Tuesday, May 6, 2008

My Cure for the "Housing Crisis"

The "Housing Crisis" has been brewing since roughly 1970, and it only blew its top in 2006.  We are now entering the long corrective phase.  

I could cure the "Housing Crisis" in the amount of time it takes close a residential real estate transaction.  Snap!  1, 2, 3!

Ready?

Every mortgaged homeowner in America walks away from their mortgage, or, in the case of folks with too much equity, sells their home to and purchases the home of their next door neighbor for 50% or less of what anybody even remotely thinks it is worth.  Got it?  Everybody does this simultaneously.  Now everybody's mortgage has been cut in half, their property tax assessment has been substantially lowered lowering that tax bite, insurance premiums will fall...  And not one person's life style will be lowered!  Banks will fail, the markets will drop like a rock, and the $ would plummet... but Zero Savings John Q. Public, Average Joe, Joe Ham & Eggs, Joe Meat & Potatoes, etc... will be FAR better off.

WE DON'T HAVE A HOUSING CRISIS!!!!!!  WE HAVE A HOUSING FINANCE CRISIS!!!!

HOMES BECAME FAR TOO EXPENSIVE RELATIVE TO THE MEDIAN FAMILY INCOME!!!!  

NO AMOUNT OF JAWBONING, POLITICAL MASSAGING, LAWSUITS, PRAYERS, THREATS, OR BEGGING IS GOING TO CHANGE THE COMING CORRECTIVE ACTION OF THE MARKET!!!!!

If you are an average zero savings working Joe this is GOOD for you!  PRAY for a 50% decline in home prices over a 1 year period.  That would be the best thing to happen to poor folks since sliced bread and spam.  The reason you hear the governments and the politicos gnashing their teeth is that this is VERY BAD for (political contributors) the establishment!!  Inflation is GREAT for the guys who already own everything - it is a disaster for those trying to break into the middle (or upper) class.

Think about it:  I love inflation!!  I own land, and bullion, and commodities... and best of all... I am leveraged!!  Inflation improves the debt/equity ratio of my assets.  Think about it:

Say I own land worth 100k and owe 50k in a mortgage for a debt to equity ratio of 50/100. Now factor in 5% asset price inflation and... Viola!!  debt to equity of 50/105!  Compound that for 2 more years and... Viola 50/116 (or so).  Now look at the other side of the "equals sign".  If you are working and saving to buy that property and it takes you 3 years to do so... well, it ain't 100k anymore, its 115k.  See how this works?  Pretty good deal for the "haves".  So when you hear all this "Save Our Homes" and the "Home Hope Initiative" Bulls--t, you will know they ain't doing you any favors.   

Guys like me HATE price asset price deflation, because our debt/equity ratio can turn us upside down in our assets.

Now take a young person from a lower middle class/working class family.  They have ZERO assets.  They will have to save and sweat for several years or more before taking on a lifetime of indentured servitude debt to buy a home.  While they are saving and sweating inflation is destroying the value of the cash they are saving while improving the value of the assets of people that already own them.

If you are a "have" you LOVE inflation.  If you are a "have not" inflation is doing its level best to keep you there.  Our entire economic system is built on the premise of perpetual 2.5 - 5 % inflation, though our Federal Reserve talks like inflation is the enemy.  SInce 1913, the year the Fed was created to "contain inflation" the U.S. $ has lost over 97% of its purchasing power due to  inflation.  Does that sound like the Fed has been fighting inflation?   AND I HAVE TO TELL YOU THIS???!!!  UGGGGHHHHHH!!!!!!!!

Look, I am an unrepentant capitalist.  This creeping socialist crap disgusts me and helps no one. But I am not fooled by these dirt bag CEO's and politicos extolling the virtues of the American free market system.  As soon as one of their Fiefdoms is in trouble they suddenly join the "socialist workers party" looking for a bailout at taxpayer expense.  The senior executives at Bear Stearns should have left with NOTHING (maybe some grey pajamas and a stenciled number on their jumpsuit lapel) - not ten's of millions of tax payer money.

Yours for better world (without indentured servants)

Mentatt (at) yahoo (d0t) com




3 comments:

Anonymous said...

This is brilliant and very dangerous thinking my friend. Although this does solve a problem of huge debt on the part of the people, it will create another problem in return. Like how are these people going to eat after the economy which is built on indentured servitude collapses in a heap? There really is no solution to this one. Only a messy, grinding down of global civilization through default and deleveraging and deflation of asset prices. Down the slippery slope we go. Wheeeee!

Nice thinking though. If I were you I would lay low for a while. Make sure no one is following you and all that :-)

Best,
Chuck H.

Greg T. Jeffers said...

I was just kidding.... well, sort of.

But you get my point. The CRISIS is that our houses COST too much, and the median family cannot afford to make the payment.

If we had a HOUSING CRISIS... well that would be not enough houses, right? OUr problem is TOO many houses, just the opposite.

Sometimes it is just fun to "turn the map around" look at things from the other side.

Greg T. Jeffers said...

Chuck:

I come from the very low end of the working class - I know of what I speak in that regard. The establishment folk, the top 5% in assets and income talk a good game about upward mobility... Just how the FU&$^! they would know is beyond me. Very few of the guys I worked with on Wall Street came from "the other side of the tracks".

This is not their fault, and does not make them less as people, but their circumstances does not qualify them to understand the difficulties in moving up the economic ladder.

Why is it that it is always some Trust Fund guy that runs Federal agencies for the poor, or who "represents" the working class... I get sick every time I see one of the Kennedy's talking this schtick...