Yes.

Something I would support as a first step is marking to a moving average of the market over some period of time so that volatile market conditions don’t whipsaw asset valuation as much but the assets will reflect longer term trend changes in market behavior.

It is a fine line as it is auditing that drives accounting, more or less.

Have a look at this and you will get one idea of the mess it is causing.

You have cash but cant show any asset value because it is swamped by paper liabilities from something like employee stock options that you must pretend will ALL be exercised at the current market price in the current time period even though practically none of them will be and even if for some reason there was a rush to exercise them, many employees would elect not to exercise them all and others would not exercise any options at all. But the standards say a company has to carry them on the books as if every single one would be exercised at the current market and the business must pretend that the difference between the option price and the market price is some kind of a “loss”. It is absolutely silly and is what is sending companies away from US stock exchanges to overseas exchanges such as London where people are not required to adhere to those standards.

In California it was somewhat limited due to Prop. 13 limits on annual tax increases, but when properties changed hands, governments still got a windfall of cash. This caused state and local governments to go on spending sprees. Towns here were bidding up salaries and benefits for emergency services people and were constantly trying to hire away each others people.

A fireman in many towns here can retire in his early 50s with 2/3 of salary, annual pay increases, medical care for life, etc. Some towns have more people on benefits than employed.

I have a friend who works for a city government. They had a meeting this week. The employees were demanding a 5% pay increase while the city’s unemployment rate is rising and the cost of living is flat. The arrogance of government employee unions (most of which are affiliated with the SEIU — ring any bells?) to continue extracting money from the hard earned incomes of the population in the face of an economic downturn is simply fascinating. These people are living in a fantasy world and don’t realize that the golden goose is dead.

That was interesting. I read this from the Atlantic Business channel and it says much the same thing. The idea is that even smart well intentioned people can screw things up.

But you are right about the housing market. I used to have a real estate license and even 10 years ago my broker was saying this thing was going to blow.

A Muslim cleric was on Egyptian TV praising the Holocaust.

Ashley Judd just said that it is nice to be living in America again, now that her guy won of course. That is the attitude that conservatives have been listening to for years.

My niece was in Manhattan on that day and it was two almost two days before I knew if she was dead or alive. And it was not Bush flying those planes. It was radical Islamists and if you can not even bring yourself to say that without feeling the need to apologize for it then I pity you.

And I have had two family members serve in Iraq. I have listened to crap from the anti war people about how our soldiers conduct themselves while I watch relatives pray for the safe return of their loved ones.

So do not lecture me.

Meanwhile Obama is talking about abandoning the people of eastern Europe to make the Russians happy. He may kill the defense shield treaties. No wonder Obama did not want to pick sides when the Russians invaded Georgia…he really does not have a side. His idea of avoiding a missile attack is not technology, it is butt kissing the people who might want to use the missiles on us.

Maybe Obama should listen to what Iran said on Tuesday:

Iran’s government spokesman on Tuesday branded the Holocaust a “big lie” created to place the Islamic republic’s arch-foe Israel in the Middle East, the state IRNA news agency reported.

“The Holocaust is a concept coming from a big lie in order to settle a rootless regime in the heart of the Islamic world,” Gholam Hossein Elham told a conference on Gaza in central Iran’s religious city of Qom.

I have closely studied Ayers’ and Obama’s books and have found many similarities.

There are similar incidents and similar language.

G-d bless America, the Beautiful…regardless of what obama says!

Consider that over about the past 10 to 15 years housing values in the faster growing areas of the country were rising at a dramatic rate. In addition to having to house the parents of the boomers, the boomers, their children and their grandchildren; certain areas of the country (mainly the South and West) were experiencing a migration of people from other areas (mostly North and East).

On top of this, we had Congress using taxpayer guaranteed mortgages as a massive welfare program. People of marginal ability to pay were encouraged to obtain loans they could barely pay for with very risky loan schemes such as very low initial rate, short term, adjustable rate mortgages as well as interest only mortgages and even “reverse amortization” where one did not even pay all the interest due each month and the difference was added to the loan balance so the balance GREW each month rather than being paid down.

The logic of all of this was that with record low interest rates combined with record rates of value appreciation would make it likely that the consumer would qualify for a better mortgage as equity would build through appreciation. The bet was even with the “reverse amortization” loans, appreciation would outpace loan balance growth and the borrower would still build enough equity to qualify for better terms on a refinance at some time in the future. All that is fine as long as both of the following conditions remain true: interest rates never go up while people are in the initial mortgage and are able to refinance to a more conventional “fixed” rate before interest rates rise, or, appreciation continues at the same pace.

The result of all of this was that people’s houses in some areas of the country were basically like an oil well spewing cash. In California, people would refinance every couple of years and pull all that equity out or take it in a “home equity line of credit”. This allowed people to buy things such as home improvements, second homes, cars, vacations, boats, wardrobes, heck, some people were basically living off of home equity for the past few years. All that money was trickling into the local economy keeping roofers, painters, landscapers, cabinet makers, carpeting stores, appliance stores, home entertainment stores, etc. operating at full throttle.

The problem came when it was time for interest rates to go up. THAT was the initial domino that set the entire string falling. And the entire thing was made much worse and the downturn amplified by the Sarbanes/Oxley accounting requirements that tends to dampen good news (potential asset value) and amplify bad news (potential liability) in order to protect investors from another Enron.

In the meantime the banks were doing well as the properties on which the mortgages were written appreciated in value. As each month went by, the properties increased in value which decreased the “risk” of the underlying loan and that allowed the banks to hold less in “reserve” and lend it out. This was often lent out in new mortgages, often to marginal buyers but it was also lent out for all sorts of other loans to business and commerce to keep the wheels of the economy turning. The banks also bundled these up and sold them, sometimes at a premium because the “exposure” on these loans was getting less each month as they appreciated. It was like holding $10 worth of risk on a $20 bill that was going to be a $50 bill soon.

Then the Fed finally increased interest rates. That did not impact people who had fixed interest rate mortgages but for some people with a marginal ability to pay their current mortgages who had adjustable rates, it was a disaster. At first they got behind on their mortgages and finally the first wave of foreclosures happened. That’s when Sarbanes/Oxley kicked in and amplified the problem. Sarbanes/Oxley’s “mark to market” requirement meant that when those foreclosures hit the market and sold at very low prices that depressed the market, ALL mortgages in that market had to have their underlying values marked down, even mortgages being paid at fixed rates by people who had no trouble making the payments. This means the amount of “risk” went up. This meant the banks had to decrease what they could lend out because the mortgages were not such a good asset any longer.

The second shoe was that when home equity stopped rising, so did the cash spewing from these properties. People could not refinance and pull out more equity. Home equity lines of credit began to approach zero. People began to put off putting on buying a new roof or a second story or an addition, or new siding or a new car or a second vacation home.

At the same time when local property values went under what was owed on the mortgages, those mortgages became a liability to the banks rather than an asset. The bank was now on the hook for $10 for a $5 bill. As long as the buyer kept paying, it would be no problem but now the risk was enormous and the lenders had no underlying “assets” from which they could lend money. This means businesses can’t get bridge loans, importers can’t get letters of credit, everything stops. Even if a lender had 100 mortgages and they were all “fixed rate” and none of the owners had trouble making the payments, Sarbanes/Oxley requires the lender to mark the value of the property to the current market (rather than a moving average of the market over time or some offset based on the “quality” of the loan such as income of the borrower and the amount of the payment and the credit history of the borrower). This means that even “good” mortgages became “junk” according to the accounting rules.

Now, government pumping money into the lenders so they can build up their reserves to cover the liability and lend money again is a good thing but it doesn’t fix the underlying problem. Once that is done, people *still* don’t have any equity in their homes so they *still* aren’t going to hire a local contractor for improvements.

Once the lenders are stabilized, the only thing the government can do is find something that somehow stimulates the entire economy and gives real value to people that they can then use to finance growth by increasing the demand for things that produce jobs.

People are NOT going to be able to sit on their rear ends again while the house stuffs cash into their pockets. Consumers (and lenders) are going to need to return to first principles and invest wisely, study risk, and lower their expectations. The appreciation in home values over the past decade or so was a fluke. It is NOT going to return no matter what the government does. It was a bubble that has burst. People need to go back to a more old-fashioned method of growing wealth that doesn’t rake in $100,000 a year. Nothing the government does is going to return us to those days.

The only thing the government can really do at this point is raze foreclosed homes over 10 or 20 years old and put them on the market as building lots. A home much over 20 years old reduces the value of the lot anyway. That would reduce the inventory of homes on the market and stop the bleeding.

Otherwise, this is just a political party using a “crisis” as a money grab to shovel cash to their cronies. It is despicable and they need to come clean with the people. The “good old days” of the last 10 years is not coming back. At least probably not in the lifetime of the people reading this.