Foreclosure Mess

Fannie and Freddie, which are now government-run entities, announced last week that they are suspending foreclosure sales until after the holidays. Read about it here, but let's paste in one little blurb:

"Freddie Mac is on track to help three out of every five troubled borrowers with Freddie Mac-owned loans avoid foreclosure this year," Freddie Mac Chief Executive David Moffett said in a statement. "Today's announcement builds on this momentum and provides a new measure of certainty to many of these families during the holidays."

A couple of comments.

The government couldn't clean up after Katrina, how does anyone expect it to be able to clean up an economic crisis so complex that it can't even be explained, let alone understood? Prediction: this will only prolong the misery both for homeowners and taxpayers.

Note the term "avoid". Government is much better at avoiding (and helping others to avoid) than it is at achieving. What's being avoided is the inevitable. Unfortunate as it is, this is the bursting of a bubble. Some people own homes that they never could and never will be able to afford. Others bought or borrowed at the top and now owe more that their home is worth. Putting the sale off until after the New Year is simply that--putting it off.

As I predicted, now that the government runs Fannie and Freddie, feelings are being introduced into the decision process. Freddie now is the the business of "provid[ing] . . . new measure[s] of certainty" to delinquent borrowers. This is to be expected bc. where there is government involvement, there is politics, and where there is politics, feelings often become more important than sound economics.

Finally, this policy will encourage others to stop making payments. After all, if you and your neighbor both are under water and he has stopped paying but gets to stay in his house, why should you pay? There's no consequence.

Who knows, maybe it's better for everyone if delinquent borrowers are allowed just to squat where they are for a while. The banks certainly don't want the properties and vacancies only add to the downward spiral of real estate values in any neighborhood. On the other hand, moving folks out who can't afford to be where they are, and moving them out as quickly as possible, may be more humane and will certainly bring this mortgage mess to a speedier conclusion.

Sell More Cars

If you've never been, you might one day consider visiting The Rouge, a Ford factory right outside Detroit. We took the tour a couple years ago and found it to be pretty interesting.

One thing that struck me coming away from it was the museum's portrayal of the labor movement. Either the curators know that their audience is pro-labor and so cast a positive spin on the unions or they feel a need to be politically correct and make up for Ford's bashing the unions through it's history. Either way, the big push is to portray the company-union relationship now as a "Partnership". It's no longer adversarial but instead cooperative.

Which brings me to the spot in which the Big Three, the Congress, and American taxpayers now find themselves. Ought we bail out Big Auto?

The problem is that because company and union are now a Partnership, the Big Three morphed from being car companies into being jobs programs. The Partnership's goal is not to sell more cars and trucks, but to stay alive to be paid another day. Management wants to keep their jobs and the union wants to protect their jobs. The poor share holders, I'm sure, tho, would prefer that the Partnership makes a profit by selling more cars.

In their effort to stay alive, representatives of the Partnership showed up on Capitol Hill yesterday to beg Congress to allow American tax payers to become share holders.

According to the reporter on Squawk Box this morning, Ford is presently losing $400 for every car it sells. I'm sorry, but investing in a company that's doing that does not appeal to me. I'm assuming that if they sold more Fords they would be making a profit. But in the mean time, why would anybody buy stock in that company? Why? It makes no sense.

The only answer is to save the jobs. Remember my assertion that the Big Three are nothing more than jobs programs disguised as car companies. Maybe the economy is so bad that we need in the short run to protect those jobs, I don't know.

But I guarantee you this: in the long run, a car company cannot survive when it's losing $400 per unit. A government program, of course, can go on losing $400 per unit as long as the taxpayers allow it and the Treasury keeps printing increasing worthless dollars.

The question taxpayers and Congress members need to be asking is, honestly, do we want to keep this jobs program going? Do we want the Partnership to survive? Or do we want them to convert back to for-profit car companies? My guess is that giving the Big Three Partnership $25 bil. more will not cause them to sell more cars.

Barry's Bonanza

IBD does a great job here of listing all the promises that Barry's website makes to the American electorate.

Whew, it's exhilarating! And I mean that in the most sarcastic way.

I like the one about doing my taxes in five minutes, tho, I'm sure that will not apply to the 60% or so of us who actually pay income taxes. After all, how long should it take for the 40% of you who pay no income tax to fill out an application to stake a claim on a portion of my earnings. Yes, yes, we're among that five percent (shame on us) who won't be getting a tax cut.

Another fave of mine "makes" employees provide seven paid sick days a year. Isn't that how the Big Three auto workers have gotten themselves into trouble--by paying people not to work?

He's also going to "finish the fight" against al-Qaida. Do you think al-Qaida will agree to that? Maybe they'll sign a peace treaty on a carrier parked in the Persian Gulf.

"Slash earmarks"!?!?! That makes me laugh out loud. Literally. There's not a snowball's chance in hell that a bill, any bill, will make it off Capitaol Hill without being laden with pork. Congress is incapable of that.

It's quite a bonanza, Barry.

Grab your wallets, folks.