Great Video Explanation on the Mortgage Debaucle

My senior year at BYU, I wrote a paper on the mortgage crisis for my Financial Econ class. While doing research for that paper, I came across this video. It is a great short explanation of how our economy lynched itself up through greed, mismanagement of risk and the creation of moral hazard everywhere! Take a look....

http://www.youtube.com/watch?v=oosq3TPgHH0

A Good Time to Buy

Though it has been rumored that home prices are beginning to stabilize, the NEW home market continues to suffer. I suspect that this phenomenon occurs because the market for NON-new homes continues to be tremendous. That is, as long as large amounts of older product remains on the market, the NEW home market will suffer. Oh, how I wish I was done with law school and had the money to buy myself a shiny new home! Here is the article.

New home sales hit record low in January

WASHINGTON (AP) -- Sales of new homes plunged to a record low in January, underscoring the formidable challenges facing the housing industry as it tries to recover from the worst slump in decades.

The Commerce Department reported Wednesday that new home sales dropped 11.2 percent last month to a seasonally adjusted annual sales pace of 309,000 units, the lowest level on records going back nearly a half century. The big drop was a surprise to economists who had expected sales would rise about 5 percent over December's pace.

http://finance.yahoo.com/news/New-home-sales-hit-record-low-apf-2245141272.html?x=0&.v=1

The New Bush

What kind of change was he talking about again?

http://news.yahoo.com/s/ap/20091201/ap_on_go_pr_wh/us_us_afghanistan

The National Debt (more on b's and t's)

The followoing is an excerpt from an AP piece that helps shed some light on the relationship between the recently passed stimulus bills and their effects on the national debt.

One thing about the president's $790 billion stimulus package is certain: It will jack up the federal debt.

Whether or not it succeeds in producing jobs and taming the recession, tomorrow's taxpayers will end up footing the bill.

Forecasters expect the 2009 deficit -- for the budget year that began last Oct 1 -- to hit $1.6 trillion including new stimulus and bank-bailout spending. That's about three times last year's shortfall.

The torrents of red ink are being fed by rising federal spending and falling tax revenues from hard-hit businesses and individuals.

The national debt -- the sum of all annual budget deficits -- stands at $10.7 trillion. Or about $36,000 for every man, woman and child in the U.S.

Interest payments alone on the national debt will near $500 billion this year. It's already the fourth-largest federal expenditure, after Medicare-Medicaid, Social Security and defense.

This will affect us all directly for years, as well as our children and possibly grandchildren, in higher taxes and probably reduced government services. It will also force continued government borrowing, increasingly from China, Japan, Britain, Saudi Arabia and other foreign creditors.

(for the full article see http://www.foxnews.com/politics/2009/02/14/raw-data-stimulus-gets/)

The scary part of all this expanded government spending is that it seems to fundamentally mirror a mentality that we became all too familiar with prior to the mortgage debaucle.

Replacing a 'b' with a 't'

Amidst all this talk of billions and trillions, I feel it is a worthwhile exercise to attempt to comprehend the meaning of $1 trillion. A friend of mine recently sent me the following.

How many transport flights it would take to move $1T worth of $100 bills?

So $1T is 10B $100 bills.

10B grams is 10M kg 120,000 kg is the capacity of the C5 Galaxy aircraft.

So it would take 84 flights to move $1T in $100 bills.

The Galaxy C5 is not a small aircraft.

Daily Relief

Progessive Tax and the Obama Plan

In harmony with my last post, I thought I would take a moment to briefly outline the wonders of what is the President Elect's tax plan. This artwork helps to shed some illustrative light on the redistributive brilliance of the Obama plan.

Tax policy functions as one of the most fundamental dividing lines between political parties in the United States. The argument extends far beyond the simple notion of higher or lower taxes, but rather the argument is concerned with the question of who should bare the greater burden. Under the current law in the United States personal income tax is levied on a progressive basis. That is, individuals are placed in "tax brackets" according to their respective income and are taxed a base amount plus a specified percentage on earnings beyond a predetermined income level.

In 2001 and 2003 President George W. Bush enacted what are now popularly known as the Bush Tax Cuts. These tax cuts were a temporary reduction and reconstruction (set to expire in 2010) of the then current tax percentiles and brackets. According to the Bush Tax Cuts, depending on one's income, an individual would be taxed a base amount plus an additional 10%, 15%, 25%, 28%, 33%, or 35% on earnings beyond a specified income level.

Mr. Obama's proposed income tax plan would allow for the continuance of the Bush Tax Cuts for the 10, 15, 25, and 28 percent income tax rates. He would restore the 36 and 39.6 percent rates imposed on the highest income taxpayers. Because of the return to previous tax percentiles in the top two brackets prior to the predetermined expiration date of the Bush Tax Cuts, the effects of Mr. Obama's plan would make our tax system signifcantly more redistributive. In 2009, Mr. Obama's plan would result in a 0.6 percent tax cut across all Americans--this amounts to $331 per year per capita in tax cuts.

Now here is the kicker, households in the bottom quintile of the cash income distribution (the 20 percent of the population with the lowest incomes) would receive an average tax cut of 5.5 percent of income ($567) and those in the middle fifth of the income distribution would receive an average cut equal to 2.6 percent of income ($1,118). In contrast, taxes would rise by an average of 1.5 percent of income ($3,017) for households in the top quintile. And the increases would be even more dramatic within the top quintile. Taxpayers in the top 1 percent would see their taxes rise by an average of 7.0 percent of income or about $94,000. The top 0.1 percent—the richest 1 in 1,000—would face an average tax increase of nearly $550,000, or 8.9 percent of income. (Tax Policy Center)

Now, the main question you have to ask yourself is this: Will this extra $567 per year ($47.50/month) have any significant effect on the standard of living for Americans in the bottom quintile? Liberals talk of lifting those in need out of poverty, but is $50 a month really the best they can do? And of course, never mind that this $50 dollars a month for the bottom quintile comes at the expense of $7,833.33-$45,833.33 a month for those making the most money in our country.

Does this seem right or efficient at all to you? I could be wrong, but I think the answer to eliminating poverty in our country extends a smidgeon beyond giving a poor person $50 a month and hoping they will overcome the problems that beset them. What advocates of progressive tax structure have failed to consider is that challenges of poverty cannot be overcome by mechanically handing someone an extra $50 a month. The need of those living in poverty extends far deeper than what monetary solutions are capable of offering. Poverty can not be faught with dollars only, but rather it requires the use of much sharper and potent weapons such as education reform and strengthened families, it requires that we strengthen the individual rather than beef up our government. Curiously however, there are still those who are determined that the best solution is to take from the rich and give to the poor. Fortunately for Obama, Robin Hood died a long time ago.