Misdirected Arrows

Having just seen last year all of the occupy demonstrations, my wish for the new year is that more people worldwide, and especially in the USA, will realize that the economic problems we are seeing in the world stem not from Capitalism but from Government and government intervention in what should be free markets.

While I get the beef the occupiers have, I have it too (anger at crony business for example), but so many people have their anger focused on the wrong place.  It is ignorance in the most caring sense of the word.

The occupy crowd (and the population in general) should not be upset at Capitalism or at the too easily contrived “fat cats”, they should go to the source of the problem which is Government.

Markets naturally self-regulate.  Why?  Because Buyers and Suppliers of anything have to both agree before any product or service can be bought or sold.  If one or the other cheats, lies, or otherwise doesn’t offer value they will naturally be eliminated or otherwise ignored.   The good and the bad word gets out.

The minute an outside party to the transaction gets involved and alters the relationship (screws with the free market) it is no longer a free market but a manipulated market.  Look around – do you not see Government intervention and manipulation in markets almost everywhere?  Housing, Health Care, Food, Labor, Stocks, Banking and on and on.

Look at the United States – we have a Constitution, a founding document of the nation that sets forth not what the Federal Government can do but rather what it cannot do.  This is somewhat unique to the USA and what has up until now set the USA apart from the rest of the world by levels of degrees when it comes to economic productivity.  The first job of the government is to protect your liberty, life, and property rights, and the first job of the President is to defend the Constitution.  We have a Congress that passes laws that regularly interfere  with your liberty and property rights and a current President that routinely tramples on the Constitution.

The problems we’re seeing in the USA and in many parts of the world are not stemming from Capitalism – on the contrary – its the lack of Capitalism that is pushing everything down.  When Capitalism flows freely the markets would take care of themselves.  If Government would get out of the way of interfering in markets so many of the nations economic issues would naturally resolve themselves.  Resolving economic issues leads to resolving many social issues.

Do you really need a far-away Federal bureaucrat deciding for you what you should buy, when, and for how much?  If you support this sort of a world, maybe there are a few countries for you where you could relocate, but the Constitution in the United States lays out the terms and conditions of the country.  It is clear that many people also confuse the role of the Federal government with the role of the States (ex. Dept of Education).  So many people lose their minds when you say we should get rid of the Federal Dept of Education – but think about it, what business does the government have being in the business of educating children?  That is not a role of the Federal government.  (As a side note, if you think about it again, you’ll realize why the Federal government like to have a hand in education.)

So while nobody like crony capitalism (hardly a free marketplace either), the occupy Wall Street Crowd and most Liberal Democrat voters have their arrows and frustrations pointed in the wrong place.  They should really take a clearer look at from where these problems stem and if they want to occupy something they ought to direct their energy at voting out people in the Federal government that are creating the policies.   The Federal government is the entity creating the problems then coming forth with “solutions” for the problems they create.  Enough – just vote out the wrong people and do your best to vote in the right people.  When you elect people like Barney Frank, Chris Dodd, Chuck Schumer, Harry Reid, Dick Durbin, Barack Obama, and the like, you get what we have now.  I’ll even throw in George W. Bush because he too abandoned free market principle as she said “to save the free market“.

So in this theme, spend 15 minutes checking out the above insightful video from Peter Schiff who went down to one of the occupy protests to see if he could have a dialogue with the people there.  You can see in the video that the crowd wants to just spout out quick slogans or blame zillionaires for making too much money, but Schiff sympathizes with them, calmly shoots straight with them, and shows them that their anger really needs to be put squarely on Washington DC and the politicians who create policies that do not let markets self regulate.  He is fair in his analysis and I hope here in 2012, in what is easily the most critical election year of your lifetime, more people everywhere understand that free Capitalism is the solution, not more Government.

Remember that at least in the USA the government governs at the consent of the governed.  How many Americans no longer consent to the current state of the Federal government and will vote out the wrong people this year?

Video from Reason.tv

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Buyer’s Market or Appraiser’s Market?

Anyone selling a property right now in the USA is dealing with such a dysfunctional real estate market that it’s almost impossible to see how it’s going to break free.  The government has got the real estate industry so messed up it’s sad.

In any marketplace, buyers set the price.  You can ask whatever you want for a product or service but in the end it is always buyers that determine the price.  No buyers, no sale.  But currently in the USA, buyers by and large are not setting the pricing of real estate, appraisers are – and this is not working.

Because of the fiasco of Fannie Mae and Freddie Mac, TARP, and financial institutions lending money to people who had no ability to repay it, the US real estate market took a severe blow over the past few years wiping out enormous amounts of wealth and equity.

Since then the government has put in place a mind-boggling array of new rules and regulations for lenders that almost nobody can understand and which are doing nothing to help break loose the stagnant values of homes.  The people who established the first round of rules that got the market into this mess have put in place even more rules that are keeping the market in shambles.

What do I mean?

A family wants to sell their home for $525,000.  A buyer comes to the home, likes it, puts in an offer for $500,000 and Buyer and Seller agree.  Buyer goes to lender for a a mortgage.  Lender sends in the appraiser who comes in at $375,000.  The lender tells the Buyer that they’ll do a mortgage but not for more than $375,000, and more likely not for more that $300,000 (80% appraised value), so if the Buyer wants to purchase the home he has to come up with $200,000 cash.  Not going to happen.

So what does happen?  The deal dies, the seller doesn’t sell, the buyer doesn’t buy, the agent makes no commission, the bank lends no money and makes no interest, the family is stuck, and everything just stagnates.

Where’s the problem.  Due to the bailout deals in the past few years, one of the new rules is that lenders now must send out the appraisers when buyers want to purchase property.  Almost nobody is allowed to deal direct with the appraisers, least of which the real estate agent trying to close a deal.

Very often the appraisers are coming from 50, 60, or 100 miles away to evaluate some property in a part of town they barely know.  On top of that, the appraisers income has been cut in half because while he used to be able to earn maybe $400 for an appraisal, now he only earns about $200 because some clearing house that ordered the appraisal for the lender takes a big cut.  All new government rules.

Now the appraiser comes to the property, takes some photos, looks around, measures things and looks at comps.  The comps stink.  What’s the appaiser do?  He mostly goes with the comps.  Why?

1. It’s safe

2. He can’t be blamed for coming in to high or too low.

3. He doesn’t really care, he’s not making the kind of money he used to anyway.

4. He truly has no idea right now how to properly justify the value of a property anymore outside of the comps….so appraisers just continue to mostly go with the comps.

Well if we now have a country full of homes that used to be worth something (and intrinsically still are) but are near other properties that had owner issues, we are never going to break out of the real estate funk unless buyers, and not appraisers, start making the market.

If a Buyer wants to buy your home at the price you want to sell it, you’d think there’d be a deal.  No way, not in 2011.  The bank sends in the appraiser and kills the deal.

Of course there is a place for appraisers, but ultimately Buyers have to determine the price of property otherwise there simply is no free marketplace.  With appraisers only or mostly going with comps, everything simply remains stuck when it doesn’t have to be that way.