The American Dream is changing

Great article here that I agree with - I don't see any way that we are going to return to 2006 type levels of personal spending and debt. The culture is changing. If Obama and company think that they can recreate a culture of 2006 then they will fail. The game is over. What the culture evolves into is anyone's guess, but it will be different. Too bad DC isn't trying to understand the new America.

A shift in the American dream is occurring. During the Great Depression the notion of thrift and staying away from debt ran deep in our culture. This past decade saw the ultimate climax of the opposite. Not only did we shun thrift but also debt was a method of keeping up with the Joneses. Yet this massive pursuit of “things” and “stuff” did not make us happier. How can that be? We had the highest per capita ever, the majority owned their homes, many people had not only one but also two nice cars, most everyone had a television, people were living longer, yet happiness was not there? We had forgotten of the common good. Interestingly enough in 2006 CNN conducted a poll finding 54 percent of Americans thought the American dream was achievable. In 1995 a Business Week/Harris poll found that two-thirds thought the dream would be harder to achieve in the next 10 years. And that is the problem. Each successive generation was under the model of perma-growth and naturally, everyone wants to think that the future is better. Yet we have had periods in our history where things retrograde (Dark Ages anyone?). When the dream was only achievable through debt, many people were willing to risk it all just to have a piece of the delicious financial apple pie. How many times during the bubble did you get mailings to refinance your home and take money out for a vacation you deserved? Or how many credit cards did you get saying that you should go out and buy those expensive shoes because you are worth it? There is the problem. Much of this past decade was so shortsighted and focused on the “me” culture that here “we” are in this global mess.

http://www.doctorhousingbubble.com/wave-goodbye-to-the-bankrupt-joneses-deconstructing-the-american-dream-the-shifting-financial-and-societal-goals-of-a-country-mired-in-debt/

Looks like razing houses will happen

I have claimed that many houses are going to be bulldozed down because there are just too many of them. It looks like some areas are already starting to do it - or at least plan for it.

http://globaleconomicanalysis.blogspot.com/2009/03/americas-abandoned-cities.html

Last year, the city of Youngstown, Ohio, proposed incentives to encourage people to move out of nearly empty blocks and relocate to more populated areas closer to the heart of the city. Some people were offered upward of $50,000, according to news reports.The idea was to shut down entire streets and bulldoze abandoned properties so the city could discontinue services such as police patrols and street lighting, according to a CNN report.

Geithner's toxic debt plan headed for failure

http://globaleconomicanalysis.blogspot.com/2009/03/geithners-plan-gigantic-confidence-game.html

Confidence Game

There have been a lot of intelligent comments by Yves Smith, CalculatedRisk, and Krugman. So far no one has said what I think the plan is: a gigantic confidence game.

This is similar in nature to fraudulent schemes that promise "what's inside the bag is worth $1 million, unless you open the bag".

In this case there may be a few "good bags" similar in nature to salting the mine schemes, but for the most part everyone knows what's in the bag is toxic garbage. What really makes no sense whatsoever is why the government would risk 97% with shared "upside" instead of just buying it all.

Somehow, Geithner (and Obama by implication) believes that igniting a bidding war between hedge funds and private equity over a bag of cow manure will inspire confidence that there's gold in the bag. Such insanity cannot possibly work, which means it won't.

Disturbing news

http://globaleconomicanalysis.blogspot.com/2009/03/paycheck-away-from-ruin.html

A MetLife study released last week found that 50% of Americans said they have only a one-month cushion -- roughly two paychecks -- or less before they would be unable to fully meet their financial obligations if they were to lose their jobs. More disturbing is that 28% said they could not make ends meet for longer than two weeks without their jobs.

So what happens when they lose their jobs? No more mortgage payments. No more car payments. No more credit card payments. No more anything payments.

This spiral down has no end point. Debt destruction continues unabated - the Fed can't print near enough money to cover it.

This isn't a recession. This is a destruction of the American lifestyle. The US became of society of grasshoppers and very few ants. There aren't enough ants to provide for the grasshoppers. The government can only do so much.

I can see bankruptcies exploding this year. People are going to be moving back in with mom and dad. Secondary markets are going to be non-existent. The over-capacities and huge surpluses just aren't going to go away anytime soon.

Companies in trouble are going to leverage up more debt in desparation - and then many will default. Many companies over-expanded and are in the same boat as private citizens - they don't have savings either. I claim that many more businesses will go bankrupt than most people expect. The marketplace is being destroyed.

I can't believe how there are people touting that the recession is over now and everyone should get back into stocks today. Crazy. We are not going to return to a 2007 system anytime soon (and maybe never).

And the rest of the world is in worse shape than the US. Dark days are ahead I'm afraid.

California a long way from recovery

Good post here on why California will continue to crater.

http://www.doctorhousingbubble.com/california-financial-dreaming-5-exhibits-showing-why-california-will-be-in-a-recession-until-2011-revenue-projections-housing-inventory-unemployment-toxic-mortgages-and-consumer-psychology/

I contend that there is another issue that isn't being discussed much which will make the housing crisis even worse in California - Total Cost of Ownership (TOC). Thousands of 5000+ sq ft McMansions were built over the past decade in CA. Who is going to buy them, even at a deep discount? TOC will eat many people alive even if they buy a $1.5 million McMansion for $300K. Utilities, maintenance (pools, jacuzzi's, huge kitchens, etc.), insurance, landscaping, HVAC units, roofing, cleaning, etc. will put a lot of financial stress on the new owners - especially over time.

I read stories that some new developments are being completely abandoned and people go in at night and gut the houses. I contend that many of these McMansions will never be sold, and many that are will end up in foreclosure once again once they have become delapitated. There just isn't going to be a new market for these huge houses - too much wealth has been destroyed.

And does anyone really think wages are going to increase anytime soon will such high unemployment?

As a hypothetical - suppose everyone decided to buy stretch limousines over the past 10 years because they were cool (like big houses) and they were appreciating quickly in value. Then the bottom falls out. Now there are 20 million surplus limousines. What do you do with them? They aren't good commuter cars. They're expensive to maintain. They just aren't designed to be used for much of anything useful.

That is how I see the housing in CA. Why would a family of 2 or 3 or 4 need a 6000 sq ft house? These houses just aren't designed well for living in long-term - they are too big and expensive and there just aren't enough "rich" people to buy them and live in them long-term. As I've read - a house is a place to live, not a speculative investment.

There are areas in CA that have become ghost towns. Ghost towns usually don't make strong comebacks - they die. I think we are going to see a lot of these McMansions bulldozed down at the end.

Potential problem with GLD ETF

I have a gut feel that there is something wrong with the GLD ETF. I stumbled upon the following article that makes me think my gut feel was correct.

GLD ETF Trust supposedly holds more than 1,000 tons of gold. That amount is surpassed only by the United States, Germany, IMF, France, Italy and Switzerland; assuming they have the gold they claim. Under the GLD prospectus and latest 10-K it appears that the Trust neither needs to own actual physical gold that constitutes atomic number 79 nor allow their auditors to see and touch the undefined ‘investment in gold’. I agree with the reader who asserted that ‘it’s hard to imagine they [auditors] didn’t at least send someone to the premises of the Custodian to have a quick peep’. In other words, ‘Just trust us, the gold is there.’ But why believe them?

http://news.goldseek.com/GoldSeek/1235052376.php

DC bought and paid for by financial institutions

Not a surprise but here are some numbers which explains why Washington isn't lifting a finger to investigate and prosecute the thieves (execs at large financial institutions) who are the main culprits in the world-wide economic collapse.

http://jessescrossroadscafe.blogspot.com/2009/03/weekend-reading-how-wall-street-and.html

During the decade-long period:

* Commercial banks spent more than $154 million on campaign contributions, while investing $383 million in officially registered lobbying;

* Accounting firms spent $81 million on campaign contributions and $122 million on lobbying;

* Insurance companies donated more than $220 million and spent more than $1.1 billion on lobbying; and

* Securities firms invested more than $512 million in campaign contributions, and an additional nearly $600 million in lobbying. Hedge funds, a subcategory of the securities industry, spent $34 million on campaign contributions (about half in the 2008 election cycle); and $20 million on lobbying. Private equity firms, also a subcategory of the securities industry, contributed $58 million to federal candidates and spent $43 million on lobbying.

Individual firms spent tens of millions of dollars each. During the decade-long period:

* Goldman Sachs spent more than $46 million on political influence buying;

* Merrill Lynch threw more than $68 million at politicians;

* Citigroup spent more than $108 million;

* Bank of America devoted more than $39 million;

* JPMorgan Chase invested more than $65 million; and

* Accounting giants Deloitte & Touche, Ernst & Young, KPMG and Pricewaterhouse spent, respectively, $32 million, $37 million, $27 million and $55 million.

New blog I like

Here is a good article from the blog:

http://www.doctorhousingbubble.com/the-modern-banking-system-is-like-a-broken-dam-at-8-annual-compounded-growth-it-would-take-us-11-years-to-reach-the-peak-of-the-sp-500-old-ideas-and-prophets-falling-hard/