Title of an Economist editorial. The Economist thinks America has too much home owner ship, and that the $26 trillion dollars of US mortgages outstanding are at risk of default. $26 trillion in losses will shake the soundest bank. They admit that real estate prices have perked up. Used to be 25% of mortgages were underwater and now that is down to 10%.
The real problem in the US mortgage market is all the special favors the real estate industry (realtors, home builders, municipal boosters, appliance makers) are getting from long suffering taxpayers. It's pressure from this widespread special interest that caused Uncle to create Fannie Mae and Freddie Mac to run the secondary mortgage market. And FHA to guarantee home mortgages. And the mortgage interest deduction on federal income tax. And federal flood insurance. And a bunch of other expensive things.
A good mortgage is a very sound investment. Good means a borrower who earns enough income to carry the mortgage payments and a property with a market value greater than the amount of the mortgage. Preferably a borrower who is married, which gives him that much more incentive to avoid foreclosure. It's hard to explain to the spouse why the family is out in the street.
A bad mortgage is a default waiting the happen. The borrower doesn't earn enough to make the payments, he isn't married, he is a house flipper. The value of the property is way less than the mortgage. It's a sucker's mortgage with an escalator clause that jacks up the payments after a few months.
Only the officer who originates the loan can tell good from bad. He needs to interview the borrower, he needs to contact the borrower's employer to verify income, he needs to inspect the property to ascertain it's market value. He has to know the real estate market in his area to form a valid estimate of value. He has to be local to do all this. The officer will be deligent in his duties, if and only if, he has some skin in the game, like his bank is going to hold this mortgage to maturity. If the bank plans to dump the mortgage on the secondary mortgage market (Fannie Mae), then the officer doesn't care. In fact, he wants to process as many mortgages as he can to rake in the fees he gets from doing a mortgage. Dump it on Fannie before it defaults and all is well.
A broker on Wall St, or a banker in Germany have no idea how credit worthy any borrower is or what the value of a single family home in Kansas might be. So the secondary mortgage buyers don't really know what they are buying. Which caused Great Depression 2.0 in 2007. The sucker investors wised up to the crud they were being asked to finance and refused to buy any more of it.
The real answer to the problem is to shut down the secondary mortgage market. We could do this with a simple law that declares a mortgage non transferable. The borrower is only obligated to make payments to the guy who originated his mortgage. He can stop payments, and keep his house, if the mortgage is sold to anyone.
Saturday, August 20, 2016
Thursday, August 18, 2016
Small Town Democracy at work
It all started with metal roofs and solar collectors. They have been getting more and more popular up here in Franconia. The fire department calls them dangerous. Both are so slippery, especially when wet, that firemen cannot walk on them with out slipping and falling to the ground. So the fire department has wanted to buy a ladder truck to furnish a solid footing when firemen need to go up on slippery roofs to fight the fire.
And so, a deal turned up. A nice big used ladder truck, in good shape, even painted yellow, Franconia's departmental color, for only $70K. New ones go for ten times that. The fire department wants to buy it.
Buying takes money. Franconia has some trust funds, in which the town salts money away over the years to replace various pieces of equipment, police cars, firetrucks and the like when they finally wear out. We have fund to buy a tanker truck for the fire department with $140K in it and a newly established fund to buy a ladder truck with only $37K in it. The fire department wanted to take some money out of the tanker truck fund to buy this marvelous ladder truck. Their thinking was a fire truck is a fire truck and it's OK to spend fire truck money on fire trucks. I tend to agree, but that's not the way it works.
We summoned a special town meeting for August to vote on the matter. It was a lovely evening, warm and clear of sky. Turnout was light, maybe 60 people out of a town with 900 registered voters. All the old Franconia people turned up. All the fire department turned up. Everybody knew everybody. Lots of questions were asked, most of them about process and procedure, rather than do we really need another fire truck. And a vote was taken, written ballots just to be sure, and the ladder truck buy passed 43 to 14. And a good time way had by all.
And so, a deal turned up. A nice big used ladder truck, in good shape, even painted yellow, Franconia's departmental color, for only $70K. New ones go for ten times that. The fire department wants to buy it.
Buying takes money. Franconia has some trust funds, in which the town salts money away over the years to replace various pieces of equipment, police cars, firetrucks and the like when they finally wear out. We have fund to buy a tanker truck for the fire department with $140K in it and a newly established fund to buy a ladder truck with only $37K in it. The fire department wanted to take some money out of the tanker truck fund to buy this marvelous ladder truck. Their thinking was a fire truck is a fire truck and it's OK to spend fire truck money on fire trucks. I tend to agree, but that's not the way it works.
We summoned a special town meeting for August to vote on the matter. It was a lovely evening, warm and clear of sky. Turnout was light, maybe 60 people out of a town with 900 registered voters. All the old Franconia people turned up. All the fire department turned up. Everybody knew everybody. Lots of questions were asked, most of them about process and procedure, rather than do we really need another fire truck. And a vote was taken, written ballots just to be sure, and the ladder truck buy passed 43 to 14. And a good time way had by all.
Wednesday, August 17, 2016
Bill O'Reilly on Gitmo
Last night, on his TV show, O'Reilly said he was in favor of closing Gitmo because, he said, the prisoners at Gitmo had not received trials.
Sorry about that Bill. Those prisoners are in Gitmo because they were bearing arms against US forces. They were captured on a foreign battlefield. We are holding them in Gitmo to prevent them from continuing to fight against us. They are prisoners of war, not convicted criminals. No American court, court-martial, or special commission is going to convict them of crimes when all they did was fight against us. Back right after 9/11 we took prisoners alive. They are clearly enemy, clearly hostile, and unless we snuff 'em, we gotta put 'em somewhere. They are not criminals, they are enemy soldiers (enemy combatants the politically correct jargon used today).
The only reason we don't call them prisoners of war, is that the Geneva Conventions give prisoners of war a fair number of protections that we don't want to grant these guys. Geneva Conventions prohibit grilling POW's for intelligence. We grilled everyone sent to Gitmo until they were medium rare.
Obama (and O'Reilly) want to close Gitmo for who knows what reason[s]. The result is we don't take prisoners much anymore. We kill them with Predator drone strikes, or we shoot 'em right in the lips, like we did to Osama Bin Laden.
Which was a mistake. Bin Laden knew a lotta things that we need to know, and a nice long interrogation session at Gitmo would have given us a lot of good intel. Plus we could have run off a nice show trial. Bin Laden in an orange jumpsuit and shiny handcuffs, a long parade of tearful victims testifying against him, would go a long way to convincing the world that Bin Laden really was a nogoodnick rather than a martyr. .
Sorry about that Bill. Those prisoners are in Gitmo because they were bearing arms against US forces. They were captured on a foreign battlefield. We are holding them in Gitmo to prevent them from continuing to fight against us. They are prisoners of war, not convicted criminals. No American court, court-martial, or special commission is going to convict them of crimes when all they did was fight against us. Back right after 9/11 we took prisoners alive. They are clearly enemy, clearly hostile, and unless we snuff 'em, we gotta put 'em somewhere. They are not criminals, they are enemy soldiers (enemy combatants the politically correct jargon used today).
The only reason we don't call them prisoners of war, is that the Geneva Conventions give prisoners of war a fair number of protections that we don't want to grant these guys. Geneva Conventions prohibit grilling POW's for intelligence. We grilled everyone sent to Gitmo until they were medium rare.
Obama (and O'Reilly) want to close Gitmo for who knows what reason[s]. The result is we don't take prisoners much anymore. We kill them with Predator drone strikes, or we shoot 'em right in the lips, like we did to Osama Bin Laden.
Which was a mistake. Bin Laden knew a lotta things that we need to know, and a nice long interrogation session at Gitmo would have given us a lot of good intel. Plus we could have run off a nice show trial. Bin Laden in an orange jumpsuit and shiny handcuffs, a long parade of tearful victims testifying against him, would go a long way to convincing the world that Bin Laden really was a nogoodnick rather than a martyr. .
Tuesday, August 16, 2016
New missiles for USAF
The Air Force has released two Requests for Proposals (RFP) at the end of last month. One is for a new ICBM to replace the aging Minuteman III missiles and the other for a new Long Range Stand Off Cruise Missile. Timing is a little odd, for two massively expensive programs just before election day. Clearly the incoming administration will have it's own ideas.
They used to assign snappy names to missile programs. Atlas, Titan, Thor, Skybolt, and the like. Now they just go with acronyms. The ICBM is dubbed "Ground Based Strategic Deterrent Ballistic Missile" or GBSD for short. The cruise missile is called "Long-Range Standoff Missile" (LRSO).
GBSD is long term and slow going. USAF budgets $3 billion over the next five years for studies. First production missiles are not expected until 2028. That's a long long time away, many profitable years of contractor paperwork. Production of 642 missiles will cost $62 billion spread over thirty years. That's $1 billion per missile in round numbers. Pricey, very pricey. It wouldn't cost so much if it didn't take so long. I remember the original Minuteman program put 1054 missiles into silos inside of five years from start of contract. And built the necessary 1054 silos at the same time.
The LRSO is really a penetration aid missile. Bombers (B52, B1,B2, B21) carry them to soften up air defenses. The missiles can reach out 1000 miles ahead of the bomber and vaporize enemy radar sites, fighter bases and SAM sites. With enough missiles, and good intel about where to shoot them, the bombers are pretty much unstoppable, at least in an all out war where nukes are used. The program schedule is just as slow as GBSD. They budget $2.2 billion and 4 1/2 years for studies. Then another $10 billion to actually build the missiles.
They used to assign snappy names to missile programs. Atlas, Titan, Thor, Skybolt, and the like. Now they just go with acronyms. The ICBM is dubbed "Ground Based Strategic Deterrent Ballistic Missile" or GBSD for short. The cruise missile is called "Long-Range Standoff Missile" (LRSO).
GBSD is long term and slow going. USAF budgets $3 billion over the next five years for studies. First production missiles are not expected until 2028. That's a long long time away, many profitable years of contractor paperwork. Production of 642 missiles will cost $62 billion spread over thirty years. That's $1 billion per missile in round numbers. Pricey, very pricey. It wouldn't cost so much if it didn't take so long. I remember the original Minuteman program put 1054 missiles into silos inside of five years from start of contract. And built the necessary 1054 silos at the same time.
The LRSO is really a penetration aid missile. Bombers (B52, B1,B2, B21) carry them to soften up air defenses. The missiles can reach out 1000 miles ahead of the bomber and vaporize enemy radar sites, fighter bases and SAM sites. With enough missiles, and good intel about where to shoot them, the bombers are pretty much unstoppable, at least in an all out war where nukes are used. The program schedule is just as slow as GBSD. They budget $2.2 billion and 4 1/2 years for studies. Then another $10 billion to actually build the missiles.
Monday, August 15, 2016
"Boy" and "Girl" outlawed by Charlotte NC school board
The TV snippet didn't mention what word[s] were supposed to replace "boy" and "girl" which have been words in English since the time of William the Conqueror. "Kid" perhaps?
Ya gotta wonder what this school board was thinking when they made this really amazing ruling.
Was it the unisex "There is no difference between male and female" people? Who hope to make boys and girls the same in all respects, opportunity, dress, life roles, what ever?
Was it the Transies who want to teach children that they can change themselves from boy to girl or girl to boy if they so desire?
Was it a desire to defuse or sidestep the boys and girls room issue?
Was it the LGBT crowd who must be thinking it will ease the social pressure on gay and lesbian students?
And, how is this amazing ruling going to interfere with the push to start sex education at ever younger ages?
And what will the signs on boys and girls room doors read?
Ya gotta wonder what this school board was thinking when they made this really amazing ruling.
Was it the unisex "There is no difference between male and female" people? Who hope to make boys and girls the same in all respects, opportunity, dress, life roles, what ever?
Was it the Transies who want to teach children that they can change themselves from boy to girl or girl to boy if they so desire?
Was it a desire to defuse or sidestep the boys and girls room issue?
Was it the LGBT crowd who must be thinking it will ease the social pressure on gay and lesbian students?
And, how is this amazing ruling going to interfere with the push to start sex education at ever younger ages?
And what will the signs on boys and girls room doors read?
Sunday, August 14, 2016
Healthcare reform to cut the federal budget
W all know that the federal budget is in trouble. Has been since Obama became president. Obama has managed to spend $1 trillion more each year than the IRS collects in taxes. He sells bonds (T-bills) to the public to keep the Treasury checks from bouncing.
There are only two fixes for the problem, raise taxes (the favorite Democratic plan) or reduce spending (the Republicans like this but never carry thru). Right now, the second biggest outlay is healthcare, Medicaid and Medicare. These are "entitlement" programs, they don't have to be approved or funded by act of Congress, they just are. Eligible patients submit their medical bills, and Uncle pays them. So the program costs cannot be controlled by law. Right now, health care payments are the second biggest part of the US federal budget, 27% of total spending. There are other big things (defense, Social Security, highways, and a bunch of others) but let's just look at one big enchilada for this essay.
Everyone agrees that health care costs in the US are twice the costs in any other country. And for spending twice as much as any other country, US healthcare isn't all that good. We are down around number 10, not number 1.
If we could just lower healthcare costs of by half, like every other country in the world manages to do, we would chop Federal healthcare spending in half. That would knock healthcare down to 13% of the federal budget, down from 27%. That is serious money.
Neither The Donald nor Hillary are talking about this at all. They should be.
There are only two fixes for the problem, raise taxes (the favorite Democratic plan) or reduce spending (the Republicans like this but never carry thru). Right now, the second biggest outlay is healthcare, Medicaid and Medicare. These are "entitlement" programs, they don't have to be approved or funded by act of Congress, they just are. Eligible patients submit their medical bills, and Uncle pays them. So the program costs cannot be controlled by law. Right now, health care payments are the second biggest part of the US federal budget, 27% of total spending. There are other big things (defense, Social Security, highways, and a bunch of others) but let's just look at one big enchilada for this essay.
Everyone agrees that health care costs in the US are twice the costs in any other country. And for spending twice as much as any other country, US healthcare isn't all that good. We are down around number 10, not number 1.
If we could just lower healthcare costs of by half, like every other country in the world manages to do, we would chop Federal healthcare spending in half. That would knock healthcare down to 13% of the federal budget, down from 27%. That is serious money.
Neither The Donald nor Hillary are talking about this at all. They should be.
Friday, August 12, 2016
Persid Meteor Shower
The Internet said it was peak last night. So I got up at midnight and went out to see. And I did see three good bright meteors in about 20 minutes. To get a good view I went up to the Peabody Slopes parking lot. The sky was lighter than optimum, the moon hadn't quite set yet although it was below the tree line. All I had to do was look straight up, and there they were. The flash was too quick to photograph, at least not with my humble point-n-shoot. If I do this again, remember to bring a flashlight and a folding chair.
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