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By Jim Perez,
DebtHelp, Inc. Staff Writer

Super-Freak-O-Nomics hears this question quite a bit in the bars he frequents:

If the economy is doing so wonderfully, as President George Bush says, and his Fed cronies echo, why do I feel so poor?
Well, I decided to do some digging around on this topic, and guess what?

You’re right.

You are poor.

Sort of.

The housing boom we’ve been riding the past few years has created a newfound wealth for many people, primarily those who bought homes within the past 10, 15 or 20. But now that the crest is subsiding, the “artificial” wave of wealth many of us rode is crashing into the sand.

For some, this crash means losing their homes.

For others, it means working a second job to help pad the retirement nest egg that is now turning from hard- to softboiled.

According to Robert Hardaway, a professor of law at the University of Denver Sturm College of Law, this crest began quite a long time ago. It’s the result of an accounting sleight-of-hand that makes the boys from Enron look like church basement bingo bunnies.

Hardaway said that in 1983, the U.S. Bureau of Labor Statistics had to make a choice: Strip the cost of housing from the Consumer Price Index, causing an immediate drop to the inflation index, bringing it down to 2 percent, or leave it in and keep inflation at about 15 percent, making our economy look like that of a “banana republic.”

Adding insult to injury, since bond traders and investors demand a 2 percent return after inflation, this would mean that bond and money-market yields could climb as high as 17 percent.

Imagine getting a double-digit return on a bond or money-market fund.

That’s unheard of today.

And unthinkable.

Think what having to pay out that high of a return to common folk investors such as us would do to the bonus of a bank or fund manager.

Why, their salaries might actually drop below the $10 million mark.

To keep the average person in the dark, and the red, the BLS chose the smoke and mirrors route, and chose to strip out the cost of housing in the CPI.

Instead, they magically came up with a substitute they chose to call the owner equivalent rent component, which they based on what homeowners might rent their houses for.

“The reported inflation index quickly dropped to 2 percent” from the “real, and horrifying, 15 percent” inflation rate, Hardaway said.
Speculators wanted to offset the costs of holding properties “by renting out their homes while their prices skyrocketed, thereby flooding the market with rentals that pushed down the cost of renting a house or apartment,” Hardaway said.

The BLS was correct in assuming this statistical ruse would fool the average citizen into believing that inflation was only 2 percent, and therefore be willing to accept a meager 4 percent return on bank savings, Hardaway said.

“What is remarkable is that the ruse also fooled the bond traders, and apparently continues to do so, leading analyst Peter Schiff to describe these supposed savvy bond traders as the ‘hormonal teenagers of the capital markets,’” Hardaway said.

“The present subprime credit crisis can be directly traced back to the BLS decision to exclude the price of housing from the CPI. It is now clear that the ‘benign’ inflation figures reported over the last 10 years” were lies from the Fed and the U.S. government, Hardaway concluded.

Imagine that: Our government lying to us.

Not only lying, put propping the global economy on a house of cards that can be blown away by a sneeze in, say, the subprime markets.

This sneeze can be attributed as the cause for the correction in the housing market we are now seeing.

Slowing home sales. Lagging new home construction.

And this correction is causing ripple effects, such as layoffs in the financial services, construction and building supply sectors.

Even though the jobless numbers just released were better than expected, how long will this good news last? How soon before other sectors start feeling the squeeze?

Meanwhile, Washington will keep on just putting on a happy face for the hedge fund managers and bond traders.

Stay tuned to this same Bat station for more on this same Bat topic.

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By Jim Perez,
DebtHelp, Inc. Staff Writer

SuperFreakOnomics.

This is the first in an occasional posting on what extremes seemingly normal human beings will take to make ends meet in the land Dubya created.

Although I like the name SuperFreakOnomics, I believe Stephen Dubner and Steven Levitt, the boys who wrote Freakonomics, are writing a sequel, which they plan on calling, appropriately enough, SuperFreakOnomics.

Those guys have more money than I do, and can afford better lawyers than I.

Considering their writing also appears in the New York Times, they have access to great media lawyers, which the Times has used on a number of occasions. Anyone remember Jayson Blair? Rick Bragg? Judith Miller?

So in the hopes of not getting sued, I will call this blog something else.

I think Super-Freakin’-Ah-Mics sets a nice tone.

Anyway, the economy is getting kind of crazy. People are talking about a recession that will be the hardest to hit the country since the Great Depression of 1929.

I didn’t have the pleasure of living through the Great Depression, but from what I’ve read, it doesn’t sound as if it were so great to me.

Today, confidence in the dollar is shrinking. The housing market is tilting. And consumer confidence is eroding quicker than Bush’s popularity.

As such, “extremis malis extrema remedia,” which translated means “extreme maladies for extreme ills,” or as it’s more commonly put: Desperate times call for desperate measures.

In New Rochelle, N. Y. …

Yes, you Trivial Pursuit fans, you read right: New Rochelle, the home of Laura and Rob Petrie. After reading this, you’ll know why they never slept in the same bed:

Anyone remember Pulp Fiction?

Undercover officers raided a three-bedroom home after seeing a Craig’s List posting offering dominatrix services. The posting even offered a grand opening special. The officers arrested four alleged prostitutes and the homeowners.

New Rochelle ain’t Kansas, Toto.

Police say the house had been turned into a brothel. A red ribbon near the sidewalk welcomed customers to the grand opening.
The owners, 34-year-old Robert Werner and his 32-year-old wife Heather Mazzenga, both of whom are mortgage brokers, were charged with promoting prostitution, a felony, police said. The four alleged prostitutes, who range in age from 21 to 30, were charged with unlawfully practicing massage, a misdemeanor.

According to news reports, neighbors said the house had originally been listed for $750,000, but didn’t sell even after the price had been dropped to $600,000. The owners had rented the property to a string of tenants, and the house grew more and more rundown until new occupants arrived a few weeks ago.

The new tenants, who kept out of sight, mowed the lawn and put up heavy shades on all the windows, neighbors said.
A neighbor of the New Rochelle brothel was quoted as saying: “I know they’re (owners) mortgage brokers. And I know it’s been a tough business, so I assume they might have had financial difficulty.”

Police said they believe that troubles in the housing market led to the couple’s financial woes.
Werner and Mazzenga had filed for bankruptcy a few days prior to the bust, and barely kept their home in nearby Pleasantville from foreclosure.

Now don’t get me wrong. Super-Freakin’-Ah-Mics is of the mind that someone, or even a number of someones, should do time for the housing and credit markets collapse crime.

But my thought is that the imprisoned should be the lobbyists who sent members of Congress on cruises or other junkets, and plied them with liquor, hookers and millions in campaign contributions, to pave the way to easing regulations and tax laws so that the subprime debacle could live.

Or perhaps it should have been members of Congress making bail arrangements.

Or even better yet, both the lobbyists and members of the best Congress money can buy should share cells.

I imagine we’ll be seeing more and more flashing red light specials in the coming 18 months as millions of borrowers, who were seduced by lenders offering cheap and easy money, find themselves stuck as their ARMs readjust and they can’t afford their ballooning mortgage payments, and are unable to unload their properties in a down housing market.

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By Jim Perez,
DebtHelp, Inc. Staff Writer

I have a feeling that’s the tune retailers are singing after consumer sentiment figures released Friday registered the lowest since August 2006.

The Reuters/University of Michigan Surveys of Consumers said its early October figure on consumer sentiment was 82, below the median forecast of 84 and the final September reading of 83.4.

Consumers’ skittery feelings were attributed to uncertainty about how deep the housing slump will slide.

According to the survey, one in three households reported in early October that their personal financial situation had worsened. This worsening has been constant for the past six months.

Consumer sentiment is often used as a barometer of future spending, which accounts for two-thirds of the U.S. economy.

The data indicate an average growth rate of 2 percent in personal spending over the next four quarters. The weakest quarters are expected around the turn of the year, just in time for the holidays.

The data also points to continued declines in housing starts and new and existing home sales through at least mid-2008, the survey said.

Consumer expectations also fell in October, to 71.6 from 74.1 in September. This is a 13-point drop from October 2006.
Adding insult to injury, this news came on the heels of disappointing numbers released Thursday by several large retailers.

The biggest losers included Limited Brands Inc., Mothers Work Inc., Target Corp., J.C. Penney Co. and Nordstrom Inc.
Ken Perkins, president of RetailMetrics LLC, a research company in Swampscott, Mass., said that if sales don’t pick up, stores will be forced to slash prices to get rid of inventory and make room for holiday merchandise that will start to hit stores this month.

This news doesn’t bode well for retailers as Santa and his helpers scramble to replace lead-tainted toys made in China in time for the gift-giving season.

Retailers have seen slow sales most of the year as shoppers struggle with higher food and gasoline prices and the weak housing market.

And last month, Mother Nature, (or global warming?), added insult to injury as unseasonably warm, muggy weather wilted demand for fall clothing.

Christian Weller, senior fellow at the Center for American Progress, in his Economic Snapshot for October 2007, articulates well the

Top 12 reasons why this Christmas won’t be so merry for retailers.

1) Wage growth is low.
2) Worker benefits are disappearing.
3) Family debt is rising.
4) Families are feeling the pressure of foreclosures.
5) The housing market is continuing to tumble.
6) Equity in homes is declining.
7) Weak job growth continues.
8) The poverty rate remains high.
9) Improvements in government’s finances are temporary.
10) Tax cuts do not pay for themselves.
11) Our economic independence is endangered.
12) The trade deficit remains high despite strong export growth.

The bright side is that as bad as everyone says it’s going to get, if things keep getting worse at this pace, at least we’ll get it over with.

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