patrick.net

Who is going to pay for all the roads and bridges that need maintenance? How about that massive budget deficit? What do you plan to eliminate to finance that? Or is spending more than you take in a long term sustainable policy?

Toll roads. The market will run the transportation system.

We can have massive budget deficit with 100% tax. The idea is to spend less. Privatize as much as possible.

Spend some time overseas, and appreciate the working transit systems. Ride the bullet trains. Why don’t we have anything like that here?

Done that. Not impressed.

Transit works if and only if it is profitable by itself. That does not need much taxpayer money beyond right-of-way, loan guarantees, and a simple nod of approval.

We don't have bullet trains because it is silly. US has the best aviation infrastructure in the world.

Peter P Says:
Taxes aren’t too high in America, if anything they are too low.

We should push for a constitutional amendment to cap the maximum tax rate at 15%.

Don't be silly.

15% across the board would be A-OK with me, as a working stiff at $5 an hour I was paying close to 30%.

Ask your sandwitch preparer, barista, the guy who cuts proscuitto for you at the market, what their paycheck shows as "gross" and what they get, working stiffs are still paying 25-30%.

15% would be regressive, but not nearly as regressive as people* are paying now.

*As always, here, "People" means Americans.

Questions about the Hope Now program.

Once some modified paper is taken in by FHA, the investors are paid off by the under the terms of the new FHA paper as far as I can tell, and thus the risk of holding the paper is now transferred to the FHA. While the FHA "operates entirely from self-generated income and costs the taxpayers nothing", anyone like Brand who believes Hope Now places no taxpayer funds at risk please explain the following to me.

The Hope Now program acts as a platform to pressure Congress into passing pending bills to relax mortgage lending standards. If one or more of these pass, the taxpayer will certainly be on the hook for the bill of the privatized profits, and losses pawned off onto the FHA. If the terms of the program were such a great deal for the investors, would you agree that they wouldn't be so eager to unload the assets and leave money on the table?

Question: what reasonable explanation would posit that if the FHA is in danger of insolvency that it would be allowed to fail without access to taxpayer funds, when its historical origins and founding documents clearly indicate that the American taxpayer is the de facto if not the de jure insurance guarantor and even the reinsurer. The taxpayer provided the funds for the initial establishment, and the Act gave the administration wide latitude via the initial funding conduit of the Reconstruction Finance Corporation. While it is true that the ongoing operations of the FHA, including managing existing levels of default out of operational funds, do not depend upon the taxpayer, I have yet to find anywhere documentation that denies that ultimately the taxpayer is indeed the ultimate guarantor of the insurance.

Question: what sound finance rules do you follow that state for a given borrower who has already demonstrated excessively poor financial decision-making ability by choosing a loan product that requires a workout to prevent default should be provided access to prime loan products with even lower risk insurance premiums? I assert that such borrowers have a recent history of poorly thought out financial decisions, and extending them such loans with even lower risk premiums flies in the face of sound lending practices.

Question: if you accept that the taxpayer is the reinsurer of the FHA, then by what sound lending practices would you expect that relaxing lending criteria will increase the stability of the FHA portfolio?

The history of the FHA provides a fascinating illustration into the perils of government interference. The housing market was clearly overpriced in 1934 when the agency was established. The market was on its way to a complete flush out and reset to more sustainable price levels when the FHA stepped in and artificially stimulated the market. And here we find ourselves today, about to commit the same acts and enter an even graver state of financial sin.

Not all of the Hope Now program is bad. The private-sector call center to reach out to the borrowers, and the promise of stronger lending regulations to aid in bringing greater transparency to the market are both measures I applaud. However, we are playing with a very dangerous fire with the other parts of the program, and I have yet to find answers to some troubling questions about these dangerously reckless parts of the program. This is not to speak of other aspects I find troubling, like a claim (I have yet to substantiate) made by a poster on Calculated Risk that pooled paper run through the Hope Now program will let the securitization pool start marking to model instead of a periodic (monthly or quarterly) mark to market.

I used to be a working stiff myself and I never remember paying taxes like that. If you actually made $10k/yr (the minimum wage in CA is $7.50, in SF $9.36), you might see 25% taken out of your paycheck, but you would get most of it back if you filed your taxes, since the personal exemption is $8750 and you would get an Earned Income Credit more than equal to the rest.

You would still be on the hook for Social Security tax and CA disability, but combined those are only about 8%.

Why do you have to be 25 to qualify for the Earned Income Credit? That seems bizarre to me, is the government penalizing you for not being in school or something?

Jimbo says: Spend some time overseas, and appreciate the working transit systems. Ride the bullet trains. Why don’t we have anything like that here?

I think this point has been thoroughly discussed on prior threads. First, the U.S. is much more spread out than Europe. Light rail cannot effectively service all the outlying areas, or even a feasible percentage of them. We have commuter trains in big cities like New York, Boston and Philadelphia because the population density is sufficient to support them (and parking bad enough to encourage usage).

Second, and perhaps more importantly, Europeans are compelled to use the light rail because riding the train is inexpensive compared to their total cost of car operation---insurance, licensing, car taxes, and especially gasoline prices. I rode the train every day in Germany, but it was way more expensive than driving my car in the U.S. We could raise the cost of gas to $5-6/gallon, but that would hammer rural areas and lower income commuters the worst.

the average American spends about $8k a year on their car, which means about $13k has to be earned, because normal worker bees don't get to deduct mileage etc.

Riding the train is way cheaper than that, if you work for a co. that gives you a train or bus or VTA whatever pass, then it's infinately cheaper.

Can you walk me through the math for $8K/year? The number seems very high to me. My costs were about as follows:

30 miles/day / 15 mpg * 250 days/yr * $3/gal = $1500
Insurance: $800
Registration: $150

I paid $17,000 for my car, have driven it 5 years and it will easily go another 10 years. So amortized my raw vehicle cost is roughly $1000/year.

Grand total: $3450/year or $13.80/day (on a 250 day working year)

In contrast, riding the S-bahn (suburban commuter train) in Germany cost me about 5.50 euro/day. If I had to go anywhere apart from hotel to work, I typically spent at least another 5.50 euro and usually more than that (work was only a few train stops from my hotel). However, traveling to somewhere like Munich by train cost me 150-200 euros, where in a car it would have been perhaps 2 * 150 miles / 30 mpg * 5 euro/gal = 50 euro. In a car you can also take multiple passengers, where a train requires individual tickets.

Brand, no repairs ever?

The average Joe has a car payment of 300 or 400 per month. Add that to your math and you start getting close. I do have to say it is a relief to not have car payments but then you normally don't have a warranty at that point so it is a bit of a push in my opinion.

FWIW, the IRS allows you to write off $0.485 per mile for driving.

This supposedly incorporates all the costs of driving - gas, depreciation, repairs, maintenance, etc.

From what I've read - it's pretty accurate: if you live in Texas.

If you in some place with a slightly higher cost of living, say, the Bay Area, it's a lot more.

It's hard for most people to understand the total cost of ownership of anything- housing, car owning, computers.

BTW, fwiw, there's an interesting thread on tech salaries here:

http://www.burbed.com/2007/12/09/poll-software-engineers-how-much-do-you-make/

I'm sorry I forgot to put in my source, the American Automobile Association, because it is American, it is infallible of course!

It's not to say people can't get by much more cheaply, it's just that that's the figure, that's what people are paying on average.

Personally I think their sheer desire to be Good Americans, to ensure a future of poverty for the sake of the well-being of the American auto industry, their desire to Do Their Part by driving the biggest most expensive thing they think they can afford the payments for, is overriding.

Malcolm:

No, I have not had any major repairs to my car. I bought this one with 30,000 miles on it and I've got about 55,000 on now (although this year my commute got a lot longer). I get a typical oil/lube/filter every 3000-5000 miles or every six months. I've put a fresh set of tires on it, and had it aligned occasionally. But I drive carefully, and typically do not accelerate or brake hard. In cold weather I almost always let the engine warm up fully before driving, and I park it in an unheated garage.

If the average Joe is paying $300-400/month for their car, they obviously struggle with basic math. That's $36000-48000 over a 10 year lifetime, and most current (useful) models get a lot more mileage than that. My parents were doing the leasing thing for a while, until I pointed out that they were paying the full up-front depreciation and then returning cherry vehicles with 30-40K miles and very little wear. This, btw, is why I now prefer to buy vehicles coming back after a 3-year lease, or buy trade-ins with little wear. If the useful life of the vehicle is 10-15 years, why pay the premium depreciation during the first three? The powertrain warranty is transferrable; you just have to purchase carefully with a full inspection.

One great place to look is import dealers who take American trade-ins. That's where I got my last car. Somebody was trading up to a European ride, and the dealer wasn't going to waste lot space on an American model.

Apostos,
great work buddy. I was trying to explain it to the ppl before but was lacking that link :)
But to answer the questions, the taxpayer is behind the FHA loans. If FHA goes down, the taxpayers bail it out. And as financial rules followed, it is about separating the losses and marking the borrowers. Like I states somewhere above, this way you can split all the losses/risk/rewards in the fastest way, thru the biggest possible spectrum.

Marty

apostasy says: This is not to speak of other aspects I find troubling, like a claim (I have yet to substantiate) made by a poster on Calculated Risk that pooled paper run through the Hope Now program will let the securitization pool start marking to model instead of a periodic (monthly or quarterly) mark to market.

Although I haven't yet read that claim on other blogs, it wouldn't surprise me at all if that were true. Right now the CDO market is in a nuclear winter. Most SIVs and CDOs are illiquid except if they discount deeply enough for the vulture funds. The reason Paulson and others want the SIVs marked to model is that marking to the present "market" would trigger more liquidation events, popping the MBS/CDO/SIV bubble in a rather brutal fashion. Too many big players are leveraged too much for that to be to the greater benefit. So instead they should be looking to let the air out of this balloon as elegantly as possible. If temporarily allowing SIVs to mark to model will allow the funds sell things in waves as the market stabilizes, that is significantly better than one big bang when the market is horrible.

To your other point about the FHA insuring bad loans, I thought Tanta on CR gave some insightful comments today. Even the FHA isn't likely to help anyone who is completely toast. Ultimately it's just a transfer of risk from the private lenders to the public insurance company (FHA) for troubled loans that still have a chance of avoiding default.

Personally, I would much rather see a little privatized reward and socialized risk than force a bunch of banks, hedgies and pension funds to liquidate assets at fire sale prices. I also find it better to spread the potential pain on the federal level instead of push it back onto local entities like municipal pension plans that probably can't support the strain. And before anyone moralizes that they shouldn't have been investing in assets they didn't understand, just remember that the government is going to "guarantee" those pensions, and that could cost a lot more money than just giving the CDO market a breather.

Just my two cents, of course.

“I understand that the investors in mortgage-backed bonds will sue, but what about a class action suit representing folks like myself who will now have to wait longer to buy a place?”

NO N - 0 NO !

I wish the masses had NEVER EVER heard of the very limited type of litigation called 'class action' lawsuits.

They think it is a possible to remedy to what ever they do not like.

A whole lot less TV and mass media would be a very good thing.

Goverments manipulate markets all the time. What in the world do you think trade agreements are? Or allowing businesses to operate as corporations with limited liability for shreholders? Or patents?

And do read the information released publicly before blathering on. This 'freeze' is being done by the lenders. It is not being done by the goveernment at any level (state or federal.) There is no 'law' being passed. The US gov't maybe suggsting the idea, it may have gotten the parties together to workit out but the government is NOT doing it.

(And even if it did, you have no claim at all under any possible legal theory.)

"RaiderJeff04 Says:

December 7th, 2007 at 5:32 am
“Potential buyers face higher prices for a house than they would if the market were just allowed to work. This is a direct harm to millions of people, especially young families with limited income.

Is it illegal for the government to manipulate markets to benefit one class over another?”

Case and Controvery (standing)

At least in federal courts, and possibly state courts, there must be a case and controversy, (for fed courts, see Art. III). Meaning that the plaintiff has suffered an injury in fact, caused by the government, that is capable of judicial resolution. Further, the case must be RIPE, (the plaintiff has been harmed or there is an immediate impact of harm). This is part of the limitations for going forward with a case in federal court, and most likely limitation for state courts as well.

Since the Buyer is only a POTENTIAL buyer, there really hasn’t been any direct harm, and the case is not ripe for review. In other words, the plaintiff only has a potential interest, not an existing interest in which the court can render a judicial resolution (remedy).

I haven’t looked at Constitutional law in a while, but I think this would be the first hurdle to overcome when looking at the facts above.

RaiderJeff04 -

DO NOT EVEN GO THERE.

You haven't the slightest idea of what you are talking about.

Law and legal theories are NOT a DIY project that you can figure out by stuff on the internet.

You are so far out in the ozone on this one, you need a parachute.

"but the government is NOT doing it" (bail-out/freeze)

Let's see here....

OFHEO

FRE

FNM

FOMC

FRB

Treasury Dept.

Congress

Candidates

Nope. No government involvement HERE!

I liked AnnS's post. It seemed correct to me.

Ouch.
http://www.nytimes.com/2007/12/10/business/worldbusiness/10cnd-bank.html?ref=business

10 billion here, 10 billion there and soon we are talking real money.

McRussom - The US has always been obsessed with the assassination of John F. Kennedy, and this has led to a spate of books over the years. There have probably been hundreds written. I've read maybe 10, since most are obscure. However, part of "conspiracy research" is the minute picking-apart of every detail of the perpetrator's life. In this case, Lee Harvey Oswald. I began to find "Who killed JFK?" books more interesting for their rare glimpse of life in the 1950s and 1960s for a low-wage slob with aspirations (even if evil ones) than for any titillation that may come from contemplating the killing of the particular rich guy who happened to be President. Lee Oswald did not make much money at anything he did, and yet what he did make allowed him to live in a decent place, generally a 2-bedroom apartment and not one of those Bay Area closets either, plus save money (for various plots and plans lol) on the side. He was able to support Marina and her baby. Going back further, his mother was always able to own the house she lived in, and gradually moved up in house value over the years. These people were not working 60-hour weeks, they were lucky to get a full 40 hours in fact. Lee had the time, energy, and money to take a night typing class. A friend of his had the time and energy and could afford to give him free driving lessons. It was a much more relaxed, self-sufficient, I've-got-some-savings-on-the-side life compared to modern American wage-slavery. Lee's menial jobs were due to his preference to not work too hard rather than a lack of good jobs. He seemed to enjoy the jobs he had, since they provided him what he needed, plus time to think (and plot lol). Investigators in the Warren Commission and other books comment on Lee's frugality, but many people were frugal at that time, that's how you lived. Waste not want not and all that. It's an amazing glimpse at a life very different from our stressed-out 60-hour a week plus 10 a week commuting gilded work-camp life we have now.

One factor was, guys like Lee did not pay any income tax. Then, anyone making less than $4k didn't pay it, now, anyone making less than $4k doesn't pay it. But the brackets have crept due to the fact that a dollar is worth about 1/10th what it was in the 50s, so now you have dishwashers and table bussers and so on paying 1/4 or more of their gross income in taxes.

Lee was not the smartest guy, but if the poor bastard were alive today, perhaps released after a LONG time in isolation, he'd be appalled at how people live. He'd find his theories about Capitalism hanging itself vindicated, and he'd also have a huge problem with the system of fascism (or corporatism, the uniting of corporations and gov't) we live under now.

Funny, how the hippies, blacks, nationalists, and other cool movements got bought out thru the years.
If Lee were alive today, he will probably be a welfare smooching, trailer living hobo blessing the government for every day of slumber.
If King was here today, he will probably be chilling in the hood, selling crack, and smooching on the welfare of a couple of mamas and occasionally visit jail.
Hitler would have been a guy on the net, probably a few pounds heavier, the closest ever to a war or depression watching Saving Private Rayan, blabing on and on at patrick.net and such about how screwed up the little people are and when oh when will someone do something other than a petition online that noone will care for. Ohh and since Jews are not as scary, he would be like, 'The corporations control everything... ooowwww, be afraid, be very afraid!'
Funny stuff I tell you.

Marty

Autism is skyrocketing, no one knows why. Mercury is in the air from coal fire. Katrina victims are still displaced. The US is very low in the court of world opinion. Our budget shortfalls and our trade deficits are staggering. Our fiat currency is only worth anything now due to our military strength and the existing forex[foreign] reserves here.,

buddy, selective ranting of facts is aways counter productive:

Umm, about your cookoo points:
- Autism is skyrocketing, no one knows why. - Emm, society is degrading/REgrading with size and class separation
- Mercury is in the air from coal fire. - sure, but think of the 2 bil chinese you owe 1 trillion dollars (real, not inflated pos) of crap to. they have boom-boom sticks too you know.
- The US is very low in the court of world opinion - but it is high on home grown love and all that. As far as I recall, two times Bush was chosen. I'm not going to get into how, those people being wrong, will likely protect your ass against the 2 Billion Chinese you Owe 1 Trillion of Real Money to.
- Our budget shortfalls and our trade deficits are staggering. - go to NY and LA redneck, we make the moolah, and we spend it. I wear PRADA == I AM RICH. bugetiwhatgety? You think the guy I visited last week in the masion on the hills cared? Sometimes, you can get so rich so fast you can't comprehend it.
- Our fiat currency is only worth anything now due to our military strength and the existing forex reserves here - Soup, soup and more soup. Manchurian, this is the next step!

See, your master protects you, let him do so, then hang him! It is like, if the Chinese tell you if you let them control the situation then no bail out! Would you let them?

p.s. About China and the 2 Billion Pissed-Off Chinese. This is just an euphorisam. Like Pamela Anderson, read on both and you will understand, or send me an email.

Marty

Wow Micrusson, I was in a pretty good mood until I read your comment. I actually agree with most of your rant but it is a very diverse economy and there are many people still doing very well. If you try to empathize with all the bad stuff you will depress yourself. You can do your part by taking control of your life. If you hate pollution live green. If you don't like China, refuse to buy Chinese products, it is hard I know but I have managed to drastically cut down on Chinese goods. Simplifying your life is the biggest relief. None of this crap is new, the situation may seem unique but it really isn't.