It's the economy, stupid!!

Reprinted below is a March 9, 2009 post from my blogspot site dealing with my thoughts on the economic situation, though it concentrates on the housing fiasco. I had indicated my belief that the real estate market will not hit bottom until 2012. It may be even longer since the Government is permitting the use of automated valuation models and real estate agent broker price opinions (gee, no conflict of interest there) over actual appraisals performed by an independent third party for many types of property valuations now. This, along with the AMC mandate, will continue to guarantee inaccurate (fradulent) valuations of real estate.

I was listening to El Rushbo the other day (he may be an entertainer, but he's no economist) when he mentioned that things aren't all that bad since we still have over 91% of the population employed. Yes, however, you do not need an actual majority of the population out of work to destroy an economy. During the Great Depression an estimated 25%-30% of the population was unemployed. Thus, 70% of the depression era population was employed. Seven out of 10 people still had jobs and yet we had a catastrophe in economic terms. What Rush and many economists fail to figure is the level of unemployment that will trigger an automatic unemployment landslide.

Typically, U.S. unemployment runs between 5% and 6%. Let's use 6% as our baseline. Retail business generally operates on some fairly tight margins due to factors such as the actual operating costs to run a legitimate business plus the number of competitors, who can affect the gross profit margin as well. Another factor in setting a retail price is the number of customers that frequent the establishment, which also determines what you need to charge for a good or service to keep the doors open........all of this is common sense type stuff.

So, after all is said and done you end up with a net profit of 10%. If you increase your gross profit you will not be competitive. What happens if you lose 5% of your customers? You might be able to get by with a small price increase and you may do some belt tightening so you can still remain in business, but then you lose another 5% of your customers........what happens to your net profit? (I know a 10% customer loss may not translate to a 10% net profit loss, but it's just for example purposes)

Unemployment is currently pushing 9%, which is 3% over our 6% baseline. Considering that 10% of the U.S. is already on food stamps and that the Gov. unemployment rates are low based on how they are calculated, I would estimate actual unemployment at around 12% with another 3% underemployed. At 12% unemployment you are now 6% over the baseline. Factor in underemployment, at say an additional equivalent of 1.5% unemployment, and you are now 7.5% over the baseline.

Again, considering the tight margins that many retail businesses operate on, an additional 2% unemployment rate (6 million more folks out of work) increase could start an avalanche of business closures. Considering that we are now averaging 700,000/month losing their jobs, we could be 9 months away from an economic catastrophe. It does not matter what the stock market does, as long as folks keep losing their jobs. Many states are maxed out on their continued ability to pay unemployment benefits. A number of states are now fudging property values, keeping them artificially high by excluding distressed property sales in areas where those sales ARE the market value. Once the public figures out they have been getting screwed on their assessed values and demands a reduction in their assessed values, the tax revenues will further decrease.

Let's also remember that the top 20% of income earners pay about 80% of the taxes and, unlike the depression, most of the current job losses have been in the higher paying sectors, i.e. the folks losing their jobs (finance, construction, high paid assembly line work, real estate, etc) are the ones who have been paying taxes. The minimum wage earners CANNOT make up the revenue shortfall. You can raise taxes on the "rich", but they can afford to move to a lower tax state or area. (Ask Gov. Paterson about that one).

The bottom line is that it does not take a really significant amount of job loss to cripple an economy. If things do not turn around almost immediately on the job front, we are in big trouble.
-------------------------------
Monday, March 9, 2009

So, how bad will the economic situation get?
How bad will the economy get? There are differing opinions on this, but the facts speak for themselves. The general consensus is that the downward economic spiral began with the sub prime lending mess. In a nut shell, this was precipitated by groups such as ACORN, with the backing of some notable democrats, Barney Frank et al, pressuring congress to get banks to lend money to anyone who could fog a mirror. This led to the development and widespread use of exotic loan products such as Option ARM loans, pick-a-pay loans, NINJA loans (No Job, No Income or Assets) and so on. These loans could be bundled and sold via products such as MBS/mortgage backed securities. Credit rating agencies were complicit in this as well by rating these junk mortgage products as AAA rated or somewhere thereabouts. Since this freed up lending institutions to sell their (bad) paper, there was ever greater incentive to fund more and more of these loans.

Having a real estate appraisal background I can tell you many appraisers saw this coming two years before most everyone else. One of the reasons for this was that mortgage brokers work on commission and banks were also eager to sell their paper. One recent survey indicated that 90% of appraisers felt pressured to "make the deal work." The actual number was more like 99.9%. If an appraiser refused to "hit the number" the broker or LO needed to make the deal work (i.e. appraise the house high enough to payoff the house, which had declined in value, the new SUV's, the flat screen TV's and other toys) then the appraiser was blacklisted and these blacklists were shared with other lenders, so the honest ethical appraiser was driven out of business while the number hitting scumbag was thriving. Many banks made use of AMC's which are Appraisal Management Companies. Until the law changed, AMC's were owned by the banks (there is still a tight relationship between the banks and AMC's since, if the AMC does not play ball with the appraisal values the bank can stop using them.) who would skim up to 75% of the appraisal fee. Driving down the price paid to the independent fee appraiser also helped put the honest appraisers out of work. The AMC's would only assign work to the appraisers who could hit the number. They would also lower the pay and demand faster turn times so the appraisals were decreasing in quality and the only appraisers who were "approved" to work for the AMC's were the unethical appraiser. The HVCC/Home Valuation Code of Conduct, which is pending, mandates use of AMC's which will ensure the housing crisis will continue in perpetuity. Many lenders are already mandating use of AMC's in anticipation of the HVCC passage.

Now, I have already mentioned that a big problem was the government mandating that banks loan to anyone with a pulse. What if you were an honest bank that did not want to do this? Then you engaged in Red Lining. Red Lining is illegal discrimination, so banks that did not want to lend to risky borrowers would flag certain zip codes/areas and instruct their underwriters to kill the appraisal so the deal would not fly. The result of this was that rehabbers and certain homeowners were not able to conduct legitimate revitalization in some inner city neighborhoods.So, where is the housing situation at today? Currently banks are sitting on approximately 3 million foreclosed homes that have not been put on the market. While most people think the housing crisis is ending, keep in mind that the Alt-A (people with b,c,d, credit) defaults are just starting to hit and the conservative estimate is that there will be around 1.8 million Alt-A defaults. So 3 million homes plus 1.8 million homes = 4.8 million foreclosures that have yet to hit the market and further depress prices. Add to this 2 million unemployed in 2008 and 1.3 million unemployed so far in 2009 (which could end up being another 5 million unemployed by the end of 2009) and housing prices will not hit bottom for at least 3 years, or longer. Most people are not aware of just how bad the housing situation is due to the National Association of Realtor's propaganda division, which would make even Joseph Goebbels envious.We also tend to localize the economy to our own borders and not think about the situation in the rest of the world. It's as bad in Europe and Asia as it is in America.

We can't forget that all of the Obama bailouts WILL result in hyperinflation to equal Weimar Germany or Zimbabwe. Even before the bailouts, if everyone who held U.S. dollars cashed them in, they would only get 10 cents on the dollar in hard assets. Today it would be more like 3 cents on the dollar. I am expecting hyperinflation as early as 6 months and no later than 12 months. The stock market may be getting an upward bounce today, but I can see the DJIA at 5000 or 4000 shortly.As to actual unemployment, currently 31 million people are on food stamps. This is a bit over 10% of the U.S. population. The latest government unemployment figures show 8% unemployment, but as 12% of mortgages are in default or late pay status, this would indicate a true unemployment rate of at least 10%-13%. This does not include underemployment where, say, an engineer gets terminated and can only find work at a fast food joint. Consider that a majority of job losses have been occurring in the financial sector, the construction sector, the real estate sector and the high paying manufacturing sector. Remember that the top 20% of income earners pay about 80% of the taxes. Now, it is not an even sliding scale, but with the top 10% of the top 20% of income earners out of work, the result is a loss of up to 30% or so of federal, state and local tax revenue. Obama's plan may call for tax increases, but there will be no one to pay them.The retail sector will start losing more big retailers by mid-year and a 30% vacancy rate on commercial property is expected soon as well. The real estate trusts have been taking a hit. Worldwide freight shipments are down as is worldwide manufacturing. China is seeing a big increase in the number of unemployed (remember there are 1.3 billion Chinese, so a 10% unemployment rate over there puts 130 million out of work) as is much of Europe.For the first time since the Civil War, we could see Americans starving to death. This is not an exaggeration or scare tactic. An objective look at the facts can lead to no other conclusion. Folks need to get into a survival frame of mind.

You want fries with that?

This is an off topic general rant about the lack of common sense and the dumbing down of America.

Reading about the latest rash of shootings, and thinking about some past incidents, my thoughts are "what ever happened to common sense, or, what we used to call country common sense?" Since when does a kid who's getting picked on think it's OK to go to the family gun safe, yank out a rifle and some ammo and go shoot up his school? Why does someone who lost their job or got fired think it's OK to grab a pistol and ammo and go shoot up their former workplace?

Irrespective of any political or economic influences, it is apparent today that a lot of folks lack basic common sense. I spent a good number of years in retail sales and management and the idiocy level of even non-entry level employees was discouraging. As for the dumbing down of America, when was the last time you had a cashier count your change back to you? Have you ever had a situation where you had a tab of, say, $3.10 and you handed the cashier a $5 bill and a dime and got a deer in the headlights stare? I can remember seeing job applications where the applicant could barely read or write, we had applicants that could not tell time on an open faced clock.......had to be digital.

Just look at some of the recent headlines. A guy kills his 5 kids and himself to get back at his wife. The guy was a grown adult but had an extremely juvenile thought process (kind of like the juvenile thought process involved with giving the Queen of England an ipod or the British PM some CD's, which weren't even compatible with the European standard.--you Bush haters can feel free to substitute a "W" gaffe here). This seems to be getting more and more common these days.

Customer service? What's that. Every medium to large company today uses an automated phone system. When you finally get a human it's usually someone located well outside of the U.S. who has a minimal command of English (OK, in fairness I'll include "W" in this category). Another annoying thing about customer service is the lack of ability to negotiate with a human when you finally get one. For example, Customer: " I paid my bill online but it did not hit until 1pm on the due date and your company's stated cutoff time is noon...as it was only an hour late can you waive the $36 late fee?" CSR Supervisor: "Our company policy says it's due at noon." Customer: " I've been a customer of your company for 20 years and have never been late on a payment, as a courtesy how about waiving the late fee?" CSR Supervisor: "Sorry our policy is that the payment is due by noon and you were an hour late.......have a nice day."

Should I even discuss fast food workers? Sure. Remember the story of that little girl in Florida, 12 year old Jasmine Roberts, who for her science fair project, decided to measure the fecal bacteria count in fast food ice dispensers and fast food toilets and it turned out that there was more fecal bacteria in the ice than there was in the toilet water because the workers did not have common sense enough to wash their hands after taking a crap?

Although I am aware of some of the major problems we face today, some of the behavior of people just seems to defy explanation. I am especially appalled, as I have previously stated, at the total lack of basic common sense a lot of folks are displaying today. The lack of education can be cured, but the lack of common sense.....I just do not know, maybe it's something in the water.

Martin Luther King, Jr. we hardly knew ye.

Martin Luther King, Jr was shot to death on April 4th, 1968 while standing on the balcony of his hotel room. (Lorraine Motel, Room 306). James Earl Ray was subsequently arrested and convicted of King's murder despite the fact that the rifle recovered by the police was subjected to two different ballistics tests and both determined that the rifle recovered was not the rifle used in the assassination. Ray also recanted his confession and it has now been generally accepted that someone else actually killed King.

Now, King's contribution to the civil rights movement should be well known. He helped found the Southern Christian Leadership Conference, was involved with the Montgomery Bus boycott, the Birmingham campaign to promote civil rights, participated in numerous marches (Selma, etc), gave several significant speeches, (the most notable was his 1963 "I have a Dream" speech) and in 1964 received the Nobel Prize for his efforts at ending racial discrimination.

A not too shabby list of accomplishments. I do not think it is an exaggeration to say that without the efforts and legacy of MLK, Jr. that Obama would not have been elected.

The personal side of Martin Luther King, Jr. is worth looking at as well. There are two main negatives in his personal life; his plagiarism and his adultery.

I'm sure most of the over 40 crowd was aware that J. Edgar Hoover and his Gestapo were keeping a close eye on MLK, Jr.. I'm also sure most older people remember that the FBI recorded MLK, Jr. having a boink session with two white women while he was married. Now, adultery is a really, really bad sin, but men being men, I kind of understand (but can't condone) his desire for a little variety and can also understand that if all the ice cream you get is chocolate, you might want to try some vanilla. Unfortunately, it turns out that King was a serial adulterer.

From a January, 2009 article on King by Benjamin Ryan: "King lived a double life. During the day, he would speak to large crowds, quoting Scripture and invoking God’s will, and at night he frequently had sex with women from the audience. “King’s habits of sexual adventure had been well established by the time he was married,” says Michael Eric Dyson of Georgetown University, a King admirer. He notes that King often “told lewd jokes,” “shared women with friends,” and was “sexually reckless.” According to King biographer Taylor Branch, during a long party on the night of January 6 and 7, 1964, an FBI bugging device recorded King’s “distinctive voice ring out above others with pulsating abandon, saying, “˜I’m f***ing for God!’”

Sex with single and married women continued after King married, and on the night before his death, King had two adulterous trysts. His first rendezvous was at a woman’s house, the second in a hotel room. The source for this was his best friend and second-in-command, Ralph Abernathy, who noted that the second woman was “a member of the Kentucky legislature,” now known to be Georgia Davis Powers.

Abernathy went on to say that a third woman was also looking for King that same night, but found his bed empty. She knew his habits and was angry when they met later that morning. In response, writes Abernathy, King “lost his temper” and “knocked her across the bed… . She leapt up to fight back, and for a moment they were engaged in a full-blown fight, with [King] clearly winning.” A few hours later, King ate lunch with Abernathy and discussed the importance of nonviolence for their movement."
----------------------
Not too cool a thing for a minister to be doing. Many people will excuse this behavior and justify it in light of all the good he did. I think this is a serious character flaw though. Most people can understand someone having a weak moment, but I'd almost have to conclude that MLK, Jr. was a sex addict. Again, not a good problem for a minister to have.

His plagiarism was also a serious flaw. I dare say that everyone whose ever been in college has lifted a sentence or two and dropped it in a report now and again, but this was not the case with King.

Again, from the Ryan article: "An extensive project started at Stanford University in 1984 to publish all of King’s papers tracked down the original sources for these early papers and concluded that his academic writings are “tragically flawed by numerous instances of plagiarism.” Journalist Theodore Pappas, who has also reviewed the collection, found one paper showing “verbatim theft” in 20 of a total of 24 paragraphs. He writes:

“King’s plagiarisms are easy to detect because their style rises above the level of his pedestrian student prose. In general, if the sentences are eloquent, witty, insightful, or pithy, or contain allusions, analogies, metaphors, or similes, it is safe to assume that the section has been purloined.”King also plagiarized himself, recycling old term papers as new ones. Some of his professors complained about sloppy references, but they seem to have had no idea how extensively he was stealing material, and his habits were well established by the time he entered the PhD program at Boston University. King plagiarized one-third of his 343-page dissertation, the book-length project required to earn a PhD, leading some to say he should be stripped of his doctoral degree. "
---------------------

I may be a hardass, but I think King SHOULD be stripped of his PhD. I also can understand why some, notably liberals, can give King a pass for the adultery, but can't for the life of me figure out how liberal academia and others can give him a pass on the plagiarism. As often as you hear liberals howl about about how hard they had to study and all the crap they have to put up with to get their PhD's and then they gingerly give King a pass.

I have to chuckle every time I pass a public school that has been named after King. Both my parents were educators, back when that actually meant "to educate' as opposed "to indoctrinate", and, as someone who had to work their butt off to get a four year degree, I personally find King's plagiarism more offensive than his adultery, although the adultery is the greater sin.

I think we can certainly note and appreciate Martin Luther King's contribution to the civil rights movement, but he was a scumbag in his personal life. (and I say that as a reformed scumbag, though I wasn't as bad as he was, however, sins are sins)