Have nothing to do with the [evil] things that people do, things that belong to the darkness. Instead, bring them out to the light... [For] when all things are brought out into the light, then their true nature is clearly revealed...

-Ephesians 5:11-13

Tag Archives: Real Estate

Texas 7, California Nothing

This article was first published at TheNewAmerican.com on Wednesday, July 9, 2014:

Moving Day.

Moving to Texas from California

One would think the good doctor is running for Congress from Texas, but he’s not. He’s running to boot a hard-left Democrat who’s been representing the 24th District in California for 15 years by touting all the good things Texas has been doing compared to California. In a letter to the Wall Street Journal, Dr. Brad Allen, a pediatric heart surgeon from Paso Robles, wrote:

As a Californian, I am pained to say that three of the nation’s five fastest-growing cities – and seven of the top 15 – are in Texas.

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Another Investigation Confirms Harry Reid’s Long History of Corruption

Harry Reid (D-NV), United States Senator from ...

Harry Reid (D-NV), United States Senator from Nevada and Majority Leader of the United States Senate (Photo credit: Wikipedia)

The seemingly impervious Teflon-proof senior Senator from Nevada, Senate Majority Leader Harry Reid, has been forced to respond to charges made in a two-part investigation into his self-dealings at RealClearPolitics published last week. The initial investigation was filled with corruption charges and responses from Reid’s PR people in a failed attempt to deflect them. In the past such charges were simply ignored and passed off. Reid was willing to let time pass and memories fade. Not this time, apparently.

Adam 0’Neal led off with

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Job One for New Mayor: Turn New York into Detroit

This article first appeared at The McAlvany Intelligence Advisor on Thursday, January 2nd, 2014:

Progressive mouthpieces like ABC News and the New York Times could hardly contain their glee over the election of one of their own to the mayor’s office: Bill de Blasio. ABC News hailed de Blasio “as the face of a progressive movement that pledges a significant realignment of the nation’s largest city … that is poised to enact sweeping changes to the city …”, while the Times delighted to note that

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Another Obamacare Surprise: Estate Recovery

Just as Sofia Prins and Gary Balhorn were about to sign their application for free coverage under Washington State’s Medicaid program – freshly expanded under Obamacare – Sofia began reading the fine print: if you’re over age 55, the state of Washington will

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Home Ownership Rates Continue to Fall; New Plans to Reflate Underway

When the Census Bureau announced on Tuesday that the rate of homeownership in the US continued its nearly 9-year decline, pundits were quick to lay the blame on higher lending requirements, bankers reluctant to make loans, increasing interest rates and a weak economy with slow job growth. In addition, young people are living at home longer due to student loan debt and poor job prospects. As a result, according to the Census Bureau, rental rates are climbing as families needing a place to live have few other options.

Having fallen from the peak of 69 percent reached in 2004, current home ownership has dropped to 65 percent, back to where it was in 1995. Robert Schiller, economics professor at Yale, thinks the rate will continue to fall further.

Home prices are increasing not because of demand by new buyers but because of investors seeing the opportunities in buying distressed properties and turning them into rentals. In some places in the country one out of every two home purchases are paid for in cash.

But something else is afoot: fewer citizens are buying into the notion that home ownership makes economic sense and is equivalent to a savings plan that can be turned into income in later years. As Emily Badger noted at The Atlantic Cities, “We have traditionally considered homeownership to be a sign of the health of the economy. But some of these people who would have been homeowners 10 years ago … have concluded that they would rather rent [today]…”

Some have no doubt been so badly mauled financially in the recession that they have few options. Others have long memories and remember the pain and suffering they endured as a result of deliberate government policies instituted to make homeownership possible to millions of unqualified buyers.

One of those with long memories is Henry Cisneros, a key player in developing the “National Homeownership Strategy” while he was Secretary of Housing and Urban Development (HUD) under Bill Clinton. Unanimously confirmed by the Senate, Cisneros took over at HUD in January, 1993 and by 1997 had boosted the US homeownership rate from 63.7 percent to 65.7 percent. Even after leaving office, his strategies continued blowing up the real estate bubble so that by the time Clinton left office in 2001 home ownership was at 67.5 percent on its way to peaking during the summer and fall of 2004.

In a remarkably candid and forthright article about Cisneros’ role in creating the real estate bubble, The New York Times told the story of a compassionate government bureaucrat with big dreams of providing home ownership to people who couldn’t afford them under current rules. So he changed the rules and invited bankers, realtors and homebuilders to participate in the party guaranteed by taxpayers. In 2008 as he contemplated the damage he had wrought while head of HUD, Cisneros claimed that his intentions were honorable, at least in the beginning, but that his plans to provide low-interest loans and much weaker underwriting requirements through Fannie Mae and Freddie Mac were hijacked by “unscrupulous participants – bankers, brokers, secondary market people. The country is paying for that, and families are hurt because we … did not draw line.” He expressed regret that his efforts had not only lured people into homes they couldn’t afford, but that his policies ultimately ejected them from those homes as a result. He said, “I’ve been waiting for someone to put all the blame on my doorstep.”

His strategy was to lower underwriting standards by allowing Fannie Mae and Freddie Mac to require less documentation and approve higher debt to income levels than normal. He reduced down payment requirements from 20 percent to 10 percent, and then to 5 percent, then down to 3 percent and ultimately to 0 percent. His strategy allowed these unqualified buyers to cover their closing costs with another loan, putting them into a home with truly nothing out of the own pockets. Lenders were happy with the new rules as the US taxpayer stood behind the loans bought by Fannie Mae and Freddie Mac.

Cisneros created a monster.

Once the ball got rolling, it was impossible to stop or even slow down. Said Cisneros:

You think you have a finely tuned instrument that you can use to say: Stop! We’re at 69 percent homeownership. We should go no further. There are people who should remain renters.

But you really are given a sledgehammer and an ax. They are blunt tools.

I’m not sure you can regulate when we’re talking about an entire nation of 300 million people and this behavior becomes viral.

Cisneros drank his own Kool-Aid. He joined with a major homebuilder to develop a housing project in San Antonio, Texas which made him wealthy but which turned sour during the collapse.

Those lessons are about to be learned again as there are new efforts to reflate the ownership bubble. Under the Dodd-Frank Act there’s something called the Qualified Mortgage Rule (QMR) which requires lenders to keep part of the loans they make in their own portfolios – they must have “skin in the game” to reduce the chances of another bubble. But more than 50 organizations tied to the real estate industry are advocating a softening of that rule, putting more government money into the market, with less risk to the lenders. One of those supporting such softening is Sarah Rosen Wartell, president of the Urban Institute, who sounds an awful lot like Cisneros:

I’m not suggesting indiscriminate access to home ownership, but there are many borrowers who are capable of demonstrating the capacity to pay…

[They include] those who had a job loss or foreclosure, in many cases through no fault of their own [and a result are] being shut out of a rising market.

Gary Thomas, the president of the National Association of Homebuilders, expressed his delight at the softening of the rules:

If what we’re heard about the [weakening of] the proposed QMR rule is true, the we are very pleased that the agencies are moving towards a broad definition that will benefit the American people by ensuring access to safe, affordable options for buying a home.

And then of course there’s the inevitable college professor who hasn’t learned from history, or from Cisneros. Christopher Mayer, professor of real estate at Columbia Business School, exulted:

Having a path that people can become a homeowner is an important path. And it’s really important for middle to lower-income folks who have a hard time saving…

At present efforts to reflate the real estate bubble through relaxing underwriting requirements and low-interest loans don’t appear to be working very well. But Washington has a mission where past experience and lessons and pain and hardship don’t matter. The Cisneros mentality remains alive and well in Foggy Bottom.

 

 

 

Central Banks’ bubble is bursting, sending markets down worldwide

When the Japanese stock market lost more than 6 percent of its value on Wednesday in a massive selloff, pundits jumped on the move to try to explain what happened, and what it all means. Evan Lucas, a market strategist at IG Markets, wrote:

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Snopes Misses Larger Story on Sales of Post Offices by California Sen. Feinstein’s Husband’s Company

When George Miller, writing for the Ventura County Tea Party on May 22nd, complained about the blatant conflict of interest that appeared in the report that California Senator Dianne Feinstein’s husband, Richard Blum, was in charge of selling off, on an exclusive basis, some 50 post office buildings belonging to the US Postal Service, he didn’t know that Snopes had already

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The China party is over, says the Wall Street Journal

And it’s about time, too!  The Journal is just a little late to notice what’s happening, and has been happening, over there for at least the last two years.

Let’s put things into perspective.

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3 percent down payment mortgages are back

You probably saw it on the news last night: Fannie Mae turned a profit last quarter, the first profit since the real estate bubble burst in 2007. Yahoo explains why:

Lenders are increasingly approving

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The gap between Wall Street and Main Street widens

On Thursday, the last trading day of the first quarter of 2013, the Standard and Poor’s index of 500 stocks – the S&P 500 – closed  at 1569, four points above where it traded in October, 2007, just before it plummeted to 676 in March, 2009. With that news the sigh of relief on Wall Street was nearly audible. CNNMoney gushed:

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Corrupt Former Detroit Mayor Convicted on 24 Counts of Racketeering, Fraud, Extortion and more

When it was announced on Monday that former Detroit Mayor Kwame Kilpatrick (along with his father Bernard and his friend Bobby Ferguson, a general contractor) had been convicted on 24 counts of racketeering, fraud and extortion, the New York Times failed to mention that it could have been a lot worse. He might have been convicted of

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Michigan Governor Snyder Declares Detroit a Fiscal Disaster

On the surface, Friday’s announcement by Michigan Governor Rick Snyder that Detroit’s financial situation was so grievous that a special emergency financial manager (EFM) would have to be appointed to take over from the city council appeared to be the end of the line for a once great city.

A city that was once the fifth largest and wealthiest in the country, Detroit has apparently 

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The Gloomy Report from the CBO is Too Optimistic

On its face the latest report from the Congressional Budget Office is gloomy enough, but careful sifting through it reveals

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Capital Appreciation Bonds: Delaying the Inevitable

The action that California’s Napa Valley Unified School District took in 2009 is just now getting exposure and at least one board member is running for cover. Jose Hurtado, a NVUSD board member, said he stands by the deal he voted for – to borrow $29 million and put off paying it back until 2049 – but if it were a traditional mortgage, he

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Student Loan Consequences: Real, Costly and Personal

The consequences of making low-interest loans to unqualified buyers created the real estate bubble that popped in 2007, resulting in the Great Recession. According to Gary Jason at the American Thinker, it’s about to happen again only this time over student loans. He wrote: “This bubble has been fueled by the federal government’s lavish subsidization of the student loan program … in a way similar to how the housing bubble was fueled by government agencies pushing subprime mortgages.”

Under the Student Aid and Fiscal Responsibility Act (SAFRA) signed into law as part of Obamacare in March, 2010, students may borrow money directly from the federal government regardless of their credit score or any other financial “issues” they may be facing. They are not priced according to any “individualized measure of risk” nor are the loan limits. They are instead politically determined by Congress with undergraduates receiving lower interest rates than graduate students, but graduate students allowed to borrow more than undergrads.

This forced entry by the government into what was once a private market transaction has numerous consequences, nearly all of them negative, and most of them predictable.

First, private lenders disappeared from the market as they could not compete with taxpayer funds and taxpayer guarantees and the resulting below-market interest rates that became available.

Second, the growth in the education industry expanded far beyond what was normal as college administrations saw their opportunity to dip into the “honey bucket” of federal funds, with the consequent growth in administration overhead and higher tuition fees. According to a study by Bain & Company (yes, Mitt Romney’s Bain), “operating expenses are getting higher [at major colleges and universities like Cornell, Harvard and Princeton] and they’re running out of cash to cover it.” According to that study, the growth in those colleges’ debt and rate of spending on new buildings and equipment rose far faster than did their spending on actual education itself. Said Bain,

Boards of trustees and presidents need to put their collective foot down on the growth of support and maintenance costs.

In no other industry would overhead costs be allowed to grow at this rate – executives would lose their jobs.

Thirdly, this growth in the cost of obtaining what was one a coveted possession, a college degree, makes any mathematical justification or cost-benefit analysis highly questionable. Many students are entering a job market with degrees that over qualify them for what the market is able to provide. According to Jason, “over half of all recent college grads are unemployed (or employed only at jobs not requiring a college education).”

The unnatural increase in the flow of funds into the education industry has predictably driven prices higher. As Jason Bower pointed out at The Freeman,

Since 2000, tuition at public, four-year colleges has risen by an inflation-adjusted 72 percent, and over the past 25 years it has increased at an annual rate 6 percentage points higher than the cost of living. (emphases added)

Fourth, when the deferred payments on these loans start, the newly-minted grads without work cannot make them and they go into default. In a recent Department of Education study, loan default rates have risen in each of the last five years, and at an increasing rate, now touching almost one in every seven students with a loan.

Fifth, those loans cannot be dissolved or forgiven in bankruptcy except in extreme circumstances, leaving students in “debtors’ prison” interminably. As Charles Scaliger wrote at The New American,

Inasmuch as the student borrowers are uniquely required by law to repay under [nearly] any circumstances, the student loan business is the closest thing … to debtor prison in modern society.

With such a debt burden, students are forced to make, or avoid making, life choices, such as getting married or buying a home. Who would want to take on a partner who owes tens of thousands to the federal government on the day of the wedding?

And then there is the issue of bribery and insider-dealing. Lenders found ways to entice school officials to direct students needing money to them in exchange for incentives. In addition administration officials found it profitable to support candidates willing to enhance the loan programs for the benefit of the schools. Peter Wood, executive director of the National Association of Scholars, put the matter succinctly:

 The ‘free market’ in this case was never anything close to lean and efficient. To the contrary, it was (and still is) inefficient and frequently corrupt, dominated by players who found it easy to bribe college officials, wring favors from politicians by means of campaign contributions, bilk the Department of Education, and live off generous    subsidies.

All of these consequences come from first causes: the belief that the government has the right to impose its ideological position onto students and then force taxpayers to pay for those consequences when they inevitably arrive. As Kevin Villani, former chief economist at Freddie Mac, wrote in the American Banker, the progression from ideology to practice is fraught with danger. First, he says, the government must

declare that the opportunity to … go to college, is a basic right. Then [it sets] a goal for … college attendance well above private individual demand. When budgets become tight, have government lenders replace private lenders…

This cements into place the “moral hazard” that provides government loans to students without concern about how they might be paid back, because ultimately all government promises are backed by the taxpayer.

The ultimate consequence is borne by the student himself. Once he realizes his predicament – like a lobster trap – it’s too late.

For 36-year-old Nick Keith, it’s too late.

When he decided to go to culinary school, he was persuaded that he could indulge his interest in food by learning the food service industry. The school provided him with all the answers to his questions (for which the school later was successfully sued for making false statements but far too late to help Keith), and pointed him to the sources to lend him the money. Said Keith, “I should have seen all the signs. [The campus tour guide] had a used car salesman’s answer for everything,” including the lie that 99 percent of all graduates found work after graduation. It turned out later – much later – that the real number was closer to 48 percent, and that counted graduates who had to find work outside of food service. Keith’s first job upon graduation was working on a meal assembly line, making $10 an hour.

But that’s when his student loan payment program kicked in. He had to make a choice: pay the rent, or his student loan, but not both.

It’s now nearly a decade since his graduation. His debt, with interest compounded upon interest, is $142,000, at a 17 percent interest rate. He can’t get out:

I get my groceries at the local food bank. I have sold or lost 99 percent of everything I ever owned.

He can’t get work because his bad credit turns off prospective employers. He lives in an aged minivan, relies on the Salvation Army for meals, and parks his van at highway truck stops. For all intents and purposes, he is homeless.

Solutions abound, at least in theory. The government should get out of the student loan business altogether and let the private market take over. And congress should allow students to declare bankruptcy over their loans when necessary. Even there, however, the consequences are towering. There is more than $1 trillion in student loan debt. Almost 15 percent of loans are already in default. The Department of Education would have to receive special funding from congress – the taxpayer – to be able to write off the bad loans that would result.

The costs of college education would rise to more normal, market-driven levels, no doubt keeping some qualified students away. Colleges and universities would have to make massive, perhaps draconian, cuts in their overhead. It would take years for some semblance of balance between supply and demand to return to the education industry. And changing the laws would have precious little immediate impact on people like Keith.

Restoring freedom through private markets, however, is worth the effort despite the pain. The alternative – a continuing debtors’ prison for students and a continuing of the corrupt educational cartel and its incestuous relationship with politicians – is unthinkable.

 

 

 

 

 

The Council on Foreign Relations Meets Herb Stein in China

English: CRH380A at Changzhou Station 中文: 在常州驻...

CRH380A at Changzhou Station 中文: 在常州驻地的CRH380A (Photo credit: Wikipedia)

When the ultimate insider finally admits that something can’t go on forever, it’s remarkable. I consider the Council on Foreign Relations (CFR) as the centerpiece – the pillar, the foundation stone – of international affairs. James Perloff’s The Shadows of Power, last revised in 1988, will persuade even the most jaded and skeptical about this. And Herb Stein is the economist who famously said that when something can’t continue on forever, it will stop.

It looks like Stein is right once again, and the CFR, in its mouthpiece publication Foreign Affairs, has finally recognized it.

What’s been happening in China is remarkable, breathtaking, almost incomprehensible:

For four decades, the Chinese economy has grown by between seven and ten percent each year. It is the envy of the world…

At seven percent a year, China’s economy doubles every ten years.  At ten percent it doubles every seven years.

Visitors to Beijing, Shanghai, and other major Chinese cities are quickly awed by impressive skyscrapers, glittering shopping malls, new highways, and high-speed rail lines, all of which leave the impression that China is a developed economy — or at least well on its way to becoming one.

Even in some smaller cities in inland provinces, government buildings make those in Washington and Brussels appear meager. In an area of Anhui Province that is officially designated an “impoverished county,” the government office block looks exactly like the White House, only newer and whiter. (my emphasis)

But the game is almost over. Local governments force landowners to sell their land at very low prices and then lease the land to developers at prices up to 70 times what they paid for it. It’s been very

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Three State Studies Confirm Freedom Works Best

North Dakota state quarter

North Dakota state quarter (Photo credit: Wikipedia)

Each year 247 Wall St. publishes the results of its survey of all 50 states and then ranks them from top to bottom – from “best run” to “worst run.” CNBC does the same only with a more concentrated focus on the business environment in each state, and then ranks the states on their overall “measure of competitiveness.” The Mercatus Center at George Mason University looks at all 50 states from the perspective of individual freedom and then ranks the states based on its Index of Personal and Economic Freedom.

The parallels and correlations between economic and business performance and personal freedom are clear and persuasive: when state governments stay within their limits of protecting lives and enforcing contracts, the states thrive. And vice versa. North Dakota and California are examples sufficient to prove the point.

247 Wall St. admits that measuring the effectiveness of how a state government manages its affairs and allows the free market to operate is

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Self-Fulfilling Recession: Big Companies Cut Back

double dip cones

(Photo credit: mark e dyer)

There has been much talk for many months about the “second” recession facing the US economy. I’ve written about it as well, noting the prediction from ECRI last year that we were headed for a double dip. The prediction was defended again in September by ECRI.

And many have predicted, including the Congressional Budget Office, that the fiscal cliff will cause another recession.

Now, those with money to spend, have decided to cut back:

U.S. companies are scaling back investment plans at the fastest pace since the recession, signaling more trouble for the economic recovery.

Half of the nation’s 40 biggest publicly traded corporate spenders have announced plans to curtail capital expenditures this year or next, according to a review by The Wall Street Journal of securities filings and conference calls.

It’s what they’re not spending on that is unnerving: the very

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Mortgage Re-Defaults Soaring

Mortgage

(Photo credit: 401(K) 2012)

This headline makes nothing but sense: “Modified-Mortgage Defaults Soar 24%…”. Of course they will default…again. What has changed? You loan a deadbeat more money, that’s more money you’re not going to get back.

That’s not to characterize everyone who defaults on a mortgage as a deadbeat. I’m referring to those who received loans to buy homes that they never should have purchased in the first place because their previous credit was so bad. But in Clinton’s rush to put everyone into a home, even if they couldn’t afford it, he (with help from his friends) created a bubble.

That bubble burst in 2007, and the Fed has been trying to reinflate that bubble ever since. One of the ways is by forcing its banks to re-finance those deadbeats in order to get the bad loans off their books. It now is obvious that such an effort failed miserably. And it is likely to

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Tired of Political Yard Signs?

Obama/Biden yard sign

Obama/Biden yard sign (Photo credit: stevegarfield)

Jeffrey Tucker is tired of seeing all the political yard signs showing up in his neighborhood, and I think he makes a very good point:

I can’t understand why people are willing to give up precious real estate on their front lawns, make friends mad at them, and put their own credibility on the line to back some politico who will certainly betray them in a matter of weeks.

I live in a neighborhood where such signs are prohibited except for 3o days before an election. No commercial advertising of any kind is allowed at any time. Even pickup trucks with advertising on the doors are prohibited (they must be parked inside).

Tucker’s neighborhood has the same rules:

My neighborhood forbids commercial advertising on the front lawn, but the code makes an exception for politicians running for office. If anything, it should be the opposite. Commerce serves me every day. I feel genuine gratitude for these companies who give me great products and services, always keep their promises, and never force anything on me.

Talk about truth in advertising, and vice versa! The free market is

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Many of the articles on Light from the Right first appeared on either The New American or the McAlvany Intelligence Advisor.