But, you guessed it, the news is actually worse than this. First, there is a huge amount of excess housing inventory on the market. So this needs to be factored into your thinking about where prices can go. On top of the need for prices to revert to the mean, these extra houses have to find buyers before prices can stabilize. This is supply and demand, nothing more, nothing less.

Next is the effect of gas prices. Many, many housing developments have gone up in areas that are far from city centers and far from non-automobile transportation like light rail or even buses, and buyers are going to be factoring the price of gas now. Along with this, the price to heat and cool the monster homes that developers tended to build will become a consideration and will reduce demand for these houses.

Another factor is that the "boomers" are starting to retire, and will be selling the larger homes in which they raised their families or ended their careers, looking for apartments, condos and even senior facilities. This will also reduce demand.

And, just as the price of energy was not considered when these houses were designed and built but has lately become a factor, one day the implications of global warming will start to sink in. In particular, is the house sufficiently above sea level? Is it located near an area that is experiencing increased fire danger? LOTS of Californians are starting to think about these issues.

But if you think we're wrong, and the above factors are non factors. Consider the recent decline in the stock market, General Motors and their 15.5 billion dollar quarterly loss, that's the recession that's here.

This is the big one: A falling economy always forces housing prices to fall. Even when housing prices are not in a bubble to start with a recession forces prices down. And this hasn't even started acting on housing prices yet -- the falling prices we have seen are not because the economy is slowing, they are causing the economy to slow. The slowing economy will make this worse as people are laid off around the country. The foreclosures we are seeing today are not the result of people losing their jobs, but they are causing people to lose their jobs. THEN the foreclosures that come FROM people losing their jobs will start.

There are no, none, nada, zilch factors that we see driving any hope for a "bottom" in housing prices any time soon.

Thanks Republicans for ignoring the country's problems for so long, refusing to regulate the financial companies, refusing to address the need to find alternative energy sources, refusing to fund mass transit alternatives and refusing to provide oversight and enforcement of our laws. Thanks for bringing us to where we are today.

They borrowed and spent. We borrowed and spent and drove the housing prices up through a double bubble. One bubble may have popped. The next one will soon.

Post-Script: We worked on this post last week and over the weekend. This morning, The New York Times has this article: Housing Lenders Fear Bigger Wave Of Defaults. It echoes many of our arguments in this piece.

Posted by Dave and James at 11:55 AM | Comments (0) | TrackBack | Link Cosmos

August 1, 2008

DO Rich People Create Jobs?

"Rich people create jobs" and "Did you ever get a job from a poor person?" It's a popular line on the right-wing talk-radio circuit. They use it to argue that rich people should pay less in taxes... At right-wing Townhall.com,

The amount of money you make in your lifetime is basically up to you. . . . Who creates these new jobs? Rich people create jobs. There ought to be a national day of recognition for rich people for all they have done for the country. Liberals think if someone makes the right life choices, works hard, and becomes financially independent from the government, they have to be punished with higher taxes to pay for all of the 45 year old minimum wage workers who never learned how to do anything.

Discuss.

Posted by Dave Johnson at 6:42 AM | Comments (4) | TrackBack | Link Cosmos

July 27, 2008

Your Credit Score

A thought: If you don't borrow, you don't care what your credit score is.

If you don't borrow you don't get in so much trouble if you lose your job or have a medical emergency...

If you don't borrow you don't have any payments. If you don't have any payments you have so much more to live on and enjoy.

Posted by Dave Johnson at 2:16 PM | Comments (3) | TrackBack | Link Cosmos

July 14, 2008

Today's Financial Collapse Post: FULLY INSURED

I've written over and over again that you need to make sure you only have money in INSURED bank accounts. That means federally insured. No money market funds or other accounts unless you can see that they are federally insured. Here is a simple rule: if you are getting a higher interest rate that means you are taking a greater risk, and this is NOT the time to take risks.

Friday a big bank, IndyMac, was closed. This means that every single depositor at that bank with more than the insured limit is at risk of losing at least some of their money. What will happen now is the assets of that bank will be sold, and the money divided up among the depositors. If there is enough to cover all of the depositors, that's great. If not, the FDIC will cover all accounts up to $100,000 -- $200,000 for couples and $250,000 for IRAs. (Do I have that right?) IndyMac was the first of what could be many.

BusinessWeek: What if my bank fails? Some questions and answers,

The government's seizure of IndyMac Bank raises concerns for many consumers about whether their banks might be next.

While it is unlikely the nation will see thousands of banks fail as they did during the savings and loan industry collapse in the late 1980s and early '90s, analysts predict there will be more battered financial institutions that are unable to survive in today's marketplace.

[. . .] Q: How can I make sure my money is safe?

A: All deposit accounts worth $100,000 and less are automatically insured by the FDIC. Many retirement accounts, such as IRAs and 401(k)s, are insured to $250,000 per person. But since it's a person's aggregate deposits, and not their individual accounts, that are insured, any amounts over $100,000 deposited at any one bank are not covered.

In a joint account, each depositor is insured up to $100,000.

The FDIC has information about its insurance on its Web site, at http://www.fdic.gov/deposit/deposits/insured/yid.pdf.

Posted by Dave Johnson at 9:07 PM | Comments (0) | TrackBack | Link Cosmos

July 10, 2008

Balancing the Budget and Paying Off the Debt

Oh, so NOW they want budget deficit reductions!

Here's what I think: The money for those tax cuts was borrowed from the Social Security trust fund, and America's rich people have had quite a party with that money. That means that America's rich people owe the money to the elderly. It was borrowed from the elderly and it has to be paid back to the elderly. It is wrong to ask elderly retirees to accept less because we gave the money away to rich people to have a big party with.

And the money we owe the Chinese was borrowed and used to give tax cuts to the rich, and subsidies to oil companies, and no-bid contracts to defense contractors with Cayman Islands addresses.

Since the borrowing began in the early 80s there has been a massive shift in wealth from regular people to a very few wealthy people. Now that the borrowing has to start being paid back they are asking regular people to be the ones who have to work harder, accept less, drive on unrepaired roads and send their kids to bad schools.

We used to have a 90% top tax rate because we felt this kind of concentration of wealth was bad for democracy. Corporations used to foot a much greater portion of the country's tax bill, but this has also shifted onto the backs of regular people. And you know what? When we had those tax policies the economy worked better. In a consumer economy, regular people with more dollars in their pockets mean the economy does better.

I'm an independent contractor so I have to pay 15% to social security on my first dollar to my last dollar - before income and other taxes. That is a direct subsidy to those tax cuts. It pisses me off.

Posted by Dave Johnson at 12:05 PM | Comments (0) | TrackBack | Link Cosmos

July 7, 2008

Columbia Free Trade Question

One of the main Republican talking points, repeated everywhere, is that trade with Columbia is one-way, so we need this "free trade" agreement. Bush, for example, recently said,

"Today almost all of Colombia's exports enter the United States duty-free, while American products exported to Colombia face tariffs of up to 35 percent for non-agricultural goods, and much higher for many agricultural products.

In other words, the current situation is one-sided. Our markets are open to Colombia products, but barriers exist to make it harder to sell American products in Colombia.

I think it makes sense to remedy this situation.

I think it makes sense for Americans' goods and services to be treated just like Colombia's goods and services are treated. So it's time to level the playing field. "

OK, my question is is Columbia allowed to send stuff here with no tariffs, while we can't sell stuff there?

Isn't the answer to impose the same tariff on Columbian goods that Columbia imposes on ours? I mean, duh? Wouldn't that bring us tax revenue, protect American jobs, and encourage Columbia to trade fairly? Duh?

Or is it just the policy of corporate America to let other countries get away with stuff?

Posted by Dave Johnson at 11:18 AM | Comments (1) | TrackBack | Link Cosmos

June 26, 2008

Economy, Stocks, Housing, Oil - How Far Can It Fall?

Which way will the economy go next? Here's a hint: I just read that it will cost the average family in the North East U.S. an extra $2000 to heat their homes this coming winter.

So you tell me - is the economy going to be better? Are people going to be having a grand old spendup this Christmas season?

The public in 2000 chose to "elect" oil company executives to run the government. Immediately the Enron scandal ensued, with the obvious collusion of the recently-elected administration.

Then the public chose to re-elect them in 2004.

So let's not hear any complaining from anyone who voted for these clowns. OK?

Oh, and by the way, the National Debt, which was getting paid down quite rapidly before Bush was elected, is now approaching $10 trillion. That's trillion with a 't'.

Update - And the government run by oil company executives is refusing to allow solar power plants on government land in the Southwest. Are you surprised by that?

Posted by Dave Johnson at 8:12 PM | Comments (5) | TrackBack | Link Cosmos

June 18, 2008

Written From A Desk In DC

Here's another illustration of the reasons people are turning away from corporate media and toward blogs, YouTube, etc.

Why We're Gloomier Than The Economy - washingtonpost.com,

Ask Americans how the economy is doing, and their answer is stark: It is not just bad, it is run-for-the-hills terrible. Consumer confidence is at its lowest level in almost 30 years. Only 12 percent of Americans think the economy is in good shape. On the Internet, comparisons to the Great Depression are widespread.

But the reality is different. According to most broad measures of how the economy is doing, it's not all that grim.

. . . But so far, the economy is holding up better than it did during the last two recessions in 1990 and 2001. Employers haven't shed as many jobs, the unemployment rate is still relatively low, and gross domestic product has kept rising. Things are nowhere near as bad as they were in the Great Depression, or even during the severe recession of 1982-83. The last time consumers were this miserable, in May 1980, the jobless rate was 7.5 percent and inflation was 14.4 percent. Now those numbers are 5.5 percent and 4.2 percent respectively.

OK. First, the jobs lost in the last recession never came back, so we're just starting from where that one left off.

Second, if you read blogs you know that the ACTUAL inflation and jobless rates -- if measured the way they were in 1980 -- are much higher than 5.5 and 4.2 percent. MUCH higher.

This has left economists trying to figure out why Americans' perceptions are so much more negative than the data analysts use to measure how things are going.

So the well-paid economists and Wall Streeters and Washington Post reporters are sitting behind their desks wondering why all those people out in the real world are yelling that tings are bad. THEY just don't see it, so things must be fine, and all those people out in the real world are just making shit up.

I mean, THEY don't get told every day to accept longer hours for less money because their jobs could be outsourced in a minute if the boss gets even slightly displeased with the amount of "Yes, Sir!" you're putting out. THEY certainly don't care if bread is approaching $5 a loaf.

Posted by Dave Johnson at 9:44 AM | Comments (1) | TrackBack | Link Cosmos

June 15, 2008

Today's Housing Bubble Post -- How Far Will Prices Fall?

I was driving this morning and clicking through the AM radio stations. On one station there was a "financial advice" show, with a guy talking about how to make a "236% return" by buying foreclosed houses and renting them out until prices go back up.

In case you were wondering who is buying houses right now, it's the people who fall for this stuff.

Where will housing prices fall to? Prices will revert to the mean, and the mean is where prices were before they started going way up, plus a bit for inflation. Another way is to realize that the price of the house, if rented out, should be low enough that you have positive cash flow after all expenses, and that cash flow should be a lot better than you could get from buying bonds because of the work you are putting into it. (In my area that means house prices should be about a third what they still are.)

But before they do that they will fall a bit below the mean. Here is why. There are several factors that will pressure housing prices even when they reach the pre-bubble level.

• Before prices can normalize people have to stop thinking that prices will go up again, and get rid of property they are "holding on to." So at the point where they reach the normal level there will be little buying interest. In fact people will understand that buying a house can be a good path to financial ruin.
  
• Everyone who wanted a house really, really had a chance to buy a house. If they didn't buy a house when you could get money without even stating whether you had a job...
  
• Next there is the huge buildup of inventory. There are many, many more houses out there than there were before the bubble.
  
• There are all the housing developments built way outside of areas where people work, with the expectation that they would buy at as lower price there and when prices went up they could sell and make the down payment for a place closer to the job. Now that gas prices are up no one will want to buy these.
  
• Then there is the coming rise in utility prices which means that the McMansions are going to cost too much to heat and cool.
  
• The baby boomers are retiring, which means they will want to sell bigger houses and rent or buy smaller houses.

People have no idea how far prices are going to fall.

Posted by Dave Johnson at 3:12 PM | Comments (8) | TrackBack | Link Cosmos

June 2, 2008

SEIU Convention -- These Are PROGRESSIVE People

I am at the SEIU convention in Puerto Rico. There are 3500 representatives here, each representing a number of workers. SEIU now has 2 million members and growth is accelerating.

I'm in a darkened convention hall, listening and absorbing, with things coming at me from all directions. I'm talking to members and leaders. So I am not yet writing a lot. I'm just posting short posts until the larger stories appear and then I'll be writing a lot about this event and ongoing.

This is a great thing happening here. THESE people are going to really make changes happen -- with health care the first priority. This is janitors, health care workers, and others, a real bottom-up movement of people who work hard. This is one of the most diverse crowds I have been in and these are dedicated people. And these are PROGRESSIVE people!

The focus here is beyond the SEIU in particular and labor movement in general. The focus here is on the inequities in our current imbalanced economic system. We all know that it is working for a very few people at the top and not for the rest of us. And SEIU recognizes that they can't make the lives of just their workers better -- even if they could it wouldn't stick if other workers are still at starving wages with no benefits because employers can just use them as a wedge to pressure SEIU workers away from asking for a fair share. So they recognize that they have to work to make the economy start working for everyone.

More to come.

[Disclaimer: Blogger hotel and airfare paid for by the SEIU]

Posted by Dave Johnson at 11:57 AM | Comments (0) | TrackBack | Link Cosmos

May 29, 2008

Gas Prices and Taxes

The price of a gallon of gas at the pump is determined by a complicated calculation. To maintain the same profit level the companies have to balance demand with price. At a certain price point people finally begin to buy less gas. So if the price at the pump goes a bit higher they actually make less profit because people buy less gas.

That is how the price of gas is set.

The important thing to realize is that it is the price at the pump that rules this profit/demand equation. This is set by the demand for gas, not the price of the oil. This means that the idea of a "gas tax holiday" reducing or eliminating the taxes can't make a difference in the price of gas. If the equation shows the profit maximized at $4 per gallon, that is where the price at the pump will be. If they eliminate the tax the oil companies will say "thank you" and pocket the extra money. Because if the computers show the right amount of gas being sold at $4 at the pump, and people are buying a certain quantity of gas at $4 at the pump, then gas is going to be $4 at the pump whatever the taxes are.

In fact, it might enable to companies to raise the price at the pump, because without the tax their profit level is higher per gallon, so they can raise the price and sell fewer gallons to maintain that profit level.

Posted by Dave Johnson at 7:07 AM | Comments (1) | TrackBack | Link Cosmos

May 28, 2008

Today's Housing Bubble Post -- Where Is The Bottom?

When will the housing market reach a "bottom? I hear this question a lot. I hear a lot of people talking about "jumping in" when they think there is a "bottom" so they can "catch the next wave" and "make money." They want to "put some money into real estate."

The market will reach a "bottom" when you no longer hear about the market reaching a "bottom." This is because "bottom" is a term of speculation. The market will reach a bottom when all of the speculation and speculators have been squeezed out, and don't want to get back in again. And then housing prices probably won't and shouldn't go up more than the rate of inflation after that.

A house is not an investment, it is a place to live. You buy a house to live in it, not to get rich. You buy a rental property to make an income off of the rent, not from the increase in price. Price appreciation does not have a place in these calculations.

So here is the answer to when the bottom is reached: when the average person can afford the average house and when the rent you get from a rental unit is just right to yield a desirable rate of return on the investment, after figuring in the costs of maintenance, depreciation, property taxes and other costs.

We are a long, long way from that point. That point will be reached when prices revert to the historical mean. When you look around YOUR neighborhood and think that the average price is just right for the average person, and no one -- repeat: no one -- is talking about making money from housing, that is when prices will have settled back to where they should be.

Posted by Dave Johnson at 1:55 PM | Comments (0) | TrackBack | Link Cosmos

May 27, 2008

Today's Housing Bubble Post -- Home Prices Falling At Record Rate

Home prices fell at record pace in first quarter,

Prices of single-family homes plunged a record 14.1 percent in the first quarter from a year earlier, marking a pace five times faster than the last housing recession, according to the Standard & Poor's/Case Shiller national home price index reported on Tuesday.

. . . Falling home prices have become the scourge of the housing market that is seeing its worst downturn since the 1930s. Home values since last year have been dropping below balances owed on many mortgages, leaving borrowers with no equity and more likely to succumb to foreclosure.

And this is before the ripple effects of recession hit. They will ripple out from this to construction, automobiles, etc. And then the resulting job cuts will ripple back to the housing market. The fallout from the housing bubble's bursting is still only just beginning.

Posted by Dave Johnson at 7:05 AM | Comments (0) | TrackBack | Link Cosmos

May 16, 2008

Today's Housing Bubble Post -- Here We Go Again!

Haven't had enough of foreclosures and financial crises? Don't worry, there's more to come. This pretty much guarantees it: Fannie Mae eases down payment rules,

Fannie Mae said Friday it is easing rules on down payments on home mortgages, replacing a policy that required higher payments in markets where home prices are declining.

Posted by Dave Johnson at 8:13 AM | Comments (0) | TrackBack | Link Cosmos

May 8, 2008

The 'L' Curve

Go see The L-Curve: A Graph of the US Income Distribution. Click Zoom Out a few times, as well.

Posted by Dave Johnson at 3:07 PM | Comments (1) | TrackBack | Link Cosmos

May 2, 2008

Today's Jobs Report

We had a GOOD jobs report today from the ever-trustable Bush administration. Employers cut fewer jobs in April, jobless rate falls,

Employers cut far fewer jobs in April than in recent months and the unemployment rate dropped to 5 percent, a better-than-expected showing that nonetheless reveals strains in the nation's labor market.

All I'll say is that the Labor Department uses a model that said 45,000 jobs were GAINED in construction. As homebuilding nosedives and with commercial construction starting its own nosedive, the Labor Department's model says that 45,000 jobs were GAINED in the economy. We all know that construction jobs were lost, not gained. So we simply do not know what is happening with employment and certainly cannot believe this report.

Remember, since the 2001 recession they say we have had remarkably low unemployment. But we also know that most of the lost jobs never returned, and most new jobs pay much less. Most of the people I know who were laid off in the dot-bomb crash never found similar jobs, and are all making a lot less -- some never found ANY job. (Some work as bloggers, making $60 a month.)

So read this, about the screwy statistics: April Jobs - Another Report From Bizarro World,

Once again the BLS should be embarrassed to report this data. Its model suggests that there was 45,000 jobs coming from new construction businesses, 72,000 jobs coming from professional services, and a whopping 267,000 jobs in total coming from net new business creation.

. . . Repeating what I said last month, virtually no one can possibly believe this data. The data is so bad, I doubt those at the BLS even believe it. But that is what their model says so that is what they report. Just as there is mark to model in the investment world, there is mark to model in the BLS world.

. . . With housing falling like a rock and commercial real estate now following suit, the BLS is assuming that 45,000 new jobs were added in construction. With lenders blowing up and countless self employed real estate professional exiting the business the BLS is assuming 8,000 new jobs were added in financial activities and 72,000 jobs from professional and business services. The total number of jobs added in April by such absurd assumptions was 267,000 jobs.

Posted by Dave Johnson at 10:11 AM | Comments (0) | TrackBack | Link Cosmos

April 30, 2008

Limits On Treasury Bond Purchases?????

I just received this email:

Dear TreasuryDirect Account Holder:

The Savings Bond Purchase Limitation has been changed to $5,000 per series
and TIN per calendar year. Please cancel any pending purchases that exceed
the yearly $5,000 limit.

This is an automatic message from TreasuryDirect.

WTF?

Posted by Dave Johnson at 12:42 PM | Comments (3) | TrackBack | Link Cosmos

April 29, 2008

Today's Housing Bubble Post -- How Low?

This morning I wrote,

We'll see a bottom when the average person can afford to buy an average house - and wants to. We are a long, long, long way from that now -- and keep in mind that we're about to see a big reduction in what the average person can afford as the recession takes hold.

CNN's Money.com today: No brakes on housing prices8

As housing price losses extend, he said, the fall-off in demand for homes will deepen. And Schiff expects to see a national price decline of 30% - and by as much as 50% in the worst hit markets.

50%? In my area a 50% drop from the peak would bring houses down to maybe $400K. Will the average person around here be able to afford a $400K house a year from now, after a year of recession and after a tightening of loan standards? Not a chance. The price runup here saw a tripling to quadrupling of prices. And then they build thousands and thousands of houses in areas surrounding the SF Bay. So prices will have to fall by more than 50% - and the recession will have to end, and loans have to be available, and gas prices will have to fall a lot so commuters can drive to these houses - before houses will start selling again. Sorry for the bad news.

Yes, I do understand the cascading implications of that. It means that pretty much everyone who bought a house (or borrowed money on their home equity) since about 2001 - at least in this area - is going to be owing more on their mortgage than the house is worth. In many cases they will owe a LOT more. And they will decide to either be "good consumers" and sacrifice to protect the bank's profits by making payments for 30 years on a house that is worth hundreds of thousands less than they owe (while their neighbors move in to the foreclosed house next door with payments that are less than half what they are paying), or they will make an economic decision to "walk away," giving the house back to the bank, and make a fresh start. What do you think most people will do?

Posted by Dave Johnson at 4:52 PM | Comments (0) | TrackBack | Link Cosmos

Today's Housing Bubble Post -- Prices Down 12.7% Feb. Year Over Year

It's just getting started and home prices dropped 12.7% in February from the previous year. Home prices fall record 12.7% in past year, Case-Shiller say,

The decline in U.S. home prices quickened in February, with prices down a record 12.7% in the past year for 20 key cities, according to the Case-Shiller home price index released Tuesday by Standard & Poor's. "There is no sign of a bottom in the numbers," said David M. Blitzer, chairman of the index committee at Standard & Poor's. Prices in 19 of the 20 cities have fallen over the past year, with prices in all 20 cities falling month-to-month for six straight months. The biggest declines were in Las Vegas and Miami, with declines of more than 20% in the past year. Prices in Charlotte, N.C., are up 1.5%.

Remember, this is before the impact of a recession on housing sales.

When will we see a "bottom?" (The point where prices stop falling.) We're nowhere near a bottom. We'll see a bottom when the average person can afford to buy an average house - and wants to. We are a long, long, long way from that now -- and keep in mind that we're about to see a big reduction in what the average person can afford as the recession takes hold.

Posted by Dave Johnson at 7:57 AM | Comments (0) | TrackBack | Link Cosmos

April 28, 2008

Bring Back The 90% Top Tax Rate!

When Eisenhower was President the top income tax rate was 91%. But you had to have already made a LOT of money before you hit that rate. (Eisenhower, by the way, supported that 91% top tax rate.)

That 91% tax rate is what got us out of the depression, and helped create a middle class (with the help of strong labor unions). It payed for fighting World War II and the GI Bill, and helped build our highway system, education system and other infrastructure that is in place today (albeit crumbling now from maintenance deferral resulting from tax cuts.) We did all that without borrowing, and the rich still got richer.

Think about this: If tax rates at the top were 91% today, hedge fund managers would STILL be bringing in over $300 million EACH YEAR – but the rest of us would be able to get health care, fix the roads, good schools, and the other benefits that were the reason we - yes, we - enabled this economic system in the first place.

And think about this. If that top rate is 91% it reduces the incentive for corporate CEOs to bribe politicians to put policies in place that funnel all the wealth up to the top.

Who is our economy FOR, anyway?

Posted by Dave Johnson at 11:52 AM | Comments (3) | TrackBack | Link Cosmos

April 25, 2008

Inflation Is 11.6% If Calculated The Old Way

The government changed the way it calculated inflation. If we mneasured inflation the same way we used to it would be as bad as it was during the Ford-Carter years. And we all KNOW this is true because we can see for ourselves that prices are rising so much faster than paychecks.

The Fed's inflation gauge isn't realistic, critics say,

John Williams, who spent more than two decades as an economic consultant to Fortune 500 companies, said the government figures understate the true rate of inflation.

Williams, who runs Shadow Government Statistics in Oakland, which tracks changes in inflation, unemployment, the gross national product and other data, said that over the past 25 years, the government has changed the method of calculating price increases in ways that have lowered the reported inflation rate.

The changes include measuring the cost of shelter by rental prices instead of home values, as well as giving nearly as much weight to high-ticket items such as cars and electronics as to daily necessities such as food and gasoline.

According to Williams, if the government measured inflation based on pre-1982 methods, it would be running at 11.6 percent right now, or 7.3 percent using pre-1998 calculations.

Click through to see a chart that will shock you.

Posted by Dave Johnson at 9:19 AM | Comments (0) | TrackBack | Link Cosmos

April 24, 2008

Today's Housing Bubble Post -- Sales Drop To Lowest Level In 16 1/2 Years

New home sales plunge to lowest level in 16 1/2 years,

Sales of new homes plunged in March to the slowest pace in 16 1/2 years as a two-year housing downturn extended into the start of another spring sales season. The median price of a new home in March compared to a year ago fell at the fastest clip in 38 years.

. . . The median price of a home sold in March dropped by 13.3 percent compared with March 2007, the biggest year-over-year price decline since a 14.6 percent plunge in July 1970.

This made me laugh out loud:

Some analysts said they believe the slide in sales may be close to ending although they said any rebound is likely to be slow and anemic with prices continuing to fall, possibly until this time next year.

Listen, the problems we have seen so far have come about BEFORE the economic slowdown. Think about what that means. These foreclosures and people otherwise needing to sell their houses, etc., are not the result of a stressed economy. And we're just beginning to have a stressed economy. So we haven't even started to see the usual problems that come from layoffs, etc. So no, I don't think we are at a "bottom." Sheesh.

Posted by Dave Johnson at 8:48 PM | Comments (0) | TrackBack | Link Cosmos

April 15, 2008

Today's Housing Bubble Post - Foreclosures Up 57%

Foreclosures jump 57 percent in last 12 months,

Home foreclosure filings surged 57 percent in the 12 month-period ended in March and bank repossessions soared 129 percent from a year ago, as homeowners struggled to make mortgage payments, real estate data firm RealtyTrac said on Tuesday.

This brings up something I have been thinking about. So many people are "looking for the bottom." (Signs the bottom is behind us?) They think things are "leveling off." Well guess what, all the problems, all the foreclosures, all the credit card debt, all developed before the economic downturn began. And now we are entering a recession. No question. And a recession means that people are going to lose jobs, companies are going to go under, etc. And those people and companies are not going to be able to make their payments.

So no, we are not looking at a "bottom." We're looking at the beginning.

Posted by Dave Johnson at 8:43 AM | Comments (0) | TrackBack | Link Cosmos

March 31, 2008

Higher Interest = Higher Risk

Anyone reading this who still has any money anywhere other than federally insured bank accounts, this is another warning: you can lose money in a money market fund. And, of course, you can lose money in stocks. And people are realizing that you can lose money in real estate.

The REASON you get higher interest rates or other returns is because there is more RISK. This is not a time to have any money anywhere where there is any risk.

Posted by Dave Johnson at 11:53 AM | Comments (0) | TrackBack | Link Cosmos

March 27, 2008

Recession the Movie

From the people who brought you "The Iraq War"...

... comes a sequel unlike anything you've ever seen:

Posted by Dave Johnson at 11:59 AM | Comments (0) | TrackBack | Link Cosmos

March 21, 2008

Today's Housing Bubble Post - The Fine Line

There is a fine, fine line between a gain and a crushing decline:

Posted by Dave Johnson at 7:02 PM | Comments (0) | TrackBack | Link Cosmos

March 17, 2008

From Take Back America - Monday

This was originally posted at Speak Out California

I am at the Take Back America conference in Washington DC.

One common discussion here at Take Back America is that conservative economic policy chickens are coming home to roost. Another phrase I am hearing is Wild West Banking. People here are talking about the big story in the news right now: an economic and financial crisis that some economists are saying is the worst since the depression.

For decades, as conservative economics increasingly led to lower wages, loss of pensions and health insurance, and general "you're on your own" economic insecurity many people have been using up their savings while other people turned to borrowing to make up the difference, taking out second mortgages or running up credit cards.

Meanwhile the financial system, increasingly deregulated, cooked up riskier and riskier schemes -- like loaning money to people and companies to use to make their payments on their existing debt.

Now we appear to be reaching the limit of people's ability to borrow. And when people and companies have been borrowing to meet their payments this can mean a collapse. When people can't pay the mortgages the financial companies aren't receiving their payments. So they can't make their payments, and the companies they aren't paying can't make their payments. Think of this as a spiral of debt extending from the overextended consumer at the bottom to the biggest financial companies at the top. Now that spiral is beginning to "unwind."

This is happening because of so many years of conservative government focused on deregulating and on protecting the interests of the corporations and the wealthy instead of protecting the interests of the public from the moneyed interests. This is what conservatives do. A while back I wrote a very short post titled Republicans and Economics:

...there was a REASON that Americans were loath to elect a Republican into the government for an entire generation after the Great Depression: They remembered.

But eventually the public forgot, and the moneyed-interests used their money to again become the dominant voice in the public discussion. They used this dominance to persuade people to dislike unions, accept 401Ks as alternatives to pensions, and all the rest of the things that have led to another economic crisis. But even many of my progressive readers didn't understand what I meant. So I had to add an update,

Previous generations REMEMBERED. There was nothing to add. Over time people have forgotten how Republican economics caused the depression, and how they fought every single program that helped the people at the expense of the wealthiest and the powerful corporations. (And in fact led to the prosperity that the wealthiest and corporations enjoyed since.)

But now people do not remember how concentration of wealth, corporations preying on citizens, anti-union policies, etc. LED TO the economic collapse.

The depression was ended by pro-union policies, redistributive taxes, REGULATIONS on businesses and the fuinancial sector, and an understanding that We, the People run the government, and the reason we have corporations is for OUR benefit, not just the benefit of the few.

Over time, as I said, people forgot. And here we are again.

How do we help the public understand what is happening and how conservative policies are responsible?

Click to continue

Posted by Dave Johnson at 2:08 PM | Comments (0) | TrackBack | Link Cosmos

Today's Financial Crisis Post - Get Out Of Money Market Funds!

For years and years and years people have been saying that Americans are taking on too much debt. The government has been borrowing too much. People are using credit cards too much. Second mortgages used for consumption are too much debt. There is too much corporate and financial system debt.

Debt has been fueling the growth we have been seeing for some time. It fueled the housing bubble. And now with the housing bubble bursting the debt bomb might also be exploding.

You might be hearing about problems on Wall Street and with the big financial firms. You might be hearing about the mortgage market having problems.

Well today you'll be hearing about big financial firms having serious trouble. Over the weekend a number of things happened. The big firm Bear Stearns basically went under and the government helped JP Morgan buy them for $2 a share. And the Federal Reserve did an emergency rate cut last night, with another expected tomorrow.

Asian stock markets are way down, and when the markets open this morning there are fears that it will drop.

Part of what happened with Bear Stearns is there was a "run." People were worried that the company would go under and asked for their money. And Bear Stearns didn't have it. This means that other people will be wondering if their money in other firms is also at risk, and might be asking to get it out. This might be what happened over the weekend.

If you have any money in money-market accounts, move it into federally insured bank accounts. You can lose money if it is in these accounts. You shouldn't have any money anywhere that is not federally insured until this thing blows over. Federally. IF, if we are looking at a systemic problem the private insurance companies will also be affected.

Have I mentioned that you shouldn't have any money anywhere that is not federally insured right now?

Posted by Dave Johnson at 5:38 AM | Comments (0) | TrackBack | Link Cosmos

March 15, 2008

A Song For Wall Street: Under Pressure

Mm ba ba de
Um bum ba de
Um bu bu bum da de
Pressure pushing down on me
Pressing down on you no man ask for
Under pressure - that burns a building down
Splits a family in two
Puts people on streets
Um ba ba be
Um ba ba be
De day da
Ee day da - that's o.k.

It's the terror of knowing
What the world is about
Watching some good friends
Screaming 'Let me out'
Pray tomorrow - gets me higher
Pressure on people - people on streets
Day day de mm hm
Da da da ba ba
O.k.
Chippin' around - kick my brains around the floor
These are the days it never rains but it pours
Ee do ba be
Ee da ba ba ba
Um bo bo
Be lap
People on streets - ee da de da de
People on streets - ee da de da de da de da
It's the terror of knowing
What this world is about
Watching some good friends
Screaming 'Let me out'
Pray tomorrow - gets me higher high high
Pressure on people - people on streets
Turned away from it all like a blind man
Sat on a fence but it don't work
Keep coming up with love
but it's so slashed and torn
Why - why - why ?
Love love love love love
Insanity laughs under pressure we're cracking
Can't we give ourselves one more chance
Why can't we give love that one more chance
Why can't we give love give love give love give love
give love give love give love give love give love
'Cause love's such an old fashioned word
And love dares you to care for
The people on the edge of the night
And loves dares you to change our way of
Caring about ourselves
This is our last dance
This is our last dance
This is ourselves
Under pressure
Under pressure
Pressure

Posted by Dave Johnson at 7:22 PM | Comments (1) | TrackBack | Link Cosmos

March 7, 2008

Today's Housing Bubble Post - Nowhere Near A Bottom

Hale "Bonddad" Stewart: The Housing Market Is Nowhere Near Bottom.

Go see his chart of housing prices, to see how far prices have yet to fall.

A house near us was offered at $800,000, after several months only one offer came in for $500,000, and they accepted it. But all I can think of is some sucker just spent $500K for a 3 bedroom house that is going to be worth about $300K next year. Another in our area, asking $750K, sold at $450K. Still way too high.

Posted by Dave Johnson at 9:39 AM | Comments (0) | TrackBack | Link Cosmos

March 4, 2008

Today's Housing Bubble Post - "Deepest decline since the Great Depression"

The bloggers were calling it a few years ago, talking about how this was a bubble, and that it would lead to a dramatic collapse. The professionals weren't seeing it. The lenders were acting like prices alway go up. (Remember the same thinking with the stock collapse?)

And now here we are.

Housing in 'deepest, most rapid' decline since Great Depression,

"Housing is in its "deepest, most rapid downswing since the Great Depression," the chief economist for the National Association of Home Builders said Tuesday, and the downward momentum on housing prices appears to be accelerating.
The NAHB's latest forecast calls for new-home sales to drop 22% this year, bringing sales 55% under the peak reached in late 2005. Housing starts are predicted to tumble 31% in 2008, putting starts 60% off their high of three years ago. "

And this is just the beginning. Prices always revert to the mean, and the mean is going to be mean.

Posted by Dave Johnson at 2:22 PM | Comments (0) | TrackBack | Link Cosmos

February 27, 2008

Today's Money Warning Post

Today's money warning comes from : Mish's Global Economic Trend Analysis,

Last Warning

If you are over the FDIC limit at any bank, do something about it immediately.

Posted by Dave Johnson at 10:31 PM | Comments (1) | TrackBack | Link Cosmos

February 22, 2008

Today's Housing Bubble Post - If Prices Fall Further

Do Reporters Realize that House Prices Can Fall?,

If they did realize that house prices could fall then they would be discussing this possibility in the context of the Office of Thrift Supervision's proposal to have the federal government buy up bad mortgages, paying the current market price of the homes. The plan would give the current holders of the mortgage a certificate equal to the difference between the money outstanding on the mortgage and the current value of the home. The reports then tell us that if the house price does not rise back to the amount owed on the mortgage by the time it is sold, then the mortgage holder will eat the loss.

That's fine, but what happens if house prices fall further? I didn't hear this scenario mentioned in Market Place's discussion of the proposal on the radio this morning, or indeed in any other reporting on this proposal.

Answer - if prices fall further, the taxpayers get to hand even more dollars to the banks. Republicans bail out big business and let the rest of us pay for it. Always. The branding is that Republicans are anti-government and fiscally responsible, but it's just words. Look at what they do, not what they say. They get into office, destroy the government, destroy small businesses, and hand all of our tax dollars to their cronies. Did I leave out the part about getting rid of all oversight (regulation and law enforcement) so the big corporations can rob us blind?

Government buying bad mortgages? Great, just great.

Posted by Dave Johnson at 9:49 AM | Comments (0) | TrackBack | Link Cosmos

February 19, 2008

Just How Bad Are The Economic Indicators?

Just how bad are the economic indicators?

This bad:

Due to budgetary constraints, the Economic Indicators service (http://www.economicindicators.gov) will be discontinued effective March 1, 2008.

Posted by Dave Johnson at 5:34 PM | Comments (1) | TrackBack | Link Cosmos

February 18, 2008

Get Out Of Money-Market Funds

"Suspended Redemptions."

Yes, I have been harping on this, but once again: if you have money in a money-market fund, transfer it to an insured bank account.

This is not about a money-market fund, but it shows what is happening in the financial markets. This could happen to your money, too. (I actually know someone who has lost a bundle in a hedge fund.)

Citigroup Stops Withdrawals from Hedge Fund: WSJ,

Citigroup has barred investors in one of its hedge funds from withdrawing their money, and a new leveraged fund lost 52 percent in its first three months, the Wall Street Journal reported Friday.

The largest U.S. bank suspended redemptions in CSO Partners, a fund specializing in corporate debt, after investors tried to pull more than 30 percent of its roughly $500 million of assets, the newspaper said. Citigroup injected $100 million to stabilize the fund, which lost 10.9 percent last year, the newspaper said.

What does this mean? It means that people who parked money in this fund can not take money out, and are likely to lose much of it -- even after Citigroup pumped $100 million of their own money in to try and save it. This has been happening to other hedge funds as well.

If you are getting a "good rate" on your money right now, you should be worried. There is a reason they say "risk equals return." That means that you have to take greater ricks to get a higher return. Banks are paying squat right now, but what rate of return is worth losing all of your money? This is not a low or moderate risk environment. This is a time of very high risk. People and companies are defaulting on their loans left and right. Put your money somewhere safe and insured right now. Pay off your debts. Tie down your finances because the storm approaches.

Did I say "insured"? I mean Federally insured. And that means a bank. Period.

If I'm wrong and you do this, what do you lose? A little bit of higher interest. If I'm right and you do this, what do you NOT lose? Everything.

(Through Atrios)

Posted by Dave Johnson at 11:47 AM | Comments (1) | TrackBack | Link Cosmos

February 17, 2008

Bring Back Protectionism

America used to have a policy of protecting our wages against unfair competition from low-wage countries. We placed a tariff on imported goods made by workers who were paid substandard wages. We protected our national interest.

The idea was to encourage the companies that made those goods to pay better wages. This way their countries' economies would improve and their workers would be able to buy the things that we make. Thus, the policy of protectionism was a way to improve living standards for workers everywhere, growing our own economy and improving our standard of living in the process.

The money collected from the tariffs was used for our common good: for example, it was spent on improving our country's infrastructure and education system (including science, research and development) so we could retain and improve our competitive position, as well as retraining workers whose industries were affected by changes in trade patterns.

Protectionism was generally our country's policy until a few decades ago. That was back when our country was OUR country -- for We, the People -- and our economy was OUR economy. And it worked. Our living standard continually improved. Then we changed to a "free trade" policy, meaning our workers work pretty much for "free" and big corporations are "free" to do anything they want. Additionally, without the revenue from tariffs, we have to tax our manufacturers more heavily, which makes them even less competitive internationally.

Since then average wages have stagnated and our pensions and health insurance have been disappearing, as have our savings. The country's trade debt has been increasing alarmingly. And corporate control over all of us has become near-total. Corporations are able to get their way by intimidating employees with the fear of losing our jobs to outsourcing, and intimidate governments by threatening to move to lower wage countries.

So it is time to bring back protectionism. It worked.

Posted by Dave Johnson at 2:40 PM | Comments (1) | TrackBack | Link Cosmos

February 8, 2008

Taxes And Unions Got Us Out Of The Depression

I wonder why no one has pointed out the real reason the Republicans filibustered the "Stimulus Bill" this week? They blocked an expansion of Food Stamps, an extension of unemployment benefits, assistance for disabled veterans, help for seniors and a boost for renewable energy.

Here is the reason: Those were not about taxes.

The Democrats caved (of course), so the public now has validation of the notion that taxes harm the economy.

Message: Economy in trouble? Tax rebates and tax cuts will "stimulate" things.

So will this "stimulus" help? Maybe a slight bit. The government will borrow another $150-or-so billion and pump it into the economy. The deficit will be even bigger. The world will trust the dollar even less.

Here is something to think about. This economic problem is about debt. Since Reagan the country and the people in it have been borrowing huge amounts of money to keep things going. (Except for the years that Clinton balanced the budget and was paying back some of the debt.)

Taxes and unions got us out of the depression. Redistribution of income. Taxes on the rich, the money used to build infrastructure and provide good jobs, and unions to force the corporations to give raises and benefits. In a consumer economy you want more money in the hands of the consumers - not the rich. DUH!

Posted by Dave Johnson at 8:00 AM | Comments (1) | TrackBack | Link Cosmos

February 1, 2008

Today's Collapsing Economy Post - Jobs DROP

Payrolls see first drop in 4-1/2 years,

Nervous employers cut 17,000 jobs in January — the first such reduction in more than four years and a fresh sign that the economy is in danger of stalling.

But,

The unemployment rate declined a notch, from 5 percent in December to 4.9 percent in January. The jobless rate — calculated from a different statistical survey than the payroll figures — dipped as people, perhaps discouraged by their prospects, left the labor force for any number of reasons.

And U.S. says construction spending dropped 1.1% in December,

Spending on U.S. construction projects fell by 1.1% in December as outlays on private residential construction took another tumble, government data showed Friday.
The drop was bigger than expected by economists surveyed by MarketWatch, who were looking for a decline of 0.5% in December.

Where is all the money going?,Exxon Mobil posts record profits,

Exxon Mobil Corp. on Friday posted the largest annual profit by a U.S. company — $40.6 billion — as the world's biggest publicly traded oil company benefited from historic crude prices at year's end.

Exxon also set a U.S. record for the biggest quarterly profit, posting net income of $11.7 billion for the final three months of 2007, beating its own mark of $10.71 billion in the fourth quarter of 2005.

Here we go. And remember, get your money out of money-market funds!

Posted by Dave Johnson at 7:20 AM | Comments (0) | TrackBack | Link Cosmos

January 31, 2008

Today's Collapsing Economy Post - Jobs Down, Stocks Up

Do these headlines have anything to do with each other? U.S. first-time jobless claims rocket higher in latest week, U.S. Economy: Consumer Spending Slows, and finally, U.S. Stocks Rise.

For Wall Street everything, everything, everything is about the Federal Reserve bailing them out with interest rate cuts. So the worse the economic news, the more they expect the Fed to cut rates, and stocks go higher. Seriously, just listen to the talking heads on CNBC or the other networks - everything, everything is about what the Fed will do and about what the dealmaking companies will do and not about how well WE - you and I - are doing.

Just who IS our economy for, anyway?

Posted by Dave Johnson at 12:50 PM | Comments (0) | TrackBack | Link Cosmos

January 28, 2008

Today's Housing Bubble Post - New Home Sales Fall by Record Amount

Yahoo: New Home Sales Fall by Record Amount:,

Sales of new homes plunged by a record amount in 2007 while prices posted the weakest showing in 16 years, demonstrating the troubles builders are facing with a huge backlog of unsold homes.

CNN: New home sales: Biggest drop ever,

New home sales posted the biggest drop on record in 2007, according to the government's latest look at the battered housing market, as a year that saw a meltdown in the mortgage market and a drop in home values ended with yet more signs of weakness.

December sales came in at an annual rate of 604,000, the Census Bureau report showed, down from 634,000 in November, which was also revised lower.

The reading was well below the consensus forecast of 645,000, according to economists surveyed by Briefing.com.

. . . No bottom yet Adam York, an economist with Wachovia, said the report confirms fears that the housing market won't bounce back anytime soon.

"We're expecting sales to decline into at least mid-2008," he said. "We think housing still has a long way to go." [emphasis added.

What is there to add to that? I keep hearing that "we're at a bottom." I got yer bottom, right here.

Posted by Dave Johnson at 8:57 AM | Comments (0) | TrackBack | Link Cosmos

January 27, 2008

Today's Housing Bubble Post - What Would A Big Corporation Do?

There is a discussion over at Calculated Risk on whether it is "smart" to just walk away from a house that is worth less than you owe. Many states allow you to do that, without owing the difference. In those states, giving the house back pays the loan in full if it is a first mortgage. (Yes, it ruins your credit rating, but you could save hundreds of thousands of dollars.)

What about the moral question? Aside from whether it is smart or not, is it moral? I wonder if a better question is, when dealing with a big corporation, should you ask what the corporation would do if the shoe was on the other foot? I'm thinking about corporations that use the bankruptcy laws to get rid of union contracts and pension obligations, and that always do the "smart" thing at the expense of the employees, customers, public and even shareholders...

What do you think? Especially our conservative commenters?

Posted by Dave Johnson at 8:22 AM | Comments (1) | TrackBack | Link Cosmos

January 23, 2008

Republicans and Economies

Ladies and gentlemen, there was a REASON that Americans were loath to elect a Republican into the government for an entire generation after the Great Depression: They remembered.

Update - I was waiting for a comment asking me to explain what I mean, because it would make my point.

Previous generations REMEMBERED. There was nothing to add. Over time people have forgotten how Republican economics caused the depression, and how they fought every single program that helped the people at the expense of the wealthiest and the powerful corporations. (And in fact led to the prosperity that the wealthiest and corporations enjoyed since.)
But now people do not remember how concentration of wealth, corporations preying on citizens, anti-union policies, etc. LED TO the economic collapse.

The depression was ended by pro-union policies, redistributive taxes, REGULATIONS on businesses and the fuinancial sector, and an understanding that We, the People run the government, and the reason we have corporations is for OUR benefit, not just the benefit of the few.

Over time, as I said, people forgot. And here we are again.

Posted by Dave Johnson at 6:04 AM | Comments (1) | TrackBack | Link Cosmos

January 22, 2008

Today's Housing Bubble Post - Go Read

Go to The Agonist to read today's housing bubble post: Most Clueless Banker of the Year Award. It is a comprehensive explanation of that happened, including a timeline.

[. . .]Like the real estate industry in general, banks believe and tell their customers that home values never go down. Their internal models are predicated on this assumption. Everything communicated to the consumer tells them that their home is a piggy bank of ever-increasing value. Withdrawing cash from the piggy bank is made as easy as possible. Consumers are given loans allowing them not to pay any interest at all and build up a balloon balance, which will assuredly be taken care of down the road by market appreciation. These option characteristics allow the banks to charge even higher points up front and stick penalty clauses into mortgages forbidding the homeowner from paying off the loan until the bank receives all fees due them.

Go read.

Posted by Dave Johnson at 7:39 PM | Comments (0) | TrackBack | Link Cosmos

Fed Drops Rates 3/4 Percent

Update Market has been open for four minutes, Dow down 439... NASDAQ down 118.

Update 2 Market open 15 minutes, Dow down 369 ... NASDAQ down 78.

Update 2 Later, markets recovered for now, DOW down 50 ... NASDAQ down 23.

People are nervously waiting for the stock market to open. So the Federal Reserve made and "emergency" 3/4 point drop in interest rates. This is a very big drop.

The backdrop: stocks around the world plunged yesterday while our market were closed for the Martin Luther King holiday.

Stock markets across Asia plunged even farther and faster on Tuesday than they had on Monday, as anxious sellers dumped huge numbers of shares on worries that an economic slowdown in the United States could drag down growth around the world.

. . . The Japanese stock market dropped 5.7 percent, for the worst two-day loss in 17 years, while the Australian stock market tumbled 7.1 percent, its worst single-day loss in nearly two decades. The Shanghai market lost 7.2 percent while the Hang Seng index in Hong Kong plummeted 8.7 percent.

Inflation is running at 4.1% and the Fed's interest rates are now 3%. The Fed will PAY banks 1.1% to borrow.

What this means: bailing out the stock market by dropping the dollar, increasing inflation nd trying to trigger an asset bubble like the bursting housing bubble. Remember, it was ridiculously-low interest rates that caused that bubble.

By the way, I'm not sure if I have mentioned this: Do not leave any money in "money-market funds" right now. Make sure that your money is in FEDERALLY INSURED ACCOUNTS. 'Federally' is the key word there. And learn the rules on how much you can have in any accounts and still be insured.

Posted by Dave Johnson at 6:17 AM | Comments (0) | TrackBack | Link Cosmos

January 21, 2008

Today's Housing Bubble Post - Stocks Plunge Worldwide

The problems of the housing bubble are catching up to us. The real estate crash has started, bringing big losses to the big financial firms -- over $100 BILLION in write-downs so far!

And in the past few weeks the stock market has been catching on that things are not so great anymore. But today - with markets closed in the U.S. in honor of Martin Luther King Day - stocks have been plunging around the world. Markets in Asia down as much as 7%, even more. Europe as well. Canada down.

Dow futures are down dramatically - 540 points, more than 4% - which could mean a very bad day tomorrow - or not.

Stocks Plunge Worldwide on Fears of a U.S. Recession - New York Times,

“There is indeed some panic,” said Thomas Mayer, the chief European economist at Deutsche Bank in London. “What we’re seeing, in Europe and Asia, is that the markets are pricing in a recession.”

The sell-off was evenly distributed from West to East, with indexes plunging in London, Paris, Frankfurt, Tokyo, Hong Kong, Seoul and Bombay. The Frankfurt Stock Exchange’s Dax index plummeted 7.2 percent, its steepest one-day decline since Sept. 11, 2001. The 7.4 percent drop in Bombay’s Sensex index was the second-worst single-day tumble in its history.

Remember what I said about money market funds. Make sure that your money is in FEDERALLY INSURED ACCOUNTS.

Posted by Dave Johnson at 5:01 PM | Comments (0) | TrackBack | Link Cosmos

January 20, 2008

Today's Housing Bubble Post - Cashing In Before Crash

Also titled "I told you so!"

In the LA Times today, How we cashed in before the housing crash,

Our friends said we were crazy. Relatives asked whether we were in financial trouble. But in April 2005, my wife and I bailed out of the American dream. We sold our two-bedroom Pasadena condominium and became renters again.

We got nearly three times what we had paid for the place nine years earlier. It seemed to us like a staggering profit -- and a sign that the market had been pumped up beyond reason.

. . .But at the time, a lot of people thought we had sold too early. To stay on course, I adopted a personal anthem. It was a Public Enemy song that hit big in 1988 during the previous real estate run-up: "Don't Believe the Hype."

Sold too early. And now they're saying "We're at the bottom." Right.

Posted by Dave Johnson at 1:24 PM | Comments (0) | TrackBack | Link Cosmos

January 16, 2008

Republican Solution To Economy

Republicans are proposing a "stimulus proposal" for the economy: an additional 25% cut in corporate taxes. Guess who will make up the difference, one way or another?

Think Progress captured this:

At a press conference today unveiling the stimulus proposal, Rep. Michele Bachmann (R-MN) justified the conservative plan to give tax breaks to corporations — instead of working Americans — by arguing that people actually like working long hours:

I am so proud to be from the state of Minnesota. We’re the workingest state in the country, and the reason why we are, we have more people that are working longer hours, we have people that are working two jobs.

Got that? Republican economics are GOOD because people WANT TO work long hours, and two jobs.

As for paying for corporate tax cuts? You either have to pay higher taxes to make up the difference, or the money has to be borrowed. In 2007 we paid $433 billion interest on previous Republican borrowing. But there are other, serious costs as well. The plunge of the dollar is a consequence of the borrowing. The rising cost of oil is, too. And soon we will all be experiencing more costs of the borrowing as the economy collapses.

The question is, what are you going to do about it?

Posted by Dave Johnson at 2:15 PM | Comments (0) | TrackBack | Link Cosmos

January 11, 2008

Full-Scale Attack On Social Security "Welfare"

Headline at Drudge: US TRIPLE-A CREDIT RATING UNDER THREAT FROM SOARING WELFARE COSTS...

It links to: FT.com / Home UK / UK - US's triple-A credit rating 'under threat',

The US is at risk of losing its top-notch triple-A credit rating within a decade unless it takes radical action to curb soaring healthcare and social security spending, Moody's, the credit rating agency, said yesterday.

The warning over the future of the triple-A rating - granted to US government debt since it was first assessed in 1917 - reflects growing concerns over the country's ability to retain its financial and economic supremacy.

OK:

1) Social Security and Medicare are not "welfare."
2) Social Security is not the problem. The problemis that the government owe money to Social Security. Reagan and then the Bushes borrowed money from the fund to give tax cuts to the rich, and now the fund wants sime of it back. (Clinton was paying it back.)

Update - How come the people so concerned about the financial condition of the country - namely the massive debt - never call for tax increases to start paying down that debt? It worked for Clinton and resulting economy of the 90's was good for everyone.

Update II - Why not a call to reduce the huge, vast, unbelievable military budget?

Posted by Dave Johnson at 9:28 AM | Comments (1) | TrackBack | Link Cosmos

January 10, 2008

Federal Reserve To Inflate

Buy gold. Buy non-US currencies. The Fed is going to try to inflate us out of the mess. Dow bounces back as Bernanke signals more rate cuts

Posted by Dave Johnson at 9:50 AM | Comments (0) | TrackBack | Link Cosmos

January 9, 2008

Do Taxes Drive The Economy?

This post originally appeared at Speak Out California.

Do taxes drive California's economy?

The governor says California is in a budget crisis. He says we need to cut the state's spending "across-the-board," and the Republicans insist that tax increases and other alternatives are off the table. The media largely seem to be going along with taking discussion of alternatives off the table, and consequently Democrats are too intimidated to bring them up.

But what they are missing is that taxes drive the economy.

Tax-cut proponents say that increasing taxes on the wealthy "takes money out of the economy." I wonder where they think the money goes? Do they think it just goes up into the air and disappears?

They don't seem to -- or pretend not to -- understand that taxes come right back into the economy. It is taxes that pay the salaries of teachers and police officers and that build and maintain our roads. Then that money circulates from those teachers and construction workers to support our stores and movie theaters and restaurants and to buy homes and cars.

What would the effect be of a cut? In California there are approx. 308,000 teachers. The Governor is proposing a 10% "across-the-board" tax cut. Imagine the economic consequences if this cut means laying off 10% of those teachers -- 30,000 people? This is not the precise plan but it illustrates that spending cuts do not help the economy of California. In fact it is spending cuts, not tax cuts that "take money out of the economy."

And anyway we want what our taxes buy us! We want our teachers and firefighters and roads and courts and water & sewer systems. Cuts are not what we want.

Borrowing more money is not the solution, either. One result of the conservative tax-cutting fever of recent years has been massive borrowing at the state and especially the federal level. But people have not been told that borrowing is in reality a spending increase because we have to pay interest on that debt. California is spending $4 billion this year to pay interest on bonds and that is spending that cannot be cut. That is a lot of spending, and we would not have such a serious deficit if we did not have to pay out that $4 billion.

So the solution to the budget shortfall has to include all the tools in our toolbox. First, we have to close tax loopholes. We need to restore the vehicle license fee (which the Governor calls a tax). Then we need an oil-severance tax - we are the only state in the country that drills oil that doesn't have one! And we have to stop being a "donor state" to the federal government. We send over $50 billion to the feds that we do not get back for programs or services.

Finally, we need tax increases on corporate profits and the wealthy. Here is why: tax money is used to build the very things that ensure our prosperity. It is used to build the economy that enables some of us to become very wealthy and stay that way. Our tax-supported legal system enables and protects businesses and investors. Our tax-supported economic infrastructure defines and regulates the financial system under which investment occurs to build these businesses. Taxes built the physical infrastructure (like schools and roads) that helps us all in ways that everyone understands. But taxes also built and support the legal and economic infrastructure that is crucial for economic growth as well. The Anderson Forecast states that the two keys to a successful economy are infrastructure and education, and that is tax dollars. Entrepreneurs and businesses look for those qualities when determining where to set up shop.

In other words, the wealthy and businesses have benefitted the most from government investment and they have the most money as a result, so they should be contributing the most. And middle-class taxpayers are currently being hammered by a different kind of oil tax -- huge increases in gas prices at the pump while the oil companies are recording the most profits by any companies ever. And because of previous spending cuts, the middle class, and particularly our students, are experiencing increases in fees such as college tuition while the benefits of the taxes they pay are going disproportionately to the wealthy.

Of course taxing the very wealthy and corporations might very well take some money out of the Cayman Islands' or other tax-haven economies, bringing it back to California. (One building in the Cayman Islands is the business address of more than a thousand American corporations.) And increasing taxes on the wealthiest might even cause someone to have to buy a slightly smaller yacht or private jet in order to be used to pay a few hundred teachers or firefighters.

Click to continue

Posted by Dave Johnson at 9:12 AM | Comments (1) | TrackBack | Link Cosmos

December 30, 2007

Today's Housing Bubble Post - Next Year, Not Just Subprime

So far we have been hearing about a "problem" with "subprime" mortgages that went to people with bad credit. Then we heard about problems with "adjustable" mortgages where the payments go up after a period of time and mortgages with no down payments and mortgages where the borrower didn't have to verify how much income they really had. You can readily see where there could be problems with all of those.

My prediction for next year is that the problem will spread to regular mortgages given to regular people with good credit. The reason I think this will happen is that I think housing prices are going to fall quite a bit. If prices go to where they should be according to historical norms, or according to the historic ratio between rents and prices,or according to what always happens when bubbles pop, then they are going to fall as much as 40-50%. Maybe even more. (And never mind that the "boomers" are starting to retire and will not need the houses many of them have further increasing inventory and decreasing demand...)

So next year we're going to see a LOT of regular people with regular mortgages go "underwater" -- meaning they will owe a lot more than the current market price of their houses. In many states the regulations allow people to get out of their mortgages by giving the house to the lender and not have to make up the difference if the mortgage is for more than the house can sell for. And many will do exactly that. (Which will even further increase inventory and put pressure on prices.)

So next year I predict the credit crisis is going to get a LOT worse.

Posted by Dave Johnson at 1:19 PM | Comments (6) | TrackBack | Link Cosmos

December 28, 2007

Today's Housing Bubble Post - New Home Sales Fall More And Expected

A bulletin arrived in my e-mail this morning with the headline, "U.S. new-home sales fall more significantly than forecast in November" All I could think to say was "NOT"

No, everyone who actually learns about what is going on with housing is surprised that ANY new homes were sold, and that ANYone is stupid enough to buy ANY house until the price reverts to the mean. This is a popping bubble, people. If you buy a house now it will be worth a third less in two years. ANY house! Remember how many stocks went to zero after being "golden" for so long? This is what HAPPENS when bubbles pop. DUH!

Sorry.

U.S. Nov. new-home sales fall 9% to 647,000 pace - MarketWatch

Sales of new U.S. homes fell by a more-than-expected 9% in November to a seasonally adjusted annual rate of 647,000, the Commerce Department reported Friday. Economists surveyed by MarketWatch were expecting new home sales to drop to a seasonally adjusted annual rate of 710,000 in November. Meanwhile, October's sales rate was revised downward, to rise by 711,000, or 1.7%. They were previously estimated to have risen to a seasonally adjusted annual rate of 728,000. In the past year, sales of new U.S. homes are down 34.4% nationwide.

Posted by Dave Johnson at 7:16 AM | Comments (0) | TrackBack | Link Cosmos

December 26, 2007

Today's Housing Bubble Post - Record National Housing Price Drop

U.S. home prices drop 6.1% year over year, Case-Shiller finds - MarketWatch,

Home prices in 20 major U.S. cities were down 6.1% on average in the past year as of October, according to the Case-Shiller price index released Wednesday by Standard & Poor's.
Since October 2006, prices in 10 cities fell 6.7% -- a record drop. The prior largest decline was 6.3% in April 1991.

. . . Miami sustained the largest drop over the past year, with a decline of 12.4%. Next came: Tampa, with a drop of 11.8%, Detroit with a drop of 11.2%, and San Diego with a drop of 11.1%.

This is only the beginning.

By the way, does this price drop take into account 4% inflation? If not the real decline was quite a bit greater.

Posted by Dave Johnson at 7:14 AM | Comments (0) | TrackBack | Link Cosmos

December 21, 2007

Today's Housing Bubble Post - What's Going On?

Here's what's going on in the financial markets:

Part 1: Mortgages

After the 2001 stock market crash the Federal Reserve dramatically lowered interest rates. This made the monthly payment on mortgages very low, so more people could afford to pay more for houses, or could refinance their house. This increased the demand for houses, making housing prices rise. Because housing prices were rising people started speculating, "flipping" and a number of other things that made prices rise into a bubble - with people buying houses solely because of the price increases.

So the price increases caused prices to increase, which cause an exponential price rise curve to develop.

Because of this, builders started flooding the market with housing developments and condos, greatly increasing the inventory of houses.

While all this was going on people with poor credit histories were able to get mortgages without any down payments, at a very low interest rate that would "reset" after 2 or 3 years, and without even having to show how much money they made.

Then came the day when prices stopped rising. Which caused all of those people who buy-because-prices-are-rising to stop buying. But many of them were "leveraged" -- they had huge loans that depended on rising prices for them to be able to sell to pay off the loans.

Then for some reason more and more of the poor-credit-history people who had no down payments and never proved how much they made started to not pay their monthly payments. Go figure.

And a lot of other things happened that caused people to stop being able to pay their mortgages. So more houses came on the market at the same times as fewer buyers wanted to buy and prices started to drop. As prices dropped people who had bought or refinanced their houses started finding that they owed more than the house is worth.

So lots of people will be foreclosed on and lose their houses, etc. and the lenders who loaned out those mortgages will eat the losses. Except,

Part 2: Credit markets

The lenders borrowed the money to make those loans. Or they "sold" the loans to "investors" looking for monthly payments at a higher interest rate than banks pay. And those investors borrowed the money to buy the loans. And because many people are defaulting on their mortgages, the people who made or bought them aren't getting paid, so they soon won't be able to make their payments.

So the companies that loaned the money to them won't be paid. And they borrowed the money to make those loans, and because they might not be paid back, they might not be able to pay the companies that loaned THEM the money.

To understand where this vicious cycle ends go to the beginning of the previous paragraph and read it again. Each time you finish, go back and start again. Keep doing that until you get the point. In other words, anyone who has made any loans is - or at least should be - wondering if they will be paid back.

(By the way, deposits in a bank, brokerage, etc. are part of that loop. Make sure that your money is moved to federally insured banks. If you have money in a money market fund you are somewhere in that loop and your money has been loaned out and you are not insured. That money has been loaned out to someone who doesn't know if they can pay it back. That's what a money market fund is. That's why it pays higher interest -- because risk = return.)

So that in a nutshell is what is going on. Until everyone "comes clean" and lets everyone else know how much "exposure" they have to bad loans, there is no reason to trust that they will be able to keep making their own payments on their own debt. And coming clean, or "unwinding" this might involve playing things out until everyone who is going to go bankrupt actually does so until we see who is still standing. Anyone who made loans or borrowed money is facing some level of risk right now. Anyone.

Posted by Dave Johnson at 2:24 PM | Comments (0) | TrackBack | Link Cosmos

December 20, 2007

Stuff

Go watch The Story of Stuff. I'm not asking, I'm telling.

What is the Story of Stuff?

From its extraction through sale, use and disposal, all the stuff in our lives affects communities at home and abroad, yet most of this is hidden from view. The Story of Stuff is a 20-minute, fast-paced, fact-filled look at the underside of our production and consumption patterns. The Story of Stuff exposes the connections between a huge number of environmental and social issues, and calls us together to create a more sustainable and just world. It'll teach you something, it'll make you laugh, and it just may change the way you look at all the stuff in your life forever.

Posted by Dave Johnson at 4:19 PM | Comments (0) | TrackBack | Link Cosmos

December 17, 2007

Real People Missing From The National Discussion

From Booman Tribune ~ Who's Missing from NY Times Op-Ed Pages?,

Yesterday, The New York Times (Sunday edition) devoted almost a full page of its Op-Ed section to a number of short essays written by economists, Wall Street analysts, scholars and fellows at various "think tanks" (both liberal and conservative) government advisers (past or present) and prominent business people (many of these folks fit into more than one category, by the way). The question they were all asked to address: Are We in a Recession?

[. . .] Oddly enough (well, not really, I just like to use the word odd in all its varieties when discussing serious purveyors of news and public opinion such as, for example, The New York Times) there was one significant group of individuals who apparently were not asked to contribute to this discussion by answering the question posed by the Times' editors, as to whether "we" are in a recession (and I'm using we here in the same sense as that term is used in the phrase "We the People" in the Preamble to the Constitution of the United States of America, rather than limiting it to any "subset" of said "we" such as financial institutions, economists, investors, fellows at well known non-profit educational and policy foundations or highly compensated, highly educated, and highly intelligent people offered the chance to present their opinions on the Op-Ed pages of The New York Times). Can you guess who those people might be, the ones whose opinions were deemed unsuitable for inclusion alongside all of these well spoken and well informed worthies the Times chose to answer this question of serious concern to all Americans?

Go read.

And what do you think, are "we" in a recession now? Leave a comment.

Posted by Dave Johnson at 11:05 AM | Comments (0) | TrackBack | Link Cosmos

Wages Falling Further And Further Behind

Regular people's wages are stagnant and falling behind. On top of that there are debates over whether inflation is back, or maybe we're heading into a period of deflation.

Here's what I know. I work free-lance so my pay varies. But my wife works in a 9-to-five job and gets a raise every year. And every year the amount taken out of her paycheck to cover her health insurance co-pay goes up more than her raise. The result is that every year my wife's take-home is lower.

And this cut in take-home pay happens before we pay for the medicine co-pay increases, the rent increases, car insurance increases, food price increases, gas price increases, home electric and heating increases, cable TV increases, etc. Whether there is "core inflation" or not this is what is happening in OUR house. And I am sure this is what is happening in a lot of other people's family budget as well.

Posted by Dave Johnson at 10:29 AM | Comments (0) | TrackBack | Link Cosmos

December 16, 2007

Today's Economy Collapse Post - "Ominous"

Rising gas, food,health care and other prices, falling housing prices and savings rates, stagnant wages and all the rest are taking their toll: Retailers Face an Ominous Holiday Sign - New York Times,

Sales of women’s clothing, a traditional pillar of the holiday shopping season, are unusually weak so far this year, according to a major credit card company, an ominous sign for the retail industry.

From high-end dresses to bargain coats, spending on women’s apparel dropped nearly 6 percent during the first half of the Christmas season, compared with the same period last year, according to MasterCard Advisors, a division of the credit card company.

But all is not yet lost, SOME are doing just fine, thank you,

Spending on luxury items is up 10.8 percent, “which isn’t bad at all,” Mr. McNamara said.

Yes, at the top things are great.

A certain commenter might want to leave a message about heads on pikes, torches and pitchforks right about now...

Posted by Dave Johnson at 2:16 PM | Comments (0) | TrackBack | Link Cosmos

December 14, 2007

Today's Housing Bubble Post - All Those Buyers...

In for a Surprise... Go read it, but I just had to reproduce the chart here:

In August, 2006, I wrote a post Today's Housing Bubble Post - How Far Can Prices Fall?

Suppose rents are $2000 a month for a 3-bedroom house. Subtract from that repairs, maintenance, etc., and let's say you are clearing $1800. Instead of trying to calculate property taxes let's just say $400 per month - which is lower than what they would be ($650) if purchased now but you'll get my point in a minute.

So you're clearing about $16,800 a year from your investment. Let's say you are shooting for a 7% return. That means the house SHOULD be priced at about $240K, approx 1/3 of current pricing.

That's SF Bay Area pricing, by the way. And prices tripled here in the bubble, so that sounds about right.

But I'm not going that far in my prediction. You have to account for ten years of inflation - which is higher than reported. Also the dollar drop means people from other countries will find higher prices cheap and the Bay Area is a premium place to live. And other demographic factors. But I don't rule out a 50% drop. Prices here really shouldn't be much higher than maybe $400K

Posted by Dave Johnson at 8:48 AM | Comments (0) | TrackBack | Link Cosmos

December 13, 2007

Inflation, Retail Sales Up

I have a question. If I go to the store and spend $10, and the next month the same thing costs $11, is that a 10% jump in retail sales?

Wholesale prices, retail sales jump - Yahoo! News,

Wholesale prices and retail sales jumped in November and jobless claims fell last week.

Wholesale prices shot up 3.2 percent, the biggest jump in 34 years, propelled by a record rise in gasoline prices. Meanwhile, consumers put aside worries about the weak economy in November to storm into the shopping malls, pushing up retail sales by the largest amount in six months.

Posted by Dave Johnson at 6:21 AM | Comments (0) | TrackBack | Link Cosmos

December 9, 2007

Today's Housing Bubble Post - The Bailout: Just Another Fraud

From today's SF Chronicle, MORTGAGE MELTDOWN / Interest rate 'freeze' - the real story is fraud / Bankers pay lip service to families while scurrying to avert suits, prison,

It sounds good: For five years, mortgage lenders will freeze interest rates on a limited number of "teaser" subprime loans. Other homeowners facing foreclosure will be offered assistance from the Federal Housing Administration.

But unfortunately, the "freeze" is just another fraud - and like the other bailout proposals, it has nothing to do with U.S. house prices, with "working families," keeping people in their homes or any of that nonsense.

The sole goal of the freeze is to prevent owners of mortgage-backed securities, many of them foreigners, from suing U.S. banks and forcing them to buy back worthless mortgage securities at face value - right now almost 10 times their market worth.

The ticking time bomb in the U.S. banking system is not resetting subprime mortgage rates. The real problem is the contractual ability of investors in mortgage bonds to require banks to buy back the loans at face value if there was fraud in the origination process.

It's widespread:

The catastrophic consequences of bond investors forcing originators to buy back loans at face value are beyond the current media discussion. The loans at issue dwarf the capital available at the largest U.S. banks combined, and investor lawsuits would raise stunning liability sufficient to cause even the largest U.S. banks to fail, resulting in massive taxpayer-funded bailouts of Fannie and Freddie, and even FDIC.

So why the "freeze?" What does that really accomplish?

The goal of the freeze may be to delay bond investors from suing by putting off the big foreclosure wave for several years. But it may also be to stop bond investors from suing. If the investors agreed to loan modifications with the "real" wage and asset information from refinancing borrowers, mortgage originators and bundlers would have an excuse once the foreclosure occurred. They could say, "Fraud? What fraud?! You knew the borrower's real income and asset information later when he refinanced!"

Cuomo in New York is going after some of the fraud - the inflated appraisals, for example. If I had money in these mortgage-backed investments rated AAA I would be demanding MY money back - and if you are in a money-market fund, you just might be who I am talking about.

But you wouldn't have any money in a money-market fund NOW, would you? You're smarter than that.

Update - Mish's Global Economic Trend Analysis says the fraud / lawsuit avoidance theory from the above article is "preposterous."

The goal of the freeze is not to "stop bond investors from suing". The goal of the freeze is to Peddle a Sucker Trap Disguised as Hope.

However, so few people will qualify for the program (see Little Hope For Hope Now Alliance) that no one can possibly claim it will stop much of anything, including lawsuits or foreclosures.

Go read.

Posted by Dave Johnson at 3:49 PM | Comments (0) | TrackBack | Link Cosmos

December 8, 2007

What The Reagan/Bush Debt Means To You

As I write this, the US national debt is about $9.17 TRILLION dollars. This debt is the amount we have borrowed to pay for our government since the Reagan tax cuts - compounded by the Bush tax cuts. This is because of a choice we made - yes I say WE, because this government is US - to borrow and pay later instead of pay now.

Don't for a minute think that you do not owe that money. It comes to about $30,000 for each American, including infants. If you are a family of four you now owe about $120,000 thanks to those tax cuts. YOU owe this money, even though the tax cuts have primarily gone to the very rich. You WILL be paying it, one way or another. Don't think that debt like that just goes away.

PLUS now each year we pay about $433 billion for interest on that debt. That amount, of course, rises every year. So in addition to owing all that money we have to service the debt by paying $433 billion every year. That amount is larger than the current federal deficit - which means if we had not cut those taxes and borrowed all that money in the past we would have $433 billion more each year to spend or save AND we would not owe $9 trillion.

I do not understand how we tolerate this situation. Yes, it happened because we listened to lies, but how many of our candidates are seriously talking about the changes that need to be made to fix this?

The Gross National Debt

Posted by Dave Johnson at 12:37 PM | Comments (2) | TrackBack | Link Cosmos

December 3, 2007

Is Oil Expensive?

Some people think oil is expensive. Think about this. Companies pump water (pump energy usually comes from burning oil) out of the ground and put it into plastic bottles (made from oil) and truck it (trucks burn refined oil) to a port where they ship it (ships burn refined oil) across oceans to stores that people drive to (cars use refined oil). The cost of this water product is low enough that people drink it instead of tap water. (In fact, some of the companies actually put tap water into the plastic bottles, truck it and ship it, and sell that and people buy it instead of using their own tap water.)

Think about all the other uses of energy that we take for granted. That tap water is piped to your house, using huge pumps. Your hot water is heated with energy...

So think it through before you say that oil is expensive. It is extremely expensive to the environment (and foreign policy) but it is not expensive economically, or none of the above would be occurring.

Posted by Dave Johnson at 9:29 AM | Comments (3) | TrackBack | Link Cosmos

Today's Housing Bubble Post - "Spooked," "Crisis"

Paul Krugman : Innovating Our Way to Financial Crisis,

The financial crisis that began late last summer, then took a brief vacation in September and October, is back with a vengeance.

How bad is it? Well, I’ve never seen financial insiders this spooked — not even during the Asian crisis of 1997-98, when economic dominoes seemed to be falling all around the world.

This time, market players seem truly horrified — because they’ve suddenly realized that they don’t understand the complex financial system they created.

Don't feel too badif the underpinnings of this crisis are more complex than you have time to grasp. Partly it is happening because things became so complex.

For just one illustration of the complexity, here is what happens when a "CDO' is "unwound." A CDO is a big batch of mortgages and other debt, backed by collateral. That's the C in CDO: Collatoralized Debt Obligation. To find out what is really in your CDO you should examine each one of the mortgages (car loans, etc.) to see if the mortgage-holder really does have all the income that is on the application, and whether the house was appraised properly or is really worth less than what is still owed on the mortgage, etc. And that is just one level of the complexity.

You might ask, why didn't the buyers of these CDOs check these things before they bought them?

Indeed.

Posted by Dave Johnson at 9:00 AM | Comments (0) | TrackBack | Link Cosmos

December 1, 2007

Today's Housing Bubble Post - Is Your Money Safe?

Fallout from the bursting of the housing bubble is rippling further and further out. In the last few days three state government funds have realized they are in big trouble and are experiencing "runs." And as a result, in the next few days we are likely to hear about the same thing happening in many other states. These are funds that cities put their cash into until it is needed to pay city employees, teachers, etc. The cities have people who understand finance watching the money, and they understood this so they started getting their money out. And because the fund had lost some of the money in mortgage-backed securities, it couldn't give money back to all of the cities, and had to say "no more withdrawals until this gets sorted out." The ones who asked for their cash first are OK, the ones who didn't will lose out.

This is exactly what could happen to money markets and banks as people realize this is their money everyone is talking about in the news. YOUR money. Find out where your money is, your parents' money, etc..

Florida moves to stop run on fund

The crisis underscores how the upheaval in credit markets could spread to affect mainstream investors, institutions and their employees. In recent weeks, local authorities in regions as disparate as Australia and Norway have reported similar problems.

[. . .] Most of the securities were short-term debt backed by mortgages and other assets, and issued by off-balance sheet investment vehicles, many of which have run aground in the credit squeeze. Lehman Brothers sold most of the distressed assets to the Florida fund, people familiar with the sales said.

and Florida freezes $15 billion fund as subprime crisis hits,

Florida halted withdrawals from a $15 billion local-government fund Thursday after concerns over losses related to subprime mortgages prompted investors to pull roughly $10 billion out of the fund in recent weeks.
. . . The decision shows how far this year's subprime-fueled credit crisis has spread. Florida's Local Government Investment Pool, which had more than $27 billion in assets at the end of September, is like a money-market fund that's supposed to invest in ultrasafe assets to provide participants with a secure place to stash spare cash. But even these types of funds have been hit by the widening crunch.
"It's spreading into areas that people didn't expect and this is a good example," Richard Larkin, a municipal bond expert at JB Hanauer & Co., said.

Maine Treasurer Criticizes Merrill for Subprime Bet,

Controversy is heating up in the state over who is at fault for having put $20 million, about 3 percent, of the state's roughly $725 million cash pool this summer into an investment fund called Mainsail II -- two weeks before its sterling ratings crumbled to junk.

The investment met all of the state's investment criteria, but exposed the state to the mortgage market-related losses that have roiled credit markets for a few months.

And Run on Montana Fund,

Montana school districts, cities and counties withdrew $247 million from the state’s $2.4 billion investment fund over the past three days after officials said the rating on one of the pool’s holdings was lowered to default.

But don't think for even a minute this is limited to state government funds. It's just that the municipalities that had cash in those funds understood what was happening. MANY holders of money, especially money-market funds are in exactly the same situation, except the depositors in money-market funds are not necessarily as sophisticated as municipal finance officers, and don't yet realize what all of this means.

But it is starting to hit the news.

How safe is your money market fund?,

The billions of dollars in subprime losses are now tainting a mainstay investment vehicle whose safety consumers take for granted: the money market mutual fund. Bank of America, SunTrust, Wachovia and Legg Mason are among the institutions reportedly taking steps to prop up money market funds that contained worrisome securities. . . .

[. . .] Many money market funds have sought higher-yielding investments such as subprime mortgage-backed securities. High-yield funds don't get those yields by investing in government securities. For instance, according to Money Fund Intelligence, the average yield for the top-yielding prime individual money market funds is 5 percent, while the average yield for the top-yielding Treasury individual money funds is 4.39 percent.

Is your money market fund safe?,

. . . if you have money in a fund that's exposed to subprime mortgages, consider finding one that has no commercial paper and shift your money to that.

In search of a security blanket,

Meet money manager Axel Merk... Recently, Merk took more than $100,000 of his personal savings out of money market funds. These funds take your cash and put it into highly rated -- and therefore, supposedly safe -- investments, giving you a set interest rate.

Problem is, some of them got entangled in the subprime mess. That's why Merk dumped his money market funds.

[. . .] You can't assume that all money market funds are safe. Remember, they're not insured by the FDIC. Now, banks do offer something called money market accounts. Just like savings accounts, they are protected by the FDIC, but they have a lower return.

That's right, this is a time to know where your money is. If you are not sophisticated enough to be reading a money-market prospectus - and you aren't - put your money in a bank up to the limits of FDIC insurance, or into treasury bills. Period. When everyone else is worried it will be too late to get your own money out. What do you have to lose by doing that? Why keep it where it is instead of getting it into a FEDERALLY insured back account, until all of this gets sorted out?

The question is, when do people realize that their own money might be at risk, and start asking for it? That is when it hits the fan, like it has with the Florida and Montana state funds. No one knows where all this mortgage risk is right now, and you don't want to be the one who asks for your cash just after the cash runs out.

Posted by Dave Johnson at 12:16 PM | Comments (4) | TrackBack | Link Cosmos

November 29, 2007

Very Bad Economy = Soaring Stock Market

What he said.

Fed vice-chairman says

that the Fed "will act as needed" to address the volatility of the current economic situation.

So the stock market goes up over 300 points.

Right. As Kevin said,

"Uncertainties about the economic outlook are unusually high right now," he said. "In my view, these uncertainties require flexible and pragmatic policy making."

Now see, if it were me I'd be running for the hills at this news.

Posted by Dave Johnson at 7:22 AM | Comments (0) | TrackBack | Link Cosmos

November 28, 2007

Today's Housing Bubble Post - Sales Drop, Inventories At Record

Existing-home sales fall 1.2% to 4.97 million pace in Oct - MarketWatch,

Sales of existing homes fell further in October even as more homes came on the market, driving the supply of homes to the highest level in 22 years, the National Association of Realtors reported Wednesday. Sales dropped 1.2% to a 4.97 million seasonally adjusted annualized pace in October, the real estate advocacy group said. The sales pace is the lowest since 1999. The inventory of unsold homes rose by 1.9% to 4.45 million, representing a 10.8 month supply, the highest since 1999. For single-family homes alone, the inventory of 10.5 months is the highest since July 1985.

Posted by Dave Johnson at 7:51 AM | Comments (0) | TrackBack | Link Cosmos

November 27, 2007

Today's Housing Bubble Post - How Far The Fall?

Calculated Risk: LA Times: How Far Will House Prices Fall?

If SoCal prices fall 25%, then prices in other areas - like Miami and Las Vegas - will probably decline a similar amount.

Keep in mind my own observation that houses near here are not selling even after a price cut of almost a third.

OTHER bubbles, like the "dot com" bubble, have seen prices fall right back to where they would have been without the bubble. In fact, haven't ALL other bubble fallen like that? Why will this one be different? And that means you're looking at 50% or more.

Posted by Dave Johnson at 11:53 AM | Comments (0) | TrackBack | Link Cosmos

The End Of The Dollar As We Know It

The End of the Dollar as We Know It

Posted by Dave Johnson at 11:42 AM | Comments (0) | TrackBack | Link Cosmos

November 24, 2007

Today's Housing Bubble Post - Marked Down From $725K To $495K, Still Not Selling

A for-sale house around the corner from us (SF Bay peninsula) has gone through all the stages, and now even the "price reduced" sign is gone. The house is empty. The flyers are still there, however. Walking the dog the other day I picked one up to see what they're offering.

The house, a modest three-bedroom in a modest neighborhood, was originally listed at $725,000. Now that is crossed off by hand on every flyer and $495,000 is written in.

So, marked down from $725,000 to $495,000 it still isn't selling. No one is looking at it. It is still priced higher than the average person can or will pay for a house like this to live in this neighborhood. House prices around here still have a long way to fall, but you can't expect other houses around here to sell for a lot more than $495,000 now - not with that one sitting there. But most of them are still priced in the $600-700,000 range.

That leaves a long way left to fall.

Posted by Dave Johnson at 7:54 PM | Comments (2) | TrackBack | Link Cosmos

November 21, 2007

Do Tax Cuts Really Help The Economy?

At the weblog Angry Bear last week, they presented some graphs in a post titled, Tax Rates and Growth Rates, Some Graphs. Go take a look.

The first graphs shows marginal income tax rates over time, and the third shows real GDP per capita, both starting in the 1950s.

As you look at these graphs, it seems that the periods of higher real per-capita growth coincide with the higher tax rates. Both graphs appear to have higher numbers on the left side, and the numbers drop as you move over to the right side. In other words, as the tax rates dropped since the 50's, so did economic growth.

This is the opposite of the "conventional wisdom" that people have come to believe. But it's just plain what happened - no way around it. And, to top it off, remember that FDR raised taxes on the rich, and then we started coming out of the depression. You can look those charts up as well.

For some recent validation of this observation -- that higher taxes coincide with higher economic growth -- remember what happened after the notorious 1993 tax increases on the very rich. After those tax increases we all shared an incredible decade of economic growth and shared prosperity. (Even the rich who paid more taxes.) The national budget was balanced and we reven started paying off the huge debt that had accumulated. Then, following the 2001 tax cuts which primarily went to the very rich growth rates have not been so hot, and regular people actually feel more pinched, not less. And the country has had to borrow an incredible amount of money - which will have serious consequences in the future.

So what could be happening here? Conservatives like to say that taxes hurt the economy. That they "take money out of the economy." But is this really what happens?

If the money is "taken out"of the economy, where does it go? Isn't this a perverse view of what government is, to think it is so separate from the people that it isn't even part of the economy? Perhaps this is wishful thinking on the part of anti-government conservatives, but in reality the government puts the tax money back into the economy by paying teachers, building roads, etc.

Conservatives say that taxes are a "cost" to businesses, forcing them to raise prices. But taxes are on profits, which are calculated after costs. And if a company is doing well enough to be profitable enough to be paying taxes, why would they want to raise prices and discourage customers?

Please click to continue

Posted by Dave Johnson at 5:50 PM | Comments (0) | TrackBack | Link Cosmos

November 19, 2007

Why You Don't Have Health Insurance, Raises

Wall Street Plans $38 Billion of Bonuses as Shareholders Lose ,

Shareholders in the securities industry are having their worst year since 2002, losing $74 billion of their equity. That won't prevent Wall Street from paying record bonuses, totaling almost $38 billion.

That money, split among about 186,000 workers at Goldman Sachs Group Inc., Morgan Stanley, Merrill Lynch & Co., Lehman Brothers Holdings Inc. and Bear Stearns Cos., equates to an average of $201,500 per person, according to data compiled by Bloomberg. The five biggest U.S. securities firms paid $36 billion to employees last year.

Posted by Dave Johnson at 5:48 PM | Comments (2) | TrackBack | Link Cosmos

November 14, 2007

Money Market Funds

I guess I'm just ahead of my time... I've been warning about money market funds, and now it's really hitting the news:

Mounting concern about money-market funds,

Millions of U.S. investors with cash in these mainstream vehicles are asking that question as some leading banks, investment managers and mutual-fund companies take steps to shield money funds from potential losses on troubled debt in their portfolios.

Do you want your money in a place where managers are "taking steps"?

So what can you do?

... if you are concerned about your money fund, experts say there are some ways to investigate.

The first -- calling the company to ask about the fund's holdings -- might seem daunting given the complexities of many of these portfolios. But in fact the request can test a company's responsiveness to its customers, observes Bruce Bent, who created the money fund 37 years ago.
"A number of funds will say 'we don't give that out,'" said Bent, whose New York-based firm, The Reserve, has about $80 billion in money-fund assets, none of which, he adds, is exposed to subprime loans or SIVs.
If the fund company isn't forthcoming, he says, "take your money out and say goodbye."

No shit.

And there's always what I have been recommending:

The ultimate safe move would be to put your cash in a bank money-market or savings account - they're insured up to $100,000 and sport comparable yields to money funds, which recently averaged about 4.6% for taxable investors.

Meanwhile, Advisers aren't ready to dump money-market funds yet - MarketWatch

,With money-market mutual funds scrambling to cover their costs as credit meltdowns spread, some advisers say they're seeing more interest from high net-worth clients in short-term, bond exchange-traded funds.
One of those is Jerry Slusiewicz. But the president of Pacific Financial Planners in Newport Beach, Calif., doesn't recommend investors pull out of their money-market funds just yet.

Not just yet?

Several major financial services firms have moved to protect money-market assets in recent months. The latest is Bank of America Corp., which on Tuesday said that it plans to use a $600 million reserve to shore up a group of its money-market funds. Another big financial-services firm, Legg Mason Inc. has made public plans to establish credit lines of roughly $238 million to keep intact credit ratings of two money-market funds.

Did I read that right? They're putting hundreds of millions in to cover their money market funds so people don't lose money? So if you have money in one of those funds the only reason you aren't losing money is because the fund managers are pumping their own money in to shore it up? So what happens if the parent companies are in trouble - which they certainly will be if they'reputting in hundreds of millions to cover the money market funds!

Remember, the money you have in a money-market fund can drop - you can lose principal.

And Atrios has found a General Electric managed fund that is already in such trouble it is paying its depositors only 96 cents on the dollar.

Posted by Dave Johnson at 4:11 PM | Comments (0) | TrackBack | Link Cosmos

Today's Housing Bubble Post - Foreclosures Double

Ypu'll be seeing this headline every month for a while, I expect: Foreclosures nearly double from year ago: report,

Cities in California, Florida and Ohio dominated the 25 U.S. metro areas with the highest home foreclosure rates, though rates jumped in most of the top regions during the third quarter, RealtyTrac said on Wednesday.

. . . A broad credit and liquidity crisis during the third quarter exacerbated U.S. housing industry troubles, pushing sales sharply lower and unsold inventory to record highs.

Overall, residential foreclosure filings nearly doubled in the third quarter from a year earlier, RealtyTrac reported earlier this month.

HOW many foreclosures?

Stockton's rate of one foreclosure filing for every 31 households, the highest of the metro areas, was a surge of more than 30 percent from the prior quarter. A total of 7,116 filings on 4,409 properties were reported in the metro area during the quarter.

In Detroit, the foreclosure rate of one filing for every 33 households ranked second and was more than double the number of filings reported in the previous quarter, RealtyTrac said. A total of 25,708 filings on 16,079 properties were reported.

Posted by Dave Johnson at 7:19 AM | Comments (0) | TrackBack | Link Cosmos

November 8, 2007

Again - Get Out Of Money Markets And Into Insured Bank Accounts

I'm not going to tell you again. (Maybe I will...) Get your money out of money market funds(and brokerages) and into federally insured accounts at banks.

Fast summary – as far as I can figure out what is going on: mortgages (and other debts) were grouped together and sold as investment “instruments.” These instruments were called “collateralized debt obligations” (CDOs) – or collections of obligations to pay back loans, backed by collateral. The grouping contained levels of good, medium and subprime mortgages and other debt. These levels of quality in each of the instruments are called “tranches.” So there is a good tranche, a medium tranche, etc. (Lots of tranches in a CDO)

The instruments were very complicated so buyers depended on rating agencies instead of looking into each loan (and the documentation backing up the loan) that was in them. The rating agencies rated them as high-grade. (Rating agencies made their money from the companies who were selling the instruments, and possibly rated them up for that reason.)

The investment value came from the idea that these CDOs would provide a regular cash income for a certain number of years as the debtors made their payments.

There were well over a trillion dollars worth of these sold. Maybe a few trillion. But they are very thinly “traded” so one knows what they are worth now. (Something that is traded can be “marked to market,” meaning you can find a mark or price by looking at what the last one sold for.) No one is sure what is in these, they are not sold after the initial sale, and as foreclosures rise they are looking worse and worse. But no one knows. And of course no one will buy one now. So no one knows, and no one is going to know until every single loan in each of these instruments is evaluated. (Does Tom Whitmore really make $90,000 a year? And was the appraiser accurate when he said the 2br 1ba was worth $860,000?)

So now the bigger problem is that with so many companies, etc. owning these CDOs, no one knows who will be able to pay their bills, and they certainly can’t use the CDOs as collateral now, so no one is willing to extend credit. Hence, the “credit crunch.” And hence all the uncertainty about who is solvent or not.

Finally, go read this entire post: The Agonist: The Wile E. Coyote Economy.

It all started coming apart with the subprime mortgage crisis. It should be emphasized that problems extend far, far beyond subprime, but it's there that they first showed up, where they first became undeniable. It's then that Wile, scanning the horizon, though to himself, “Gee, I don't see any ground. Maybe I should look down.” As people realized there was no "there," there; that many of these mortgage backed securities were worth cents on the dollar, they stopped being willing to buy them. The defaults started occurring and as people kept looking more and more they began to be forced to actually consider “How much is this worth?” And they didn't stop at subprime mortgages.

Now the reason this mattered is that most Wall Street firms (and many banks) have a ton of this paper, and they are also heavily leveraged with loans. Those loans are loaned against the value of their portfolios. So when other firms and various banks started realizing the paper was worthless they stopped wanting to continue to extend loans. When the loans came due (and most loans these days are short term, from days to months) they didn't just roll them over.

Without the loans firms began to face the possibility that to meet their obligations, to pay back the non-rolled-over loans, they might have to actually come up with cash. Which means they might actually have to sell some of this paper. And if they sold it, they'd know what it was worth. And if they knew what it was worth, they'd have to mark down all of it in their portfolio And if it's really worth cents on the dollar, well that could wipe out billions. In fact, it could wipe out the entire capital of firms.

Posted by Dave Johnson at 9:45 AM | Comments (0) | TrackBack | Link Cosmos

November 7, 2007

Debt Slavery

The phrase debt slavery has been coming up more and more often in articles, posts and other things I have been reading.

I wonder why?

Posted by Dave Johnson at 10:52 AM | Comments (0) | TrackBack | Link Cosmos

November 5, 2007

Today's Housing Bubble Post - Model Refuses Dollars

This is actually a very big story. The world's richest model (earned $30 million in 6 months this year) is now refusing to take her pay in dollars. She is insisting on Euros. This is huge because it will penetrate past the financial pages and cause people to start understanding what is going on - possibly starting a stampede from the dollar.

Supermodel 'rejects dollar pay':

The world's richest model has reportedly reacted in her own way to the sliding value of the US dollar - by refusing to be paid in the currency.

Gisele Bündchen is said to be keen to avoid the US currency because of uncertainty over its strength.

The Brazilian, thought to have earned about $30m in the year to June, prefers to be paid in euros, her sister and manager told the Bloomberg news agency.

Posted by Dave Johnson at 8:56 PM | Comments (1) | TrackBack | Link Cosmos

Today's Housing Bubble Post - Who Bails Out The Smart Ones Who Did The Right Thing?

Smrat people got 7% fixed-rate loans because ARMs were obviously trouble. Their defaulting neighbors had 1% "teaser" rates and now get 5% loans as a bailout. The smart ones lose out all the way around.

Homeowners who actually pay their mortgage on time are getting ticked of at talk about bail-outs - AMERICAblog:

Right, because in a free market, capitalist economy it would be wrong for home prices to drop and for me to have to spend less on the condo I'm looking to buy. Since when was it anybody's job to artificially drive up the prices of homes in my or any other neighborhood? Since when is it wrong for someone else to have their home value decrease because of a market adjustment, but it's right for me to have my future home cost increase because of an artificial intervention? They lose money, it's wrong - I lose money, it's right. Uh huh. I am just increasingly sick and tired of every bail out of the rich and the poor, from the right and the left, coming at the expense of those of us in the middle who never seem to get anything, except an increasingly large bill for helping everyone else at our own expense. I'm not opposed to helping others. I am opposed to never being on the receiving end of such help. The Republicans help one side, the Dems the other, and no one thinks of the middle.

People who did the RIGHT thing is losing out now. On Wall Street people who took depositor and stockholder money, gambled it away, and got rich in the process are getting sweet bailout deals. Fairness should become an issue in this.

Posted by Dave Johnson at 6:02 PM | Comments (0) | TrackBack | Link Cosmos

Today's Housing Bubble Post - Citigroup

In the continuing story of the bursting of the housing bubble, this weekend at an emergency Board meeting Citigroup President Charles Prince "resigned" and the company announced it will write down up to $11 billion more for mortgage losses. But guess what? Citigroup problems grow,

Citigroup Inc's (C.N) problems deepened on Monday as it was unable to assure investors a potential $11 billion write-down for subprime mortgages won't grow, and its nearly pristine credit rating was downgraded.

The largest U.S. bank also reduced previously reported third-quarter profit because of credit market problems that it said could reduce future cash flow.

Also, Citigroup is sitting on $134.8 billion in questionable assets. A lot of that could go, too.

In my opinion it is urgent that everyone understand how FDIC limits work. This is a time when you need to know that your own money is safe. The limit is $100,000 per bank, $200,000 per couple, and $250,000 for retirement accounts. If you are lucky enough to have more than that in one bank, split it up. Ad I did say bank - not brokerage. And tell your friends and relatives to do the same.

Posted by Dave Johnson at 8:21 AM | Comments (0) | TrackBack | Link Cosmos

November 2, 2007

Job Growth Up / Down

October job growth strongest since May,

Shaking off fears about weakness in housing and credit, the U.S. economy created 166,000 net jobs in October, the best job growth since May, the Labor Department reported Friday.

... However, a separate survey of 60,000 households showed a loss of 250,000 workers, the third decline in the past four months. Economists say the payroll survey is more accurate, while acknowledging that it may not work as well when the economy is at a turning point.

We have to wait a month to know more... But the last two month's reports were revised down:

Payroll growth in August and September was revised down by a total of 10,000. The economy created 96,000 jobs in September.

Posted by Dave Johnson at 6:00 AM | Comments (1) | TrackBack | Link Cosmos

November 1, 2007

Today's Housing Bubble Post -Foreclosures Double

UPDATE 1-US Q3 foreclosures almost doubled from '06 -report,

U.S. residential foreclosure filings nearly doubled last quarter from a year earlier, and appear set to increase into 2008, a report said on Thursday.

Foreclosure filings for July-September rose to 635,159, representing one in every 196 households and a 30 percent jump from the second quarter, according to RealtyTrac, a marketer of foreclosure properties based in Irvine, California.

One results: soon there will be many more homes on the market. And remember, MOST of the "ARM resets" - loans with low "teaser" or "qualifying" initial rates that reset to high interest rates - happen into next year. So expect the foreclosures to continue to increase for at least a year. The housing market is nowhere near a "bottom."

Posted by Dave Johnson at 8:28 AM | Comments (0) | TrackBack | Link Cosmos

October 31, 2007

Today's Housing Bubble Post - The Fuse Is Now Lit

This is really a housing bubble consequences post, but really they all are... With a 3.9% GDP report, the dollar at a record low, oil pushing $95 and various "regular people" costs rising at double-digit rates our Fed cut interest rates today. They are trying to put off the inevitable reckoning.

Mish's Global Economic Trend Analysis: Which Comes First: The Cart or the Horse?

The fuse is now lit. The structural imbalances worldwide have never been greater and the fuel at the end of the fuse is enormous. In addition, amount at risk increases every day.

The interesting thing is that no one knows how long the fuse is. For some inexplicable reason everyone acts as if they can get out before the stick ignites. It's simply not possible.

My wife is British, so we look at exchange rates. And we look at the price of oil. And food. We're losing a percent or so of our buying power each week.

Posted by Dave Johnson at 11:14 AM | Comments (0) | TrackBack | Link Cosmos

October 30, 2007

Today's Housing Bubble Post - Home Prices Fall At Record Pace

Home prices falling at record pace in August: Case-Shiller - MarketWatch

The 13-month-long decline in home prices in 20 major U.S. cities accelerated in August, with prices dropping a record 0.7% in the month, according to the Case-Shiller price index released Tuesday by Standard & Poor's Corp.

Prices were down 4.4% in the past year, the fastest decline in the seven-year history of the 20-city index. In the original 10-city index, prices have fallen 5% in the past year, the biggest decline since 1991.
"The fall in home prices is showing no real signs of a slowdown or turnaround," said Robert Shiller, co-creator of the index and chief economist for MacroMarkets, in a release.

... Millions of homeowners who took out adjustable-rate loans in 2005 and 2006 face sharply higher mortgage payments this year and next, with foreclosures having already soared as the result of payment resets.

... Prices could fall much further. In a separate report, analysts at Goldman Sachs figured that prices in California are about 35% to 40% overvalued, compared with past relationships between home prices and income growth. The median sales price of a home in California was $589,000 in August, Goldman said, but should be around $375,000, they said.

Key line: "Prices could fall much further."

Posted by Dave Johnson at 8:45 AM | Comments (0) | TrackBack | Link Cosmos

October 25, 2007

Today's Housing Bubble Post - New Home Sales Up - From Revision

New-home sales are report as up. But they are only up because last month's sales were revised way down. Sales are down from the previously-reported figure.

New-home sales rise after big downward revisions,

Sales of new homes rebounded in September from summer sales levels that were much weaker than previously reported, the Commerce Department reported Thursday.
Sales increased 4.8% to a seasonally adjusted annual rate of 770,000 from a revised 735,000 in August. Previously, August's sales had been reported at a 795,000 pace.
September's sales were slightly higher than the 758,000 pace expected by economists surveyed by MarketWatch.
The three previous months were revised sharply lower, which means the housing market was much weaker in the middle of the year than previous believed, and no one believed it was strong.

Got that? The previous three months were actually much worse than reported.

Posted by Dave Johnson at 7:23 AM | Comments (0) | TrackBack | Link Cosmos

October 24, 2007

Today's Housing Bubble Post - Home Sales Crater

Existing-home sales crater in September on credit squeeze,

Sales of existing homes and condos fell 8% in September to the lowest level in at least eight years, further evidence that the credit squeeze in mortgage markets is hurting home sales, the National Association of Realtors reported Wednesday.

Sales of existing homes and condos fell to a seasonally adjusted annual rate of 5.04 million, the lowest since 1999, when the real estate group began tracking combined single-family and condo sales. The 8% drop was the largest monthly percentage decline in that period.

Nationwide, sales of existing homes were down 19.1% in September compared with September 2006.

Posted by Dave Johnson at 7:51 AM |