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Thread: Christmas special - the economic lessons of Bethlehem

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    Default Christmas special - the economic lessons of Bethlehem

    (snip)"At the heart of the Christmas story rests some important lessons concerning free enterprise, government, and the role of wealth in society.

    Let’s begin with one of the most famous phrases: "There’s no room at the inn." This phrase is often invoked as if it were a cruel and heartless dismissal of the tired travelers Joseph and Mary. Many renditions of the story conjure up images of the couple going from inn to inn only to have the owner barking at them to go away and slamming the door.

    In fact, the inns were full to overflowing in the entire Holy Land because of the Roman emperor’s decree that everyone be counted and taxed. Inns are private businesses, and customers are their lifeblood. There would have been no reason to turn away this man of royal lineage and his beautiful, expecting bride.

    In any case, the second chapter of St. Luke doesn’t say that they were continually rejected at place after place. It tells of the charity of a single inn owner, perhaps the first person they encountered, who, after all, was a businessman. His inn was full, but he offered them what he had: the stable. There is no mention that the innkeeper charged the couple even one copper coin, though given his rights as a property owner, he certainly could have.

    It’s remarkable, then, to think that when the Word was made flesh with the birth of Jesus, it was through the intercessory work of a private businessman. Without his assistance, the story would have been very different indeed. People complain about the "commercialization" of Christmas, but clearly commerce was there from the beginning, playing an essential and laudable role.

    And yet we don’t even know the innkeeper’s name. In two thousand years of celebrating Christmas, tributes today to the owner of the inn are absent. Such is the fate of the merchant throughout all history: doing well, doing good, and forgotten for his service to humanity.

    Clearly, if there was a room shortage, it was an unusual event and brought about through some sort of market distortion. After all, if there had been frequent shortages of rooms in Bethlehem, entrepreneurs would have noticed that there were profits to be made by addressing this systematic problem, and built more inns.

    It was because of a government decree that Mary and Joseph, and so many others like them, were traveling in the first place. They had to be uprooted for fear of the emperor’s census workers and tax collectors. And consider the costs of slogging all the way "from Galilee, out of the city of Nazareth, into Judea, unto the city of David," not to speak of the opportunity costs Joseph endured having to leave his own business. Thus we have another lesson: government’s use of coercive dictates distort the market.

    Moving on in the story, we come to Three Kings, also called Wise Men. Talk about a historical anomaly for both to go together! Most Kings behaved like the Roman Emperor's local enforcer, Herod. Not only did he order people to leave their homes and foot the bill for travel so that they could be taxed. Herod was also a liar: he told the Wise Men that he wanted to find Jesus so that he could "come and adore Him." In fact, Herod wanted to kill Him. Hence, another lesson: you can’t trust a political hack to tell the truth.

    Once having found the Holy Family, what gifts did the Wise Men bring? Not soup and sandwiches, but "gold, frankincense, and myrrh." These were the most rare items obtainable in that world in those times, and they must have commanded a very high market price.

    Far from rejecting them as extravagant, the Holy Family accepted them as gifts worthy of the Divine Messiah. Neither is there a record that suggests that the Holy Family paid any capital gains tax on them, though such gifts vastly increased their net wealth. Hence, another lesson: there is nothing immoral about wealth; wealth is something to be valued, owned privately, given and exchanged.

    When the Wise Men and the Holy Family got word of Herod’s plans to kill the newborn Son of God, did they submit? Not at all. The Wise Men, being wise, snubbed Herod and "went back another way" – taking their lives in their hands (Herod conducted a furious search for them later). As for Mary and Joseph, an angel advised Joseph to "take the child and his mother, and fly into Egypt." In short, they resisted. Lesson number four: the angels are on the side of those who resist government.

    In the Gospel narratives, the role of private enterprise, and the evil of government power, only begin there. Jesus used commercial examples in his parables (e.g., laborers in the vineyard, the parable of the talents) and made it clear that he had come to save even such reviled sinners as tax collectors.

    And just as His birth was facilitated by the owner of an "inn," the same Greek word "kataluma" is employed to describe the location of the Last Supper before Jesus was crucified by the government. Thus, private enterprise was there from birth, through life, and to death, providing a refuge of safety and productivity, just as it has in ours."(snip)

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    Default Re: Christmas special - the economic lessons of Bethlehem

    I am not the least bit religious, yet somehow I find this rather offensive.

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    Default Re: Christmas special - the economic lessons of Bethlehem

    perhaps you'd prefer a different Yuletide economic lesson along 100% 'secular' lines ...

    (snip)"Jingle Mail, Jingle Mail
    Richard Benson
    Dec 24, 2009

    Jingle All The Way;
    Oh what fun it is today,
    To just walk away!

    Jingle Mail (also known as strategic mortgage default) is the happy-sounding phrase used by banks and mortgage servicers to describe homeowners who simply walk away from their homes and mail the keys back to the bank. The banker can hear the keys jingling in the envelope from a distance so even before it's opened, he knows that for this loan the jig is up. Jingle Mail appears to be the new fad of giving over this holiday season, and next year many more of our neighbors will be seen mailing back keys. For a high percentage of the ten million homeowners with material negative equity, thought will turn to action even if they can afford to make the mortgage payment, because Jingle Mail can put a lot of money in their pockets!

    Why are homeowners willing to walk away even if they can afford it? First, the government's program for mortgage loan modification is an abject failure. To date, only a small percentage of home loans have been put on trial modification and of those that actually go to final modification, a very high percentage re-default and foreclose anyway. This program is not working because neither the Obama Administration or the banks or Fannie Mae/Freddie Mac, are willing to face cutting the principal owed on the mortgage balance to a realistic number. Second, Jingle Mail can be very profitable!

    Here's why Jingle Mail makes so much more sense than continuing to pay an inflated mortgage. Think about your average high-end homeowner. Let's call him Joe. A few years ago, Joe listened to Alan Greenspan and took a huge amount of money out of his house with an adjustable rate or option ARM mortgage. If he bought that house for $900,000 with an option ARM mortgage of $850,000, since most of his interest has been accrued, his mortgage balance has now risen to $1,000,000, while his house has fallen in value to $600,000, leaving it worth $400,000 less than his mortgage balance. Ouch! His situation is crystal clear: He can pay forever, and never own the house!

    If he walks away, he makes a quick $400,000 of principal he will never have to pay! Then, if his million dollar mortgage adjusts to a current 6 percent interest payment, he saves the $5,000 a month in interest charges (or $60,000 a year) until foreclosure. Finally, Joe saves the $15,000 in property taxes by not paying them. (Now that the bank owns the house, they can pay the taxes.) Next, he notices a house just like his down the block can be rented for $3,000 (a savings of $2,000 a month), but he decides there's no rush to move out and rent. This translates into a first year gain of $475,000 with $75,000 of that amount in real cash that Joe didn't need to spend. Between principal forgiveness and cash savings, he can pocket a small fortune and for the cost of a single postage stamp, mailing back the keys is one heck of a self-help economic stimulus program.

    Because it can take an inordinate amount of time for a bank or mortgage lender to foreclose, for accounting purposes the bank will almost always favor delaying foreclosure, as they pretend the homeowner will eventually honor the loan. But if a bank takes too many losses, the FDIC will take them over and the banker will lose his cushy job. Over the next year, you can count on the banks to become complicit in extending their loans, giving Joe a lot of time before he gets booted out of the house. Indeed, it's common for a homeowner who stops paying the mortgage to live rent free for up to a year or more!

    Sure, Joe's credit rating may suffer for a year or two, and in some states the bank might chase him for the deficiency balance on the mortgage. But in the real world, if Joe pockets the money or pays down his credit cards in a short period of time, his credit rating will eventually go back up. If Joe wants to be a home owner again, in two or three years he can save up enough for a 20 percent cash down payment! (Think about how much you could save if you didn't have a mortgage and could cut your monthly housing costs in half by not paying interest and taxes.) If the bank chases Joe, he'll soon discover that his bad mortgage debt will be sold to debt collectors, and he'll eventually be able to settle for pennies on the dollar.

    Certainly, not every homeowner is hundreds of thousands of dollars upside down on their mortgage and not everyone is going to save this amazing amount of cash. But then again, a lot of people are worried about making the car payment and feeding their families, so cash-strapped households won't hesitate for a minute to resort to desperate measures by walking away and potentially saving $10,000 or more a year. They certainly weren't responsible for causing this near depression, and they need to survive this economic downturn.

    How expensive will Jingle Mail be? Well, rumblings out of the US Treasury suggest that taxpayer support for Fannie & Freddie may have to be raised from a potential $400 billion to $800 billion in losses. The extra $400 billion in estimated losses on government-sponsored prime mortgages is a combination of lingering unemployment and Jingle Mail! Next in line will be jumbo mortgages that are beginning to look catastrophic because the bigger the house the bigger the mortgage, and the higher the taxes. In 2009, mortgage foreclosures will total about four million. In 2010, the total could easily be 4.5 million, with 1.5 million or more Jingle Mail-style defaults. The banks will be rocked by several extra hundred billions of credit losses from people who can afford to make their payments. These additional losses will catch the banks by surprise. Meanwhile, the FDIC and US taxpayer will suffer big time as bank failures reach new levels. When the dust settles, the US taxpayer will once again get stuck with the gigantic bill.

    The morality of Jingle Mail has two sides: As a taxpayer, it scares me to death and encourages me to buy more gold, so I'm not stuck paying the massive government inflation tax to pay for it all. And, yes, in a perfect world, people who sign loan documents should honor their obligations even if it means they made a bad decision; they should be held accountable. But we don't live in a perfect world, and the average Joe is being held to a higher moral standard and asked to pay up, while Wall Street and big business get a free ride on Joe's back. Remember, it was the former Fed Chairman, Alan Greenspan, who told the American people there was no housing bubble. We listened and did what he said.

    When it comes to stiffing creditors, Joe can clearly see that business is in the vanguard of strategic default. GM, Chrysler, Merrill Lynch, Fannie Mae, Freddie Mac, and AIG stuck it to the American taxpayer big time long before a strategic mortgage default ever crossed Joe's mind. Then, there is Wall Street, where the taxpayers get the losses and the speculating bankers get the mega bonuses. What a den of thieves!

    From the point of fairness and equality, Jingle Mail starts to look like an honest grass roots movement for the little guy like Joe, to get his life and finances in order. The honest, conservative, middle-class American got played for a sucker by the subprime homebuyer and the house and commodity speculators. The Wall Street fat cats who made it all so easy kept what they stole, and then got bailed out. The government has done nothing for Joe. Isn't it his turn to fight back?"(snip)

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    Default Re: Christmas special - the economic lessons of Bethlehem

    here's yet another 'Christmas story' ...

    (snip)"Uncle Billy, Starring Ben Bernanke
    Gary North
    Dec. 25, 2009

    Back in 2002, I wrote a review of It's a Wonderful Life. In that review -- written in the midst of the housing bubble -- I offered this analysis of the savings & loan industry and its effects.


    In Anno Domini 2002, we have been told that what has saved the American economy, and hence the world's economy, from the miseries of a deep recession is the housing market. There is cheap mortgage money available, and Americans are now re-financing their homes. Fannie Mae and Freddy Mac are merely the Bedford Falls Building & Loan Society gone national and federalized through presumed loan guarantees for investors. Odd as it may sound, in this recent real-life remake of "It's a Wonderful Life," George Bailey is played by Alan Greenspan. He has received generally favorable reviews. . . .

    The message: George Bailey made a difference because he helped depositors make loans to each other that were secured by real estate. That was the mode of national redemption in 1946, after a decade of depression and half a decade of war: "Own your own home!" On this theological foundation was built Levittown and the other post-War tracts. Exactly how Bailey did this during the Great Depression, the movie never says.

    In the real world, building and loan associations did it because the U.S. government changed the laws under Roosevelt's Administration regarding fractional reserve banking. There would be no more bank runs. The government would insure against this. It would make safer what fractional reserve bankers had feared most: borrowing short (accepting deposits that were redeemable on demand) and lending long (30-year loans at a fixed rate on real estate).

    Then the government inflated the currency, raising interest rates, but also raising people's dollar-denominated net worth through rising prices on their homes. Lenders then made additional loans based on rising property values: more valuable collateral. And so it goes, even today: the Federal Reserve System's policy of depreciating the dollar in order to keep home owners happy. Mortgage investors are now locked into investments that will plummet in value if price inflation raises long-term interest rates. The system will either implode in deflation in one long bank run that will not end after one day at 6 p.m., or else the creditors who extended the mortgage loans will see their investments wiped out through mass inflation.

    This is why, in a future remake of "It's a Wonderful Life," Alan Greenspan will star as Uncle Billy.

    In 2002, I thought that Alan Greenspan should star as Uncle Billy. Now I know that Ben Bernanke was made for this role.

    In 2008, we saw the results of Greenspan's inflation, which was followed by the reduction of monetary inflation by Bernanke, beginning as soon as he came into office in February 2006. That change in policy guaranteed a recession, as I said at the time. It guaranteed the popping of the housing bubble, which I also said at the time.

    Today, Bernanke's FED is expanding the money supply at rates that dwarf Greenspan's. The FED is keeping the federal funds interest rate close to zero, not Greenspan's measly 1%.

    The FED is creating fiat money to buy the bonds of Fannie Mae and Freddie Mac. It has promised to stop doing this by the end of March 2010. If it does, mortgage [ interest - sic ] rates will rise, and the housing market will resume its decline into the depths, as it was before the FED began intervening.

    The central bank does not learn. All those bright FED staffers with Ph.D's in economics are proving that they never believed a word about market-clearing prices, or capital theory, or the interest rate as a clearing price for capital. They are all bit-part players. They are all trying to get the role of Jimmy Stewart, but they will settle for playing his father. To do this, they provide support for the subsidized housing market.

    There has been no free market in housing since the creation of the FDIC and its sister institution, the FSLIC in 1934 as part of the National Housing Act. The two were merged in 1989 after the S&L collapse in the mid-1980s. There has been a government-subsidized, FED-subsidized housing market. This is not going to change. It is now far more subsidized than ever before.

    Nobody is going to fire Uncle Billy. Uncle Billy was the 2009 Person of the Year for Time."(snip)

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