A couple of months ago a field mouse decided to take residence in our pantry. When we first noticed his presence we opted for a non-lethal strategy. Our plan was to remove his food supplies and hopefully he would decide to go elsewhere. The situation came to boil a couple of days on New Year’s Eve when I moved a Crock-Pot travel cover while trying to get to a pot and spilled a bunch of rice and lentils on the floor. This mouse was attempting to make a nest for the winter. That was not acceptable!
This mouse had somehow managed to escape our three barn cats we have downstairs and two cats we have upstairs. My solution was surprisingly simple. I work at a place that sells mouse deterrents amongst other products, so I bought some Bonide Mouse Magic and deployed two packets in the pantry. This is a natural solution to an age-old problem. Mice do not like the smell of mint or spearmint. To my surprise, the mouse decided to escape through the two house cats. Mint and spearmint oils do not kill mice. They do not like the smell. So the mouse tried to make a run for it. He did not make it and was caught. He is dead. Best of all, he was not partially eaten. Our barn cats would have eaten him and not left a trace. The field mouse is nature’s original power bar but house cats are really out of touch. So I was grateful our house cats did not try to eat him and then throw him up. There are no pretty solutions. Fortunately, my wife does not have a problem picking up the carcass and putting it in the trash. I could sleep in. Life is good!
To the average person the mounting debt being accumulated by the Federal Government is a clear and present danger. According to nationwide polls this is the second most important issue confronting voters. One of the biggest spending areas that appears out of control is the subsidies for the mortgage market. At present most of these costs are being kept off of the Federal books despite the complaints of the CBO and Republican legislators. Ironically sometime before March 31st the Federal Reserve needs to convince someone other than the Federal Reserve to buy the mortgage backed securities. I doubt Mr. Geithner reassured prospective investors with these explanations. It should be interesting to see how high an interest rate will be required to move these securities. Will they resort to selling these securities at speculative rates just to move the securities into private hands? How could a fund manager consider investing in these speculative mortgage backed securities when the Obama administration’s plan is to ignore critical mortgage problems until 2011?
AP – The Obama administration will wait until 2011 to propose an overhaul of mortgage giants Fannie Mae and Freddie Mac, Treasury Secretary Timothy Geithner said Wednesday, arguing that he wanted to put some distance between a new system and what he called "the worst housing crisis in generations."
I must give a hearty thanks to the Heritage Foundation for this article. I have been pursuing a better understanding of Fannie Mae subsidies ever since the Wall Street Journal published Katrina’s no-brainer idea that everyone should rally around the idea to tax the big banks to recoup the taxpayer-funded bailout. In an interesting twist of word meanings I agree with Katrina that taxing the big banks is no brain idea. It is difficult to understand how the average person finds the wisdom of picking a fight with commercial banks while we ignore the continuing financial disaster at Fannie Mae and Freddie Mac. So while the CBO and the Administration quietly debate when to recognize the increase in the national debt due to Fannie Mae and Freddie Mac and the Federal Reserve frets who will buy the mortgage backed security debt in April, the average person is presumed to be more interested in taxing banks rather than efforts to fix the biggest financial crisis of our generation.
In his State of the Union address Wednesday night, President Obama repeated his call for a tax on banks, calling it “a modest fee to pay back the taxpayers who rescued them in their time of need.” That sounds good, everyone agrees the taxpayer’s money should be paid back. But there’s a bit of misdirection going on here.
As shown in the chart above, most big banks have already paid back the government money they received, with interest. On the other hand, most of the big companies that still owe billions to taxpayers, including Fannie Mae and Freddie Mac, and auto firms GM and Chrysler would not be subject to the tax. Only two big firms, AIG and GMAC, owe the government and would pay the tax. Even in these cases, the “modest fee” won’t add anything to the government’s coffers ”” any taxes they pay would simply reduce the amount the amounts they pay back.
The plan will do nothing to help taxpayers or get bailout money returned to the Treasury. It makes for good rhetoric ”” what politician doesn’t want to sound anti-bank nowadays? ”” but is no substitute for real policy.
Shiller is not certain the housing market has bottomed, and says he thinks home prices could fall back. He predicts that housing prices will be much more volatile going forward, and that five years from now, home prices will probably be at about the same level they are today.
Here is my latest version of the Real Estate Appreciation chart. This chart displays the real estate appreciation as reported by the S&P/Case-Shiller Home Price Indices and the Consumer Price Index from the U.S. Bureau of Labor. I decided to update the chart since my boss at work told me that housing prices had already reached 1996 levels. At least according to the Case-Shiller index the bulk over the metropolitan areas are still well above 2000 levels.
I did notice some interesting things about this chart.
The twenty city index(SPCS20R) is 25.3% above 2000 levels. Despite the declines this level is still above the CPI(22.8%). If the 2000 level is the projected bottom of the real estate bubble, we still have a lot more pain before the bottom.
Los Angeles appears to have avoided the real estate pain experienced by both San Francisco and San Diego. This is either good news or really bad news for Los Angeles. Considering the problems plaguing the California economy, the Los Angeles results looks really odd.
Although it may seem from the recent housing headlines that the decrease in housing prices is accelerating, my Excel graph of the S&P/Case-Shiller Home Price Index shows a continuation of the same trend lines established in 2007. In a previous post I included a chart Robert Shiller made that predicts that the housing market will bottom out in 2011 at a price level somewhat below the 2000 level based on previous downturns in real estate. His prediction continues to look likes its on track. A recent Bloomberg headline, California Home Prices Decline 41 Percent on Foreclosures, leads me to believe that some selected areas such as California will go much lower than the 2000 price levels due to the large amount of foreclosure activity in their real estate sales.
INTERESTING MAP: 35 Counties Account for 50% of foreclosures. “And yet, California is, on average, the happiest state in the nation. Weird how things work.” Why shouldn’t they be happy? ”” the rest of us are paying their mortgages. . . .
Not to belabor the point but California “used” to be one of the happiest states. They had high paying jobs, good job security, and all of their investments continually increased. They were living the good life. In one year everything has changed. They were hit with the triple whammy. First their real estate not only stopped appreciating but started to drop quickly. Many home owners soon found that they owed more money on their house than it was worth. Then the job layoffs began as the economy rapidly slowed down. I saw an article published recently that said California has one of the highest unemployment rates in the country. When you combine these employment fears with the free fall in the home prices and stock market and dysfunctional state and local governments, I doubt you will be able to find a recent poll that shows Californians to be very happy. Those laid back Californians just got a wake up call that they cannot ignore. It is time to start work on the new California.
The beneficiaries of taxpayer charity will be highly concentrated in just five states – California, Nevada, Arizona, Florida and Michigan. That is not because the subsidized homeowners are poor (Californians with $700,000 mortgages are not poor), but because they took on too much debt, often by refinancing in risky ways to "cash out" thousands more than the original loan. Nearly all subprime loans were for refinancing, not buying a home.
I linked to this article because I have been telling anyone who would listen that this recession is going to be felt more severely in just a few states. Everyone is going to feel the recession but the tone of the conversation will be dominated by the severity of the problems in just a few states. Meanwhile the economies in the other states will recover quickly since they have less severe problems to deal with. All of the states on this list except for Michigan were the primary beneficiaries of the real estate bubble and the sub-prime lending. I suspect that Michigan’s problems are more closely related to the layoffs in the auto industry. Michigan’s problems will only be resolved when the rest of the country starts to buy cars again.
I do not know why I have been thinking of Rep. Barney Frank the last couple of days. I think he honestly cares about low income families trying to put a decent, affordable roof over their heads. It is good to have a legislator in a powerful position who cares about low income families but that concerns me, too. I do not believe the subprime extravaganza helped out low income families achieve the long term increase in home ownership we sought. In hindsight it will probably be viewed as a wasted effort that primarily benefited “other” people. My gut feeling is that he will forgive and forget and we will be facing another subprime sequel in the nearby future.