Ripoff Outrage Boils Over

Doesn't it seem like we're entering a sort of malaise period with this economic collapse? The biggest worry of the week, was the 1/10% of 1% of AIG's bailout is going to bonuses, so the DC scapegoating/grandstanding machine went into overdrive.

Funny that just about a year ago when I said they'd be perp-walking people out of their offices, I thought it'd be almost all real estate-based types, like Summit 1031... not Madoff. It's like this thing has turned into a roiling spectacle, like The Jerry Springer Show, everyday claiming some new victim.

I have some weeks where I don't really know what to write about because things seem to be going so irrevocably wrong. This is one of those weeks, so maybe I'll keep this short.

We are in a near-manic effort to get "credit flowing" again. Everybody says that the lack of credit is the problem, and in this de-leveraging nightmare, we have to get it going again.

And funny, but the purported solution is to borrow FROM OURSELVES (our future selves) via the government, in attempt to make us take the money, now.

It's like the governement is saying, "We will take everything you ever make, to force you to take it & spend it right now"!

Very strange. Strange because the reason it is not working is so obvious, that I can't help but think the current strategy is purposefully flawed. That this is being done on purpose to achieve some ulterior motive down the road.

The AmeriKKKan people are either, A) Credit Score depleted via default, and cannot borrow, or B) So tapped out & carrying such a heavy debt load now, that they are unable to borrrow anything else.

There's nothing left in the AmeriKKKan consumer pack mule, yet the government is piling on more with every monetary tool in its arsenal.

It's ridiculous. The government is flooding banks with money, and they are incredulous that it isn't being loaned. Of course not. The people who are showing up to borrow are the worst credit risks in The World. But the government wants them to be lent money.

Uhhhh, that is exactly how this debacle got started.

This is so blindingly obvious that I can only assume they are attempting to achieve other ends via this "stimulus". It seems a simple reallocation of wealth from future generations to the wealthy of today.

That's where most of the money is going. Most of the "stimulus" that went to AIG went to extraordinarily wealthy counterparties. Many in foreign countries.

We're making the rest of the World solvent, while bankrupting ourselves. And our kids. And their kids.

Most of the people who walk in to buy homes simply do not qualify. What did some one write in the comments? 9 out of 10?

Banks are simply returning to prudent lending standards. All else would kill them. Yet the government is trying to insist that they return the Gold Rush Days that have brought on this debacle.

We're a country at odds with itself.

I'm not sure how this will play out, but the fact that we are A) Borrowing from ourselves & our kids at a terrible rate, and B) Distributing it to the most wealthy all over the World, does not make me feel anything but sick to my stomach over this countries long term future.

Another statement I made well over a year ago was that the USA would lose it's predominant economic might on this planet, seems now a foregone conclusion.

As a segue to that, I read a little piece about how the US Debt Passed $11 trillion this week. What took GeeDub 3-4 years back in the early part of the decade, has been done in a couple of days now. We blasted through a TRILLION DOLLARS.

And it looks to get much worse before it gets better.

The dollar got crushed as a result.

Here's a good summary of what is going on with our government's attempt to rescue us (from the $11 trillion piece):

Monetary Policy Under the Bernanke Fed our monetary policy is to print massive amounts of currency in order to head off asset price deflation. Falling asset prices, combined with way too much leverage, are the chief reasons the financial system is in such deep trouble.

Over-leveraged banks have very little tangible common equity to absorb losses in the value of their assets. If asset values were allowed to fall to market clearing prices (say another 25% decline in home prices), this would mean banks’ remaining assets aren’t sufficient to pay off their liabilities. Assets = Liabilities + Equity.

As the left side of the equation falls, so must the right. Liabilities are ostensibly fixed, so a decline in assets must be matched by a decline in equity. Again, financials are ridiculously over-leveraged, which means they have very little equity cushion to absorb losses on assets.

In other words, allowing asset prices to fall will bankrupt the financial sector, leading to systemic meltdown and worldwide bank runs. To fight the fall in asset prices, Bernanke has made clear the Fed will print money at a very rapid clip in order to buy assets like Treasurys, mortgage-backed securities, asset-backed securities, etc.

The best way to track how much money is being printed by the Fed is to watch the expansion of assets on its balance sheet. (second chart above, click to enlarge) The balance sheet equation (A = L + E) applies to the Fed just like it applies to banks.

The difference is the Fed has this magical machine called a printing press which means it can manufacture its own debt in order to finance purchases of assets. The debt it manufactures are simply electronic dollars that it puts in the accounts of those from whom it buys assets.

This is not hard to grasp actually. The Fed said yesterday that it wants to buy $300 billion worth of long-term Treasurys (in addition to another $750 billion of MBS). As an example, pretend you owned some Treasury bonds that you want to sell.

Since the Fed wants to buy them, it will conjure dollars out of thin air and put them in your bank account in exchange for the Treasury securites you’re selling. As the Fed prints money to buy assets, look for total assets on its balance sheet to expand dramatically.

An Economist article published today (see links) included an estimate from Capital Economics claiming the Fed’s assets are likely to expand to $4.5 trillion. That’s an awful lot of new dollars!

As I’ve argued before, this strategy is badly flawed. The Fed thinks the economy’s problem is falling asset prices. That is wrong; the economy’s problem is too much debt, which over-inflated asset prices to being with.

The only “solution” is to let asset prices fall. Unfortunately, this will be very painful. Pumping more borrowed money into the economy via fiscal and monetary policy won’t actually stop that from happening, it will just delay the day of reckoning and make it far more painful when it arrives…

We're attempting to stop the implosion of one bubble by replacing it with another.

This just makes it feel like there will be nowhere left to hide when we finally Man Up & just let the shit hit the fan.

I'm not sure what the ultimate outcome will be, but again, my old outrageous claims of olde seem to be apropos. Remember Zimbabwe?

I think I'm also a little "down" because I'm starting to know more & more people who are being sucked into this RE debacle.

They are decent people who did not go in over their head, kept their nose to the grindstone, and didn't go on spending binges.

But the one unfortunate thing they did was buy a house in Bend in the past 3-4 years.

And again, they are not having problems paying the mortgage. But they are becoming poor at an untold rate.

These are people who have slowly but surely just worked the the American Dream as methodically as possible, working 2 jobs, kids, etc.

But they bought a $350K house that is now worth under $200K.

That slowly but surely ascending line of net worth that took 20 years to get where it was, has plummeted to Less Than Zero in 18 months.

A lifetime of work, wiped out.

And these people are understandably upset. They are 100% broke, and they went broke engaging in the most Apple-Pie & baseball American Dream transaction that there is: buying a house.

That's what you're supposed to do when you've worked all your life in this country... you buy a house.

And so they did it, and the American Dream has turned into a nightmare.

And after going through the various stages of loss, I'm seeing a lot of these people simply resign themselves to 10 years of Bad Luck, and they are simply going to Walk Away, and Not Pay.

They have the money, mind you. But they are not going to throw 2-3X what it costs to rent each month for the priviledge of losing $2,000 per week. They're just walking away from their White Elephant.

Walk Away, Don't Pay.

Yet another prediction that seems to be coming true in spades today, that seemed ridiculous just 12 months ago.

And here's the reason:

Marge said...

The RE optomists quoted last month are from Mars:

March 09 sales to date
13 Sold @ $221k med

March 08 to date
47 Sold @284k med

I see that the steam building up in the market is just hot air.
Kinda like Dorn making a deal a day.

March 17, 2009 9:06 AM

This is just brutal. Not even 1 house per day is selling. We're starting to get to numbers that are so low volume-wise, that we're going to have to combine 2 or 3 months to get medians that even are meaningful.

My response to marge:

Wow, 70% REO & shorts.

So, the traditional 6% on those sales is $172,380, for about 17 days or $10,140 per day for brokers.

For 1,500 brokers (?), that's $6.76 per day.

Gross profit. Net might be a few bucks less.

HELLO iSKY!

The Realtor profession is going away in Bend. There is going to be a skeleton crew left when this is over. Gardner, DuBois, and a few others.

And even these people will be starving. RE will never return to it's Glory Hole Years.

But luckily we have the Doctrine of Bend Exceptionalism that will keep these people feeding this beast until it collapses of it's own weight.

Ahhhh yes. There is just no Good News in me this week folks. No bloodlust for the devouring of The Stupid, no outrage over bonuses, no disgust over our governments incompetence.

Just a general hazy malaise & despair that we are doing everything wrong. Just the unfortunate idea that as a country, as a state, as a town, and as people living in our neighborhoods with friends who are being steamrolled by this thing, that our futures are, at this very moment, being destroyed. And the same goes for our kids.

I'll end with a piece from The Bully:

The Great Depression
How they lived, what they learned — and what they say about today’s tough times

By Erin Golden / The Bulletin
Published: March 22. 2009 4:00AM PST

Vadabell Brumblay has always been careful with her money.

At 88, the Bend woman lives comfortably in the same home she’s had for decades, but she doesn’t take anything for granted.

She makes her grocery lists only after scouring the week’s advertisements and circling the best deals with a felt-tipped pen.

In a notebook, she carefully records each purchase she makes and charts all the bills she’ll need to pay during the month.

They’re the kind of habits that come from growing up in the midst of the Great Depression, a time when Brumblay watched her parents lose everything they had in a bank collapse and then rebuild their lives with the help of a small dairy business — a venture they eventually had to quit because so many people in Bend fell on hard times and couldn’t afford to pay for milk.

“You didn’t have much, but neither did anybody else,” she said. These days, with the economy in a slump and people around the country grappling with unemployment, plunging stock prices and higher living expenses, the Depression has made its way back into the news and dinner table conversations with some people wondering how it compares with today’s economy.

For the most part, Brumblay — and other Central Oregonians who lived through the period — say we’re not in a crisis like the one that swept through the country in the 1930s. But as government officials and families make tough decisions about doing more with less, they say the lessons they learned from surviving those times have become more relevant than ever.

A tough time In Central Oregon, as in other parts of the country, the Depression began in late 1929 and continued at least in part until the U.S. became financially involved in World War II more than a decade later, said Daniel Pope, a history professor at the University of Oregon who teaches a class on the subject.

At the time, many people in Bend and other cities in the region were involved in agriculture or the timber industry, including Rosanna Duberow, 86, of Bend, who lived with her parents and four brothers and sisters in a Shevlin-Hixon logging camp about 13 miles south of Bend.

For much of the Depression, Duberow’s father was able to keep steady work, but she remembers a few months when the company stopped cutting timber. Because he had a large family, Duberow’s father was given some money for taking care of company livestock, but it wasn’t always enough.

In town at Erickson’s grocery store, they let people charge groceries, and Mother had a huge grocery bill by the time (the loggers) were working again,” she said. “I know each month, she’d take so much extra to go pay that bill, and Mr. Erickson said when she finally did pay the last bit, ‘You wouldn’t believe, you’re one of the very few to even try to pay that bill.’”

Brumblay, who also lived in Bend for much of the Depression, remembers similar stories about people who were unable to afford food for their families and had to depend on credit from the grocery store owner.

“He eventually would take their homes,” she said. “They’d owe him so much, he’d have them sign their homes over. And the talk was that he owned half of Bend.” Brumblay’s family avoided falling into serious financial trouble, but it wasn’t always easy.

In the late 1920s, the family was living on a ranch near Tumalo when Brumblay’s parents decided to sell nearly everything they owned and move into a house in Bend, where Brumblay’s father worked at a mill. Shortly after they sold it all — the house, the cattle, even a player piano — the bank where they’d put all their money collapsed.

“My mother had a dollar and a little bit of change in her purse, and that was it,” Brumblay said. “They still had all their bills, and they had just sold all their assets.”

Brumblay’s parents got back on their feet with the help of a friend who was living with the family and had invested his money in a different bank. Her father kept working at the mill, but he had to compete with many other men who were also looking for jobs.

“I remember he would go down to the mill in the morning and take his lunch, and if there was work, he’d stay, and if there wasn’t, he’d come home again,” she said. “Then he’d go back at noon, because maybe there would be a half-day’s work.”

To supplement his income, Brumblay’s father purchased some cows and started a dairy business. Several days a week, her mother would pull down the seats in the family car and load it up with bottles of milk, which Brumblay would carry up to people’s doorsteps.

But as the Depression wore on, the business slowed down. Brumblay said she remembers going to houses where she knew the families had fallen on hard times and couldn’t afford to pay. For a while, her parents tried to help, but eventually it got to be too big of a burden.

“The problem was, Dad had to buy hay and grain, and some of the people weren’t able to pay for their milk, and we couldn’t afford to give it to them, so (my parents) eventually quit that,” she said. “And how can you refuse to take milk to families that have kids?”

Without savings or job prospects, some people in the area resorted to begging for food or work.

Cora Houston, 100, of Prineville, spent some of the Depression working as a teacher at the Bear Creek School, near Paulina.

In the most rural parts of Crook County, she said, many families were able to get by because they’d raise and grow their own food.

But when she’d travel back to Prineville to visit her mother — who lived in the same house Houston now calls home — she saw many people in need. “People came to the door asking for food, several times, right here,” she said.

Lessons learned Though many people have been hit hard by the current downturn, Pope, the history professor, said it’s not quite on the same magnitude of what happened in the 1930s.

“I think people are talking about it as a potential depression, but I don’t think we’re there yet, and I don’t think most people would claim we’re there yet,” he said. Some of the locals who lived through the earlier downturn agreed, saying the pain doesn’t seem to be quite as deep — or widespread — as it was when they were young people.

Art Welch, 90, of Prineville, said he volunteers at a local food bank and has seen an uptick in the number of people looking for help, but he doesn’t think the economic situation has reached a crisis point.

“As far as it being a depression? Not yet,” he said. Welch, who was born and raised in New York City, came to Prineville at 17 as a member of the Civilian Conservation Corps, a work program for young men that was organized by the federal government.

He and dozens of other men stayed in barracks-style lodging and worked on a variety of projects, from cutting down trees to building houses for U.S. Forest Service staff. In his time with the CCC, Welch made between $30 and $45 per month, though most of it was sent back to his family in New York.

With housing and meals taken care of, Welch said, the program provided a big boost to young men like himself who might have otherwise found themselves out of work and on the bread lines, waiting for a free meal from a charity group.. Welch said he thinks a similar program could be the answer to some of the current unemployment problems. “

They put the people back to work, and that’s just about what’s going to have to be done here this time,” he said. Others who remember the Depression said they worry that people today might not have the tools to stay on track if the economy gets worse.

Georgia Gallagher, 87, of Sisters, lived on a ranch two miles outside of Sisters during the Depression. She said her family got by in part because her mother was skilled at sewing, cooking and other tasks — and knew how to make a little go a long way.

“People are quite a bit different now, been used to not doing any of those things. ... I think people would have a harder time now because they don’t know how to can, they don’t know how to sew, they don’t know how to economize,” Gallagher said.

“So many of them are losing their homes, and there’s no place to live that is really inexpensive now, so it’s real hard on those people.” But some of the local Depression survivors said they think people dealing with the current downturn should follow some of the habits of people who grew up in the 1930s.

Gallagher said she canned food every year up until very recently, and Duberow said she and her husband still maintain a large garden, growing all of their own vegetables and some fruit.

Houston said she believes many people fall into trouble because they spend far more than they actually have in the bank.

Houston said she’s had just one credit card in her life, and she used it for a single purchase — $60 for a hotel room on a vacation to the Oregon Coast. Saving, rather than spending, she said, is the way to stay secure, even when the economy takes a turn.

“I would say definitely to build up a savings account if possible; even if you only had $5 a year to put in, try to have a savings account,” she said. Brumblay said she remembers a popular Depression-era saying that’s still as relevant as ever: “Make it over, wear it out, make it do, or do without.”

Though she said it’s hard to tell when the economy will make a recovery, Brumblay said the simple choices we make can go a long way in tough times. “First there’s wants and then there’s needs, and you have to learn to separate the two,” she said.

I love spending on the essentials in life! That's why I live in Bend, Oregon!

Me so horny for AmeriKKKan Debt!