Friday, March 6, 2009

Two Upcoming Insanities in Congress

There are a couple of really, really stupid things making their way through Congress.

One is HR 600, aka the "FHA Subprime" which will mark the return of the seller-funded downpayment programs for federally-backed mortgages. Yes, you read that right, one of the most abusive bubble-era practices is back.

It reminds me of all the people who were happy that they could write off the interest on their mortgage. I never got it why they were so happy. Here is a sample transaction.

I have product A which in a normal market would sell for $100. You are the buyer, you're willing to spend $100, so the transaction happens. Now, however, I know that you can write off a chunk of the purchase on your taxes so you are actually willing to pay $120 if it is costing you $100 in the end. Guess what is the new market price? $120. By knowing that you have the write off, I simply raise the price and capture the surplus all to myself.
So what happens in the real estate business? The taxpayer is subsidizing the home builders, the banks and the real estate sales people who capture the surplus and yet tell the buyers that the buyers are getting a good deal and, even, the buyers should take out the largest mortgage possible to get the biggest deduction.
The seller-funded downpayments work the same way: I jack up the price and "give" you a downpayment. Mortgage Implode has it all, including who to call to take action.

The second brilliant idea from our elected representatives is the "Tax Wall Street to Pay for Wall Street's Bailuots", or HR 1068. Peter DeFazio's idea is to tax stock, futures and options transactions 0.25% of the value each way (bought and sold). The idea is akin to taxing coffee to cover tobacco-related diseases. Just because the two sometimes go together does not mean that coffee should be taxed. This bill, if passed, will destroy liquidity in the capital markets much the way SarbOx killed many IPOs in the US and continues to burden unfairly small businesses. I should be shocked that someone so clueless is an elected representative but I am not. Where is James Traficant when you need him?

On a more positive note, try Wild Turkey Rare Breed Small Batch Barrel Proof Bourbon. I enjoy this fine beverage neat. The first few sips were a bit sharp but I quickly developed a taste for it. It is 108.2 proof (54.1%): straight from the barrel, uncut with water to the usual 80 proof. I am not a big drinker and I am not a big fan of the mainstream bourbons and JD but specialty bourbons , like Eagle Rare 10 Year Single Barrel, have been thoroughly enjoyable. I found this review for Wild Turkey on KL Wines: "90 points from the Beverage Tasting Institute: "Deep amber color with an olive hue. Buttery caramel, toasted nut, and delicate anise cookie dough aromas. A round, supple entry leads to a fruity medium-full body of chocolate covered caramel corn, rich baking spice, pink peppercorns, and nutty bread dough flavors. Finishes with a sweet and spicy honeyed rye, toffee, pepper, and mineral fade. This is a delicious and instantly appealing bourbon that will shine in cocktails, particularly Manhattans.""

I think I missed the delicate anise cookie dough, the pink peppercorns and the mineral fade, but everything else is right on.

I have the feeling that the someliers have contributed to the Full Employment for English Majors Act of 1995. Or may be it is the marketing people trying to imply that you, too, can develop a sophisticated palate only if you buy more of their products.

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