Bush's Booming Economy
-- For The Rich
08/14/07 "ICH"
-- -- Sometimes I'm amazed at how much I know about
the financial markets and the economy. I don't
understand any of it, but I know a lot of stuff, thanks
to my friend and mentor,
Richard Walrath,
who's been to the market more than once. He says when
George Bush brags that the economy is booming, he's
probably right. The economy is exploding with a big
boom, and Walrath says now we are engaged in a great
battle to see how long this country can endure.
The Fed just poured a bunch of money into the market,
which was news to me, but Walrath said the Fed has been
manipulating the market for years, especially during the
Bush years. "There was great fear the United States was
going to follow Japan into a period of deflation and
recession -- maybe even a depression," Walrath said.
"Interest rates were cut close to zero while hundreds of
billions of dollars were added to the National Debt
through tax-cuts for the rich and 'Big Bidness.' And it
gets worse just at the time the National Debt limit has
to be raised again."
With things as bad as they are, Walrath says it's going
to be interesting to see how this crisis is handled.
Congress may have to return early to pass legislation to
raise the National Debt. But it makes more sense to me
-- since the bulk of our lawmakers were so eager to get
out of school for recess, that Bush could decide to
handle the whole thing like he does everything else to
avoid partisan jawboning or oversight -- just dash off
an Executive Order.
But the National Debt is just one of many problems
battering our economy. Walrath points out a major
problem is "all those margin accounts out there with
people getting calls to come up with some real money
because their stock is down. As you might expect, this
led to speculation in housing -- let's flip it -- and
millions of people who couldn't afford to pay their rent
bought houses."
Wait a minute...Let's flip it? What does that
mean? Nothing comes to mind -- okay one thing does --
but Walrath never takes such a cavalier attitude about
economics. Let's flip it, Walrath says is when "--you
buy the house with no intention of ever living in it.
You add a kitchen, spruce up a bathroom, and "flip" it,
or put it back on the market, hoping to make a profit.
This goes on all the time, Walrath says, but there were
more flippers than buyers this time around because it
cost almost nothing to own a house while you were
waiting to sell it. That's sub-prime credit. You could
buy a house with no money down, no income, no job, no
assets.
Of course! Now I understand. If you buy a house with no
money down, you have little or nothing invested. Just
walk away. Let the banks worry about selling them. But
to whom will banks sell them? What are the banks going
to do? "That's why houses for sale are now piling up all
over the country," Walrath said. "It's a terrible
situation."
Donald Trump begs to differ. When you're in a hole, keep
digging as hard and as fast as you can. Trump's advice,
according to Walrath is to "just go back and make
another deal with whoever holds the mortgage. Trump says
you'll get a better deal this time than the one you had
before. Don't walk away from it -- go make another deal.
The last thing the bank wants is your house. What are
they going to do with it? They can't find anybody to buy
it."
So, who's flipping whom in this credit seizure?
According to an
unsigned editorial in Saturday's Wall Street
Journal, the root cause of this credit correction
was the Federal Reserve's willingness to keep money too
easy for too long. The Journal warns an
"emergency rate cut, as some in the market seem to be
anticipating or hoping for -- carries the risk of
introducing even greater moral hazard into the financial
system."
We can't have immorality in our financial system, now
can we? Oh, the horror!
While chiding Democrats such as Senator Hillary Clinton
for proposing a $1 billion federal bailout fund for
homeowners at risk of default and foreclosure, the
Journal goes on to channel Barbara Bush's flash of
morality when speaking of homeless Katrina victims --
"No one wants to see someone lose his home to
foreclosure. But many of those most at risk bought their
homes with little or no money down, and so have very
little at stake economically. Bringing in the feds to
bail them out would send precisely the wrong message --
that risky or overly aggressive borrowing will be
rewarded by the government rather than punished in the
marketplace. To the extent that bad loans were made, the
market needs to clear, not be propped up by federal-aid
programs."
Unfortunately, despite what the Journal and the
endlessly bleating "Money Heads" on TV would have you
believe, millions of Americans are in deep trouble.
CNBC's Jim Cramer "flipped out" last week in a
torrent of truth about the current economic
situation.
Walrath agrees, and says if we continue in the direction
we're headed, Bush's "boom" will make the Savings and
Loan bail-out look like a Girl Scout Cookie Sale.
According to Walrath, there are four sets of losers in
this housing meltdown...
~~Those caught with the homes they bought for flipping
purposes are not going to be able to find buyers. They
are going to lose whatever they have invested, plus
whatever mortgage payments they make. It may be cheaper
for them just to walk away.
~~Those who own homes will see the value of their houses
go down because of the current oversupply due to
overbuilding when interest rates were lower and people
were buying homes with little or nothing down with the
idea of flipping the houses as soon as possible.
~~Those who bought homes with variable-rate mortgages
are having trouble making payments because those
payments keep going up, and there's nothing they can do
about it. Many did not even realize they had such a
mortgage. Millions are going to lose their homes.
~~And then, there's the murky many -- the banks and the
hedge funds which ended up with mortgages used as
collateral for junk bonds, which ended up as holdings by
French and German and English banks, not to mention
those in this country.
"This is the dog that worried the cat that killed the
rat that ate the malt that lay in the house that Jack
built, and we ain't seen nothing yet," Walrath says.
"When it comes to saving the rich from losing money, no
expense will be spared. Actually," Walrath mused, "the
economy is good -- if you're rich. For the rest of us,
there's not much to write home about."
Sheila Samples is an
Oklahoma writer and a former civilian US Army Public
Information Officer. She is a regular contributor for a
variety of Internet sites. Contact her at
rsamples@sirinet.net
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