Yesterday afternoon I was minding my own business, in my usual work routine right after the markets close, scrolling the news websites for story ideas.
Sure, the Dow saw its largest one-day upward tally in five years, but what investor doesn’t already know that? And what seasoned investor doesn’t already know that bear market rallies are often sharp affairs? This is not news to you, the savvy market watcher. How about Eliot Spitzer? Well, as one of my colleagues already pointed out, “Former heroes get cut down to size in a bear market.” Once again, you’re already well served in that regard.
And that’s when I came across the following headline …
“Rep. Frank seeks $10 billion to buy foreclosed properties”
The one-paragraph story said this:
“A top House lawmaker will introduce legislation soon to address the jump in foreclosures. Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, said Tuesday his bill would provide $10 billion to state and local governments to buy foreclosed properties to prevent neighborhood blight. The bill would also strongly urge lenders to recognize their losses from sour mortgages and would extend federal refinancing efforts. Frank's bill would compete with many other proposals being floated on Capitol Hill to address the housing meltdown.”
Wow, $10 billion! That’s a lot of money, I thought, but how does it "add up" when you "break it down"?
So, I decided to do the math. I started with what I was given: $10 billion (that's ten zeros: $10,000,000,000)
Then, I searched for a few more facts to round out my equation …
I found the median U.S. home price in July 2007 was $212,300. (It’s dropped a bit, but let’s use it anyway.)
Can you tell where I'm going with this?
While I had my research cap on, I dug a little deeper into the two states that are getting the most foreclosure filings: Florida and California. In January 2008 alone, according to RealtyTrac.com, California won the dubious honor of leading the nation in monthly foreclosures with 57,000. Florida had 30,000 monthly foreclosures during this time. Remember, that’s 87,000 foreclosure filings for only two states during one month in 2008! Keep this number in mind.
Back to the math: Let's divide Barney Frank’s planned bailout fund ($10 billion) by the median U.S. home price ($212,300).
Our outcome: That's 47,103 HOUSES! To clarify: The plan, as stated in the story above, is to buy 47,000 houses off a market flooded with several millions in inventory and hundreds of thousands in foreclosure!
I can’t help but wonder, Mr. Barney Frank, did you have an aptly named purple dinosaur draw up this plan for you?
For a little perspective, let's look again at California and Florida, and their combined 87,000 foreclosure filings in January 2008 alone. Frank’s plan would barely buy half of these two states’ one-month inventory of foreclosures.
To add even more perspective, I applied the plan to my hometown, Atlanta, where an electronically updated highway billboard told me last week that there are well more than 100,000 homes for sale in my city. Barney, will you pretty please double your offer so we Atlantans can fight blight in our fair Capitol?
Sorry, Florida and California, we spent the ENTIRE bailout in one Southern city!
Pointed rebukes aside, my point is, aren’t you better off helping yourself? At EWI, our forecasting services help you read between the lines of mainstream media headlines, so you can easily unmask the fallacies of politicians and mainstream “experts.”The Financial Forecast Service, our most comprehensive U.S. market service for example, gives you the perspective you need to think, trade and invest independently from the crowd.