Sunday, 12 October 2008

Analysis of the Crisis

There are several observations that I've made over the past week regarding the business and market crisis at hand.

First, we have stumbled badly, but the real issues will be the next three or four stumbles that we still have to go. Almost no one discusses these or realizes the impact of the coming stumbles.

The stumbles? Well....lets start with folks who paid $350k for a house that was previously worth $250k five years ago. They paid this price in the fall of 2006 and frankly, the house won't sell for much more than $240k today. The family can't sell the house but its getting tougher to make the payments (Dad's entire paycheck pays for the mortgage, insurance, heat, and electricity...with mom's entire paycheck paying for everything else). As long as everyone stays employed....things stay ok. Anyone loses their job...the house of cards falls apart.

Dad has a job offer which would pay $20k more a year, but he'd have to move one state over. Right now, with no market....he can't sell...so he can't move. So everyone is locked into place with a inflated house.

Across the nation...in California, Chicago, Florida, Atlanta, Las Vegas and Phoenix....these over-priced houses sit. These folks bought the houses with a minimum down payment. They live in neighborhoods where all the houses were supposedly worth $300k...while most of the wage-earners in the house make no more than $70k a year. They owe money on the two cars and the credit card....so this entire mess is a day-to-day affair.

Will congress fix this mess? No....there are likely 500,000 houses in America with families who haven't failed the mess yet and are trying desperately to continue on. As more families give up...the next stumble occurs.

The second stumble? Overpriced wages. Go to Atlanta, Florida and the entire state of California. There are cops now in central California who earn $120k a year. Their chief of police for a 40,000 resident town? He makes $200k. The chief of the city public services? He makes $150k.

The chief of police in a town like Jackson, Mississippi....I'm guessing pulls in $75k a year.....a far cry from his friends in California. This entire layer of public service is costing the government and tax-payers hundreds of millions now. The state of California will likely bankrupt itself eventually.

When you start to notice state managers calling folks up and hinting that a massive layoff is coming...the next stumble will occur.

Then we come to the third stumble...the credit card industry. Across the US today...there are at least three million Americans who have $20k on credit cards that they owe. Some folks owe up to $75k to various cards....and make a $800 payment each month....which doesn't do anything but keep the $75k amount even.

As things slow down....and more people stumble...they reach a point of giving up on the credit cards and declaring bankruptcy. They won't care. The VISA and Master Card guys will be standing there, and suddenly grasp that the end is near. When you have 500 folks a week who have $60k on their cards and they've given up....it'll be noticed. Worry will ripple across the industry as the card guys go to congress and ask for loan help to protect themselves.

Congress will walk in and ask why folks who make $40k a year had five credit cards and over $60k in credit card debt adding up to 18 percent cost for each card. No explanation will be delivered because it was personal responsibility that triggered this type event, and folks should have known better.

The stumble here? Expect the credit card guys to start limiting your card to $10k max and a max of two cards that are active.

Are we half-way through the fall? I don't think we are more than 20 percent into this fall. The folks who had $400k in retirement funds last year....will wake by spring and find an account with barely $180k....and they will start thinking of returning to work....complicating things because so many other folks need to find work because they got dumped out of their
jobs.

Life will go on, but it'll be a long dry period that we have to get through.

The Approaching Storm

So if you missed it.....there is a decent article over at Center on Budget and Policy Priorities that talks of the looming state budget issues.

Yep, if this bank thing is bothering you....lets clear that business off the shelf and put a fresh worry up.

Basically, there are 29 states in a budget crisis, and they need a total of $49 billion....to get by for now. They may need more for later (especially California) but that'll come up for the next administration to worry about.

The chief states with needs? California needs $15.2 billion, Massachusetts needs $1.3 billion, New York needs $2 billion,. Florida, Arizona, Illinois and Virginia are forecasting a $1 billion or more need. Even Bama is talking about a $700 million shortfall.

Will the Feds cough up the money? Yes, with no doubt. Although in the case of California....because of the run-away salary structure for cops, firemen and public workers.....coupled with the run-away housing price structure....the $15 billion is simply one slice of forty or fifty slices that may be requested eventually. Some folks are going to get terminated, and refuse to work for $75k (yep, imagine a cop refusing to patrol for less than $75k). Same for firemen.

So here are the words of wisdom for you folks from the 29 states. Life last year....was very memorable. Remember those days and the things that you took for granted. They will be history. You are going to look back in twenty years, and appreciate those special days. And for the months and years ahead in the new environment....prepare for potholes, fewer public services, and schools of a lesser nature. Adapt to the reasoning of the other 21 states and find ways to lessen the government impact on your life. It might be necessary.

HUD and the Illegals

This week, KFYI, a talk radio station in Colorado....posted up an interesting item. They had a retired agent from Immigratin and Customs Enforcement come up and discuss the number of folks who are not American citizens but hold a HUD house loan (compliments of the US government). This guy tossed the number of five million illegals holding mortgages.

I sat there kinda scratching my head because I just can't see HUD handing out such home loans. Later in the week...they had an individual from Housing and Urban Development say that the number was inaccurate, that there were only 2.3 million mortgages held by immigrants. This kinda tossed the topic into a different direction because immigrants usually have visas or Green Cards.....so its kinda legal although questionable on the banking folks why you'd agree to such a situation.

This little discussion begs numerous questions, which I would imagine the chief of HUD really doesn't want to answer. If we had 100,000 illegal aliens out there holding HUD arranged home loans.....there is a serious problem at the heart of our entire banking structure and home ownership.

The curious thing is that I've never owned a home in the US. I went through the German process and bought a home here....and they had various passport information or documentation on me for the visa I held. They knew who I was and how much I made....and that I was legally here in the country.

I pulled up a HUD checklist....that you'd typically use to do up the paperwork. At some point, they were going to ask for a ID of some type but a simple driver's license would have been sufficient. I sat there smiling....at least a dozen states have made it legal for anyone, to include illegal aliens to get driver's licenses from that state. So a guy could be here illegally, and fix up a tidy but small loan with the HUD folks....provided they didn't ask alot of questions. Maybe I'm wrong.....and I'm hoping I am. But I'm thinking some folks are going to ask alot more questions this week....and the chief of HUD might want to look for new employment.

The Trouble with Being Global Warming Honest

There is a fine article off Fox this week, over carbon crap.

The jest to this article is a advertisement for the World Wildlife Federation (WWF). They seek to invite folks on a 25-day journey by luxury private jet to ""some of the most astonishing places on the planet to see top wildlife, including gorillas, orangutans, rhinos, lemurs and toucans."

The cost? $64,950 a person. Well, yeah....its not for folks like me, who stay at the Motel Six and eat at Shoney's Big Boy.

You end up meeting the first night at the Ritz-Carlon in Orlando, Florida. I get the impression that you gotta arrange your own airfare to Orlando or drive down in the pick-up. The next day, you get into some plane that built for 88 dudes to sit in business-class comfort (note, they didn't say first class).

Then the WWF boys bring out "World class experts, to discuss thing en route to your destination (no movies, no music, and probably lots of cheap champaign). Since they have to cough up seats for these experts....don't count on more than three of them.

You will end going to someplace in the middle of Brazil (near the Amazon Rain Forest), and then onto Easter Island, Samoa, Borneo, Laos, Nepal, Madagascar, Namibia, Uganda or Rwanda, and finish up at the luxury Dorchester Hotel in London. From London onto your hometown....you gotta pay the way.

The curious thing about this entire trip....because the brochure really wanted to chat up on terrible Americans for emitting 21 percent of the global CO2 emissions.....is that this 36,800 mile trip will consume 100,000 gallons of jet fuel and produce 1,231 tons of CO2 in 25 days. Its about the same amount that you'd burn with 1,560 SUVs over three weeks of travel. Oh, and that number doesn't include the electricity you burned for AC or the charcol they used to cook your roast duck, or the heated pools you swim in.

Whats sad....as you come to the end of the Fox article....is that WWF cries and weeps over the 19.6 tons of CO2 that each single American makes each year....which is five times the world average (at least by their numbers). Funny thing....this trip alone.....each traveler will produce a minimum of 14 tons of CO2.

I'm of the mind that the guys at the head of this global warming crap, probably don't have many braincells left and rarely think about what they are really saying or doing. If they did....they wouldn't have advertised something like this.

The Mayors Election in My Home Town

So the big election for mayor in my home town in Bama....came and went. It was down to two candidates, with the old mayor retiring (I'm guessing to spend more time watching NCAA basketball and professional wrestling).

The two guys in the running? The first guy was the former cop of the town who had left about a year ago when the mayor was of the mind to "let him go" (fire, would be a better term, but the guy left on his own accord). There were apparent issues over traffic tickets which were issued and then virtually disappeared....maybe the clerk screwed up or maybe the folks paid off the cop in cash....you can't be sure of nothing in this case. He was liked to some degree and at least was a decent cop for a one-cop town.

The second guy was a local guy who was the pumped-up and argumentative type. He would drag folks into various arguments on any topic and spend alot of time putting his point to you. Most folks can take this for about fifteen minutes before they remember a haircut they were supposed to get. This guy was liked to some degree but then a guy like this as a mayor? That was the question.

The previous primary had the argumentative guy ahead, with the ex-cop second....and some old dude who played poker three hours a day everyday as the last-place finisher.

Two things came into play over the past month as we waited between the primary voting and election day this week. First, a letter appeared and was handed out to folks. This was a home-printing job by someone who really supported the argumentative guy. It was (as my brother read the thing) a two-pager that blasted the ex-cop, rambled on about the town in general, and strongly supported the argumentative guy. As my brother said....by line 30....he was ready to put it down because it rambled too much....was of a small font.....and single-space (my brother as you can see, has high standards for reading material).

For some reason, this letter was read by a fair number of folks and then got them upset because it wasn't "right" in their minds. Instead of convincing folks....it did exactly the opposite. There were around 160 folks to show up....which was more than the primary showing. The ex-cop won with 60 percent of the vote approximately.

The second thing that came up proved more interesting. After the old cop left.....the town hired a new cop. This guy, step-by-step, has proven to be a huge nuisance to a fair number of the town. He did step back from the state-line booze control (we are dry, if you don't know). He probably handed out half the number of tickets as the old guy for booze.

The new cop then proceeded to bring on several guys from the local area as auxiliary cops....all between twenty and thirty years old.....and best described as "young bulls". He let them roam, in the real sense of the word. These guys, with his help....started setting up road blocks on various roads in and out of town. They didn't just pester the booze crowd.....they basically pestered just about anyone they could find.

The curious thing was that the majority of the auxiliary cops didn't have a certificate, as required by the state....to arrest folks or ticket them. They were all in various stages of attending the classes required or waiting for seats over the past couple of months. A couple had completed this certification requirement....but there were the rest who were acting like cops....but just weren't cops.

Several folks, after getting tickets.....began to figure this out. Its hard to say if the town just tossed the tickets later or if some deal was worked out.

Somewhere in the midst of the election run-up.....the auxiliary cops started to hinder or bother customers of the local Quik-shop (the only gas station in town) whose owner was a guy heavily favoring the old ex-cop running for mayor. The pretend-to-be cops then started giving out tickets for "crimes"....which the owner of the shop laughed because he hadn't pressed charges against anyone. Legally, these "crimes" were never going to stick....it was the game that the pretenders were playing.

Bully-tactics? Yep.....precisely. Triggered by the one cop that they actually pay? Probably....he is supposed to guide and lead these guys, and he was simply egging them on. Confrontation brewing? Well, yeah, thats probably the case.

So the old cop is coming to town as the new mayor. I'm guessing this new cop will be gone in less than sixty days. He'll leave on his own terms but I don't see this guy staying around, and if he does....the auxiliary cops will be either tossed or come under some very tight rules by the new mayor.

So goes another election in a small town in the heartland of America. Deceit, corruption, incompetence, foolishness, negativeness, bitter feelings, and sheer stupidity...all rolled into what we call democracy. Thank God....we aren't communists.