Marijuana To The Rescue

March 13, 2009 at 9:00 pm (Individualism)

The nice thing about disasters is the opportunity for people to re-acquaint themselves with common sense.  Suddenly, an explosion of common sense is occurring in the media and even among politicians.  Not concerning things like liberty, or sound monetary policy, or sound foreign policy.  But, specifically regarding weed.

First came the shot over the bows from San Francisco Assemblyman Tom Ammiano.  Proposing that marijuana be regulated and taxed, bringing the state billions in revenue, he introduced some long-overdue legislation that essentially asserts marijuana is no worse than alcohol, and alcohol brings the government big money.  Several economists agree with the premise, pointing to a similar policy enacted during the Great Depression that had positive benefits; revenue, decrease of mob power, and a return to personal liberty: the end of Prohibition.

In fact, the positive economic impact is twofold: the massive revenue aside, the cost savings of not prosecuting and not imprisoning pot smokers is equally gargantuan.  Study after study has concluded we spend far too much on incarceration.  We are, after all, the world’s largest per-capita jailers: one out of every 31 adults is in the corrections system, with more than 1 out of every 100 in prison.

Critics are quick to point out the invisible costs of encouraging marijuana use, from medical costs to crime to lost productivity.  The same criticisms were what caused Prohibition to be established, but, as time went by, most were discovered to be simply scaremongering tactics and completely untrue.  Being as anywhere from 40% to 60% of Americans have used marijuana, depending on the poll, and roughly half support legalization, I’d say the danger can’t be any greater than that of alcohol or tobacco.  In fact, since roughly 85,000 people die from alcohol-related causes every year in the US and another 435,000 die from tobacco, and exactly ZERO die from marijana, despite its prevalance, I’d say odds are good the potential negative effects of legalization are miniscule in comparison.

Unrelated, but at the same time very related, the Federal Government signaled it is no longer rabidly, irrationally, opposed to marijuana in all its forms, by announcing it will no longer target sick patients and medical dispensaries in states that have legal provisions for medical use of marijuana.  This is huge. 

In 1996, California voters passed a law that established for the medical use of marijana but the Federal Government decided it had the authority to overrule state law and it continued to arrest and imprison legal users, even terminal cancer patients.  Of course, the last time we had prohibition, we had to actually amend the Constitution of the United States, but due to various devious rulings and interpretations since, the Federal Government somehow decided it had the authority to regulate (read: outlaw) “controlled substances” (read: whatever it wants) without any hindrance (or common sense) so no new Amendment was needed to outlaw pot.

And of course, no objective studies have been done in decades on the effects of marijuana, since you can’t do tests without the physical plant, and the Federal Government refused the plant to any researchers that didn’t show negative effects as a result of the studies.  It’s a great approach — I think the Catholic Church did something similar when those pesky heretics tried to promote the idea the world was round.

Anyway, I digress.  Here’s to the return of common sense.  Hopefully, so-called Conservatives who have been opposed to legalization will question why they vehemently support the Federal Government trampling all over their personal freedoms and imprisoning people at taxpayer expense for the crime of using a drug that is less harmful than aspirin.

Today’s article of doom: the always entertaining Jim Rogers.

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The Mortgage Elephant In The Room

March 6, 2009 at 12:23 am (Banking Crisis, Housing)

“When will the housing market stabilize?” everyone wonders.  It’s very simple, actually.  When the government forces holders of mortgages to reduce the principal owed.  Let me explain.

First of all, at the end of 2008, 1 in 5 mortgages were “underwater,” meaning the cost to pay off the mortgage was more than the house was worth.  Since this is March of 2009, the number is probably closer to 1 in 4.  Being as it is cheaper to rent than own in all 50 states, even considering the interest tax deduction, this means the underwater homeowner has only two reasons to keep paying.

1) They don’t want to ruin their credit.
2) They feel the housing prices will rise in a short enough timeframe to justify paying all the interest in the meantime, and will rise steadily thereafter enough to (after factoring in inflation and the value of lost investment opportunities with the lost interest payments) eventually sell and make a profit.

There is no third reason, such as “they intend to pay off the mortgage in full in 30 years and don’t care about the current price.”  The people who fall into that category are the ones who bought at a reasonable price and are satisfied with their purchase because they are not upside-down. 

So, let’s look at the first reason.  Nobody wants to ruin their credit — unless, well, it costs thousands of dollars a month in wasted money to maintain.  Or perhaps unless credit no longer matters, since no one is lending anyway.  Or if everyone around them has trashed credit, making trashed credit not a problem.  Eventually, many people will find that the savings of not paying on a losing mortgage outweigh the credit loss.

The second reason is hinged upon a relatively quick economic recovery which no one anywhere can give any indication will happen.  The vote of no confidence in this is shown by the fact that, at the end of 2008, 1 in 8 mortgages were behind on payments.  Again, since this is March, that number is likely closer to 1 in 6.

So then, what could possibly motivate people to hang on and resume payment?  Only one thing: a stake in the eventual profit.  If all the upside down people were no longer upside down, and actually had some equity, or at least no negative equity, they would be motivated to keep paying (providing they had the means of course — some simply won’t be able to pay no matter what).

Therefore, the only solution is loan modifications that adjust the principal owedThis article explains the fact eruditely, speaking of the much-touted (and reviled) mortgage rescue:

The Obama administration’s failure to close the negative- equity gap means that its plan “will likely join the dud parade of federal rescues,” says John Kiff, an International Monetary Fund economist in Washington.

DellaCamera, 55, the principal of DellaCamera Capital Management LLC, says that government reluctance to force banks to write down the value of distressed loans and securities to prices that buyers are willing to pay creates “gridlock,” delaying bad-debt workouts and an eventual recovery.

That’s exactly right.  The banks don’t want to reduce the principal, nor the interest rates, because then the cat is out of the bag and there is no more maneuverability: the mortages are not worth what they say they are.  And since all the major banks are still on the edge, after all the baoilouts, acknowledging reality might be the same as acknowledging insolvency.  So, of course, the inevitable outcome, like it or not, will be that the government does one of three things:

1) Force the banks to lower the principal, and bail them out or buy their preferred stock as much as necessary to keep them afloat
2) Force the courts to allow bankruptcy judges to force the banks to lower the principal, with the same effects
3) Nationalize the banks in one form or another and modify the mortgages themselves.

This is beyond the debate of right or wrong, smart or stupid.  It’s going to happen.  It is the only thing that will stop housing prices from continuing to fall, because as more mortgages fall underwater, and more people see no recovery is forthcoming, more will stop paying.  And please don’t think anyone in charge cares enough to ask the question whether we should simply let housing prices fall back.  They don’t care what you think.

These guys get it.  They worked for the failing banks that are still pretending they are solvent and their mortages are worth the money they lent.  They know it’s all fake.  Now they’re buying mortgages the government was forced to own, through takeovers of failed banks, at pennies on the dollar, adjusting the principal for the homeowner, and pocketing the difference.  This is the way of the future.  The government (therefore taxpayer) loses, the bankers win, and we all live… whatever ever after.

Today’s article of doom: Think I’m negative?  Check out this guy.

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When Paranoia Becomes Mainstream

March 3, 2009 at 12:50 am (Banking Crisis, Media)

Recently, George Soros said the financial system had effectively disintegrated, and the problem is more like the collapse of the Soviet Union than the Great Depression.  Since the Great Depression is an American term for a semi-worldwide phenomenon, and since he was talking to an American paper, I’d have to assume he was talking mostly about the United States.  When the Soviet Union collapsed, it broke up into 15 entities.  Is he saying the United States will similarly break up?  What happens when we discover the bailouts are actually like pouring gasoline on a fire?

Rupert Murdoch recently said something of interest as well: that nations will be redefined and their futures fundamentally altered.  Rather provocative.  Which nations would those be, Rupert?  Ireland with its impending collapse?  Britain with its projected “summer of rage?”  Latvia with its junk status?   Maybe Ukraine, where depositors can’t withdraw from their bank accounts.  What about the US with its economy contracting at an astonishing rate and its ballooning budget deficit?

Today’s article picture of doom:

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