What I'm Listening to Now

The Details that Blind the American Public

One of the ways those in power control the masses in a democratic country is to foster a very lively debate on a very limited range of issues. If the issue is whether or not the government should bail out the U.S. financial services industry, the government would rather have us focus on whether the funds were paid back or not. While it’s good that some of the TARP funds have made it back into the Treasury, it may not be so good that a limited range of very large corporations now know they can count on the government to bail them out if they make foolish long-term decisions for short-term gains.

Some think the Consumer Financial Protection Bureau that came online this week will prevent another financial fiasco. Others may disagree, but the debate has largely centered on who will run the CFPB and not whether it will come close to fulfilling its mission. Arguing over whether it should have been Warren instead of Cordray running the CFPB is to skip past the question of whether it will even work as a regulator.

A new bill in Congress now will change the way Fannie and Freddie operate, but it falls far short of taking the government out of the housing business. A debate will rage over the details in this bill, but those that want the government to remain the first best source of home finance liquidity will have already won.

It’s not easy to focus on what’s important when there is so much information flying around about the economy. But what we choose to focus on as voters may determine what control we have (or give up) over our financial future. What will you be focusing on this weekend?

Who Will Be the Next Economic Superpower

You don’t have to dig too far into the news to find that the US is not the only country in the world to be struggling financially right now. We’re in the middle of a global economic crisis and some of our friends in Europe are actually worse off than we are.

Even now, the European Union is deciding whether another bailout of Greece will be necessary.

“The French and German banks account for roughly half of all European banks’ exposure to those euro-zone countries, meaning that the combined exposure of European banks to those four nations is over $1.8 trillion, nearly half of which is with Spain alone. Thus, in the eyes of the elites and the institutions which serve them (such as the EU and IMF), a bailout is necessary because if Greece were to default on its debt, ‘investors may question whether French and German banks could withstand the potential losses, sparking a panic that could reverberate throughout the financial system.’”

But just because they’re having a hard time, too, don’t expect the Europeans to feel like we’re all in the same boat. In fact, the vast majority of them already think we’re out of the boat, freezing to death like an ill-fated Titanic passenger. A poll released by Pew Global Attitudes reported earlier this month that the majority of people in 15 of 22 countries surveyed believe that the days of American hegemony are numbered. According to one website that reported on the poll’s results, “The sentiment was most prevalent in Western Europe, where longtime allies took a very dim view of America’s superpower status.”

The truth is, there is no way our government can continue to spend money the way it does and hope to remain an economic superpower. Hard decisions have to be made and programs that some people depend upon may have to be cut. Otherwise, the government will have to find a way to pay down this debt and it’s only option will be to increase taxes.

If politicians continue to spend money in exchange for votes and then pass the debt back onto the voter, the US taxpayer will eventually look a lot more like the European taxpayer. Instead of paying 20-40% of our income to the government, we’ll be paying 30-50% of it to the government, just like they do in Europe. If that happens, we won’t be an economic superpower anymore either.

Principal Forgiveness Increasingly Part of the Solution

No one likes losing money on a deal, but when losing some now means keeping the loan out of default and potentially making more in the long run at the same time you keep borrowers in homes and speed the economic recovery, then it’s something that should be seriously considered. In fact, that’s what we’re seeing happen in the marketplace.

We’re already seeing more servicers that participate in the Home Affordable Modification Program use principal reduction to help underwater borrowers and make their payments more affordable. And they’re doing it more often, according to a recent Treasury Department report. Nearly 5,000 HAMP modifications included principal reductions, with the average principal amount reduced by $69,500.

And for those that aren’t considering this option on their own, the courts are helping out. While the dust hasn’t cleared yet on the BoA/BNY Mellon Settlement Agreement, part of the $8.5 billion deal includes language that will make it easier to modify many of the high risk loans that are due to be placed with special servicers. The settlement agreement spells out what these special servicers must do, but indicates that the resolution may, “pursuant to the Governing Agreements, include principal reductions.”

Expect to see more principal forgiveness in the days ahead as we work through this downturn. I expect it will become more and more in vogue among special servicers, and that’s good. It means that people are starting to get it.

As always, I look forward to your comments.

What Happened to All the Jobs

We all saw the disappointing job numbers that were recently released. A jobless recovery is no recovery at all, especially when you add it to very tight lending requirements and no equity to borrow against.

One of the better commentaries I’ve seen on this recently was John Mauldin’s piece on his “Thoughts from the Frontline” blog.

In a recent blog post, John points out:

First, there were only 18,000 jobs created in June, the lowest since September 2010. While private employment rose by 57,000, government workers dropped by 39,000, continuing a trend as governments at all levels work to cut their budgets. Long-time readers know I think it is important to look at the direction of the revisions, and we got no help. May was revised down by 29,000 jobs and April a further down 15,000.

More jobs is the key to the recovery. I’ll give you my thoughts on the key to more jobs in a future post.

What I'm Listening to Now

See instructions below:



Click play and then close your eyes and think of your favorite stretch of road. Might be something recent or some distant memory from your childhood. Now think of going down that road on a motorcycle at a nice clip. It's 100 degrees out, but you can’t feel your skin burning because the air rushing by cools you. You let go of the handle bars, stretch your arms out in celebration of life. You’re on your bike, you're with your lady (or man if you are a lady). You're alive. You're listening to this song as you pull into a town that time forgot. An old western town, a blue color town. You get a red light as you approach the one stop light on main street. A weather and time worn lady, maybe 70 years young, eye balls you as she walks by in the crosswalk. As she gets right in front of you she cracks a small smile and nods in approval. You take that with you as you leave that town, back to the open road.

Yes, this happened last week and this is why I ride.

Government Stimulus Hasn’t Worked

I’m not the only one who keeps saying that pouring more money into the system is not helping us recover from the current recession.

You may have seen this story on CNBC.com, where Federal Reserve Governor Alan Greenspan talks about his take on the government’s response to the financial crisis.

“The Federal Reserve's massive stimulus program had little impact on the U.S. economy besides weakening the dollar and helping U.S. exports, Federal Reserve Governor Alan Greenspan told CNBC Thursday.”

According to Greenspan, the $2 trillion in quantative easing over the past two years had done little to loosen credit and boost the economy.

"While it has reduced the value of the dollar in the world markets, making it easier to export our products overseas, it hasn’t done much to speed the recovery. I am ill-aware of anything that really worked. Not only QE2 but QE1."

Of course, not everyone agrees. This video was posted on the HousingWire site last week and features QE advocate Paul Krugman making his case.

What do you think?

Preparing for the CFPB

It’s July 1st and as we prepare to head into a holiday weekend, we are also completing our preparations for working with the new Consumer Financial Protection Bureau. The new government uber-agency comes on line this month and is expected to change everything.

Of course, pols from both parties are continuing to fight over the future of the agency, some trying to limit its funding, others increase its powers. The most recent news I read told of some letters that have put the CFPB on defense.

The letters came from “the House Committee on Financial Services and the Committee on Oversight and Government Reform, represented by chairs Spencer Bachus and Darrell Issa, respectively, in calling for the release of any documents related to the correspondence in the possession of the Treasury Department,” according to the story.

In particular, the politicians said they were concerned about “Treasury Department adviser Elizabeth Warren’s refusal to unveil her involvement with mortgage servicers and state authorities in their negotiations. The letter is the second to address widespread concerns about the CFPB’s dealings.”

I don’t have a lot of patience for this back-and-forth. It’s just a waste of time and taxpayer money. In fact, I’m against the whole concept of the agency.

You see, I’m one of those people who doesn’t need the government’s protection. I think there are a lot of Americans who don’t need the government deciding what they can buy and what they can’t. We all go to the grocery store and compare labels before we buy, and I know that the Food & Drug Administration enforces product labeling laws and thank them. I’m not anti-government, I’m anti-big government and when you give the federal government an inch, they’ll take 20 miles. I’m worried that this is what’s happening with CFPB.

It’s not the government’s job to tell Americans what they can do. It’s insulting for them to suggest that the general population is so stupid that they need to have the federal government hold their hands during a financial transaction.

It’s time for the United States of America to stop being the world’s biggest Nanny State. If the government wants to enable better education, fine. Likewise, better enforcement of the laws already on the books would solve a lot of problems. But when it comes to trying to decide what’s best for Americans, it’s time to step back and revisit that pursuit of happiness concept that was written into the preamble of our Constitution.

As we prepare to head into this holiday weekend—this Independence Day celebration—we should all be thinking about ways we can become less reliant on our government and more reliant on ourselves, our families and our communities.