Where Are We Now?
- Experts now project that a higher percentage of home loans in excess of $1 million will default than home loans under $1 million. The banks and Wall Street have turned the sub-prime mortgage problem into a super-prime mortgage problem. Underwater homeowners with the cash to pay off their home loans are also defaulting and are called “Strategic Defaulters”.
- The subprime AAA CDO’s became worthless as defaults climbed.
- Case and Shiller, who publish housing information, projects that it will take years, maybe 10 years before the housing market recovers.
- Huge numbers of homeowners are in dire risk of foreclosure; South Florida foreclosures are up 80% from last year.
- The Obama Administration’s program to help homeowners is a failure. It is very difficult to help an unemployed homeowner when their house is worth less than the mortgage loan. The banks were no help even though their investors take huge losses when they finally foreclose.
- Housing starts are at an all time low even though housing prices are up some 3.5% over a year ago in the top 20 U. S. Housing markets.
- Fanny Mae and Freddie Mac guaranteed 60% of mortgages and have taken big losses. Both entities are in conservatorship and are expected to be liquidated. Current losses are approximately $150 billion and are expected to exceed $390 billion or more. Many real estate experts don’t think the markets will function without Fannie Mae and Freddie Mac.
What Should We Do?
We can’t do much about the construction business and housing markets. There is no way to stimulate demand until more people are employed, are confident in the economy, and we absorb the oversupply of housing.
No one really wants the government to be the solution; however, we all expect for the Federal Government to have the answers. We measure our economy during recessions through the unemployment numbers and that is the way we are measuring this recession.
What can we do about unemployment?
Unemployment is officially at 9.5% but many believe it is really worse. Domestic construction workers amounted to 11% of the US workforce in 2008. Many believe we have lost at least ½ of the construction workers since the bubble burst. Most of these jobs will not come back for at least 5 to 10 years because of the oversupply of housing and the economy.
Most of our manufacturing is outsourced to China and Asia; our clothing is made in Thailand. If you have a technical computer question, the person answering the 800 number you call is usually in India. As an example, paper mills are closing in the U.S. and are being replaced with mills in China. The mills in China have the latest mechanized equipment paid for by the Chinese government. They pay their workers $45 per week with no medical benefits, vacations, or severance pay. Can we compete with that? Not until their workers demand and are paid more. That will take time.
The Democrats want a stimulus bill to stimulate employment; the Republicans advocate tax breaks for the investor class so the U.S. will have more investment capital. All that sounds fine; but, if the investment is in equipment in Asia and the jobs we create in the US are at McDonalds, Wal-Mart or in Asia; we are not improving our lifestyle or solving our unemployment problems.
At the same time, we are fighting two wars where the most of the jobs we create are in Afghanistan and Iraq.
- My first suggestion is to cut overseas military expenditures dramatically unless we can prove that the expenditures are actually making us safer. I am talking about NATO, Korea, Afghanistan, and Iraq and anyplace overseas.
- Next, we should rescind the Bush Tax Cuts for the investor class.
Then, we should take the savings from both sources and design targeted tax cuts, tax credits and other incentives to entrepreneurs and businesses that create new jobs in America. These tax cuts and incentives should actually generate more income and tax receipts as they are implemented.
Most of the emphasis should be placed on areas where we need solutions; high tech, green energy, energy conservation, more energy efficient houses and buildings, energy efficient lightening, etc.
However each tax cut, credit, or incentive must create job in the US.
Enough is enough; I think our representatives should spend more time working on solutions rather than slogans and speeches. It is time to fix our country and its economy.
