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THE OTHER SHOE

October 10, 2008

 

UNCLE SAM WANTS YOUR MORTGAGE PAYMENT ON TIME!

We here in Las Vegas are in the top five areas of foreclosure, sub-prime, and abandonment of what was high-priced housing.  It looked like we might dodge a bullet with the employment opportunities of the new construction of MGM-Mirage’s City Center, Boyd Gaming’s Echelon, and Steve Wynn’s Encore among other large projects.  MGM’s project got snagged-up in a financing problem but is now on track and Encore is getting ready to open as well.  Boyd Gaming cancelled Echelon until further notice and the unemployment rate is now over 8% here-a record never seen in Vegas before. 

These problems resonate beyond Vegas-throughout the country and the world.  The deleveraging of trillons of dollars locked up in real estate losses sends stock sales scorching the indexes as the cash needed to unwind and divest indiscriminately throws out both the baby and the bath water.  So you ask, “Why bring this up, Nick, don’t you think we are already depressed enough for the next 20 years?”  Well, here comes the back end of the problem that no one has addressed yet.

If the government sets up a mortgage relief fund to bail out homeowners, the government is the holder of the note or mortgage.  If the people who are obligated to pay that mortgage lose their jobs or simply walk away from the home, unlike a normal foreclosure where the city and state still assess taxes (and the new buyer or mortgage holder must pay them)-Uncle Sam does not pay taxes.  Let me repeat that: Uncle Sam does not pay taxes, no way no how, zilch, zero, verkact, nada, nothing.  Ergo, if this phenomena continues in a downward spiral, tax bases will erode even further than they have now and less money will flow into state and city government, and even at the federal level as people lose jobs. 

I hope we don’t get to that point, but if we do, Newton’s Third Law of action and reaction (http://en.wikipedia.org/wiki/Newton’s_laws_of_motion) will show itself in full force.  Printing money will go into hyperdrive (Not that is hasn’t now) and it could take many years to heal these wounds.  Hopefully, it will not get that far, and my red flag isn’t relevant, but right now…………

I am a part of it, as you are, as we are all together………………..see how they fly like pigs in the sky see how they run. 

We will get through this as well!

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2 comments

  1. This is an interesting take. I will be the first to admit I am clueless when it comes to the economy. The extent of my understanding is me knowing when less money is coming in and more money needs to be going out. I had never thought about where those back taxes would go. Very interesting thing to ponder. Not very optimistic though.


  2. I bring it up, so maybe at least one idiot that will inevitably put this legislation together might have a clue as to what the consequences “could be” and that the same risks exists regardless of the source of the mortgage-BUT- the government could completely screw the states, cities and themselves as well, not that they care about “we, they, us” – as “we” are the government or more accurately the government’s sugar daddy. I certainly hope it doesn’t work out that way.



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