Sputnik + Explorer = B 52s; Housing Speculators (flippers) At Fault For Meltdown?


Sputnik I

Explorer I

Explorer I

The B 52s

The B 52s

Maybe We Should Call McBroom

Maybe We Should Call McBroom

Louisville weather continues to go as planned. That means nice weather but no rain. We’ll warm up as we go on through the next few days. Saturday morning temperatures will not be quite so cool when the official low Friday morning was 45 in Louisville, Rough River Lake had 36 and Bradsfordville 35. Look for upper 70’s Saturday, low 80’s on Sunday and mid 80’s to start the week. Midweek a front will slip into the area and provide a chance for much needed rain. If you can’t get the rain you need, you may as well settle for a spectacular weekend, which we will have.

Housing foreclosures: After watching all of the goings on regarding the “financial crisis” I’ve been pondering how we got into this mess. It didn’t happen overnight. I posted a video that indicates members of Congress were indeed warned of a problem with Fannie Mae and Freddy Mac and they seemed to brush it off and leaders did react by calling the administration’s people incompetent, said that nothing was wrong with Fannie Mae and Freddie Mac and those in charge of the institutions were going a great job. SEE THE VIDEO HERE. But, I got to wondering about all of those homes that are either in arrears on

How Did This Happen?

How Did This Happen?

their mortgages or in default. In the debates, we’ve heard that homeowners were unsuspecting dupes to predatory lending practices. And I’m sure that was the case in some instances. But, what about the “flippers?” Those are people who bought homes with no intent of living in them at all but simply buying them and speculating that prices would rise rapidly and they could re-sell them at higher prices. I was thinking that perhaps many of those people might have gotten adjustable rate mortgages because of the low initial interest rate because they didn’t care if the rates went up since they were intending on selling them, taking the profit and getting out from under the mortgage before the rate ever went up. Then, the market prices of homes started falling and they couldn’t sell them and then not be able to make the mortgage payments, so they got foreclosed on.

I did some snooping and found an article (CLICK HERE) from August of 2007 that outlines that exact scenario. It says that, at that time, 29% of all mortgages in foreclosure in Nevada and Arizona were for homes not occupied by the owners. In Florida, nearly 1/3 of all mortgages in distress were for non-owner occupied homes. And that was just for mortgages written in the previous two years. Nationwide, it said that 13% of all mortgages in distress were from homes bought by investors, not actual people who resided in their homes. I believe that I saw a statistic that said its only about 4%-5% of mortgages are in foreclosure. With 13% of those nationwide in distress a year ago coming from those trying to turn a quick buck, I wonder how many actual homeowners…people who live in their homes…are really in distress? I would submit that part of the blame here goes to people who were trying to flip homes and turn a quick profit by outsmarting the market. They got burned and lost the gamble. So, the question is, should the Federal government come to their rescue? Would you feel comfortable with that? Here is a listing of homes (CLICK HERE) that somehow have been determined in the Sacramento area as having been owned by speculators. Look at the amount of devaluation and how long they’ve been on the market.

On This Date in History: On This date in 1861, President Abraham Lincoln observed a balloon demonstration near Washington DC showing the value of using balloons to gain military intelligence on the battlefield. Both sides tried them for awhile but abandoned the practice after a few years when it was decided that they were too dangerous and unreliable. An advocate was Thaddeus S C Lowe (CLICK HERE for more info)who was in charge of the Union balloon corps. But he resigned after his pay was cut 40% when Union Commanders Joe Hooker and Ambrose Burnside were convinced that balloons gave inaccurate information. Bright guys, those Union Commanders. In the 20th century, aerial reconnaissance became a staple of military intelligence information.

In an ironic twist…On This Date in 1957…the Soviet Union put the first satellite into orbit. It was called Sputnik I but also was known as a “baby moon.” This was because it was a small round sphere that orbited around the earth putting out a little beeping noise via radio waves. Americans being as they are turned it into a political football and Democrats charged the Republican Eisenhower administration with allowing the Soviets to get ahead in technology. It was fearsome because it showed that they had missle technology to deliver nuclear weapons or even build space platfoms from which they could drop bombs on the US! There also was the question of using a satellite as aerial reconnaissance…something Union generals Hooker and Burnside had tossed aside nearly 100 years before. So, President Eisenhower started leaning on the space program and by January 31,1958, the US successfully launched its own satellite, Explorer I and the space race was on.

This all really went back to 1952 when the International Council of Scientific Unions established July 31, 1957 to December 31, 1958 as the International Geophysical Year since scientists knew that solar activity would be at its height during that time. They used the opportunity to promote putting up artificial satellites around the earth. The Americans started off with their Vanguard program which was to put a 3.5 pound object into orbit. But the Soviets beat the Yanks to the punch with the beachball size, 184 pound Sputnik. Now I’m not sure what Sputnik did except scare people and get the Americans off their keesters. They turned to Werner Von Braun to develop the Explorer program. Unlike the Soviets and their mini radio station, the Americans included a small data collection system and Explorer I not only showed that “anything you can do, I can do better,” but also discovered the magnetic radiation belts around the earth, which took the name of its primary investigator, James Van Allen. The Van Allen Belt later was displayed prominently in “there’s a moon in the sky (called the moon)” by the B-52’s. Now that is progress…Sputnik to Explorer to the B-52’s.

2 Responses

  1. Hmm. I never thought about the flippers being partial culprits in this. Sort of like the speculators running up the price of oil but with the housing market. That makes sense but it doesn’t explain what caused the price of houses to fall in the first place (which left the flippers up-side down in their houses). I kind of thought that the loan crisis was really sparked on a more fundamental level by people losing jobs and losing overtime making them unable to pay their mortgages. But what caused that? I believe that the strain that higher oil prices put on our economy were the spark that set this off this whole chain of events. I’ve been saying (to no one in particular, I don’t have my own blog!) that oil would keep rising until it reached the tipping point where it started hurting the economy. Since our economy is so dependent on oil it literally affects everything that we buy and sell, as I’m sure you know well. As oil prices have risen companies had to raise prices to their customer…but pretty soon the customers reach their own tipping point and start hitting back. As a company your choices then become: 1) Lose business. 2)Try lower your costs by other means to maintain some semblance of profitability. This is why I think that when oil prices were skyrocketting inflation stayed relatively tame. Then as oil prices continued to rise further employers began to try to cut labor costs by reducing over-time or laying people off. Even if you keep your job but lose over-time that you’ve become dependent upon you’ll still wind up in a pinch particularly if you’re in debt up to your ears anyway! Sure the bad loans and housing bubble were the trap that we set for ourselves but it was high oil prices that set the trap off, in my opinion.

    I’ve tried to listen to both sides on the bailout and I realize our leaders are trying to avoid a major economic meltdown. But in my heart I just don’t think that it’s right. When people make bad decisions they need to suffer the consequences for those bad decisions so that they (and possibly their children as well) learn not to make them again. When the government starts stepping-in to make things good again and short-circuits this process then the lessons are not learned and we as a society suffer. You can’t make loans to people who don’t deserve them and can’t pay them back (just to fulfill some socialist ideal). You can’t take out loans for more money than you can pay back. You and I lived through the seventies and eighties and saw some pretty lean times. This generation has not seen bad times and really have come to seemingly believe that they won’t ever come. This is not how life works, unfortunately. If we spare this generation this lesson then the next time the mess will be so big that it will be literally impossible to clean up. What’s worse is that everyone will become conditioned to government taking care of all their problems. This is not what this country was founded upon and we as a people will only be worse for going down this path. We’re just forestalling an even bigger crash the next time. When this next time comes, the $700 billion won’t even be a down payment!

    What a Gloomy Gus I am! I’ll just keep on praying. That’s about the only thing that I can really do anyway. This things a lot bigger than you and me. The thin thread that’s holding this world together is in a hand larger than ours, Mr. Symon: That’s for sure!

  2. Here’s a timeline to consider. Greenspan keeps lowering interest rates exceedingly low. Mortgage rates fall. Home buying increases. Home speculating increases. Home building increases. Dollar tanks. Exports increase thus helping manufacturing. With falling dollar, oil prices rise since oil is traded in dollars. Inflation creeps in. Fed raises rates. Mortgages become more expensive-adjustable rate mortgages go up. Inflation due to oil continues. Housing prices fall as demand erodes due to higher mortgage rates….and so forth. A good side of higher interest rates is that the dollar is rising and oil prices are falling. Even if we cut rates again, the momentum is now on for a global recession which should continue the slide in oil prices as demand decreases.

    In my mind, the key was the low interest rates that triggered all of the rest. Then you have Congress burying their heads as Fannie Mae and Freddie Mac were shown to be fraudulent yet they did nothing. You also had years of lending practices that were required by regulators…loans that lenders would otherwise have not made but were forced to do.

    As for the “bailout” its not about giving money to anyone. Accounting rules now say that banks have to list assets monthly at market rates, not the face value or future value. So, the mortgages that are in distress of some kind have a decreased value. Thus, the banks ratio of assets are diminished. The government plan will buy the assets and take them off the books. The government is then free to sell those assets later. Theorhetically, the government can make money by selling the assets later when the value increases higher than what it purchased them. These bank mergers are a result of opportunity. In Wachovia’s case, they had a bunch of low valued assets and their stock price fell. Citi or Wells Fargo looked at that and thought it was a good deal. They can buy the assets of Wachovia, take their deposits and let the government take the low valued assets off their hands. I’m not sure what the Wells Fargo deal would do but I know that Citi’s take over would have given them $1.3 Trillion in deposits taking over the top spot from JP Chase who gained the spot a few days ago to $900 Billion when it bought Washington Mutual.

    The problem in the near term will be short term paper…commericial paper and such…that business needs for day to day pperations.

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