Sally's Key West

Cause For Hope

An article by Gary North from the Lew Rockwell online magazine

On Bookies and Economic Gurus

I monitor a chart on a website that almost no economic forecaster pays any attention to. The chart has indicated a remarkable shift toward economic optimism. It has indicated that the American economy will not fall into recession this year. This shift has taken place in the last three weeks.

The problem with the chart and the site is that, by design, no explanations are ever offered. There is no theory of why the economy will or will not fall into recession. That is because the site is a gambling site. You pays your money and you takes your chances.

The site is Intrade. It is a web-based site. It is run from Dublin. If the owner ever sets foot on U.S. soil, he will be arrested, tried, convicted, and sent to jail. But he can afford to stay out of the United States. He is a very rich bookie.

The site allows gamblers to make bets on future events to take place or not take place during a defined time frame. One of these listed events is recession in the U.S. in 2008. As recently as mid-April, betting was over 70% that there will be a recession this year. Then, without warning, the odds turned the other way. Today, the odds are 27%.

This is a major shift of opinion. In the sports world, it would be as if Michael Jordan had been seriously injured mid-season when he played for the Bulls. You can see the chart here.

A law passed in 2006 that prohibits U.S.-based banks from making credit card payments to off-shore gambling sites: The Internet Gambling Enforcement Act of 2006. So, the betters on Intrade are not Americans, other than Americans who have opened off-shore bank accounts and who use foreign post office boxes as their addresses. This is not many Americans. The site is limited to those few Americans who value their privacy and who want a way to make payments even if the government closes certain doors, either on all Americans or on them personally.

Continue reading here.

Coming Home To Roost

Back in the day, when everyone was making pots full of money on real estate speculation, SIVs (Structured Investment Vehicles) were just another route to riches touted by the Experts In The Field. Risk was downplayed - everyone was making money and "real estate always goes up"... so risk? What risk?

There is no such thing as a free lunch and those chickens are coming home to roost. My Costa Rica blogger buddy, Hal Smith, aka The Compulsive Explainer, has a friend with first-hand experience.

Lipstick On A Pig

We have a fun quasi-political yahoo group here in Costa Rica. Thor, a group member wrote in after the Fed pumped billions into the market. He asked, "Lipstick on a pig or timely rescue?" I'm thinking:

Lipstick on a pig. Since buyers* have to actually qualify for a loan these days (have good credit AND an income), all the rate cutting in the world is not going to get these buyers into a loan.

Plus, properties have to appraise for the loan amount and prices have dropped too far too fast for that. Rate cutting won't help this either - too late.

And since all that paper (loans already in place) sold as AAA rated securities has dropped so much in value because too many borrowers have defaulted... it's just too little too late.

It's hysterical that the Fed printed up billions of dollars to flush into the system in their ill-fated attempt to save it. They used these billions of dollars to buy up these bundles of loans that nobody else wanted. Like spending $100,000 for a toilet seat. I'd rather have the toilet seat. At least it has a use.

Besides, all this rate cutting and printing up money by the Fed steals the value of all the dollars the ordinary citizen is working so hard to "earn." Since most of us don't really understand the devilish details of how money really works, we think the Fed is rescuing us. When in reality they are stealing from us.

*By "buyers" I'm referring to borrowers who are already into the property and need to refi because the adjusted rate is too high. They didn't have the income the first time - except for "stated" income - and don't have it now. There are no NEW buyers out there shopping for property...

This isn't bad news, right? Just a point of view.

DAY OF RECKONING

'Subprime' Aftermath: Losing the Family Home
Mortgages Bolstered Detroit's Middle Class -- Until Money Ran Out

By MARK WHITEHOUSE
May 30, 2007

DETROIT -- For decades, the 5100 block of West Outer Drive in Detroit has been a model of middle-class home ownership, part of an urban enclave of well-kept Colonial residences and manicured lawns. But on a recent spring day, locals saw something disturbing: dandelions growing wild on several properties.

"When I see dandelions, I worry," says Sylvia Hollifield, an instructor at Michigan State University who has lived on the block for more than 20 years.
[BUG]

Ms. Hollifield's concern is well-founded. Her neighbors are losing interest in their lawns because they're losing their homes -- a result of the recent boom in "subprime" mortgage lending. Over the past several years, seven of the 26 households on the 5100 block have taken out subprime loans, typically aimed at folks with poor or patchy credit.

Read More...

Sub-Prime Markets

A panel expert on CNBC's On The Money said, basically, not to worry about the subprime market's woes. Because:

"All those borrowers aren't going to default. They can just get a fixed rate loan. I mean, they all qualified in the first place."

Um, no. They didn't. If they could have gotten a good fixed "in the first place," they would have. Why didn't they? THEY COULDN'T QUALIFY. Or, to be exact, they didn't have to qualify. That's what subprime loans, those fun "No Doc, No Income Verification" loans were all about. Easy money.