I like to think that life in Knoxville is fairly normal. Life here seems to revolve around family, church, and work. Diversions include UT football, golf and water sports. Nobody talks much about politics; most folks vote republican and the occasional democrat is just viewed as a colorful eccentric.
In fact, nothing much more seems to happen here in Tennessee life is good. Periodically, I take a trip to a bigger city to see what is going on in the rest of the country. Here is what I saw on my last trip.
Last week I was in a large Chicago bank when it was announced that Fannie and Freddie were going to sue the large banks because of foreclosures. I thought that seemed strange, so I asked a banker about it.
Q. "So, let me get this straight. Congress pressured the banks to give mortgages to unqualified people, they reluctantly did so, and Fannie and Freddie, who gave large political contributions to various members of congress, purchased the sub-prime paper and the house of cards fell down?"
A. "Right."
Q. "The taxpayers then bailed out the banks and Fannie and Freddie?"
A. "Right."
Q. "If Fannie and Freddie win and take all that capital from the banks, the taxpayers will have to bail out the banks again?"
A. "Right."
Q. "Let's change the subject. The housing crisis won't get fixed and we won't start building again until all the homes in the foreclosure process are purchased and either rented, re-sold or torn down?"
A. "Right."
Q. "And mortgage money has never been cheaper?"
A. "Right."
Q. "Is it easy to borrow money?"
A. "It is if you qualify."
Q. "So, why don't all the rich people buy the foreclosed houses at a steep discount from the bank, borrow the money from the bank to pay for the mortgages and then rent the houses to other people?"
A. "Fannie has issued a new ruling that only allows you to have four mortgages no matter how wealthy you are. They used to allow ten."
Q. "Why did they do that?"
A. "They did not say."
Thinking it was time to get back to Knoxville, I was happy to note that it only took me 45 minuets to get through security at O'Hare. Those full-body scanners are 18 times slower than the old metal detectors but, of course, the folks at homeland security feel that this is an improvement.
As you can imagine, by this time I was becoming convinced that the folks in Washington had a different definition of "normal" than I had. I was looking forward being back home, when I learned that the Justice Department had raided the Gibson Guitar factory, right here in Tennessee, and confiscated pieces of wood, shutting down production of guitars.
Yep, it is comforting to know that the folks in Washington are doing everything necessary to bring about a financial recovery and a return to normalcy. To get a better understanding of the results so far, please see the chart below, courtesy of the Wall Street Journal.
1. U.S sovereign debt downgrade: first in American history.
2. Federal spending (25% of GDP): highest since World War II.
3. Budget deficit (10% of GDP): highest since World War II.
4. Federal debt (67% of GDP): highest since just after WWII.
5. Employment (58.1% of population working): lowest since 1983.
6. Long-term unemployment (45.9% of total): highest since 1930s.
7. Increase in nonfarm payroll employment (0.5%) beginning of recovery 26 months ago: slowest job growth since WWII.
8. Home-ownership rate (59.7%): lowest since 1965.
9. Percentage of taxpayers paying income tax (49%): lowest in modern era. 10. Gov. dependency (47%), defined as the % of persons receiving one or more fed. benefit payments: highest in U.S. history.
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Hope you enjoy this month's SRG,
Rich Hassert
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