The Sky Is Not Falling

[daepp]

"The Sky's Not Falling
By John Stossel

"Mortgage Crisis," shouts the New York Times. The Times has used the term "subprime crisis" at least 11 times. Not in opinion columns -- in news stories.

The columns are worse. Paul Krugman writes: "A lot of the financial system looks like it's going to shrivel up and have to be rebuilt."

The "financial crisis," says Fortune's senior editor, "is threatening to bring down the entire system, with dire consequences."

When the current troubles aren't a "crisis," they're a "disaster". That's what John McCain called them, while Hillary Clinton prefers "crisis," saying, "This market is clearly broken, and, if we don't fix it, it could threaten our entire housing market."

Wait a second.

Where is this "credit crisis"? Did the supermarket reject your Visa card? I still see Ditech commercials offering fixed-rate mortgages at around 5.5 percent.

Sure, some lenders are skittish while things play out. Some investment banks and brokerage houses are sitting on shaky mortgage-backed securities. But why call that a "crisis"?

Do we have 25 percent unemployment, as we did during the Depression? Do we even have 7.5 percent unemployment, 12 percent inflation and 20 percent interest rates, as we did during Jimmy Carter's presidency?

There's a been a loss of jobs in the past two months, but that comes after years of strong job creation -- 25 million net jobs in the last 15 years . At 5.1 percent, unemployment is low by historical standards.

And are we really experiencing a mortgage-default "crisis"? No. The Mortgage Bankers Association's 2007 fourth-quarter survey reports that foreclosures came to 2.04 percent of all mortgages. Many of those were speculators seeking flip profits rather than homeowners losing a dream house. During the quarter, only 0.83 percent of homes entered the foreclosure process. It may get worse -- in March, "foreclosure filings, default notices, auction sale notices and bank repossessions rose 5 percent," Reuters reports. But let's keep things in perspective: Ninety-eight percent of borrowers are not in foreclosure. Only a small percentage of them are even late in payments.

Politicians love a "crisis." John McCain, Hillary Clinton and Barack Obama all think that the government should bail out homeowners who can't pay their mortgages. When they say the government should do this, they mean the taxpayers, including those who are paying their mortgages. They also think the government should regulate the lending and investment industries further.

Why?

Because "crisis" justifies making big government bigger.

It's why we now have a global warming "crisis" and in previous years we had "crises" over avian flu, the Y2K threat to computers, imaginary cancer spikes caused by pesticides, killer bees flying up from Mexico, and uncontrolled population growth leading to a "Population Bomb" that will bring "riots and mass starvation" by the year 2000.

This is not to say that lots of homebuyers aren't having a hard time. But the rapid rise and fall in housing values in some parts of the country -- and the rippling consequences at each stage -- do not justify scrapping what we know about economic success and turning to government control. Prosperity and stability come from people being free to innovate and produce -- and yes, fail. Bureaucrats, however well-intentioned, cannot know enough to manage that process. They are unqualified to give the green light to some innovations and the red light to others. Bailouts create irresponsibility.

I expect the silly people to say silly things. Here's Paul Krugman: "[I]t's puzzling that Democrats haven't been more aggressive about making the disaster an issue for the 2008 election. They should be."

Keith Olbermann even seems to find the "crisis" exciting. "You watch, this is going to make Enron look like the failure of a lemonade stand."

But the rest of us should get a grip. The best regulator of economic activity and source of knowledge is free competition.

Of course, government inhibits that in many ways. If we want to avoid disruptions like the current one, let's undertake a wholesale examination of government intervention in the economy. Freedom, not control, is the ticket to success."

Discuss among yourselves...

[Porsche-O-Phile]

Yes, the media is sensationalist.

However, the current problems lurking under the surface of the financial sector are very, very bad. There is no guarantee there will be a collapse, but it wouldn't surprise me either. Don't forget that just a month or so ago there was emergency action required to prevent a run on banks. That's just the first of many shoes to drop.

If a recession really starts to take hold and we start seeing unemployment jumping up, inflation jumping up, etc. these underlying problems can amplify the effects of those problems. Fortunately we haven't seen it. . . yet, but the situation overall is very, very tenuous. If things reach a tipping point (which I think we're close to), it's going to snowball in a bad way in a big hurry. This is not "fear to sell newspapers", it's looking at how completely over-exposed the economy is.

[Tobra]

David, if you honestly believe all the stuff you posted, you don't have a strong understanding of economics. There are many, many reasons to be concerned about the overall economic health of this country at this point in time.

The sky may not be falling yet, but you better be wearing a hard hat, so to speak.

[onewhippedpuppy]

I prefer to curl up in the corner, in the fetal position, and cry uncontrollably.

[daepp]

It's hard to preach against the prevailing winds (i.e. media story of the day). I'm no economist, and I practically live at ground zero for the housing mess, but the stores and freeways are still packed, 99% of the homes aren't for sale or abandoned.

I know there are problems, but I also know that the very few times I've read something in the paper that I know a lot about, it's always wrong. Makes me wonder about all the other stuff I know little about.

[JeremyD]

Remember that economists were placed on this earth to make weathermen look good.

[Bill Douglas]

I'm certainly no economist, and I'm not saying I can pick trends, but I can't believe how wrong these guys can be. All those years at university, that huge pay packet, and their "guess" is so far off the mark. Or, they do a complete 180 degrees in their opinon ever couple of months.

[M.D. Holloway]

I always liked John Stossel. Seems to always make sense to me. I remember one show he did on the myth of crimes rates rising. The media has to believe that we live in a war zone when in fact America has never been safer.

I tend to lean on to the side of caution yet agree that sensationalism should be saved for car sales men.

[RoninLB]

I can't pick a horse but Dow Jones Transportation Average is up 17+% YTD vs S&P down -3% YTD

If you follow indicators the transports is a decent indicator of economic activity.

[RoninLB]

Originally Posted by Bill Douglas

I'm certainly no economist, and I'm not saying I can pick trends, but I can't believe how wrong these guys can be.

it's group think

When the reasoning for the issue's trend is proved wrong the individual can seek shelter in the group. If he poised an individual thought that received any serious press and the issue's conclusion proved him wrong he's out of a job with a loss of creditability.

[MichiganMat]

John Stossel makes a living by "exposing" things and telling stories, even if the story does not exist. Its entertaining, but not altogether factual.

Its like the days of Enron: don't have a market to compete in? Create a market out of thin air and then dominate it.

[MichiganMat]

The guy has been around for years and years, I used to watch him all the time back like 10 years ago when 20/20 was big (eventually Dateline and that tall respectable host came along and ate their lunch). If there is any on PPOT that is avoids bashing on the "main stream media" (what a stupid saying) its me, I just see a huge niche for this kind of journalism. With that said, I watched another report by Morley Safer & 60 Minutes this morning about my generation in the workforce. I respect MS but some of the assertions seemed stretched. It just makes me doubt these kind of "debunking" stories that much more.

[Buckterrier]

I had my home appraised last June for divorce purposes. $305. Had it done again just last week for refinancing purposes, $306. The market here is not bad. At the same time I know areas like Michigan are getting killed.
Also I had no problem getting financing. I do have excellent credit, and a lot of equity in the house though.
What does get my goat is... Isn't one of the reasons the Fed kept dropping the prime to stimulate the housing market? Yet bank rates, at least a few locally, rose after the last one vs. going down, doesn't make sense to me.

[kstar]

Originally Posted by RoninLB

I can't pick a horse but Dow Jones Transportation Average is up 17+% YTD vs S&P down -3% YTD

If you follow indicators the transports is a decent indicator of economic activity.

Heck, the PPOT Portfolio is up about 5.5% for the year.

Things can't be too bad if this peanut gallery is beating the S&P.

[daepp]

Originally Posted by Wayne at Pelican Parts

It's wise to be cautious these days, but not to be Chicken Little...

-Wayne

That's my "take-away" line!

[idontknow]

Originally Posted by daepp

Keith Olbermann even seems to find the "crisis" exciting. "You watch, this is going to make Enron look like the failure of a lemonade stand."

Wow, I can't believe anyone anyone listens, let alone pays attention to the drivel he spews. Once again I have learned something from PPOT, someone agrees with him enough to waste valuable bandwidth repeating his rubbish.

Of all the discussion points you mentioned to pick up on, and I chose a moot point.

[competentone]

Originally Posted by daepp

"The Sky's Not Falling
By John Stossel

Some investment banks and brokerage houses are sitting on shaky mortgage-backed securities. But why call that a "crisis"?

Do we have 25 percent unemployment, as we did during the Depression? Do we even have 7.5 percent unemployment, 12 percent inflation and 20 percent interest rates, as we did during Jimmy Carter's presidency?

There's a been a loss of jobs in the past two months, but that comes after years of strong job creation -- 25 million net jobs in the last 15 years . At 5.1 percent, unemployment is low by historical standards.

And are we really experiencing a mortgage-default "crisis"? No.

If the government hadn't bailed out Bear Stearns in March of this year, the "domino" effect through the financial markets would have us in the middle of a "great depression" right now.

Of course, the government hasn't done any magic -- they cannot stop the "house cleaning" the market demands -- but they have shifted the nature of the collapse.

Rather than allowing those who made the mess in the financial markets, fail and suffer the consequences for their actions, the Federal Reserve is making the "widows and orphans" in our economy pay for the failure -- particularly those who have tried to live conservatively and save and invest carefully.

The new money the Fed has pumped into the system to bail out their Wall Street buddies is now resulting in the rising prices for the goods and services people buy -- the purchasing power of those with saved dollars is diminishing.

Of course, the government has gone so far to try to conceal this "theft through inflation" by actually lying with the CPI numbers.

Who here saw their fuel prices decrease by 2% in April?

That's what the government is telling people they've experienced in the economy!

[the]

I agree with Wayne, it is early in the game.

I hope the sky doesn't fall, and that everything is okey-dokey. It would pretty much mean that we are immune from any bad economic things ever happening.

Oil at $130 a barrel on its way to $150 and up, gas at $4, diesel even higher, jet fuel even higher, foreclosures in most major markets at historic highs and 2-3X what they were a year or two ago, inflation running rampant . . . but everything is fine. I guess it's possible.

[boba]

Originally Posted by JeremyD

Remember that economists were placed on this earth to make weathermen look good.

+1

Why is it that everytime there is a positive economic report all the economists are surprised or when the numbers are not as bad as expected, same surprise.

If you look at the long term accuracy of the economic experts you would be hard pressed to understand how any of them keep their jobs, let alone be paid what they get paid.

Given how poor a track record why does anyone continue to listen to these YAHOOS?


OH, Right their predictions fit the story line/agenda.