Tonight President Obama has his second press conference. There was a camera behind him showing the faces of the news people. If you can check it out.

They all looked like they wanted to tell him he had no clothes on. The emperor has no clothes! Actually they didn’t all look that way.  One lady was either asleep or taking an awfully long time to review her notes.

Did he actually answer any questions? Hmmm, not really. Slogans – we are all in this together, etc. Asked about the tent people and the immediate aid, he slid off. Asked about why two days to answer the AIG fiasco, he slid off. Asked about the future deficit, he slid off.

The use of $275 billion to keep families in their homes is just another way of having all of us share the pain and pay for greed, stupidity and ineptness. I would be much more open-minded if I were seeing people go to jail. Will anyone ever be prosecuted in the housing debacle?

We continually hear about the flow of credit and how businesses cannot operate without borrowing. I think this comes from the same economists who for years have been saying the national debt is good for the country. Good businesses do not need credit to operate on a day-to-day basis. Good businesses do not need free cash from the government. But, I digress. Let’s get back to the foreclosure issue.

The four step plan . . .

1. Remove restrictions from Fannie Mae and Freddie Mac that prohibit them from refinancing a mortgage when more is owed on it than the house is worth.
2. Lenders will receive incentives to modify sub-prime loans and reduce rates to more affordable levels.
3. The government will make efforts to keep new mortgage rates low.
4. The administration will support changing bankruptcy laws/rules in order to allow judges to revalue primary homes to market value.

The first, loosening credit rules for people to finance a house is what started all the trouble in the first place. Does anyone remember the word “collateral?” Under the plan, if I have a house on which I owe more than it is worth and refinance it, I still will owe more than it is worth. I will have lower payments because the interest will be lowered but will this keep me in the house? I don’t think this will stop those who walk away because they made a bad decision and are now “under-water.”

In the second step, the incentives lenders will receive are in the form of money from the government (that really means you and me) to make up the difference between the sub-prime rate and a new lower rate. How about we let the lenders just write off those loans and take the loss they deserve. They were sub-prime (can you say “worthless”) and risky loans to begin with.

The third step, keeping new mortgage rates low, will be done by the government (you and me again) buying mortgage backed securities from Freddie and Fannie. F&F make loans with no collateral (see step one) and then you and I buy these securities from F&F. Isn’t that like déjà vu all over again?

Finally the forth step, allowing primary homes in bankruptcies to be revalued at current market rates. If you file for bankruptcy, you get to keep the home you live in – ok, that is the way it has been for a long time but now, the judge will adjust the value to market lowering your payments and lowering the value of every home in the neighborhood. Home values are in great part derived from “like sales” – that means sales of houses in your neighborhood. When some sells low or get value lowered in court, your house is worth less.

Is this incursion into the housing market necessary for economic recovery? A system propped up, bandaged and put back into the game dependant on the government to cover errors will fail again. If the government does nothing and lets the sub-prime lenders and borrowers take their lumps will recovery take longer? It may but in the long run letting the economy take care of itself without infusions of cash will result in a stronger, sound system.

15% is about all you can count on from the nearly $800 billion to create jobs. That is the portion going to public works projects that can be started right now.

Yet, the White House says California can count on 396,000 jobs in the next two years. That’s a long time to hold your breath so don’t.

It’s not that all the spending is bad. We badly need retrofit of bridges and lots of road work in the country – at least spending on public works we actually can see where the money goes and get something in exchange. But the majority of the spending will probably not create new jobs. It might help some people stay employed but more likely it will be frittered away while government talks about how to spend it. “It was there. I swear. I don’t know where it went. We kinda just mixed it in with the other money.”

A recent poll asked . . .
How effective will the $787 billion stimulus plan be in reviving the economy?

Total responses to this question: 48309

Tighten up the perimeter folks, there is worse to come.