After 3 bacon cheese burgers, one lemonade, and two cokes I found myself having a conversation with two federal employees, both of which are blood related, about how much it cost to rent an apartments. Turns out of one them recently purchased a 17 unit building in a ruff part of town. He told me that he was able to buy the building for 7 times rent. Something that use to be the norm IN THE OLD Day’s but unspeakable for the last decade or so when resale was closer to 10 – 12 times rent. More interesting then the cost of the build is the amount of rent he was able to charge for a 2 bedroom apartment.

If a respectable family (with decent paying jobs) came to see that apartment, the most that he could ask for rent would be in the neighborhood of $1,070 dollars. (Mind you this is America’s most expensive city). However if he rented the apartment to government sponsored program (both city and federal) the apartment would rent for something in the neighborhood of $1,450. That said, the person living in the apartment was only responsible for about $50 of the monthly rent. On top of that, if that person continued keep the job they had the whole year, the government would match there savings for the year up to $5,000.

So if you are normal person with a good job, you are expect to pay $400 more for an apartment then would otherwise be the going rate, because the government has stepped in with deep pockets.

The following day came an article in the New York Time regarding the FHA loans.

“In January, Mike Rowland was so broke that he had to raid his retirement savings to move here from Boston.”

“A week ago, he and a couple of buddies bought a two-unit apartment building for nearly a million dollars. They had only a little cash to bring to the table but, with the federal government insuring the transaction, a large down payment was not necessary.”

“In its efforts to prop up a shattered housing market, the government is greatly extending its traditional support of real estate, including guaranteeing the mortgages of middle-class and even upper-class buyers against default.”

“The Internal Revenue Service is giving tax rebates to first-time buyers, and soon to move-up buyers, in a program beset by accusations of fraud. And the government agency that issues mortgage insurance, the Federal Housing Administration, is underwriting loans at quadruple the rate of three years ago even as its reserves to cover defaults are dwindling. On Thursday, the Mortgage Bankers Association said more than one in six F.H.A. borrowers was behind on payments.”

Breakdown: Economic Stimulus Act of 2008

            1) Temporarily doubled \maximum loan the F.H.A. insured, to $729,750.
            2) Two-unit property can be insured for up to $934,200.
            3) Planned legislation next year raising maximum to $839,750.

The problem with all this, if you still don’t see it, is that the idealized American Dream is no longer turn. There was a time in the country that a person could work hard, save some money and buy a house. Now the concept has change to work less, get help from the government, and hope that there will be bigger programs in the future so that some one could be stupid enough to buy out your (mistake) golden egg.

If you keep putting pressure on the middle class it will break, that would be disasters for this country, as its success or failure is directly mapped to that of the middle class.

Lastly, if a building is burning you don’t use gasoline to stop the flames, you use water. If loans are the cause of the latest financial problems of American, what makes anyone thing that we should giving out larger loans?

Read Article: With F.H.A. Help, Easy Loans in Expensive Areas

Do you see what’s happening to the dollar. I believe, and this is just a theory, the reason that the stock market is seeing growth is because most of the major companies on the DOW and S&P today are international companies, and are generating a great deal of the profits from international sources. As the Eastern economies have shown that they are on their way to recovery, the profits will come in to the asset owners. It just so happens to be that assets owners are mostly US and European companies. At the very least they are traded on the US/Euro markets. Since it cost too much to buy the stock in Europe, why not buy in the US. (Euro/dollar 1/1.50)

In a recently conversation with a major player, who told us that he see is the market as two camps. One that believes the recover has started and that there will be a normal recover, and follow the historic curve back to a bull market. The other is a group who also see the stabilization and recovery, but believes that there was nothing normal about the recession, and there will be nothing normal about the recovery. The fundamentals have shifted.

Since the economy in the US is based largely on the consumer, I think I read 73% in the Journal, what happens to the buying capacity if the dollar stays week. People will need to earn more to be able to just keep up. Luckily for us in this respect, the Chinese currency is tied to the dollar. Not so luck they have to purchase commodities in dollars, causing their production cost to go up.

The other solution is that Americans can start to manufacture again. But we have already sold off most of our industry. With current asset prices and commodities prices so high, can we even afford to rebuild the infrastructure? I am sure we can, but we are going to need more dollars to do so. The good part is that would create jobs.

With housing at the currently levels, I did not really see any great improvement in pricing (10% to 15%, is not enough since asset prices where going up 20+% yearly the last decade). We need to see prices that resemble 2002, not 2005. The rest of the economy has fallen back to 2000 levels. Food at the current level is also a big point of concern, as feeding American families should be on everyone’s thoughts.

The most populace political move would be to create jobs. Huge public works programs. Increase interest rate to 4% and get normalization back to financial markets via a return to the Glass Steagall act. It would be painful, but within 3 to 4 years you would have huge increases in productivity and employment levels. The Banks would be forced to be Bank’s again, and make money from leading. Not all this aggressive manipulation of the markets. There needs to be separation between, Banking, Insurance, Brokerage and Information. Otherwise it’s all too insular and it does not work for the people, only for the few guys that get to sit in the private rooms.

On a political front the current administration is too tied into everyone to ever make a difference. While I am for universal health care, I am not for the current programs. I believe they do nothing to address the crises in cost; all that is happening is smoke and mirrors.

On one front they will damage the good health care plans that unions (mostly skilled workers) and educated workers have. Say what you want about unions, but it’s because of them that we have any employer benefits at all. Unions keep companies honest. If companies did not offer health care, people would be forced to unionize. It’s happened once. It could happen again. The problem of course is that it will take blood and time to do it. Much like it did at the start of the last century.

The administration seems to have made a deal with everyone. The union’s, the hospital’s, the doctors, the health care providers, the drug manufactories, everyone. Some might say that’s a way to get everyone to the table, but in my experience, when you have too many people at the table nothing gets done.

As for the smoke and mirrors I referred to above. All this plan does is decreases everyone’s benefits, while increasing out of pocket cost, and increase or create a new tax. The poor will technical benefit in the short-term, but because people will figure out a way to cheat the system both on micro/local level (Doctors/Hospitals/Lawyer) while others will figure out how to cheat on the large scale (health care provider/Congress).

As for the currently Obama protection moves, such as tariffs on tire and still pipes. I am not a fan of creating protections for individual industries. I don’t think that helps anyone, I think that it reduces creativity and trade. What I do believe in is a level the playing field. I believe that we should only trade with countries that have similar value as our own country. If we are so against Communism, why is our largest trading partner a Communistic country? Why do we support the World Bank with tax player supported funds, and then create programs which take away their jobs. You want to compete, that’s fine. Create a level playing field. If these countries did not have the zero to low level interest rates, would they be able to compete with out works? The very worker whose tax revenue creates those international programs.The fundamental questions is, if we did not support their systems and governments, would they be able to compete.