Friday, September 17, 2010

The Big Lie(s)

The future ain't what it used to be.
-- Yogi Berra

According to the media, we are somewhere between a slow recovery and a double-dip in this Great Recession. Virtually no one knows whether we face a slow grinding malaise or a possible drop that brings us to the gates of Hades. Or, Depression 2.0.
But, despite the attempts at maintaining a positive point of view, it is clear that what is good for Wall Street is no longer necessarily good for Main Street. The bursting of the real estate bubble, predicated upon the CDO’s and multi-levels of mortgage-backed tranches, which were clearly securitized bombs, is yet to play out in the economy. With 11 million homes worth less than the mortgage liens against them, several million houses already in foreclosure with another 2 million expected this year, the combined prospects of higher unemployment and a further dropping of home values, provides grim prospects for many homeowners.
Moving used to be an option when jobs were scarce. Now, moving to a new location in order to secure a job, means abandoning an underwater home – followed by default and damaged credit – followed by loss of an investment and financial ruin.

Some of the widely held beliefs about our economy have been challenged by this ongoing debacle. The buy and hold crowd on Wall Street is thinning, for one thing. Those who bought and held in the late nineties are poorer, not richer. Using the home as an investment, is another challenged concept. Prices clearly do not always rise and your house is no longer a reliable or viable ATM machine.
Another cherished concept is the belief that the government, while a bloated entity, protects you. The clear movement of executives from investment banks to government positions – and the focusing on everyone BUT the banks as the cause of this crisis – seals that deal. Even though the CEO’s from Lehman, Bear, Merrill and Goldman were buying insurance (credit-default swaps) against the toxic mortgages, which they knew would default, neither they nor their front men in the mortgage lending business took any heat. That is a story that needs be told. We might learn more about who was behind the grassy knoll first.
But, what is clear is that it is easier to prosecute homeowners for mistakes made in the mortgage process than it is to take down the perpetrators of the biggest fraud in this country’s history.

Meanwhile, expect more bond defaults at the Village, Town, County and State levels and a paring back of pensions that have already been hit by unsustainable withdrawals, losses and underfunding. The wall that we will ultimately hit is still years off and real recovery is not expected until somewhere between 2016 and 2020. Until then, small business in America will continue to dwindle in numbers. With the ability to prey on “Mom & Pop” operations by Code Enforcement inspectors, Federal and State tax agencies, Worker’s Comp inspectors, Sales Tax collectors and Health Department workers – looking to justify their own continued employment – small businesses are on the way out. This, despite the fact that it is responsible for 65% of employment in this country.

This is a downward spiral, which will contribute to deflation of assets – from businesses to real estate – and there is a failure to understand and act by our leaders. The Stimulus packages were a failure and one interesting fact belies the lack of expertise. Obama has spent more of what we don’t have in a year and a half -- than everything spent by all of the previous presidents in our entire country’s history.

This does not bode well for our future considering where we are now.

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