Upon Further Review

In a previous blog, I reproached the government for their cavalier attitude toward the "mortgage meltdown". At that time, it was my belief the "government" should force those fraudulent money lenders to restructure failing mortgages to a level of 4% to 5%. However, since that time, I have had a greater opportunity to more closely study and research this mounting problem. As I speak, the number of foreclosures increases. How do we stem this economic bleeding"? My research has led me to understand the need for a fundamental change in the principle balance of these trouble mortgages that are on the brink of failure. Since the real estate market in so many geographic locations has declined, the associated assessed value of those homes has also declined. Certainly then, it is prudent for the lenders to renegotiate that principle balance to better reflect a true market barometer and thus create a more indicative market. The crux of this issue is simply a disparity between desired or perceived and realistic property values. By devaluing property assessments, the true market can once again be reflected and mortgages may also become parallel with those assessments. The problem however, remains that lenders appear to be reticent for a renegotiation of any mortgage contracts without some additional inducements by the "government". And so, Obama has seen fit to offer such "tidbits of cheese" to the rats through recompense fees for these contract re negotiations. In some areas, as much as 2 or 3 thousand dollars fee per mortgage modification has been experienced by those desperate clients. Personally, I think it appalling that mortgage lenders have to be bribed by our government in order to perform the moral actions they have already been paid to accomplish.
Thus, a simple solution to a complex problem has been proffered and it is my understanding perhaps this solution may creep into our desperate economic lives after all.

Artificial Price Markets

One of the numerous accomplishments of Obama's "cartoon characters" is to have lain the ground work for the creation of an artificial price market. In essence, a potential government owned mortgage company/bank Vi's a Vi's Citi Group opens the door for the government to own as much as 40% of that company. Once that has been completed, the "majority stockholder" (government) then has the power to put into place a "puppet" of the current thinking. By doing so, this effectively stifles competition from other banks due to having a socialist agenda directed management. In this case, the majority stockholder demands specific downward or upward changes in pricing direction. Of course, other banks or mortgage companies may attempt to keep track, but will fall by the wayside and voila competition soon ceases to exist. In effect, a monopoly rises from the ashes of fallen competition and everyone is painfully aware of the ramifications of that monopoly. A case in point is the railroad tycoon, George Stevens of the nineteenth century. Considered the father of American railroads, he amassed considerable wealth building and controlling the first railroad system (a monopoly). This could be potentially the same for our current form of mortgage banking institutions. As more banks fail, competition in that market dwindles and so does the ability to create price competition, the tool which permits ideas and technology to flourish.


Another form of price control is the process by which the government subsidizes our dairy industry in order to maintain specific consumer price levels. As a dairy farmer has the ability to produce in excess of marketable goods, the government, through dairy subsidies, pays that same farmer to produce fewer marketable goods. Thus, the market price of a dairy commodity is kept at a specific level. If market conditions worsen and the farmer is not able to produce a previously expected level, the government subsidy acts as a financial cushion and the farmer's profit margin is somewhat maintained. However, market price fluctuates only slightly upward due to an artificial control mechanism being placed on the market. There are enumerable instances of product pricing being controlled in this same manner.

While there remains a suitable quantity of competition in any field, that competition is limited in those areas by the artificial means of controlling it--the government's price subsidy. And once again, the consumer is at the mercy of those artificially induced pricing schemes. The saga continues....

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....

Economics, YTT

Precepts of basic economics are simple and few. According to the observations of "Simple Simon" from the Washington Times, February 2, 2009 our current recession, as well as numerous recessions from the past, stem from the "short selling" of stocks. For those neophytes of economics, the term "short selling" refers to the practice of an individual selling a financial instrument that individual does not own at the time of the sale, but with the intention of purchasing that same financial instrument at a lower price. In essence, the financial instrument is "borrowed" or "rented" (the term used most prominently in the financial world) with a promise to the lender of repayment in kind. However, if that same financial instrument's price decreases, the original seller makes a profit on the difference between the "original selling price" and the price paid at the time of repurchase. Conversely, if the price of that same financial instrument increases, the original seller has a loss and then must make up that difference to the lender. As you can see, "short selling" or "shorting" is an extremely risky venture. According to many economic experts, the rescinding of the Securities and Exchange Commission in 2007 of the original 1934 "uptick rule" which prevented short selling, is a primary causation of our current economic crisis. Numerous Republican Presidents have supported and enforced the "uptick rule" in order to sustain economic stability and growth. President Bush "43" was the most recent to uphold that same principle of 1934. In contrast, Democratic presidents have seen fit to rescind the "uptick rule", causing instability and added chaos in the financial markets.
Further, creation of the Community Reinvestment Act of 1994, during President Clinton's presidency is thought to be a major contributor of the current housing crisis, in that it forced banks to lend money in the form of mortgages to those whom did not have the financial capacity to support their mortgage loan. On the whole, it appears recent history has demonstrated the Democrat controlled Congress, since 2006, has performed brilliantly to foster more mortgages to all, while permitting lending institutions free reign without proper supervision. Now, the financial crisis burdens every taxpayer's future through potential tax increases currently being proposed by Mr. Obama, Nancy Pelosi and Harry Reid. What will be next? This saga shall continue...for a very long time!
And for the record, your medical records will not be the only aspect controlled by the government. Take a walk down the more than sixteen hundred pages of the proposed "stimulus package". America, are you becoming more livid with each additional piece of bad news and the manner in which we are being treated by our own government? Stay tuned!