The new crisis

The next wave of foreclosures will be the FHA loan crisis. You heard it here first (or second if you have been reading the WSJ or BW). You see, the FHA (a division of HUD for lack of a better way to describe it), insures mortgages for buyers of modest means. And, as with some other Federally-backed programs that you may recall, con-artists with names like "Paramount", "Countrywide", "LendAmerica" have started to populate the scene.

In contrast with the subprime product, FHA loans are not super low intro rate loans ... they have normal conditions and tenure ... but the tricksters are able to get borrowers into loans they cannot afford just the same. Often (as in the case of Paramount) they are corporate successors of the companies that produced the subprime mess: same owners, staff and even office buildings. Paramount's predecessor corp is "Premier." Premier has a default rate of over 9% on its FHA mortgages and was a huge player in the subprime mess before filing Chapter 11. So, maybe a different floor ... maybe not. Last year the FHA backed only 4% of "moderate income" loans .. this year it is already 26%. The boilerroom loan industry has just shifted focus, and the abuses are still there. The default rate on LendAmerica's loans are 5.7% ... more than 50% above the national average, and remember, these are only just coming into vogue with the scam artists. Wait a year until the recession really starts to pinch.

The FHA continues to grant licenses to people who should be behind bars -- or even have been behind bars for financial fraud, such as Premier's CEO who now works with his daughter at Paramount. The number of licenses has doubled over the past year (7 to 16 thousand) ... while at FHA, the staffing level has remained the same, about 1000 people. Can you think of something ripe for abuse?

Then there is the matter of the Wall Street Fat Cats feeding at the trough again. Goldman Sachs, which managed to off-load its CDO portfolio before the whole market came crashing down, are active in the FHA gimmick: GS bought a former subprime lender, Senderra, and converted into an FHA and re-fi lender. The business plan works like this: buy distressed debt ... mortgages or auto loans at a deep discount ... 60 cents on the dollar, refinance the loans through the FHA and sell these government-secured loans at 90 cents. A tidy 30% profit for Goldman, and guaranteed by the taxpayer.

And we should offer any bail-out security to these people? Any at all?

Instead we should be tracking each and every one of the GS-originated FHA loans, and if they go bad at any rate higher than the national average prior to the subprime mess then Goldman should be made to foot the difference. That is, let them be rewarded for their ingenuity if it does not place a burden on the taxpayer. If this works out to be a transfer scam wherein the taxpayer effectively pays Goldman for its ingenuity, then Goldman should be held responsible: the victim is not some sophisticated investor who should know better, but Joe Blow taxpayer. Heck, make Goldman pay double for disingenuously placing that risk with you and me.

The net of this is this: when the same pigs are at the trough, we should expect the worst.

Volt do you mean?

A leftish-leaning friend called me to tell me that I had it all wrong about GM: the UAW are not to blame and management should be strung up. And then went on to say that the new GM Volt will be the answer to all problems when we all adopt this wonderful piece of high-tech engineering.

Yeah, right.

You see, this Volt-thing is Kyoto-krap. GM admits that the car cannot make money -- if they charged full whack for it, adding on re-cap costs, and pay-down for development ... it would be so expensive that you could buy two Priuses (or more). So Uncle Sam (through the graces of generous Democrat sponsorship) has already legislated a $7500 tax break for each car -- not that this helps, because at $40,000 estimated show room cost, consumers still will not buy it and (get this!!!) GM will still lose money on each car. Er??? And this piece of high tech nonsense has and will continue to consume billions and billions (Carl Saganesque amounts) of development dollars, freezing out small efficient hybrids and diesels which are on the drawing boards of GM Europe.

But GM (U.S.), clinging to its "sell those profitable SUVs" model needs this car: buy assigning a government 100 mpg rating to this car, the CAFE fleet rules (average mpg of vehicles made by a manufacturer) allows it to evade government mandated efficiency standards. That is, each Volt allows GM to peddle more gas-hog SUVs, which are (or at least have been) extremely profitable. While sleazy, this would be grand for GM, but for a simple failure to calculate this: Americans don't want SUVs anymore.

Are the UAW responsible for this? Not exactly -- although on its face, it is all about management failures. And management's greatest failure (and our government's) is/was the failure to reign in costs ... health care, pensions ... all of which points back to the UAW. You can't shut that inefficient plant, because if you do, then the UAW will walk out across the board. Ever heard of the "job bank?" Neither had I until recently. It is a gimmick whereby an auto worker whose job has been eliminated by automation or other efficiency continues to get paid. So what was the point of the efficiency move? None, really.

We also need to look at the Federal Government for "dirty hands"; as early as the Carter administration, we were out there with rescues (Chrysler), not to mention the blatant idiocy of calling SUVs "trucks" to avoid mileage restrictions (yes they are built on truck frames and running gear, but fail to have any of the work-driven benefit to society). This same stupid rule continues to haunt GM (and Ford/Chrysler): in order to meet the fleet mpg restrictions, GM MUST continue to produce cheap, nasty, roller skates in UAW-controlled plants to offset the gas-guzzling nature of their (now defunct) profit centers. Quite a trap, huh? And in so doing, enfranchise another generation of UAW blackmailers.

Yesterday, I elaborated on the fact that GM and Ford actually produce excellent small cars that can and do compete on price and quality against any other manufacturer in the world -- just not here. One wonders what adjustments in production and organizational structure would be required to make those cars profitable here (they make tons of money abroad)? Could it be that difficult? Would it require that UAW workers actually produce as much and at the same or higher quality as their German counterparts? Would this shift relieve GM and Ford from having to depend on the dinosaurs that nobody wants anymore?

Make no mistake, the age of the Suburban is past: the price shock of the past year will make anyone thinking of buying an SUV very leery of getting caught again: if the cost of filling it with gas didn't make you nauseous, the precipitous drop in resale values will. Essentially, you cannot give a used Chevy Tahoe away. It costs too much to run, even if it was free.

So instead, Pelosi, Reid and Obama want to throw good money after bad ... continue to fund the UAW's golden health and pension plans ... and mandate that in return for rescue, the Big Three produce eco-friendly cars. And, of course, the Democrats will be the ones to determine what a green car should look like. They said that a camel was designed by committee ... can you imagine what Barney Frank's car will look like?

Bail out the bums ... or not?

Look, friends and neighbors, GM stinks like rancid fish -- or Liberals from Cambridge. And we, as Americans, are stuck with Pelosi (I vant to suck your tax dollars) who has decided that GM et al. cannot be allowed to fail.

But first let me ask a question ... wasn't the $700 billion meant to buy toxic assets and remove them from bank balance sheets to permit loans again? Pelosi thinks not. Now that Congress has its greasy hands on the public checkbook, it wants to save big labor.

GM: eternal basket case. A pension plan that happens to make automobiles and trucks. By any normal measure, these cretins ought to be allowed to go "Chapter." You see, GM doesn't really produce anything that anyone wants. They haven't for decades. From over 50% of the U.S. market to a claimed 20% in just 25 years. The real number is probably much smaller than that, and as of November 2008, I understand that they are selling almost nothing at all. That takes some doing.

Why? I suppose a lot of it has to do with the quarterly report -- the 10Q so beloved of the SEC and analysts. So management, being the craven and ignorant invertebrates that they are, were and are afraid of doing anything new ... dissimilar to the managers of the past who boldly forged a new industry. Sclerotic is a word that comes to mind. They continued to produce gas-guzzling pieces of four-wheeled effluent -- crap -- long after it was completely clear that Americans in large numbers preferred fuel efficient (and dependable) Toyotas.

"America likes its large cars and trucks," was a consistent management refrain. The trouble is/was that in truth America liked cars that worked, didn't fall apart or dissolve during the winter, had a modicum of handling ease and didn't hurt the checkbook -- no elements of which are to be found in GM products.

Greater irony, then, that GM does produce competitive cars abroad: GM's German division, Opel, has long been thought of in the same breath as a Volkswagen or Honda/Toyota in Germany. Holden, GM's Aussie division makes world-beating cars that preclude the Asians from gaining a stranglehold down under. But for reasons that can only be described as "insanity" GM's American operations continued to build cars that nobody wants, with none of the brilliance of their German or Aussie products. Ancient designs using inferior engineering and the worst quality plastics imaginable. Dross that would make Russians blush.

Ford, the next in the line of Detroit morons, have even better cars manufactured in its foreign operations, including cars that have been "Car of the Year" across Europe, and where Japanese cars (which we so admire for their efficiency and dependability) are considered beneath contempt. FORD!! The new Ford Focus is a "world beater" as universally described by the motoring press of Europe and Asia. But it is not imported into or built in the United States. Ford seems to think that Americans wouldn't appreciate a car so good as to be considered by Europeans as better than its BMW/Mercedes sector competition ... and by a large margin. Instead, Ford decided to import the previous generation Focus to the U.S., something that was already past its sell-by date, five years ago. Small wonder people buy Toyotas and Hondas ... even Kias and Hyundais -- all the while a truly superior car is being made by your own subsidiary.

Chrysler. Don't let's even go there.

So the American tax payer is meant to bail out the idiots of Detroit. If we consider how bad the economic situation in Detroit is, how unearthly depressed and criminal the actual populace, then perhaps it should come as no surprise. Danang circa '67 would be more appealing than a mansion in Detroit. "Shock and Awe" is any week night along the 8 Mile.

But this is madness. The real trouble seems to lie in the following statistic: one in 10 American workers owes his or her job to the auto industry. If the pathetic, creaking wreck that is Detroit goes belly-up, the knock-on effect to the U.S. could be catastrophic: too important to let fail. And don't think that you'd be immune in Europe ... no, no, no ... Ford and GM are huge there too. There would be an immediate thrust to the solar plexus of the Euroland economy, followed by the inherited flu that will waft over from the U.S. to infect what ever remains solid in Europe. Bad indeed.

Also, European car manufacturers are hurting too ... nobody is buying cars. BMW and Mercedes export 30-50% of their products to the U.S. (depending on model, etc.). If nobody is buying, then Hans and Franz are not going to be making them ... or getting paid. Lay-offs in the German automobile industry are about as unpopular with their unions as the UAW. You want unrest?

Which brings up what might be the other wrench in the works: no matter how good their cars could be, GM and Ford simply cannot produce cars profitably in the U.S. given their servitude to the UAW, the United Auto Workers union. These companies have given away the keys to unions and labor over the past 50 years and can't get them back. No unions, no making cars. And so on down the supply chain: a vertically integrated union monopoly. Put simply, American car workers get paid too much for too little work producing some of the shoddiest goods on the planet. Not a great recipe for success. Did you know that a UAW member has better health care plans than do the investment bankers at Goldman Sachs? Or the President of the United States? No co-pay. No limits. For life. And their pension alpns are about as good: defined benefit plans. As a M&A lawyer, the first thing we looked for in doing due diligence on a target for clients was ... what kind of pension schemes do they have in place. Any defined benefit plans? Any way to force the seller to retain their obligations? And Toyota and Honda? Their U.S. operations are not so constrained -- unions are almost unheard of in their factories, although with Obama/Pelosi plans to re-instate bully-boy voting, unions may expand their influence (talk about stupid, that concept is perhaps the dumbest ever, except that the same bullies encourage their members to stuff the ballot boxes for their mentors in the Democratic party).

And GM's and Ford's pension plans are defined and in arrears -- underfunded to the tune of tens of billions -- maybe more. ERISA (a particularly nasty piece of legislation if there ever was one) protects the plan recipients and punishes the providers. To the extent that even if the companies could find a way to get the unions to agree to reasonable pay and benefits ... the government would likely stand in the way of correcting the imbalance. GM and Ford are screwed. Which means we are, and there is no way that a Democrat controlled Congress and House (let alone the Socialist-in-Chief) is going to reform the idiocy of ERISA to conform with financial reality. Better to let "the rich" fund the plans.

GM and Ford cannot possibly re-tool and revamp the pay/benefits structure in time to avoid bankruptcy. No way. Even if you could find Americans willing to buy Esclades, F-150s, Suburbans, Cadillacs, Buicks and Hummers. So, we buy time by giving them money which they can never repay, never hope to repay, and will burn through before Christmas. We buy ... a political band-aid in the hope (completely insane -- but so is Pelosi) that something will happen to cause households to start buying cars again, and American ones at that.

What could bring that about? War? Import barriers (remember the 1930's)? The tooth fairy? Maybe the best thing is to let it happen -- default. We are going to be paying those union pensions anyway, so why not do it directly? Just convert the payor to the real pocket book anyway, the taxpayer. AND in the process convert them to what the rest of us have to live through ... 401(k)s, Fidelity, Schwab ... etc., and the same risks that we have to face. Why should UAW thieves get a guarantee while we fear for our futures? As to the rest of the supply chain ... maybe some private equity can salvage some of the remain of the big three and bail out the parts people. But if not, we deserve it. Unemployment will go up alarmingly, but it will be cheaper than flushing tens of billions down the poop hole of the big three: unemployment benefits require less tax payer dollars than maintaining this charade any longer.

I am afraid the whole shooting match has to collapse before we can start again. And while we Americans can manage this, Europe is totally screwed.

A week to recover

Almost a week since 52% of the United States voted for an unknown. And during that week certain things have come to light to show that Obama is just a party hack, just like any other, but with dangerous and grandiose plans to "reshape" America.

My guess is that after two years the Democrats will be handed a defeat that will make the Gingrich revolution look like Brownies selling lemonade.

Change ... that's what Obama promised. Yet, who is his first major appointee? Rahm Emanuel. Remember him? Clinton's healthcare initiative ... led by Hillary and ... Emanuel. Senior adviser to Bill from 1993 to 1998 - then onto the teat of Wasserstein Parella. Wonder how he became an investment banker ... is there a revolving door for democrats? He made $16.2 million in two years at Wasserstein. Don't let ANYONE ever tell me that Democrats don't take care of their own. If anything, they are more transparent and greedy than the other side.

Emanuel is infamous for a 1996 re-election incident: on the night after the election, "Emanuel was so angry at the president's enemies that he stood up at a celebratory dinner with colleagues from the campaign, grabbed a steak knife and began rattling off a list of betrayers, shouting 'Dead! ... Dead! ... Dead!' and plunging the knife into the table after every name. This is Obama's chief of staff designate. I am not making this up. THIS is what those liberal ass-wipes voted for. Change. Yeah, change incompetence for greed and confirmed sociopaths. Cheney is out of his league.

Who else has Barack re-cycled for his transition team? Let's start a partial list:

1. Carol Brower ex-Clintonista (married to lobbyist);
2. Susan Rice, ex Clintonista (Bill's asst Sec of State);
3. Frederico Pena, ex-Clintonista (Bill's Sec of Transport;
4. Larry Summers -- Harvard connection ... thrown out for sexist beliefs by Harvard PC goons;
5. Bill Daley -- of corrupt Chicago family and fame, ex Clintonista (Bill appointed him to Fannie Board);
6. Chris Edley, ex Clintonista (Bill's Civil Rights Commission);
7. Christine Varney, ex Clintonista (FTC under Bill);
8. Christine Cutter, ex-Clintonista, Kennedy, Kerry spokesperson -- rabid;
9. Mike Forman, mega bundler of campaign loot, Citigroup exec...

And that is so far ... in one week. And this is CHANGE?

What might he do to reshape or change the U.S.? Mandatory federal supervised community service for high schoolers? Or is that 100 hours of indocrination? How about this (from change.gov, Obama's propaganda site): The Obama Administration will call on Americans to serve in order to meet the nation’s challenges. President-Elect Obama will expand national service programs like AmeriCorps and Peace Corps and will create a new Classroom Corps to help teachers in underserved schools, as well as a new Health Corps, Clean Energy Corps, and Veterans Corps. Obama will call on citizens of all ages to serve America, by developing a plan to require 50 hours of community service in middle school and high school and 100 hours of community service in college every year. Obama will encourage retiring Americans to serve by improving programs available for individuals over age 55, while at the same time promoting youth programs such as Youth Build and Head Start.

Would you care to guess at which liberal organization will be tasked with administering these program (not to mention the cost to be footed by taxpayers who actually produce goods and services in sufficient quatity to be taxed)? Acorn? United Terrorists for a Liberal Tomorrow (an imaginary 501(c)(3) funded by a Soros analog)? Anyone read Animal Farm?

Or if we really want to lie awake at night worried that the thought police are out there, how about this: "[w]e cannot continue to rely only on our military in order to achieve the national security objectives that we've set," he said Wednesday. "We've got to have a civilian national security force that's just as powerful, just as strong, just as well funded." And this might well be the most terrifying thing to have come out of this election. The lunatic has just proposed setting up his own private PC police.

A Cuban who grew up under Castro writes:
"Basically, what Obama is talking about is creating a Committee for the Defense of Liberal Ideology and Political correctness funded by a half trillion taxpayer dollars. National Security for this crowd is not about stopping terrorists from killing our children. National Security means to teach our children to understand the terrorists and their motivations so that our children can learn how to live their lives submissively so as not to offend the sensitivities of the very sensitive America haters.

Their version of National Security is to force you to act for the common good of society and not in your own best interest. Since this goes against human nature, the half trillion dollar “Civilian National Security Force” will have to force Americans to change their nature and create a new citizen that is self sacrificing and collective in nature-an ant-like new man, like Che's and Fidel's new man.

This concept is eerily similar to the Castroite CDR block snitch network that I grew up with only better funded and more ideologically pure."

Friends, history is replete with example of this naked attempt at "public re-education": the Hitler Jugend, the Red Guards, the Khymer Rouge, the Revolutionary Guards in Iran; the Committee for Moral Purity; the Mutawwa'in in Saudi Arabia. All well funded, all focusing on brainwashing the youth of that given country -- youth running around with weapons denouncing and passing sentence on guilty parties. Think that this could not happen in the United States? Think again.

Ready to jump out of the window? Don't. Because as more of this becomes clear to the 5-15% of swing conservative voters that somehow brainfarted and voted for Obama, the mid-term elections will give America a chance. Obama and his leftist cronies are flush with hubris and victory that they defrauded the American public into. Their arrogance is boundless, but in two years with the House and Senate back in Republican hands, this charade will come to an end.

In the meanwhile, Obama has to find the money to spend for his folly. Income tax implies that there is income to tax. For the next two years, I don't see how he is planning to get the blood out of the stone that Democratic folly has created.

A pox on them.

President Barack Obama

As I write, Ohio has fallen to Obama and Iowa. As far as I am concerned, that is it. Its finished for McCain. In some way, I am pretty satisfied about it ... strange, because readers of this blog will know that I sort of predicted this long before anyone really knew his name, even though I strongly disagree with his politics.

But his books are full of hope. Maybe, just maybe, the rhetoric of the elections will give way to the goodness he seems to write about. Maybe.

Otherwise, we are screwed.

I am so "down" right now about the obscene ability of the left/press to ignore the fact that Emperor Obama is buck naked ... that I feel like checking out tickets and immigration policies to and regarding Australia. What kind of America will our children inherit from our generation if we elect this bamboozler?

We know nothing about him in real terms. Nothing. Nothing about his educational transcripts (High School, Occidental, Columbia, Harvard) or his thesis papers (unavailable from the respective faculty and he certainly isn't offering them), nothing substantiated about his birth (let's see what the State of Hawaii has, not what someone photoshopped), nothing about his law practice clients (all we DO know in that regard is bad), no Law Review articles - he didn't write any, no scholarly articles published as a professor.... We know little in practice about his family, other than members of the family are widespread and possibly here in the US illegally. We don't know about his heath. We don't know about his Illinois State Senate records (unavailable). We don't know about his connection with Acorn or/and the Annenberg Foundation (the University won't release what records they have). What little voting record he has is ultra-liberal. We don't know if he continues to adhere to the tenets of Black Liberation Theology.

We DO know that he "wrote on" to the HLR, he didn't grade on. And as we know, Editor is a political position, not substantive -- he certainly didn't contribute his legal mind to the Review. We do know his associates over the past 20 years have been uniformly anti-American, and in a very real sense racist. We know he spent more than a little time doing drugs. We know that he has travelled extensively through Muslim lands, but almost not at all through Europe or South America. We do know that he chose his friends carefully throughout college and into the U.S. Senate -- none of which would be allowed in my house. We do know he bought a house well in excess of his ability to afford -- with a "loan" or assistance given by a person doing time for fraud. We do know his wife essentially hates what has heretofore been considered as American. We do know that Obama has lamented the failure of the Warren Court to violate the constitution. We do know that Obama favors judicial activism, even where it would violate the intent of the Constitution, the legislature, and the majority of voters. We do know that he intends to institute a socialist regime in the United States -- although he chooses not to call his proposed actions socialist. We do know Obama spent 20 years attending at Black Liberation church -- whose minister baptized his kids -- and where racial hatred was and is a recurring theme. We do know that his half brother lives in a hut. We do know that his Aunt is an illegal alien living in Boston receiving public assistance. We know that his mother was white as were/are his grandparents who raised him in Hawaii and paid for private school education.

This man will be elected President of the United States of America ... tomorrow.

How in hell did this come to pass?