7/9/2010
By Charles Payne, CEO and Principal Analyst

More Articles by Charles Payne

Slam Dunks Fuel Market ... But Are We Winning the Game?

Father Father Father (continue to) Help Us

Mussolini's Ghose Finally Dies in Italy ... But

Free markets HUD style is the only way to describe the agency's neighborhood stabilization program in Cuyahoga County, Ohio.  Housing and Urban Development will sell seized homes in the Cleveland area for as little as $100.  The Cuyahoga County Land Reutilization Corp. (CCLRC) has the opportunity to buy homes valued between $20,001 and $100,000 at a 30% discount for an initial five-day period and then 50% after 60-days.  Homes valued under $20,000 will be sold for $100. The $41.0 million to buy these HUD houses comes from HUD and the Recovery Act.  CCLRC will also be able to buy other real estate assets not in HUD inventory.  This is an extension of a plan that has already transferred 441 foreclosed prosperities to Cleveland at deep discounts. 

I've got a few problems with this program, but the outrageous comments area politicians are making are really problematic.

"This is a win for the people of my District," said Rep. Marcia L. Fudge. "I'm pleased to see HUD implement a program that will put the needs of neighborhoods first and keep foreclosed properties out of the hands of flippers and speculators who perpetuate the cycle of blight and neglect. I listened to city leaders and constituents and made it a priority to see this program through and I will continue to fight for the needs of our community."

Senator Sherrod Brown said, "This is a victory for Cuyahoga County. As we work to rebuild our communities devastated by the housing crisis, it's critical that our efforts aren't undermined by out-of-state speculators. A local response to the housing crisis is in the best interest of Ohio communities and our nation's economic recovery."

This is the crap these politicians feed their constituents that the free market is bad, that speculation is evil, that somehow it wasn't the person that actually failed to pay their mortgages that helped push the neighborhood into "plight and neglect" but someone that would have bought these homes with the idea of selling them for a profit.  These communities need a focus on education; their heroes have to be people that don't wear sneakers to work or go around making promises, but instead create sustained opportunities.  One basketball player shouldn't be the savior to a city/county.

Cuyahoga County was established on June 7, 1807 and is the named for the Native American word for "crooked" (appropriate in so many ways).  Speculators didn't destroy the county but instead lack of speculation, lack of ideas, and lack of innovation killed this once thriving community.  Multi-decade trends underscore the point that the best days are behind this county unless they can stop being victims and start electing forward-thinkers. 

• Population peaked in the 1970s at 1,721,300 and now it's 1,393,000, and expected to be 1,274,000 in 2030.
• The median household income is $39,168.
• The average rent is $541.00 a month or 25% of average income.
• 18% of population doesn't have high school diploma

Of the houses in the county, 2.9% were built between 1995 and 2000.  The majority of the homes are more than 50-yearsd old...a flippers paradise:

• 13.5% 1939 – older
• 28.8% 1940 to 1949
• 20.8% 1950 to 1959

 Data from Ohio County Profiles

This is an area that had been in decline for decades, and the only thing that happened was the blame game while more and more citizens were stripped of dreams and fed taxpayer sustenance.  This CCLRC consortium will resell 216 units of foreclosed or abandoned properties and provide homebuyer loans (such as soft second mortgage) for those homes and 150 additional homes.  In addition, CCLRC plans to demolish 900 homes, deconstruct 95 units (to reuse components), and acquire 150 units.  There will be 134 rental units provided for households earning less than 50% of the county median income.  Wells Fargo (WFC) announced it was getting out of the subprime loan business yesterday, and more and more the government is playing the role once reserved for private enterprise. 

Taking extreme risk, redistributing wealth, and demonizing the entrepreneurial spirit all under the cloak of helping people is a crime and a shame.

Yesterday on the way home, I took the slower local route and drove through one of the blocks where I grew up.   Seeing young men walking around with their pants halfway off their butt was disheartening. For whatever reason they seem to have more stuff than I had, even cubic zirconium earrings in both ears is more than I could afford.  But, we dressed in clothes that spoke to pride and hope not inspired by prison wear (no belts hence why pants are always sliding).  The generation before mine had even less and fewer opportunities and they dressed with even more pride than we did.  Check out any photo of Harlem circa 1960 or earlier and people were clean and impressive.  This is the slow descent into the role of victimization and conflict of expectations.  Wearing expensive jeans that look like prison garb?

The idea is I can get and have stuff without working for it because a speculator or business or investor lowers the living standards of my neighborhood.  The idea I should worship politicians that create temporary jobs like lifting solar panels off trucks to construction sites is an idea whose time has come and has to go.  The idea you are helping me by stifling my innovation at the same time you're handing me a free box lunch furthers mental slavery.  Now the entire nation is being swept into this mindset. The government is taking a home from a high risk borrower they backed and then suggesting the free market is nefarious but they will do the right thing and give the home to someone for nothing using the tax dollars of workers who are going to actually be shut out of the housing market via new financial regulations.  Harlem today is changing as gentrification has moved to the next level. 

The folks are being pushed out because they can't afford higher rents.  Too bad the last fifty years weren't focused on excellence and participating in capitalism; instead of being intimidated by it many would have the money to buy their apartments cheap and avoid moving to the next neighborhood bought by the government with taxpayer funds.  In the meantime, those kids that want to work are having a hard time as reports from Bureau of Labor Statistics say employment in the 16 to 19 year old age group grew by 497,000 in June, down 29% year over year, and the lowest mid-summer number for this age bracket since 1951.  I have a friend that says he saw many teens from eastern European nations working the beaches of South Jersey and asked a couple of owners what the deal was.  He was told the American teens don't even apply for the jobs.  I've spoken at schools and other programs to lots of teens and I've found the same thing.  I know kids that dropped out of 8th grade but feel McDonald's (MCD) is beneath them. 

Yesterday there was a piece in the FT about China's youth and the notion of expecting more.  They don't expect it from the government but from opportunities.  They want to be middle class not the coddled poor.  The article mentioned "The first time someone told me his chances of getting married would be ruined if he could not buy an apartment; I thought he was joking, yet it is a refrain one hears constantly." The article mentioned discontent with wages and higher home prices, too.  In the end, the article summed up young people in China as being patriotic, more demanding and individualistic going further to say "modernization" has unleashed powerful forces of pride and confidence along with high expectations.  Wow, this from a communist country that has just gotten a taste of capitalism. 

Someone tell Democrats from the White House that's the secret...unleashing patriotism and pride and confidence along with high expectations driven by individualism. 

By the way, those Russian spies on the verge of being swapped back to the Motherland knew a thing or two about the American dream.  The Murphy's fought tooth and nail with their bosses over buying a new home.  Apparently, the assimilated couple didn't understand the beef from Moscow Centre or C (their bosses) which viewed home ownership as a deviation from the original purpose of the mission.   The reply was home ownership was a "natural progression" and when in Rome "do as the Romans do in a society that values home ownership."

Charles Payne
Wall Street Strategies