February 27, 2008

Yep, They Did It. Government Lifts Limits On Fannie and Freddie (UPDATED)

Posted in The Economy at 12:10 pm by thevoicesofstuart

This is an update to the previous post. 

By Peggy Schlichter

As I pointed out in the last post the US Government was thinking about lifting the mortgage loan limits for Fannie Mae and Freddie Mac.  They announced today that is in fact going to happen effective Saturday.  Even after Fannie Mae reported a $3.6 B loss in the 4th quarter of 2007 on their own mortgage loan defaults.

To make matters worse they have now opened the door to easing the requirement to keep the cash reserves at a government mandated 30% above the minimum legal requirement.  While they have not eased the requirement yet the initial stage is being set to gradually decrease the requirement.

To the uninformed person this sounds like a good deal for the country…..Until you realize that by transferring the debt from the private sector lenders to the Government.  The US Taxpayer is then liable for any losses incurred by these new loans.  

Considering that Fannie Mae is already in the red and completely erased the $604 M profit from a year ago you have to wonder why the Democrats are so intent on pushing for these changes.  While they might save some of the mortgages from default they are setting everyone else up for the liability to repay the substantial losses through higher taxes.  With the current cash reserve requirement set at 10% of outstanding loan value plus the 30% government mandated additional cash reserve that still leaves 60% unsecured.  Gradually reducing the cash reserve requirement will only make matters worse. 

Now take into account that AmBac, MBIA and UBS, the 3 largest insurance companies that secure the banking industry, are already in financial trouble just trying to cover the current losses.  They are already going begging to China and the Middle East for cash to stave off bankruptcy. 

The biggest question I have to ask myself is: Who gains from these changes in Government Policies?  I can guarantee you that it is not the government nor the taxpayer.  

It is the banks and lending institutions who are quietly lobbying congress for the changes.  This is a stealthy, sneaky way to shift the burden of their bad business practices onto the backs of the taxpayer.  And hey..who can blame them.  I mean it worked really well for them during the 1980’s and the Savings and Loan Bailout.    

Who ended up paying the price then?  The taxpayer, of course.

****UPDATE****

It is a day later and Freddie Mac reports a $2.5 B loss for the 4th quarter.  Do you feel the breeze from all the smoke being blown up your skirt?  Read the next to the last paragraph of the article making light of the loss because of the large cash cushion they are required to maintain.  Then remember from paragraph two above that the stage is being set to gradually decrease the requirement of cash reserves.

Remember also that the lending limits cap is gone on Saturday for Freddie Mac also.   

The same question applies.  Who really gains from these changes? 

   

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February 20, 2008

What About That Stimulus Package

Posted in The Economy at 10:08 am by thevoicesofstuart

Or…The Fix Is In Against The US Taxpayer

By Peggy Schlichter

I know I have said this before but I will say it again.  The country does not have the money to pay for this rebate.  Not only do we not have the money to make the rebates with, they have tacked on another measure that was barely publicized in the main stream media. 

This other measure is to raise the mortage loan limits of Freddie Mae, Fanny Mac and Federal Housing Administration Insurance too. 

Why is this important?  Raising those mortage loan limits is the first step in transferring bad mortgage debt to the government.  Once that is accomplished the door is open for a Federal bailout.     

So…….Here is what that $300, $600 or $1200 tax rebate is really going to do from you. 

If you click no other link I put on this blog this is the one to read and think about during the rest of this election year.  Then think about how economically astute you believe your choice for president really is.  Then pay attention to how they speak about this during the rest of the campaign.   

February 16, 2008

Bank Cash Reserve Problems Getting Worse And the Federal Reserve’s Plan Is Not Helping

Posted in The Economy at 2:34 pm by thevoicesofstuart

By Peggy Schlichter

This thread started under the “I Was A Bad Girl” post when it morphed to talking about the candidates and their suitability for doing what is right for the Country.  If you missed it or wish to refresh your memory go there first. 

One of the biggest problems I see into the near future that will have the most devastating effect on our daily lives is the growing solvency problem that the banks are having.  Do not get me wrong here because not all banks are having problems.  Nor should anyone take this as a reason to panic.  What it should do is give you a reason to be informed and aware of the road that lays ahead.

The Federal Reserve is continuing their $30 Billion short term cash auctions every two weeks of new, 29 day, loan money into the banking system to help stem what they call a “Cash Liquidity” problem within the financial markets.  The problem is that doing so will not solve the problem. 

Any one who has been in debt knows that you cannot solve money problems by throwing more debt at it.  It is like you have one big credit card bill and you use another credit card to make the payment.  Then your car breaks down and you use the second credit card to pay for that.  Next thing you know something else happens and you need money to pay for that.  Now you have two big credit card payments and the only way to make the payments is to use the next credit card that you were saving for emergencies.  And so on, the cycle continues until the only way out is bankruptcy.  It happens, we all know of someone it has happened to.  Now just think about it on a much larger scale.

The problem, as I see it, is that the Federal Reserve is continuing on this path based on either the wrong identification of what the problem really is or they just have so much arrogance as evidenced by Mr. Bernecke’s dismissing all the economic realities when addressing Congress or they are just trying to hide the facts about the true state of the economy.  Personnally, I believe it is the last two.   

You cannot convince me that the Federal Reserve is unaware of the difference between “Liquidity” and “Solvency”.   Because there are some very big solvency problems looming in the not to distant future.  Citibank is in such a problem with their cash reserves that they have lowered their cash withdrawal limits at their ATM machines without notifying their customers.  They have limited to $10 K a day all wire transfers, including business accounts.  Other banks are following suit as they are closing in on breaking the mandatory limits set for cash reserves.  All lending companies are having the same problems caused by the high numbers of mortgage loan defaults.  There is no way that any thinking  person can reason that the situation is a “liquidity” problem.  It is not.  It is one of “Solvency”.

The harrowing factor to all this new “liquidity” (money) being pumped into the market is that it will continue to drive inflation higher.  Not just a little bit over a long period of time but quite dramatically in a relatively short time.  Inflation comes directly from an increase in the money supply and nothing else.  Whenever the money supply is increased and put into circulation the effect of inflation is cumulative.  That means that the first entity that borrows it pays a interest percentage (Banks or lending institutions) .  Then the next entity borrows it from the banks (other banks, lending institutions and businesses) at a higher interest percentage.  Then the next entity borrows either from other banks and lending institutions at a higher interest percentage and use it either expand, pay down debts with higher interest rates or use it to cancel future debts by paying for layoffs, buyouts or re-locations.  Each level of borrowing raises the interest rate for repayment of the debt and all those accumulative increases are passed to the customer in the price of the goods or services purchased.  That is why you are seeing the prices jump so dramatically at the grocery store.  When biscuits and butter jump 60% overnight it is a sure sign that all this new money is already working its way through the economy at a rather fast rate. 

Why do I use the example of grocery prices?  The short answer is that the grocery industry runs on the smallest profit margins of any industry.  Grocery profit margins are razor thin and usually vary in the 0.88% to 1.36% range annually.  They are usually the first sector hit by inflation.  That makes them the bell-weather for gauging real inflation.  Do not be mislead by thinking that the high cost of transportation fuels are the reason.  Fuel costs are included in the price for every shipment and have been high for so many years that when spread over the volumn of groceries its effects are nominal.  The real tell is when any grocery item jumps in price the increase is almost exclusively directly from inflation.  While weather may play some role in increased costs they are usually short lived and never effect all sectors of groceries. 

The Federal Reserve started their money auctions in January and have held 3 for a total of $90 B. with a fourth scheduled at the end of this month.  Directly after the first auction grocery prices started going up.  The longer the auctions continue the higher inflation will rise eventually spreading through the entire economy. 

Having said all this we are now back to the point of banks and their ability to maintain cash reserves.  The latest Federal Reserve statistics of the status of cash reserves paints a daunting picture.  Looking at the non-borrowed (3) column for the dates starting in January 08 you will see a dramatic shortfall in cash reserves.  Just prior to the end of last year the preliminary numbers showed a negative balance for banks required cash reserves.  Based on these numbers the Federal Reserved decided to begin releasing new money in the form of the auctions I wrote about above.  Even with the auctioning of $90 B in new money banks overall are still at a minus $18 Billion in cash reserves as of the 13th of February 08.  This tells me that $90 B could not stop the decline is bank cash reserves and that the shortfall continued to increase by an additional $9.3 B leaving a total shortfall of cash reserves at $18 B. 

For the Federal Reserve to continue on this course is ludicrous.  The longer they keep this up the greater the effects of continuing, increased inflation will spread through the economy. 

February 14, 2008

One Cool Map

Posted in General at 10:06 pm by thevoicesofstuart

By Peggy Schlichter

I always knew that rivers changed their courses periodically.  Not always for the same reason and usually with much rhyme when closely investigated.

The mighty Mississippi is one such river that we have known about all our lives.  It has existed ever since the center of the continent rose from the bottom of the sea.  Every thousand years or so some part of the river shifts course.

Mr. Harold N. Fisk has charted many of the changes in the Mississippi, especially the lower river valley.  Seeing it graphically illustrated is truely amazing.

Have a look.  This is one cool map.

Actually the entire blog is amazing.  Whenever I need a change of pace or am just plain bored I check out a little more of this blog.

A Clearer Picture Of One Proposed Site

Posted in Council Meetings at 1:16 pm by thevoicesofstuart

By Peggy Schlichter

To provide a better look of the site that was addressed at the council meeting here is a look at a city map that shows the lots in question.

The area addressed is between the Varley Law Office and the Alley.  It is west of the Tennis Courts.  There was some confusion on identifing the exact location at the council meeting and was hard to decipher on the recording. 

After driving up to take a look at the area and re-listening to the recording this is the best that I can do. 

And yes, I am terrible at freehand writing on-screen. 

Once you have the image on the screen click it again to enlarge.

stuart2.jpeg

February 12, 2008

New Sidewalk Snow Removal Resolution Passed And Other Police News

Posted in Council Meetings at 4:39 pm by thevoicesofstuart

By Peggy Schlichter

Mr. Waddell raised the issue of equal enforcement of the ordinance.  He realized that yes there should be prioritization on the enforcement but in order for it to be fair everyone should be ticketed who is not in compliance.  Mr. Sherman agreed and re-iterated that Division Street should be first but as time allowed the remainder of the properties who had not cleaned their sidewalks also received the door hangers and the ordinance enforced. 

The second issue discussed was the addition of an administrative fee for the enforcement of the ordinance.  As a result a $25. administrative fee is added to the ordinance.  The new ordinance now calls for a $40. fee for having the contractor remove snow and a $25. administrative fee for a total cost of $65. if the snow is not cleared from the sidewalk within 48 hours after a snowfall.

A motion was made and passed to approve the resolution.

Other Police News 

Robert informed the council that the door hangers he ordered are designed for multiple use and will be used for other municipal infraction notifications as well. 

He also informed the council that Sgt Hrubetz is running for Guthrie County Sheriff and has asked Mr. Bump to determine if it is necessary for Ron to take leave before the primary and general election.  Mr. Bump is still researching the issue.

The council was also informed that the Police Department has finished their Compliance Training for Alcohol and Tobacco Sales.  They have made arrangements to use a underage teen from another community to assist in their compliance checks of local businesses.  He expects to start random checks in the very near future.

There was no old or new business.

  

Tax Levy Approved And Public Hearing Set

Posted in Council Meetings at 4:03 pm by thevoicesofstuart

By Peggy Schlichter

Tax Levy 

The council approved the resolution to levy taxes in the amount of $625 K on the N. Division Street Project.

Public Hearing Set

The council set the next regular council meeting as the date for the Public Hearing on the 08/09 Proposed City Budget.

Also during the next meeting the council will be approving the agreements needed to clear the way for the $1.8 M grant to the Community Cultural Center.  Watch for the Public Hearing announcement in the paper since the wording was not available at council time.

Rescue Unit Director’s Contract Discussed

Posted in Council Meetings at 2:41 pm by thevoicesofstuart

By Peggy Schlichter

The Mayor referenced the discussion from their last meeting that referred the per call over-time issue to Mr. Bump for research to determine if a salaried rescue unit director is authorized over-time pay under the Fair Labor Standards Act (FLSA). 

Mr. Bump informed the council that overtime is authorized under FLSA for salaried emergency response personnel.  Based on his interpretation of the law overtime is payed based on the actual amount of over-time worked not on an average per call time as proposed in the contract.  The other option open to the council for consideration is compensatory time.

A brief discussion on the use of compensatory time followed with the council deciding against its use citing the conflicts that will arise when trying to cover the operation when he is not available because of compensatory time use. 

Mr. Sherman then reminded the council that the reason the Rescue Board used the per call amount was to help them stay within budget.  Mr. Bump then informed the council that it is the Rescue Boards responsibility to determine the number of over-time hours budgeted for and to not allow work that would exceed their budget.  They must schedule cover time by others to avoid any budget problems .  It is just like any other activity that has authorized over-time.  Once the limit is reached you do not work it.  He also pointed out that the over-time needs to be authorized.

The remainder of the discussion concerned the way the contract needed to be written to correctly reflect how over-time would be authorized and paid based on actual time worked. 

A motion was made and passed to have Mr. Bump re-write the contract to correctly reflect how over-time is to be payed and at what rate.     

Project Payments Approved

Posted in Council Meetings at 1:57 pm by thevoicesofstuart

By Peggy Schlichter

The following payments were approved by the council for these projects.

Bathhouse Project

Payment #3 – $47,405.45

Payment #4 – $30,449.40

Recreational Trail

Payment #3 – $1,62.50

Money for the final grading and seeding is still being withheld on the Trail Project.

Mowing Contract Discussed

Posted in Council Meetings at 1:51 pm by thevoicesofstuart

By Peggy Schlichter

The city was notified that the current contractor (the name of which I cannot decipher on the recording) has defaulted on his contract to mow the Cemetery and Waste Water Treatment Plant for the one year remaining on the contract stating that the contract is not profitable.

Mr. Ashour informed the council that they had two options to resolve the issue.  The first is to re-bid the contract and the second was to go with the next lowest bidder from the original bid process.

After a short discussion it was decided that they would go with the next lowest bidder of Schwinger Lawn Service in the hopes that since he is already here and has other city contracts for mowing he will be able to fulfill the contract. 

A motion was made and passed with one dissenting vote by Mr. Waddell who felt that the contract should be re-bid.  

Zoning Change Approved

Posted in Council Meetings at 1:27 pm by thevoicesofstuart

By Peggy Schlichter

The Council approved the zoning change for the parcel of land sold back to Mr. Mark Earhart from First Equity Builders.  The land now reverts back to agricultural from residential but remains inside the city limits where row crops are not permitted.

The Ordinance was passed with the waiving of any further readings.

Mid West Partnership

Posted in Council Meetings at 1:19 pm by thevoicesofstuart

By Peggy Schlichter

Mr. Jason White of Mid West Partnership was unable to attend the council meeting.  Mid West Partnership is rescheduled for next month.

Mr. Belden raised questions about the lack of information available on the Mid West Partnership website to explain TIF usage and what the city has to offer.  The council briefly discussed Mr. White’s previous request to acquire more information for Stuart and that they needed to address these issues when he is there next month.

New Commission And Board Appointments Made

Posted in Council Meetings at 12:54 pm by thevoicesofstuart

By Peggy Schlichter

Historic Preservation Committee Appointments

Ben Stouffer and Tom Cooper

Library Board Appointments

Sharon Doud – Adair County Representative

Rose Swalla – Guthrie County Representative

Planning and Zoning Commission

Bob Hasty and Wayne Gilman

All appointments were approved by the council.

City Hall, Library and Police Building Update

Posted in Council Meetings at 12:37 pm by thevoicesofstuart

By Peggy Schlichter

Mr. Crawford presented one offer for sale to the council for the SE quarter block on the corner of N. Main and 2nd Street with a asking price of $57 K. 

Additionally, since the School Board Bond Issue is going forward on March 25th the dual use library issue is no longer a topic for consideration.

The council then talked about when they thought they would be ready to go to referendum on the new building.  April was discussed with Mr. Bump to get back to the council at the next meeting on what the mandatory time allowances were to schedule a election. 

Mr. Sherman raised several questions: Why shouldn’t we use the existing site for the new building.  Do they have tear-down costs yet?  What type of backlash should we expect for tearing down the library?  The Mayor pointed out that it is the recommendation  of the Library Board to go with new construction.  That they had already talked with Mr. Christensen on the possibility of removing the old water tanks to provide more room at the current sight and he saw no problem with the removal. 

The discussion then turned to the space availability for parking at both sites.  It was determined that Mr. Aldrich would get with Mr. Sloan to provide the council with a evaluation of all sites at the next council meeting including an estimate on tear-down costs.  No motions were made on this issue. 

The referendum date is to be discussed at the next meeting after Mr. Bump researched the time requirements.

No other offers for sale of property have been received to date.

Aquatic Center Committee Update

Posted in Council Meetings at 10:39 am by thevoicesofstuart

By Peggy Schlichter

The Aquatic Center Committee presented a recap of the project since its inception in 2005 to provide the new council members with a history of the project.

To date the committee has raised through grants, local commitments and interest free loans a total of just over $475 K.  They informed the council that the $300 K USDA interest free loan has a expiration date and must be returned by the end of 2008 if not used.  The loss of this loan will cost the city approximately $150 K in additional interest costs if lost. 

Based on efforts so far they have gone about as far as they can on the project other than looking for additional grants for the project.  The problem they face in pursuing additional grants is the commitment from the city to move forward with the project. 

Mr. Sherman asked what the total cost is they still needed to complete the project, how current were the estimated costs of the project and was concerned that with the other projects in the works if they would be able to afford going forward with the project.  Mr. Belden agreed with his concerns.  

The Mayor then informed the council that if they wanted to fund this they needed to get more information on the costs and what the financing options were.  The council agreed and asked Mr. Aldrich and Mr. Ashour to work with the committee to get updated cost information and Mr. Schultz on financing options to be presented at the next council meeting for their consideration.  A motion was made and passed to go forward with getting the information.

Mr. Belden then brought up the need to amend the Urban Renewal Plan to include this area to allow the option of using TIF monies.  He was not sure if this was done yet and thought that it was necessary.  A motion was made and passed to have Mr. Ashour look into this and either confirm that it is already included or start the actions necessary to include it.

Mr. Aldrich provided contact information to the Aquatic Committee to get the process started for updating the cost information recommending that they have a evening meeting in the near future.  Council members Belden and Crawford wanted to be included in the meeting.  Mr. Aldrich thought that he should be able to come back to the council at its next meeting with information.      

     

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