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Monday, February 6, 2023


For Timmy G: How to Solve the Housing Crisis TOMORROW

200 years ago, Thomas Jefferson warned us: "If Americans ever allow banks to control the issue of their currency, first by inflation and then by deflation, the banks will deprive the people of all property until their children will wake up homeless."

Well, 7,000 families a day are now losing their homes to foreclosures, that’s roughly 21,000 men, women and children each day being forced out of their homes, being stripped of their assets and often their life savings.  This isn’t a one-day problem for these people, it can take many years to recover from losing a home, if ever!

Back on January 21st, 2008, when the market was crashing, I rolled out my emergency econonic measures to fix this country and our readers put it into the hands of various people and some of my points have even found their way into policy (or at least rhetoric) but, over a year later, not enough is being done NOW, when we need it more than ever..

You can reread my original article, which included a way to drop oil back to $60, that was written when oil was "only" $85, way back in January of last year – before Bush did the exact opposite of what I suggested and enacted a stimulus that drove prices all the way to $140 a barrel.  Of course that was a farce that just inflated the energy bubble into the massive implosion we have now and we DON’T want that to happen with housing so it is very important that we have the RIGHT solution to the mortgage crisis now.  One that will help right the global economy, curb inflation and put people back in their homes TOMORROW by doing one simple thing:

We’re going to give every homeowner $100,000!

Not in the George Bush crazy "let’s borrow more money and create more inflation" sort of way.  My plan is simple and effective:  The US Government issues a simple, one-page form to every US homeowner that allows them to transfer $100,000 of their home loan to the United States in exchange for $125,000 of the home’s equity (up to 50%) plus 5% deferred interest.

  • This would effectively halve the average person’s mortgage, putting roughly $600 PER MONTH back into the hands of homeowners.
  • This would halve the risk taken by the banks and release as much as $5Tn in liquidity for other types of loans.
  • This would stabilize housing prices (people are not forced to sell).
  • This would stop the banks from having to "write down" an estimated $1Tn in assets (meaning they can now pay taxes like they are supposed to).
  • This would keep families in their homes and in their communities as productive taxpayers.

How much would this cost us?  Well, there are 100M homes in this country and if every single one of them took us up on the offer (and remember you are giving the government 25% bonus equity) then it would cost the US government $10Tn, a pretty hefty sum!  The reality is that only 10% of the homes in the US have mortgages in excess of $250,000 (it only seems like everyone in your neighborhood) and 30% of the homes in this country have no mortgage at all.

So, of a population of 70M homes with mortgages, let’s assume 1/2 take us up on the offer to go partners on their home, that’s 35M families who feel they need relief badly enough to give up half of their home’s value.  Since 90% of the homes have mortgages of less than $250,000, with a median debt of $150,000, that’s $100,000 times the first 3.5M homes ($350Bn) and $75,000 times 31.5M homes ($2.362Tn) giving us a conservative need for $2.7Tn in relief.

Sounds like a very big number doesn’t it?  Don’t forget though, this is not a giveaway, this is the United States government investing in United States real estate, putting the money back to work in the economy.  As these homes do get sold (average housing turnover is 6 years) we get 15% of that money back each year, even assuming it did all get used in year one.

Since the the government borrows money at 3.5% for 30 years (the price of the 30-year treasury bond), America’s "mortgage payment" on $2.7Tn is $12.1Bn a month.  That’s right, just $12.1Bn a month to IMMEDIATELY reverse the housing crisis, IMMEDIATELY stop 7,000 families a day from losing their homes, IMMEDIATELY stabilize the financial community (we just gave JPM $30Bn last fall to bail out BSC), IMMEDIATELY stabilize the $22Tn housing market, IMMEDIATELY revalue the dollar and IMMEDIATELY inject $17.5Bn PER MONTH back into the economy.

How can we inject more money into the economy than we spend?  Because the average homeowner pays more than 6% on their mortgage and the government can borrow money at 3.5%, very simple!  Not only that, but the government allows you to deduct mortgage interest from taxes so they are already paying 1/3 of that $17.5Bn a month through lost tax collections.

Mr. Potter - Winner of the Hank Paulson look-alike conterstBy rescuing the value of the sub-prime home loans and CDOs, we will allow our lending institutions to "write-back" the $1Tn they have taken off the books, allowing them to pay the proper taxes on them.  At 35% that’s $350Bn right there – enough to fund our first 3 years of payments!

As the homes get sold, the government gets back 125% of what they invested (plus the interest of course) but, even keeping the simple 125% return and stretching the turnover to 10 years, that’s still a return of $330Bn a year on our $2.7Tn investment that would, of course, lower our "mortgage payment" by 10% a year, even if we don’t reinvest the profits.  This is also a very fair package, available to all US homeowners who wish to take part, not just the "reckless investors."

So improved tax collection funds this plan in year one and by year two we’re running at a profit and we save 4M homes from foreclosure, save the economy from disaster and even bail out the evil bankers.  Sounds like a win-win solution doesn’t it?

Geithner is under tremendous pressure to come up with "something fast" and this can literally be done overnight for far less money than any plan I’ve heard discussed.  The process is simple:  Fill out a one page form that you can print on-line or pick up at the bank that essentially says "I/We the homeowner(s) agree to transfer $125,000 of our interest in the property to the US government in exchange for a 5% note on $100,000 to be used exclusively to reduce the outstanding debt against this property.  The Government’s interest will be second to the bank’s and above our own and will be paid out of the proceeds on the eventual sale of the property."  The form can be filled out, the deed would be amended and there is no need to change the mortgage as this is not a refinance, it is taking on an equity partner in your home.  The banks simply exchange the notes for cash or cancel their own Federal debt obligations with them.

If you like this idea, please send this to your Congresspeople.   They can debate me or they can steal this idea and pretend it’s their own – I don’t care as long as something gets done in this country.  Send it to action committees and people who vote and tell them it’s possible to have real dialog and perhaps SOLVE some of our nation’s problems, rather than blame the other guy or brush it under the table. 

You can find your Congresspeople’s EMail HERE!

You can find your Contact for the Treasury Department HERE!



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  When you talk about rolling call or puts, are you covering your current position and buying/shorting a future position? If so, how do you figure out the timing and the % decline at which to pull the trigger to roll?

[…] this quote and a great article on Phil’s Stock World… I just really liked the quote and read his page […]

Before I sign up for your foreclosure plan, one quick question. For people that decided to rent during this time so when housing came down they would buy in cheaply (like me for example), what’s in it for them??

Phil – Recovery plan. I believe that most people who sign mortgage agreed that all other loans taken on this property will be junior to the first mortgage loan. I also believe that by statue all government loans are senior loans. So before mortgagee can sign a loan with government the mortgage company has to agree to it. Not all lenders have incentive to give up it’s preferred position w/o incentive. I believe that many loans worth modification are already serviced. Significant portion of outstanding loans are “risky”, so how do you propose to handle the defaults? To avoid this problem Geithner is talking about government – private cooperation.

Posted some picks/pans for Uall in the Weekly Wrap Up.  Some for the stimulus play, others just FYI.  I am telling you, ARNA is gonna POP (not sure which way), but I am buying and also covering with Puts JIC.

Govt has already agreed to pretty decent tax incentives for new buyers (i.e. renters waiting on the sidelines), haven’t they?
I like the Davis rescue plan. It cuts to the core of the problem…housing… and invests Govt $ (which is our $ and our children’s $) for future gain. That totally rocks. Much better than lining the banks which is little more than dressed up "trickle down".
Unfortunately, the Rush/Hannity crowd will likely only see this as a handout and sharpen the socialism rhetoric. But I think they should be willing to let the other party toss aound $6 or  $7 trillion this time around (similar to Bush/Repub driven national debt growth over 8 years). It’s only fair, and high time the Corporate socialism we’ve been living with gets a makeover. I think Paulson knew his would be the last great opportunity for Reaganomic voodoo. I really hope he was right. 

Phil / All
I believe this was mentioned here awhile ago, so I think it’s rather important to revisite. I spoke to two people this weekend (Orange County, CA) both of which are getting involved in a real estate / mortgage investment pool. The fund will attempt to purchase homes which are near forclosure and at distressed values. The fund will immediately attempt to resell the home to the current resident at a profit. If the current homeowner cannot qualify, they can rent the house at less than the original mortgage but more than the funds expenses.
I found it very interesting to hear this idea outside of PSW. I feel it is also important as this may fill the financial void in lending in the SoCal area. I cannot tell you how many "bank owned" for sale signs I see everyday. Has anyone else heard of this type of investment pool developing? As this private equity gains momentum in the investing community we may see a slowing of housing price declines over the next several years.

CaFord – People are walking away b/c they cannot rent out for a price to cover mortgage, and banks do not agree on “short sale”. For your idea to work someone has to take the equity stake. One of the common CA schemes is that a debtor finds another residence for a lower price, applies for a second mortgage convincing the lender that the first property will be used as a rental property. As soon as transaction goes through the borrower gives the keys to the first property to the bank with wishes of good luck, b/c the borrower cannot be burdened with renting for one reason or another. So now banks are not keen to sell w/o equity participation.

Phil – Do you like the part in the article that says "The Barron’s plan…"? Nice.
But you’ve still got the post from last year for sure.  For due credit, maybe its just
one call to Charlie Gaspereno away. In any case, I really hope something like that
gets some interest.

Good Morning Phil and all

Asia Markets :    Tuesday, February 17, 2009
(The following is from WSJ; please cross check with other sources to confirm.)   

Nikkei Average*                            7645.51    -104.66    -1.35%
Hang Seng*                                12945.40    -510.48    -3.79%
China: DJ Shanghai*                     263.06         -8.81    -3.24%
Seoul Composite*                       1127.19       -48.28    -4.11%
Bombay Sensex*                          9035.00    -270.45    -2.91%
Baltic Dry Index                              1846.00      -62.00    -3.48%

*at Close

Asian Stocks Tumble, Greenback Up on Safety Bid

Asian stocks fell Tuesday, with Japan’s Nikkei hitting a nearly four-month closing low, while the U.S. dollar surged as investors scrambled for safety from deteriorating global economic conditions and volatile banks.

Japan’s Nikkei hed 1.4 percent to a nearly four-month closing low, as financial shares such as banks and property firms slid on continued credit worries. But trade was cautious ahead of restructuring plans that General Motors and Chrysler are required to submit by Tuesday showing how they can be made viable after receiving $13.4 billion in emergency aid.

South Korea’s KOSPI finished down 4.1 percent, at its lowest close in more than 3 weeks, with techs leading the fall on a grim industry outlook, while banks were weighed down by the weaker won.

Australian shares closed down 1.5 percent on worries about European banks and poor results, though debt-laden companies gained on deals to ease their woes.

Hong Kong shares fell 3 percent with Chinese stocks leading decliners after the Shanghai bourse broke its long-running rally Worries about slowing corporate earnings and likely capital raising weighed on shares across the board, with three stocks in the red for every one in the black.

Singapore’s Straits Times Index fell 1 percent, to its lowest level to date this year, tracking weakness in Nikkei and KOSPI amid ongoing concern on slowing global economy in wake of weak Japan GDP data. Property heavyweights among worst performing blue chips after government data showed weak January unit sales.

China’s Shanghai Composite Index fell half a percent on profit-taking in steel companies and airline stocks. 

Bombay Stock Exchange’s Sensex ended at 9041.68, down 263.77 points. The index broke the crucial support of 9000 to hit an intra-day low of 8994.34 but crawled back as some buying emerged at lower levels. Key indices ended in deep red on Tuesday after extending losses for second straight day. Traders unwound positions in sectors like realty, banks and metals space after interim budget turned out to be a non-event. Weakness in global markets also dampened sentiments.

Global investors continued their flight from India-focused equity funds for the fourth week in a row, even as inflows into Asia tripled to $219 million in the second week of February, a latest report says. However, India and Taiwan dedicated funds remained alienated and witnessed redemptions for the consecutive fourth week, with the combined amount rising 20 times from the last week of January.

Inflows into Asia (excluding-Japan) equity funds were broadly based, with Korea, China, Greater China and Hong Kong equity funds all taking in between 40-145 million dollar. All four of the major emerging markets equity fund groups tracked by EPFR Global recorded modest inflows during the week ended February 12.

Euro Shares Hit 2-Week Low, Banks Under Pressure

European shares hit a two-week low in morning trade on Tuesday, as banks slid on persistent concerns about their balance sheets and fears they might need more state help, while weaker crude prices pressured oil stocks.

The FTSEurofirst 300 index of top European shares was down 1.4 percent at 773.98 points after touching a low of 770.89. It closed 1.4 percent lower on Monday. The index has fallen five times in the previous six sessions and is down 6.9 percent so far this year after plunging 45 percent in 2008.

Banks were the biggest sectoral decliner on the index, with Societe Generale down 9 percent, KBC Groep falling 8.8 percent, Deutsche Bank shedding 5.4 percent and UniCredit down 5.8 percent.

Energy stocks were under pressure as crude oil prices fell 1.4 percent. BP, Royal Dutch Shell, Repsol, Total and StatoilHydro shed between 0.8 and 1.2 percent. Britain’s BG Group was down 0.5 percent. The company raised its bid for Australian coal seam gas firm Pure Energy by 25 percent to nearly $650 million, trumping a rival offer by Royal Dutch Shell’s Australian partner, Arrow Energy.

InterContinental Hotels, the world’s largest hotelier, rose 1.5 percent after it met forecasts with a 13 percent rise in 2008 profit.

Daimler, which makes Mercedes Benz cars, fell more than 7 percent after it stopped short of giving a profit forecast for this year after delivering a fourth-quarter loss, weighed down by significant losses and charges at Chrysler.

Across Europe, the FTSE 100 index, Germany’s DAX and France’s CAC 40 were 1.3-1.0 percent lower.

Oil Falls Toward $37 on Demand Concerns

U.S. oil prices fell toward $37 a barrel on Tuesday as bleak economic indicators in Asia returned focus to the worldwide oil demand slump.

Following Monday’s news that Japan’s economy shrank by the most in 35 years, a Reuters poll showed confidence among manufacturers remained mired near record lows and service sector sentiment fell to its poorest ever. "Concerns over weak oil consumption continue to weigh on the oil price," David Moore, a commodities analyst at Commonwealth Bank of Australia, said in a note.

U.S. light crude [ 37.04    -0.47  (-1.25%)] fell, slightly below late European trading a day ago.
London Brent crude [ 43.54    0.26  (+0.6%)] for April rose.

Ahead of the March contract’s expiry on Friday, it was trading at a wide $4.30 discount to April due to high stock levels at the main U.S. storage hub in Cushing, Oklahoma.

Nigeria’s junior oil minister Odein Ajumogobia said volatile oil prices had made it difficult to forecast OPEC’s next move. Iraqi Oil Minister Hussain al-Shahristani was firmer in his stance, saying the oil cartel should look to further cuts in supply if curbs to date fail to balance the market. Shahristani had previously said he expected OPEC to cut its supply targets when it meets in March.

World energy demand has fallen considerably in the last few months as the economic crisis hit consumers.

To take advantage of low prices, Russia is working towards creating a state reserve to buy crude from producers, potentially removing up to 16 million tons of Russian oil from export markets, a top energy official said. Prices may regain traction from improved consumption next year, with IEA Executive Director Nobuo Tanaka saying he expects world oil demand to resume growing in 2010 by about 1 million bpd.

But he cautioned about a supply crunch from next year if investment in new oil production and alternative forms of energy were reduced by the current demand downturn.

Euro at 2-Month Low vs Dollar on E. Europe Woes

The dollar rose broadly while the euro hit a more than two-month low on Tuesday, pressed by concerns over a recession in Eastern Europe and the knock-on effect on European banks. However, the single currency pared some losses after data showed a surprise pick up in the German ZEW economic sentiment survey in February.The greenback rose against the yen after Japan’s finance minister said he would resign following criticism of his behavior at a weekend Group of Seven meeting.

Ongoing concerns over the global economy, banks’ balance sheets and corporate results kept investors wary, with European shares down on the day, boosting flows into the dollar, which is currently perceived as a safe-haven currency. "The main reason for the euro weakness is the worries not only about the European economy but also especially in Eastern Europe where currencies are falling rapidly across the board," said Nordea rate strategist Niels Christensen.

Figures derived from Eonia rates show the market anticipating euro zone interest rates will fall below 1.0 percent later this year, with a cut to a record low of 1.5 percent in March. ECB President Jean-Claude Trichet said on Monday the economic situation was extremely difficult but policymakers must avoid laying the ground for future disorder, while another ECB official described the outlook for 2009 as "dismal." UBS strategists said the ECB’s refusal to discuss alternative monetary easing tactics could further hurt the euro.

The yen briefly weakened to its lowest in more than a month, at 92.75 per dollar, after Japanese Finance Minister Shoichi Nakagawa said he would resign after being forced to deny he was drunk at a G7 news conference.

The euro dropped against the greenback [ 1.262    -0.0181  (-1.41%)    ], as low as $1.2602 on Tuesday, its lowest since early December on trading platform EBS.

The euro was also down against the pound [0.8853    -0.0098  (-1.09%)   ] after data showing British consumer price inflation fell much less than expected in January.

The dollar was last up on the yen [ 91.76    0.05  (+0.05%)   ].


Gold rallies to 7-month high, risk-haven buying helps

Gold rose more than 2 percent to a seven-month high in Europe on Tuesday on reports eastern Europe will be more affected by recession than elsewhere and after Russia’s central bank said it plans to buy more gold. Credit rating agency Moody’s said on Tuesday the recession in eastern Europe is likely to be more severe than elsewhere and would put financial strength ratings of local banks and their Western parents under pressure.

The precious metal rallied to new highs in a raft of currencies, including the euro, sterling, the South African rand, the Indian rupee and the Canadian and Australian dollars.

While investment in products like gold-backed exchange traded funds has soared as investors seek a safe place for their cash, high prices are hurting jewellery demand in key centres of gold buying, India, China and the Middle East. Buyers in India, usually the world’s leading market for gold, ignored the wedding season and postponed purchases as they grappled with high prices, traders said. The flow of scrap supply gained momentum.

Gold climbed to $959.90/961.50 an ounce at 1016 GMT from $940.90 in New York late on Monday. Earlier it touched a high of $962.95 an ounce, its firmest level since July 22.

Among other precious metals, Silver climbed to $13.85/13.91 an ounce from $13.57.
Platinum edged up to $1,074/1,079 an ounce from $1,063.
Palladium hit a three-month high of $218.50 an ounce, before easing back to $216/221 an ounce from $213.50.
The metal has been supported by buying for palladium-backed ETFs, on the perception the metal is cheap compared to its peers.

GOOG downgraded by Think Equity

phil, congrats again on davis rescue plan, lets get you in and obama out, your the only guy on the net who truly has a hands on knowledge of how the bigger picture works, and the smaller option trades too, why dont you run for office? where do you live? i will run your campaign. but can you run as a liberal republican…ouch that hurts huh?

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