Hi,
FOO DOG ECONOMICS is an appropriate title considering how much the United States now owes China. If we DEFAULT (don't pay up) our loans, we may wind up replacing our national symbol, the Eagle, with Chinese Foo Dogs.
Our simple definition of Economics covers a multitude of sins.
Let's SAY IT AGAIN: Economics is a SOCIAL SCIENCE that EXAMINES the PRODUCTION, DISTRIBUTION, AND CONSUMPTION OF GOODS AND SERVICES PLUS!!! THEIR MANAGEMENT!!!
NOTICE: It's a Social Science (how people do stuff) not a MATHEMATICAL SCIENCE. There are multiple definitions for Social Science.
For our purposes, Social Science studies society and human behavior including economics and draws on EMPIRICAL METHODS (observation or experiment) so it looks like real Science. That actually means lots of statistics, dam (dammed up) statistics, speculation and SOME facts can go into the various studies. A great margin of latitude like this can lead to tremendous error (as we shall observe as we continue) or brilliant hypothesis (theories).
The term MANAGEMENT in our ECONOMICS definition includes important seemingly extraneous matters like LOANS (dam loans and dammed up loans); REPAYMENT of loans (or putting them off--called DEFERMENT or (I HOPE THEY DON'T FORECLOSE THE LOAN).
Yeah mortgages are included in this category and since they are constantly in the news lately, let's take a gander at what's been going down at ye old lender's house.
Our primary lenders, the GOVERNMENT SPONSORED and partially privatized (beholden to Government ) FANNIE MAE (THE FEDERAL NATIONAL MORTGAGE ASSOCIATION) created by Franklin D. Roosevelt's New Deal, 1938) AND FREDDIE MAC(THE FEDERAL HOME LOAN MORTGAGE CORPORATION) created in 1970 to bundle mortgages( buy the mortgages on the secondary market, pool them and sell as mortgage-backed security. Freddie Mac is regulated by Government HUD not the SEC--bad news.) The BUNDLED SECURITIES (a bunch of risky mortgages) were not backed by insurance or guarantees from the government.
With the now available Government controlled Stock Market regulator FINRA on board, the Government had what was considered an almost perfect setup and did not foresee the disaster that would follow.
Some misinformed, well-meaning GOVERNMENT souls thought that it would be nice if there were a house with a stove for every person to cook the " chicken in every pot" that Franklin D. Roosevelt promised as his goal and Economic theme. It was destined to be a worthy cause gone very wrong.
Joined by various government misanthropes (hate humanity--especially the rich humanity), they reasoned that by giving a number of different loans at low beginning interest (set to rise at a given time) folks could move into a house for no down payment and nothing but the clothes on their backs and lots of legal papers they had signed. The grateful buyers did not look ahead or question the disaster that might occur under certain conditions.
This economic decision (risky loans) was based on almost always having good Economic times (that's like almost always having good weather). Another Economic study in future, no doubt.
Another fable:
Joe Blowhard is married, with several children, two incomes, scraping to make ends meet. They are renters. Joe B. goes to the local bank and fills out the papers for a loan for a home but can't qualify and doesn't have the down payment. He hears of a mortgage loan business that specializes in what they call "Government" loans.
Joe B just lost one of his part time jobs and his already inadequate income is further diminished. The mortgage lenders says, "No problem". (No problem usually means there's going to be a problem).The MORTGAGE MAN prepares a loan for the down payment, plus two additional loans; one for the mortgage and one for home improvement and sets A LOW interest rate that will RISE YEARLY for a number of years. "That way in good times", the banker tells Joe "your interest will go up along with your income." Joe didn't ask about bad times.
Joe B boasts to his friends that his monthly payment is about what his rent
totaled, he's not out any cash, he can move in right away, and he has extra money to spend however he likes.(?) He spends the home improvement money on things that are important to HIM: a new TV, a basketball court, a barbecue, and a new appliances like the ones on TV. There's nothing that says he has to fix the roof, the plumbing, and the wiring so they will have to wait.
Those who thought up this game were sure the interest rates on the several loans on a single property (in some cases three to five loans were given) would rise in due time and investors and buyers would be satisfied with profit so why mention risk?
This scenario was carried out with hundreds of thousands of home buyers, some much worse off financially than Joe. As always happens, there were those, not poor, who saw this as an opportunity to make money. They decided to get in on the action and started a process call FLIPPING (buying homes without CAPITAL and reselling them as soon as they showed a profit). Only this time it was mostly the middle class getting into the act.
The problems in this economic situation are myriad. First and foremost, bad times always seem to follow good times. People who do not have an investment of some kind in property (another study) do not take the care that "blood, sweat and tears" owners do. The buyers were IGNORANT (uninformed) and thought Government was taking care of them and didn't question their "good luck".
In addition since the loans were made in good times the properties became artificially inflated. If a house was given $300,000 in loans, it couldn't be put on the books as worth its actual value, $100,000. (what we used to call "cooking the books" or lying). So the house value went up. Good for the economy? Good for the loaners?? Good for the buyers???? Good for the neighbors??? Not likely.
Well Joe's friend, Sam the man, down the same street, pushed the worth of his nicer property to exceed Joe's house that was now claimed to be worth $300,000. When he wanted to sell his house, he listed the house at $400,000. Never mind that it was valued last year at $150,000 and built for $80,000.
These were GOOD TIMES!!! And so it went until as the old saying goes "The S--- hit the fan" or to say it more elegantly "the bubble broke", mortgage interest went up disastrously, folks lost their jobs, mortgages based on "thin air" (as old time bankers called it) were defaulted and many, many houses foreclosed.
Joe Blowhard and his family lost the house, sold their belongings, and are renting again. Joe's also out of work. Sam the man has seen his property because of the number of foreclosures in his neighborhood depreciate (GO DOWN) TO $100,000. instead of the $150,000 it was before he inflated it and it hasn't sold because of all the empty houses.
A fantasy created and dreams destroyed by those in charge not understanding REAL WORLD ECONOMICS.
What can we say of the folks who "engineered" this folly?? That they meant well! Many a disaster has been caused by people who mean well but are ignorant of what they set in motion. "Meaning well" is not high praise in most cases in my book.
FOO DOG ECONOMICS is an appropriate title considering how much the United States now owes China. If we DEFAULT (don't pay up) our loans, we may wind up replacing our national symbol, the Eagle, with Chinese Foo Dogs.
Our simple definition of Economics covers a multitude of sins.
Let's SAY IT AGAIN: Economics is a SOCIAL SCIENCE that EXAMINES the PRODUCTION, DISTRIBUTION, AND CONSUMPTION OF GOODS AND SERVICES PLUS!!! THEIR MANAGEMENT!!!
NOTICE: It's a Social Science (how people do stuff) not a MATHEMATICAL SCIENCE. There are multiple definitions for Social Science.
For our purposes, Social Science studies society and human behavior including economics and draws on EMPIRICAL METHODS (observation or experiment) so it looks like real Science. That actually means lots of statistics, dam (dammed up) statistics, speculation and SOME facts can go into the various studies. A great margin of latitude like this can lead to tremendous error (as we shall observe as we continue) or brilliant hypothesis (theories).
The term MANAGEMENT in our ECONOMICS definition includes important seemingly extraneous matters like LOANS (dam loans and dammed up loans); REPAYMENT of loans (or putting them off--called DEFERMENT or (I HOPE THEY DON'T FORECLOSE THE LOAN).
Yeah mortgages are included in this category and since they are constantly in the news lately, let's take a gander at what's been going down at ye old lender's house.
Our primary lenders, the GOVERNMENT SPONSORED and partially privatized (beholden to Government ) FANNIE MAE (THE FEDERAL NATIONAL MORTGAGE ASSOCIATION) created by Franklin D. Roosevelt's New Deal, 1938) AND FREDDIE MAC(THE FEDERAL HOME LOAN MORTGAGE CORPORATION) created in 1970 to bundle mortgages( buy the mortgages on the secondary market, pool them and sell as mortgage-backed security. Freddie Mac is regulated by Government HUD not the SEC--bad news.) The BUNDLED SECURITIES (a bunch of risky mortgages) were not backed by insurance or guarantees from the government.
With the now available Government controlled Stock Market regulator FINRA on board, the Government had what was considered an almost perfect setup and did not foresee the disaster that would follow.
Some misinformed, well-meaning GOVERNMENT souls thought that it would be nice if there were a house with a stove for every person to cook the " chicken in every pot" that Franklin D. Roosevelt promised as his goal and Economic theme. It was destined to be a worthy cause gone very wrong.
Joined by various government misanthropes (hate humanity--especially the rich humanity), they reasoned that by giving a number of different loans at low beginning interest (set to rise at a given time) folks could move into a house for no down payment and nothing but the clothes on their backs and lots of legal papers they had signed. The grateful buyers did not look ahead or question the disaster that might occur under certain conditions.
This economic decision (risky loans) was based on almost always having good Economic times (that's like almost always having good weather). Another Economic study in future, no doubt.
Another fable:
Joe Blowhard is married, with several children, two incomes, scraping to make ends meet. They are renters. Joe B. goes to the local bank and fills out the papers for a loan for a home but can't qualify and doesn't have the down payment. He hears of a mortgage loan business that specializes in what they call "Government" loans.
Joe B just lost one of his part time jobs and his already inadequate income is further diminished. The mortgage lenders says, "No problem". (No problem usually means there's going to be a problem).The MORTGAGE MAN prepares a loan for the down payment, plus two additional loans; one for the mortgage and one for home improvement and sets A LOW interest rate that will RISE YEARLY for a number of years. "That way in good times", the banker tells Joe "your interest will go up along with your income." Joe didn't ask about bad times.
Joe B boasts to his friends that his monthly payment is about what his rent
totaled, he's not out any cash, he can move in right away, and he has extra money to spend however he likes.(?) He spends the home improvement money on things that are important to HIM: a new TV, a basketball court, a barbecue, and a new appliances like the ones on TV. There's nothing that says he has to fix the roof, the plumbing, and the wiring so they will have to wait.
Those who thought up this game were sure the interest rates on the several loans on a single property (in some cases three to five loans were given) would rise in due time and investors and buyers would be satisfied with profit so why mention risk?
This scenario was carried out with hundreds of thousands of home buyers, some much worse off financially than Joe. As always happens, there were those, not poor, who saw this as an opportunity to make money. They decided to get in on the action and started a process call FLIPPING (buying homes without CAPITAL and reselling them as soon as they showed a profit). Only this time it was mostly the middle class getting into the act.
The problems in this economic situation are myriad. First and foremost, bad times always seem to follow good times. People who do not have an investment of some kind in property (another study) do not take the care that "blood, sweat and tears" owners do. The buyers were IGNORANT (uninformed) and thought Government was taking care of them and didn't question their "good luck".
In addition since the loans were made in good times the properties became artificially inflated. If a house was given $300,000 in loans, it couldn't be put on the books as worth its actual value, $100,000. (what we used to call "cooking the books" or lying). So the house value went up. Good for the economy? Good for the loaners?? Good for the buyers???? Good for the neighbors??? Not likely.
Well Joe's friend, Sam the man, down the same street, pushed the worth of his nicer property to exceed Joe's house that was now claimed to be worth $300,000. When he wanted to sell his house, he listed the house at $400,000. Never mind that it was valued last year at $150,000 and built for $80,000.
These were GOOD TIMES!!! And so it went until as the old saying goes "The S--- hit the fan" or to say it more elegantly "the bubble broke", mortgage interest went up disastrously, folks lost their jobs, mortgages based on "thin air" (as old time bankers called it) were defaulted and many, many houses foreclosed.
Joe Blowhard and his family lost the house, sold their belongings, and are renting again. Joe's also out of work. Sam the man has seen his property because of the number of foreclosures in his neighborhood depreciate (GO DOWN) TO $100,000. instead of the $150,000 it was before he inflated it and it hasn't sold because of all the empty houses.
A fantasy created and dreams destroyed by those in charge not understanding REAL WORLD ECONOMICS.
What can we say of the folks who "engineered" this folly?? That they meant well! Many a disaster has been caused by people who mean well but are ignorant of what they set in motion. "Meaning well" is not high praise in most cases in my book.
Next we'll further cover the effect on the Stock market and the bundled securities that went belly up in the downturn of the market. Economists will write theory books for years about all this. I'll try to simplify it.
By the way, I am not shouting in these posts but attempting to emphasize terms that may be unfamiliar. I trust it's not too annoying.
Cheers, Connie
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