More Wasteful Government Spending — Mortgage buyer

QUICK ECONOMIC SUMMARY OF THE PAST WEEK

  • 22.5% of all U.S. homes (11 million properties) are still underwater (9/13/11 Housing Wire)
  • Mortgage servicers started the foreclosure process on 78,800 properties in August.  This is a 33% jump from July, but 18% below last August, just before the robo-signing scandal hit (9/14/11 Housing Wire)
  • The income of the typical American family is about where it was in 1996 when adjusted for inflation (9/14/11 Wall St. Journal)
  • A record 46.2 million Americans are below the poverty line (9/13/11 MarketWatch)

As our great country aimlessly moves toward a major recession and perhaps a depression, it becomes more obvious that the U.S. needs major structural reform.  A slight change in entitlement programs and small adjustments to tax rates just are not going to be enough.

In the midst of this downturn, most government programs continue as if on automatic pilot.  What most politicians refer to as budget cuts are more often just a slowing of cost increases, which only make our debt worse.

The Wall Street Journal had two articles in the Sept. 13 edition that were good examples of government waste and ineptitude.  The first, an opinion piece by James Bovard, detailed the history over the past 50 years of federal job training programs and how they have utterly failed.  As far back as 1964, the General Accounting Office (GAO) found that trainees were counted as being full employed, and later found that the program offered poor training and did not place trainees into private jobs.  A 1973 jobs program was found to have no effect on placing trainees into jobs, with notorious examples of waste being building an artificial rock climbing wall, holding nude sculpture classes, and conducting door-to-door food stamp recruiting programs.

Research on newer job training acts from the 1980’s and 1990’s found that past trainees were MORE likely to be on food stamps and had 10% LOWER earnings than a control group.  In essence, the programs were not only a total waste of money, but actually made most trainees worse off.  The Georgia Work$ program that President Obama wants to emulate has created fewer than 200 jobs this year.

Those of you who have been reading this blog for awhile may recall a June article where I talked about how student loans were becoming the next big bubble.  Now, the Department of Education has admitted that student loan default rates have risen sharply in recent years – now at least 8.8%.  The default rates are much higher at for-profit schools, but default rates have increased across the board.

You may recall from the June article where I stated that 22% of 2010 graduates were unemployed and another 22% worked in jobs that did not require a college degree.  A new Rutgers University study went further and found that only 53% of Americans who graduated from college between 2006 and 2010 had full-time jobs.

What does this all mean?  Well, none of us has the cure-all for the economy’s ills, but slashing wasteful government spending would be a good start.  After all, despite all of the political happy talk about address budget deficits, the debt is still going higher.  Imagine if we could get rid of wasteful government spending and significantly reduce government bureaucracies!  Then, our children would not be stuck with paying off all of our debts.

Of course, we all know that politicians are not up to the task of actually cutting budgets, so the country will slog along and hope for the best.  Whether you are playing the stock market, are a mortgage buyer wanting to purchase a real estate note, or just a citizen struggling to get by, these are scary times.  Even the most optimistic among us would have trouble seeing this rainbow leading anywhere good.

Seascape Capital, with Alan Noblitt as president, is a nationally known mortgage buyer.  A mortgage buyer, also known as a mortgage note buyer, is a company that buys mortgage notes and deed of trust notes.

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