For all the economic happy talk coming out of the main stream media these days, I offer three ‘red flags’ from today’s NY Times:
Report Says Oil Royalties Go Unpaid
By EDMUND L. ANDREWS Published: December 7, 2006
WASHINGTON, Dec. 6 — An eight-month investigation by the Interior Department’s chief watchdog has found pervasive problems in the government’s program for ensuring that companies pay the royalties they owe on billions of dollars of oil and gas pumped on federal land and in coastal waters.
The title of this particular piece is unfair because the real problem is:
Government data are incomplete and often inaccurate, making it almost impossible for enforcement officials to develop strategies for selecting companies for special scrutiny.
The report said the agency’s follow-up efforts were often sketchy, because officials who identified underpayments by companies did not have a procedure for verifying that the agency actually billed the companies or collected the money.
Yes good citizen, in these days when the burden of maintaining our fragile social infrastructure is being increasingly shifted onto the backs of local taxpayers due to reduced federal [and thus state] block grants we find that nobody responsible for collecting tax revenue from corporate USA has a clue!
But they’re going to clean up their act:
Last month, the Interior Department said that it had created an independent advisory panel to review complaints about the royalty program. But at the time, officials said they did not believe there were serious problems.
"While I think there’s a lot of room for improvement, I’ve not been able to find anything that’s drastically wrong," M. Stephen Allred, assistant secretary of the Interior for Land and Minerals Management, said in an interview last month.
The new panel will be led by a man with close ties to the oil industry, David T. Deal, a former assistant general counsel for the American Petroleum Institute.
With our confidence thus restored we move on to next shining example of government mismanagement/malfeasance.
Fannie Mae to Restate Results by $6.3 Billion Because of Accounting
By ERIC DASH Published: December 7, 2006
Fannie Mae, the largest buyer of American mortgages, said yesterday that it would reduce its earnings by $6.3 billion to correct several years of accounting problems in one of the nation’s biggest financial scandals.
Federal regulators, meanwhile, said they planned to file a lawsuit before the end of the year in an effort to recover millions of dollars from Fannie Mae’s former top two executives, whose bonuses were tied to the manipulated earnings. Franklin D. Raines, the former chairman and chief executive, and J. Timothy Howard, who had been chief financial officer, were ousted from the company in December 2004, and investigators have laid much of the blame on their shoulders.
These are FEDERAL agencies good citizen, but apparently ‘performance based’ compensation has ‘trickled into’ the management of government agencies...
How big were these ‘bonuses’?
Ofheo may be facing a more difficult task than Fannie Mae as it prepares to try to recoup the many millions of dollars Mr. Raines and Mr. Howard received as a result of the improper accounting. Regulators have said that of the $90 million paid to Mr. Raines from 1998 to 2003 at least $52 million — more than half — was tied to bonus targets that were reached by manipulating accounting.
Bigger question...where are these two men today? Had you or I committed a similar crime [or a lesser one for that matter] you can bet your boots that we’d be making big rocks into little rocks in some federal pen even as we awaited trial...but the article doesn’t say.
These two huge cases of government malfeasance bring us to our third piece for a look at some facts on the ground.
Economix
What Statistics on Home Sales Aren’t Saying
An auction isn’t the usual way to sell a home, but it can make sense for people who don’t want to leave their houses on the market for months at a time and also don’t want to take the first offer to come along. So on a Saturday morning inside the Naples Beach Hotel and Golf Club, a few dozen houses went on the block in front of about 500 bidders.
This piece starts off innocently enough but it’s important to note there was a piece that ran a couple of weeks ago in USA Today about Naples lamenting the lack of ‘affordable’ housing and the hardships this caused for those who cater to the, um, well-to-do.
In a related vein you may have noticed the recent rash of stories bemoaning the inability of industry to find skilled workers...what they’re not saying is this inability is related to not being able to find skilled workers who are willing to work for nothing!
So when you read these articles keep in mind it’s not a ‘skill’ issue but a ‘wage’ issue.
But I digress.
Based on the official housing statistics, you might have guessed that the sellers would have made out just fine, despite all the talk of a real estate slump. According to one widely followed real estate index — tabulated by the government agency that regulates Fannie Mae and Freddie Mac — the average house in Naples sold for 20 percent more this summer than it would have a year earlier.
Geez, didn’t you just read something about Fannie Mae and corruption?
But that wasn’t what happened at the auction. In fact, if you were at the beach club that Saturday, you could have been excused for thinking that the real estate market was crashing.
One three-bedroom ranch house with a pool sold for $671,000. In 2005, the same house sold for $809,000. Another house, just steps from Naples Bay, sold for $880,000 at the auction., compared with $1.35 million a year earlier. On average, the houses that changed hands at the auction had fallen about 25 percent in value since 2005, according to Thomas Lawler, a real estate consultant who analyzed the auction’s results.
The article doesn’t say if these properties were foreclosed upon, but judging from the bath the sellers took in this ‘auction’, they very well might have been. I don’t know about you but I couldn’t just ‘shrug off’ the loss of three to four hundred thousand bucks in a single year!
As I stated in an earlier piece it took the stock market three years to ‘unwind’ [hit bottom] after the crash of 1929.
I think you need to understand where this is going because the implications are dire. There are only two ways for the real estate bubble to bottom out. One is for wages to rise (we’re talking tripling or quadrupling the current ‘average’ wage) and the other is for ‘new’ [ridiculous] mortgage products to be introduced...products that will in effect put your grandkids on the hook for the house you buy/own today.
Just imagine for a moment what kind of changes this will bring to the current credit laws...we’re talking the perpetual succession of debt here, your (or theirs [the bank’s] to put it more succinctly) ability to pass on indebtedness to your heirs!
With this as a given it is beginning to look like it will take a lot more than three years for the real estate bubble to deflate.
We have three red flags here good citizen and all three of them point to the end of life as we know it.
Rising wages mean rising prices, not just in real estate but across the board. This means they either start offering 90 year [plus] mortgages OR they revalue the currency and inflict massive asset deflation on millions of boomers who are on the edge of retirement...
Not a pretty picture.
There is another way but it involves restructuring our entire society, something easier said than done but the ‘other way’ is completely painless and would produce [massive and immediate] benefits for all.
The only thing standing in the way is the definition of the word profit...sad isn’t it?
Red Flags good citizen, watch out!
Thanks for letting me inside your head,
Gegner