Week in Review – by Lou Barnes

This post comes from a news source I subscribe to.  All credit goes to Lou Barnes, the author, and Mortgage Coach, the sender of “the week in review”.  You can reach them here: http://www.mortgagecoach.com/.  The review part of the column was short and sweet and not very note-worthy.  However, I found the following to be thought provoking.

A plague has descended onto this land, and its name is “No Taxpayer Bailout!”

This illness is related to a few other fatal rashes and fevers of modern democracy, but nothing beats NTB! for decadence.

When some huge part of the economy needs to be bailed for the common good, there isn’t anyone else out there but taxpayers. In small disasters there is somebody else. Example: BP will probably have enough assets and future income to pay for most of its blowout damage, but even in that case, higher costs from new controls on drilling will be paid by taxpayers.

Another somebody-else example: deposit insurance has been funded by a levy on banks since 1933. Two problems. The banks, of course, pay the fee by means of lower interest to savers and higher costs to borrowers. Deadlier: a big enough bank run will overwhelm the FDIC, or any fund that banks themselves can raise.

The origin of NTB! in recent usage: the “S&L Bailout” of the late 1980s was decried as a raid on the taxpayer. Nevermind that all of the stockholders were wiped out, as were most of the officers and directors, and the FSLIC fund, and the ONLY people bailed out were the depositors, who did not lose a dime. Oddly enough, nearly all depositors are taxpayers. And vice-versa. Just as in the disaster in progress now.

“Decadence” is a nasty word requiring justification to those who think their hard-earned tax money is being wasted. When a rescue is obviously necessary, ask a nearby NTB!, “Whom else do you have in mind? Non-taxpayers? The poor? Pets? The French?” The most common response is “Government should do it (Grrrrr).”

Government doesn’t have any money. Government only has money if somebody pays taxes, or if it borrows; and if it borrows, somebody sure as hell better pay taxes.

Which leads to the expectation of the modern voter-taxpayer that somebody else will pay the taxes. I will pay taxes to fund the spending that I want, but somebody else has to pay taxes for the stuff that I don’t want. I don’t want to borrow, so I won’t pay taxes to pay interest. Certainly not principal. Somebody else.

Then there is government “guarantee.” Student loans, veterans’ benefits, Social Security. And contingent guarantees: if the FDIC runs out of money, government will guarantee all deposits. If a series of hurricanes bankrupts Federal flood insurance, government will guarantee. Nothing stands behind the Federal Reserve Note in your wallet except the nation’s willingness to pay taxes.

Europe is trying to save the euro by deploying a $900 billion fund to pick up bad bonds issued by Club Med. However, the fund is nothing but a pile of guarantees by governments that don’t have enough tax revenue as it is. Guarantee is meaningless if given by a government with neither the will to levy taxes, nor to cut spending.

“Government guarantee” sounds so powerful that people always play along, until they realize (late, always late…) that in the end nothing is guaranteed except, “Will you take a check?”  The end hastens when too many taxpayers lose faith in other taxpayers, and force our representatives to tell us what we want to hear.

If pandering leapfrog codifies NTB! into law, at the onset of the next great financial FUBAR, you will have forbidden yourselves to save you.

by: Lou Barnes

I don’t think Lou is specifically advocating Government bailouts. Instead, he forces us to reconcile who the bailer is and who the bailee is.  Thanks, Lou, for making us think.

Recession Reality II

I have thought a lot about the bravado in my last post and the hard working people who are out of a job or are not earning as much as they were prior to the economic bust.  This is a hard time for a lot of good, hard working people.  However, excellence and progress make take time to assess.  Someone’s current retrogression may not be permanent.

The man of action has the present but the thinker commands the future.

I have no idea who said this – it wasn’t me.  This makes a lot of sense.  We need to become both – what will help us do better today? what will help us have a better tomorrow?

I wanted to retract my Recession Reality post because I don’t want to be insensitive to the real pain that people are feeling (the college friend of one of my partners just lost his wife on Saturday night in a head on collision – I bet they’d both choose to trade complete and permanent financial destruction over this).  I don’t want to come across like I am bragging – I am one part of a larger organization and the last to take credit for our success.  I can’t retract it because I still believe it – the best thing about our economy is that it is made up of entrepreneurs with a historically forged determined spirit – we can grow and improve if we choose to be proactive in our reinvention.  We are being reinvented by our circumstances.  Some will take the reins and others will allow their future to be dictated  by an outside force – government, community, gravity, the downstream current.

This sounds very humanistic – however you categorize it, it’s better than Ernest Hemingway’s solution.

Recession Reality

Long and drawn out recessions are hard as they wear down the patience and fortitude of the average worker.  Obviously  the unemployed have immense challenges enduring a recession.  The salaried employee marks time from lay-off to lay-off.  The non-salaried employee or entrepreneur?  Well, recessions like this will make or break them.  The blessing and curse is they have the most of the control over how much they earn.  I concede that certain industries and corporate policies may impede or interfere with an individual’s ability to grow during the recession.  Furthermore, I am not a Tony Robbins disciple chanting mindless brain chatter at myself in the hopes of replacing those ideas with some failure message life has certainly taught us all.  I simply believe that the cream will rise to the top.

Recessions are great forges that refine the weak out of the marketplace which creates great opportunities for the strong to gain market share and enhance their business model.  In fact, this applies to everyone int he marketplace.  On the surface, my brother-in-law and I had little in common when we first met outside of marrying sisters.  I quickly grew to like him and have since become a huge fan and a great friend.  One of his most remarkable attributes is that he is not afraid of hard work.  He is not the most driven man I know, he does not have a superior education or family pedigree, he simply shows up and get his job done.  The result is that while his company shrank from 70+ employees to  13, he was in the minority 13.

I got the following email from a trade group where I am a member:

Dear Peter,

The spring/summer home buying season is almost here!  Yet, I’m almost certain that the last few months and years of industry chaos have beaten you up and worn you down to the point where you’ve probably given serious thought to pursuing a career outside of the mortgage industry.  That’s one reason why I’d like to spend 60 minutes with you sharing some of my latest thoughts on how to rediscover your passion, rejuvenate your career, re-invent yourself (again), and make 2010 your best year ever as a Certified Mortgage Planning Specialist!

This was a few days after one of the largest Realtor groups in our marketplace told me my career was floating in the waters as the Titanic sunk around me and they were a lifeboat coming by to rescue me.  They wanted me to “regain the courage to pick up the phone” and call my clients (who I have avoided) and tell my client that I have found a better solution than foreclosure – short sale!  This makes several wrong assumptions.  First, that our business needs rescuing.  Second, that our thousand-plus clients are facing foreclosure.  The reality is that most of our clients (or almost all…) are able to weather this storm.

To both I say, “I am not your target market.  I did not just get my butt kicked.  Actually, I just came back from kicking someone’s butt, I’m covered with their blood, and I am looking for a place to flex!”

Are you growing or are you shrinking?  This isn’t mindset self-actualization, this is reality.  What’s your reality.

Feasibility Plan for the Move-Up Home Buyer – Part 3

The final step in our plan for the move-up home buyer is identifying neighborhoods and homes that will meet your needs and make selling or renting worthwhile.  At this point, unless you are severely upside down and you are not able to rent your home for anything close to your mortgage payment, you should not have made any decisions for or against yet.  After all, selling your home for a loss may not be such a bad thing if the home you purchase is at an even greater discount with more upside.  This is where our team of Realtors will make all the difference.  The news bombards us with national, regional, and local real estate valuations.  Is Chandler better than Scottsdale, Surprise better than Mesa, North Phoenix better than Glendale?  While the data can be extrapolated to indicate what a local, regional, and statewide market looks like, the truth is the market changes neighborhood to neighborhood.  For instance, several newer neighborhoods like Del Webb’s Fireside at Desert Ridge and the southern neighborhoods in DC Ranch are selling at steep discounts in relation to bordering developments.  Our team of Realtors is adept at helping buyers navigate these seemingly murky waters.  A Comprehensive Market Analysis will include depreciation since the market’s decline, current default and historical foreclosures within the neighborhood, and current renter penetration.  All of these are factors in your purchase decision.  You do not want to make a purchase if there are several pending foreclosures, nor would you want to move into a neighborhood with high renter penetration.  However, neighborhoods already hit by waves of foreclosures have usually felt the full force of the market’s decline.  Looking at the depreciation since the market’s decline will help you evaluate the discount you will be buying into and the new home’s potential value versus your own current home’s make up.

Once you have investigated the options available on your current home, weighed out your cash reserves, been qualified for the loan program that best meets your needs, found the right neighborhood and a home that will improves your quality of life, you are in a position to properly evaluate the move-up buying scenario.  You may find that the benefits out-weigh the risks but still don’t have the stomach to pull the trigger.  That’s okay.  At least you were able to evaluate the facts and make a logical decision.  However, you may find that the discount on a new home and the benefits to your family are enough impetus to move forward.  These are not easy decisions but they are better evaluated when your follow a comprehensive plan.

Please contact us to begin this process.  We work with a team of Realtors and property management companies that are proficient in this process.  By July 2010, there will still be good opportunities available, but they won’t be great in comparison to our current environment.  Home prices may go up or down but interest rates will go up and tax credits will disappear.  We look forward to helping you and your family.

What Makes a Recovery?

Imagine this, you’re driving home from work one night, unwinding during your short commute and looking forward to shedding the stress of the day by spending the evening with your family.  Suddenly, without warning, your side-impact airbag inflates.  While you are thinking to yourself, “So that’s what that’s like” your car is hurdling off the road and into the corner of a brick building.  The last thing you remember is the explosion that inflates your front-impact airbag.

You wake up in the hospital.  Everything is numb.  You’re on heavy pain medication.  You do not fully understand the extent of your injuries, you just know that your going to be in a lot of pain.  After a few weeks in the hospital, the doctors let you know that you are on the way to recovery and send you home.  The only problem is the pain you are still experiencing makes it hard for you to believe that you are recovering.

We all should mark 3rd quarter 2009 on our calendars.  That was the end of the Great Recession.  Or at least that is what we are told to believe.  After all, our GDP was up 3.5%.  Ignoring the fact that it also marked the movement of unemployment up to 10.2%, ignoring how the government used Keynesian economic theory to prop up the GDP through invasive purchase incentives, and ignoring October’s consumer confidence index which is at a 26 year low.  The last point being the most potent – since consumer confidence indicates if we feel like we are recovered.  And the plain stark reality is we are still in a ton of pain – economic, emotional, mental, physical, relational.  This recession has taken its toll on every aspect of our lives.   So, what makes a recovery?

What unfortunately obfuscates recovery is the perception of blame and credit.  Policy makers and political pundits want to prove the other team was at fault and show how they are responsible for the recovery.  It’s as much about power as it is about ideology.  Rebuplicans were holding the bag when the music stopped.  Yet they blame the Democrats for passing housing legislation that caused high rates of default.  These pot shots are about electability.  However, our current power-holders want to use the recession to seize more power and move from being Uncle Sam to an over-bearing parent.  Blame and credit boil down to power and ideology.

So let’s settle this once and for all.  The Great Recession is my fault. I bought too much and saved too little.  I never thought the boom times would end.  I replaced prudence with foolhardiness.  Patience with rashness.  Temperance with exuberance.  It’s my fault, all my fault.  That’s the bad news (if you’re sensitive to blame).

Here’s the good news: I will fix our economy.  I will change the momentum of my personal economy from debt to saving, from brash consuming to responsible spending, from a liability to an asset.  Yes, I will do that and heal our economy.  There isn’t a government program, stimulus package, or regulatory agency that can do that for me.  I need to do that on my own and so do you.  Then, and only then, will our economy be truly healed.

What’s the big deal?  Simple.  The government wants us to believe that we are ready to resume our pre-recession lives (of voracious consumerism).  However, we would only end up in the same place (or worse).  The doctors say we are recovered, but we are not.  This is going to take a long time, a long recovery, and only when we have truly changed our mindset and our habits will we have recovered.  We can’t rush it and we can’t stimulate it to grow faster than it will.  Moreover, efforts to assuage today’s pain will simply lengthen the healing process or possibly cause a total relapse.  We need to learn these lessons on our own, the old fashion way – with sweat and determination.

And here is the good news: those new habits will be great for our own personal balance sheets.  Some say that won’t be good for our economy but they are wrong.  A nation filled with financially strong individuals will bond together to create a robust and resilient national economy.