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President Obama threw the Global Economy a life raft this week by signing the 780 billion dollar Stimulus Program on Tuesday; and on Wednesday introduced the Foreclosure Prevention Program. The Stimulus Package’s main agenda is to provide jobs and execute tax cuts to put money in our pockets. In Arizona we will probably receive somewhere close to one billion dollars to rebuild highways and bridges and to finance other projects that will be determined by our state lawmakers. Implementation may not be until summer, but is good news for all of those in construction. Mega corporations will be able to restructure debt and spread tax liabilities over several years. This will help national home builders still in business, telecommunications companies and Arizona casinos. We will all receive some sort of tax reimbursement. For those of us that own a home, greening it up a bit with solar, or fans, or acting like we care for the environment will offer small rebates. The government wants us to use these rebates to buy clothes at J. C. Penney’s, since we cannot afford Saks or Neiman’s anymore, or furniture at Sears. Spend, spend, spend (please) is the new Government mantra. First time home buyers are already experiencing a once in a lifetime opportunity with low home values and incredible interest rates. The new bill presents an additional incentive with a tax credit up to $8,000. This is a true gift that should stimulate our real estate economy.

President Obama’s Foreclosure Prevention Program will not be officially introduced until March. Loan modification is the main focus by pushing banks to modify loans by interest rate reduction of primary residences. The banks will be on the honor system to implement the plan. The refinancing piece of the program probably will not be much of a benefit to those of us in Arizona, since to qualify our homes can only have 5% negative equity. That is so 2006. The glaring omissions were the validation of the rumor for guaranteed lower 30 year fixed interest rates, and any concession for the jumbo loan market. The soothsayers on Wall Street are panicking over the changes and playing the “what if” game. They are trying to decide if we were thrown a raft or an inflatable cartoon character.

FYI: What is the number of foreclosures? A 2,000 percent increase from 2005 screams the media! According to the Census Bureau, Maricopa County has over two million home owners. Roughly sixty thousand homes were foreclosed in 2008. So hold on to your stuffed animals, if my calculations are correct, that is 3.7% of all homes owned. ThIs statistic will not make headline news.

by Diane Gerdes

Hi! My name is the Bank of America and I am addicted to performance enhancing euphoria that includes huge profits and big pay days. Across our great country the banks, as well as other financial institutions such as Fannie Mae, started using back in 2003 and could not stop. Tired of being the boring companies that kept our money safe and financed our homes with tried and true programs; they found ways to make themselves popular throughout the world: by pumping up their books by legally inflating profits and seducing the rest of the country into believing 100% financing with adjustable rate mortgages made perfect sense. And their fans, Wall Street, demanded bigger and better performances. The banks could not say no. For example, according to Standard and Poor’s, an independent credit rating system for stocks throughout the world, over 30% of the total worldwide corporate profits in 2005 were from financial institutions compared to just 18% in 1995. But the new government stress test for banks will finally sober up the bonus-loving junkies: the new stress test will now focus on the not so sexy: tangible common equity. In the old days, say last month, intangible assets were the needle that plumped up the books. Intangible assets are goodwill, blue sky, tax deferments and some say the credit default swaps. These had no value, except to the company itself. And because it considerably inflated the profits, the executives helped themselves to the make-believe cash, for the very real extravagant lifestyles and company expansions. Tangible common equity is a yawner because the emphasis is on the proceeds the stockholders would actually receive if the company was liquidated. And if the banks cannot meet the government’s accountability standards with the tangible common equity, Uncle Sam will begin to purchase common stock and become co-owners, as they did today with Citibank. If only the banks had stayed away from their version of steroids they would not have become the A-Rod of the corporate world.

FYI: Interest rates continued to climb this week (they are still great) but why? The 30 year fixed rates are governed by the purchasing power of the 10 year treasury bonds. Our government flooded the treasuries this week in hopes of rallying more buyers to purchase our debt and help fund our stimulus packages. Investors purchased the treasuries, but not as much as was expected.

by Diane Gerdes

President Obama’s sheriff’s badge was tarnished this week with a double whammy: the poor reception of his significantly altered stimulus bill, and Secretary of Treasury Geithner’s cloudy presentation of the financial bailout proposal. The rowdy democrats and the suddenly prim republicans were at odds on how much money should be doled out and the names of the recipients. The current stimulus package will allow car buyers in 2009 to deduct the sales tax. For those of us that cannot afford to purchase a new auto, 2.25 billion dollars is going to intercity rail, 6.9 billion to public transportation, and Amtrak will receive 1.3 billion dollars. Are they going to build a train that goes from Goodyear to Queen Creek? 1.5 billion dollars will be allocated to prevent homelessness. But it is not going to be divided among us home owners, to help make our mortgage payments. NASA will receive 2 billion dollars, to go to where no man has gone before: study of climate and the greenhouse effect. First time home buyers will receive a non-repayable, one-time tax credit for $8000.00 as long as they buy a home in 2009, with no provision for those that purchased in 2008.

Timothy Geithner is wrangling with the major banks over loan modifications. They are still ignoring today’s cause of foreclosures: our homes are worth a fraction of what they were two years ago. Homeowners are being held hostage by the banks. If the government wants the housing market and the economy to stabilize they need to handcuff the banks and immediately mandate laws into motion. Action needs to be implemented to allow principal reductions to today’s appraised value. They need to stop the nonsense of having good home owner’s miss credit-trashing house payments before a loan can be modified, and provide loan programs that will benefit the home owner as much as the bank. The Bank CEO’s need to get on their private jets (since I doubt any them have ever been on Amtrak) and come to Arizona. They could have a three day all expense paid stay at Joe Arpaio’s tent city, pink underwear and bread soup included.

BY DIANE GERDES

The media hounds of the Senate and House of Representatives are busy posturing for recognition on the still un-passed stimulus bill. Rather than taking action, they are focusing on seeing their names and faces scrolling across CNN and other news channels. The new bill should be called “101 Blowhards.” They all have an opinion on the new stimulus bill and where the money should go: tax breaks, new jobs, more money to the banks, lower interest rates; access large tariffs on imports…Wait! We did that in 1930 with the Hawley Smoot Tariff Act, a law that slapped a substantial tax imports that were not American. The effect? It was one of the catalysts of the Great Depression before “out sourcing” or “made in China” were in our vocabulary. The global retaliation at that time was not pretty. Will that mean I will have to return my Chihuahua puppy or pay an additional fee? Diego really likes it here.

The directors of the U. S. Economy, President Obama and the new Treasury Secretary Timothy Geithner may want to consider taking action now before the final credits begin to role on our economy.

FYI: Careful on those interest rates! Yes, they are low but….if you have a lousy credit score, say 700, a low loan amount, for some banks that is below $100,000: the add-ons can quickly erode that awesome rate. Also, the banks now are making it next to impossible not to charge origination fees and discount points. One origination fee can now make the difference in as much as half point in an interest rate.

DIANE GERDES

We all came to the imaginary money pyramid build around 2004 by theprofit seekers on Wall Street. The architects with names like Bernard Madoff , John Thain and Hank Paulson may have learned their skills from Charles Ponzi. In the 1920’s Charles Ponzi invested unsuspecting individual’s hard earned money into European money certificates and promised incredible returns. So spectacular that people were in a frenzy. They refinanced their homes to get the cash to invest for the promise of amazing riches in a short time. Ponzi was taking money from new investors to pay past investors and along the way buying himself a few villas, exotic cars, a yacht , really cool jewelry, taking first class trips, and giving himself big bonuses. And then one day the investors wanted their money, not the certificates and the scheme tumbled down leaving the investors impoverished and Ponzi broke. After 9/11, Wall Street devised the ultimate Ponzi scheme with mortgage backed securities, good mortgages mixed with undisclosed bad risk mortgages, and the Credit Default Swaps, insurance for bad investments. So when the mortgage securities went bad, people cashed in their CDS’s. Except the CDS’s were issued with no money to back them up. So where did all the money go? How about 20 billion dollars in bonuses paid to Wall Street executives in 2008, exotic cars, villas all over the world (one is not enough), yachts, corporate planes (Citibank is giving back its new 50 million dollar jet), rare art work, first class trips, office decorating allowances of 1.2 million dollars and really cool jewelry? Let us hope Uncle Sam is not participating in the ultimate Ponzi scheme by giving bail out money to our banks and corporations.

FYI: Freddie Mac announced today that they will become landlords. The giant mortgage company will allow foreclosed home owners to stay in their current homes after foreclosure and rent back at the market rate, not the overblown payment of a house underwater. So that we all understand: Current homeowners are not worthy of principal reduction and decreased mortgage payments, only renters.