August 17, 2011

Next housing Crisis

The TGB Report | Thomas G. Brown

Next housing Crisis

The Home Equity Conversion Mortgage (HECM) program or more commonly known as a reverse mortgage fist made its appearance in 1989 as a pilot program. The program became permanent in 1998. A reverse mortgage is available to home owners 62 and older through the Department of Housing and Urban Development. It is equity release which simply the ability to retain the use of your home (or other object) while obtaining a lump sum or stream of income. The loan comes due when the borrower dies, sells the house, or moves out of the house for more than 12 consecutive months. Once the mortgage comes due the borrower or heirs of the estate will have an option to refinance the home and keep it, sell the home and cash out the equity, or turn the home over to the lender. If the property is turned over to the lender the borrower or the heirs have no more claim to the property or equity in the property. The lender has recourse against the property, but not against the borrower personally nor against the borrowers heirs, referred to as “non-recourse limit.” Once all borrowers on a reverse mortgage passes away the heirs are granted 6 months to sell the home, refinance it, or to make the decision to turn the home over to the lenderi. The problem with these mortgages is that the owner or their heirs can pay off the loan by selling or purchasing the house at the current appraised value even if the price is less than the original loan. The lenders than receive the difference from the FHA.
A 2010 analysis of the reverse mortgage portion of the Mutual Mortgage Fund program projects $503 million dollar loss in 2010ii. The MMF is the fund that pays out the lender if mortgagor defaults. So like any other “insurance” the government offers it is just a Ponzi scheme like social security, unemployment insurances to name just a few.
By 2020 according to the GAO 55 million Americans will be 65 or older. This number along with the dismal outlook of the economy leads me to believe that this market will explode in the near future. This set up if you step back and look at it is doomed for failure even if you know nothing of what I have stated in the above paragraphs. You will be able to continue to live in your home if you pay all expenses related to home upkeep, insurance, and taxes. This is great if you have money coming in or if the loan covers your expenses and you cash out before you run out of funds. But with inflation (despite what the government states) continues to increase and the cost of living continues to rise. You increase the risk that you will default on your mortgage and the home will be forfeited to the loan originator (more likely the people who bought up the loan). You’re not only out of money but homeless now and at a time when you are probably not going to find work competing with younger workers who can’t even find jobs at the moment. Sadly the Federal Housing Authority does not require a income requirements or a credit check to see if the homeowner is even credit worthy. This is the problem with government programs which try to accommodate everyone without the incentive to make a profit that is require by the free market. If these loans where not backed by the government if the defaulted there would be more focus on the ability to the homeowner to comply with the agreement of the mortgage and avoid default. This is just yet another reason that the housing market will be depressed for a while longer.

i http://en.wikipedia.org/wiki/Reverse_mortgage
ii http://www.centredaily.com/2011/08/17/2880593/housing-changes-sought.html

Al Gore’s Climatological “Meltdown”

New American | James Heiser

In recent years, former Vice President Al Gore has been the object of a great deal of humor — and ire — for his extremist views and hypocritical actions when it comes to the environment. But a bizarre rant from the man who was once heartbeats away from becoming President of these United States calls forth a term which Americans want nowhere near the Oval Office: unhinged.

The ideology of manmade global warming has fallen on hard times in recent years due to a series of revelations that have fundamentally undermined the credibility of the “science” and its advocates. Beginning with “Climategate” and “Glaciergate” and continuing through such public spectacles as the implosion of the December 2009 Copenhagen Climate Change Conference, polling data has repeatedly demonstrated that the claims of climate change scientists have fallen on hard times with the public.

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Too Many Emergency Meetings in Europe

Lew Rockwell.com | Gary North

If the sovereign government debt situation in Europe is anywhere near a final economic solution, why do the heads of Germany and France keep meeting? These meetings are getting more frequent.

Why didn’t all the previous meetings solve the economic problem of PIIGS debt?

What public relations statement do they expect will bring financial stability to the PIIGS?

What new program will they suggest, only to be disavowed as impractical by the European Central Bank, and then adopted a week or two after the official denial?

What program will they ever submit to their respective parliaments, to be debated openly in front of voters? None, you say? I see. Just like before.

What opportunity will voters in France and especially Germany be given to express their view of the new program? None, you say? I see. Just like before.

What indication will investors see that there is any new program that is not merely another Band-Aid?

What program, other than more deficit spending by France and Germany to lend more money to the PIIGS, will ever come forth from one of these meetings?

What solution, other than more purchases of the IOUs of PIIGS bonds by the ECB, will ever be presented?

What will they ever suggest, other than more of the same?

What evidence will ever be presented that the latest round of more of the same will not be followed in a few weeks and months and years by even more of the same?

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Tomgram: Chris Hellman, The Pentagon’s Spending Spree

Tomgram | Christopher Hellman

China just launched a refitted Ukrainian aircraft carrier from the 1990s on its first test run — and that’s what the only projected “great power” enemy of the U.S. has to offer for the foreseeable future. In the meantime, the U.S. Navy has 11 aircraft carrier task forces to cruise the seven seas and plans to keep that many through 2045. Like so much else, when it comes to the American military, all comparisons are ludicrous. In any normal sense, the United States stands alone in military terms. Its expenditures make up almost 50% of global military spending; it dominates the global arms market; and it has countless more bases, pilotless drones, military bands, and almost anything else military you’d care to mention than does any other power.

In other words, comparisons can’t be made. The minute you try, you’re off the charts. And yet, in purely practical terms, when you take a shot at measuring what the overwhelming investment of American treasure in the military, the U.S. intelligence community, the Department of Homeland Security, and the rest of our national security establishment has actually bought us, you come up with a series of wars and conflicts headed nowhere and a series of post-9/11 terror attacks generally so inept it hardly mattered whether they were foiled or not.

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Rick Perry Was Al Gore’s Texas Campaign Chairman in 1988

EnviroKnow |

olitical observers have noted that Jon Huntsman is likely to take some flack from conservatives for having served as President Obama’s Ambassador to China until recently. But Huntsman isn’t the only prospective GOP candidate who has worked for a prominent Democratic politician in years past.

Rick Perry, who entered the Texas legislature as a Democrat in 1984, served as Al Gore’s Texas Campaign Chairman in the 1988 presidential campaign. Soon after the campaign, Perry switched parties and was elected Texas Agriculture Commissioner as a Republican in 1990. “Going through that (Gore experience) was part of what started me through the process of changing parties in 1989,” Perry later said. “I came to my senses.”

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Update: 120 tax protesters gather at Warwick City Hall

Providence Journal | BARBARA POLICHETTI

WARWICK, R.I. — A taxpayer rally to protest the city’s substantially increasing local car taxes got off to a slow and damp start at City Hall Monday but grew quickly with protesters opting to avoid the wet sidewalks and instead assemble in the council chambers to await the 7 p.m. start.

By 6 p.m., more than 120 people had gathered and were conducting their own meeting, taking turns at the podium to decry the tax increase.

The council, which was holding its committee meetings, as usual, in a small basement room, was intermittently off-limits to protesters as people with business before the committees took up the available 49 seats.

Fire officials were on hand to keep count of the number of people in the room in the basement. As seats became vacant, uniformed police officers allowed protesters in.

At one point, rally organizer Rob Cote asked the council if they would move upstairs to the council chambers where the larger crowd was waiting. They declined.

About 30 minutes after the 5 p.m. scheduled start of the rally, only about 24 people had braved the rain to gather inside and outside City Hall in Apponaug.

Cote said he wanted to start the rally at 5 p.m. to make a statement to council members as they arrived at City Hall for the subcommittee meetings.

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When will two faced silver start to move again – and which way?

Mineweb.com | Lawrence Williams

Silver – ‘the devil’s metal’ – has a reputation for being extremely volatile – as witness its price movements in the past couple of years where investors could have made fortunes, or lost their shirts by playing its huge price movements right or wrong, but in the past several weeks, while gold has seen some wild fluctuations up to above $1800 and back down again and stock markets have also fluctuated wildly, silver has hardly moved at all staying firmly in the $38-39 range. Indeed silver has been probably the least volatile investment of all over the period.

So what has been behind this apparent stability in the face of turmoil elsewhere in the markets?

Silver has been showing its two faces which have been working against each other in the most recent environment. It is considered both a precious metal with monetary overtones and also an industrial metal – two faces controlling its investment parameters

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The Fix Is In

The Daily Bell | Peter Schiff

Peter Schiff

This week’s wild actions on Wall Street should serve as a stark reminder that few investors have any clue as to what is really going on beneath the surface of America’s troubled economy. But this week did bring startling clarity on at least one front. In its August policy statement the Federal Reserve took the highly unusual step of putting a specific time frame for the continuation of its near zero interest rate policy.

Moving past the previously uncertain pronouncements that they would “keep interest rates low for an extended period,” the Fed now tells us that rates will not budge from rock bottom for at least two years. Although the markets rallied on the news (at least for a few minutes), in reality the policy will inflict untold harm on the U.S. economy. The move was so dangerous and misguided that three members of the Fed’s Open Market Committee actually voted against it. This level of dissent within the Fed hasn’t been seen for years.

Many economists have shortsightedly concluded that ultra-low interest rates are a sure fire way to spur economic growth. The easier and cheaper it is to borrow, they argue, the more likely business and consumers are to spend. And because spending spurs growth, in their calculation, low rates are always good. But, as is typical, they have it backwards.

I believe that ultra-low interest rates are among the biggest impediments currently preventing genuine economic growth in the US economy. By committing to keep them near zero for the next two years, the Fed has actually lengthened the time Americans will now have to wait before a real recovery begins. Low rates are the root cause of the misallocation of resources that define the modern American economy. As a direct result, Americans borrow, consume, and speculate too much, while we save, produce, and invest too little.

It may come as a shock to some but just like everything else in a free market, interest rate levels are best determined by the freely interacting forces of supply and demand. In the case of interest rates, the determinative factors should be the supply of savings available to lend and the demand for money by people and businesses who want to borrow. Many of the beneficial elements of market determined rates are explained in my book How an Economy Grows and Why it Crashes. Allowing the government to determine interest rates as a matter of policy creates a number of distortions.

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16 Statistics Which Prove That The American People Are Absolutely Seething With Anger

The Economic Collapse |

According to a whole host of polls and surveys, the American people are incredibly angry right now. The American people are hopping mad at the government, the American people are hopping mad about the economy and the American people are hopping mad about the direction that this country is headed. Never before in modern U.S. history have the American people been this angry. There is vast disagreement about what the solutions to our problems actually are, but what everyone can agree on is that the American people are absolutely seething with anger right now. The statistics that you are about to read are mind blowing. We used to be such a happy country. Once upon a time we were one of the happiest places on earth. But as the economy has fallen to pieces anger has been steadily growing. If something is not done to turn the economy around eventually this anger is going to erupt in frightening and unpredictable ways.

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Social Degeneration

Townhall.com | Thomas Sowell

Someone at long last has had the courage to tell the plain, honest truth about race.

After mobs of young blacks rampaged through Philadelphia committing violence — as similar mobs have rampaged through Chicago, Denver, Milwaukee and other places — Philadelphia’s black mayor, Michael A. Nutter, ordered a police crackdown and lashed out at the whole lifestyle of those who did such things.

“Pull up your pants and buy a belt ’cause no one wants to see your underwear or the crack of your butt,” he said. “If you walk into somebody’s office with your hair uncombed and a pick in the back, and your shoes untied, and your pants half down, tattoos up and down your arms and on your neck, and you wonder why somebody won’t hire you? They don’t hire you ’cause you look like you’re crazy,” the mayor said. He added: “You have damaged your own race.”

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S&P States the Obvious

Texas Straight Talk | Congressman Ron Paul

Politicians did not get much time to pat themselves on the back for supposedly rescuing the economy with the debt limit deal last week. The ink was barely dry when Standard & Poor’s downgraded the US debt ratings anyway, roiling world financial markets. Anyone who has taken an honest look at the government’s fiscal situation, taken into account how Washington works and the direction it is going would have a very difficult time arguing with S&P’s decision, although a strong case can be made that this was too incremental a downgrade and that it took far too long for S&P to admit the obvious.

Nonetheless, the administration nitpicked over a $2 trillion “mistake”. S&P rejoined with the fact that $2 trillion here or there hardly makes a difference in the time frame under discussion. That, if nothing else, should tell you the magnitude of the problem. $2 trillion has become a drop in the bucket.

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TOO LATE TO JUMP ON THE GOLDWAGON?

Gold Swizerland | Egon von Greyerz

he Stealth Market in Gold

Gold has gone up for 12 straight years in a stealth market. In the last ten years gold has had a compound annual growth of 20.5%. This is an absolutely outstanding return but investors should not look at gold as an investment but as money. Gold reflects governments’ deceitful actions in totally destroying the value of paper money by printing unlimited amounts of it. With gold up 7 times since the bottom in 1999, is it too late to jump on the Goldwagon?

The answer to the above question is a categorical NO. Virtually no major investor group has participated in gold’s spectacular rise. In spite of a seven fold increase in the gold price, only circa 1% of world financial assets are invested in gold. Whenever I talk to major institutional investors, not only do they not own gold, but they don’t understand gold either. I was speaking at a conference for Family Offices recently where there were circa 250 family office managers present representing substantial funds. Not only did no one own gold, but they had no understanding of gold’s role as an investment class or the fact that measured in real money, i.e. in gold, their investments were declining precipitously. It must be unprecedented that an important asset class can go up for such a long period with so few investors participating. In my view this is the most bullish sign ever for gold. The mess the world is in will lead to unprecedented money printing in the US, EU, the UK and many more regions. And gold will continue to reflect the destruction of paper money. In addition, investors will increasingly mistrust paper gold and invest in physical gold only. Due to the very limited availability of physical gold, the increase in demand can only be satisfied at substantially higher prices.

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Is GoldMoney A Gold-Backed Bitcoin?

HowtoVanish.com | Bill Rounds J.D

Bitcoin is new. There has never been anything like it before. It is also risky. A lot of things need to happen for it to be successful in the long term.

But many intelligent people have missed the fact that Bitcoin is new. I am not an economist or investor, but I have not seen any economists or investors analyze Bitcoin correctly because they do not fully understand what Bitcoin is. This is a serious mistake. Failing to analyze based on correct facts can lead to wrong conclusions.
Bitcoin Reduces Privacy Cost

The main benefit of Bitcoin is vastly reduced costs. Bitcoin eliminates many costs, but one of the most important is the cost of providing personal information to participate in the economy; the privacy cost.

Cash and precious metals have the lowest privacy cost of any medium of exchange. But cash and metals are mostly limited to small, in-person transactions. The world needs something more.

Before Bitcoin, every other financial transaction had an extremely high privacy cost, along with lots of other costs. Checks, credit cards, and bank wires require a significant disclosure of personal information to banks and governments.

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