Rent Control reduces the Amount of Affordable Housing

Posted by PITHOCRATES - April 15th, 2014

Week in Review

Living in New York City is expensive.  High taxes.  And high property values.  But people want to live in the city.  And will pay very high rents to do so.  Which landlords can charge because there are people willing to pay them.  It’s the basic law of supply and demand.  It’s the same reason why beachfront property is so expensive.  There’s so little of it and so many people want to live there.  So the property goes to the highest bidder.  Which is why some of the richest movie and television stars own the best of these properties.  Because they are willing to pay the highest price.

Of course that’s all right for the rich.  But what about the poor and middle class?  Who can’t afford to live like rich movie and television stars?  Well, there has long been a cry for affordable housing for the less affluent.  And price controls.  To keep rents affordable for those of more modest means.  There have been various forms of rent control in New York City.  To make housing more available to the less affluent.  Which actually reduced the number of apartments available to them.  How, you may ask.  Well, when it comes to rent there are two parties.  A buyer and a seller.  We know why buyers are buying.  They want a place to live.  But why do sellers want to rent out apartments?  To make a profit.  And because rent control made it more difficult to make a profit landlords went elsewhere to make a profit.  Thus reducing the number of rental units available.

New York City still has rent-controlled apartments.  And people desperately want to live in them because rent everywhere else (at market prices) is so expensive.  So there are often battles between rent-control tenants and landlords who want to rent at market prices.  Like this (see Brooklyn landlords illegally harassed, targeted rent-stabilized tenants: suit by Erik Badia, Ginger Adams Otis posted 4/15/2014 on the Daily News).

The landlords targeted longstanding black tenants who lived in rent-stabilized apartments, the suit contends.

The plaintiffs pay anywhere from $600 to $1,400 a month for 52 three-bedroom units in the three buildings, according to the lawsuit…

The group claims the landlords, who bought the buildings in 2009, have neglected to do repairs in black-occupied units…

Approximately 15 new tenants have moved in since then, paying market rents as a high as $2,500, the plaintiffs claim…

Pilgrim, who pays a stabilized $950 rent for his apartment, said he has talked to new tenants who had told him they are paying more than double that rate…

“How can you go from paying $687 a month to $2,500 a month? They’re also taking advantage of these young kids,” Bell said.

The tenant sees the landlord as being greedy.  While the landlord sees that apartment being rented 72.5% below what it could be renting for.  If the roles were reversed the tenant would probably do the same thing.  Because people want to make money.  And people want to be rich.  That’s why they buy lotto tickets.  And try to make it in movies and television.  To be rich and famous.  They don’t buy properties to see how little money they can make with them.  They buy them to see how much money they can make with them.  Movie stars would never put their mansions up for sale at 72.5% below what other rich people would pay for them.  Just as a middle class homeowner would never sell her home for 72.5% below what someone would pay for it.

The law of supply and demand bring buyers and sellers together at a price they both agree on.  Making both parties happy.  When laws interfere with market prices (such as rent control) both parties are seldom happy.  Buyers tend to be happier.  But because sellers are so unhappy they stop selling.  Thus reducing the number of apartments available to rent.  Which is why rent control doesn’t work.  It actually reduces the amount of affordable housing.  So that only a very lucky few can enjoy life in a rent-control apartment.

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Hugo Chavez Supports Muammar Gadhafi, neither Provides for their People

Posted by PITHOCRATES - February 27th, 2011

 Hollywood is just Gaga for Hugo Chavez

Hollywood loves Hugo Chavez.  At least some of those on the far left.  They like what he’s doing down there in Venezuela.  Some call his socialism real democracy.  And some just find him dead sexy (see Hugo Chavez’s Celebrity Fans by Bridget Johnson posted on About.com World News).

Venezuelan strongman Hugo Chavez may be reviled in many corners for his socialist policies, crackdowns on press freedom, strident anti-U.S. attitudes, and friendships with rogue regimes such as Iran and North Korea, but he has friends in the left corner of Hollywood. Just who are the celebrities who defend and even laud this highly controversial figure? Here are their pictures — and their praises of Chavez…

[Sean] Penn raised eyebrows even further in March 2010, when he said on HBO’s “Real Time with Bill Maher” that media critics who refer to Chavez as a dictator should be jailed: “There should be a bar for which one goes to prison for these kinds of biases,” Penn said. Chavez publicly thanked Penn afterward for defending him from his critics…

[Oliver] Stone added that Chavez was “a great man,” and said “I’m a fan.” Chavez joked that Stone was President George W. Bush’s envoy on the 2007 trip. In January 2009, after completing filming documentary footage in Latin America, Stone said of Chavez, “The pure energy of the man is intoxicating. This is what I like about Chavez: He’s a big man, he thinks big … Bolivar is back…”

Supermodel Naomi Campbell — who has a temper-laced reputation of being no angel herself — came away from her November 2007 meeting with Hugo Chavez calling him a “rebel angel.”… She asked Chavez if he would ever pose shirtless like judo master and Russian Prime Minister Vladimir Putin, and Chavez said, “Why not? Touch my muscles!”…”I hate Bush,” Campbell told the Brazilian media just before receiving an invitation from Caracas — even though she said she wasn’t there to be political. “I found him to be fearless, but not threatening or unreasonable,” she wrote. “I hope Venezuela’s relations with America will improve in the immediate future…”

“No matter what the greatest tyrant in the world, the greatest terrorist in the world, George W. Bush says, we’re here to tell you: Not hundreds, not thousands, but millions of the American people … support your revolution,” [Harry] Belafonte told Chavez during the broadcast. Belafonte — who also offered a hearty “Viva la Revolucion!” — said media were falsely painting Chavez as a “dictator,” when in fact, he said, Venezuela has democracy and citizens are “optimistic about their future…”

So Chavez is a great man doing great things for his people.  Anyone who criticizes him should be jailed.  And, to protect our women from uncontrollable desires, he should keep his shirt on.  Because the ladies apparently find him dead sexy.  According to these political experts, Venezuela should be a paradise.  A veritable El Dorado.

Venezuela, Socialist Utopia, can’t Build Houses for their People

In El Dorado one would expect to find a plethora of affordable housing.  Why, there must be a house for every man, woman and child.  Because Chavez cares about the people.  Not businesses or their filthy profits.  So how abundant is affordable housing in Venezuela?  Well, not quite so abundant (see Thousands awaiting homes pose challenge for Chavez by Ian James posted 2/27/2011 on The Washington Post).

The floods and mudslides of November and December exacerbated Venezuela’s already severe shortage of affordable housing. Chavez, who is criticized by opponents for failing to address the issue during 12 years in power, is now trying to turn a monumental challenge into a political opportunity – promising to accelerate construction projects and finish 150,000 new homes this year.

His success or failure is likely to affect support for his 2012 re-election bid. His new focus on housing is also allowing Chavez to return to one of his time-tested political strategies: creating expectations among the poor to energize his base, just as problems from 28-percent inflation to violent crime have been taking a toll on his popularity.

You have to wonder what he’s waiting for after 12 years in power.  He’s for the people.  And the people need houses.  So what’s the deal?  Now he’s looking to reelection and promises “that if re-elected, he will build 2 million homes in the next six years.”  That’s over 300,000 per year.  More than twice his 150,000 new homes promised this year.  If he could don’t you think he would have already?  But he hasn’t.  Instead he gives his people runaway inflation.  And violent crime.

The Venezuelan Construction Chamber calculates that the housing deficit – based on a growing population and available housing – has grown from 1.1 million homes to 2 million homes during Chavez’s presidency. According to a tally by the chamber, Chavez’s government built about 284,000 homes between 1999 and 2010 – down sharply from 490,000 homes constructed by governments from 1989-98…

Chavez, meanwhile, has taken to visiting housing construction sites during his hours-long speeches. He has enlisted the help of companies from Russia, China, Belarus, Iran and Portugal to build apartment complexes, and has promised to erect a “great city” of civilian homes inside the Fort Tiuna military base. On hilltops between Caracas and the Caribbean Sea, construction has already begun on the first of 20,000 homes that are to make up a development called Caribia Socialist City.

Oh.  They need 2 million new homes right now.  Not in 6 years.  Considering he’s only built 284,000 new homes in the last decade (at a rate of 28,400 homes per year), he’s probably going to fail to deliver.  Again.  Perhaps Russia, China, Belarus, Iran and Portugal can help.  Or some local builders in any U.S. city.  Who can build in one city what he and the full force of his socialist state did throughout Venezuela.  In fact, they’ve built so many homes that the U.S. has a huge housing surplus.  Unlike in Venezuela.  But socialism’s failures do not trouble them.

“I’m sure we’re going to have our home soon,” said Gregoria Graterol, a 56-year-old hospital elevator operator who is staying with her two daughters and three grandchildren in a room with 16 other families.

She is among more than 3,000 evacuees living in dormitories, warehouses and a technical school at the center. Signs of Chavez’s socialist leanings are visible everywhere, in slogans such as “Against Imperialism” emblazoned on walls, along with images of Chavez, Fidel Castro and Argentine revolutionary Ernesto “Che” Guevara.

What was that Harry Belafonte said?  Oh, yes.  Viva la Revolucion!

In Caracas, officials say they have been improving conditions in shelters by installing petroleum-based plastic partitions to give families more privacy. Soldiers turned away AP reporters from some of those shelters, saying military approval was required.

Just look at how much they care.  They’ve given partitions to families in the shelters for privacy.  Of course, George W. Bush gave trailers to the families made homeless by Hurricane Katrina.  But Chavez is the humanitarian.  Which is why Naomi Campbell calls Chavez an angel.  And hates George W. Bush.

“The hills are collapsing due to super-population,” Chavez said recently, suggesting some housing projects must be built outside the city. “There are too many people in Caracas.”

In the barrios, extended families of 10 people or more live crammed into a few rooms, and rents have been rapidly climbing.

Squatters have increasingly invaded and claimed abandoned buildings in recent years. Marwin Claro, 36, has been living in a once-vacant building owned by a bank in Caracas since she and other squatters broke in at 3 a.m. one morning in 2005, cutting the lock and talking their way past the security guards.

“There are many abandoned buildings,” Claro said. “So when people see those buildings, they have to go inside. I support that.”

Over-crowding in the barrios?  Squatters?  Abandoned buildings?  That doesn’t sound like a humanitarian utopia.  That sounds more like abject failure of a socialist state.  And Chavez’s solution to the overcrowding in Caracas is to get rid of people.  Brilliant.  What’s next?  Forced sterilization?

Chavez’s opponents say such maneuvers are intended to distract from his own failures. Chavez set a goal of providing 150,000 homes during his last re-election year in 2006, but fell far short at about 77,000 – many of which weren’t turned over to people until the following year.

Still, many in the shelters said they are thankful to Chavez and plan to vote for him next year. Looking out over the buckled street that now runs in front of her abandoned home, Maria Franco, 43, said sadly: “It doesn’t look like it was due to rain. It looks like it was an earthquake.”

“We hope they’ll solve our problems,” she said. “We have to have faith.”

Thankful for what?  The destruction of Venezuelan society?  Putting your faith in Chavez for 12 years has increased the housing deficit approximately 80%.  And this while the population grew approximately 14%.  When the housing deficit grows far greater than the population, it may be time to place your faith elsewhere.  If he stays in office much longer ever more Venezuelans may become homeless.  Or, at the least, shirtless.  And the champion of the descamisados just isn’t supposed to do that.

Hugo Chavez Stands behind Muammar al-Gadhafi

If you look past all the talk and see only his actions, Chavez doesn’t really care about his people.  But do you know who he does like? Here’s a hint.  He’s in the news right now (see Venezuela foreign minister urges dialogue in Libya by Christopher Toothaker, the Associated Press, posted 2/27/2011 on The Washington Post).

Chavez and Gadhafi have forged close ties. Last year, Venezuelan and Libyan officials signed numerous accords and Chavez gave Gadhafi a replica of the sword that once belonged to 19th-century independence hero Simon Bolivar.

During a speech to supporters on Sunday, Chavez scoffed at suggestions by his adversaries that protests similar to those sweeping the Middle East could occur in Venezuela. The self-proclaimed revolutionary vowed not to allow violent uprisings aimed at spurring his ouster, prompting applause from a crowd of red-clad supporters.

“We are not going to permit violence to erupt in Venezuela,” he said. “With our unity and work, we will make violence impossible.”

And he will do like his friends.  Cuba’s Fidel Castro.  Iran’s Mahmoud Ahmadinejad.  North Korea’s Kim Jong-il.  And, of course, Libya’s Muammar Gadhafi.  Who beat the snot out of anyone who dare rise up against the state.

Chavez has neither condemned nor defended efforts to quell the popular rebellion against Gadhafi’s rule, but he tacitly threw his support behind the Libyan leader on Saturday.

“I can’t say that I support or am in favor of or applaud all the decisions taken by any friend of mine in any part of the world,” Chavez said during a televised address.

I wonder if the Hollywood Left supports Gadhafi, too.  I mean, what’s a little democide?  Between friends.

Judged by the Company you Keep

Hugo Chavez is another in a long line of socialist despots that come along and charm those on the left.  Even while all those socialist utopias (Cuba, North Korea, the People’s Republic of China, the Soviet Union, etc.) were anything but utopian.  They suffered abject poverty.  Famine.  Political oppression.  But yet the Left has always been enamored with them.  Why?  The attention the despots give them?  A hatred of Western Civilization?  A hatred of laissez-faire capitalism?  Perhaps all of the above. 

People often say you judge someone by the company they keep.  Based on the company Chavez keeps, he’s not a good man.  And if he’s not, then what can we say about those who keep company with him? 

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Europeans Wonder why Americans Don’t Love Obama as Much as They Do

Posted by PITHOCRATES - October 29th, 2010

Obama falls from grace because the American people have learned what the mainstream media wouldn’t tell them; the truth.

America, Europe, the Middle East, hell, the whole world had a love affair with Barrack Obama.  A man who did nothing but serve a partial term as a U.S. senator.  Before that?  Community organizer.  His resume had a lot of white space on it.  He is the most inexperienced person to ever become president.  Even Sarah Palin, who the Left disparages as stupid and experienced, has executive experience.  She was more qualified than Obama to be president.  Based on their experience.  Place their resumes side by side and no one can dispute this.  Yet Palin is stupid and inexperienced.  And Obama is the second coming of Christ.  And when the results of Obama’s policies reflect his experience, those infatuated express shock and disbelief (see Europe ‘dismayed’ as midterms highlight Obama’s struggles by Marian Smith, msnbc.com).

“They’re very confused as to how [Americans] could vote for Obama and then two years later turn around and vote for a completely different set of policies,” Sarah Oates, professor of political communication the University of Glasgow, told msnbc.com.

There’s a simple reason for this confusion.  The mainstream media was also infatuated with Obama.  They endorsed his candidacy.  But they never vetted him.  No one knew anything about Obama during the campaign.  They ignored his far-left associations with Reverend Wright and Bill Aires.  They didn’t discuss his criticism of the U.S. Constitution (it didn’t empower government enough).  Or his policy guide: Rules for Radicals by Saul Alinsky.  The mainstream media’s gross journalistic malfeasance hid the real man from the American voter.  The real Obama is not the Obama the American people voted for.  Hence his fall from grace.

Jimmy Carter handed off a worse economy than Bush.  But things got better when Ronald Reagan cut taxes.

Obama has told us ad nauseam that he inherited the worst economy since the Great Depression.  Some would argue that the numbers were pretty bad when Ronald Reagan took office.  But he followed Democrat Jimmy Carter.  So they don’t like to bring up his atrocious economy.  Because the economy he handed down to Ronald Reagan was pretty atrocious.  I mean, they didn’t use words like ‘malaise’, ‘stagflation’ or ‘misery index’ during the Bush economy.  And they’re not using them during the Obama economy.  But you repeat the lie enough, people just accept it as fact.

However, Obama remains broadly well-liked and many Europeans think the disenchantment that many American voters have been expressing is unfair.

“What he inherited was so enormous that no American president could have fixed it,” Manfred Gortemaker, professor of modern history at Germany’s University of Potsdam, told msnbc.com.

The bad economy Obama inherited was a long time in the making.  Because the Democrats were in power for a long time.  And it was their passion that caused it.  Affordable housing.  Putting people into houses who couldn’t afford houses.  Ask anyone which party you think of when it comes to affordable housing and they’re not going to say Republican.  The American disenchantment is with Democrat Big Government.  And Obama believes in Big Government.  The bigger the better.  America just can’t afford it anymore.  There isn’t enough money left in the private sector to steal to pay for it.  And Obama just wants to spend more.  But spending doesn’t work.  It didn’t help Carter.  That’s why he lost to Reagan.  Reagan cut taxes.  And, you know what?  That worked.  The electorate wants more Reagan.  Less Obama.

It’s good t be king.  As long it’s not 1790 France.  Or 2010 America where the Tea Party is spoiling a good time for the ruling elite.

The French can’t figure out the Tea Party movement.

“In all the French newspapers and magazines, people are writing, trying to figure it out,” Bacharan said.

Michelle Obama stayed at a 5-star Spanish resort while Americans were suffering near 10% unemployment and seeing banks foreclose on their homes.  There have been other vacations at very expensive and exclusive resorts.  And a lot of golf outings.  Obama has played more golf in 2 years than George W. Bush has in his 8 years.  Then there’s the latest presidential vacation.  They’re going to India.  They’ll be taking 40 airplanes.  Three helicopters.  A bunch of armored cars.  And they’ll be staying at the 5-star Taj Mahal hotel.  And only them.  The Obama party has booked the whole place.  It’s good to be king.

Now, I’m poking a little fun at my French friends.  That ‘good to be king’ line comes from Mel Brooks History of the World Part One.  But it’s something the French should understand.  While the masses are suffering, the Obamas are living like royalty.  They are detached from ordinary America.  Cold and detached.  Sort of like King Louis XVI and his queen, Marie Antoinette.  We’re just waiting for Michelle Obama to say, “Let them eat cake.”  Of course, we have the right to vote.  Unlike the people did in 1790 France with their ruling elite.  And it’s that right that the Tea Party is exercising.  Because they feel the way the French felt in 1790.  (Without the famine, of course.)

The Tea Party are not Nazis; Obama is not Hitler.  But the Nazis were Big Government liberals

The mainstream media has been falsely reporting a ‘Nazi’ element within the Tea Party.  They repeat the lie so often that many accept it as fact.  Even the Germans, no doubt sensitive to anything Nazi, are writing about it.

“The Holocaust was the result of murderous ideological fanaticism of the kind not to be found in leaders forced to face re-election every four years,” [a Der Spiegel newspaper] editorial said. “It is hard to imagine even the most hard-bitten Tea Party activist sincerely believing that President Barack Obama wants to systematically murder over 6 million people like Adolf Hitler did. And that is necessarily the implication.”

The German people elected Adolf Hitler to office in free elections.  He did not campaign on the Holocaust, though.  He did adopt what would eventually be Saul Alinsky’s Rules for Radicals.  He identified, isolated and attacked his enemies.  The Jews.  Obama has identified, isolated and attacked his enemies.  The Tea Party.  George W. Bush.  And Republicans in general.  Hitler was an environmentalist.  Obama is an environmentalist.  Hitler expanded state power.  Obama wants to expand state power.  Hitler controlled state media.  Obama has a willing and complicit mainstream media.  Hitler nationalized industries.  Obama nationalized industries.  Take away the crazy, the Holocaust and the militarism, and Hitler was just another Big Government liberal.  Like Mussolini.  Like Stalin.  And FDR.  And as Big Government liberals, they lied to their electorate to get elected (well, except for Stalin).  Then people learned the truth.

That said, Obama is no Hitler.  He is not a Nazi.  Sure, some kooks on the fringe say stupid things.  Just like some on the Left said George W. Bush was another Hitler.  Called him a Nazi.  But we need to stop the crazy. On both sides.  Obama got a pass by the mainstream media during the campaign.  They worshipped and adored him.  Got the people to vote for him.  And now people have learned the truth.  And here’s why Obama is NOT Adolf Hitler.  We can fix our mistake in the voting booth. 

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FUNDAMENTAL TRUTH #36: “Politicians oppose across the board tax cuts because they are not politically expedient.” -Old Pithy

Posted by PITHOCRATES - October 19th, 2010

Pay Raise or Christmas Bonus – Which is Better?

If times are tough and the boss has to cut costs, which would you rather see cut?  The annual pay raise?  Or the Christmas bonus?  You, the employee, should pick to cut the Christmas bonus.  You, the employer, should pick to cut the pay raise.  The reason is the same for both.  A bonus is a onetime thing.  A pay raise is forever.

If you chose a Christmas bonus this year over a pay raise there is a very good chance you will take a pay cut the following year.  For if you got a $1,000 bonus this year but get nothing the following year, your annual earnings next year will be $1,000 less than they were this year.  However, if you chose the pay raise over the Christmas bonus this year and you get neither a pay raise nor a bonus the following year, you’ll at least make the same amount next year as you did this year.  Because that pay raise is still there.

The allure of a big check, though, is tough to beat.  Getting a 4-figure bonus check for the holidays may make the difference between a truly merry holiday and a not so merry holiday.  That’s why some people have more income tax withheld from their paychecks.  They want to get a big, sexy check after the holidays to help pay off their holiday debt.  Another $20 or $30 in a weekly paycheck just isn’t as sexy.  But it’ll do a whole lot more for you.  Perhaps even being just enough additional income to get you approved for that mortgage.

The Mortgage Interest Deduction

Big Government likes to spend money.  Their money.  When it comes to spending, they operate under the premise that it’s all their money.  Your net pay is only the portion of their money that they let you keep.  For you to spend as it pleases them. 

Affordable housing is important on both sides of the aisle.  The Left likes it primarily for putting people into houses who can’t afford to buy houses.  This makes for grateful voters at election time.  The Right likes it primarily for the economic dividend.  New housing drives a host of other economic activity to furnish those new houses.

Now Big Government is not very generous with their money.  Hence their pervasive taxes.  They don’t want to lower taxes too much.  If they did, we would be able to keep more of their money.  And they just won’t have that.  But on the other hand, they want us to buy houses.  So they came up with the mortgage interest deduction (MID).  If we buy what they want us to buy, they’ll let us keep a little more of their money via this income tax deduction.  Their little way of saying thank you for going into debt up to our eyeballs.  Of course, if they would just cut our taxes we could probably buy those houses without the MID.  But we must remember whose money it is.  It’s not about us enjoying our life as much as we can.  It’s about them giving us as little of their money as possible.

What Have You Done for Me Lately?

They give us (for the time being, at least) the mortgage interest deduction because they get something for it.  Housing sales.  Which gives the Left more grateful voters.  And the Right a more bustling economy.  In other words, Big Government received a sufficient payment on this gift of money they gave us.  This to them is a sensible tax cut.  It’s not general.  It’s not across the board.  It’s specific and targeted to the people they want something from.

This is how they measure the value of any projected tax cut.  They ask themselves how will this tax cut benefit us, Big Government.  And if that benefit is sufficient, that they will gain real value for it, then they grant us this sensible tax cut.  It’s basic accounting fundamentals, matching the costs to the benefits. Which is why they really eschew across the board tax cuts.  With those there’s no matching of costs to benefits.  Sure, everyone may win, but that ‘everyone’ doesn’t include them the way they see it.

They’ll provide a tax credit to buy a ‘green’ car because they can match the cost to the benefit.  They get campaign contributions (and votes) from the Left for promoting ‘green’ technology.  And they get kickbacks from ‘green’ industries the more green technology is used.  They can match the costs of these ‘green’ tax credits to the benefits they receive in exchange.  These tax credits make sense to them.  Across the board tax cuts, on the other hand, don’t.  It’s a lot of money thrown away without anything specific to show for it.  Sure the economy may be better off, but what demographic did it buy?  What specific graft can they count on?  Big Government operates on props.  And if they don’t feel the love (and the money), you better watch your back.

A Crisis is a Terrible Thing to Waste

Pay raises and Christmas bonuses.  Targeted tax cuts and across the board tax cuts.  They have something in common.   Two of them benefit us in the short term (bonuses and targeted tax cuts).  Two of them benefit us in the long term (raises and across the board tax cuts).  Tax credits and the MID are nice, but you have to spend a lot of money to get them.  And they’re short lived.  A pay raise and an across the board tax cut, though, gives you more money to spend with every paycheck.  And the more money you have, the less you have to borrow.  The less interest you will pay on your credit cards.  And the smaller your mortgage will be (and the less interest you will pay on that mortgage).

But, of course, letting us keep more of our money doesn’t help them.  Big Government.  It won’t help reelect them.  And it won’t help them get rich.  (And who hasn’t left Washington rich?)  And that’s what it’s all about.  At least, based on history.    And so what if they crash our economy in the process?  A bad economy is good for them.  A bad economy calls for stimulus spending.  It calls for reform.  It calls for Big Government to step in and do something.  Anything.  Because the people are desperate.  And a crisis is a terrible thing to waste.

And the people will willingly suffer for a couple of years.  They’ll make their sacrifices.  Suffer unemployment.  To help build a better tomorrow.  But when that tomorrow never comes, they will grow impatient.  They’ll stop giving them their props.  They will stop loving them.  Believing in them.  Which may back Big Government into a corner.  Where they will either move to the center and govern according to the will of the people.  Or rule by executive order against the will of the people.  Should they choose the former, we better all watch our backs.

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The Anatomy of a Subprime Mortgage Crisis

Posted by PITHOCRATES - October 17th, 2010

Old Time Politics – Buying Votes

There’s a lot of lying going on about the subprime mortgage crisis.  How it happened.  Who was responsible for it.  Was it the banks and their predatory lending?  That’s who Barney Frank blames.  Well, them and Republicans.  Or was it some more of that irrational exuberance that led to a real estate bubble?  It created a dot-com bubble in the 1990s.  Which in turn caused a recession.  Was it just a little history repeating itself?  Perhaps they both played a part.  But if they did, they were minor supporting roles.  They weren’t the star of the crisis.  For neither could have done anything had it not been for their enabler.

The Boston Globe’s Donovan Slack writes about one of the enablers backpedaling on his previous rosy statements about the two companies at ground zero of the crisis (see Stance on Fannie and Freddie dogs Frank on boston.com).  Fannie Mae.  And Freddie Mac.  Frank is running for reelection.  And his words are coming back to haunt him.

America is a center-right nation.  To counter that, the Left courts a coalition of special interests and single-issue voters.  Federal workers, teachers, unions, gays & lesbians, pro-choice feminists, environmentalists, socialists, minorities, etc.  Each taken by themselves is a very small percentage of the voting population.  But taken together it’s a sizeable percentage.  Then add in one more very important Democrat constituency.  The poor.  Now with all of these firmly in the Democrat’s camp, it’s just a matter of getting enough of the moderate and independent vote to win an election.  Of course, this is a moot point if they DON’T lock in the Democrat base.  And they do this by giving away as much free stuff and favorable legislation as possible. 

Give Me Your Tired, Your Poor, Your Huddled Masses Yearning for a House They Can’t Afford

The key to locking in the base is, of course, the poor.  There are a lot of them.  So the Left courts them.  Engages in class warfare.  They paint the Republicans as rich fat-cats who want to take their welfare, social security, food stamps, etc., away from them.  That they want to keep them in slums or throw them onto the street.  In contrast, they, the Democrats, want to provide for them.  To help them.  And they give them a lot of things.  To earn their gratitude.  And their votes at the election booth.  And the grandest of all the things given to them?  Affordable housing.

Poor people don’t have a lot of money.  That’s pretty straight forward but it needs to be said.  Because people who don’t have a lot of money can’t afford to buy a house.  Again, that’s pretty straight forward.  But it needs to be said.  Now, when these people apply for a mortgage and get denied, why do you think they got denied?  Here’s a hint.  Re-read this paragraph.  They get denied because they don’t have a lot of money.  You see, if you don’t have a lot of money, you can’t buy expensive things.  Again, straight forward.  But it needs to be said.  Again.  And often.

Now, what do you think a politician thinks the reason was for these poor people getting their mortgage applications denied?  Red-lining.  Racism.  Classism.  Unfairism.  (Yeah, that isn’t a word.  But it works.)  A large percentage of those denied mortgages are from the inner city poor.  And because of previous white-flight, that inner-city poor also happens to be primarily minority.  Hence the charges of racism.  And that’s just gold to a political party who needs poor minorities to vote for them.

The Siren Song of Affordable Housing

Now Barney Frank is running for reelection.  His Republican challenger is using Frank’s own words in his campaign.   And they’re causing some damage.  For Frank sat on the House’s Financial Services Committee (the oversight committee for Fannie Mae and Freddie Mac) throughout the time the crisis built.  And now he’s answering some very uncomfortable questions (this and all quotes are from Stance on Fannie and Freddie dogs Frank).

Frank, in his most detailed explanation to date about his actions, said in an interview he missed the warning signs because he was wearing ideological blinders. He said he had worried that Republican lawmakers and the Bush administration were going after Fannie and Freddie for their own ideological reasons and would curtail the lenders’ mission of providing affordable housing.

Ideology trumped responsibility.  The Left cries foul when the Right doesn’t reach across the aisle, but the Left never reaches out when they have power.  It’s us against them.  Pure partisanship.  Even when there’s great danger brewing.  It’s their interests first.  Then the country’s.  So he protected Freddie and Fannie.  And enabled them to cause greater harm.

Freddie and Fannie are in the secondary mortgage market.  They don’t write mortgages.  They guarantee them (so banks are more willing to take risks with less credit-worthy people).  And they buy these risky mortgages from the banks.  This further reduces a bank’s risk in approving very risky loans to people who are not credit-worthy.  Which is what the Democrats want.  More affordable housing for people who can’t afford to buy houses.  Frank’s committee sets the rules Freddie and Fannie must follow to keep them from approving mortgages that are crazy-stupid.  But that’s exactly what they encouraged.  Subprime loans.  Adjustable Rate Mortgages (ARMs).  Interest only mortgages.  No documentation approvals.  Any bank that didn’t have enough of these mortgages on their books (i.e., risky loans to poor people who couldn’t afford to buy houses) was in trouble.  The federal government would investigate them for red-lining, racism, classism, etc.

The more mortgages Freddie and Fannie bought, the more cash banks had to make more risky loans.  They then dumped these risky loans onto Wall Street.  You see, before the day of subprime loans, ARMs, interest only mortgages and no documentation approvals, mortgages were very safe loans.  But these subprime loans weren’t.  But they looked safe when Wall Street sold them.  I mean, buyers didn’t see the mortgage applications.  They had no idea what a credit risk these people were.  They just knew mortgages were traditionally safe investments.  So they just bought them.  And Freddie and Fannie made it all possible.

Known as government-sponsored enterprises, they didn’t provide mortgages themselves, but rather bought loans from banks and mortgage brokers, freeing up cash so the lenders could make more loans. Fannie and Freddie held or bundled the loans and sold them to investors as mortgage-backed securities.

Investors bought these very ‘profitable’ securities.  This demand just fueled the crisis in waiting.  Because Freddie and Fannie could dump these on Wall Street, they wrote more and more risky loans.  This made everyone happy.  Everyone was making money.  And more people who couldn’t afford to buy houses were buying houses.  And this was, after all, Freddie and Fannie’s mission.  Affordable housing.

In an effort to increase homeownership, the Clinton administration in the late 1990s and the Bush administration in the 2000s pushed Fannie and Freddie to meet growing quotas for buying affordable home loans. Those pushes, combined with a drive for more profits at the enterprises, drove Fannie and Freddie to take on more risk and more debt. They backed subprime and other risky loans, including mortgages for borrowers without proof of steady income.

Even the Republicans got on the band wagon.  New homes sales drive the economy (because of the stuff people have to buy to put into those houses that they can’t afford).  And you make points with the poor and the minorities.  There was just no down side in affordable housing.  Or was there?

But the director of the federal office responsible for overseeing Fannie and Freddie, Armando Falcon, began noticing their expanding portfolios and increasing reliance on risky investments. In early 2003, Falcon warned Congress in a 118-page report of the companies’ potential for a catastrophic failure that could jeopardize the economy.

Okay.  Five years before the crash someone was taking notice.  And he warned Congress.  Thank god someone was looking out for America’s best interests.

But Frank and other Democrats still opposed tighter regulation, Frank most notably in his public statements saying there was nothing wrong with Fannie and Freddie. He and other House Democrats also sent a letter to President George W. Bush in June 2004, saying the proposed crackdown could “weaken affordable housing performance . . . by emphasizing only safety and soundness.’’

Frank and the Democrats were saying that it was more important to put people who couldn’t afford houses into houses than it was to provide oversight.

So he initially supported a Republican measure in 2005 that would have imposed stricter standards on the lenders. But he voted against it in the full chamber because it did not include funding for affordable housing, he said. The bill passed the House.

Frank came around.  He supported a Republican measure to provide stricter oversight.  But he changed his mind.  Once again, affordable housing was more important than the oversight he was supposed to provide.  Then, in the summer of 2008, Treasury Secretary Henry Paulson warned Frank again.  Now Frank chaired the House’s Financial Services Committee.  Now, more than ever, it was his responsibility to reign in Freddie and Fannie.  To provide the oversight that was his committee’s responsibility.  But he still didn’t.  Like Nero, he fiddled as the crisis burned out of control.

In July 2008, then-Treasury Secretary Henry Paulson called Frank and told him the government would need to spend “billions of taxpayer dollars to backstop the institutions from catastrophic failure,’’ according to Paulson’s recent book. Frank, despite that conversation, appeared on national television two days later and said the companies were “fundamentally sound, not in danger of going under.’’

A few months later, Freddie and Fannie would cause the worst recession since the Great Depression.  On Frank’s watch.  And he kept denying that there was any problem until the very end.

Lots of Blame to Go Around – On the Left Side of the Aisle

Barney Frank is not the sole cause of the subprime mortgage crisis.  He was just one of the leading players.  Ultimately, it was an ideology.  Affordable housing.  Putting people into houses who couldn’t afford to buy houses.  This is what caused the worst recession since the Great Depression.  And, yes, the Bush administration did partake in the affordable housing mania.  But if you want to assign real responsibility, ask yourself this question.  Which party do you think of when it comes to affordable housing for the poor and minorities?

www.PITHOCRATES.com

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LESSONS LEARNED #35: “Not only is ignorance bliss, but it’s a godsend to Big Government.” -Old Pithy

Posted by PITHOCRATES - October 14th, 2010

If Jefferson Could Talk from the Grave He’d Be Hoarse from Shouting by Now

Politicians.  They’re all the same.  Well, most of them.  They enter politics for one thing.  For a career.  And what do people want from a career?  Great success.  Great prestige.  Great wealth.  Great power.  And a little revenge.  The pencil-neck, computer-nerd geek takes great pleasure in seeing a jock from his high school days emptying his trash while boarding his private jet. “Those wedgies and swirlies were a bitch but look at us now.”  It’s true.  The best revenge is living well.

But some people lack any talent or ability.  Some of them will never amount to anything.  They’ll never know the joy of looking down on people better than them with sweet condescension.  So these people go into politics.  Where people with no talent or ability can live well.  It’s a simple formula.  Sell your soul.  Whore yourself out.  Shake down businesses with taxation and regulation (and get even with all those people who have far more talent and ability than you ever had).  Collect tribute.  Consolidate power.  Hold those you serve in contempt.

Lord Acton wrote in 1887, “Power tends to corrupt, and absolute power corrupts absolutely.”  A century earlier, Thomas Jefferson fought tirelessly to prevent great money and federal power from conjoining.  The Old World capitals consolidated money and power.  And this concentrated the money and power into fewer and fewer hands.  Kings ruled by whim.  And oppressed their hapless subjects.  It’s a story as old as time.  And is still true today.  To the great chagrin of Jefferson.

Go West, Young Man

The transcontinental railroad was making poor progress during the Civil War.  Because it was starved for capital.  No one would invest.  Few doubted that they could build it.  Even if they could, few doubted it would ever make money.  The West was mostly raw, unsettled land.  There was nothing to transport.  Nothing to earn revenue.  It was a huge investment with a huge risk.  Investors are smart when it comes to money.  And they saw the transcontinental railroad as a one-way road that their money would go down and never return.  They needed something.  Big Government.

When it comes to throwing money away on a losing investment there is but one place to go.  Uncle Sam.  With the power to tax, the federal government has huge piles of money to play with.  So here’s what happened to build that railroad.  Union Pacific (UP) created a shell company called Crédit Mobilier (CM) to finance and build the railroad.  These companies were one and the same.  Without getting too complicated, UP sold their ‘worthless’ stock to CM at par.  Now, CM being a finance and construction company, a train never had to run over the road they were building to make a profit.  Union Pacific, on the other hand, needed trains running on that new track.  They were a transportation company.  They earned a profit from transporting goods on their trains.  This meant it could take years before UP could even hope to earn a profit on the new transcontinental railroad.  CM, on the other hand, could start earning a profit with the first invoice they submitted for construction.  And they did.

CM had strong revenues.  They submitted grossly inflated construction invoices to UP.  UP added a small construction management fee and submitted them to the government.  The government paid UP.  UP paid CM.  With revenues far exceeding their costs, CM made obscene profits.  CM stock took off into the stratosphere.  Some of which was sold to Congressmen at a deep discount who in turn realized obscene capital gains if they sold their stock.  Or collected obscene dividends if they held onto their stock.  In return for this sweetheart deal, they approved all cost overruns.  Killed any legislation unfavorable to UP/CM.  Provided lucrative incentives to build track on the worst ground in the most indirect path (to maximize the railroad’s mineral rights).  Provided little to no oversight on the construction of the road (some track was built on ice, with cheap steel and flimsy wooden trestles wherever possible).  When east met west the different railroads kept on building, parallel to each other to keep billing Uncle Sam.  All paid by the public treasury.  By the taxpayer.  The little guy.  Being raped and pillaged by their own representatives.

Affordable Housing for Those Who Vote Democrat

Politicians buy votes.  Pad the federal payroll.  Steal from the treasury.  Break the law.  Violate our trust.  You know, politician stuff.  Because of the inconvenience of elections, they can’t be too blatant about their rape and pillage.  So they do things that are in the best interest of the public.  Or so they say.  Like affordable housing.  You see, the Left buys the votes of the poor and minorities by throwing bones to them.  And there are a lot of minorities in the inner cities of the bluest of blue cities.  So they threw big bones to them.  Houses.

Despite their War on Poverty, the Left just can’t help these people.  The truth is, of course, that they don’t want to help them.  If they’re poor and dependent on the government, the Left can count on their vote.  If they escape poverty and don’t need Big Government to provide for them, these people are of no use to the Left.  Ergo, they never escape poverty.

Of course, the problem of remaining in abject poverty is that you can’t qualify for a mortgage.  Banks are funny that way.  They only loan money to people who can pay them back.  So they declined a lot of mortgages to these poor inner city minorities.  Well, this was just too good for Big Government to pass up.  A large group of minorities (i.e., a large Democrat voting bloc) being denied mortgages?  Why, that’s racism.  So they drafted a lot of legislation and unleashed their justice department with extreme prejudice.  The message?  Approve these loans.  Or face the consequences (revoking a bank’s charter, a federal lawsuit, a public demonstration headed by Jesse Jackson, Charlie Rangel, et al, etc.).  So they found creative ways to approve loans.  And they got a little help from Uncle Sam.

The Subprime Mortgage Crisis is a Lot Like the Crédit Mobilier Scandal

By a little I mean a lot.  Uncle Sam screwed the mortgage bankers by making them approve extremely risky loans.  So, to help the mortgage bankers, Uncle Sam screwed the American people.  They guaranteed those highly risky mortgages, thus transferring the risk from them to us, the taxpayer.  And to further mitigate the bankers’ risks, they purchased a lot of those highly risky mortgages to remove them from the banks’ balance sheets.  It’s called the secondary mortgage market.  And the primary players are none other than Fannie Mae and Freddie Mac, ground zero of the subprime mortgage crisis.

Once upon a time, a mortgage was one of the safest investments.  People saved up to pay a 20% down payment.  With their life savings invested, people paid their mortgage payment and they paid them on time.  And if you could afford a 20% down payment, mortgage bankers had a lot of confidence that you would be able to service your mortgage.  But in the day of 5%, 3% and 0% down, a person doesn’t have a whole lot to lose.  This makes the first few years of these mortgages especially risky.  The introduction of ‘no documentation’ mortgages meant people could lie about their income (or include overtime earnings).  Add to that the Adjustable Rate Mortgage (ARM) and the interest-only mortgage and you just made these especially risky mortgages even more risky.  Sure, these will get almost anyone into a home, but they get in by the skin of their teeth.  But if they lose their overtime due to a weakened economy, if their interest rate on their ARM resets at a higher rate or a balloon payment is due on their interest-only loan, guess what?  That stream of mortgage payments could very well stop.

Now that would be a BIG problem.  Because of what Freddie and Fannie did with those mortgages they bought.  They sliced them up and built creative investment vehicles.  Derivatives.  Mortgage backed securities called collateralized debt obligations.  Wall Street repackaged all these risky mortgages into highly profitable investments.  Everybody bought them.  Pension funds.  Trust funds.  In America.  And throughout the world.  Big gains with a low risk.  Or so it would seem.  You see, they never eliminated the risk.  They only transferred it to someone else.  And once people couldn’t pay their mortgage payments anymore, the house of cards came crashing down.  We call it the subprime mortgage crisis of 2008.  It caused a worldwide recession.  And cost the American taxpayer dearly.  Even those not born yet.

Yes We Can…Screw the American Taxpayer

The subprime mortgage crisis of 2008 is a government creation.  Their quest of affordable housing to buy votes put more and more people into houses they couldn’t afford.  They created legislation akin to extortion of the banking industry.  They used the Justice Department to apply the muscle for that extortion.  They had their friends in the media and the activists for racial equality to further pressure the banking industry.  Their lack of oversight of Fannie and Freddie (thank you Barney Frank and Chris Dodd) let them make extremely risky loans.  And their policies of buying extremely risky mortgages ultimately transferred all risk to the taxpayer.  Why?  Because like all good government scandals, the seekers of favors rewarded our representatives well for their complicity with sweetheart mortgage deals, vacation junkets, fat contributions to their campaign war chests, etc.  In other words, politics as usual.  But on a grand scale.

Why do they do it?  Because they can.  They count on you being ignorant of history.  And accepting every lie they tell you.  Because they hold you in contempt.  They look down on you with sweet condescension.  These pencil-neck geeks who could never amount to anything on their own merit or ability.  But some sold souls later and they have finally gotten even with those who were better than them.  And here they are.  Still living well.  Even during the worst recession since the Great Depression.

www.PITHOCRATES.com

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LESSONS LEARNED #8: “Of course Social Security will fail; that’s what Ponzi Schemes do.” –Old Pithy

Posted by PITHOCRATES - April 8th, 2010

IT’S ONE OF the oldest scams in the book.  The Ponzi scheme.  It takes some creative lying.  Or a cold heart that can stab trusted friends in the back.  Like Bernie Madoff did.

When it comes to investing large sums of money, people would rather do so with someone they know and trust.  And so it is in the Jewish community.  Madoff’s investment funds were very profitable.  And hard to get into.  So when he worked his Jewish circles, the response was favorable.  Everyone wanted in.

Madoff targeted Jewish charities.  Not for the philanthropy in his heart, but for something characteristic about charities who invest.  Charities work on the interest earned on the principal of their investments.  The principal is parked and rarely withdrawn.  And this is ideal for a Ponzi scheme. 

With all that ‘parked’ money it was easy to sustain the lie.  It was easy to write small checks; the payouts for the returns on investment were only a fraction of the total fund.  When an individual wanted to withdraw his money, it was easy to write that check, too.  Those big investments could sustain the fraud for years without worry.  Madoff was happy.  The investors were happy.

MADOFF CONFOUNDED ANALYSTS who could not understand how he could be so consistently profitable, even when other investment funds were showing losses in bad economic times.  Of course, when you have nothing invested, it is easy to avoid market fluctuations.  As long as your pile of money doesn’t run out.

But with the financial crisis kicked off by the subprime mortgage crisis in 2008, that pile of money did run out.  Madoff’s investors were losing money elsewhere and needed to withdraw their money from his fund to cover those losses.  And when people start withdrawing their principal from a Ponzi scheme the house of cards comes crashing down.

And that’s what happened.  Madoff went to jail.  This is usually how a Ponzi scheme ends.  In case you’re thinking about trying this.  First crash.  Then jail.  It’s just a matter of time.  Eventually people start pulling out their principal.  For whatever reason.  Even if you got about as perfect a group of investors as possible.  As in Madoff’s case.  If you don’t believe me, you can ask Bernie.  During visiting hours.

AND SPEAKING OF the subprime mortgage crisis, there were elements in that crisis that were very Ponzie-like.  At the heart of this crisis was affordable housing for people with sh*tty credit. 

HUD was pressuring lenders to loan to people who could not qualify for loans.  Advocacy groups representing various ethnic groups and nationalities sued.  But no advocacy representing those who had no chance in hell of repaying a loan sued.  Funny, for the banks did discriminate against these people.

Anyway, new laws and regulatory pressure as well as lawsuits (and threats of lawsuits) eventually forced lenders to lend to the unqualified.  Then Fannie Mae and Freddie Mac bought the risky, subprime loans.  Problem solved.  All of them.  Right?

Wrong.  They used some creative financing to approve the unqualified.  The one thing to really come back and bite us in the ass was the Adjustable Rate Mortgage (ARM).  You can’t afford to make recurring mortgage payments?  Okay, no problem.  We’ll just make those payments smaller.  We’ll use an ARM which gives you a lower interest rate as well as a lower payment.  You just refinance later when rates go up.  After you’ve built up some equity in your home.

I’m approved?!?  Great!  Thank you!  Refinance?  What?

They may not have understood that part but they signed on the dotted line.  Interest rates at the time were very low.  As were their monthly payment.  They could just squeak by.  Everything was cool.  Until the interest rates went up.

ALL THIS PRESSURE to loan money to the unqualified and the low interest rates caused a housing boom.  The boom became a bubble.  Then the bubble burst.  House values fell.  Interest rates went up.  Then the interest rate on AMRs went up. 

With a lower house value, a new mortgage would have lower collateral (i.e., the house).  So even if they could qualify, they couldn’t borrow enough to pay off the original mortgage.  So they were stuck with a mortgage payment they could no longer afford.  And they couldn’t refinance.  Their only choice was to default.  And default they did.  Lots of them.  Perhaps most of them.  And the subprime mortgage industry imploded.

Why is this like a Ponzi scheme?  Well, looking back at it with hindsight, there was no other possible outcome of these governmental policies.  When you force institutions to loan money to people who don’t qualify for a loan chances are that they will default.  If two people ask you for a loan and one had good credit and the other did not, who are you going to loan your money too?  If it’s your money you’re going to be very careful.  If it’s not your money, you going to do what is politically expedient and give the money to people who will vote for you.

THE SUBPRIME MORTGAGE crisis resulted from governmental policies in place to raise political capital.  The unqualified got the houses so government got the political capital.  Fannie Mae and Freddie Mac were buying those subprime mortgages, repackaging them and reselling them.  They were making money and could make political contributions.  Everybody was getting something.  Before the house of cards fell, that is.

And all of this was based on the lie that people who couldn’t qualify to buy a house could somehow buy a house.  In other words, it was a fraudulent investment.  Like a Ponzi scheme, it would work as long as there was a net cash flow into the system.  A rising interest rate, though, changed all that. 

SWINDLERS OFTEN GET tripped up by things beyond their control.  The subprime mortgage crisis was the undoing of Bernie Madoff.  A rising interest rate was the undoing of the subprime mortgage scheme.  And a declining population growth rate will be the undoing of Social Security.  In time.  Because, in time, all Ponzi schemes fail.

www.PITHOCRATES.com

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