warren buffett

Prepare to Be Forgiven, Ye Mortgage Sinners

– Posted in: Commentary for the Week of March 8 Free

Although we waxed skeptical here the other day about Warren Buffett’s just-announced $5 billion stake in Bank of America, we allowed for the possibility that the deal will provide a handsome payoff to him no matter what happens to the bank.  B of A could implode, after all, a victim of sinking collateral values for its mortgage loans, and of litigation over its securitized-lending business.  There is also the wild card of homeowners challenging lenders in court to show clear title to properties that are in line for foreclosure. In fact, this issue alone has the ability to capsize the global financial system, since “clear title” is exactly what ceased to exist when the feather merchants of the banking world leveraged out real estate to-the-max earlier in the decade to create an $800 trillion derivatives edifice – the Mother Lode of Digital Money, as it were. All of that sum must be viewed at the moment as deflationary overhang, by the way – not to mention, a key stumbling point for those who argue that The Great Economic Crisis must eventually precipitate out as hyperinflation. So, how do you produce even mild inflation, let alone hyperinflation, with the housing market in a full-blown Depression?  Most surely not by expanding the capacity of banks to make mortgage loans. That’s been tried to death – first moderately, then aggressively, and finally desperately -- with zero success. Despite trillions of dollars worth of mortgage stimulus and supports both implied and real, the residential market looks even grimmer than it did a few years ago.  Existing-home sales fell 3.5 percent in July despite the fact that prices were 4.4 percent lower than in July 2010. Now that’s deflation. There’s also the $6.6 trillion loss of home equity that has occurred since the onset of the

Civil War Looms Over State and Local Budgets

– Posted in: Commentary for the Week of March 8 Free

Although the news media have tried without success to portray the Tea Partiers as racist right-wing agitators, the movement will only continue to gain strength and mainstream support as state and local budget issues come to a boil.  All politics is local, as they say, and the battle lines are being drawn in cities and towns across the U.S. for what could eventually turn into a civil war between taxpayers and public employees.  Private-sector workers are understandably angered in these very hard times by the unseemly spectacle of government employees fighting to hang onto the outlandish perks and benefits that they’ve long taken for granted – benefits that have in fact helped push many state and local governments to the brink of insolvency. California is the mine canary on this issue, and the public-employee unions there have been digging in their heels. As reported by our colleague Mish Shedlock, there’s a bill before the Assembly that would make it much more difficult for cities to go bankrupt. Assembly Bill 155 represents, in Mish’s words, an attempt by “outrageously overpaid California public union parasites” to “[suck] the last drop of blood out of every taxpayer.”  Quite so, we fear, since the bill would drastically limit the ability of such seriously beleaguered cities as Los Angeles, Redding, Sacramento and San Diego to enact the drastic measures that alone can bring their operating costs into line with tax revenues.  Reducing what amounts to absurdly generous pensions and health benefits would seem like a no-brainer these days, and it is probably inevitable that this will eventually occur. But for now, the public unions in California and elsewhere have been pushing just one solution: raise taxes. That may be a non-starter for most of us, but it has not kept Assembly Bill 155 from reaching