My New Blog

One day after President Obama’s State of the Union address with the promise of adding more jobs, the City of Phoenix announced they are cutting 1379 positions including police officers and firefighters to offset the $242 million deficit. Instead of eliminating necessary personnel, the following are suggestions to offset the drain on our coffers:

1. Say goodbye to photo radar. The cost of maintaining the cameras, managing the photos, mailing the tickets and serving the good citizens with their very own picture would equate to more than a few bucks. We could sell the cameras to some unsuspecting state, say South Dakota, to recoup several mil. Besides, my kids are tired of going out through the back gate to meet their friends and are looking forward to the day they can answer the front door again. FYI: “The gas pedal is stuck” is not an acceptable excuse for speeding. All recent model cars have a brake.

2. Arizona is becoming the “Green Capital” of the Universe focusing on solar and alternative fuels. Businesses are sprouting up throughout the state including the opening of the Chinese based Solar Tech in Goodyear. So, why keep the city buildings at a balmy 40 degrees during the summer? Or to keep every light on during the day or after dark?

3. According to a Stimulus Checkup report released in December by our own Senator John McCain and Tom Coburn of Oklahoma, a construction firm in Phoenix with a history of tax fraud is getting $21 million. Also two major universities in Arizona are receiving a combined $950,000 to study the division of labor in ant colonies. Hmm, ants vs. protecting our children against stranger danger.

4. Arizona should implement its own “bank tax”. Every bank that files a foreclosure notice should pay the city $1500. You do the math. The big boy institutions are ground zero for our housing crisis, let them step up and help our communities.

Levying a sin tax against our vices whether it’s alcohol, casinos, or bowling is not an option. We all need a diversion of the temporary kind. At least until those that serve can make us feel safe again.

FYI: Interest rates may swing upward when the Feds stop buying the mortgage backed securities in March. Total to date purchases: 1.61 trillion. Dollars.

By: Diane Gerdes    the "Economy Cupcake"

The American Economy should take lessons from our 2010 Olympic champions. The American athletes are playing with injuries that would put the rest of us in a hospital for an extended stay. Or you would find our battered bodies sequestered in our hot tubs (or in my case, a warm bath), easing the throbbing with our favorite adult beverage.

Lindsey Vonn, the first American female gold medalist for the downhill, skied with a severe bruised shin. It was rumored just days before the opening ceremony that she may not compete. In December Seth Wescott jammed his femur into his pelvic bone (everyone say eeww!), only to forge ahead winning the gold for the men’s snowboard cross. Evan Lysacek surprised the world winning the gold in men’s figure skating, although a past foot fracture left him unable to perform the quadruple jump. (Contrary to the reports on ESPN, watching figure skating does not compromise the man gene). And Shaun White has no injuries that I know of but, wow, his wings must be invisible. How else could anyone fly and twist at that height? His performance was awe-inspiring.

Our economy has been sick and diseased, leaving a trail of broken limbs and bruised egos. It is slowly getting better in spite of the housing market and anemic employment. The signs of improvement, although small, are in all aspects of business, from manufacturing to retail sales. We should be determined to work through our own financial injuries (some self-inflicted) enduring the pain as we move forward. For true inspiration we should mirror our Olympians for continued motivation so that we keep improving and changing as needed.

FYI: The Global markets feigned surprise yesterday when the Fed raised the rate charged to banks for direct loans by a quarter of a point, the first increase since June, 2006. Hand wringing and wailing is not necessary because the Fed is sending a baby signal that they are trying to get back to business as usual. It is the first step to wean the financial industry off of the historically cheap money.

By Diane Gerdes    The "Economy Cupcake"

The new moon next week (no, not the one with beautiful blood sucking teenagers or ripped hairy guys) begins the Chinese New Year celebration of the Year of the Tiger. Fireworks are a tradition: a call for the Dragon to come ward off evil spirits. But the recent sparks between China and the United States are not from colorful explosives.

Our government has been feeding the big panda’s appetite for American investments with 10 year treasury notes. The notes are the benchmark for our 30 year fixed mortgage rates. B.C., before the Chinese, when the economy slowed, investors purchased more notes sending the yields lower and therefore the mortgage rates went down. During strong economic growth investors would place their money in higher return investments, say the stock market, slowing down the enthusiasm for our bonds and effectively raising the interest rates. Until…. China began acquiring our treasuries in bulk in 2004. Their buying spree is one of the reasons the rates for mortgage loans were historically low during the boom of 2005 and 2006. As of November, 2009 China owns 789.6 billion dollars in treasuries.

China also purchased billions of dollars of mortgage backed securities. Once this holy grail of profit became anointed as toxic, the investors fled to safer havens. Our government continued to purchase these mortgage backed securities that no one else wants: to keep a lid on our interest rates, to keep our housing market active and to protect the Chinese from losses.

Last week the FT times reported that Russia approached China during the 2008 Olympics in Beijing with a plan for both countries to sell their treasury securities, worth over a trillion dollars, with the intent to blast our economy into turmoil. The Chinese refused. Friday, a Chinese official dangled the treasuries as retaliation bait in response to President Obama’s announcement of his intent to sell arms to Taiwan.

Unfortunately we invited the dragon to our party when it was a baby. Now it’s all grown up, breathing fire. And it isn’t a myth. Maybe next time we should check our guest list before we let strangers into our house. You never know who’ll become family.

BY:DianeGerdes     the "Economy Cupcake"

Bail outs are taking a whole different meaning in today’s world. A few short years ago bail out meant contacting Dennis, the bail bondsman to borrow money to get my irresponsible brother out of jail. Now 15 members of the Euro Zone have gotten the call to bail out their financially reckless sister, Greece. So why would they bother?

The same reason I bailed out my brother. He never paid back the thousands of dollars he borrowed through the years. Greece already owes a ton of money to many members of the EU. The other countries need to protect their investment.

The two largest and healthiest members of the Euro Union, France and Germany have too much invested in Greece to let her fail. The nether-do-well sisters, Spain and Portugal are also reported close to faltering. How will the members swing the copious amounts of cash needed to prevent economic disasters? To bail out my brother I had to cancel my pretend trip to Europe. And like me, it will put a squeeze on their own economies to save the spend-thrift countries from going bankrupt.

Speaking of Greece, China rocked the global markets by demanding their own banks shore up their cash reserves to protect against financial overheating. They are doing exactly the opposite of what the western countries did during the bank fueled expansion of 2004-2007. It may slow down China investing in U. S. securities and treasury bonds, but may prevent a sharp downturn in their economy.

Arizona is trying to prevent their own financial meltdown by implementing sharp, decisive measures to curb spending. There is no Dennis the bail bondsman or big sister to bail them out.

BY: Diane Gerdes  the"Economy Cupcake"

2010 is bringing unprecedented changes to lending. Our squabbling, not-talking parents, HUD and the FED have put new regulations into place to monitor home loans. (They don’t even meet for coffee. More on that at a later date) In the old days (2005-2006) if a buyer was using an unethical lender, went to closing and the interest rate was higher or the closings costs were more than stated on the good faith estimate, the buyer was encouraged to sign the final loan documents or the seller could refuse to sell the home. Those days are gone, gone, gone. As of January 1, 2010 within three days of a new loan application, the new good faith devised by HUD is required to be sent to the buyer. There is zero tolerance for increases in fees or interest rate. The new good faith DOES NOT HAVE CASH TO CLOSE OR THE TOTAL PAYMENT AMOUNT. It is no longer an estimate but a contract between the lender and borrower for the fees and interest rate associated with the loan. Most lenders are requiring the title fees to be perfect and to add the owner’s policy (HOA fees, assessments, and home warranties are excluded). Also by law, the buyer has 24 hours to review the HUD-1/settlement statement before he goes to sign the final loan documents. The GFE also includes the upfront mortgage insurance premium (FHA) or funding fee (VA or USDA) to be included in the total amount of the fees. Freak out time if your borrower thinks his closing costs are $11,000 instead of $5,000 because of a $6,000 VA funding fee.

Get this: The 2010 GFE does not need to be signed. HUD does not want any marks on the GFE. Again, I can’t make this stuff up. It is enough to make you go back to box wine...

by: Diane Gerdes  the "Economy Cupcake"

This week we have something else to talk about other than our economy. That’s right, now that we have turned off our sprinkler system, think of all the money we are saving! The rain is not hampering the unemployment rate, though, as it continues to climb in 43 states. A little bit of sunshine peaked through with the announcement that only 9.1 Arizonians are out of work compared to the national average of a shade over 10 percent and Michigan’s 14.6.

The housing market continues to cloud our economic recovery throughout the United States. The Obama administration has finally admitted its $75 billion program to stop foreclosures may need some more tweaking. According to the New York Times only Ocwen Financial, a subprime lender, can claim success in loan modifications, with a 40% conversion rate. Bank of America and Chase are lagging far behind with only 2% and 4% respectfully.

But the big boys are unwilling to do what Ocwen did early on to fend off foreclosures: principal reduction. It is reported that 43% of Arizona homeowners are underwater. It would cost the banks billions of dollars to reduce loan balances, not to mention shaving the mega profits off of their bottom lines. Is that a tear in your eye?

The whining continues that it would not be fair to the banks or investors that hold the notes. All is not fair in love and economics. If you want fair, go to a fairground. Or this storm may never pass.

FYI: Confused? Dismayed? The new FHA changes got you down? Cheer up! It was a nonevent. 10% down with 580 credit Scores? Very few 580 credit score loans have been approved over the past two years. The increase in the upfront mortgage insurance? It is going back to the pre-2007 amounts. The reduction of the seller concessions to 3%? That may hurt a little for the low loan amounts, but probably not enough to make a difference.

By:  Diane Gerdes   The "ECONOMY CUPCAKE"