Negotiation is Irrelevant

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That’s what the right wingers might as well be saying. First they were against the public option for healthcare insurance. When the Whitehouse made it known that they were open to debate, the Private Insurance Co-Op idea was created. The Republican are against that also even though it addresses their two (claimed) biggest concerns, cost and government interference. Privately run insurance co-ops would not have to answer to the federal government in terms of coverage for individual patients and the start up cost is only around $10 billion. A pittance when you look in the context of the bailout money AIG, GM, Chrysler, and a host of banks got.

By also being against this plan, the Republicans are simply proving they don’t actually care about healthcare reform, or the uninsured, or even the costs. All the Republicans care about is trying to make Obama and the Democrats look bad.

If I were Obama, I’d tell the Republicans to go climb a tree.

Twist of the Double Edged Sword

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Forgive me, I’m still catching up on my reading.

This one jumped out at me:  The Wall Street Journal reports U.S. Consumers Reduce Debt for Fifth Month in a Row

That headline taken in a vacuum should be good news right? Well… sorta. It was consumer debt that both drove the economy for the last 30 years and yet at the same time contributed to it’s implosion.

People drastically reducing spending and (hopefully) living within their means don’t help an economy that depends on consumer spending for 70% of it’s activity.  These people (including myself) are putting as much of their resources into reducing their debt and freeing themselves from the usurious practices of the banks.  But this is a case where we have too much of a good thing. If debt reduction happens too fast, the corresponding consumer spending reduction could extend this recession far longer than normal.

About the only good thing I can see coming from this either way is that if enough people relieve themselves of credit card debt, it will hurt the banks since they will no longer be able to make money from their usury. They might actually have to compete a little and put their interest rates at a reasonable level.

Anything that hurts the banks makes me smile a little inside. It’s not like they don’t deserve it.

Just back from Germany

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I just got back from a week long vacation in Germany. I stayed with friends in Cologne and visited a few of the surrounding cites. On Friday, we rented a BMW 320i and made our own tour of castles south of Cologne.  My autobahn top speed was 210kph or 130mph. The thing I will miss most is the food. I wish we had a bakery on every corner like they do.

If the current recession has hit Germany, it doesn’t show. Walking around Cologne there is construction everywhere. New shops going up everywhere. The stores are busy and bustling. Germany has been careful to not outsource it’s labor force to foreign markets as much as we have in the US. If German companies need cheap labor, they set up shop in the former East German territories. This way, at least the GDP stays local to Germany’s economy.

Why can’t we do the same thing here? Sure, we couldn’t pay the minimal wages we pay Chinese prison laborers to sew soccer balls with their teeth, but I’m sure there are willing laborers in states like West Virginia, Alabama, Arkansas, etc. The cost to ship thing from Alabama factories to stores in the US would have to be a LOT cheaper than shipping it from Shanghai. At the same time, we would have an easier time making sure those workers are treated ethically and there are better safety standards in the products they produce. Just ask any Mattel executive about lead in toys and see what kind of reaction you get.

Yes some prices will go up. Do you really think $30 for a DVD player is reasonable? It’s time that we start demanding some real quality in the products we purchase.

Green Shoots?

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There was much talk earlier this spring about so called “green shoots” in the economy by talking heads trying to coin a phrase that would stick. Unfortunately for us, they had very little evidence to back up such statements. Housing was still tanking, unemployment was still skyrocketing, and GM and Chrysler were swirling down the toilet of bankruptcy.

I’ve been rather pessimistic on the economy for a while now. As recently as April I was predicting a long drawn out recovery. I also predicted that a second wave of foreclosures coming from a type of mortgage called Option ARMs would start carpet bombing the economy all over again. Well, unlike a certain ex-President of ours, I’m willing to chart a new course when provided with new information.

Here is why I am cautiously optimistic for a near term recovery. I’ll go out on a limb and say that the bottom was sometime in June 2009.

Option ARMs

First, my biggest reason for originally predicting a long, drawn out, recovery was the Option ARMs. In a previous blog post, I explained how Option ARMs are one of the most dangerous mortgage types out there. The cliff notes version of this is: You can pay less than the amortised amount each month and whatever you don’t pay gets tacked onto the principle, up to 125% of loan value, and thus charged interest. After about 5 years or once the principle reaches 125% of loan value, the monthly payment “recasts” and now the owner has to pay the entire amortized payment on 125% of the loan value and now they only have 25 years amortization… just as sugar on top. A large batch of these mortgages were due to start recasting at the end of 2009.

My reason for course change? Many of these mortgages aren’t even making it that far. 42% of Option ARMs originated in 2006 and 35% of Option ARMs originated in 2007 are more than 60 days late today. These mortgages are never going to make it to the 5 year mark for recasting. Now, I’m not saying that these people aren’t going to be foreclosed on, they are. It’s unlikely that ANY of these mortgages will qualify for loan modification since one of the requirements is a principle balance lower than the value of the home.

Here is the good part, by going into foreclosure sooner, it softens the overall impact on the economy. So while it’s still bad, it hurts less. Would you rather be hit by 18 inches of snow over a period of 3 days or get hit by an 18 inch diameter snowball?

Ford posts profit

Ford Motor Company had two pieces of good news. First, Ford posted an overall profit for 2nd quarter 2009. Their operating cash still took a $1 billion hit, but clearly progress is being made. The proof of that is in the next item.

Ford posts positive sales numbers

Ford posted their first sales gain in 19 months. Now I’m sure that a good portion of this can be attributed to the government’s Cash for Clunkers program, however Ford’s current model lineup easily stands on it’s own without help from the government. If their new Taurus had been in showrooms already, I’m sure they would have done even better.

This comes on the heals of Toyota’s statement that they are no longer profitable in North America.

Anecdotal

I do I.T. consulting work on the side. One of my clients is a real estate appraiser. Just three months ago he was talking about closing up shop. Now he’s having me refurbish older computers that haven’t been used in a while so he can bring in more help for all the work he has.

A guy who does painting and drywall work for me was talking about how he is closing on a house on Thursday but he doesn’t have time to work on it because of all the work he has coming in suddenly.

GDP only at -1%

This is where the caution part of “cautiously optimistic” comes in. That number, in a vacuum, doesn’t look too good. Taken with the numbers of the previous quarters it signals a huge turnaround. However, much of that regrowth has come from the government’s stimulus projects. Sure the bill was passed in the late winter, but it took till April and May before any sizeable amount of money was dispersed. In my area alone there are no less than four major bridge building/refurb projects that have started or resumed.

Unemployment

The unemployment numbers still don’t look too great but they tend to be a lagging indicator simply because they aren’t reported till after someone gets or loses a job. Watch the unemployment stats over the next few months.

Green Shoots?

Not really. But the seeds have been planted and watered.

Watch this space.

Banks Gone Wild!

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Fox New Business is reporting that Wells Fargo is suing itself.

In a condo foreclosure case in Florida, Wells Fargo holds the first mortgage and is suing all other lien holder, one of which is itself, the holder of the second mortgage.

Demonstrating that there is no such thing as “Too big to FAIL“, Wells Fargo hired Tampa lawfirm Florida Default Group of Tampa Florida to file suit against itself. WF then hired Kass, Shuler, Soloman, Spector, Foyle & Singer to defend itself from itself.

At this point, no matter the outcome, it seems as if the lawywers are the only winners in this case.