Maybe it's time to just call it "Occupy" -- and trademark it

I'm not kidding. Because Occupy Wall Street/Portland/Boston/everywhere even the bizarroland that is Naples, Florida is now branching off into other ways of taking back our country from banks and their Congressional shills, perhaps it's time to just trademark the name "Occupy" and start thinking about the many ways the movement is going to work.

One of the most heartening is Occupy Our Homes, which is not only helping people hold onto the homes they have, but also to put homeless families into the boarded-up, decaying properties that are already bank-owned, sitting and rotting both in reality and on bank balance sheets, benefitting no one.

Yesterday on Up With Chris Hayes, Esther Amrah made the point that this country is not suffering from an absence of wealth, it's suffering from the waste of resources -- homes sitting empty, peple sitting idle without work. The panel discussed the meaning and work of Occupy Our Homes:



So I got to thinking.

A few weeks ago, my department at work participated in a project for Habitat for Humanity's "Brush with Kindness" program, helping to rehab a home that had been flooded by Hurricane Irene. We sent teams every day for a week, where we hung sheetrock, spackled, and laid floor tile. Habitat primarily builds new homes for lower and middle-income working families who work in the community but cannot afford market-rate housing. Habitat families put at least 400 hours of sweat equity into their build, and then buy the home using a no-interest mortgage provided by Habitat. These homes remain Habitat homes upon sale; families cannot flip the house at market rate. It's not a "free house" and it's not Section 8. Habitat has been terrifically successful at what it does, and whether it's out of a desire to do community service, or simply to learn how to do something you can use in your own home, volunteering for Habitat can be a really rewarding experience.

What the panel discussed yesterday isn't the Habitat model. Right now it's more like squatting, and it remains to be seen just how long the family portrayed in the video will be allowed to stay. Something tells me that after this property is rehabbed using the sweat of volunteers, Bank of America will try to turn around and sell it right out from under them. So perhaps it's time for Occupy Our Homes to get into the real estate business.

Here's how it would work (and this assumes that Bank of America and other companies holding foreclosed properties would be able to recognize the potential for rehabilitating their reputations and go along with it): Occupy would purchase empty foreclosed homes for pennies on the dollar. Bank of America (or whatever bank) would get a tax break for the difference between the amount owed on the foreclosed mortgage and the token dollar amount for which they sell the house to Occupy. Then Occupy starts working the way Habitat does, rehabbing these houses and either selling them or renting them to homeless families or low-income working people. How the details would work remains to be seen, and Occupy would at some point have to become far more organized and perhaps hierarchical than it is today -- and with far more funding. But I have to believe that getting these properties off the banks' books, reducing or eliminating the amount of rotting housing stock, and the work skills gained by those rehabbing these houses, just might go along way towards ameliorating a number of problems in this country.

Yes, there would be resistance. I ran into it at work while working on the team coordinating our participation in Habitat. "No one gave ME a house!" "I have to pay MY mortgage, if they couldn't do theirs, the hell with them." It's the "I got mine and fuck you" mentality that is keeping the 99% squabbling amongst each other while the 1% takes an ever-increasing piece of the pie.

On my street there's a foreclosed house. It's a cute little thing; a cape with two shed dormers and an attached garage. The photographs accompanying the listing of the realtor the bank hired to sell the property make it look to be in not bad shape for a foreclosed property. Some new carpet or refinished floors, a good powerwashing of the siding, and it would be as good as new. There's just one problem and her name is Irene. She came slamming through here in the fall, and I'm told this cute little property now has water in the basement that no one is addressing because the bank doesn't give a shit. So this once-cute house is now a moldy mess-in-progress. And this is on a nice little street in suburbia. Repeat all over the country. Now what good are these houses doing the banks, other than helping fulfill the conservative dream of a nation of a few billionaires, a government doing their bidding, and the rest of us killing each other for scraps?

Perhaps the banks won't go along with it. Perhaps they'd rather bring down entire neighborhoods with their criminality and their neglect. But if an organization could go in there with a real solution to the problem of toxic assets and and equally real problem of homelessness, at least if the banks refused they'd have nowhere to hide from what they really are.

The illusion of wealth

I remember when I was a kid, thinking that having a patio -- yes, an ordinary concrete patio -- was a sign of the next income level up from my family. A pool was a sign of two incomes up, as was two full bathrooms instead of a bath and a half. On the rare occasions in high school that I was invited to parties in some of the old Georgian and colonial houses in town, wher people had china and glassware handed down through generations, THAT was wealth. Anything above that I couldn't even fathom. We lived in a $25,000 house and I remember my parents saying at various times that it would be nice to have a $30,000 house. Because in those days, home appreciation was slow and a few thousand dollars meant a difference in the kind and size of house you have, as well as the furnishings and accoutrements.

In the years since we've lived in our neighborhood, there's been a rash of bash 'n' builds, in which the postwar cape cods and ranches that populate the neighborhood have been torn down and monster houses have sprung up in their place. First it was that fake stucco that has since been proven to harbor mold, and then soaring manses with faux-stone fronts and vinyl siding on three sides and teeny-tiny stock windows. Inside, these houses boasted gourmet kitchens with granite countertops in which nobody cooked and crown moldings and the kids who would live in them would never, ever have to share a bathroom. They had "bridal staircases" down to soaring front foyers that were impossible to heat but were absolutely essential for that one day in your daughter's life when she'd come down the stairs in her bridal gown. And there was never a sense that a more luxurious house was not in the cards for those of modest income, that such things were for the future. Perhaps it's because people knew in their hearts even then that there WAS no future in which they could envision climbing to that point. But as Paul Krugman points out today, for nearly a decade, working- and middle-class people thought they were among the wealthy:

Last week the Federal Reserve released the results of the latest Survey of Consumer Finances, a triennial report on the assets and liabilities of American households. The bottom line is that there has been basically no wealth creation at all since the turn of the millennium: the net worth of the average American household, adjusted for inflation, is lower now than it was in 2001.

At one level this should come as no surprise. For most of the last decade America was a nation of borrowers and spenders, not savers. The personal savings rate dropped from 9 percent in the 1980s to 5 percent in the 1990s, to just 0.6 percent from 2005 to 2007, and household debt grew much faster than personal income. Why should we have expected our net worth to go up?

Yet until very recently Americans believed they were getting richer, because they received statements saying that their houses and stock portfolios were appreciating in value faster than their debts were increasing. And if the belief of many Americans that they could count on capital gains forever sounds naïve, it’s worth remembering just how many influential voices — notably in right-leaning publications like The Wall Street Journal, Forbes and National Review — promoted that belief, and ridiculed those who worried about low savings and high levels of debt.

Then reality struck, and it turned out that the worriers had been right all along. The surge in asset values had been an illusion — but the surge in debt had been all too real.

So now we’re in trouble — deeper trouble, I think, than most people realize even now. And I’m not just talking about the dwindling band of forecasters who still insist that the economy will snap back any day now.

For this is a broad-based mess. Everyone talks about the problems of the banks, which are indeed in even worse shape than the rest of the system. But the banks aren’t the only players with too much debt and too few assets; the same description applies to the private sector as a whole.

Hey, they had crown moldings and chandeliers in the foyers and a Sub-Zero range, of course they were wealthy. And they voted in accordance with how ongepotchket their houses were.

There are two signs of the times in my neighborhood. One of them is a brick-front, vinyl-on-three-sides McMansion a few blocks away. It's new, or it was when it was put on the market over a year ago at nearly a million and a half dollars. Over a year later, it's dropped to $1,249,000 -- and it's still sitting. Here's the kicker: it's not finished, or at least if it is, the photos the realtor originally took haven't been updated. The description of the house boasts of custom landscaping and a gorgeous kitchen and luxurious bath, but the house is on a scrubby, weed-choked lot and doesn't even have a driveway, there are no photos of this kitchen, and the photos of the bath show a "garden tub" with cement board surround -- no tile. And the rest of the photos show rooms without so much as a coat of white primer -- just sheetrock and tape and spackle. They do, however, show an elaborate fireplace mantel, crown molding and Roman columns.

A few blocks in the other direction is a cape. This is the kind of house that a year ago would have been torn down and replaced with a McMansion or had the roof torn off and an add-a-level put on, then perhaps faced with fake stucco and a big half-moon window with the owner's last initial carved into it. It's been sitting in disrepair for a year, but two weeks ago construction finally started. They're putting a dormer on the back to add a bath and make the two upstairs bedrooms larger, and putting two shed dormers in the front. It's still a cape, and it's charming. Four doors down from this house is a McMansion for sale that's about six years old. It's got stone AND stucco, and two turrets. They're asking $1.8 million for it. It's not moving.

Monday Big Blue Smurf Blogging: What they said

Today's honoree: Mike Morgan of Mike Morgan Behind Enemy Lines, for his comments on how child predator stings were the shark attacks of the real estate bubble:

Just think about it . . . MSNBC Dateline ran child molester stings until we cried Uncle. What would have happened if they did the same about the financial crisis. If they had done that, they would have all lost their jobs, because Paulson’s fraternity of Goldman Sachs brothers would have eviscerated the advertising of the media through strong-arm tactics on their clients. Why was it OK to run To Catch A Predator until we puked? Because the sexual predators were not buying air time.

It isn't just subprime anymore

If you're going to have a decimated job base, people are not going to be able to pay their mortgages, even those with good credit who may have received no-documentation loans:

Homeowners with good credit are falling behind on their payments in growing numbers, even as the problems with mortgages made to people with weak, or subprime, credit are showing their first, tentative signs of leveling off after two years of spiraling defaults.

The percentage of mortgages in arrears in the category of loans one rung above subprime, so-called alternative-A mortgages, quadrupled to 12 percent in April from a year earlier. Delinquencies among prime loans, which account for most of the $12 trillion market, doubled to 2.7 percent in that time.

The mortgage troubles have been exacerbated by an economy that is still struggling. Reports last week showed another drop in home prices, slower-than-expected economic growth and a huge loss at General Motors. On Friday, the Labor Department reported that the unemployment rate in July climbed to a four-year high.

[snip]

Delinquencies in prime and alt-A loans are particularly challenging for banks because they hold more such loans on their books than they do subprime mortgages. Downey Financial, which owns a savings bank that operates in California and Arizona, recently reported that 11.2 percent of its loans were delinquent at the end of June, a big increase from the 6.1 percent that were past due at the end of last year.

The bank’s troubles stem from its $6.2 billion portfolio of so-called option adjustable-rate mortgages, which allow borrowers to pay less than the interest owed on their mortgage in the early years. The unpaid interest is added to the principal due on the loan, so over time borrowers can owe more than the initial loan amount. Eventually, when loans grow by 10 percent or 15 percent, the borrowers are required to start paying both the interest and principal due.

Many borrowers who got these loans during the boom had good credit scores, but many of them owe more than their homes are worth. Analysts believe that many will not be able to or want to make higher payments.

There's been a steady stream of bank failures this year. IndyMac was the most flashy, but banks have been failing very quietly at a fairly steady pace. Even in areas that weren't bubbly, home values have dropped. Houses like mine in my neighborhood are sitting for months at prices that are over $60,000 less than the price at which mine is assessed for tax purposes.

It's easy to say we have little sympathy for flippers, or even for ignorant people who bought more house than they could possibly ever afford because they deluded themselves that the loan officer wouldn't loan them money they couldn't pay back. But when this second wave hits, it's going to affect everyone -- no matter how diligent WE may be about paying the mortgage on time.

File this away under "Why Am I Not Surprised"?

So much for the Foreclosure Prevention Act being about helping homeowners in danger of losing their homes:

In the Senate bill, the nation’s biggest home builders, some now on the verge of bankruptcy, won a provision that would let them claim millions in tax refunds by charging their current losses against the huge profits they made three or four years ago. Other struggling industries would benefit from this provision.

“This is our biggest legislative effort since the Tax Reform Act of 1986,” said Jerry M. Howard, chief executive of the National Association of Home Builders. Hundreds of the association’s members flooded the district offices of representatives and senators while they were home for the spring recess last month.

Supporters of the bill, including Senator Max Baucus, Democrat of Montana and the chairman of the Senate Finance Committee, say it represents sound tax policy carefully focused to help stimulate the lagging economy. But the White House opposes the Senate bill, and Democratic leaders in the House not only have promised to provide more relief for individual homeowners, but have also dropped the corporate tax provisions from their version.

Downtrodden automakers — Ford and General Motors — were especially dogged in securing a tax break that would let them collect alternative minimum tax credits, also known as the A.M.T., that would otherwise be out of reach because they did not pay enough taxes in recent years to claim a rebate.

If the provision becomes law, it could mean checks up to $40 million for the car manufacturers, as long as the companies had made investments in plant or equipment in that amount.

A Ford spokesman, Mike Moran, said he was aware that Ford would benefit from the tax credit in the bill passed by the Senate. But Mr. Moran said that the credit applied to a range of industries, not just automakers. A General Motors spokesman could not be reached.

Domestic airlines and manufacturers other than automakers would be eligible to claim the A.M.T. break as well. One lobbyist said that the companies that had sought the tax breaks in meetings with lawmakers included Ford, General Motors, American Airlines, Northwest Airlines and Goodyear Tire and Rubber.

Companies could claim only one of the new tax breaks, which in all, are expected to cost $6 billion through 2018. The jockeying among industry groups, including Realtors, home builders and bankers, is certain to intensify in coming weeks as lawmakers move to reconcile the Senate bill with a more ambitious package of housing legislation now under way in the House.

Lawmakers on the tax-writing House Ways and Means Committee have omitted the corporate tax cuts from their version of the bill in favor of tax breaks for first-time home buyers and developers of low-income rental housing, and more aid for owners facing foreclosure.

Congressional Democrats are also hearing from consumer advocates and other groups who say that the Senate bill does little to help Americans in danger of losing their homes to foreclosure.

“The Senate legislation gave corporations and Wall Street billions in tax breaks,” Terence M. O’Sullivan, the president of the Laborers International Union of North America, said at a news conference on Tuesday to denounce the bill.

“Tax breaks for corporate home builders won’t help stabilize the housing market, won’t create jobs and won’t prevent a single foreclosure,” he continued. “If anything, this multibillion-dollar windfall will make things worse.”

This is why, when those envelopes from the DNC, DSCC, and DCCC come in the mail, I throw them away, and why I will only support certain specific individual candidates, most of whom are "insurgent" candidates who seek to throw these bums out. It's because I am tired of supporting a party apparatus that claims to be the "about the people" party and then does its corporate masters' bidding when legislation time rolls around. Piss, leg, raining, etc.

Frankly, I'm not in favor of bailing out people who were too stupid or too careless to understand what they were signing when they agreed to borrow hundreds of thousands of dollars, let alone the flippers and speculators. [curmudgeon on] I didn't have a house until I was 40 because we just plain couldn't afford the down payment. And I made damn sure to crunch the numbers, make sure we could make the payments, and understand exactly what we were signing when we finally bought the house we live in now. [curmudgeon off] There's a legitimate fear that if millions of people are foreclosed out of their homes, the ripple effect, not just to home values (which really DO need to come down; there is no reason why a POS cape cod like mine should sell for almost a half-million dollars), but to entire neighborhoods in danger of becoming a haven for squatters and plunderers, will cause the economy to collapse, at least as much as allowing Bear Stearns to fail would have.

There's no legitimate way to help the person who bought an $800,000 home on a $60,000 income. That person is going to have to learn a very hard lesson. But there has to be a way to craft legislation to truly help those who were baited-and-switched by mortgage lenders who showed up at closing with a different mortgage than the one agreed to, and those who are being foreclosed because they lost their job or are faced with impossible medical bills. The Senate should take the time to craft legislation to do that, not to use American homeowners as cover to shovel yet more taxpayer cash into the pockets of their campaign contributors.

America as Beavis

Remember the episode of Beavis and Butthead in which the two dimwits are working in a fast food restaurant? Beavis sticks his hand into the fryer, yells "Ow!" as he pulls it out -- and sticks it back in again?

We Americans are like Beavis, in that we have short memories. The American optimism is often born of nothing but, well, American optimism. And so, just a few years after the dot-com boom and crash, we started it all again, this time with residential real estate.

I've never understood how anyone could think it would go on forever. In 2005, I would look around my living room, with the ugly but amazingly still intact (it's wool) red carpet that the previous owners of the house decided was attractive, and I'd look at my kitchen, with its hideous yellow geometric vinyl floor, and my 1970's basement family room with the dark paneling and rust-color carpet, and think "Who the hell would pay $489,000 for this?" But in 2005, if we had wanted to sell, that's the price at which we would have been able to list. I'm sorry, but any rational mind would realize that nearly a half-million dollars for a "POS cape" in a not-top-tier town was just insane.

And yet the rational mind seemed all too often to just fly out the window, as people tapped home equity for expensive vacations and more SUVs than there were drivers in the house, and that's on top of the additional 2000 square foot add-a-levels and the gourmet kitchens with Aga cookers that no one ever used, except to dish out the greasy Chinese takeout from the strip mall.

And just like the 1920's, and the 1980's, and the late 1990's, no one ever thought it would end. But it has. Because we never learn:

The recent financial turmoil has many causes, but they are tied to a basic fear that some of the economic successes of the last generation may yet turn out to be a mirage. That helps explain why problems in the American subprime mortgage market could have spread so quickly through the world’s financial system. On Tuesday, Mr. Bernanke, who is now the Fed chairman, presided over the steepest one-day interest rate cut in the central bank’s history.

The great moderation now seems to have depended — in part — on a huge speculative bubble, first in stocks and then real estate, that hid the economy’s rough edges. Everyone from first-time home buyers to Wall Street chief executives made bets they did not fully understand, and then spent money as if those bets couldn’t go bad. For the past 16 years, American consumers have increased their overall spending every single quarter, which is almost twice as long as any previous streak.

Now, some worry, comes the payback. Martin Feldstein, the éminence grise of Republican economists, says he is concerned that the economy “could slip into a recession and that the recession could be a long, deep, severe one.” In Monday’s Democratic presidential debate, Barack Obama made the same argument: “We could be sliding into an extraordinary recession,” he said.

This time, the firms are facing real losses, which will almost certainly curtail lending, and economic growth, this year.

The second problem is that real estate and stocks remain fairly expensive. This shows just how big the bubbles were: despite the recent declines, stock prices and home values have still not returned to historical norms.

David Rosenberg, a Merrill Lynch economist, says that the stock market is overvalued by 10 percent relative to corporate earnings and interest rates. And remember that stocks usually fall more than they should during a bear market, much as they rise more than they should during a bull market.

The situation with house prices looks worse. Until 2000, the relationship between house prices and rents remained fairly steady. The same could be said about house prices relative to household incomes and mortgage rates. But the boom of the last decade changed this entirely.

For prices to return to the old norm, they would still need to fall 30 percent across much of Florida, California and the Southwest and about 20 percent in the Northeast. This could happen quickly, or prices could remain stagnant for years while incomes and rents caught up.

For those of us who didn't answer the siren song of home equity loans, we should be all right provided we can hang onto our jobs. But there are any number of people who are going to be foreclosed right out of those gourmet kitchens because their Wall Street jobs have been eliminated and they tapped so much equity that they now owe more than their homes are worth; and that's on top of those who would never have qualified for a mortgage under normal circumstances, but succumbed to sharp-talking lenders who convinced them they could have a piece of the action.

I remember in the 1980's, during the last real estate speculative bubble, when friends were all grabbing houses at inflated prices and telling me it was a great time to buy -- even though the money for a down payment wasn't there. I longed to have a house, but just couldn't afford it. And then I saw friends sell at a loss one step ahead of foreclosure. I'm in possession of one friend's grandmother's stemware, bought at their scrape-together-the-cash-for-the-closing garage sale after she sold at a loss, because I felt at least someone she knows should have it. So it's hard to feel a whole lot of schadenfreude for those who succumbed (extent to the extent that they look down on my ugly kitchen, of course). Because ultimately, those poor decisions are going to affect all of us. Because sometimes good old American optimism allows us to get things done or come together during a crisis. And sometimes American optimism is just delusion.

George W. Hoover

Seattle's Hooverville, 1937

Tent city in suburbs is cost of U.S. home crisis

Between railroad tracks and beneath the roar of departing planes sits "tent city," a terminus for homeless people. It is not, as might be expected, in a blighted city center, but in the once-booming suburbia of Southern California.

The noisy, dusty camp sprang up in July with 20 residents and now numbers 200 people, including several children, growing as this region east of Los Angeles has been hit by the U.S. housing crisis.

The unraveling of the region known as the Inland Empire reads like a 21st century version of "The Grapes of Wrath," John Steinbeck's novel about families driven from their lands by the Great Depression.

As more families throw in the towel and head to foreclosure here and across the nation, the social costs of collapse are adding up in the form of higher rates of homelessness, crime and even disease.

While no current residents claim to be victims of foreclosure, all agree that tent city is a symptom of the wider economic downturn. And it's just a matter of time before foreclosed families end up at tent city, local housing experts say.

"They don't hit the streets immediately," said activist Jane Mercer. Most families can find transitional housing in a motel or with friends before turning to charity or the streets. "They only hit tent city when they really bottom out."

Steve, 50, who declined to give his last name, moved to tent city four months ago. He gets social security payments, but cannot work and said rents are too high.
"House prices are going down, but the rentals are sky-high," said Steve. "If it wasn't for here, I wouldn't have a place to go."

'SQUATTING IN VACANT HOUSES'

Nationally, foreclosures are at an all-time high. Filings are up nearly 100 percent from a year ago, according to the data firm RealtyTrac. Officials say that as many as half a million people could lose their homes as adjustable mortgage rates rise over the next two years.

California ranks second in the nation for foreclosure filings -- one per 88 households last quarter. Within California, San Bernardino county in the Inland Empire is worse -- one filing for every 43 households, according to RealtyTrac.
Maryanne Hernandez bought her dream house in San Bernardino in 2003 and now risks losing it after falling four months behind on mortgage payments.

"It's not just us. It's all over," said Hernandez, who lives in a neighborhood where most families are struggling to meet payments and many have lost their homes.
She has noticed an increase in crime since the foreclosures started. Her house was robbed, her kids' bikes were stolen and she worries about what type of message empty houses send.

The pattern is cropping up in communities across the country, like Cleveland, Ohio, where Mark Wiseman, director of the Cuyahoga County Foreclosure Prevention Program, said there are entire blocks of homes in Cleveland where 60 or 70 percent of houses are boarded up.

The housing bust is part of it, but so is the spiralling cost of health care, a dwindling job base as more companies outsource jobs taht pay a living wage, and the crushing debt that this president will be leaving us.

I only hope George W. Bush lives long enough (hopefully in whatever prison into which convicted war criminals convicted are sentenced) to see himself beat out Herbert Hoover in the Worst President Ever stakes.

This ought to be the final nail in the coffin of laissez-faire capitalism -- but it won't

Republicans and other economic free marketers have always adhered to what I call the Fernando Corollary. Fernando was the unctuous pseudo-Latino lounge lizard talk show host played by Billy Crystal on SNL, who always told people "You look mmmmmahvelous" and said that it was better to look good than to feel good. The Republican Fernandos have long understood that for Americans, it is just as good to look rich or to feel rich as to be rich, and that's why they have been able to make political hay out of token gestures like $300 advances on next year's tax refunds and handing middle- and working-class Americans the financial gun with which to shoot themselves.

I wanted a house for a long tiime before we bought one. I wanted a house the way most women want babies. There were a number of reasons for this, few of them financial. I wanted to be able to paint whatever colors I wanted. I wanted us to be able to crank up the stereo without disturbing anyone. But most of all, I wanted to be assumed to be an adult, and not have to beg a landlord, "Please, please, PLEEZ, Mr. Landlord? Can I PLEEZ have a kitty? I promise I'll take care of it" -- in my thirties.

We started looking for a house in 1995, looking at a particular price range. When houses in that price range turned out to need mid-five-figures of work, we decided to wait another year and save some more money so we could go up to the next price point. At that point, when we went to pre-qualify and be pre-approved for a mortgage, we were told by the mortgage company, "You know, you CAN go higher. We can qualify you for X dollars" -- which was $60,000 more than the amount we had figured out we could afford.

We had about as good a rental deal as it's possible to get at that time. Our apartment wasn't very big, but it had an open floor plan with a kitchen that had moe countertop/workspace than I have now. It was on the first floor and we had use of the yard. It was in great condition, the landlord always called in people to fix things that broke, and in eight years he never raised the rent. But he had a heart condition and was fading noticeably at the time we moved out, and had we not bought when we did, we'd be having to move in another year anyway. It also happened to be close to the bottom of the market.

Still, you don't go from paying $650/month for rent to buying a house without figuring out exactly how you're going to do it, especially when you have a reluctant spouse, as I did. There weren't the kind of online financial calculators then that we have now, but I knew my way around an HP-12C calculator, and I was able to figure out exactly how much the mortgage would be and what the "net" after the tax deduction for mortgage interest and property taxes would be. So we knew exactly what our price range was and we were not going to go one penny over that. And when we finally bought, it wasn't a house with a spanking new kitchen and new bathrooms, but what is known as a "POS Cape" where nothing had been updated since 1975, the bathrooms were both original, the basement family room was from the 1970's, and the carpet in the living room was red. But it was on a dead end street, it had "good bones" and plaster walls" and Mr. Brilliant, who is 6' tall, didn't have to duck anywhere.

We were lucky because however inadvertently, we timed the market right. In the late 1980's, we were told by friends to buy, buy, buy -- that real estate only goes up. One friend bought a house at the 1980's peak and ended up selling at a loss one step ahead of being foreclosed. It was nearly two decades before she was able to buy again. I never forget this, largely because when I look in the cabinet where I keep "the good dishes", I see the remains of her boyfriend's grandmother's stemware that I bought at their garage sale so that if he ever wanted it back, he'd know where it was.

Eleven years after buying, the kitchen is still a work in progress, the basement still has the same cheap paneling the previous owners put up in the 1970's, and the downstairs bathroom is still original. We've put on new sidiing and a new roof and new windows after saving enough to pay for them, because we are practical and cautious and not about to put ourselves in a precarious financial positiion by taking equity loans.

I recognize that the housing bubble made the $200,000 house a thing of the past in northern New Jersey (even if only temporarily), but the concept remains: If you can't afford it, you can't afford it. Period. And you wait till you can.

The problem is that Americans have come to believe that they deserve what they want when they want it. I blame Ronald Reagan for most of this, with his bogus supply-side economic doctrine which said that you can cut taxes, increase spending, and still balance the budget. You can have anything you want, and it's all free. Americans bought the bullshit because it takes the notion of deferred gratification and throws it out the window. Reagan's legacy can be seen in some of the houses in my neighborhood: former POS Capes that have been remodeled into McMansions with soaring entry foyers, bridal staircases, and cavernous kitchens with Jenn-Air appliances and granite countertops in which no one cooks. You may have leveraged yourself to the hilt, but dammit, your daughter will be able to come down a nice staircase when she goes to the prom -- assuming you keep your job and can keep paying the mortgage after the rate adjusts.

It's rare that I don't agree 100% with Paul Krugman, but in his op-ed today, he paints those who took out mortgages they couldn't afford as hapless and helpless dupes of a predatory mortgage industry:

Apologists for the mortgage industry claim, as Mr. Greenspan does in his new book, that “the benefits of broadened home ownership” justified the risks of unregulated lending.

But homeownership didn’t broaden. The great bulk of dubious subprime lending took place from 2004 to 2006 — yet homeownership rates are already back down to mid-2003 levels. With millions more foreclosures likely, it’s a good bet that homeownership will be lower at the Bush administration’s end than it was at the start.

Meanwhile, during the bubble years, the mortgage industry lured millions of people into borrowing more than they could afford, and simultaneously duped investors into investing vast sums in risky assets wrongly labeled AAA. Reasonable estimates suggest that more than 10 million American families will end up owing more than their homes are worth, and investors will suffer $400 billion or more in losses.

So where were the regulators as one of the greatest financial disasters since the Great Depression unfolded? They were blinded by ideology.

“Fed shrugged as subprime crisis spread,” was the headline on a New York Times report on the failure of regulators to regulate. This may have been a discreet dig at Mr. Greenspan’s history as a disciple of Ayn Rand, the high priestess of unfettered capitalism known for her novel “Atlas Shrugged.”

In a 1963 essay for Ms. Rand’s newsletter, Mr. Greenspan dismissed as a “collectivist” myth the idea that businessmen, left to their own devices, “would attempt to sell unsafe food and drugs, fraudulent securities, and shoddy buildings.” On the contrary, he declared, “it is in the self-interest of every businessman to have a reputation for honest dealings and a quality product.”

It’s no wonder, then, that he brushed off warnings about deceptive lending practices, including those of Edward M. Gramlich, a member of the Federal Reserve board. In Mr. Greenspan’s world, predatory lending — like attempts to sell consumers poison toys and tainted seafood — just doesn’t happen.

But Mr. Greenspan wasn’t the only top official who put ideology above public protection. Consider the press conference held on June 3, 2003 — just about the time subprime lending was starting to go wild — to announce a new initiative aimed at reducing the regulatory burden on banks. Representatives of four of the five government agencies responsible for financial supervision used tree shears to attack a stack of paper representing bank regulations. The fifth representative, James Gilleran of the Office of Thrift Supervision, wielded a chainsaw.

Also in attendance were representatives of financial industry trade associations, which had been lobbying for deregulation. As far as I can tell from press reports, there were no representatives of consumer interests on the scene.

Two months after that event the Office of the Comptroller of the Currency, one of the tree-shears-wielding agencies, moved to exempt national banks from state regulations that protect consumers against predatory lending. If, say, New York State wanted to protect its own residents — well, sorry, that wasn’t allowed.

Of course, now that it has all gone bad, people with ties to the financial industry are rethinking their belief in the perfection of free markets. Mr. Greenspan has come out in favor of, yes, a government bailout. “Cash is available,” he says — meaning taxpayer money — “and we should use that in larger amounts, as is necessary, to solve the problems of the stress of this.”

I'm all for practices that make it easier to buy a home, for those who otherwise have the means to pay a mortgage. We were the beneficiaries of modifications to the old 20% down/30 year fixed doctrine that allowed us to put down 10% and pay PMI until the house's value rose enough to increase our equity to 20%. That kind of modification is reasonable. But it's hard for me to imagine sitting in a mortgage broker's office while he presents you with proposals for a $400,000 first mortgage and another $100,000 second mortgage to cover a down payment and a new gourmet kitchen when you make $60,000 a year, and not walking away from the table saying "We just can't do it now." It's hard for me to understand looking at a house like mine, priced at close to a half-million dollars, and not thinking "This price can't possibly hold." A 30-year fixed rate mortgage builds equity slowly enough; I can't imagine making payments on a mortgage that builds no equity at all. You don't have to know your way around an HP-12C to ask "What happens after the rate adjusts?"

Making it easier for qualified buyers to purchase a home is an unmitigated good. Singing Ronald Reagan's old song of having whatever you want and it's all free is another story. Industry has proven time and time again that nothing trumps profits. Health insurers are willing to let people die rather than pay for treatment. Auto manufacturers that make bad decisions about the vehicles they choose to manufacture will lay off tens of thousands of employees -- and then give the CEO a seven-figure bonus. Manufacturers of pool filters will allow a child to have her intestines sucked out by their product rather than fix a defect. Regulation is necessary, and we are now seeing the result of deregulating the mortgage industry. Telling a home buyer that the rate will adjust to 8% and then raising it to 12% is fraud and should be treated as such. Not making perfectly clear that the adjusted rate may very well be higher than it is today because rates fluctuate is a bait-and-switch.

Krugman is right that this should be a campaign issue, and he's right that consumers deserve protection from predatory lending practices. But home buyers have an obligation to their own lives and their own futures to educate themselves before signing on the dotted line. Even if home prices drop to what they were in 1996, a six-figure mortgage is one hell of a lot of debt into which to enter without knowing damn well what you're doing.

Why not just use the "D" word?

We've all been through recessions before. In my adult life, I've been through the oil embargo-fueled recession of 1973-75, the 1980 recession, the 16-month recession from July 1981 - November 1982 (during the sainted Reagan years), the 1990-1991 recession (during the King George I years), and the 2001 post-dot-com bust recession. Each one has meant some scary times, some scarier than others (like getting up at 4 AM to be on the line at the gas station by 5 to ensure being able to fill up the tank before the station runs out); and I hardly felt others. I suspect that many people's experiences are similar. If you can keep your income stream during a recession, it's historically been enough to largely insulate one from the recession's worst effects.

But the likely recession resulting from the housing bust and credit fiasco feels different; different to the point that I'm wondering why Paul Krugman doesn't just use the "D" (depression) word -- because that's what it's going to take before people wake up:

How bad is it? Well, I’ve never seen financial insiders this spooked — not even during the Asian crisis of 1997-98, when economic dominoes seemed to be falling all around the world.

This time, market players seem truly horrified — because they’ve suddenly realized that they don’t understand the complex financial system they created.

Before I get to that, however, let’s talk about what’s happening right now.

Credit — lending between market players — is to the financial markets what motor oil is to car engines. The ability to raise cash on short notice, which is what people mean when they talk about “liquidity,” is an essential lubricant for the markets, and for the economy as a whole.

But liquidity has been drying up. Some credit markets have effectively closed up shop. Interest rates in other markets — like the London market, in which banks lend to each other — have risen even as interest rates on U.S. government debt, which is still considered safe, have plunged.

[snip]

“What we are witnessing,” says Bill Gross of the bond manager Pimco, “is essentially the breakdown of our modern-day banking system, a complex of leveraged lending so hard to understand that Federal Reserve Chairman Ben Bernanke required a face-to-face refresher course from hedge fund managers in mid-August.”

The freezing up of the financial markets will, if it goes on much longer, lead to a severe reduction in overall lending, causing business investment to go the way of home construction — and that will mean a recession, possibly a nasty one.

[snip]

But the innovations of recent years — the alphabet soup of C.D.O.’s and S.I.V.’s, R.M.B.S. and A.B.C.P. — were sold on false pretenses. They were promoted as ways to spread risk, making investment safer. What they did instead — aside from making their creators a lot of money, which they didn’t have to repay when it all went bust — was to spread confusion, luring investors into taking on more risk than they realized.

Why was this allowed to happen? At a deep level, I believe that the problem was ideological: policy makers, committed to the view that the market is always right, simply ignored the warning signs. We know, in particular, that Alan Greenspan brushed aside warnings from Edward Gramlich, who was a member of the Federal Reserve Board, about a potential subprime crisis.

And free-market orthodoxy dies hard. Just a few weeks ago Henry Paulson, the Treasury secretary, admitted to Fortune magazine that financial innovation got ahead of regulation — but added, “I don’t think we’d want it the other way around.” Is that your final answer, Mr. Secretary?

Now, Mr. Paulson’s new proposal to help borrowers renegotiate their mortgage payments and avoid foreclosure sounds in principle like a good idea (although we have yet to hear any details). Realistically, however, it won’t make more than a small dent in the subprime problem.

The bottom line is that policy makers left the financial industry free to innovate — and what it did was to innovate itself, and the rest of us, into a big, nasty mess.

Here in Bergen County, the housing bust hasn't hit all that hard, at least not at the lower end of the "better" towns. What's known in the vernacular as a 1950's "POS Cape" or ranch, if maintained, can still sell if priced aggressively enough. But because this is an area with a sizable influx of undocumented immigrants, largely driven by the proliferation of landscaping companies and contractors, we're seeing towns creating intrusive ordinances designed to have the effect of preventing foreclosed and dumped houses from turning into warehouses for undocumented workers. One local town has an ordinance that if you add a fourth bedroom onto your house, you must have a two-car garage. The assumption is that if you add that fourth bedroom, the number of cars you have must be indicative of a larger family. Another is putting through an ordinance allowing inspectors to enter any premise if there is a suspicion that a homeowner is renting part of the house to an unrelated person.

With many adjustable-rate mortgages resetting in 2008, the subprime fallout has barely begun. Proposed legislation to freeze "teaser" rates may help homeowners in the short term, but doesn't address the underlying problem. ARMs allow banks to lend at low rates with the mortgagee assuming the risk of rate hikes. If teaser rates are frozen, suddenly the lender is assuming the risk. Does anyone think that the banks will absorb this or bite the bullet and reduce profits? Hardly -- and I suspect that what we'll see is a hike in lending rates for those with good credit to subsidize those who bit off more than they could chew. The net result will be a drop in healthy lending and the whole thing comes to a standstill. Then those whose teaser rates are frozen will still find themselves sitting in a depreciating asset; one they still can't afford to sell no matter what the rate.

I'm not sure what the answer is, other than that we are all in for a complete world of shit in the next few years.

Financial Doomsday watch for Thursday, November 29

Ah, what's another 7% drop in home values among friends?

This one comes to us via Sam Seder:

An escalating mortgage crisis will push another 1.4 million U.S. homes into foreclosure and drive nationwide property values lower by 7 percent next year, according to a report released on Tuesday by a group representing city mayors.

The report, released by the U.S. Conference of Mayors, predicts states and cities will be left scrambling to make up for lost property tax revenue, particularly in markets such as California and Florida where home values had soared.

[snip]

"Not that long ago economists said housing was the backbone of our economy," Trenton, New Jersey Mayor Douglas Palmer said in a statement.

"Today the foreclosure crisis has the potential to break the back of our economy, as well as the backs of millions of American families, if we don't do something soon," said Palmer, a Democrat, who serves as president of the mayors group.

The Global Insight report forecast U.S. homeowners would see property values fall by $1.2 trillion in 2008, with almost half of those overall losses coming in California.

California property values are expected to drop by 16 percent in 2008, the report said, costing the most populous state almost $3 billion in property taxes.

The report said the weakening U.S. property market would have knocked some $676 billion from home values, but another $519 billion in losses could be tied directly to the financial problems facing borrowers unable to meet escalating monthly mortgage payments.

During the property boom of 2004 and 2005, thousands of borrowers with riskier, or subprime, credit took out adjustable rate mortgages that had very low "teaser" interest rates for the initial two years before resetting at much higher rates.

As those interest rates have started to reset, home foreclosure rates have jumped, especially in once-hot real estate markets like Nevada, California and Florida.

In Detroit, home to the depressed U.S. auto industry and the venue of Tuesday's conference, residential foreclosure rates have been running at almost five times the national average.

That has further depressed property values in an already poverty-torn city that has lost more than half its population in the past 30 years, leaving whole blocks abandoned.

As similar problems spread, the report forecast that the U.S. economy would grow by just 1.9 percent in 2008 with hiring and consumer spending both curtailed.

This is, quite simply, a bloodbath. And if you, like me, bought at the bottom of the market and refinanced your way into a below 5% fixed rate during the interest rate cut years, that's cold comfort. It isn't so much the evaporation of paper gains, for those gains are illusory until and unless you sell anyway. It's that when you have a tsunami of human misery the likes of which we're going to see as states and towns are starved of revenue and over a million people will lose not just their homes, but the only asset they have, it's going to be too horrible for even the mildest form of schadenfreude.

We are in for some very scary times indeed, folks.

Financial Doomsday Watch for Tuesday, November 28, 2007

Yesterday the Standard & Poor’s/Case-Shiller National Home Price Index came out and showed the biggest home price drop in twenty years during the third quarter of the year at 4.5%. Obviously this isn't consistent across the country; the bubbliest areas like California, Florida, and the Las Vegas areas, are going to be hit the hardest. But even the New York metropolitan area is down 3.4% -- not all that far behind.

It hasn't hit my town all that badly yet. Houses are still moving if they're priced right, though one aggressively-priced house in my neighborhood went under contract within two weeks of being listed only to have the "under contract" sign removed this week and now it's showing up at Realtor.com again. Obviously the buyer wasn't able to get a mortgage after all. The current owners moved out yesterday. Now the realtor has to sell it as an empty house. Another house, of the type known in places like the New Jersey Real Estate Blog as a "POS Cape", closed at $440K in mid-November -- not too shabby, but down around $20K from what it would have sold for last year.

I live in one of those neighborhoods in which everyone has been either remodeling, adding levels, or tearing their houses down and replacing them with big, ugly stucco boxes with teeny-tiny windows. Last year a developer bought a POS cape on a 100 x 100 lot (oversized for this neighborhood) for $420K that looked like it had been sold by an elderly person who had never done any updates. He tore off the roof, tore it down to the four walls, added out to the side, and slapped up an ugly, vinyl-sided box in record time. The inside, from what I hear, is nicely finished with mid-range finishes. The original listing price was just over a million dollars, and now it's under $900K after six months on the market -- and still not moving. Another spec house a few blocks away is being sold directly by a developer who hasn't even bothered to put in a driveway or landscaping. It's an attractive house, on a deep property, but no one's biting there, either.

At least some of the problem is that with the demise of the no-documentation and the bad-credit-no-problem mortgages, few people can qualify for jumbo mortgages of over $417,000 anymore. "Competition" from foreclosures hasn't really hit here yet either, though I suspect that will change. I wonder sometimes how some of the people who have been using their house as a piggybank not just for additions and new "gourmet" kitchens and home theaters, but also for new SUVs and vacations, will fare as the value of their homes drops. If we see a Wall Street bloodbath, as I suspect we will, northern New Jersey bedroom communities will feel the pain, adding further to the problems of a state that has been grossly mismanaged for over a decade.

Yesterday I posted about how 45,000 Citigroup employees are likely to lose their jobs because Charles "40 Million Severance Man" Prince steered the company onto an iceberg.

Today it's Wells Fargo:

Wells Fargo & Company, the nation’s second-largest mortgage lender, after Countrywide Financial, said yesterday that it would take a $1.4 billion fourth-quarter charge for losses it anticipated in connection with home loans.

The bank said that it would continue to provide home equity financing directly to customers, but that it would not originate or acquire home equity loans through indirect channels. Wells Fargo will also not originate home equity loans through third parties when the combined loan-to-value ratio of the first and second mortgages is over 90 percent or where the second mortgage is not behind a Wells Fargo loan.

The bank is putting $11.9 billion into a special liquidating portfolio. The bank’s filing with the Securities and Exchange Commission said that the figure is 3 percent of its total loans outstanding, but that it represents the riskiest element of the $83.4 billion in its National Home Equity Group portfolio. The loans are generally clustered in areas of the country that are having the greatest decline in retail prices.

R. Scott Siefers, an analyst who follows Wells Fargo for Sandler O’Neill, said: “It is unfortunate certainly because Wells Fargo has had an aura of invincibility. Over the last few years, it has not gotten involved in a lot of the issues that have caused so much pain for the group. It is one of the largest mortgage lenders in the country so this is going to be painful for everybody."

The scariest aspect to the ripples from the end of the housing bubble is that Americans are out there shopping, whipping out the plastic, and seem to be still largely oblivious. You don't have to understand exactly how mortgages are packaged into securities and traded like stocks to look at the numbers coming out of these financial firms and wonder when the whole thing is going to collapse. When you have a Republican presidential candidate alleged to have said MORE THAN ONCE that he would not appoint a Muslim to his cabinet (and whose defenders are doing so by questioning the veracity of the -- you guessed it -- Muslim interviewer in the first instance), and another who takes foreign policy advice from Norman ("Bomb Iran Now") Podhoretz and who is even more bellicose towards Islam than George W. Bush, the silence surrounding the purchase of a sizable chunk of one of the largest financial firms in the country by Abu Dhabi is baffling.

If the U.S. is a giant shopping mall, then it's a mall whose anchor store is at the edge of a very steep cliff. And after you leave that anchor store, with the doors back to the mall now locked, there's nowhere to go but over the precipice.

We have learned nothing.

Enron. Tyco. The dot-com crash. No matter how many times we go through this, the business community never learns, and the public is bamboozled every time.

Adam Smith wrote in The Wealth of Nations of the "invisible hand" -- that an individual pursuing his own self-interest tends to also promote the good of his community as a whole. He believed the ridiculous notion that each individual maximizing revenue for himself maximizes the total revenue of society as a whole. It's not even saying "What's good for General Motors is what's good for the country." It's saying "I have a shitload of money. So what are you complaining about?", or in the vernacular, "I got mine and fuck you."

George W. Bush used to brag about the high percentage of people who were now homeowners. Now many of those "homeowners" are finding themselves losing those homes through foreclosure; with a stain on their credit records that will damage their ability to gain a toehold in the economy for years to come.

The business community couldn't have handled it better if they had set out to cut these people off at the knees and kicked them out of the middle class.

Paul Krugman, today:

In a direct sense, the carnage on Wall Street is all about the great housing slump.

This slump was both predictable and predicted. “These days,” I wrote in August 2005, “Americans make a living selling each other houses, paid for with money borrowed from the Chinese. Somehow, that doesn’t seem like a sustainable lifestyle.” It wasn’t.

But even as the danger signs multiplied, Wall Street piled into bonds backed by dubious home mortgages. Most of the bad investments now shaking the financial world seem to have been made in the final frenzy of the housing bubble, or even after the bubble began to deflate.

In fact, according to Fortune, Merrill Lynch made its biggest purchases of bad debt in the first half of this year — after the subprime crisis had already become public knowledge.

Now the bill is coming due, and almost everyone — that is, almost everyone except the people responsible — is having to pay.

The losses suffered by shareholders in Merrill, Citigroup, Bear Stearns and so on are the least of it. Far more important in human terms are the hundreds of thousands if not millions of American families lured into mortgage deals they didn’t understand, who now face sharp increases in their payments — and, in many cases, the loss of their houses — as their interest rates reset.

And then there’s the collateral damage to the economy.

You still hear occasional claims that the subprime fiasco is no big deal. Even though the numbers keep getting bigger — some observers are now talking about $400 billion in losses — these losses are small compared with the total value of financial assets.

But bad housing investments are crippling financial institutions that play a crucial role in providing credit, by wiping out much of their capital. In a recent report, Goldman Sachs suggested that housing-related losses could force banks and other players to cut lending by as much as $2 trillion — enough to trigger a nasty recession, if it happens quickly.

Beyond that, there’s a pervasive loss of trust, which is like sand thrown in the gears of the financial system. The crisis of confidence is plainly visible in the market data: there’s an almost unprecedented spread between the very low interest rates investors are willing to accept on U.S. government debt — which is still considered safe — and the much higher interest rates at which banks are willing to lend to each other.

How did things go so wrong?

Part of the answer is that people who should have been alert to the dangers, and taken precautionary measures, instead blithely assured Americans that everything was fine, and even encouraged them to take out risky mortgages. Yes, Alan Greenspan, that means you.

But another part of the answer lies in what hasn’t happened to the men on that Fortune cover — namely, they haven’t been forced to give back any of the huge paychecks they received before the folly of their decisions became apparent.

Around 25 years ago, American business — and the American political system — bought into the idea that greed is good. Executives are lavishly rewarded if the companies they run seem successful: last year the chief executives of Merrill and Citigroup were paid $48 million and $25.6 million, respectively.

But if the success turns out to have been an illusion — well, they still get to keep the money. Heads they win, tails we lose.

Not only is this grossly unfair, it encourages bad risk-taking, and sometimes fraud. If an executive can create the appearance of success, even for a couple of years, he will walk away immensely wealthy. Meanwhile, the subsequent revelation that appearances were deceiving is someone else’s problem.

If all this sounds familiar, it should. The huge rewards executives receive if they can fake success are what led to the great corporate scandals of a few years back. There’s no indication that any laws were broken this time — but the public’s trust was nonetheless betrayed, once again.

It's interesting that Fortune only started caring about the carnage when it began hitting the banks. When the housing bubble was actually going on, and even when it started to collapse and middle-class Americans were being affected, the business community didn't care. But now that it's hitting the banks, and the people who make huge sums of money may not get their obscene bonuses this year, suddenly it's a problem. It's also interesting that the Fortune article doesn't even mention the compensation these guys receive for running these companies into the ground while middle-class Americans are ruined.

Waiting for the inevitable collapse

Lost in the unbelievable botch job the Administration has made of America's position in the world is the unbelievable botch job they have made of our economic condition.

1. Oil prices. So far gasoline hasn't topped $3/gallon in most places, despite the recent spike in oil prices. It makes one wonder what the trigger was when they DID top $3 last summer when the per-barrel price of crude was far lower. But there's only so long this will hold before prices at the pump hold up. Meanwhile, homeowners with oil heat (like Mr. Brilliant and I) are going to wear a lot of sweaters this weekend (except that our price is capped because we are on a payment plan):

Oil prices rose Thursday after dipping briefly below $96 a barrel, indicating traders were back in a buying mood after pocketing gains from crude's recent rally.

Oil prices had surged to a record above $98 a barrel in the previous session amid supply concerns, the weak U.S. dollar and OPEC's apparent reluctance to pump more crude into the market.

And oil prices affect EVERYTHING:

Converted into chemicals, the oil and gas become petrochemicals that are used to develop plastic, polyester, rubbers, detergent, and chemical fertilizers and other pesticides. But it's also used in fragrances and lipstick, in candles and telephones, in pharmaceuticals and insecticides.
Petroleum is used to make artificial limbs and soaps, but it's not used to produce dairy products. Cows are. But cows need to fatten up before they're milked and slaughtered, and they're mostly fed a diet heavy on corn. As more corn is directed to energy production, the price for corn has risen and dairy farmers have passed those costs up the food chain.
Those higher feed costs alone have infused an extra $47 a year per person into grocery bills, according to an Iowa State University study in May.
And don't forget: Farmers sow crops with tractors and use trucks to haul goods, all of which are fueled by diesel. Those higher transportation costs also get pushed up the food chain.
Consumers at the supermarket check-out counter see that they're paying sometimes record-high prices for milk, cheese and yogurt at the same time that the costs of Tide, Pampers, Ivory soap, M&Ms and Cheerios are creeping up.

2. Debt. The so-called "Fiscal Responsibility" party has been maxing out national credit cards as quickly as it can amass them:

The U.S. Treasury Department said on Wednesday publicly held U.S. debt breached $9 trillion this week for the first time ever, just five weeks after Congress had raised the statutory borrowing limit.

At the end of September, U.S. President George W. Bush signed a measure to increase the debt limit ceiling to $9.815 trillion from $8.965 trillion, allowing the government to keep issuing debt.

3. Housing. Are you part of the 67% that now "owns" a home? Do you live in any of these markets? Then I sure hope you haven't been using your house as a piggybank, because the value of your house is going to drop like a stone over the next few years. Now this isn't all the Administration's fault, except to the extent that Republican laissez-faire contributed to the development of mortgage products that allowed people who couldn't possibly afford it get into homes they couldn't afford -- products that were like those "no interest for 15 months" payment plans that appliance stores offer. But the Bushistas didn't care as long as it was just middle-class individuals in danger of losing their homes. When the financial markets started to feel the pain, suddenly the idea of letting millions of people lose their homes wasn't something that "the market should sort out" any longer.

The increase in the debt limit is the fifth since Bush took office in January 2001. The U.S. debt stood at about $5.6 trillion at the start of his presidency.

In approving the debt limit increase, Congressional lawmakers said the $850 billion increase should be large enough to allow the government to continue borrowing into 2009, well beyond next year's presidential and congressional elections.

If this bunch had set about to wreck everything as a matter of policy, they couldn't have done a better job. The only question is whether they've reduced so much of our prestige and our credibility and our economy to rubble that it can't possibly be rebuilt.

Gee, ya think?

This is about as close an admission as we're going to get that the so-called "strong economy" of the Bush years despite anemic at best job growth and stagnant wages was a function of homeowners using their bubble-inflated homes as a piggybank:

“Everybody was basically using their house as an A.T.M. machine,” said Dave Simonsen, a senior vice president for NAI Alliance, an industrial real estate firm in Reno. “Now they are upside down on their house without that piggy bank to go back to.”

From 2004 through 2006, Americans pulled about $840 billion a year out of residential real estate, via sales, home equity lines of credit and refinanced mortgages, according to data presented in an updated working paper by James Kennedy, an economist, and Alan Greenspan, the former Federal Reserve chairman. These so-called home equity withdrawals financed as much as $310 billion a year in personal consumption from 2004 to 2006, according to the data.

But in the first half of this year, equity withdrawals were down 15 percent nationally compared with the average for the last three years, and consumption supported by such funds plunged nearly one-fourth, according to the Kennedy and Greenspan data.

This summer, the size of withdrawals fell even more sharply to about one-third below the level of late last year, according to Mark Zandi, chief economist at Moody’s Economy.com.

“This slide in equity withdrawal is very recent,” Mr. Zandi said, “so you wouldn’t expect the drop in spending to occur until now, or Christmas.”

Only a year ago, money taken out of houses was still more than 9 percent of the nation’s disposable income, Mr. Zandi calculated, using a sampling of Equifax credit reports to supplement Fed data. By this fall, it had dropped to about 5 percent, a difference of about $350 billion a year.

Much of the attention in the recent collapse of the housing boom has focused on those in danger of losing their home or facing higher monthly payments in their adjustable mortgages. But the broader effect on the economy is likely to come from the much larger group of homeowners who can no longer count on rising home values to bolster their wealth.

You know what? I have no sympathy for people who find themselves tapped out because they decided to blow their home equity on home theatres and in-ground pools and Ford Excursions and vacations in Tahiti. You don't have to be a genius to know that tapping equity for ephemera is really goddamn stupid. It's one thing to take an equity loan to remodel the kitchen, though I would say that the way things look now, those who spent $70,000 to put a gourmet kitchen with custom cabinets, tumbled marble floors, commercial appliances, and quartz countertops in a 1950's cape cod aren't going to see a return on that investment. But at least that's putting the money back into the asset. Tapping home equity for things that wear out within a few years or are gone within a few weeks is just plain stupid.

But it's hard to believe that retailers are going to enjoy the kind of holiday seasons they've had in recent years.

Mr. Brilliant and I have no equity loans and no credit card debt. And when we go out to buy our HDTV this season, we'll probably get a really good price. And if we buy it on a "no interest for eighteen months" plan, we won't be paying interest either, because it'll be paid in less time than that.

Sometimes deferred gratification has its advantages.

As long as Maggie's obsession with the walls in the basement doesn't mean there's mice behind them. That would mean basement remodeling. And then I won't be able to be so damn smug.

Bailouts for McMansions, nothing for New Orleans homeowners

I realize that it's easy for me to sit here in a house we bought ten years ago and say that I have no sympathy for people who bought houses they can't afford and should have known they couldn't afford. But when we started house-shopping, we worked out what we could afford based on what we had to put down, current fixed 30-year interest rates, and our monthly income. When the houses we saw in that price range weren't what we wanted, we decided to wait a year and save some more money. A year later, when we once again had a price point in mind and went to be pre-approved, we heard mortgage brokers tell us that we qualified for $60,000 more than we were looking to borrow. Did we then jump at the chance to buy a more expensive house? On the contrary; we stood firm, ended up buying a house within our price range, and as a result we've been able to withstand some financial setbacks without losing the house.

I understand that 1996, when we bought, was the bottom of the market, but our first mortgage was at 8.5% and the fundamentals are the same: If you can't afford it, don't buy it. Even if option mortgages and interest-only mortgages had been available in 1996, we would still have gone for the 30-year fixed at 8.5%, our logic being that if fixed rates drop, we can always refinance. And so we did -- three times.

You didn't have to be a genius to see that what was going on in real estate was unsustainable. With decreasing wages and a diminishing professional job base, who the heck was going to be able to pay a half-million dollars for a Cape Cod? But people continued to buy houses with no money down, taking mortgages that built no equity, not even considering what would happen when someone finally cried "uncle!".

It's funny how the Administration has sat by while jobs were sent overseas and jobs here paid less and offered fewer benefits; while more and more Americans lost their health insurance and started taking loans from their doctors for medical care. But now that the housing market has collapsed and the financial markets are feeling the pain, suddenly a bailout is necessary:

President Bush, in his first response to families hit by the subprime mortgage crisis, plans to announce several steps Friday to help Americans who have credit problems meet the rising cost of their housing loans, administration officials said Thursday.

The officials said Mr. Bush would call for the Federal Housing Administration to change its federal mortgage insurance program in a way that would let an additional 80,000 homeowners with spotty credit records sign up, beyond the 160,000 likely to use it this year and next.

The administration is offering his plan, which will include what one official called jawboning of lenders to persuade them not to foreclose on some borrowers, at a time of growing attacks on Mr. Bush from Democrats who say he has remained on the sidelines amid increasing anxiety over whether millions of Americans could end up losing their homes. Other elements of the plan would need legislative action, requiring Mr. Bush to win over the Democratic leadership in Congress.

Administration officials, who asked not to be identified, briefed a handful of news organizations on the proposals to be announced by Mr. Bush at an appearance in the White House Rose Garden on Friday morning.

The main objective of the package, one senior official said, is not to affect the stock markets but to help low-income homeowners, many of them concentrated in certain neighborhoods in several distressed areas of the country, such as Ohio and Michigan.

“The primary focus is to help individuals who have an opportunity to stay in their homes to stay in their homes,” this official said. “The subprime mortgage situation is having a crushing effect on a lot of communities right now.”

Despite the assertion that affecting the markets is not the goal, one administration official said Thursday evening that concern about Wall Street’s reaction did affect the timing of the briefing. He said there was a fear that if the White House announced in the morning that Mr. Bush would be making an announcement on housing, there could be confusion as buyers and sellers of mortgage securities guessed what the announcement would be.

But secondarily, this official said, helping homeowners keep their homes and refinance or renegotiate the terms of the mortgages could have a stabilizing effect on the financial institutions that have these mortgages in their portfolios, and help them write down the value of the mortgages or sell them off at a loss.

Don't kid yourself for one minute that this is about helping low-income Americans stay in their homes. If helping low-income Americans stay in their homes were the goal, the 9th Ward of New Orleans wouldn't still be in ruins two years after Hurricane Katrina, its citizens dispersed elsewhere, the better to turn Louisiana into a Republican state and a cash cow for Bush's corporate cronies. This Administration has dragged its heels on helping the most high-profile poor people in the country, but when the wealthy start to feel the effects, suddenly this president rushes into action.

If you don't pay your credit cards on time, but some schmuck was willing to loan you upwards of a half-million dollars to buy a McMansion, the Administration wants to extend a helping hand. If your living comes primarily from your investments in the financial markets, and the housing bubble has caused the value of your investments to drop, the Bush Administration is right there to staunch the bleeding. But if you're guilty of nothing but wanting to return to your home in the 9th Ward, as far as this Administration is concerned, you don't even exist.