Bill Clinton created the Subprime Mortgage Crisis with his Policy Statement on Discrimination in Lending

Posted by PITHOCRATES - November 6th, 2011

Week in Review

The proof is in the pudding.  And that pudding is the Federal Register.  Or as some would say the smoking gun in the subprime mortgage crisis (see Smoking-Gun Document Ties Policy To Housing Crisis by PAUL SPERRY posted 10/31/2011 on Investors.com).

At President Clinton’s direction, no fewer than 10 federal agencies issued a chilling ultimatum to banks and mortgage lenders to ease credit for lower-income minorities or face investigations for lending discrimination and suffer the related adverse publicity. They also were threatened with denial of access to the all-important secondary mortgage market and stiff fines, along with other penalties.

The threat was codified in a 20-page “Policy Statement on Discrimination in Lending” and entered into the Federal Register on April 15, 1994, by the Interagency Task Force on Fair Lending. Clinton set up the little-known body to coordinate an unprecedented crackdown on alleged bank redlining.

The edict — completely overlooked by the Financial Crisis Inquiry Commission and the mainstream media — was signed by then-HUD Secretary Henry Cisneros, Attorney General Janet Reno, Comptroller of the Currency Eugene Ludwig and Federal Reserve Chairman Alan Greenspan, along with the heads of six other financial regulatory agencies.

“The agencies will not tolerate lending discrimination in any form,” the document warned financial institutions.

So this is where it all started.  In 1994.  When the government pressured lenders to qualify the unqualified.  To put people into houses they couldn’t afford.  Or else.

The unusual full-court press was predicated on a Boston Fed study showing mortgage lenders rejecting blacks and Hispanics in greater proportion than whites. The author of the 1992 study, hired by the Clinton White House, claimed it was racial “discrimination.” But it was simply good underwriting.

It took private analysts, as well as at least one FDIC economist, little time to determine the Boston Fed study was terminally flawed. In addition to finding embarrassing mistakes in the data, they concluded that more relevant measures of a borrower’s credit history — such as past delinquencies and whether the borrower met lenders credit standards — explained the gap in lending between whites and blacks, who on average had poorer credit and higher defaults.

The study did not take into account a host of other relevant data factoring into denials, including applicants’ net worth, debt burden and employment record. Other variables, such as the size of down payments and the amount of the loans sought to the value of the property being bought, also were left out of the analysis. It also failed to consider whether the borrower submitted information that could not be verified, the presence of a cosigner and even the loan amount.

When these missing data were factored in, it became clear that the rejection rates were based on legitimate business decisions, not racism.

Still, the study was used to support a wholesale abandonment of traditional underwriting standards — the root cause of the mortgage crisis.

So there was no racism.  No redlining.  Just good mortgage lending practices.  But good mortgage lending practices don’t buy you votes.  Or get you kickbacks from mortgage lenders.

Confronted with the combined force of 10 federal regulators, lenders naturally toed the line, and were soon aggressively marketing subprime mortgages in urban areas. The marching orders threw such a scare into the industry that the American Bankers Association issued a “fair-lending tool kit” to every member. The Mortgage Bankers Association of America signed a “fair-lending” contract with HUD. So did Countrywide.

HUD also pushed Fannie and Freddie, which in effect set industry underwriting standards, to buy subprime mortgages, freeing lenders to originate even more high-risk loans.

So how do you qualify the unqualified and avoid the wrath of the federal government?  That’s easy.  You create the subprime mortgage market.  And then you get Fannie Mae and Freddie Mac to buy these toxic mortgages and pass them on to unsuspecting investors.  Freeing up the mortgage lenders to make more bad loans.  And putting the world on a course to financial calamity.

All in a day’s work for an activist, corrupt, Big Government.

Clinton’s task force survived the Bush administration, during which it produced fair-lending brochures in Spanish for immigrant home-loan applicants.

And it’s still alive today. Obama is building on the fair-lending infrastructure Clinton put in place.

As IBD first reported in July, Attorney General Eric Holder has launched a witch hunt vs. “racist” banks.

“It’s a more aggressive fair-lending enforcement approach now,” said Washington lawyer Andrew Sandler of Buckley Sandler LLP in a recent interview. “It is well beyond anything we saw during the Clinton administration.”

Guess we haven’t learned the lessons of the subprime mortgage crisis.  Or we have and just don’t care.  Because buying votes and getting kickbacks from mortgage lenders is more important than preventing another subprime mortgage crisis.

All of this, of course, means that Wall Street didn’t cause the mess we’re in now.  Bill Clinton did.  And his racist lending policies.  To correct for a racism in mortgage lending that wasn’t there.  By qualifying the unqualified.  And putting them into houses they couldn’t afford.  Which the Obama administration appears to be doubling down on.

Boy.  I’d hate to be in our shoes.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , , , ,

Keynesian Tax and Spend Monetary Policy will Never Overcome Ruinous Fiscal and Regulatory Policy

Posted by PITHOCRATES - September 23rd, 2011

No Theory is Sacrosanct in the Scientific Method, Even if it’s Albert Einstein’s Theory

Albert Einstein‘s Theory of Relativity has held in the scientific community for some 106 years.  It hasn’t been accepted as a matter of faith, though.  It has been tested thousands of times in attempts to debunk it.  Right up to today.  Where it now appears we may be close to debunking it (see “Faster than light” particles may be physics revolution by Robert Evans posted 9/23/2011 on Reuters).

“It is premature to comment on this,” Professor Stephen Hawking, the world’s most well-known physicist, told Reuters. “Further experiments and clarifications are needed…”

“When an experiment finds an apparently unbelievable result and can find no artifact of the measurement to account for it, it is normal to invite broader scrutiny….it is good scientific practice,” he said…

Einstein’s theory has been tested thousands of times over the past 106 years and only recently have there been just slight hints that the behavior of some elementary particles of matter might not fit into it…

Ereditato, a physicist who also works at the Einstein Institute in the University of Berne, said the potential impact on science “is too large to draw any immediate conclusions or attempt physics interpretations…”

“Only when the dust finally settles should we dare draw any firm conclusions,” said Professor Forshaw. “It is in the nature of science that for every new and important discovery there will be hundreds of false alarms.”

This is the scientific method.  No theory is sacrosanct.  Even one by the great Albert Einstein.  Even if it’s been around for 106 years.

Quite the contrast to the theory of global warming.  Accepted by government scientists as indisputable fact.  Even though it has never been given serious scientific scrutiny like that given to one of the world’s greatest scientist.  Albert Einstein.

Considering the Economics, Only a Fool would Bet Against the Chinese in the area of Solar Panels

But Al Gore is smarter than Albert Einstein.  For he says that global warming is a scientific fact.  Even though we still call Einstein’s Theory of Relativity a theory after 106 years.  But not the theory of global warming.  No.  That theory is not a theory.  It’s fact.  So certain a fact that world governments have been killing economic activity everywhere to stop the ravishes of global warming.  Even investing in companies that promise to give us renewable green energy of the future.  Like that one that just ripped off the American taxpayer to the tune of half a billion dollars (see Solyndra haunts other government-backed solar firms by Steve Hargreaves posted 9/23/2011 on CNN Money).

At least three other government-backed solar firms face the same challenging market conditions that brought down Solyndra, the now bankrupt solar panel maker that could cost taxpayers over $500 million…

The company’s downfall is generally thought to have been caused by the declining price of silicon.

Solyndra didn’t use silicon. But many of its competitors did — traditional solar firms like Sunpower (SPWRA), Trina Solar (TSL), Yingli (YGE) and Jinkosolar (JKS). Solyndra was banking that high silicon prices would give it a competitive advantage…

Are they also doomed? Experts say that if they can further develop their technology they may have a fighting chance but market conditions in the near-term are working against them…

An Energy Department spokesman said the agency was not worried about these companies failing, saying it conducts rigorous reviews of all the ventures it funds.

Of course.  There’s nothing to worry about these other companies failing.  Because the Energy Department conducts a rigorous review of all the ventures they fund.  Except Solyndra apparently.  Or they did review them rigorously.  And the Energy Department just sucks at its job.

China’s investment in silicon as well as its huge investments in solar panel makers, combined with weaker demand worldwide as subsidies expire in Europe, caused the price of traditional solar panels to plummet.

In the last year alone they fell some 40%.

All across the globe, solar panel makers, especially ones that were developing more advanced technology, are finding it hard to compete with the Chinese as the price of solar panels drops.

I guess the Energy Department just sucks at its job.  I mean, imagine you’re an investor for a moment.  And you want to invest in a store that sells home improvement stuff.  Do you invest in the Home Depot?  Or the mom and pop hardware store?  The Home Depot is much bigger.  Has a greater variety of stuff.  And sells that stuff for 40% less than Mom and Pop.  Which store would you invest in?  Of course, you would invest in the Home Depot.  But the Energy Department, the geniuses that they are, would invest in Mom and Pop.  And then act shocked when they go belly up in the face of that fierce competition.

Considering the economics, only a fool would bet against the Chinese in the area of solar panels.  Then again, no one in Washington seems to understand economics in the least.

Cheaper panels mean more people will switch to the clean technology. Work has been booming for solar installers, project developers, and financiers. Just this week the industry said solar power capacity in the United States jumped 69% in the second quarter compared to the same time last year.

The Energy Department, as part of its plan to fund R&D and commercialization of renewable and clean energy technology, has backed or is considering backing loans to 42 firms across the sector totaling $39 billion in funding.

The manufacturers are taking it on the chin.  But the installers are installing these cheap Chinese solar panels like there’s no tomorrow.  You’d think the Energy Department would be happy that these silly things are being installed and get out of the investment business.  But no.  They’re going to piss away another $39 billion to fund firms that won’t be able to compete against the Chinese either.

By a show of hands who wants the Republican president to abolish the Energy Department in 2013?

One Gets the Feeling that Government Likes Wasteful Spending as it Adds to the Deficit

We really need to cut the government off.  They just aren’t responsible with our money.  If it ain’t throwing money away on solar panels, they’re throwing it away on dead people (see Gov’t paid $600 million in benefits to dead people by Sam Hananel posted 9/23/2011 on the Associated Press).

The federal government has doled out more than $600 million in benefit payments to dead people over the past five years, a watchdog report says.

Such payments are meant for retired or disabled federal workers…

In one case, the son of a beneficiary continued receiving payments for 37 years after his father’s death in 1971. The payments – totaling more than $515,000 – were only discovered when the son died in 2008.

If you owe a dollar in taxes you can bet the IRS will find you wherever you are.  But when it comes to spending our money it’s a different story.  As they are probably afraid of any close scrutiny that might show other mishandled funds.

Last year, government investigators found that more than 89,000 stimulus payments of $250 each from the massive economic recovery package went to people who were either dead or in prison.

There’s another $22 million pissed away by Uncle Sam.  $22 million here.  $600 million there.  And $16 muffins.  Where does it stop?  They are so ruthless when it comes to taxing us.  But once they get our money they apparently don’t give a damn about what happens to it then.

One gets the feeling that they like this waste.  As it adds to the deficit.  And the greater the deficit is the greater the need for new revenue.  Higher tax rates.  And getting the rich to pay their fair share.  I say let’s raise the tax rates on those doing such a poor job handling our money.  If they have such a cavalier attitude about taxpayers’ money, let them belly up to the bar and pay for their waste with their own damn money.

If You Want Real Stimulus Repeal Dodd-Frank.  That Alone will Create 30,000 Jobs at One Bank.

So the government is horrible at picking investment winners.  And is about as responsible as a teenager with money.  But Obama is looking to spend another $450 billion in stimulus.  To create jobs.  Unlike that $800 billion stimulus that failed to create jobs.  So they don’t know how to create jobs either.  Worse, they only thing they seem to be good at is destroying jobs (see The Dodd-Frank Layoffs posted 9/13/2011 on The Wall Street Journal).

Bank of America appears to have provided part of the answer by announcing yesterday that the nation’s largest bank will cut 30,000 jobs between now and 2014…

The Fed dutifully ordered banks to cut their fees almost in half. Bank of America disclosed in its most recent quarterly report that this change will reduce the bank’s debit-card revenues by $475 million in just the fourth quarter of this year. The new rules take effect on October 1, so BofA seems to have sensible timing as it begins to shed workers from a consumer business that has become suddenly less profitable by federal edict…

But given the real-world results for bank employees, politicians should not be allowed to pretend that there are no consequences when they deliberately reduce the profitability of employers. Mr. Obama proposed last week to spend some $450 billion more in outlays or tax credits to create more jobs, but it would have cost a lot less to save these 30,000.

If they want real stimulus they should repeal Dodd-Frank.  That alone will create 30,000 jobs.  At one bank.  If this happens at other banks you’re looking at hundreds of thousands of jobs.  Now that’s stimulus.

If they really want to create jobs they ought to go big.  Abolish the EPA.  And the Energy Department.  For a start.  With that kind of uncertainty removed just think of the explosion in economic activity.  Creating jobs galore.  Hundreds of thousands.  Perhaps millions.  The oil and coal industries alone would probable wrest this country from recession.

The Economy is not Just Monetary Policy.  It’s Fiscal and Regulatory Policy, too.

So it’s clear the government doesn’t know the first thing about stimulating economic activity.  They just can’t figure that out.  But what they can do is destroy jobs.  They’re real good at that.  And the reason for all of this is that they’re Keynesians.  They worship at the altar of Keynesian Economics.  Despite its horrendous track record.  Almost three years and counting for the current administration.  But they refuse to lose faith.  Instead, when they fail, they just choose to fail again.  By pursuing more of the same failed policies (see Markets tumble after Fed says it will buy longer-term bonds to try to boost economy by Neil Irwin posted 9/23/2011 on The Washington Post).

The announcement that the Fed would buy $400 billion in long-term Treasury bonds immediately achieved its intended effect, pushing rates on these securities and other investments to their lowest level in decades.

But the stock market rendered a sharply negative verdict. The Standard & Poor’s 500-stock index tumbled almost 3 percent on the Fed’s discouraging statement that its leaders see “significant downside risks” for the economy. Asian markets closed down between 2 and 4.85 percent, and key European indexes were trading more than 4 percent lower at midday.

No one wants to borrow money.  Businesses.  Or consumers.  Because there is just too much economic uncertainty with the Obama administration.  Everybody is hunkering down.  Deleveraging.  And hoarding cash.  Until better economic times.  Times with less uncertainty.  Probably starting sometime after 2012.  When there’ll be a new Republican president.  And hopefully a Republican House and Senate.  To undo those things causing all of this uncertainty.  Dodd-Frank.  Obamacare.  Etc.

The Fed action, which capped a two-day meeting, is focused squarely on lowering mortgage rates in an effort to strengthen the ailing housing market and lighten the load of the tremendous debt weighing on consumers. The move could also make it cheaper for businesses to borrow money for investments and push more dollars into the stock market.

The housing bubble create a surplus of houses that’ll be around for a long, long time.  The country is dotted with empty homes that banks have foreclosed on.  And the banks own a whole bunch more that will be hitting the market soon.  It’s a buyer’s market out there.  But it sure sucks to be a seller.  Especially if your mortgage is under water.  Homes have lost so much value after that bubble burst that anyone selling now will lose tens of thousands of dollars.  So they’re not selling.  Or buying.  No matter how cheap mortgage rates are.

The bond-buying program that ended in the summer, though massive in scale, failed to keep economic growth from sputtering. The disappointing result showed the limits of what the Fed can accomplish at a time when consumers are struggling with enormous debts and the U.S. banking system remains traumatized. The new initiative could face the same constraints.

Quantitative easing 2 failed.  And there’s no reason to think that quantitative easing 3 won’t fail as well.  So why do it?  Because they’re Keynesians.  And their scripture says that’s what you do.  Weak demand?  Why you fix that with cheap money.  But they don’t understand that the economy is not just monetary policy.  It’s fiscal policy, too.  And their fiscal policy is killing the economy.  And what their fiscal policy doesn’t kill their regulatory policy will.

The Only Way to Fix this Economy is to Get Rid of Keynesian Policies

Tax and spend Keynesian policies are strangling the economy.  Stimulus spending doesn’t work.  If it did the economy would be reaching record heights due to that record spending.  But it’s not.  The tax and spend Keynesians explanation for this record of dismal failure?  They didn’t spend enough.

The economic malaise has a lot more to do with uncertainty than weak demand.  It’s that out of control spending.  You eventually have to pay for it.  And every business owner knows that ultimately you pay for spending with taxes.  And they see the Obama administration is hell-bent on raising taxes on anyone earning more than $200,000 a year.  Which will be a tax hike on most small business as their earnings pass through to their personal tax return.

And while they’re waiting for punitive taxes to come down the pike they’re being hammered by regulatory compliance costs.  The big one scaring the bejesus out of them is Obamacare.  And Dodd-Frank is not just for Wall Street bankers.  Not to mention the EPA’s enormous impact on business operations.  They’re being bitch-slapped left and right by these regulations.  And they are terrified by what’s next from this administration.

You see, Big Government Keynesian politicians don’t understand economics.  Or business.  They see business as cash piñatas.  That they can whack at their pleasure.  They have no idea how they make money.  But they assume that they will go on making money no matter what they do in Washington.  And being the Keynesians they are, they believe that businesses make money for government first.  And then, after government takes what they want, what they deem fair, then and only then can they use whatever they earn for their own selfish wants and pleasures.  The selfish rich bastards they are.  Those contemptible business owners.

This is how Big Government Keynesians think.  And this is why they fail miserably at creating jobs.  And economic activity.  The only way to fix this economy, then, is to get rid of Keynesian policies.  And the only way to do that is to get rid of the Keynesians.  At the voting booth.  By voting conservative.  And in our two-party system, that means voting Republican.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

The Dow Jones Industrial Average and the Labor Force Participation Rate from Ronald Reagan to Barack Obama

Posted by PITHOCRATES - February 10th, 2014

Economics 101

(Originally published May 21st, 2013)

The DJIA and the Labor Force Participation Rate tell us how both Wall Street and Main Street are Doing

Rich people don’t need jobs.  They can make money with money.  Investing in the stock market.  When you see the Dow Jones Industrial Average (DJIA) increasing you know rich people are getting richer.  Whereas the middle class, the working people, aren’t getting rich.  But they may be building a retirement nest egg.  Which is good.  So they benefit, too, from a rising DJIA.  But that’s for later.  What they need now is a job.  Unlike rich people.  The middle class typically lives from paycheck to paycheck.  So more important to them is a growing job market.  Not so much a growing stock market.  For the middle class needs a day job to be able to invest in the stock market.  Whereas rich people don’t.  For a rich person’s money works enough for the both of them.

So the Dow Jones Industrial Average shows how well rich people are doing.   And how well the working class’ retirement nest eggs are growing for their retirement.  But it doesn’t really show how well the middle class is living.  For they need a job to pay their bills.  To put food on their tables.  And to raise their families.  So the DJIA doesn’t necessarily show how well the middle class is doing.  But there is an economic indicator that does.  The labor force participation rate.  Which shows the percentage of people who could be working that are working.  So if the labor force participation rate (LFPR) is increasing it means more people looking for a job can find a job.  Allowing more people to be able to pay their bills, put food on their tables and raise their families.

These two economic indicators (the DJIA and the LFPR) can give us an idea of how both Wall Street and Main Street are doing.  Ideally you’d want to see both increasing.  A rising DJIA shows businesses are growing.  Allowing Wall Street to profit from rising stock prices.  While those growing businesses create jobs for Main Street.   If we look at these economic indicators over time we can even see which ‘street’ an administration’s policies favor.   Interestingly, it’s not the one you would think based on the political rhetoric.

Wall Street grew 75% Richer under Clinton than it did under Reagan while Main Street grew 65% Poorer

Those going through our public schools and universities are taught that capitalism is unfair.  Corporations are evil.  And government is good.  The Democrats favor a growing welfare state.  Funded by a highly progressive tax code.  That taxes rich people at higher tax rates.  While Republicans favor a limited government.  A minimum of government spending and regulation.  And lower tax rates.  Therefore the Republicans are for rich people and evil corporations.  While the Democrats are for the working man.  Our schools and universities teach our kids this.  The mainstream media reinforces this view.  As does Hollywood, television and the music industry.  But one thing doesn’t.  The historical record (see Civilian Labor Force Participation Rate and Recessions 1950-Present and Dow Jones Industrial Average Index: Historical Data).

DJIA vs Labor Force Participation Rate - Reagan

The Democrats hated Ronald Reagan.  Because he believed in classical economics.  Which is what made this country great.  Before Keynesian economics came along in the early 20th Century.  And ushered in the era of Big Government.  Reagan reversed a lot of the damage the Keynesians caused.  He tamed inflation.  Cut taxes.  Reduced regulation.  And made a business-friendly environment.  Where the government intervened little into the private sector economy.  And during his 8 years in office we see that BOTH Wall Street (the Dow Jones Industrial Average) and Main Street (the labor force participation rate) did well.  Contrary to everything the left says.  The DJIA increased about 129%.  And the LFPR increased about 3.4%.  Indicating a huge increase of jobs for the working class.  Showing that it wasn’t only the rich doing well under Reaganomics.  The policies of his successor, though, changed that.  As Wall Street did better under Bill Clinton than Main Street.

DJIA vs Labor Force Participation Rate - Clinton

Despite the Democrats being for the working man and Bill Clinton’s numerous statements about going back to work to help the middle class (especially during his impeachment) Wall Street clearly did better than Main Street under Bill Clinton.  During his 8 years in office the LFPR increased 1.2%.  While the DJIA increased 226%.  Which means Wall Street grew 75% richer under Clinton than it did under Reagan.  While Main Street grew 65% poorer under Clinton than it did under Reagan.  Which means the gap between the rich and the middle class grew greater under Clinton than it did under Reagan.  Clearly showing that Reagan’s policies favored the Middle Class more than Clinton’s policies did.  And that Clinton’s policies favored Wall Street more than Regan’s did.  Which is the complete opposite of the Democrat narrative.  But it gets worse.

The Historical Record shows the Rich do Better under Democrats and the Middle Class does Better under Republicans

The great economy of the Nineties the Democrats love to talk about was nothing more than a bubble.  A bubble of irrational exuberance.  As investors borrowed boatloads of cheap money thanks to artificially low interest rates.  And poured it into dot-com companies that had nothing to sell.  After these dot-coms spent that start-up capital they had no revenue to replace it.  And went belly-up in droves.  Giving George W. Bush a nasty recession at the beginning of his presidency.  Compounded by the 9/11 terrorist attacks.

DJIA vs Labor Force Participation Rate - Bush

The LFPR fell throughout Bush’s first term as all those dot-com jobs went away in the dot-com crash.  Made worse by the 9/11 attacks.  As all the malinvestments of the Clinton presidency were wrung out of the economy things started to get better.  The LFPR leveled off and the DJIA began to rise.  But then the specter of Bill Clinton cast another pall over the Bush presidency.  Clinton’s Policy Statement on Discrimination in Lending forced lenders to lower their lending standards to qualify more of the unqualified.  Which they did under fear of the full force and fury of the federal government.  Using the subprime mortgage to put the unqualified into homes they couldn’t afford.  This policy also pressured Fannie Mae and Freddie Mac to buy these toxic subprime mortgages from these lenders.  Freeing them up to make more toxic loans.  This house of cards came crashing down at the end of the Bush presidency.  Which is why the DJIA fell 19.4%.  And the LFPR fell 2.1%.  Even though the economy tanked thanks to those artificially low interest rates that brought on the subprime mortgage crisis and Great Recession both Wall Street and Main Street took this rocky ride together.  They fell together in his first term.  Rose then fell together in his second term.  Something that didn’t happen in the Obama presidency.

DJIA vs Labor Force Participation Rate - Obama

During the Obama presidency Wall Street has done better over time.  Just as Main Street has done worse over time.  This despite hearing nothing about how President Obama cares for the middle class.  When it is clear he doesn’t.  As his policies have clearly benefited rich people.  Wall Street.  While Main Street suffers the worst economic recovery since that following the Great Depression.  So far during his presidency the LFPR has fallen 3.7%.  While the DJIA has risen by 86%.  Creating one of the largest gaps between the rich and the middle class.  This despite President Obama being the champion of the middle class.  Which he isn’t.  In fact, one should always be suspect about anyone claiming to be the champion of the middle class.  As the middle class always suffers more than the rich when these people come to power.  Just look at Venezuela under Hugo Chaves.  Where the rich got richer.  And the middle class today can’t find any toilet paper to buy.  This is what the historical record tells us.  The rich do better under Democrats.  And the middle class does better under Republicans.  Despite what our schools and universities teach our kids.  Or what they say in movies and television.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

President Obama’s 2014 State of the Union Address

Posted by PITHOCRATES - January 30th, 2014

Politics 101

Democrats offered Enthusiastic Applause for Unsound Policy Proposals that have no Basis in Reality

President Obama’s 2014 State of the Union address was a little longer than an hour.  But if you didn’t look at a clock it felt a lot longer.  For it was the same tripe you hear all the time from this administration.  And the political left.  It was full of misleading statements.  Inaccurate facts and figures.  And some lies.  The usual stuff you expect from the liberal left.  But what was really disturbing was the enthusiastic applause for some really unsound policy proposals that have no basis in reality.  Showing either how clueless these enthusiastic Democrats are about economics, business, national security, etc.  Or how amoral they are in their quest for power.  As they judge and implement policy not by how it will improve the lives of Americans.  But how it will improve their lives in government.

Some Big Reasons why Businesses export Jobs are Taxes, Regulations and Labor Costs

If there was ever an example of what people not to have in power this state of the union theater was it.  Following are excerpts from President Obama’s speech (see FULL TRANSCRIPT: Obama’s 2014 State of the Union address posted 1/28/2014 on The Washington Post).  Comments and analysis follow each excerpt.

And here are the results of your efforts: the lowest unemployment rate in over five years; a rebounding housing market — (applause) — a manufacturing sector that’s adding jobs for the first time since the 1990s — (applause) — more oil produced — more oil produced at home than we buy from the rest of the world, the first time that’s happened in nearly twenty years — (applause) — our deficits cut by more than half; and for the first time — (applause) — for the first time in over a decade, business leaders around the world have declared that China is no longer the world’s number one place to invest; America is.

The total number of people who left the civilian labor force since President Obama took office is 11,301,000 (see The BLS Employment Situation Summary for December 2013 posted 1/13/2014 on PITHOCRATES).  Which means the unemployment rate is meaningless.  The only reason why it’s falling is that the BLS doesn’t count unemployed people who gave up looking for jobs that just aren’t there.  Oil production on private land may be up.  While overall oil consumption is down because of the Great Recession that just won’t end.  Which is helping to keep gas prices down.  Unemployed people just don’t have the money to buy gas.  So they don’t.  Greatly reducing the demand for gas.  Thus reducing gas prices and oil imports.  George W. Bush’s last deficit was $498.37 billion.  President Obama’s first deficit was $1,539.22 billion.  And it was over $1 trillion in 2010, 2011 and 2012.  It fell to $680 billion in 2013 thanks to the sequester.  But the deficit is larger now than when President Obama assumed office.  The only reduction in the deficit is a reduction in the amount he increased it.

Now, as president, I’m committed to making Washington work better, and rebuilding the trust of the people who sent us here.

Really?  You’re committed to rebuilding the trust of the people?  Mr. “If you like your health insurance you can keep your health insurance.  Period.”  Otherwise known as the lie of the year.  You’re going to rebuild the trust of the people?  Good luck with that.  What with your pants on fire and all.

Today, after four years of economic growth, corporate profits and stock prices have rarely been higher, and those at the top have never done better. But average wages have barely budged. Inequality has deepened. Upward mobility has stalled. The cold, hard fact is that even in the midst of recovery, too many Americans are working more than ever just to get by; let alone to get ahead. And too many still aren’t working at all.

Well, finally something Republicans can agree with the president about.  Yes, his economic policies have benefitted Wall Street.  While hurting Main Street.  Finally some bipartisan agreement.

So let’s make that decision easier for more companies. Both Democrats and Republicans have argued that our tax code is riddled with wasteful, complicated loopholes that punish businesses investing here, and reward companies that keep profits abroad. Let’s flip that equation. Let’s work together to close those loopholes, end those incentives to ship jobs overseas, and lower tax rates for businesses that create jobs right here at home. (Cheers, applause.)

There are only a few reasons why businesses export jobs.  And the big three are taxes, regulations and labor costs.  The Obama administration wants to raise taxes.  They’ve increased regulatory costs.  And they support costly union labor.  So everything they stand for encourages businesses to export jobs.

But — but I’ll act on my own to slash bureaucracy and streamline the permitting process for key projects, so we can get more construction workers on the job as fast as possible. (Applause.)

So how’s that approval for the Keystone XL pipeline coming along?  That thing you’ve been studying since 2010?  Which by the laws of arithmetic is approximately 4 years ago.  Is this slashing bureaucracy and streamlining the permitting process?  At this rate it would probably be quicker to elect a Republican president in 2016.  You know, someone who, when it comes to economic activity, walks it while the Democrats only talk it.

We also have the chance, right now, to beat other countries in the race for the next wave of high-tech manufacturing jobs. And my administration’s launched two hubs for high-tech manufacturing in Raleigh, North Carolina, and Youngstown, Ohio, where we’ve connected businesses to research universities that can help America lead the world in advanced technologies.

Universities are in the grant business.  They want as many grants as they can get to help bring money into the university.  And to do so they will study anything the government wants them to.  No matter how wasteful it is.  While some of the biggest high-tech companies started in garages.  Apple, Google, Hewlett Packard and Microsoft.  To name a few.  Yes, there is a lot of university-driven research.  But the big innovation is more entrepreneurial.  Created by people thinking up new stuff no one thought of yet.  Which is the last thing you want government involved in.  That same government that can’t build a website using 1990s technology.

Let’s do more to help the entrepreneurs and small business owners who create most new jobs in America. Over the past five years, my administration has made more loans to small business owners than any other. And when 98 percent of our exporters are small businesses, new trade partnerships with Europe and the Asia-Pacific will help them create even more jobs. We need to work together on tools like bipartisan trade promotion authority to protect our workers, protect our environment and open new markets to new goods stamped “Made in the USA.” (Applause.)

You want to help entrepreneurs and small business?  Get rid of Obamacare.  And slash tax rates.  This will provide incentive.  And allow them to reinvest more of their earnings to grow their business.  Allowing them to create those jobs.

Now, one of the biggest factors in bringing more jobs back is our commitment to American energy. The “all the above” energy strategy I announced a few years ago is working, and today America is closer to energy independence than we have been in decades. (Applause.)

‘All of the above’ as long as it isn’t coal, oil or nuclear.  But if it’s solar power and wind power they are committed to giving more tax dollars to their friends and bundlers in the green energy industry.

Meanwhile, my administration will keep working with the industry to sustain production and jobs growth while strengthening protection of our air, our water, our communities. And while we’re at it, I’ll use my authority to protect more of our pristine federal lands for future generations. (Applause.)

You can’t sustain production and jobs growth by strengthening protection of our air, water and pristine federal lands.  That’s just more regulatory costs.  And raising energy costs by not allowing any oil or natural gas production on those pristine federal lands.  Raising energy costs by restricting supply.  Which raises business costs.  In addition to those new regulatory costs.

Every four minutes another American home or business goes solar, every panel pounded into place by a worker whose job can’t be outsourced. Let’s continue that progress with a smarter tax policy that stops giving $4 billion a year to fossil fuel industries that don’t need it so we can invest more in fuels of the future that do. (Cheers, applause.)

That says it all.  Fossil fuels don’t need subsidies because their costs are affordable.  While solar (and wind power) are so costly that they are unaffordable.  Unless government heavily subsidizes them.

But the debate is settled. Climate change is a fact. (Applause.) And when our children’s children look us in the eye and ask if we did all we could to leave them a safer, more stable world, with new sources of energy, I want us to be able to say yes, we did. (Cheers, applause.)

There is no such thing as settled science.  Only science that has yet to be disproved.  Besides, once upon a time glaciers stretched down from the poles to near the equator.  And then receded back to where they are now.  All without any manmade carbon in the atmosphere to warm the planet.  As we were still simple hunter and gatherers then.  So if the glaciers moved more before there was manmade global warming they’ll move again regardless of what man is doing to warm the planet.

Finally, if we’re serious about economic growth, it is time to heed the call of business leaders, labor leaders, faith leaders, law enforcement — and fix our broken immigration system. (Cheers, applause.) Republicans and Democrats in the Senate have acted, and I know that members of both parties in the House want to do the same. Independent economists say immigration reform will grow our economy and shrink our deficits by almost $1 trillion in the next two decades. And for good reason: When people come here to fulfill their dreams — to study, invent, contribute to our culture — they make our country a more attractive place for businesses to locate and create jobs for everybody. So let’s get immigration reform done this year. (Cheers, applause.) Let’s get it done. It’s time.

Funny how that argument doesn’t apply to birth control and abortion.  The reason we need to “fix our broken immigration system.”  For if we were having babies at the rate when government created the welfare state we could pay for that welfare state today.  But thanks to the Sixties, birth control, abortion and feminism women stopped having babies.  Which is fine if a woman doesn’t want to.  But the progressives designed the welfare state based on them being baby machines.  Creating a greater number of taxpayers with each generation.  So more people pay into the welfare state than collect from it.  The way it must be for a Ponzi scheme to work.

That’s why I’ve been asking CEOs to give more long-term unemployed workers a fair shot at new jobs, a new chance to support their families. And in fact, this week many will come to the White House to make that commitment real.

When you raise the cost of labor (union labor, Obamacare, etc.) businesses tend to look at automating production instead of hiring that costly labor.  They may not be able to do anything about the higher regulatory costs but they can do something about higher labor costs.  Use more machines than people.  If you want CEOs to create new jobs stop making labor so costly.  And you can start with getting rid of Obamacare.

Of course, it’s not enough to train today’s workforce. We also have to prepare tomorrow’s workforce, by guaranteeing every child access to a world-class education. (Applause.)…

Five years ago we set out to change the odds for all our kids. We worked with lenders to reform student loans, and today more young people are earning college degrees than ever before. Race to the Top, with the help of governors from both parties, has helped states raise expectations and performance. Teachers and principals in schools from Tennessee to Washington, D.C., are making big strides in preparing students with the skills for the new economy — problem solving, critical thinking, science, technology, engineering, math.

Yes, more kids are going to college than ever before.  But they’re going there to have fun.  And to facilitate their fun many are getting easy, worthless degrees in the social sciences and humanities.  Costly degrees that universities sold them promising them future riches.  Enriching the university.  While impoverishing their graduates.  For a high-tech company has no use for these degrees.  Which is why a lot of these people end up in jobs they didn’t need that costly degree to do.  And our high-tech companies are using the visa program to get foreigners who have the skills they want.  Problem solving, critical thinking, science, technology, engineering and math.

It requires everything from more challenging curriculums and more demanding parents to better support for teachers and new ways to measure how well our kids think, not how well they can fill in a bubble on a test. But it is worth it — and it is working.

If you want kids to do better we need to champion marriage and family more.  And they should embrace religion a little more.  Instead of encouraging our young women to use birth control and abortion to avoid marriage and family.  And pulling every last vestige of religion from our lives.  Kids growing up in a household with a mother and a father who go to church do far better on average than kids growing up in a single-parent household and don’t go to church (see Strong families steeped in Conservative Values and Traditions do Well in America posted 1/11/2014 on PITHOCRATES).

Research shows that one of the best investments we can make in a child’s life is high-quality early education. (Applause.) Last year, I asked this Congress to help states make high-quality pre-K available to every 4-year-old. And as a parent as well as a president, I repeat that request tonight.

Actually, research doesn’t show that.  Yet they keep saying that.  For it’s like that line in the musical Evita, “Get them while they’re young, Evita.  Get them while they’re young.”  The sooner they can take them away from their parents the sooner they can start turning them into Democrat voters.  Such as teaching them to blame their parents for the manmade global warming that is killing the polar bears as they have no ice to rest on while eating their baby seals.

You know, today, women make up about half our workforce, but they still make 77 cents for every dollar a man earns. That is wrong, and in 2014, it’s an embarrassment.

Women deserve equal pay for equal work. (Cheers, applause.)

Actually, it’s closer to 91 cents (see The White House’s use of data on the gender wage gap by Glenn Kessler posted 6/5/2012 on The Washington Post).  And the small difference is not due to discrimination but personal choice.  When you look at aggregate wages women will make less than men.  Because more women are teachers (with 3 month off without pay) than men are.  Some women work fewer hours at work to spend more time with their children. While men tend to work more overtime.  Men also work the more dangerous and higher paying jobs.  And are more likely to belong to a union.  When you compare childless, single men and women with a college degree some women are actually earning more than men.  Figures don’t lie but liars figure.  And for the contortions the Obama administration did here The Washington Post’s The Fact Checker gave the president one Pinocchio.

Now, women hold a majority of lower-wage jobs, but they’re not the only ones stifled by stagnant wages. Americans understand that some people will earn more money than others, and we don’t resent those who, by virtue of their efforts, achieve incredible success. That’s what America’s all about. But Americans overwhelmingly agree that no one who works full-time should ever have to raise a family in poverty. (Applause.)

In the year since I asked this Congress to raise the minimum wage, five states have passed laws to raise theirs.

You’re not going to have a lot of upward mobility when you pay people more to remain in the jobs they hate.  All the talk about making college more affordable and bringing employers and community colleges together to help give people the skills they need to fill the jobs employers have is all for nothing if they just pay people more for doing an entry-level job.

Let’s do more to help Americans save for retirement. Today most workers don’t have a pension. A Social Security check often isn’t enough on its own. And while the stock market has doubled over the last five years, that doesn’t help folks who don’t have 401(k)s. That’s why tomorrow I will direct the Treasury to create a new way for working Americans to start their own retirement savings: MyRA. It’s a — it’s a new savings bond that encourages folks to build a nest egg.

Once upon a time people opened a savings account at their local bank and they saved to buy a house.  And they saved for their retirement.  That’s how people saved when they didn’t have a pension or a 401(k).  They can’t do that today because of the Federal Reserve destroying the banking industry by keeping interest rates at zero.  If the Fed stopped printing money and let investment capital come from our savings like they did before the Keynesians gave us the Federal Reserve people would be saving like we once did.  And we’d stop having Great Depressions, stagflation and Great Recessions.  Created by their prolonging the growth side of the business cycle.  Which raises prices higher than they normally would go.  Making the contraction side of the business cycle that much more painful.  As those prices have a much longer way to fall than they normally would.  Thanks to the Fed’s meddling with interest rates.

MyRA guarantees a decent return with no risk of losing what you put in. And if this Congress wants to help, work with me to fix an upside-down tax code that gives big tax breaks to help the wealthy save, but does little or nothing for middle-class Americans, offer every American access to an automatic IRA on the job, so they can save at work just like everybody in this chamber can.

You know why they want these MyRAs?  Because they can’t stand people saving money.  They love Social Security.  Because they can borrow from the Social Security Trust Fund.  Which is what they will do with these MyRAs.  They will take this money and spend it.  Filling the MyRA Trust Fund with a bunch of IOUs.  Just like they do with the Social Security Trust Fund.  And then provide a retirement benefit like Social Security.  That is too small to live on.  Whereas if we saved the money ourselves our retirement nest-egg will be much larger.  And it will provide for our retirement.  Unlike Social Security.

And since the most important investment many families make is their home, send me legislation that protects taxpayers from footing the bill for a housing crisis ever again, and keeps the dream of homeownership alive for future generations. (Applause.)

It was Bill Clinton that set the stage for the subprime mortgage crisis with his Policy Statement on Discrimination in Lending (see Bill Clinton created the subprime mortgage crisis with his Policy Statement on Discrimination in Lending posted 11/6/2011 on PITHOCRATES).  Using the heavy hand of government to get lenders to qualify the unqualified.  Then the Fed’s artificially low interest rates were the bait for the trap.  Enticing people to borrow huge sums of money because those interest rates were just too good to pass up.  Even if they weren’t planning to buy a house to begin with. The subprime mortgage crisis and the resulting Great Recession were government made.  If we want to prevent the taxpayers from footing the bill for another housing crisis we need to get the Keynesians out of government.

Already, because of the Affordable Care Act, more than 3 million Americans under age 26 have gained coverage under their parents’ plans. (Applause.)

More than 9 million Americans have signed up for private health insurance or Medicaid coverage — 9 million. (Applause.)

The Washington Post gave this lie three Pinocchios (see Warning: Ignore claims that 3.9 million people signed up for Medicaid because of Obamacare by Glenn Kessler posted 1/16/2014 on The Washington Post).  For they’re counting some 3.9 million who would have signed up anyway for Medicaid regardless of the Affordable Care Act.  Also, the government was counting people who put a health care plan into their shopping cart as if they signed up for it.  Which many couldn’t.  As they haven’t programmed the back end of the health care website yet to actually accept payment or to pass that information on to the insurers.

And here’s another number: zero. Because of this law, no American, none, zero, can ever again be dropped or denied coverage for a pre-existing condition like asthma or back pain or cancer. (Cheers, applause.) No woman can ever be charged more just because she’s a woman. (Cheers, applause.) And we did all this while adding years to Medicare’s finances, keeping Medicare premiums flat and lowering prescription costs for millions of seniors.

That’s right.  Women with reproductive systems that men don’t have won’t pay more for their health insurance than men pay for theirs.  How can they do that?  Simple.  They just are charging men more.  To cover the cost of a reproductive system they don’t have.

Citizenship means standing up for the lives that gun violence steals from us each day. I have seen the courage of parents, students, pastors, and police officers all over this country who say “we are not afraid,” and I intend to keep trying, with or without Congress, to help stop more tragedies from visiting innocent Americans in our movie theaters and our shopping malls, or schools like Sandy Hook. (Applause.)

If you take away guns from law-abiding gun owners that won’t keep dangerous people with mental health issues that want to harm people out of our movie theaters, our shopping malls or schools like Sandy Hook.  For there are other ways to harm people.  Just look at the Boston Marathon bombers.  The people he’s talking about not only had mental health issues but they were also smart.  Many were even college students.  Who probably could think of other ways to hurt people.  And you just can’t take away everything they might use to harm people.  But you can place these people somewhere where they can’t harm anyone.

You see, in a world of complex threats, our security, our leadership depends on all elements of our power — including strong and principled diplomacy. American diplomacy has rallied more than 50 countries to prevent nuclear materials from falling into the wrong hands, and allowed us to reduce our own reliance on Cold War stockpiles.

Since President Obama assumed office he did nothing to support the Green Revolution in Iran.  Which kept the hard-line Islamists in power there.  He gave Egypt to the Muslim Brotherhood by telling Hosni Mubarak that he had to go.  Removing the stable anchor of the Middle East.  And moved Egypt closer to Iran.  (The Egyptian people eventually rose up to overthrow the oppressive Muslim Brotherhood).  He went to war in Libya and helped to overthrow Colonel Muammar Qaddafi.  Who at the time was a quasi ally in the War on Terror.  After the Iraq invasion frightened him into believing he may be next.  President Obama was thanked for his Libyan war by al Qaeda with 4 dead Americans in Benghazi on the anniversary of 9/11.  He waited too long to act in the Syrian civil war.  Which only brought al Qaeda into the conflict.  He failed to attain a status of forces agreement in Iraq.  So he pulled all U.S. forces out of Iraq which has only invited al Qaeda in.  And it looks like this will be repeated in Afghanistan.  He blamed George W. Bush’s wars as recruitment tools for al Qaeda.  While his extensive drone use is doing the same thing.  Especially in Yemen.  The hotbed of al-Qaeda in the Arabian Peninsula.  All that his diplomacy and leadership has done was to make the world a more dangerous place.

American diplomacy, backed by the threat of force, is why Syria’s chemical weapons are being eliminated. (Applause.) And we will continue to work with the international community to usher in the future the Syrian people deserve — a future free of dictatorship, terror and fear.

His diplomacy with Bashar al-Assad in Syria only gave his oppressive regime legitimacy in the civil war he was raging against his people.  Making it easier for Assad to kill Syrians with conventional arms while he gives up a token amount of his chemical weapons.  While also making Russia who brokered the deal the dominate player in the region.

And it is American diplomacy, backed by pressure, that has halted the progress of Iran’s nuclear program — and rolled back parts of that program — for the very first time in a decade. As we gather here tonight, Iran has begun to eliminate its stockpile of higher levels of enriched uranium.

It’s not installing advanced centrifuges. Unprecedented inspections help the world verify every day that Iran is not building a bomb. And with our allies and partners, we’re engaged in negotiations to see if we can peacefully achieve a goal we all share: preventing Iran from obtaining a nuclear weapon. (Applause.)

All Iran is doing is pausing their program.  And chemically altering some of their enriched uranium to meet the requirements of this diplomatic deal.  But this chemical process is reversible.  And they will reverse it once they get what they want.  This deal makes the world no safer.  If anything it makes it more dangerous.  For it does not diminish the Iranian nuclear program in the least.  But gives them more time to work on it as they prop up their regime with much needed supplies thanks to a relaxation of the sanctions against them.

These negotiations will be difficult; they may not succeed. We are clear-eyed about Iran’s support for terrorist organizations like Hezbollah, which threaten our allies; and we’re clear about the mistrust between our nations, mistrust that cannot be wished away. But these negotiations don’t rely on trust; any long-term deal we agree to must be based on verifiable action that convinces us and the international community that Iran is not building a nuclear bomb. If John F. Kennedy and Ronald Reagan could negotiate with the Soviet Union, then surely a strong and confident America can negotiate with less powerful adversaries today. (Applause.)

The sanctions that we put in place helped make this opportunity possible. But let me be clear: if this Congress sends me a new sanctions bill now that threatens to derail these talks, I will veto it. (Applause.) For the sake of our national security, we must give diplomacy a chance to succeed.

The Soviet Union never attacked U.S. soil.  And there was a reason they didn’t.  They were rational.  And knew they would lose a great deal in a war with America.  Especially a nuclear one.  Which is why they never used their nuclear weapons.  But Iran giving a nuclear weapon to a shadowy group that is not a state?  With little to lose in using a nuclear weapon?  If it’s not a nuclear missile there will be no way in knowing where the nuclear bomb came from.  We can have our suspicions that Iran made it and gave it to someone.  But do we nuke Iran over that?  What if there are more nukes in the hands of al Qaeda, Hezbollah, al-Qaeda in the Arabian Peninsula, etc.?  You could nuke Iran back to the Stone Age but it won’t stop those others being used.  The president insists this will not happen as Iran signed an agreement.  The only problem with that is the Iranians are liars.  And they call the United States the Great Satan.   These two facts suggest that replacing those sanctions with a promise not to build nuclear bombs was probably not a wise trade.

But for more than two hundred years, we have put those things aside and placed our collective shoulder to the wheel of progress: to create and build and expand the possibilities of individual achievement; to free other nations from tyranny and fear; to promote justice and fairness and equality under the law, so that the words set to paper by our founders are made real for every citizen.

Use our collective shoulder to expand individual achievement?  The president believes in the former more than the latter.  He didn’t help the Iranians get free from tyranny when he had the chance.  And he turned the Egyptian people over to tyranny.  The Muslim Brotherhood.  Who were oppressing women and Christians.  Fairness and equality under the law?  Ask those Tea Party groups who were targeted by the IRS about fairness and equality under the law.  The Constitution?  That document of negative rights?  The left hates it.  And insists it’s a living document that can evolve over time to suit the needs of an expanding government.  So they can do exactly what the Founding Fathers wrote the Constitution to prevent from happening.

The Left endorses Unsound Policy Proposals with no Basis in Reality to improve their Chances of Winning Elections

The country is more conservative than liberal (see Liberal Self-Identification Edges Up to New High in 2013 by Jeffrey M. Jones posted 1/10/2014 on Gallup).  Which is why liberals want state-funded pre-K to start indoctrinating our children as soon as possible.  To get them away from their parents so they can begin the process of turning them into Democrat voters.  It’s why kids are getting worthless social science and humanities degrees.  To further indoctrinate them.  Because their views are minority views.  So they need to play loose with the facts.  And lie.  Which is easier to do with indoctrinated kids than educated adults.  You’ll even hear Democrats talk about lowering the voting age.  To get a few more years of voting out of these kids before they grow old and wise.  And begin voting conservative.  So they do what they can to dumb down education.  Lie.  Cheat.  And buy as many votes as they can by giving away free stuff.  And the thing they really want to give away is citizenship for illegal aliens.  Who they are sure will be forever grateful.  And show it by voting Democrat.

This explains the enthusiastic applause for unsound policy proposals that have no basis in reality.  For the left is not interested in improving the lives of Americans.  They just want to improve their chances of winning elections.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

Obama Job Approval has Fallen over the Last Year

Posted by PITHOCRATES - January 23rd, 2014

Politics 101

Ten Different Obama Job Approval Polls show Higher Disapproves than Approves

President Obama did not have a good 2013.  Especially near the end.  Because of the Obamacare rollout.  With the website being a disaster.  The enrollment numbers weren’t as projected.  Or needed.  And then all the cancellations in the individual market.  As people learned they couldn’t keep the policies and doctors they liked.  Which gave President Obama the recognition for being the best in at least one thing.  As PolitiFact named “if you like your health care plan, you can keep it” as the lie of the year.

The bad news continued into 2014.  The Obamacare enrollee numbers didn’t improve.  Most of the enrollees are the old and sick.  Not the young and healthy the Obama administration told the health insurers would be enrolling.  Which is breaking the economic model.  Guaranteeing not only that health insurance premiums will rise.  But some health care providers are actually requiring payment up front before providing services.  As they are not sure what the insurers will pay.  Making Obamacare an even bigger disaster.  Which is a big factor in driving President Obama’s job approval rating down (see President Obama Job Approval posted on Real Clear Politics).

President Obama Job Approval R1

The ten polls included in the RCP Average all share one thing in common.  They all have larger disapproval numbers than approval numbers.  With the average disapproval number being 8.4 points greater than the average approval number.  However you look at these numbers they are not good for President Obama.  For they say President Obama has not been good for the United States.

People don’t Trust President Obama and are beginning to Doubt his Past Claims of Accomplishment

Growing numbers of people don’t trust the president anymore.  Including those who were Obama supporters.  Who because of the ‘lie of the year’ don’t look at those other scandals as opposition propaganda anymore.  These scandals (Benghazi, IRS targeting conservatives, spying on journalists, spying on Americans, Fast and Furious, Solyndra, ‘recess’ appointments, executive orders to bypass the will of the people/Congress, etc.) are now just other things not to trust the president about.  The president has been less than honest to get what he wants (power).  While the American people don’t get what they want (jobs, affordable health care, etc.).  And it’s because of this that his job approval has entered a steady decline.

President Obama Job Approval Graph R1

Following a bump during the 2012 election Obama’s job approval has trended down.  The Obama administration lied about what happened in Benghazi to help their reelection chances.  Where the campaign message was that al Qaeda was on the run.  Which is apparently why the State Department under Secretary Clinton denied Ambassador Steven’s request for additional security to combat the resurgent al Qaeda in Libya.  As the recent bipartisan Senate report stated that the killing of four Americans in Benghazi on the anniversary of 9/11 could have been prevented.

Benghazi, the NSA spying on us, the ‘lie of the year’ and the other scandals have had their affect on the American people.  And after the Target point-of-sale credit card hack people are very suspect of the Obamacare website.  Especially when a security consulting firm says there is no security on the Obamacare website yet the Obama administration keeps telling us to trust them.  They’ll keep our data safe.  Even though Target couldn’t.  And they have functioning security systems in place.  Unlike Obamacare.  That has none.  So people don’t trust President Obama.  And they’re beginning to doubt his past claims of accomplishment.  As well as those rosy jobs reports from the Bureau of Labor Statistics.

The Lie of the Year appears to have Broken the Spell Obama held over some of his Admirers

The Democrat’s Keynesian economic policies created yet another housing bubble.  By keeping interest rates artificially low and relaxing credit standards they stimulated the housing market.  And housing prices soared.  But buyers didn’t seem to care.  Because they were borrowing the money to buy these overpriced houses.  Because of those low interest rates.  Even people who couldn’t afford to buy a house were buying a house. Thanks to subprime lending like the adjustable rate mortgage (ARM).  But when interest rates rose so did those monthly payments on those ARMs.  People couldn’t afford their mortgage payments anymore.  And defaulted.  Giving us the subprime mortgage crisis.  Which turned into the Great Recession.

The Democrats blamed the banks for the Great Recession.  Not their Keynesian policies.  Or President Clinton’s heavy hand on lenders to qualify the unqualified for mortgages (see Bill Clinton created the Subprime Mortgage Crisis with his Policy Statement on Discrimination in Lending posted 11/6/2011 on PITHOCRATES).  Not only did they deflect blame for the crisis they used the crisis to implement further Keynesian policies.  A near-trillion dollar stimulus bill.  Much of which went to Obama’s ‘friends’ in the green energy industry.  And to their friends in unions.  The government spent a lot of money.  They kept interest rates artificially low.  And when that didn’t work they used quantitative easing.  Basically printing money.  The Obama administration said their policies were working.  And declared the summer of 2010 ‘Recovery Summer’.  The recession was over.  Since then they highlighted the new jobs created with every jobs report.  While ignoring the number of people who have left the labor force.  Greatly skewing the numbers.  And grossly understating the real unemployment rate (see Wall Street adviser: Actual unemployment is 37.2%, ‘misery index’ worst in 40 years by Paul Bedard posted 1/21/2014 on the Washington Examiner).

Don’t believe the happy talk coming out of the White House, Federal Reserve and Treasury Department when it comes to the real unemployment rate and the true “Misery Index.” Because, according to an influential Wall Street advisor, the figures are a fraud…

…the Misery Index, which is a calculation based in inflation and unemployment, both numbers the duo say are underscored by the government. He said that the Index doesn’t properly calculate how Uncle Sam is propping up the economy with bond purchases and other actions.

“These tricks, along with a host of other dubious accounting schemes, underreport inflation by about 3 percent,” they wrote, adding that the official inflation rate is just 1.24 percent.

“Today, the Misery Index would be 7.54 using official numbers,” they wrote. But if calculations tabulating the full national unemployment including discouraged workers, which is 10.2 percent, and the historical method of calculating inflation, which is now 4.5 percent, ‘the current misery index is closer to 14.7, worse even than during the Ford administration.”

The 1970s were the heyday of Keynesian economics.  With spending out of control Richard Nixon did something that Keynesians longed for.  He decoupled the dollar from gold.  Allowing the Fed to print money like there was no tomorrow.  Igniting inflation.  And when the inflation rate was added to the unemployment rate it gave us a record Misery Index.  Until now, that is.  If you use the real data.  And not the ‘massaged’ data that makes their Keynesian policies appear to be working.  Telling us the recession ended in 2010.  When many feel the Great Recession has never ended.  Which is yet another reason not to trust the Obama administration.  Or not approve of the job President Obama is doing.  As the polls have been showing this past year.  And it’s not just because of Obamacare.  But the ‘lie of the year’ appears to have broken the spell he held over some of his admirers.  Who can now see the king is wearing no clothes.  No matter what his administration and those in the mainstream media say.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , , , , , , , , , , , , ,

Inventory to Sales Ratio and Labor Force Participation Rate (1992-2013)

Posted by PITHOCRATES - November 12th, 2013

History 101

Just-in-Time Delivery lowers Inventory Costs but risks Manufacturing Interruptions

Carrying a large inventory is costly.  And risky.  First of all you have to warehouse it.  In a secured heated (and sometimes cooled) building.  With a fire alarm system.  A fire suppression (i.e., sprinkler) system.  A security alarm system.  You need lighting.  And people.  Safety training.  Safety equipment.  Forklifts.  Loading docks.  Delivery trucks.  Insurances.  Property taxes (real and personal).  Utilities.  Telephone and Internet.  A computer inventory system.  Etc.  It adds up.  And the larger the inventory the larger the cost.

Then there are the risks.  Fire damage.  Theft.  Water damage (say from a fire suppression line that freezes during the winter because some kid broke a window to let freezing air in that froze the water inside the sprinkler line with the expanding ice breaking the pipe and allowing water to flow out of the pipe onto your inventory).  Shrinkage (things that disappear but weren’t sold).  Damaged goods (say a forklift operator accidentally backed into a shelve full of plasma displays).  Shifts in consumer demand (what was once hot may not be hot anymore which is a costly problem when you have a warehouse full of that stuff).  Etc.  And the larger the inventory the greater the risks.

In the latter half of the 20th century a new term entered the business lexicon.  Just-in-time delivery.  Or JIT for short.  Instead of warehousing material needed for manufacturing manufacturers turned to JIT.  And tight schedules.  They bought what they needed as they needed it.  Having it arrive just as it was needed in the manufacturing process.  JIT greatly cut costs.  But it allowed any interruption in those just-in-time deliveries shut down manufacturing.  As there was no inventory to feed manufacturing if a delivery did not arrive just in time.

A Rising Inventory to Sales Ratio means Inventory is Growing Larger or Sales are Falling

There are many financial ratios we use to judge how well a business is performing.  One of them is the inventory to sales ratio.  Which is the inventory on hand divided by the sales that inventory generated.  If this number equals ‘1’ then the inventory on hand for a given period is sold before that period is up.  Which would be very efficient inventory management.  Unless a lot of sales were lost because some things were out of stock because so few of them were in inventory.

Ideally managers would like this number to be ‘1’.  For that would have the lowest cost of carrying inventory.  If you sold one item 4 times a month you could add one to inventory each week to replace the one sold that week.  That would be very efficient.  Unless four people want to buy this item in the same week.  Which means instead of selling 4 of these items you will probably only sell one.  For the other three people may just go to a different store that does have it in stock.  So it is a judgment call.  You have to carry more than you may sell because people don’t come in at evenly spaced intervals to buy things.

We can look at the inventory to sales ratio for the general economy over time to note trends.  A falling ratio is generally good.  For it shows inventories growing as a lesser rate than sales.  Meaning that businesses are getting more sales out of reduced inventory levels.  Which means more profits.  A flat trend could mean that businesses are operating at peak efficiency.  Or they are treading water due to uncertainty in the business climate. Doing the minimum to meet their current demand.  But not growing because there is too much uncertainty in the air.  A rising ratio is not good.  For the only way for that to happen is if inventory is growing larger.  Sales are falling.  Or both.

The Labor Force Participation Rate has been in a Freefall since President Obama took Office

When inventories start rising it is typically because sales are falling.  Businesses are making their usually buys to restock inventory.  Only people aren’t buying as much as they once were.  So with people buying less sales fall and inventories grow.  Rising inventories are often an indicator of a recession.  As unemployment rises there are fewer people going to stores to buy things.  So sales fall.  After a period or two of this when businesses see that falling sales was not just an aberration for one period but a sign of worse economic times to come they cut back their buying.  Draw down their inventories.  And lay off some workers to adjust for the weaker demand.  As they do their suppliers see a fall in their sales and do likewise.  All the way up the stages of production to raw material extraction. 

Retailers typically carry larger inventories than wholesalers or manufacturers.  To try and accommodate their diverse customer base.  So when their sales fall and their inventories rise they are left with bulging inventories that are costly to store in a warehouse.  They may start cutting prices to move this inventory.  Or pray for some government help.  Such as low interest rates to get people to buy things even when it may not be in their best interest (for people tend to get laid off in a recession and having a new car payment while unemployed takes a lot of joy out of having a new car).  Or a government stimulus program.  Make-work for the unemployed.  Or even cash benefits the unemployed can spend.  Which will provide a surge in economic activity at the consumer level as retailers and wholesalers unload backed up inventory.  But it rarely creates any new jobs.  Because government stimulus eventually runs out.  And once it does the people will leave the stores again.  So retailers may benefit and to a certain degree wholesalers as they can clear out their inventories.  But manufacturers and raw material extractors adjust to the new reality.  As retail sales fall retailers and wholesalers will need less inventory.  Which means manufacturers and raw material extractors ramp down to adjust to the lower demand.  Cutting their costs so their reduced revenue can cover them.  Which means laying off workers.  We can see this when we look at inventory to sales ratio and the labor force participation rate over time.

(There appears to be a problem with the latest version of this blogging software that is preventing the insertion of this chart into this post.  Please click on this link to see the chart.)

(Sources: Inventories/Sales Ratio, Archived News Releases

Cheap money gave us irrational exuberance and the dot-com bubble in the Nineties.  And a recession in the early 2000s.   Note that the trend during the Nineties was a falling inventory to sales ratio as advanced computer inventory systems tied in over the Internet took inventory management to new heights.  But as the dot-com irrational exuberance came to a head we had a huge dot-com economy that had yet to start selling anything.  As their start-up capital ran out the dot-coms began to go belly-up.  And all those programmers who flooded our colleges in the Nineties to get their computer degrees lost their high paying jobs.  Stock prices fell out of the sky as companies went bankrupt.  Resulting in a bad recession.  The fall in spending can be seen in the uptick in the inventory to sales ratio.  This fall in spending (and rise in inventories) led to a lot of people losing their jobs.  As we can see in the falling labor force participation rate.  The ensuing recession was compounded by the terrorist attacks on 9/11.

Things eventually stabilized but there was more irrational exuberance in the air.  Thanks to a housing policy that put people into houses they couldn’t afford with subprime mortgages.  Which lenders did under threat from the Clinton administration (see Bill Clinton created the Subprime Mortgage Crisis with his Policy Statement on Discrimination in Lending posted 11/6/2011 on Pithocrates).  Note the huge spike in the inventory to sales ratio.  And the free-fall of the labor force participation rate.  Which hasn’t stopped falling since President Obama took office.  Even though the inventory to sales ratio returned to pre-Great Recession levels.  But there is so much uncertainty in the economic outlook that no one is hiring.  They’re just shedding jobs.  Making the Obama economic recovery the worst since that following the Great Depression.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , , , , , , , , , , , , , ,

The Qualified Mortgage Rule to restore Good Lending Practices destroyed by Government

Posted by PITHOCRATES - October 26th, 2013

Week in Review

Fannie Mae and Freddie Mac were largely responsible for the subprime mortgage crisis.  Because they removed risk from lenders, allowing them to sell more risky mortgages.  Something lenders wouldn’t have done if they had to carry the risk of these loans.  But once they could sell those risky loans to Fannie Mae and Freddie Mac what did they care?  So they earned their money with loan origination fees.  Not by servicing these loans.  As had been the tradition in the lending industry until the government intervened to stimulate the housing market.  Which they did.  By putting people who couldn’t afford houses into houses.  Giving us the subprime mortgage crisis.

Fannie and Freddie are still active.  In particular helping rich people who can take advantage of the Federal Reserve’s quantitative easing.  Who are the only people doing well as median household income falls in the worst economic recovery since that following the Great Depression (see US extends backing for higher-priced mortgages by Diana Olick posted 10/24/2013 on CNBC).

Federal regulators will allow Fannie Mae and Freddie Mac to continue funding higher-priced mortgages, at least through the middle of next year. President Barack Obama had called on the Federal Housing Finance Agency, the conservator of the two mortgage giants since September 2008, to lower the limits by the end of this year in order to shrink their role in the market. FHFA acting director Ed DeMarco, however, said the timing is not right just yet.

“We are not making a change there in the immediate term,” DeMarco told reporters. “I recognize and understand that the industry is very busy right now making implementation of other regulations that take effect the first of next year, and that’s enough.”

DeMarco is referring to new mortgage regulations from the Consumer Financial Protection Bureau, requiring lenders to prove a borrower has the ability to repay a loan. The so-called “Qualified Mortgage rule,” goes into effect Jan. 1, and lenders are scrambling to make sure they will be in compliance with all its requirements.

The Qualified Mortgage rule?  You know what we used to have before we had to have the Qualified Mortgage rule?  Good lending practices.  Where lenders carried their loans on their balance sheets.  And serviced those loans.  Holding on to all the risk from their lending decisions.  Which prevented them from making loans to unqualified applicants.  The way a good banking system should operate.  The way it was before the government destroyed it with their manipulation of interest rates.

Now the government wants to do what it was doing before the subprime mortgage crisis.  Putting as many people into homes who can’t afford them.  Only this time they’ve added a law to prevent lenders from qualifying the unqualified.  Even while the government is pressuring them to do so.  Just like Bill Clinton did with his Policy Statement on Discrimination in Lending that kicked off subprime lending in earnest to qualify the unqualified.  Because the Clinton administration called any denials of loans to the poor/minorities as discriminatory lending practices.  Of course, back then lenders had only good lending practices to hang their hat on.  Now they have a law to use to defend themselves against charges of discriminatory lending practices.  Which basically takes the lending industry back to where it was before the government destroyed it and gave us the subprime mortgage crisis.  Things would have been a whole lot easier and less costly if the government had just stayed out of it in the first place.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , ,

Banks, Keynes, Subprime Mortgage Crisis and Great Recession

Posted by PITHOCRATES - September 17th, 2013

History 101

(Originally published June 11th, 2013)

Bringing Borrowers and Lenders Together is a very Important Function of our Banks

Borrowers like low interest rates.  Savers (i.e., lenders) like high interest rates.  People who put money into the bank want to earn a high interest rate.  People who want to buy a house want a low interest rate.  As the interest rate will determine the price of the house they can buy.  Borrowers and lenders meet at banks.  Bankers offer a high enough interest rate to attract lenders (i.e., depositors).  But not too high to discourage borrowers.

This is the essence of the banking system.  And capital formation.  Alexander Hamilton said that money in people’s pockets was just money.  But when the people came together and deposited their money into a bank that money became capital.  Large sums of money a business could borrow to build a factory.  Which creates economic activity.  And jobs.  The United States became the world’s number one economic power with the capital formation of its banking system.  For a sound banking system is required for any advanced economy.  As it allows the rise of a middle class.  By providing investment capital for entrepreneurs.  And middle class jobs in the businesses they build.

So bringing borrowers and lenders together is a very important function of our banks.  And bankers have the heavy burden of determining saving rates.  And lending rates.  As well as determining the credit risk of potential borrowers.  Savers deposit their money to earn one rate.  So the bank can loan it out at another rate.  A rate that will pay depositors interest.  As well as cover the few loans that borrowers can’t pay back.  Which is why bankers have to be very careful to who they loan money to.

Keynesians make Recessions worse by Keeping Interest Rates low, Preventing a Correction from Happening

John Maynard Keynes changed this system of banking that made the United States the world’s number one economic power.  We call his economic theories Keynesian economics.  One of the changes from the classical school of economics we used to make the United States the world’s number one economic power was the manipulation of interest rates.  Instead of leaving this to free market forces in the banking system Keynesians said government should have that power.  And they took it.  Printing money to make more available to lend.  Thus bringing down interest rates.

And why did they want to bring down interest rates?  To stimulate economic activity.  At least, that was their goal.  To stimulate economic activity to pull us out of a recession.  To even eliminate recessions all together.  To eliminate the normal expansion and contraction of the economy.  By manipulating interest rates to continually expand the economy.  To accept a small amount of permanent inflation.  In exchange for a constantly expanding economy.  And permanent job creation.  That was the Keynesian intention.  But did it work?

No.  Since the Keynesians took over the economy we’ve had the Great Depression, the stagflation and misery of the Seventies, the savings and loans crisis of the Eighties, the irrational exuberance and the dot-com bubble crash of the Nineties, the subprime mortgage crisis and the Great Recession.  All of these were caused by the Keynesian manipulation of interest rates.  And the resulting recessions were made worse by trying to keep interest rates low to pull the economy out of recession.  Preventing the correction from happening.  Allowing these artificially low interest rates to cause even more damage.

The Government’s manipulation of Interest Rates gave us the Subprime Mortgage Crisis and the Great Recession

My friend’s father complained about the low interest rates during the Clinton administration.  For the savings rate offered by banks was next to nothing.  With the Federal Reserve printing so much money the banks didn’t need to attract depositors with high savings rates.  Worse for these savers was the inflation caused by printing all of this money eroded the purchasing power of their savings.  So they couldn’t earn anything on their savings.  And what savings they had bought less and less over time.  But mortgages were cheap.  And people were rushing to the banks to get a mortgage before those rates started rising again.

This was an interruption of normal market forces.  It changed people’s behavior.  People who were not even planning to buy a house were moved by those low interest rates to enter the housing market.  Then President Clinton pushed other people into the housing market with his Policy Statement on Discrimination in Lending.  Getting people who were not even planning to buy a house AND who could not even afford to buy a house to enter the housing market.  Those artificially low interest rates pulled so many people into the housing market that this increased demand for houses started raising house prices.  A lot.  But it didn’t matter.  Not with those low interest rates.  Subprime lending.  Pressure by the Clinton administration to qualify the unqualified for mortgages.  And Fannie May and Freddie Mac buying those risky subprime mortgages from the banks, freeing them up to make more risky mortgages.  This scorching demand pushed housing prices into the stratosphere.

A correction was long overdue.  But the Federal Reserve kept pushing that correction off by keeping interest rates artificially low.  But eventually inflation started to appear from all that money creation.  And the Federal Reserve had no choice but to raise interest rates to tamp out that inflation.  But when they did it caused a big problem for those with subprime mortgages.  Those who had adjustable rate mortgages (ARMs).  For when interest rates went up so did their mortgage payments.  Beyond their ability to pay them.  So they defaulted on their mortgages.  A lot of them.  Which caused an even bigger problem.  All those mortgages Fannie Mae and Freddie Mac bought?  They sold them to Wall Street.  Who chopped them up into collateralized debt obligations.  Financial instruments backed by historically the safest of all investments.  The home mortgage.  Only these weren’t your father’s mortgage.  These were risky subprime mortgages.  But they sold them to unsuspecting investors as high yield and low-risk investments.  And when people started defaulting on their mortgages these investments became worthless.  Which spread the financial crisis around the world.  On top of all of this the housing bubble burst.  And those house prices fell back down from the stratosphere.  Leaving many homeowners with mortgages greater than the corrected value of their house.

It was the government’s manipulation of interest rates that gave us the subprime mortgage crisis.  The Great Recession.  And the worst recovery since that following the Great Depression.  All the result of Keynesian economics.  And the foolhardy belief that you can make recessions a thing of the past.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

The Opportunity Cost of Debt

Posted by PITHOCRATES - September 16th, 2013

Economics 101

Housing Sales drive the Economy because almost Everything for Sale is for the Household

Once upon a time the rule of thumb was to buy the most expensive house we could possibly afford.  We saved 20% for a down payment on a conventional mortgage.  We lived on a shoestring budget and paid our mortgage no matter what.  Even if we had to live on meatloaf and macaroni and cheese for the next five years.  Or longer.  We did this because we would be paying that mortgage payment for 30 years.  And though tough at first during those 30 years we advanced in our careers.  And made more money along the way.  Making that mortgage payment easier to pay as time went by.

So that was the way it used to be.  And it was that way for a long time.  Until the Federal Reserve started playing with interest rates to stimulate economic activity.  Altering the banking system forever.  Instead of encouraging people to save their money so banks could loan money to homebuyers they printed money.  Flooded the market with it.  Ignited inflation.  And caused housing bubbles.  Then the government took it up a notch.

Housing sales drive the economy.  Almost everything for sale is for the household.  Furniture and appliances.  Beds and ceiling fans.  Tile and paint.  Cleaning supplies and groceries.  Dishes and cutlery.  Pots and pans.  Towels and linen.  Lawnmowers and weed-whackers.  Decks and patio furniture.  When people buy a house they start buying all of these things.  And more.  Creating a lot of economic activity with every house sold.  So the government did everything they could to encourage home ownership.  And few governments did more than the Clinton administration.  By applying pressure on lenders to qualify the unqualified for mortgages.  Which gave us the subprime mortgage crisis.

Lenders used Subprime Lending to Qualify the Unqualified to Comply with the Clinton Administration

People in poor neighbors tended to be poor.  And unable to qualify for a mortgage because they couldn’t afford the house payments.  When these poor people happened to be black the Clinton administration said the banks were racist.  They were redlining.  And advised these lenders that if they don’t start qualifying these people who couldn’t afford a house that the full weight of the government will make things difficult for them to remain in the lending business.  So they complied with the Clinton administration.  Using subprime lending to put people into homes they couldn’t afford.

The main reason why people can’t afford to buy a house is the size of the mortgage payment.  Which can be pretty high if they can’t afford much of a down payment.  So these lenders used special mortgages to bring that monthly payment down.  The adjustable rate mortgage (ARM).  Which had a lower interest rate than conventional mortgages.  Because they could raise it later if interest rates rose.  Zero-down mortgages.  Which eliminated the need for a down payment.  Coupled with an ARM when interest rates were low could put a poor person into a good sized house.  No-documentation loans.  Which removed the trouble of having to document your earnings to prove you will be able to make your house payment.  Making it easier to approve applicants when you don’t have to question what they write on their application.  Interest-only loans where you only had to pay the interest for, say, 5 years.  Greatly reducing the size of the monthly payment.  But after those 5 years you had to pay that loan back in full with a new mortgage for the full value of the house.  Which may be more costly in 5 years.

So these lenders were able to meet the Clinton administration directive.  They were putting people into homes they couldn’t afford.  Just barely.  These people had house payments they could just barely afford.  Thanks to the low interest rate of their ARM.  But then interest rates rose.  Making those mortgage payments unaffordable.  With zero-down they had little to lose by walking away.  And a lot of them did.

The Interest on the Debt is so large we have to Borrow Money to Pay for the Cost of Borrowing Money

Buying a house is a huge investment.  One that we finance.  That is, we borrow money.  Sometimes a lot of it.  Because we don’t want to wait and save money for a down payment.  And because we want so much right now we buy as much as we can with those borrowings.  Doing whatever we can to lower the monthly payment.  With little regard to long-term costs.  For example, assume a fixed 30-year interest rate of 4.5%.  And we finance a $150,000 house with zero down.  Because we have saved nothing.  The monthly payment will be $790.03.  But if we waited until we saved enough for a 10% down payment that monthly payment will only be $684.03.  And if we saved enough for 20% down the monthly payment will only be $608.02.  That’s $182.01 less each month.  The total interest paid over the life of this mortgage for zero down, 10% down and 20% down is $123,610.07, $111,249.06 and $98,888.05, respectively.  Adding that to the price of the house brings the total cost for that house to $273,010.07, $246,249.06 and $218,888.05, respectively.  So if we wait until we save a 20% down payment we will be able to buy a $150,000 house and $54,723.02 of other stuff during those 30 years.  This is the opportunity cost of debt.

We are better off the less we finance.  Because long-term debts are with us for a long time.  And they don’t go away if we lose our job.  Or if interest rates go up.  Like with an ARM.  A large driver of the subprime mortgage crisis.  Let’s see what was happening before the housing bubble burst.  Let’s say we could buy that $150,000 house with a zero down mortgage with an adjustable interest rate of 2%.  Giving us a monthly payment of $554.43.  Very affordable.  Which helped get a lot of people into houses they couldn’t afford.  But then the interest rate went up.  And what did that do to someone who could just barely pay their house payment when it was $554.43?  Well, if it reset to 4% that payment increased to $716.12 ($161.69 more per month).  If it reset to 6% that payment increased to $899.33 ($344.90 more per month).  Bringing the total cost of the house to $323,757.28 ($150,000 principle + 173,757.28 interest).  Which is why a lot of these people walked away from these houses.  There was just no way they could afford them at these higher interest rates.

Interest payments on long-term debt at high interest rates can overwhelm a borrower.  Making the Clinton administration’s Policy Statement on Discrimination in Lending insidious.  It destroyed people’s lives.  Putting them into houses they couldn’t afford with subprime lending.  But if you think that’s bad consider the national debt.  These are long-term obligations just like mortgages.  And currently we owe $16,738,533,025,135.63 (as of 9/13/2013).  At an interest rate of 3.9% the annual interest we must pay on this debt comes to $652,802,787,980.29.  That’s $652.8 billion.  Which is more than we spend on welfare ($430.4 billion).  Almost what we spend on Social Security ($866.3 billion).  And more than half of the federal deficit ($972.9 billion).  This is the opportunity cost of debt.  It limits what we can spend elsewhere.  On welfare.  Social Security.  Etc.  The interest on the debt has grown so large that we even have to borrow money to pay for the cost of borrowing money.  And there is only one way this can end.  Just like the subprime mortgage crisis.  Only worse.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , , , , , , , , , , ,

Is the New York Times ready to blame Bill Clinton for the Subprime Mortgage Crisis?

Posted by PITHOCRATES - August 18th, 2013

Week in Review

President Obama likes to say that the Republicans only want to try the failed policies of the past.  And he’s both right and wrong.  For the Republicans do want to implement the policies of the past.  Because these policies did NOT fail.  Contrary to President Obama’s recurring bleat.  For the policies of President Reagan were based on classical economics.  Those same policies that made America the world’s number one economic power.  While the policies of the left, Keynesian economic policies, have failed every time they’ve been tried.  And reduced America’s economic prowess.

Before John Maynard Keynes came along during World War I the U.S. economy was steeped in the philosophy of our Founding Fathers.  Thrift.  Frugal.  Rugged individualism.  These are the things that made America great.  For over a hundred years Americans worked hard and saved their money.  Spending as little for the here and now.  Always planning for the future.  They put everything they didn’t have to spend into the bank.  As everyone put away these small amounts of money banks turned the aggregate of these numerous small deposits into capital.  Which investors borrowed at reasonable interest rates because we had a high savings rate.  Providing plenty of capital to grow the American economy.  Thanks to a sound banking system.   That exercised sound lending practices.  With investment capital a high savings rate provided.

This system worked so well because people balanced risk with reward.  Bankers made wise lending decisions based on the likelihood of those loans being repaid.  And investors with a history of wise and responsible borrowing had continued access to that investment capital.  While banks who took too great a risk failed.  And investors who took great risks soon found themselves broke with no further access to investment capital.  This balance of risk and reward complimented with a populace that was thrifty and frugal with their money created Carnegie Steel.  The Standard Oil Company.  And the Ford Motor Company.  Risk takers.  Who balanced risk with reward.  And paid a heavy price when they took too great a risk that had no reward.

But the days of Andrew Carnegie, John D. Rockefeller (Standard Oil) and Henry Ford are gone.  These men probably couldn’t—or wouldn’t— do what they did in today’s regulatory environment the left has created.  The higher taxes.  And the financial instability caused by the left’s destruction of the banking system.  As the left has made high-finance a plaything for their rich friends.  By transferring all risk to the taxpayer.  Allowing bankers to take great risks.  With little downside risk.  Giving us things like the subprime mortgage crisis.  Where President Clinton’s Policy Statement on Discrimination in Lending (1994) unleashed 10 federal agencies on banks to pressure them to loan to the unqualified or else.  So they did.  Using the Adjustable Rate Mortgage as the vehicle to get the unqualified into homeownership.  These with no-documentation mortgage applications, zero-down, interest-only, etc., put people into homes by the droves.  Especially those who could not afford them.  Of course, banks just won’t loan to the unqualified without some federal assistance.  Which came in the guise of Fannie Mae and Freddie Mac.  Who bought those toxic mortgages from these lenders, repackaged them into collateralized debt obligations and sold them to unsuspecting investors.  And, well, you know the rest.

So Bill Clinton gave us the subprime mortgage crisis.  And the Great Recession.  It’s always the same.  Whenever liberals get into power they do the same thing over and over again.  They destroy the economy with policies that only benefit them and their rich friends.  America’s aristocracy.  Yet they talk the talk so well people believe that THIS time things will be different.  But they never are.  Already President Obama is talking about doing the same things to increase homeownership that got us into the subprime mortgage crisis.  And his disastrous policies didn’t even prevent his reelection.  Because he can talk the talk so well.  Just like Clinton.  So well that few look at the swath of destruction in their wakes.  At least, not on this side of the Atlantic (see The New York Times takes down the Clinton Foundation. This could be devastating for Bill and Hillary by Tim Stanley posted 8/14/2013 on The Telegraph).

Is the New York Times being guest edited by Rush Limbaugh? Today it runs with a fascinating takedown of the Clinton Foundation – that vast vanity project that conservatives are wary of criticising for being seen to attack a body that tries to do good. But the liberal NYT has no such scruples. The killer quote is this:

For all of its successes, the Clinton Foundation had become a sprawling concern, supervised by a rotating board of old Clinton hands, vulnerable to distraction and threatened by conflicts of interest. It ran multimillion-dollar deficits for several years, despite vast amounts of money flowing in.

A lot of people are scratching their heads as to why the New York Times would run this story.  For it is very out of character for a liberal paper to attack a liberal icon.  Could it be to air out this dirty laundry long before Hillary is a candidate for president?  What, that?!?  That’s old news.  We’ve talked about it already.  Talked it to death.  Nothing to see there.  So let’s focus on what’s important for the American people.

Or could it be that the left has grown tired of the Clintons?  After all, Barack Obama was the first black man elected president.  Something the young people can get excited about.  But will today’s young even know who the Clintons are?  Could be a problem for a party that historically gets the youth vote.  So is this the first sign that Hillary won’t be the anointed one in 2016?  And is this an opening broadside against Hillary?  A harbinger of what is yet to come?  Perhaps.  Or it could mean people are just not falling for the Clinton charm anymore.  Something our friends in the British media have no problem seeing through.

The cynical might infer from the NYT piece that the Clintons are willing to sell themselves, their image, and even their Foundation’s reputation in exchange for money to finance their personal projects. In Bill’s case, saving the world. In Hillary’s case, maybe, running for president.

It’s nothing new to report that there’s an unhealthy relationship in America between money and politics, but it’s there all the same. While the little people are getting hit with Obamacare, high taxes and joblessness, a class of businessmen enjoys ready access to politicians of both Left and Right that poses troubling questions for how the republic can continue to call itself a democracy so long as it functions as an aristocracy of the monied. Part of the reason why America’s elites get away with it is becuase they employ such fantastic salesmen. For too long now, Bill Clinton has pitched himself, almost without question, as a homespun populist: the Boy from Hope. The reality is that this is a man who – in May 1993 – prevented other planes from landing at LAX for 90 minues while he got a haircut from a Beverley Hills hairdresser aboard Air Force One. The Clintons are populists in the same way that Barack Obama is a Nobel prize winner. Oh, wait…

Wish America could see Clinton and Obama as plainly as this.  And not get lost in the gaze of their eyes.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , , , , , , , , ,

« Previous Entries