Posted by: thefinancedude | May 28, 2008

May 28 2008 – Two Pennies Part Deux


The Senate agreed on a bill to help home owners.  Bush is declaring he’ll review and probably sign into law.  Great news, right? Let’s break down some numbers.

The Senate bill would create an affordable housing fund, financed by the government-sponsored mortgage-finance companies, Fannie Mae and Freddie Mac, and that fund would be used in its first year to provide about $500 million for the foreclosure rescue effort.

 “The primary goal here is to keep people in their homes, but also to establish a floor, a bottom to all this,” Mr. Dodd said. The foreclosure aid is tied to legislation creating a new regulatory agency to tighten oversight of the government-sponsored mortgage financiers.

I’m going to overlook the ridiculous idea that more government watch dogs will watch the government sponsored housing crooks more closely.  Who’s going to watch the watch dog then?

They are committing $500M in the first year, and it’s just about half over.  Pandering?  Probably.  But let’s assume not.  So this $500M will be divided into as many homes as possible if we’re trying to help as many people as possible. 

 $500M could help 5000 people with an average of $100K per home. The national median as of April was $220K per On the average we’re looking at helping maybe 2300 rounding up. The total foreclosures for 2008 are forecasted to be around a million.  Based on these numbers we’re going to help about .23% of the homeowners.  I read that 2% of us are ultimately being affected by this based on the raw numbers, so why are we in such a big fuss over this corner of the market?  Oh follow the money….almost forgot.

 The Congressional Budget Office has estimated that under the House bill, up to 500,000 mortgages would be refinanced over the next five years, at a cost to taxpayers of about $2.7 billion.

$2.7B/500,000 = $5400 per home owner.  We are paying each homeowner $5400 because they and their lender can’t figure out who got screwed more. Who loses – we do.

That $500 million would be taken from a new affordable housing fund, which would collect slightly less than half a cent on every dollar of mortgages purchased by Fannie Mae or Freddie Mac.

That fund, proposed by Senator Jack Reed, Democrat of Rhode Island, would continue to exist after the foreclosure assistance plan ended, with the money directed to creating affordable housing, including low-income rental housing.

Then they want to give that money to the black hole known as Fannie Mae.  Aren’t those the ones who lost how many BILLIONS already?  Oh and the best part of government, it wont be going away once the crisis has ended.  On one hand it takes some nerve to tell us flatly it will not be going away on the other it’s like an open dare to call their bluff. Can we?



Through most of the 1990s, auto makers sold a little over 15 million cars and light trucks a year in the U.S. market. That changed in the late 1990s: With gasoline prices low and many U.S. consumers feeling flush from the tech-stock boom, auto sales surged. Sales peaked at 17.4 million in 2000 and remained near 17 million for another five years. Heads of General Motors Corp. and Toyota said the U.S. was entering a golden age of the automobile. In 2003, Toyota‘s head of North American sales predicted the industry would soon be selling 20 million vehicles a year.

They were wrong. Sales started falling in 2006 and this year are expected to be right back where they were in the 1990s, at just over 15 million. Last week, market researcher Global Insight Inc. lowered its 2008 forecast for U.S. vehicle sales to below 15 million. Global Insight now believes sales won’t reach previous highs again until 2012, a year later than it had previously thought.

Volume is a more important barometer than sales can ever be.  Any measurement of money carries an intrinsic problem we all feel today, namely inflation. People want to buy as much as they can leverage.  Middle class tries to emulate the upper by squeezing into car payments they can barely afford not to mention those who did the same in respect to the GREAT deals on SUVs.  More like another sucker debt trap depending on how much its utilized.

 For the foreseeable future the majority of us will be trading down.  The entire expansion from the fifties has surpassed the golden age we still believe we’re in.  These days we’re spending more money to stay in the same place.  Roads and highways are in disrepair and maintenance is shirked in favor of government slight of hand pointing to the new stuff they just built for us.

 Its over. While Europe the wise elder decided to build out mass infrastructure for all, we resisted once we could ignore the obvious.  There will be an end to the finite resource known as crude oil.  When it happens was irrelevant.  The time to act has past.  We will react violently when the Cheney defined American way of life become fully negotiable.

 If you sit down and do the math, you might be spending 25% of your paycheck to secure your paycheck.  What if you took a job you loved that paid 25% less, but was 1/10 the distance?


The trucking firm Jevic Transportation Inc., of Delanco, announced today that it was ceasing operations after 27 years, a victim of high diesel and insurance costs as well as the tightened economy.

“When you are a carrier, you see the recession coming before anyone else,” he said. “Customers are shipping less.”

“For many motor carriers, fuel is now equal to labor as the highest expense,” she said. “The trucking industry spent $112 billion on fuel in 2007, and we’re on pace to spend $141.5 billion in 2008.”

Besides new business systems, Jevic added other distinctive innovations: Its drivers carried business cards, just like senior managers. It was known for good pay and benefits, and thus had little difficulty filling the ranks of its drivers.

 Moreover, it made a point of bending over backward to get new customers, and to keep them in the fold.

Corollary to the above point.  Mass transportation is the current marginal form of transportation.  People will be switching to it as they get squeezed out of their autos.  Business is similar in that they must ship goods, rather than their labor.  They too are making marginal changes to their business model to cope with rising costs.  At some point, the marginal truckers will be eliminated in favor of moving back in time, namely freight rail transportation.  Wonder why Buffet bought so much RR stock?

Trucks are being forced into transporting local, last mile delivery.  Meaning the majority of domestic goods transport will be done via rails with the last mile delivery being carried out by an eighteen wheeler.  JIT inventory will be made mostly obsolete and business schools will search for ways to make it work until they realize it was all predicated on cheap energy and really little else.






Truckers are less efficient in terms of energy use and wear and tear on the roadbed.  Reducing the time they are on the road should help reduce maintenance costs of the roads in addition to alleviating some carbon output, albeit marginal most likely.  All the marginal truck & air freight is pretty much been eliminated over as we ascended to $3/gal.  The next leg up will produce more losers and fewer winners but we can’t stop the market.  It would be too easy to say this train has left the station, but it did and those positioning themselves will be rewarded.












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