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“Administration Officials Don’t Really Want Housing Program to Work”

Posted by Larry Doyle on February 2, 2012 11:57 AM |

I find myself in a daily battle not to write cynically about our economy and the political dynamic within our nation.

Just this morning I find myself wanting to rail on the Obama administration’s latest efforts to support housing when past efforts have been such enormous disasters.

How enormous? I cannot help myself……. Well, as the FT highlighted the other day in writing, Foreclosure Prevention Plan Has Limited Impact:

The White House has rolled out programmes to forgive borrowers’ second liens and give unemployed homeowners a months-long forbearance from payments while they look for a new job.

It has even tried to entice lenders to reduce loan principal in exchange for being protected from losses due to default by allowing borrowers to refinance into a cheaper mortgage backed by the US Federal Housing Administration (FHA). Two years later, the FHA programme has helped only 646 borrowers….

646 borrowers….heh? Is that a misprint? Nope!!

None other than the Special Inspector General of the Troubled Asset Relief Program was the source for that figure highlighted by the FT. That is Uncle Sam at work. How great!!

Why and how does something like that happen and why are we supposed to believe that Obama’s “new and improved” housing plan might work? Don’t hold your breath.

What does Josh Rosner, co-author of Reckless Endangermentand managing director at Graham Fisher have to say about Obama’s new housing initiative?

“The structure suggests [administration officials] don’t really want it to work. They just want it to look like they’re doing something.”

Fairly easy to be cynical, don’t you think?

Let’s turn positive and get something accomplished by learning from somebody who truly understands what is going on in our economy and what is the key to real long term prosperity. To whom do I refer? Sense on Cents Economic All-Star Kenneth Rogoff addresses the knee jerk political quick fixes to which we have become accustomed and the key to real long term prosperity in today’s FT.

Rogoff writes, Our Ignorance Will Yield More Crises in Capitalism:

One absolutely essential prerequisite is emphasised in Adam Smith’s letter to the Financial Times (as imagined by David Rubenstein): educate, educate, educate.

It is really hard to see another way out of the growing sustainability problems that capitalism has given us. Mr Rubenstein focuses on the inadequacies of primary and secondary education, as well as the need to re-educate and retrain adults.

I would take the point much further: Societies need to find ways to make adult education, including economic and financial literacy, far more available and far more compelling. If voters are uninformed and easily swayed towards demagogues peddling short-term ill-considered policies, there is little hope for righting the course of capitalist economies.

The idea that the masses are indifferent to education, and that any broader notion of literacy beyond the three R’s (reading, writing and arithmetic) is a hopeless cause, is nonsense. As someone who has spoken to all kinds of people in the wake of the financial crisis, my sense is that most citizens are starved of information, and would consume it hungrily if offered in a palatable form.

Rogoff nails my motivation which drove me to launch and grow Sense on Cents along with the numerous sites to which I link.

Where do I go when I want to learn what is really going on with the consumer across every major sector, including housing and autos? Consumer Metrics Institute.

Where do I go when I want to learn what is really happening on the unemployment front? John Williams’ Shadow Government Statistics.

What about trends on the domestic and global inflation front? The Billion Prices Project.

Cutting edge market based research across all sectors? Seeking Alpha.

Something you cannot find? You can also ALWAYS ask your friendly writer here at senseoncents@aol.com.

Mr. Rogoff might be quite pleased. Uncle Sam? He’s busy playing games and wasting OUR money.

646 homes . . . “The structure suggests [administration officials] don’t really want it to work. They just want it to look like they’re doing something.”

Navigate accordingly.

Larry Doyle

Isn’t it time to subscribe to all my work via e-mailRSS feed, on Twitter or Facebook?

Do your friends, family, and colleagues a favor and get them to do the same. Thanks!!

I have no affiliation or business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets, our economy, and our political realm so that meaningful investor confidence and investor protection can be achieved.

  • Rob Phillips

    Obama and most of the fools on The Hill seem thoroughly clueless about how to fix the housing market.

    Ron Paul really seems to understand the economy and underlying causes of the difficulties we face in the housing market. What’s your take on his ideas.

    • LD

      On the economic front I believe Ron Paul is the only candidate who comes anywhere close to telling the truth about our economy and fiscal and monetary systems and policies.

      There is a reason why he resonates with the youngest generation. He is the candidate who is willing to pursue policies which protect their future. The other candidates are largely stuck in the Washington merry go round.

      Ron Paul becomes unelectable because of his approach on foreign policy.

      I would like to see him remain a presence throughout the campaign BUT he would likely guarantee an Obama victory if he were to run as a third party candidate.

      • Rob Phillips

        Thank you, Larry.

        I’d argue the foreign policy thing, but that’s another website. ; )

  • fred

    LD,

    A quick glance at the US daily price index within the Billion Prices Project shows 2 specific time period beginning in Q308 and Q111 with unusual price activity. In 2008 it was a deflationary surge and in 2011 it was an inflationary surge.

    Another point to be made is that if these 2 surge periods are removed from the data, the slope of the data is higher within a predictible range and that these two surge periods simply negated each other.

    One could also assume that these surge periods were caused by shifts in the demand curve and subsequent adjustments to inventory levels because of the ‘pop’ in the housing bubble.

    I understand the deflationary housing price argument but I have always defined consumer inflation more narrowly as changes in variable costs/expenses, (this would also exclude medical costs ex deductibles).

    Concerning expected growth (GDP), the Economic Cycle Research Institute (ERCI) recently revised their expectation of recession to non-probable. According to ERCI, weakness in GDP growth expectations last summer were driven by a drop in consumer confidence and manufacturing output due to concerns surrounding the debt ceiling and the US bond rating downgrade. Apparently these concerns have now subsided.

    Within this context for higher expected growth and inflation, further QE is certainly not necessary and the Fed forecast of neg real LT interest rates thru 2014 is an attempt to stimulate employment thru capex investment by lowering hurdle rates or something left unspoken.

    Considering the data, could one reasonably infer that deflation is no longer the primary risk to our economy? Would you also consider the best LT Sovereign Risk hedge to be GOLD?

    My personal opinion is that massive Fed liquidity created an artificial base in our economy and that a true base and sustainible recovery can only be achieved thru debt restructuring and/or deleveraging.

    LD, I am curious to know your thoughts.

    • LD

      Fred,

      If the data were to be believed as fully legitimate then the Fed would not have put forth the statement of maintaining zero interest rates through 2014. Additionally Bernanke would not continue to issue statements of caution regarding the economy and the likelihood of more QE.

      I do not discount that the Fed can and is being used for political purposes here in 2012. There is no doubt that the Fed has played a key role in juicing the economy during past Presidential cycles as well.

      Yes, outstanding debt does need to continue to be addressed and this is done via default, devalue, and/or restructuring.

      We still have not addressed the debts and obligations of the entitlement programs NOR have we addressed the federal deficit. In my opinion, with those as the greatest burdens facing future generations, Bernanke has long ago stopped focusing on the noise embedded in weekly and monthly economic data including today’s employment report.

      The MULTI-trillion dollar burden of the deficit and the entitlements will force Bernanke to “monetize” gradually.

      What does that mean? Hard assets should outperform gradually as well. Gold is the commodity that attracts the most interest BUT perhaps it has benefited too much too soon already. I do not trade commodities but I would think increasing holdings of a basket of commodities on a dollar coast averaging approach would be prudent.

      • fred

        I watch a number of portfolios that gear towards specific criteria, interesting that on an intermediate term contrarian basis the ‘hyper-inflation’ portfolio is now a BUY and the ‘low volatility/vix’ portfolio is now a SELL.

        The securities in the hyper-inflation portfolio: AA, BZF, CYB, DBA, DD, IYM, MOO, SIVR, SZR, TIP. (specifically excludes GLD)

        The securities in the low volitility portfolio: AA, APD, BHI, CAT, CVS, GD, TEL, TMK, TMO, TYC. (specifically exclude banks)

        With AA in both portfolios, I’ll be be watching it’s relative performance closely as a ‘tell’.

        Thanks for your incites and suggestions.






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