Tim's Atlanta Real Estate Blog: October 2008

Many agents are using GPS systems to help them navigate around town.  There are some really nifty systems that talk to you and tell you exactly what to do.  After a while, it's easy to go on autopilot and follow the commands of the nice GPS voice.  I've heard that some people actually give their GPS a name.

I still haven't jumped on the GPS bandwagon.  I bought one a few years ago and tried it out.  I did a real map like I always do vs. allowing the GPS software to plot out a tour of homes.  A few times I noticed that the GPS software would take me off onto a non-existent road.  There might have been plans for a road there but for whatever reason, it was never built.  I had this vision of me and my clients in the middle of a cow pasture.

A driver of a minibus in Poland actually drove his bus into a lake because his GPS told him to:

"There used to be a road there until last year until the local water company flooded the valley to build a new reservoir lake," said one police source.

"It seems that the GPS hadn't been updated and was still showing a usable road running through where the lake now is. It's a huge lake and it's hard to imagine how you could ignore or not see it, but he certainly managed it.

"The driver had such faith in his sat-nav that he didn't even notice all the traffic signs saying the road had been closed," they added.

So be careful with your GPS system.  Don't let it's calm voice lull you into a false sense of security as it's directing you to drive off a cliff. 

If you need a laugh, read this article from the Onion.  I love satire, especially when it reminds me of something I see in real life.  This reminds me of the clothes dryer vent guy.

I know you're worried about the economy. Hell, we all are. You don't need to be some kind of financial guru to know that things are looking pretty grim. Banks are folding, unemployment is on the rise, and people are worried about their retirement plans. Sure, it's rough right now, but we're a nation of fighters. We've been through this before and we'll get through it again, with our heads held high and our gutters protected year-round....

You can't put a price on the peace of mind these gutters will give you, knowing you'll never have to leave your house in the middle of winter to clear leaves and battle the marauding hordes of shotgun-toting vigilantes who will make the streets of the suburbs run red with the blood of the weaker class.

And because I know money's tight, you know what I'll do? I'll give you a free estimate. Just say the word and we'll grab a cup of coffee, watch our life savings crumble into oblivion, and finally get your gutters right, 12 months out of the year.

Many conservatives jumped on Barack Obama's passing mention of redistribution of wealth in his brief response to Joe the Plumber.  For the last two weeks that mention of redistribution has been hanging in my mind.  Just what did he mean by that?  Was it just a slip of the tongue or does he have some deep thoughts on the subject?

This morning I see that someone has uncovered a 4 minute radio interview from 2001 where Obama explains in details his thoughts about the redistribution of wealth and how best to go about it.  He talks about how it would be Constitutional.

Since it seems like he will be our next president, this question will be a big topic of discussion. 

So what are your thoughts on it?

A great analysis of the reasons for taxation was given by Beardsley Ruml, Chariman of the New York Federal Reserve Bank, back in 1946.

He basically says that when a money supply is disconnected from gold or other hard asset, taxes really aren't necessary.  They are used to serve four purposes as he states in his paper:

What Taxes Are Really For

Federal taxes can be made to serve four principal purposes of a social and economic character. These purposes are:

1. As an instrument of fiscal policy to help stabilize the purchasing power of the dollar;

2. To express public policy in the distribution of wealth and of income, as in the case of the progressive income and estate taxes;

3. To express public policy in subsidizing or in penalizing various industries and economic groups;

4. To isolate and assess directly the costs of certain national benefits, such as highways and social security.

In the recent past, we have used our federal tax program consciously for each of these purposes. In serving these purposes, the tax program is a means to an end. The purposes themselves are matters of basic national policy which should be established, in the first instance, independently of any national tax program.

Among the policy questions with which we have to deal are these:

Do we want a dollar with reasonably stable purchasing power over the years?

Do we want greater equality of wealth and of income than would result from economic forces working alone?

Do we want to subsidize certain industries and certain economic groups?

Do we want the beneficiaries of certain federal activities to be aware of what they cost?

These questions are not tax questions; they are questions as to the kind of country we want and the kind of life we want to lead. The tax program should be a means to an agreed end. The tax program should be devised as an instrument, and it should be judged by how well it serves its purpose.

These are the important choices we need to be debating.  As you see, these are not new questions.  But unfortunately, the question never goes away. 

My opinion is that our current system that got started back in 1913 with the Federal Reserve and income taxes is unconstitutional and should be scrapped.  I think that the general welfare clause has been distorted in order to allow government into things that the founding fathers never intended.  I know that we have become accustomed to these things and assume that it is all beyond question by now.  But if you want real change, I think we need to start at the crux of the problem.

I've always been a red pill type of guy.  I always feel compelled to have to know how things really work.  Sometimes I wish I could just take the blue pill and be oblivious to it all.

Over the past year or so I've been dabbling in learning more about how our financial system really works.  The more I learn, the more I wish I had taken the blue pill.

If you want to learn a lot about the financial system, you need to spend some time reading Karl Denniger's blog.  At first it's a little difficult understanding the terms and the details, but he's good at making it understandable.

In the past few months I learned about "naked short selling" of stocks.  I'll do a post about this next week.  There's crazy stuff that you wouldn't believe going on with that.  Mob connections to hedge funds who are manipulating stocks to drive them to bankruptcy while the authorities are bought off to look the other way.  In a nut shell, you sell a stock that you just created with your imagination for real money to a real person who thinks the stock certificate is actually sitting in his brokerage account.  If you manipulate the market enough, you make the stock go down to zero and never have to worry about making good on the actual stock certificate that you created with your imagination. It's fraud on a massive scale that the regulators are afraid to reveal because they fear what would happen if everyone knew what the real deal was.

What shocked me today was learning that there's short selling of Treasury Bills going on. There's a huge flight to Treasury Bills lately because people  just want to keep their cash in a safe place.  What happens when the broker or money fund can't find enough Treasury Bills to meet the demand?  They take your money anyway and make believe that they are holding the actual Treasury bills in your account.  Then they hope they can find some as quickly as possible.

The following is from Karl Denninger's recent post that goes into detail about this.  I'm almost to the point where I actually am grasping what's actually going on and it's making me sicker and sicker.  It's a little long but stick with it. I think it's important to understand.

Now, one tiny little inconvenient question - Treasury Money Market Funds - you know, the ones we all think are quite safe because they hold ONLY short-term Treasury paper?

Do all those T-bills they allegedly hold really exist?  And if not, uh, exactly what is my "money market" fund holding?  You doknow that a lot of those funds use repos, right?  That's those "private contract" things they're talking about.  You know, the kind where they lie and then rip you off behind your back?

Now let's talk banks.  You know, those things that are supposed to hold reserves against deposits when they make loans?  Well guess what - there are no reserves.  The non-borrowed reserves have been negative for months - since the turn of the year, in fact, and now total over $300 billion dollars. 

What does this mean?  Simple - the banks lost (blew, speculated with and got caught on the wrong side of, issued or purchased crap securities with, paid bonuses with, paid the light bill with, etc) the reserves they are supposed to hold against deposits.  This would usually result in them being declared insolvent and the FDIC would seize them, but that would be inconvenient.  So instead they went to The Fed which loaned them reserves so it appears they have some.  It appears they have subsequently lost some of that money as well, because the "non-borrowed" reserve number continues to increase in the negative direction (that is, its a negative number - a very large negative number.)

But wait - where did that money they borrowed come from?  Why Treasury issued debt against which was issued money, cranking The Fed's balance sheet up.  So in effect, what were bank reserves held back from your deposits are gone (kaput, vaporized, in some banker's yacht at The Hamptons, etc) and have been replaced by debt issued by Treasury against FUTURE tax collections to be levied against you! 

That's right - your reserved deposits were lost, and replaced by an IOU from Treasury against YOUR FUTURE EARNINGS.

You not only gave your money to a bank which lost it, they then (by the magic of the Treasury and Fed) then turned around and enslaved you going forward to get it back from your tax payments.

Circle, meet jerk.  Isn't life grand when you can lose your customer's deposit money speculating and then recover it by taxing them?

I guess that's supposed to be ok, since its the same thing that Congress did with the EESA/TARP right?  The banks don't have enough capital so instead of forcing them to sell assets and/or go out and get it on their own (possible on Guido terms if they can get it at all) Treasury forcibly enslaved all of America to provide that capital via a "call" on future tax revenues, and give it to the bankers so they could pay bonuses and play "corporate raider" with one another.

And how did the banks that are "benefiting" from the TARP lose the capital in the first place?  The same way they lost the reserves - by speculating in property markets, by making imprudent loans to people who couldn't pay them back, and by getting wound up in fraudulent transactions like Credit Default Swaps that were in fact a fancy game of "pick pocket" - a game gone horribly wrong.  Oh, yeah, and by bonusing out $70 billion dollars - half of their revenues - to their staff.

For all of this YOU THE TAXPAYER is expected to pay.

Still trust banks and our government? 

I keep hoping that this guy and many others who write about similar things are all wrong.  I keep hoping that things can't be that messed up and there has to be enough good guys to clean things up. 

Damn that red pill.

Lately I have been reluctant to take listings.  Who wants something that's going to sit there and drain your time and energy?  But I'm glad I took on my most recent listing in Roswell Georgia.

I took a listing a few weeks ago and got it under contract in 9 days.  It's a home in the $500K range.  He had bought it in July of 2007 so I thought it might be tough to get him out whole.  I did my market research and thought we had a good chance at selling it even in a slow market at a price he could handle.  I won't be able to give out details until it closes in a few weeks.

We had 7 showings in the first week and several people calling up for more information.  We negotiated a contract on day nine. 

We just got done with all contingencies and appraisals and are clear to close.

I had a call from an agent who had someone interested and was really disappointed that it was already under contract.

I also have another listing that had a lot of activity and we received two offers on it.  It's in the $400K range. 

If I didn't know any better, I would think that it was  a hot market.  I hope it continues.

I got a new listing that had been on the market with another agent for three listing periods.  I'm not a professional photographer but I've learned from a lot of trial and error.

I went back to compare my pictures with the pictures that the previous agent had used.  Here are a few of the differences.  The previous listing photo first followed by the picture that I took.

 Previous picture

I like how the lighting is on the new picture.  The shining hardwood floor also is highlighted.

Previous listing

My trusty little camera was able to get a little more in this picture.  I got all three large windows, more of the coffered ceiling, and again, the hardwood floor looks nice.  I was also pleased with the lighting.  It just seems cleaner and crisper.

Old listing photo

I think this shot highlights more of the cabinet space vs. the three bar stools.  It also shows a little more depth.  I always like to show counter top surface vs. the counter top edge.  Again, my camera was able to get a little more of the kitchen into the picture. 

Old listing photo

I think the big feature in the master is the fireplace and built in shelves.  I was also able to get some of the trey ceiling into the shot.  I probably should have moved the loveseat over to the side but I try not to disrupt things too much. 

Anyone can take a photograph, but as you can see, little things can make a big difference.

I don't know about you, but when a vice presidential candidate makes a detailed prediction about some catastrophe that is going to happen in the next six months, I want to ask him some follow up questions. Biden says:

"Mark my words. It will not be six months before the world tests Barack...Remember I said it standing here if you don't remember anything else I said. Watch, we're gonna have an international crisis, a generated crisis, to test the mettle of this guy."

"I can give you at least four or five scenarios from where it might originate. And he's gonna need help. And the kind of help he's gonna need is, he's gonna need you - not financially to help him - we're gonna need you to use your influence, your influence within the community, to stand with him. Because it's not gonna be apparent initially, it's not gonna be apparent that we're right."

"Gird your loins. We're gonna win with your help, God willing, we're gonna win, but this is not gonna be an easy ride. This president, the next president, is gonna be left with the most significant task. It's like cleaning the Augean stables, man. This is more than just, this is more than - think about it, literally, think about it - this is more than just a capital crisis, this is more than just markets. This is a systemic problem we have with this economy."

• What does he know?  He does have access to all of the secret foreign intelligence information. 
• What is he suggesting about the systemic problem with the economy? 
• What specific actions will they take that won't initially appear to be right?

I am really shocked and frightened by his words.  How can someone say such things and not be forced to explain in more detail?  Is this housing bailout just the tip of the iceberg of what we can expect in the future?  Will we have to implement a new monetary system?  Will there be martial law? 

I just can't make sense out of this.  This isn't just some slip of the tongue.  This isn't some pie in the sky talk.  It sounds like someone who has detailed knowlege of a secret plan.  It reminds me of how my nine year old son tries to keep a secret but has to begin dropping little hints to others.

Maybe I'm a nut job reading too much into it.  Maybe Joe Biden is a nut job who is trying to scare people.  Or maybe Joe Biden has loose lips and just can't keep a secret.

Update:

A local Orlando Florida newscaster actually had the nerve to ask Joe Biden some tough questions.  She asked him about his remarks about Obama being tested in 6 months.  Biden twisted around his words and said he said something different.  For asking these questions, the Obama campaign has now cut off this station's access to anymore interviews with them.  Here's the video.

Alan Greenspan today talked about how he screwed up by putting his trust in the "experts'" computer models when it came to analyzing the risk of various financial schemes on Wall Street.

Business decisions by financial services firms were based on "the best insights of mathematicians and finance experts, supported by major advances in computer and communications technology," Greenspan told the committee. "The whole intellectual edifice, however, collapsed in the summer of last year because the data inputted into the risk management models generally covered only the past two decades a period of euphoria.

When I read that, the first thing that popped into my head was global warming.  I've heard so much about all of these computers that can predict the future climate based on some kind of models.  If you question the output of these computers, you are looked at as some kind of kook.

I just get this crazy vision.  We'll spend trillions of dollars trying to fix global warming, in the process we'll bankrupt the country, and in twenty years we'll be in a big cooling trend.  Then we'll have Al Gore up at Capitol Hill saying that it wasn't his fault, he just put his faith in the computer technology. 

I think this is a great post that I see everyday.  It's the reality of what actually happens out there. 

Could anyone have seen the coming housing bubble back in July of 2002?  Did anyone warn us about certain conditions that were laying the ground work for a bubble to be created in the housing market? Here's part a very interesting speech given back in July of 2002.  It's almost like the speaker had access to a time machine and saw what would happen five years into the future.

Ironically, by transferring the risk of a widespread mortgage default, the government increases the likelihood of a painful crash in the housing market. This is because the special privileges of Fannie, Freddie, and HLBB have distorted the housing market by allowing them to attract capital they could not attract under pure market conditions. As a result, capital is diverted from its most productive use into housing. This reduces the efficacy of the entire market and thus reduces the standard of living of all Americans

However, despite the long-term damage to the economy inflicted by the government's interference in the housing market, the government's policies of diverting capital to other uses creates a short-term boom in housing. Like all artificially-created bubbles, the boom in housing prices cannot last forever. When housing prices fall, homeowners will experience difficulty as their equity is wiped out. Furthermore, the holders of the mortgage debt will also have a loss. These losses will be greater than they would have otherwise been had government policy not actively encouraged over-investment in housing.

Perhaps the Federal Reserve can stave off the day of reckoning by purchasing GSE debt and pumping liquidity into the housing market, but this cannot hold off the inevitable drop in the housing market forever. In fact, postponing the necessary but painful market corrections will only deepen the inevitable fall. The more people invested in the market, the greater the effects across the economy when the bubble bursts

This was a speech that was introducing the Free Housing Market Enhancement Act. This bill would have  repealed special privileges for housing-related government sponsored enterprises (GSEs) and restore a free market in housing. 

There were other things that helped create the housing bubble but this bill might have gone a long way in shutting down the pump that blew up the bubble.  The guy who introduced this bill actually ran for president.

Many out of state buyers complain about Georgia not stating the square feet of homes.  The following lawsuit in Texas gives you a big reason why that is done.  Caluculating square feet is not an exact science.  I had an appaisal done on a home where the appraiser came up with 2400.  He said that the appraiser's database had the home listed at around 3000. 

I came across this video about what happened in Argentina in 2001.  I watched it and couldn't believe all of the similarities to our country.   I think you'll find this video eye opening. 

Of course, this could never happen in the good old USA.  We don't have politicians who lie to us and say whatever they need to say in order to get elected.  We don't have the media that is as corrupt as the politicians.  It couldn't happen here, could it?

I really get concerned when I see a major newspaper run a story saying that the banks should stay closed more than just a long weekend in order to have the powers that be figure out a good plan.

How about this line that sums up the story.

...the reason we are in this fix is because markets, at least for the moment, are broken and can't be relied on to allocate capital more wisely than Hank Paulson. A little bit of well-timed, well-crafted socialism is just the thing to save capitalism from itself.

 Can you believe that?  Hank Paulson is wiser than the markets.  All he needs is a little more time to figure out all of the details. 

As one of the  "crazy" Representatives, James Traficant used to say, "Beam me up Scotty"

I get many calls from people wanting help in finding a rental home.  Lenn Harley gives some great reasons why most agents don't deal with rentals.  Go to her original post so you can read many of the agent comments that were left.

Did anyone watch the debate last night.  I missed the first 5 minutes so I had to catch it on YouTube.

McCain came out with a really unbelievable plan for homeowners who owe much more than what their homes are really worth.  He said that he would have the Treasury buy up the current mortgage and then give the homeowner a new mortgage at the current diminished value of the home.

I really couldn't believe my ears.  How could that be?  I wouldn't have believed it if I didn't see it and hear it myself. 

Go to about the 5 minute mark in the video below and listen to it yourself.  I am just stunned at such an idea.  Does he really want to do this?  Where would all of this money come from?

We've all walked through homes trying to piece together information about who lived in a home and why they were moving.

Each foreclosure has a sad tale behind it.  I came across this video of a a story about a company that banks hire to clean out homes after they have been foreclosed on.  It is really shocking to see what is left behind.  Nice cuddly stuffed animals and family photos are left and then just tossed into the dumpster.  Someone even left an urn with a loved ones remains still in it.

I don't like depressing stories but it's eye opening when you see this stuff.  It makes me appreciate what I still have and makes me realize that things can turn quickly.

I like to give hesitant buyers a worse case scenario.  Lately, many buyers are thinking "What if I buy a home and then can't keep up with the mortgage payments?"  Along with "What if prices keep falling?" Friday's passage of the new bailout package should help cushion the blow in those  scenarios. 

If you stop making payments on your mortgage, the lender will simply sell the mortgage to the Treasury and it will become the Treasury's problem.  The bailout bill allows the Treasury to help you out by either lowering the interest, restructuring the payments or even lowering the principle.  What a deal!  If things go the wrong way on you, just stop making payments and work out a better deal with the Treasury.

I know what some of you who just sent in your mortgage payment for October are thinking.  You just slapped yourself on the forehead and said "Wow, I could've skipped a mortgage payment!"  You probably feel like a schmuck for actually thinking you had to send in your payment as you agreed to.  I know I do.  I still don't have one of those big screen TVs.  I could get a nice one if I hadn't paid my mortgage this month.  Wouldn't I be helping the economy by buying something like that?

I'm sure there are probably a few financial planners looking into such a strategy.  Along with people who help you save in taxes, there will be experts who will help you get your mortgage principle reduced.  It will probably be a long process that might take a year or two to work out.  If nothing else, it will give you time to get back on your feet financially while you are still  living in your home.  It will probably give you more time than being evicted for not paying your rent. 

So there you have it.  No buyer should have any fear about buying a home.  The government is here to help us out if needed.  Buyers have nothing to fear but fear itself. 

Of course I'm just kidding about using the bailout to your advantage for financial planning purposes.  If everyone did that, the bailout could end up costing trillions of dollars. Then what would happen to our financial system?  Here's a link to an interview explaining what we might expect in this situation.

We are told that if the Congress doesn't do something immediately, the financial world as we know it is doomed.  There will be massive failures and business will screech to a halt.  A Representative also just said that they were told that there might need to be martial law.

If it is so serious, then why do they have to play around and try to attach all of these special deals to the bill?  Wouldn't you want a nice, easy to understand bill that didn't have strings attached? 

I was shocked when I saw the section about giving a break to the makers of wooden toy arrows.  Who put that in such an important piece of legislation?  They should be tarred and feathered.  Doesn't any Senator have the balls to demand that that and other similar sections be removed?  Let's identify the Senator who needs that in there for them to pass this important bill. 

Where's that Maverick guy who said he was going to take a stand against pork?  Here's a chance to do something.  Stand up and say enough is enough.  Talk is cheap my friend. 

Here's the link to the full text of the Senate Bill

 Here's the section about the toy arrows.  You just can't make this stuff up.

20 SEC. 503. EXEMPTION FROM EXCISE TAX FOR CERTAIN

21 WOODEN ARROWS DESIGNED FOR USE BY

22 CHILDREN.

23 (a) IN GENERAL.-Paragraph (2) of section 4161(b)

24 is amended by redesignating subparagraph (B) as sub301

O:\AYO\AYO08C32.xml S.L.C.

1 paragraph (C) and by inserting after subparagraph (A)

2 the following new subparagraph:

3 ‘‘(B) EXEMPTION FOR CERTAIN WOODEN

4 ARROW SHAFTS.-Subparagraph (A) shall not

5 apply to any shaft consisting of all natural

6 wood with no laminations or artificial means of

7 enhancing the spine of such shaft (whether sold

8 separately or incorporated as part of a finished

9 or unfinished product) of a type used in the

10 manufacture of any arrow which after its as11

sembly-

12 ‘‘(i) measures 5⁄16 of an inch or less in

13 diameter, and

14 ‘‘(ii) is not suitable for use with a bow

15 described in paragraph (1)(A).''.

Let's go back in time to 2004.  The House of Representatives was having a hearing on the practices of Fannie Mae.

Many like Barney Frank and Maxine Waters were upset that the regulators were creating a problem where there was none.  One Representative was saying that this was a political lynching of Fannie Mae CEO Franklin Raines. It's funny, I had never seen  Franklin Raines before so at first I didn't understand how they were using the race card by using the word lynching.

Some of these same Representatives who showed such bad judgement back in 2004 are now the proponents of the new bailout package.  Do you really think that their judgement on such matters has improved over the past 4 years? 

After watching this video, it's pretty clear who knew what they were talking about.

Who is the bailout plan really for?  Main Street, Wall Street, or Foreign Banks?

Politicians are like magicians.  They draw your attention over here so you don't see what they're doing over there.  If you have any doubts, just consider how they title some of the bills that they pass.  Many are given titles that are completely opposite of what the bill actually does.

Watch this video.  He has a clip of a Representative who was on the Kudlow and Cramer show exposing a little known piece of the Senate bill that they are going to try to ram through today.