Sunday, February 24, 2008

Foreclosure Bailout

Bumped: This is more important every day that banks clamor for some type of bailout:
A bill to allow the bankruptcy court to modify home loans is pending, HR 3609.

Much has been written about plans to help all the poor people facing foreclosure (What? You haven't seen anything? You must not be reading financial blogs...). The Fed is going to try to force mortgage servicers to freeze mortgage interest rates for people facing adjustments over the next year to 18 months.

The complaints about the plan are: only those people that are current on their payments but unable to afford future raised payments will qualify. Those that can afford higher payments or those already missing or late on payments will not qualify. One report suggested only 12% of people facing payment adjustments will qualify; the information necessary to make the determination includes income and expense details for all couple of million borrowers.

There is an easier way. Let anyone missing payments, or facing higher adjusted payments, file chapter 13 bankruptcy. The Federal Court requires detailed income and expense reports, a means test to determine how much is available for debt repayment and a single modification of the law will allow the court to freeze the interest rate on the mortgage for up to 5 years.

This way only those that really need the help get it, it is federally supervised, it helps borrowers get the rest of their finances in order and it is limited to 5 years.

Talk it up....

Wednesday, February 20, 2008

Something lighter

Victoria's father passed last week. We had to hop a plane and go to Florida to deal with the issues. We weren't gone long, left Wednesday night for Chicago, flew out Thursday, started driving his car back on Saturday, got home Monday.

On Saturday, before leaving Florida. We stopped by a gulf side beach and I collected a couple of shells for CJ, sticking my toes in the water for good measure. It was 70 degrees, the air, the water was low 60s I'd guess.

We came home to snow, zero degree temperatures and howling winds. Frankly, I don't remember a winter this cold or snowy (I know we set a record in Wisconsin, but I didn't always live here!).

So, as of yesterday, I am going to work to increase my carbon footprint by at least 20% by 2010.

Global warming....we really, REALLY, need to speed this up....

Tuesday, February 12, 2008

Immigration Enforcement and Recession

If you want to get some confirmation that the economy is going/gone into recession, look at the number of places that are beginning to enforce rules/laws against employment of illegals.

As people get nervous about their jobs, they are going to really get pissed off at an illegal still being employed. Enforcement of laws against employment of illegals is the political class trying to get ahead of a grassroots uproar over illegal employment when jobs are in short supply.

Watch...even democrats are going to jump on THIS bandwagon!

Wednesday, February 06, 2008


The tech bubble caused a loss of about a trillion dollars in value in the stock market.

The real estate bubble is going to write off 3-5 trillion in value in real estate. Does that mean that the real estate bubble is 3 to 5 times worse. Would it be so simple, would we be so lucky. Most of the real estate is supporting debt obligations at the rate of 7-9 times the underlying value. That means 27 to 35 TRILLION in losses.

Our GDP is 13 Trillion so you think it is not possible? I will accept all the ridicule you want to heap on me, in 2010. Wait til then to unload on me.

Doom and Gloom Becomes a Debate of Ideas

The Doom and Gloom post of 2 days ago was prompted by a comment thread on Bizzyblog. The primary participant of that debate has asked to keep the discussion going in an open thread. Tom, the owner of Bizzyblog has suggested we move the discussion here and I am open to it.

I will post his first comment here and continue the discussion in the comments. I hope you follow along.

If we had to spend $150 billion, it should not be thrown up in the air to shower down aimlessly in the vain hope some of it will keep things going in a pump priming effort. Pump priming was always a failure in the long run since it never addressed the real economic issues, since it was throwing money at a problem instead of targeting the problem.

The problem as I understand it, is focused upon the solvency of the banking system to make home mortgages. Without the loans, essentially houses can not be bought or sold, few people have $300k in their pockets. The government would be better off injecting the $150 billion into Fannie Mae or Freddie Mac to undo the credit lock that has brought everything to a screeching halt. Secondly, any loans created by this injection would be disqualified from any derivative hedging action. It's ok to package a group of loans, but it's not ok to hedge them, the risk of default must be born by the mortgage borrower in the amount of the interest rate charged. In my mind, the amount of interest charged is no different than a credit card account, except with the important distinction of collateral. Then at least in 30 years time, we will get most of our money back ($150 billion) with interest.

Tuesday, February 05, 2008

American Conservative Party

NO!@ No one is invited to my place for pizza and beer!

Many Republicans, some independents and a bunch of other types have come to the general conclusion that the current two party system is well, not working for us.

So, a gentleman by the name of Bill Quick, the host and founder of The Daily Pundit, has given us space, encouragement and the opportunity to see if creating a new political party for conservatives is an idea whose time has come.

If you are a conservative, or are not a [insert variable here], come by and take a look.

Monday, February 04, 2008

Doom and gloom

Last week, in response to a post by a friend on the report of GDP, I posted an opinion about the size of the change. What followed on that blog was a long discussion that I am going to excerpt here. I am only including my comments as I do not have permission to quote someone else's. The discussion will illustrate some issues I have with the market and why I am generally downbeat about the near future.

I once had a book “How to Get Rich on the Obvious”. In it the author argued that looking at numbers in a stock market or an annual report meant nothing. He would go to a bowling alley and see lanes filled night after night - he bought bowling equipment providers - when the alleys’ starting having empty lanes, he sold.

For months, many months, housing has been declining. The empty developments, the run on for sale signs, has indicated at least a part of the economy wasn’t very rosy. The October employment figures showed an INCREASE in hiring in financial and real estate when mortgage brokers, lenders and real estate agencies were closing faster than locksmiths could change the hardware.

The housing ponzi scheme got interrupted in early 2007, the financial ponzi markets supported by housing ponzi got interrupted last August. With 687 TRILLION in financial derivatives outstanding and no one knowing how much they are really worth, lending - a necessary precursor to economic growth has locked up like Wisconsin lakes in January.

Sorry about being long, but a few of us were surprised that the GDP came in as HIGH as it did…!

a question asking about the quantity of derivatives

Nope, TRILLION. Derivatives are a nightmare behind the financial markets. The people that watch the financial markets are way beyond doom and gloom, they are just watching to see how far and how many are going to down the drain.

I will point you to this article.

again, a question about what derivatives are used for...

The big use is interest rate hedges and risk on interest bearing paper hedges. Big changes in interest rates are bad for hedging - regardless of direction. And as most of the mortgage and commercial paper has been leverage 8-10x, meaning even small changes in the value of the underlying assets or changes in the interest rates can have big impacts. The financial market freeze in August was caused (primarily) but an unwillingness to roll over commercial paper that had mortgage paper as a underlying asset - no one knew the value of the underlying mortgages because the default rates were jumping. Remember default rates in the .5 or .6 range were ordinary, but defaults were increasing to .8 or .9 and have continued to climb.

As default levels continue to rise, the underlying valuations become questionable. The hedges, leveraged 8-10x, can not tolerate even small changes. Some of the underlying paper has been valued at 20 cents on the dollar. Such fire sale prices
call into question virtually everything of similar type. Everyone KNOWS that the valuations are higher than 20 cents, but everyone is scared that once things start hitting the market, no one can pretend that the paper they are holding at $1, is
worth that much. Another issue: the insurers of risk, the AAA insurers, have so little capital in comparison to their exposure, that losses of even 4 or 5 cents on the dollar will wipe them out. They lose their AAA rating, the paper they insure will lose theirs, and funds that require only AAA paper in their holdings will have to dump/fire sale those assets, leading to further price pressure down.

what is the impact of the Fed rate cut?

I have tried to avoid detail in my posts because, well, it would be long and I am trying to distill several months of discussions and posts. The issue in the financial markets is either one of liquidity or solvency. If there is a problem with liquidity, then the Fed injecting funds and lower the rates will help. However, if the issue is with solvency, then you will see lots of cash hoarding and adding funds and lower rates will just lead to inflation, but no real help in the markets. Right now, cash is sitting on the sidelines which is why things like the stock market are holding up really well…the cash has to go somewhere, preferably liquid and well defined as to value. You may recall some press about 6 weeks ago about the Fed and the European Bank injecting billions into the market…well, some digging revealed that the Fed did just the opposite, it TOOK funds out of the market. Our problem is solvency, not liquidity. No one trusts the value of the asset base and no one wants to lend based on assets they can’t determine the value of.

The Fed move calms the superficial markets, but it does nothing to the underlying problems…except maybe to give everyone some time to figure out how to put some trust back into the markets. But since last August, most of us have just been waiting for the other shoe to drop.

I will agree with Tom about this: there has been a lot of talking ‘down’ the economy. In some quarters, there is a desire to get the shoe to drop as quickly as possible, to get the drama and damage over. The alternative is to drag the problem out over many, many months, crimping the economy the entire time. It also gives the politicians more time to ’solve’ the problem by making it worse.

The derivatives issue has to be unwound, but there is almost no way around the damage it is going to cause. The question is: do you want 6 months of financial hell and serious asset deflation and then a slow recovery? Or would you prefer to have anemic growth for the next 3 years and then a very long, drawn out recovery that takes another 3 or so years just to get us back to today?

Frankly, from our point of view, there is no third choice. (I have one, but no one likes it - a nuke goes off in an American city. The financial markets force the s**tstorm during the chaos as a cover. See, no one likes that choice - can’t say as I blame them…but I don’t live near DC or NY either).

Thanks, this has been dragging on for almost 6 months. During that time we have seen a steady erosion in confidence in our ability to handle our economy. We are also seeing foreign creditors blaming the American people for financial misconduct leading to serious financial impairments in their own countries. The ’sub-prime’ mess has
hurt overseas banks almost as bad as our own. The result is the people that lend us money to finance our buying, are no longer confident that we are doing so honestly.

And, frankly, I don’t give a rats butt about which moron is in the White House, I care much more about Americans and our ability to live freely. Having a couple years of stagnant or little growth is NOT in our best interests. I don’t believe (based on research) that a recession - classical definition of 2 quarters of negative GDP, something we haven’t seen in 26 years - is possible. But it is possible to have .5 GDP growth per year for 5 years. Consider the limitations that would impose on our economy.

Without lending, there is no growth. America does not grow out of cash flow. You have probably heard many times in the last several months that mortgage applications continue to rise! Yea, right? What you haven’t heard is that mortgage FUNDING has dropped through the floor. Over 200 mortgage lenders have failed/closed their doors in the last 6 months.

In many places in the US housing prices did not skyrocket. But in more than 40 states, the median price of a home is beyond the range of a median income family - based on more traditional lending practices. Either incomes have to rise (not going to happen in a .5% GDP growth environment) or prices have to come DOWN…deflation. Reducing the Fed rate encourages INflation in absence of solvency.

Eating around a bad apple hoping to get good ones before they all go bad is as stupid as ignoring a wound because 99% of the rest of the body is fine.

I have privately said in the past that while the visible economy (the stuff we see in the news every day) appears to be fine, the foundation of our economy is rotten as all hell. Most people don’t know they have a termite infestation till the house falls down around them. Since August (and for some of us longer than that), the damage in our economy is apparent, if you are willing to look.

Failing to act will not change the facts that there is a very serious disconnect between our ability to earn and the debt that is out there, not just in the US but global. If we follow your plan, we are likely to see the same thing here that Japan has been dealing with for over a decade. The Fed is not looking out for the economy, it is looking out for it’s clientèle, the banks.

Because you don’t know me, let me state it: I am a fiscal conservative, (a registered independent - was a Republican for 25 years until 2005) and hold a degree in Economics. I work for a bankruptcy attorney (who happens to be my life partner, a raging liberal and a pretty smart lady in her own right).

Our problem is not liquidity, it is solvency.

Let me point you to a specific post that addresses the liquidity issues. Please, let me be clear. The problem in the financial markets is one of solvency - lenders do not know what the value of the underlying assets are. Default rates on mortgage lending have increased ‘dramatically’. Yes, a half a percentage point is a lot when you leverage the paper 10 times. Fed rate cuts help liquidity and only marginally, solvency (real cheap money makes even risky lending potentially profitable).

You are right that there is plenty of cash to lend. It is just no one is lending. So, I think you are getting a point about it not being a liquidity issue. But your point:

“So what I think you and Hussman are saying is the value of the securities used as collateral for the Repurchase Agreement to protect against default as the underlying basis for the transaction is of questionable value? But if that is the case, as long as a default does not occur, no one knows the difference”

This is the issue. For a long time, commercial paper that was issued using mortgage pools as part of the collateral was simply carried at par value and rolled over (most CP is short term - 6 months or less). As long as default rates were within parameters covered by the risk hedges, no one worried. When the default rates increased, the risk hedges started to kick in. In early 2007, the problem was ‘contained’ to small geographic areas, and specific types of loans, the so-called, sub-prime mess. But it wasn’t just sub-prime. Those mortgages were pooled with other prime mortgages and
sliced and diced and the returns sold off in chunks called trances. The trances were used as collateral for more loans, which in turn were sliced and diced and used as collateral. The paper was sold all over the world to financial organizations that had money to lend, but only would lend on AAA paper. As the defaults continued to rise, and spread, more and more people were finding out that a default in San Diego was affecting the default rate hedges on commercial paper being held in France. The more people looked at what they actually bought (instead of relying just on the AAA
rating), the more everyone began to realize that the sub prime mess was at the root of a lot of CDOs (collateralized debt obligations). The percentage wasn’t big, but again, when you have leveraged something 8 or 10 times, small gains are magnified - YEA! bigger returns!! - but so are small losses…BOO! People began to wonder just how bad the default issue was.

All through early 2007, the default rates continued to rise, .55, .56, .58, .60, .62 (examples, not exact). By July, the rate increase which had not shown any slowing, started showing up in places that were no where near residential mortgages. It started showing up in commercial loans. About 100m in CDOs were due to roll over in early August and the holders of the paper couldn’t get anyone to buy. Well, that isn’t true, they could get a buyer, at 20 cents on the dollar. WHOA! By the end of August, the problem had spread and the markets realized this was not a single issue.

Things have not ‘fallen’ apart because financial markets are doing what you suggest DC, they are pretending the value is still par because they are not selling, or lending, or defaulting - even when defaults are rising steadily - so that no one has to actually come up with a real market value. There have been lots of private placements of the paper, but most of it has been at an estimated 80 cents on the dollar (but some appear to be considerably worse). Where assets had to be sold, the price has been 20 cents or less.

The Fed did do one thing in November. It allowed banks to use whatever collateral THEY wanted to use to borrow from the Fed - before, it had to be bona fide AAA assets. Borrowing from the Fed grew a bunch in December. That helped loosen things a little.

Last point, some of the CDOs done in late 2006 and early 2007 have default rates approaching 50%, not 5 percent, not .5 percent, 50%. Those CDOs were sliced and diced and leveraged to the point where 10 million of CDO is supporting 60-90 million in debt. I have not seen any good estimate of how much of the CDOs were written then, but a couple of billions would not be off.

I wanted to address the issue of flipping and illegal labor leading to overbuilding. Flipping and speculation did fuel price bubbles in several areas, notably, California, Nevada, Arizona, and Florida. But as I commented earlier, 40 states
have median home prices above the median income level. I think California had the worse, only about 9% of the people in California had sufficient income to buy a median priced home. That means a lot of people buying homes did so in a way that risks default.

We were in Santa Barbara CA in late August. We went to an open house in a very generic neighborhood, no views, 6,000 sq ft lot, 1100 sq ft home, 3b/2b, small backyard. Nice home, nothing special. 1.3million. A family sized home in a Santa
Barbara ’suburb’ about 2 miles away from the 1.3m home, near the high school, 880k. Who can afford that?

Do you know where the people I hang with lay the blame? Greenspan and the Fed. You can afford a lot more home when the interest rate is 2% than you can when the rate is 6%. The significantly low interest rates helped build debt. When a home is appreciating at 5% or more a year and your loan is 2, or 3, or even 4%, you pile on the debt. Did you know that the Fed is offering interest rates now that are below inflation! What does that suggest to you?

If the Fed is offering rates below inflation, they must believe inflation is going to go down. Negative real interest rates usually lead to asset bubbles as cheap money seeks investments.

Retail commercial appears to be overbuilt and default rates on commercial loans have been going up for the last 6 months. Right now, almost every type of non-governmental debt is defaulting at increasing rates. California is already suffering from the housing mess with lower revenues. The likelihood of a state defaulting is next to zero, but smaller muni’s might have some problems soon. Credit card, auto loans, commercial real estate are all showing higher default rates.

4 years ago foreclosures were about 500,000 a year, we may hit 2.75m this year (my prediction last year was 2m, we hit 2.2m). Bankruptcies which were running about 1.3m prior to the bankruptcy reform law were just under 900,000 last year. I expect them to be close to 1.3m this year (and if things do go to hell in a hand basket, the number could be 1.6m, a record.

BTW, many consider the probability of a Citigroup bankruptcy at better than 50% this year.

Oh, maybe a final comment: you may be only minimally aware of the issue with financial insurers. Many bonds and other commercial paper are insured against losses. For many years these firms mainly insured bonds issued by municipalities. But several years ago, they branched out. Insuring CDOs and their many offspring led to nice new profits. The problem was their risk was growing from practically nothing (muni’s rarely default) to considerable but their capitalization was not keeping up. In many cases, a municipality with less than stellar rating, say A+, could purchase insurance from a AAA insurer and get an AA or better rating on the issue. The savings on interest would more than cover the insurance premium. The risk of default was transferred to the insurer. CDOs that are defaulting fall back on the insurers, several of the largest are MBIC and Ambac. About a week ago, Ambac was stripped of its AAA rating. Fitch, a credit rating agency, worried about the exposure. Ambac issued new debt earlier in January with a rate of 14%. A AAA insurer paying 14%
interest on it’s debt!? Worse, the price quickly dropped and the rate is now 19%. The paper insured by Ambac now has a risk of having their ratings also dropped. S&P quietly, around midnight Wednesday morning, indicated it had put over 500 Billion in bonds on a negative ratings watch.

Funds that are required to hold only AAA paper might be forced to sell assets that lose their ratings. 500 Billion in assets coming on the market would depress prices…deflation of assets.

While everything looks nice and bright in the economy, there is a storm of terrible size on the horizon. It is the structural issues that are a problem and it is getting little or no press because the financial markets are all standing around a bomb hoping it won’t go off, and trying to stay as quiet as possible while working very hard to figure someway out of the mess.

I appreciate the opportunity. The problem with unwinding, is the unwinding. Unlike futures contracts that can just expire, in most cases there is a value associated with both sides of the transaction. In most cases we have an underlying asset. Only if both parties to the transaction agree to the fiction of par, do we get a 'carefree’ unwind. Unfortunately, everyone wants their money back. Remember how this starts: I put a package of loans together, say 10m worth. I sell you that package for 10m. But there is risk. So, as a hedge to the risk, insurance is purchased or there is a corresponding interest or default hedge. If the package is AAA, then insurance is cheaper as the default likelihood is low. Now both I and the insurer have all but guaranteed AAA. You take your package and add it to 4 others you already own and sell all 5 to someone else looking for AAA paper.

I have kinda skipped over the tranches part. A lot of the paper is broken up this way: package of 10m is broken into 10 tranches. Each tranche is valued differently and has different rights. 1st tranche pays out first but has a lower rate, call it prime+.01; 2nd tranche pays out next, rate is prime+.015 with a slightly higher default risk, and so on. 1st tranche is AAA, second, maybe AA+, by the time we get to the 10th tranche, we have maybe C+, prime+1.

If the default rate increases, several things happen at once: the tranches start defaulting. Hedges start collapsing on the lower tranches and insurance kicks in on the higher ones. We lost several hedge funds last summer and fall - completely wiped out because the hedges turned and the funds had to cover. After the hedges started failing, the insurers started having capital problems.

Some of the big packagers made some promises to their buyers: if the defaults hit a certain point, the sellers would take back the packages at par. A safe thing under many circumstances, bad idea now. Because the sellers were banking entities, there are capital requirements and if the packages started coming back, they would need to raise capital….a lot of capital. So we have seen over the last several months some high profile capital raising. Right now both feds (FED and regulators) are letting a lot of the paper sit off the balance sheet. It can’t stay there forever.

Back to the unwinds: I sold you a package worth 10m. You took it with 4 just like it and sold them to Joe Sovereign Wealth Fund for 50m. JSWF is getting prime+1 for all his trouble…except, it is not prime+1 because 20% of the notes are defaulting. He either sucks it up and takes the loss, or he tries to pawn it off to someone else. Except no one else wants it. By the way, I took the 10m I got and went out and bought 42 more mortgages to make another package. So did you with your 50m. Only now, your buyers are not buying, and so you can’t. All of a sudden, I can’t buy more mortgages so the originators have to stop too. No one wants tranches, they want all AAA paper. Prime paper was fine in August and September, then prime paper defaults started rising in October and really got some steam up in November.

For the people that bought rights to the tranches, but not the underlying assets, they are fine except, well, they are sitting on a lot of money with no where to put it. They have to write off the income loss against other profits/income…unless their income is..oh, I don’t know…oil money or positive current accounts. Then the cash is still pouring in with no where for it to do but the mattresses. Lack of trust sucks. What happens when you have an abundance of something? It’s value declines.

For the people that bought the securities, they have a choice, hold them and wait or write them off. The only problem is that almost no one bought to hold them, they were used as collateral. And accounting rules are pretty strict in most places. Every once in a while, you have to say how much your assets are worth. Oh, and if you happen to be using said collateral to meet financial benchmarks, say to keep your AAA rating, or to keep your cash flow necessary line of credit…mark to market becomes important.

Repurchase agreements: if I borrow 10m from you and pledge my package, a package we both know now is worth 9m, or 8m, then you are going to want one of two things - repayment or a much higher interest rate. If I have to repay you, I have to raise 10m. How? The method I have used for the last 5 years requires me buying more mortgages and reselling them. A market that has dried up in several ways (property depreciation being one!). Or selling assets, assets everyone knows are worth less, but how much less? Put the paper on the market and get 20cents on the dollar? That is what is happening. The alternative is to agree to rollover the paper, but at a much higher interest rate. A serious impact on cash flow. And we still have to set a value (some currently at 89cents…a loss, but only on paper right now.

The big financial packagers haven’t really been making money on the interest earned, but on the fees for packaging and selling. Lose those fees and well, income drys up.

CDO’s are all but dead. There is no current market and with the exception of some private placements, none apparently have sold for months. Most repurchases are for less than 6 months, some considerably shorter, some, not a lot, for more than a year. For the banks with access to the Fed, the Fed is taking just about any collateral and the banks are using it. The collateral has to be redeemed at some point and it has to be redeemed at par which means somewhere the loss is going to show up.

You gave me 10m for my package. You will want your 10m back even if the package is only worth 2m. Worse, at some point, your people are going to want to know that the 10m loan you made is secured well. Right now, China holds a lot of paper and there is some belief that they are LOSING 4 billion a month because of the pricing issues. They are willing, up to the end of 2007 to tolerate it because of their exports to us helps their economy at home. Over the last 30 days, China appears to be ‘unhappy’ with the current situation.

All because of some flippers in Orange County California? Sub prime mess? Several things have happened. First securitization. Packaging of mortgages and selling them off let the originators and first packagers off the hook for quality. Who cared if they defaulted in 2 or 4 years? The originators got their fees (and nice they were) and the opportunity to sell more. The packagers were off the hook for the same reason. Everyone that was looking to add just a little bit more to their return could buy AAA paper and get .01% more…bump the volume to 5 or 10 billion and it adds up. Hedgers sprang up like weeds and made billions. Add really low interest rates, easy money all chasing an asset and it’s price has only one way to go. Make it easy to refinance and it doesn’t matter about no stinking payments! The financial gurus figured out how to take a $500,000, 30 year mortgage paying 5% and slice and dice and repackage it into a 5m package paying 5.1% and $500,000 in fees…just have to leverage it 8 or 10 times and know, know without a doubt, the value of the underlying asset was always to go to up…more than 5.1%. Oh, and you had to have a lot of buyers
convinced you were right.

Every ponzi scheme ends, eventually.

About my research. I do not believe a recession is possible. However, NO ONE could have foreseen 500 trillion in debt obligations. The number is staggering. A 1% loss wipes out our financial system. No one wants to do what the law and financial rules says has to happen, least of all the governments charged with enforcement. There
is going to be pain, and it is going to be very bad. But no one is willing to even guess how bad, or even to try to start slowly for fear that once started, the cascade will make Niagra look like a drippy faucet.

Friday, February 01, 2008


I just posted this in the comments on another site, and decided I need a record so we can all snicker, laugh or cry in 4 years.


The Republican Party is about to get exactly what it wants.

Predictions for 2008-2012:
1. The first recession in 26 years will last between 8 and 11 months and cause widespread dislocations specifically in housing.
2. Ford will declare bankruptcy. As will Citigroup. Both will survive but neither will recover. Four of the top 20 banks will fail or be forced into mergers to survive.
3. Obama will be sworn in as President in Jan 2009. Hillary and Bill will be divorced in 2010.
4. A series of 'minor' attacks on American soil (single bombers in crowded places) will focus Obama on terrorism....unfortunately, we will find that several of the bombers were illegals that got visas as part of the comprehensive reform passed and signed in 2009. Obama will seal the border with an overstep that will violate virtually the entire Constitution with the complete support of the American people and Congress.
5. The military withdrawal from Iraq begins to resemble a retreat under fire.
6. A small nuclear denotation in Iran signals Iran's entry into the nuclear club in early 2011.
7. Hezbolla attacks Israel from the West Bank, Gaza (with Hamas) and Lebannon using rockets, several of which will be chemical. Israeli government will fail and only the Iran nuclear threat prevents the US from doing anything to help. Assistance from a completely unexpected source keeps the country from falling.
8. Bankruptcies in the US hit 1.5 million in 2009 along with 2.5 million foreclosures.
9. The Democrats get a functional majority in the Senate in 2009 (with the help of several RINOs) and complete the hat trick with a functional majority in the House in 2010.
10. A major financial figure will expose one, maybe two flat out lies that the media had been reporting in financial matters that leads to a rout of the dollar on international markets. Only the complicity of the EU in the lie prevents the dollar from ouster as the currency of trade.
11. A chemical introduced into coca in South America spreads into the cocaine trade leading to thousands of deaths and tens of thousands of addicts having serious and permanent medical disabilities that WE will have to support.
12. A version of nationalized Medicare will be expanded to 50 and overs and pre-school aged children.
13. In 2011, after tax cuts that were put into place in 2003 expired, the Federal revenues decline for the first time in almost 40 years.

Why did this all happen? A candidate for office in Pakistan was murdered in December 2008.

I don't care if I am wrong on every single prediction. I don't care if I am right on every single prediction. I do care that the people currently running for President fail completely, and without exception, to understand the consequences of their actions and choices. Theology is running the Republican party right now. The day we thought God was on a side, was the day we lost our fight to keep freedom.

The Chinese were right: may you live in interesting times is a curse.

Tracy's law: Murphy was an optimist.

How far can it go....

Housing prices are declining. Certainly not everywhere, and certainly not as much as some places, but if you were to take the median income and compare it to the median home price, it might give us an idea of how far home prices have gotten out of whack.

I took 33% of the median income and calculated a monthly payment based on 6% interest. Using that information, I calculated a price for a home. Compare that number to the median price where you live and you can determine if prices need to crash, decline, remain the same, or can increase further. In some cases, even if the local median is higher, you have to consider local issues and still, prices might be able to rise if incomes in the area are rising above average.

Real estate is local, local, local and every market has its good places, bad places and average places. Your mileage may vary, but places like California with prices hundreds of thousands above where they 'should' be, expect prices to decline.

Here is the list:

StateMedian incomeEstimated home price
possible for the
median income
Monthly Payment
United States48,023220,2701,321
Alabama 38,160 175,031 1,049
Alaska 57,071 261,771 1,569
Arizona36,693 214,170 1,284
Arkansas 37,458 171,812 1,030
California 54,385 249,452 1,496
Colorado 53,900 247,227 1,482
Connecticut 60,551 277,733 1,665
Delaware 52,676 241,613 1,449
District of Columbia 47,473 217,748 1,306
Florida 45,038 206,580 1,239
Georgia 48,388 221,945 1,331
Hawaii 61,005 279,816 1,678
Idaho 45,919 210,619 1,263
Illinois 49,328 226,256 1,357
Indiana 44,618 204,653 1,227
Iowa 48,075 220,509 1,322
Kansas 44,478 204,011 1,223
Kentucky 38,694 177,481 1,064
Louisiana 37,472 171,875 1,030
Maine 45,503 208,711 1,251
Maryland 63,082 289,343 1,735
Massachusetts 56,592 259,574 1,556
Michigan 48,043 220,362 1,321
Minnesota 56,102 257,328 1,543
Mississippi 34,343 157,523 944
Missouri 44,487 204,051 1,223
Montana 39,821 182,650 1,095
Nebraska 48,820 223,926 1,343
Nevada 51,036 234,090 1,403
New Hampshire 60,411 277,091 1,661
New Jersey 66,752 306,176 1,836
New Mexico 40,126 184,050 1,103
New York 48,472 222,330 1,333
North Carolina 41,616 190,883 1,144
North Dakota 42,311 194,070 1,164
Ohio 45,776 209,964 1,259
Oklahoma 38,859 178,237 1,069
Oregon 46,349 212,593 1,275
Pennsylvania 48,148 220,844 1,324
Rhode Island 52,421 240,443 1,442
South Carolina 40,583 186,144 1,116
South Dakota 44,996 206,386 1,237
Tennessee 40,696 186,663 1,119
Texas 43,044 197,433 1,184
Utah 55,619 255,111 1,530
Vermont 52,174 239,311 1,435
Virginia 55,368 253,960 1,523
Washington 53,515 245,461 1,472
West Virginia 38,029 174,431 1,046
Wisconsin 48,903 224,306 1,345
Wyoming 46,613 213,803 1,282