Laws of Supply and Demand

In a never ending attempt to both amuse and educate, today's saga will center on Obama's (aka Mr. Gloom) Wall Street reflection. His most recent foray into the world of "savior economics" (save those dead beat mortgagees) the new plan calls for mortgage servicing companies to be compensated at the rate of $1000.00 per modified mortgage with additional compensation for three years, providing the mortgagee pays the mortgage in a timely fashion. Ask yourself, "What does this do for the mortgagee and what does this do for the mortgage servicing company?" Let us say, for discussion's sake, the mortgage servicing company has 1000 mortgages to modify. The mathematics is relatively simple and we can then see just whom is truly benefiting from Obama's new plan. Further, we see the mortgage servicing companies then have no incentive to report any late payments on the part of the mortgagees. After all, they would not wish to be deprived of that additional three year incentive. So, in essence, Obama has done nothing more than shift the primary problem from mortgage lending institutes to mortgage servicing companies. The "dead beat mortgagees" continue to ride the "coat-tails" of the honest, hardworking individuals in an effort for Obama's "team" to look proudly at their record for home ownership, regardless of ability to pay. Incidentally, the initial Obama "package" called for an input of $75 Billion however, since the "economic stimulus/pork bill" was signed, that amount designated for mortgage assistance has magically blossomed to almost $400 Billion. The evidence can be reviewed on the Internet in a number of places (www.mortgageloan.com; www.heritage.com ).

Now, let us turn to the day's basic economics. An attempt to amuse you during this dry topic should make the journey more palatable. The individual laws of "supply" and "demand" are fundamental concepts toward understanding basic economics. Simply stated, the law of "demand" indicates that as the price of a service (dry cleaning service--what, do we not own washing machines any more?) or good (ice cream cone--with ice cream in a dish, you needn't worry about dripping) increases in price, the less demand there is for that service or good. Economists would state this in such a fashion, "The demand curve is inversely proportional to the price curve." Intuitively, we can then realize the law of "supply" is directly related to "demand". As demand decreases (the high price of ice cream cones), the supply of those same cones increases (just as the fabled "Tribbles" of Star Trek, these ice cream cones keep multiplying in my warehouse). Therefore, economists with their pocket protectors and taped glasses would merely say, "The supply curve is inversely proportional to the demand curve". All of this is true providing all other factors are equal. Of course, there is always the caveat (beware the curve ball). The basic laws in this economic game always remain constant. However, creation of an artificial barrier by some external entity (the government interferes again) raises havoc on these laws. The saga continues....