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Why Johnny Q. Public can’t pay his mortgage but can bail out Wall Street

Our system is broke. It’s now as morally bankrupt as Wall Street. The American dream is now a complete and utter farce and the belief that the people we elect actually “represent” us should be forgotten as fast as they forgot us with this “bailout”.

Johnny can’t pay his mortgage for a whole bunch of reasons- and not a single one of them is caused by mortgage backed securities or credit default swaps. Let’s take a look:

  1. The price of gasoline has doubled. Congress refused to raise fuel efficiency standards for years, and actually gave tax breaks for buying Hummers and Escalades. Oil companies have seen the largest quarterly profits known to man.
  2. The price of food has increased thanks to the lame idea that Corn makes gasoline efficiently. Corn makes pigs, cows and chickens fat efficiently- and high corn prices don’t even make corn growers fat, since they still have to buy diesel and fertilizer based on… well, see number 1 above.
  3. The price of health care has skyrocketed. Insurance which is supposed to spread the risk over large populations has instead been able to cherry pick and profiteer at will. CEOs of health insurance companies have taken home $100 million annual paychecks without so much as a blink.
  4. Real wages have declined in this country thanks to unfair trade policy and corporations being rewarded for cutting cost by off shoring labor. America, land of opportunity is now a service economy- does anyone want fries with that?
  5. Stock prices have been volatile, causing huge losses in pension funds and retirement accounts because of a complete disconnect between corporate performance and stock value. Wall Street has become a casino for banks, investment banks and insurance companies with programmed trading and massive transactional volume that has more to do with the market than the stocks of the companies that it is supposed to provide capital to.
  6. Changes in the bankruptcy laws were passed at the behest of the credit card companies (the banking industry that is now asking to be bailed out of bankruptcy). The free wheeling banks were allowed at will to jack credit card rates up to as much as 29% for a late payment, or an over the limit charge, and then when people couldn’t pay the credit card bill, the next thing that hit was the mortgage….
  7. Lastly, bankers were allowed to issue loans that made no sense- no money down, for 120% of value, balloon rates, no interest for a set time- and take fees right off the top- before a single payment was made. This is what we blame for the current mess- but it is just a small part of the puzzle.

The one thing that ties everyone of the things above together- all were enabled, ignored or caused by Congress- who has been either asleep at the wheel- or standing with their hands out to ask for campaign money from the people who have made money hand-over-fist from all of the above issues, and now are waiting for a handout from…. drum roll…. John Q. Public.

The “bailout” as proposed by these very same Congressional puppets of the uber “rich” Wall Street types who are now crying for help- does a very good job at protecting the walls of Wall Street’s house, but nothing to protect yours. No controls at all, other than stopping the captains from abandoning a very rich ship with an extra bag of loot (watch salaries rise to the people who are supposed to right the listing ships- so they don’t need a parachute because they’ve built a huge cushion to bail onto).

Let’s look at what should have happened:

The only problem here- is the voters have to be smart enough to understand when they are being lied to- like right now, when this bailout is being shoved through to their wallets without a single real concession to them. John Q. can’t pay his mortgage because he forgot to pay his congressman off.

That’s the real reason Johnny can’t pay his mortgage.

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Drexel Dave

James Howard Kunstler has been right all along:

“The Ponzi-Plus Plan

To paraphrase the late and great old war-horse of the senate, Everett Dirkson of Illinois (1896 – 1969), a trillion here, a trillion there, sooner or later you’re talking about real money. Except in the case of the Great Bail-out of 2008, maybe it’s more like… sooner or later your money is no longer real.

What we’re seeing in this fiasco, among other things, is a lesson in the diminishing returns of technology. This is a train wreck of investment vehicles so complex that they could only be created with the aid of computers. The result is that hardly anyone — perhaps even nobody in or out of Wall Street — really understands what they represent. In fact, this alphabet soup of engineered securities — CDOs, CDSs, MBSs, SIVs, etc — was cooked up from a recipe of Ponzi algorithms. They were designed to be mathematically indecipherable, except by computers, in an alternative universe of model-making that bore only a superficial relation to the real world. That was their dirty secret. And the dirty secret of the Great Bail-out is that, in the real world, we will never be able to discover the actual trading value of these things at any number above zero. This is why they are called “toxic.”

http://jameshowardkunstler.typepad.com/

Greg Hunter

One thing you can count on in this town is that absolutely no one will admit they made a mistake, especially when people like us have been pointing out the errors of their ways for years. The chickens are coming home to roost, unfortunately, we all go down together.

I would also eliminate the tax deduction for home ownership as well as child ownership. It just encourages production of two things we do not need – houses and people. Another idea would be to limit development until a specified density was reached…. ER sorry that was socialism, unlike the providing Taxpayer money to Goldman Sachs – Free Markets my eye – Death to Larry Kudlow.

This crisis will cover up the fact that we (World) was hitting “peak oil” production, which will allow people to think “It will get better” – Long Emergency is Right!

The 700 billion should be put to work building electrified rail and retraining realtors, mortgage bankers and stock brokers on driving railroad spikes. Where is FDR when you need him?

Drexel Dave

The suburbs fall first.

JB

“Where is FDR when you need him?”

We don’t need FDR – we need Andrew Jackson ! Nothing, I repeat NOTHING will change until the Federal Reserve is nationalized, the board fired and replaced with statesmen that are accountable to the people rather then a banking cartel, and fractional reserve banking rules abolished. Everything else is just band-aids.

TeresaLea

Greg –

Child ownership? Come on now…

No offense, but you find me a mother who went through child birth to get a tax credit and I’ll let my ex claim ours on next years tax return. (Neither will ever happen)

greg hunter

Errr… No offense, but a deduction for each child does not make sense. Please explain why this “investment” bears fruit for society? In a resource constrained environment, I see no benefit in more consumers. Does not compute?

Larkin

“until you stop the Chinese and the Indians and the third world from breeding like crazy”

I was going to say how wrongheaded this statement is, but I am just too tired. Which doesn’t make it any less wrongheaded.

greg hunter

1 American child consumes as much as 9 bangaladeshi children. Do the
Math! iPhone post, no links. Bs about parents, no hospice, no nursing homes, 3 generations in 1 house.

Gene

> the suburbs fall first.

? what? I hope you understand that it is those who live in the city limits that work for those in the suburbs, true Daytonians shall be hit and hit hardest.

This ship is sinking. Good luck to all. Please do not steal from my house. I will sell everything I own within the next month – after that no one will have any money to buy anything.

This is the end………..

TeresaLea

“Errr… No offense, but a deduction for each child does not make sense. Please explain why this “investment” bears fruit for society?” I’d be happy to. Firstly, the EITC is given to people without children too. EITC stands for Earned Income Tax Credit. If you make under 12k a year, you are eligible for relief of your tax burden. If you make under 33k with one child, you are eligible and so on and so forth. FYI: Earned Income = working people The US is not the only country that participates in such a tax relief program. In 1975 our government decided we probably shouldn’t have such a high poverty rate in this country and enacted this credit. Economists have estimated that for every $1 people receive in tax credit, $1.50 is put back into the local economy. This creates jobs and MORE TAXES!! It also helps keep working people above the poverty level. Just FYI: Poverty = bad. Look, I computed! Now, there is ANOTHER tax credit available to people WITH children. It is a WHOPPING 1k per year that most families never even see, because if a married couple makes over 110k they are not eligible for this credit. Unfortunately, we live in an economy where it is hard for only one parent to work and still be able to raise a family. My parents first home cost $13k – My first car cost 13k, and it was used. These families who are working (and paying taxes) have to have childcare while they are at work, to earn an income, to pay taxes. So, in order to keep this tax revenue flowing and help keep families out of poverty, the government gives this tax credit to families who might find it a bit more difficult to afford $150 per week childcare (per child). In no way are either of these an incentive to have a child. Whether or not these tax credits are good or bad is irrelevant – the point is that no sane person would have a child just to receive a minimal tax credit. Now… Read more »

J.R. Locke

“most families never even see, because if a married couple makes over 110k they are not eligible for this credit” – TeresaLea

Are you implying that most families make over $110,000 a year?

———
But I agree no one has children for a tax credit, just for welfare. Oh I remember the 90’s, good times the welfare hysteria.

Interesting vote on the bailout. Both Dems and Rubs holding out. Very interesting indeed.

John Ise

We can rail about the problem, or we can fix it (these are good ideas floated however). Congress’ actions, particularly Republicans, show that it’s politics first, national interest second. Steve Pearlstein of the Washtington Post puts it:

“The basic problem here is that too many people don’t understand the seriousness of the situation.

Americans fail to understand that they are facing the real prospect of a decade of little or no economic growth because of the bursting of a credit bubble that they helped create and that now threatens to bring down the global financial system.”

Think of the bailout as sticking a finger down the throat when poison is ingested. You gag on it, but the gagging is saving your life.

TeresaLea

“But I agree no one has children for a tax credit, just for welfare.”

And all white men have small penises.

In the 'burg

So what can you do with 700 billion, anyway?
Well, you could buy 2.8 million houses for 250K.
You could buy 7 million houses for 100K.
You could pay for 17.5 million four-year degrees.
You could put 70K into every single mom’s bank account.
You could give a million dollar research grant to 700,000 scientists.
You could send a check for $6,300 to every household in the country.
You could buy about 500 B2 bombers
Or you could temporarily prop up a greedy, broken system that’s going down in flames anyway.

I don’t think we need to begrudge anyone a lousy 1,000 tax credit.

TeresaLea

Just where you don’t see the benefit, I don’t see the detriment. The CTC and EITC aren’t really relevant to the discussion.

Some of your other points are valid.

TeresaLea

“You could pay for 17.5 million four-year degrees.BINGO
You could put 70K into every single mom’s bank account.”

Although the first might be the more economically sound idea, since these educated citizens would be able to give back to the economy by working and/or creating jobs…

I still think the 2nd is a better option – I mean do you know how many pairs of AWESOME shoes I could buy with that kind of dough?? That alone could change the world.

JB

TeresaLeasaid: “Unfortunately, we live in an economy where it is hard for only one parent to work and still be able to raise a family.” ————————————————– People see rising prices as “the” problem and so politicians devise a never ending stream of band aid “fixes” to the tax code or government programs to “make education or health care “affordable” and to “keep people in their homes” – but rising prices are only the symptom of the real problem which is the banking system and monetary policy dictated by the Federal Reserve which debases the value of our money. Every time one of these “bailouts” are implemented the value of the existing money supply is reduced through inflation which causes the cost of everything (especially food and energy) to rise and the value of your savings to decline (looked at your 401k lately?). The current rate of funny money being created to solve these (self-inflicted) crises has gone parabolic and will bring about the complete collapse of the dollar if this insanity is not stopped. The “Experts” “Economists” don’t have the answer. Their math models leave out the “human” factor of economics which involves ethics and morals in a world tainted by original sin. Their “scientific” models have no “e” variable for entrepreneurial virtues of courage and perseverance, and thus are the best documented case of failure ever devised. “Politicians” are even more clueless. Most see their “success” as going to Washington to “bring home the bacon” in the form of as many federal dollars as they can to their district – not understanding that every dollar they bring back to “create jobs” is BORROWED AT INTEREST. It’s like putting your mortgage payment on a credit card and saying See! I’m current on my mortgage! All they are doing is delaying – and worsening the problem. The end result is all of us working harder and harder for less and less as taxes have to rise to pay an ever increasing government debt. “Constituents” get all wrapped around the axle with partisan politics and the mud slinging that goes with it… Read more »

In the 'burg

Wonders never cease.
Turner voted with Kucinich, and TeresaLea agreed with In the ‘burg.

;-)

Tom Eberhard

How ’bout letting the banks repossess the houses? After all, that’s what the point of a mortgage is. Then the banks can let the previous owners pay rent. The banks get cashflow, keep the house off the market, and the people have a place to live.
So the banks don’t want to own and manage houses. That’s what property managment companies are for.

I don’t agree with the idea of capping my returns on stock purchases held for less than a year.

Allison

It’s kind of pointless to give people tax credits for having kids, under the premise that they will grow up to pay taxes to support us old people, if those kids grow up to earn minimum wage and in turn collect the EITC. I, personally, am tired of subsidizing under-performers, whether they be corporations or people.

Jeff

Tom Eberhardt brings it back to whats happening on the ground, on the fate of foreclosed properties, the tangibles behind the “toxic assetts”.

And a very good question on the fate of the foreclosed homeowners…presumably they move into the rental market, and can the rental market absorb this?

What happens to foreclosed houses? Drexel Dave is wrong in his post that “the suburbs fall first”. Maybe in the sunbelt, where theres been overbuilding, but here in Dayton its the city thats going to fall first, as thats where the foreclosures are. And no one wants to buy in Dayton because, lets face it, outside the historic districts and a few outer neighborhoods, it’s a big ghetto.

So the end result could be the coup de grace for the city, or substantial swaths of it. Or the foreclosed propertys could be snapped up by investors wanting to make a killing on rentals, let the properties deteriorate as the defer maintenance while milking them for rent, and the city turns into a bigger slum than it already is.

yay Dayton.

Drexel Dave

The suburbs fall first because

1. The cities have already fallen

and

2. Suburbs are economically unsustainable long-term, not to mention the greatest mis-allocation of resources in the history of the world.

Alan Stanwyck

To: David Esrati You portray wealth envy at its finest and the standard democrat playbook to a tee. I read your article… and its obvious you have no knowledge of or any education on economics. Point #1 – Yes, the price of gas has doubled, but it has nothing to do with Congress refusing to raise efficiency standards. Why is it the responsibility of Government to force private companies to improve efficiency? If the market wants efficiency, suppliers will produce it. But suppliers will only produce it if the cost of efficency is below the cost of just another car. Why are hybrids over $25K today when you can buy other new brands for the mid teens right now? If option #1 is getting a Hybrid for $25K and option #2 is a ford pickup for $15K, the customer has to determine if saving $10K is a greater beenfit than the savings on future gas & maintenance expenses. Gas prices have risen due to the value of the dollar and basic supply and demand. When you inject more money (currency) into circulation, the value of that currency declines. We call this monetary policy if you were sick the day they taught that in your government school. Since over 60% of the oil used in the U.S. comes from Canada, Mexico, Saudi Arabia, and Venezuala, the value of the U.S currency matters to these producers. So they raise the price to make sure what they are receiving has appropriate buying power. And the U.S has not built a single new oil refinery since 1976. How many cars have been built since 1976? When demand outweighs supply, the mitigating factor is the use of price to bring equilibrium back into balance. And throw on that China and India now have increased their auto usage 10 fold. More demand….same supply….higher prices. By the way,in 2007, Exxon/Mobile paid $30 BILLION in taxes to the federal government and only had a profit of $40 BILLION. You don’t hear that part in the media. That’s a 42% tax rate! They almost paid as much in taxes… Read more »

Alan Stanwyck

To All:

Everyone seems to be praising FDR? You people do know that FDR’s “New Deal” is the basis for increased federal spending? He created Social Security, unemployment insurance, FDIC, the SEC, FTC, farm subsidies, and ceased all gold from the citizens of the U.S. I see a lot of people complaining about the bailout… but the bailout is exactly what FDR stood for….more government spending to help the economy.

NOTE: Social Security is not insurance. Insurance is used to transfer risk and is triggered by a specific event casued a cause of loss. Social Security is a guarantee of income which is also called an entittlement program. Social Security currently consumes 20% of the federal budget (single largest expense) and is the largest social program in the world.

Also, since the great depression caused unemployment to rise to almost 25%, the government lost tax revenues from all these people not working. So what did FDR do? He raised taxes and tariffs…cause the government was spending more money. When you want companies to hire people, you do not increase their expenses and make it harder to make a profit. Now, this tax increase is not the cause of the great depression, but the main reason why it went on for over 8 years. Isn’t there a presidential candidate today that want’s to raise taxes? Could we be repeating history?

Gene

Is Alan Stanwyck your real name or did you get it of the movie “Fletch?” John Winger and Ty Webb want to know your business.

Greg Hunter

Geez, I do not know where to start with big Al Stanwyck as he is so out of touch with reality he must be an elected official.

Mr. Stanwyck, FDR bailed out the working man, not the greedy, pencil pushing, money manipulators like….aaahh CPAs! You write like an acolyte of the worst “science” ever devised – Economics. Let Wall Street Fall and then ship the money manipulators to build Nuclear Plants, electrified rail and wind farms in areas that actually produce something of value, like good food from Mid Western Farms. Why not stroll over too the Wikipedia site for the Civilian Conservation Corps and see who FDR bailed out and what was accomplished. Many of these structures and “investments” are in place today as I have reviewed many of these structures and these are some of the best built “investments” I ever seen.

Alan – I will not discuss oil with you as you are not worthy, but the growth economy of America is based on cheap oil. You are correct that supply cannot match demand, but despite economists assurances, there is no viable replacement for this cheap energy source, so get used to not having a car. If we were smart we would plan for the future instead this “free market” solutions.

Alan Stanwyck

David Esrati, I read the article you posted and I am aware of the deduction rules. You are confusing the use of vehicle in a personal manner versus one used in a busines. Merely buying a Hummer or Escalade does not entitle you to a tax break or deduction. You must use that vehicle “solely” in the operation of a business. This means you must be a business owner or business entity and the amount of deduction is only limited to the amount it is used in a business operation. Personal use is not allowed to be deducted. Now, there is a difference between an expense and a cost. All business expenses are allowed to be deducted. But business costs must be deducted through time…called depreciation. It makes no difference if the vehicle is a Hummer or a Prius. Their value is duducted through a depreciation schedule. Otherwise, a business could deduct the full value of a Mercedes the year they buy it. You can even deduct these costs through accelerated deprecition methods if the business so chosses. Now, although the weight loophole exists, it would be very difficult to prove to the IRS in an audit that you are using the vehicle soley for the use of business. A Hummer or Escalade has very little if any “utility” which makes it hard to prove the vehicle is being used like other “over 6000 lbs” auto’s eligle for the special rule. You could claim that the use of the Hummer or Escalade is entirely a business car, but it would be difficult to prove to the IRS that the auto was not used in any personal manner. Commuting to and from work does not even count as deduction. Greg Hunter: I am not worthy to debate oil economics? Ok…There’s an intelligent rebuttal. But…You got it right. The U.S Economy is based on cheap oil. What is your point when stating: “planning for the future instead of free market solutions”? If oil companies really wanted to charge freely, the price would be 3 times what we are paying. From the data… Read more »

Gene

Let it FAIL. Elect Obama and take blame for the future depression. Vote for McCain and take blame for WWIII. You win either way.

Alan Stanwyck

David,

I am absolutely, unequivocally AGAINST the bailout. Thank got 93 democrats voted against it when they could have had 84 democrats vote against the bailout and still have the motion pass. The bailout is the biggest “moral hazard” in history, teaching and enticing people to take more risk than normal by having a backstop. It also teaches companies to strive to be “too big to fail” because failure will be worse than doing something.

Formerly speaking about FDR….I just saw this online….

The House failed to pass a bill Monday that backers said was necessary to prevent the next Great Depression. But it did get something done: It approved a resolution by Rep. Barbara Lee (D-Calif.) — who voted against the bailout bill — that commemorates the New Deal. The vote was unanimous. Way to get the tough stuff done Congress!

Mike

Alan-

You claim to be a CPA yet blindly read blogs as facts? Let me guess you quote wikipedia as the end all truth? Come on, your approach to online media is behind the times.

Not that anyone cares, but I’m also anti-bail out. Bring on the faildozer.

// Mike

Alan Stanwyck

Mike,

I don’t read blogs as facts. But many people do. Read around the internet and you will see enormous amounts of opinion presented as “journalism”. This is how people get bad information and terrible facts. I am all for free speech, and a lot of what I stated was opinion, but I think I also presented some historical fact (or at least tried).

I could have quoted all sorts of sources, but I would have likely gotten flamed for those sources for being Right wing or Left wing or not being in line with whomever’s view was reading it. So I tried to stick with something relatively unbiased that had little opinion and more fact. Hence, I used wikipedia because it is simple, brief, and to the point.

Jeff

Alan Stanwick: just another right-wing ideologue. Yawn.

Larkin

Alan Stanwyck, CPA: no such person exists.

I do so loathe people who post anonymously.

Gene

Alan Stanwyck was the guy who tried to kill Fletch (chevy chase) in the movie Fletch. I think he was a CPA, and went to Provo, Utah a lot. His parents lived there, ‘member.

Gene

Classic stuff from our friend Alan Stanwyck, in the MOVIE FLETCH

Alan Stanwyck: If you reject the proposition, you keep the thousand – and your mouth shut.
Fletch: Does this proposition entail my dressing up as Little Bo Peep?
Alan Stanwyck: It’s nothing of a sexual nature, I assure you.
Fletch: Yeah, I assure you.
Alan Stanwyck: One thousand just to listen? I don’t see how you can pass that up, Mr…?
Fletch: Nugent. Ted Nugent.

His wife’s name was Gail, if you care.

Gene

Are you Barry or Byron Larkin, BTW?

Byron played basketball at Xavier, Barry, of course, shortstop for YOUR Cincinnati Reds……….. are you anonymous or gretophobic, or perhaps suffer from whogivesashitwhatpeoplecallthemselvesohwaitIdobcIambetterthaneveryone?

Well, what is it?

J.R. Locke

I do despise anonymity too. It is kind of like being a ceo, there is no accountability. Hardy har har.

Jeff

I don’t pretend to know anything about high finance, so don’t post much on this finanical crisis. However, one thing the news is reporting on is the credit issue, wich is seperate from stock prices. The problem with this is the difficulty of businesses to obtain credit to finance their operations, and for consumers, tougher to get loans for things like cars, etc.

This isn’t as dramatic as headlines about crashing stock prices, and will take a while to play out, but what it does mean is that that economic activity will be reduced as there is no money to finance things in the “real economy”.

Greg Hunter

Hey Alan, Sorry I was gone yesterday and I wanted to give some credit with the comment that gas should be triple the current price and I wanted to know what economic forces are in play that keep the price so low?

Now to call out your hypocrisy as blogs have far less influence than the coke induced rantings of an obvious idiot.

People read hear this crap and think its fact.

“Free market capitalism is the best path to prosperity”

In the 'burg

Yeah, Kudlow is a coked-up idiot.

But can we trust ANY of them to know what they’re talking about? Ever?

Barney Frank, who seems to be doing a lot of sweating and hand-wringing to get a bailout bill passed now, actually voted AGAINST a Bush plan to regulate Fannie Mae and Freddie Mac 5 years ago. He thought the problems were overrated and that they would correct themselves—and any attempt at regulation would just exacerbate them.

The writing’s been on the wall for a long time, folks.
Johhny can’t pay his mortgage because Johnny can’t/won’t read, and Dancing With the Stars is so much better than
C-SPAN.

Larkin

Gene, I do believe I posted a link to a profile just for you a while back. Anyone who cared could find it.