Fleecing of the Taxpayers

Many readers have wondered why I have been quiet on the matter of the fleecing of taxpayers to bailout Wall Street. I actually have stronger opinions on politics and moral philosophy than I do housing. To write about this fleecing would require one to write about politics and moral philosophy, but alas I only endeavored to write about housing since I’m a renter waiting on the sidelines. To that end I would recommend you read Mish’s blog about how to contact your elected officials and petition against any bailout. I also want to draw your attention to a blog post by Dr. Barry Brownstein who is a local economist whom I hold in high regard. He is a true American by the same standards our founding fathers judged each other.

Behind The Two Doors

No one won today in Congress. Today’s historic vote defeating the bailout bill is just an opening battle in an ongoing war that may last for decades.

Today’s defeat of the bailout may be a pyrrhic victory. The bipartisan, reactionary forces led by Secretary Paulson, Fed Chairman Bernanke, President Bush, House Speaker Pelosi, and Congressman Frank will be back again very shortly. And let’s make no mistake; although those who support the bailout may call themselves Republicans or Democrats, they are reactionaries—reactionaries in the sense that they long for a world where entrenched wealth gets to keep it forever. After they destroy America, those who now are poor or middle class need but stand by and hope for a few handouts.

They want a world of old Europe that our Founding Fathers fled and overthrew. Thanks to our Founding Fathers, there is no nobility in America, or permanent titles of privilege, or permanent grants of wealth. In America, many families have made great fortunes; and then their children and grandchildren have squandered their fortune. Contrary to popular belief, if you look back 100 years, there are great turnovers among those who constitute the wealthiest in America.

Those who are currently on Wall Street and the reactionary politicians who enable them want to take no chances on what the market will reveal next. They desperately want to steal America’s money; they are willing to destroy America; and in the process, they will throw every man, woman, and child overboard in their cowardly attempts to get on the first lifeboats.

Consider for a minute Congressman Barney Frank, who postures as a friend of the little man, and is tirelessly working for this bailout. Guess who is the largest recipient in Congress of campaign money from mortgage bankers? Guess who received over $600,000 of campaign money this year from political action committees—including those representing Wall Street interests. That’s correct—it is Barney Frank.

We are told a free market is to blame for our current mess. Nonsense! It is reactionary politicians like Barney Frank and President Bush. In a free market, many more financial institutions would be bankrupt already; great fortunes among their major shareholders would have been lost and their CEOs disgraced. In a free market, there are no politicians to steal other people’s money so that those who have wealth can keep it. The free market punishes fools and the greedy without remorse.

Yes, this is a bailout and not an investment in America, as some are nonsensically claiming. If this was a good investment, Henry Paulson would be liquidating his own vast wealth in order to get in on the ground floor. Until he does this, don’t let anybody tell you that this is an investment in America.

As I sat at my computer this afternoon and saw the terrible plunge on Wall Street unfolding, I couldn’t help myself. I got up, turned on the TV, and tuned to CNBC. Commentator after commentator was asking breathlessly some form of these questions: “Why is the public against the bailout? Don’t they know that this is for their own good and how much they will suffer if Congress doesn’t pass this?” As I listened, I heard in their voices the belief that the bill will be passed eventually; I heard how they were looking forward to the suffering of the “peasants” who dared to oppose them. Talk about wolves in sheep’s clothing.

They may be right, some form of the bill may pass; but they have overplayed their hand. A populist uprising has begun. A populist uprising is never principle driven; but instead, it is fueled by anger, fear, and class hatred. Down the road, especially as economic conditions worsen, this will not be a good thing. Think of the French Revolution and you will know how badly a revolution driven by populist sentiment can end.

So where do we stand right now. If by some miracle, no bailout is passed, Chairman Bernanke and Secretary Paulson are fired, and in November, the public repudiates every politician who voted for the bailout, then a deflationary depression will begin. That’s the best case scenario. Those financial institutions that have failed will be revealed and liquidated. Many fortunes both large and small will be lost, and the social carnage will be enormous. Yet, out of that, in no more than a year’s time, the rebuilding will begin; and a healthy and sustainable economy will emerge.

If, on the other hand, the reactionary forces prevail, more money will be thrown after bad; foreigners will withdraw from our capital markets; and eventually, a hyperinflation will begin. In that terrible scenario, it is likely that the United States will split apart; and many cities will descend into anarchy. You can see why I prefer the deflationary depression.

The choice behind the two doors—deflationary depression or hyperinflation—is a terrible and tragic one. Don’t trust reactionary forces to make the choice that is best for you.

And if that isn’t enough reading for you then please also check out this article.

Maryland Housing Statistics August 2008

Sorry for the delay in publishing the statistics for August 2008. Please be careful when analyzing average and median price as unit mix is skewing the data. Months of Supply, inventory and sales are the more important leading indicators on the future of Maryland's housing. The report below is 45 pages (sorry for not breaking it out by metric). Don't forget you can use Scribd's controls to zoom in, download, and print this report. Enjoy!

Maryland Housing Statistics August 2008

Maryand faces HUGE revenue shortfall....didn't we play this game last year?

On queue.... with the slumping housing market and the topped out consumer not driving around buying stuff they do not need the states treasury has taken a major hit. The story over at the Sun paints a somber picture.

A litany of painful economic news hit home yesterday when Maryland's fiscal leaders learned the state faces a $432 million revenue shortfall that could rise to nearly $1 billion in the next fiscal year.

Slumping tax revenues will mean steep state agency budget cuts in the months ahead, and will require Gov. Martin O'Malley to scale back the spending plan he presents to the General Assembly in January. State leaders have begun meeting to decide where to trim hundreds of millions of dollars, and some have discussed eliminating employee pay raises and shifting teacher pension costs to counties.

The bad news is expected to continue. O'Malley plans to announce today that his administration will delay $1.1 billion in transportation projects over the next six years. The projects are funded through a transportation account distinct from the general budget.

Ok so Maryland raised the income and sales taxes last year. The federal government could let the Bush tax cuts expire next year out of inertia(blame it on them is going be a theme next year for all tough decisions), and the counties are starting to freak out with 30% shortfalls because the great house flipping transfer tax budget padding is gone.

We all need to be involved in this and demand the politicians cut budgets, freeze hiring and likely freeze salaries. This is going to be the new reality. We are heading into a L shaped recession which means L shaped revenue projections. We have a lot of cushy bureaucrats making high salaries that you have to wonder, what exactly are they doing? Why is this person getting cream of the crop health and retirement benefits while the Carpenter who helped build houses these past 10 years is out of work?

One of the things being brought to the front again is slots. Seriously I am tired of the slots as a revenue solution. We all know that the social costs are high and really why is robbing the gullible considered ok but somehow we can't get more affordable college tuition which would be of a better way to drive growth by higher skilled jobs?

The dire forecasts are likely to bolster the call from some quarters for voters to approve the legalization of slot-machine gambling in the state through a November referendum, which would bring a new revenue stream to state coffers. The projections also have stoked a debate over the level of state spending. Lawmakers are required to adopt a balanced budget, and if state revenues fall short of expectations during the year, the Board of Public Works has the authority to roll back spending. Budget Secretary T. Eloise Foster declined to say where possible spending cuts might be made but said: "There will be no sacred cows."

How come the county and state governments did not fill up the rainy day funds with all this revenue when times were good? Why is it that the taxpayers in this state have not yet revolted? Is this the year it finally happens?

And what happens to boy wonder governor, you know the guy who was all going to lower our power bills back down to levels of 20 years ago with artificial caps, but instead of gets in the way new power plant construction? This is not Baltimore City where you just raise taxes because your voters won't stand up and fight city hall. He's going to have to do something he's never had to do yet, cut off the democratic voters on the pubic dole looking for their handout. This is not just some poor joe with an $8 hr make work job, but also the 100k+ salary jobs that need to go. We'll see if he has the leadership to rise above cronyism and do the right things to balance the budget.

H.L. Mencken sums up this bubble best

Ed over at the city paper has a good explanation of this freddie and fannie mess here.

He has a lot of links so I will not repeat here but he summed up the buyers of the past couple years best by quoting a fellow Baltimorean.

So, everyone who bought a house in the last two or three years was a "fool?": "No one in this world, so far as I know, has ever lost money by underestimating the intelligence of the great masses of the plain people." --H. L. Mencken

Over your head and close to foreclosure? Take a trip down 95 to PG county

I know some of you think I am heartless but I am just interested in getting the truth out there that the real estate market is not the place to be speculating.

Today I received an email and thought that this would be good to pass on to our readers as a general reference.

I just want to post the disclaimer that this guy appears to be a flack for PMI Group to get the word out that help is out there. The PMI group has a vested interest in getting the banks to refi loans so that the banks do not make an insurance claim to cover the mortgage while it's in foreclosure.

It's one of the reasons the banks are taking the approach that if the home had PMI (private mortgage insurance) attached it can wait as the bank is getting it's money every month while it digs through the 80/20 loans that don't have PMI. A good amount of this is the "shadow inventory" the guys in the know keep talking about.

I'm out of town this weekend but anyone who goes, send us some emails and let us know how it goes.

I am writing to request your help in spreading the word about a special non-profit foreclosure prevention event coming to Upper Marlboro, MD on Saturday. As I’ve seen you reporting frequently on Baltimore Housing Bubble, Home foreclosure has become a major crisis impacting families in the Upper Marlboro area and throughout Maryland, and leading mortgage insurance provider PMI Group (www.homesafepmi.com) is working with the Hope Now Alliance (www.hopenow.com) to fight foreclosure across the country, one community at a time. I hope you will consider sharing this event with your readers via a short blog post.

Please read on for more information about Saturday’s non-profit HOPE NOW “Save the Block Party” (www.savetheblockparty.org) foreclosure prevention workshop. This event will seek to help homeowners in some of Maryland’s fastest-declining real-estate markets and communities with unusually high rates of foreclosure. Homeowners seeking more information on the Fannie May and Freddie Mac reorganization – and how this might affect their individual mortgages – are also encouraged to attend.

The next event in our series of non-profit mortgage workshops, co-sponsored locally by HOPE NOW and The National Community Reinvestment Coalition, will be in Upper Marlboro, MD at Watkins Regional Park on Saturday, September 13. This is a unique opportunity for families and homeowners facing foreclosure or late on mortgage payments to meet in-person with professional financial advisors and representatives from the nation’s major lenders. Full details are as follows:

What: “Save the Block Party” Foreclosure Prevention Workshop

www.savetheblockparty.org

Questions and RSVP requests: 1-800-846-0140

When: Saturday, September 13 2008 – 10:00 a.m. to 6:00 p.m. EST

Where: Watkins Regional Park

301 Watkins Regional Park Drive

Upper Malboro, MD 20774

Lenders: Representatives from most of the nation’s leading lenders

RSVP: First-come, first served – arrive early, space is limited! Suggested early arrival two hours BEFORE the event begins without reservations. PMI Group-insured borrowers may have already received an RSVP invitation – be sure to check if you’ve already received information on the event!

Media: Mark Lindsey, The Abernathy MacGregor Group

(213) 630-6550 / msl@abmac.com

Please contact me to request an interview with one of our real estate or foreclosure experts, as well as on-site spokespersons

Homeowners who need help, but are unable to attend the event, are encouraged to:

· Contact the HOPE NOW Alliance at 1.888.995.HOPE (4673)

· Contact their lender directly

· Access free information about options and alternatives to foreclosure at www.HomeSafePMI.com

Background:

According to a January 2008 study published by Freddie Mac, fewer than 50 percent of homeowners contact their lender prior to entering foreclosure. PMI Group’s non-profit workshops have successfully helped hundreds of families to keep their homes with specialized mortgage workout programs and unique financial arrangements. Most often, individuals entering foreclosure are the unfortunate victims of the poorly regulated lending practices exercised in the early part of the decade, leaving them with a loan arrangement not appropriate to their actual income level.

In a casual, sit-down conference with a lender, homeowners can find solutions to foreclosure they often are unaware may be available to them. Our Risk Index Survey shows the widespread economic impact of the real estate downturn, with several markets in California and Florida at the highest nationwide risk level for severely declining property values by 2010.

If you’d like to explore this topic further, we have local real-estate and foreclosure prevention experts available for interview at your request. Thank you so much for your consideration, and I look forward to your thoughts.

Best,

Mark Lindsey

The Abernathy MacGregor Group, Inc.

Baltimore Economy

State Cuts Revenue Forecast and according to Mayor O’Malley

“We are preparing to bring hundreds of millions in cuts before the Board of Public Works in the coming weeks to address this challenge.”

This will undoubtedly mean jobs cuts for either the government or contractors.

Also the BBJ reported that bad loans are hurting a quarter of Baltimore Banks,

Suburban Federal Savings Bank lost $3.2 million in the second quarter. The bank is operating under a cease-and-desist order from the federal Office of Thrift Supervision, which required Suburban to stop “unsafe and unsound” real estate lending practices.

There is more in the article about K Bank, Bradford, Advance Bank and Arundel Federal Savings Bank. There are also dozens of new reports all over about the local economy taking a turn for the worse.

What are your local observations for either better or worse? Restaurant volumes, car dealership ghost towns, job cuts, highway diversity (car pooling, mopeds, motercycles), price cuts on O's and Nationals tickets...have you seen these? What else?

*Edit Infinity8Ball in the comments noted about restaurant volumes being down and I figured I would update with my view since I eat out 3 or 4 times per week*

• The Ruth Chris in Pikesville has been a ghost town the last two times I've been since May.
• Bill Batemans in Parkville was a dead zone two weekends ago.
  
• Last Friday Macaroni Grill in Cockeysville was the slowest I've ever seen and I eat their often!
  
• The Prime Rib was jam packed (uncomfortably so) at the end of July..but I guess that was due to the beginning of restaurant week.
  
• Olive Garden in White Marsh was full but no wait at dinner time two weekends ago (use to be a 45 minute wait).
  
• Bay Cafe has been dead each Wednesday for the past two month.
  
• The Speakeasy Saloon in Canton was totally empty three weeks ago on a Wednesday.
• Panera in Hunt Valley use to have lines out the door at lunch time...now maybe 1 or 2 ahead of me in line at peak lunch time.
• The Subway I go to for lunch use to have a very long line, now I can walk right up to the counter during peak lunch rush.

Fannie and Freddie Taxpayer Funded Bailout coming monday

Well we all knew it was coming. We the taxpayers have to bailout the flippers, speculators, and overupgraders. I don't know I guess it's copacetic that I know somewhere in California and Florida there is a beachfront home with travertine floors and granite countertops that I'm helping prop up price wise so that future porn stars can continue to snort blow and keep the rehab workers employed.


More details will leak out today and tomorrow before Tokyo and Hong Kong open, (irony this bailout is not for us as much as it is for them) hat tip to CR on the links.


Stories (some contradictory on the Preferred shares):

Bloomberg: Paulson Plans to Bring Fannie, Freddie Under Government Control

WSJ: U.S. Near Deal on Fannie, Freddie

WaPo: U.S. Nears Rescue Plan For Fannie And Freddie

NY Times: U.S. Rescue Seen at Hand for 2 Mortgage Giants

LA Times: Fannie, Freddie takeover possible

From the WSJ: Frank Confirms Treasury Intervention To Shore Up Fannie Mae, Freddie Mac

The Quickening is coming

This video, around 9 minutes will explain some of the reasons why buying now makes you nothing more than a knife catcher who will also be underwater.



Now he does explain this from a California perspective but everything he says also applies to Baltimore. The banks are getting ready to DUMP assets. This is the stuff that it needs to have the federal government become the bagholder on.

This inventory will hit the market for first investors to pick clean the cream. They will then do some fix ups in an attempt to create a profit in the spring. Because they already bought low they can now undercut the 2005-2007 vintage buyer who wants to sell to "move up". The problem is that they are going to come on the market at 2004 and below pricing.

Pretty much means that only those who bought more than 5 years ago will have any chance at a "profit" after you factor in the realtor and transaction costs(remember sellers are pretty much stuck paying the buyers closing right now or the sale does not get done.)

After October those who have cash to put down will be the only folks that can realistically buy.

This paradigm shift will have huge effects in this market because the first time buyers are the ones who need 100% financing the most.

The first time buyers....well they are the kids who are 24-32 who more than likely have car, student loan and credit card debt. This means the "payment shopper" is no longer available to buy a home. Why you ask????? Simple they need to SAVE.

Expect a downward spiral in sales till April. Few buy in the cold weather(although deals are possible, most of what is thrown onto the market is the disparate seller with a junky listing.)

This cycle will probably repeat for the next 2-3 years peaking around 2010-11 when hopefully the option arms are mostly washed through the system.

For those who are patient, worked hard and make more than the median income your time is coming. The hordes took your dream and now have the jewels. Fortunately the tide is turning and the folks that were dooped by a Realtor, HGTV, and fake friends who were also on this debt induced orgy that housing in an investment and that it's good to gamble to become an indentured servant is leaving the national psyche. Ironically those in the real estate industry are a lot of the horde. They now have drastically reduced incomes or are out of work all together. They cannot hold on forever. You the buyer however can hold out and SAVE. Just as the car buyers of the spring are finding out now, wait a better deal is coming.