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MAIN STREET WISDOM Bill Wright of Grant Pass comments on President Obama apology poll Emphatic NO! This guy is a clueless disaster. Myron Havis of Georgetown, Texas writes Charles, Obama is an America hater and to submit to the U.N. Human rights commission and dare to say that we are human rights violators is despicable. I have included a photo that demands an answer from you, because you admitted that you voted for this miscreant. How anyone as intelligent as you could do that in good conscience can only be attributed, I’m sure, to the fact that he is black. So much for MLK’s “content of character, not color of skin”. I don’t say this as an attack on you, because I respect your candor and enjoy your opinions on Cavuto, but as a statement of fact that illustrates how dangerous single issue politics can be. He was a cipher, unexplored by the profligate media and those who voted for him were duped. He isn’t what he portrayed himself to be and is a bigger threat than most realized. Brian Flynn writes The root of the problems with the market, the general economy and our country are all the same. The connected guys are gambling like drunken sailors (no offense to sailors) and when they win they get to keep the winnings. When they loose, the government bails them out at taxpayer expense. Until this insanity stops and big business is made to run a disciplined ship and not allowed to buy the regulations or lack of regulation it wants, until our elected officials stop operating like two dollar whores (no offense meant to the whores by comparing them to our elected officials) selling their goodies to everyone and anyone that has the price of admission ,we will not strighten out the market, our country, our economy or our society. Jefferson said that when the people realize they can vote themselves money the end of the Republic would be at hand. He was a little off on this one, it is when big business votes itself money and can get the taxpayers to provide the funds, then the end is at hand. We are there my friend. Unless the train pulls a uie it is going to go straight off the track. Big business is destroying the middle class in this country with the help of our elected officials. Jeff Tudas of Overland Park Kansas says Charles, As I read your column, and especially the part listed above I was reminded about the fact that union workers outsource their thinking to a big machine. My father who had just an 8th grade education worked his entire life for a union as an engineer for a major railroad company. He taught me to always think for myself and that the union had it’s place years ago, but that they were now very detrimental to people and the overall economy. Also, I came to know many other union employees while working in heavy industry (oil/chemical, steel and paper industries). It always amazed me when they would go on strike for many months and receive minimal strike pay while walking the picket line. At the end of the day they would come back to work feeling victorious as they had acquired a $.05/hour raise. I once asked one of the returning strikers how many years it was going to take to get back to break even and it came in around 5 years. It seemed silly to me that this whole dance took place and the union bosses and the lawyers that represented them made out great and the lowly worker that was supposed to be protected came out the loser once again. This dance takes place over and over and these good people continue to just trust the robot. Sad commentary. Shelley Chamberlain of Indianapolis wrties I vote yes on your opinion poll. However my caveat is that the executives including the board should receive pay and compensation not to mention severance packages solely based upon stock performance then I think the investor will return. Those packages should have a hold back so that if one year is up and another down then the cat is not already out of the bag so to speak. I know if I make a bad hedge or investment I can suffer the consequences of that move months or years later. All I know is that I am still waiting for my retirement portfolio to return to where it was my pay has been cut due to loss of accounts on account off business failures and no one is giving me a 7 figure severance package. Used to be CEO had integrity and the average investor believed that their primary focus was shareholder value, but the baby has gone out with the bath water on this one. I think if you ask the average investor they believe that the primary focus of the CEO is the CEO and his buddies that helped to elevate him or her to that position. After all if the financial system was truly at the brink of collapse, how is it that in 12 months time they were raking in record profits and bonuses? I think we were all sold a bill of goods, from the Treasury Secretary on down, Republican and Democrat alike. Andrew Biggane writes “I think the U.S. market is extremely undervalued, but in order for it to rebound Americans are going to have to once again believe in America.” As the nationalization of American institutions continues, it seems somewhat Pollyannistic to pin the hopes for an economic recovery to the individual belief in such a culturally anachronistic sentiment. The fuel that fires our economic engine has changed, leaving a large portion of our population unprepared to compete on a global scale as a labor force. While the domestic population has doubled in the last 60 years, the level of manufacturing jobs is essentially unchanged. Until we reverse this trend, I fear our nation is doomed to economic mediocrity. Diane Armstrong of Texas says I don't think it's the executive pay per se - it's those bonuses they end up with even after they have run the companies into financial belam. It doesn't seem that they are compensated FAIRLY - kinda like those folks who were in govt. positions - like Fannie Mae and Freddie Mac. And the truth is - so many people BELIEVE Glenn Beck and are expecting the very worst that there is no way in hell they will come out of hunker-down mode (that's me). Love your daily emails! Bill Tucker of Hillsdale, Wisconsin writes Charles, I enjoyed FAILING WITH CREDIT NO LONGER AN OPTION (FINAL EDITION) in today's email. I'm not an education professional but I know a failed system when I see one and our public education system fits the bill. I'm one of a rapidly shrinking group of seniors who attended a one room country schoolhouse where the teacher showed up early in the morning to stoke the stove and prepare to teach classes to eight grades in one room. By the end of fourth grade when my school was consolidated to a nearby small town my two classmates and I had a pretty well rounded education. We were reading and writing at high school levels, we knew every state, its capitol plus its main agricultural and industrial products. We could name the US presidents in order and had a good grasp of our nation’s history, and our Constitution. I could go on but you get the idea. We absorbed huge amounts of information just due to the environment. I could have quit school then and would have missed nothing except for high school math classes and a ton of left wing programming from college, which thankfully did not sink in. I don't see high school graduates or even college graduates who have the education I had by the time I was nine years old. I don't know the answer, but certainly it is not the NEA's mandated social engineering plus year after year budget increases demanded by nearly all public schools. Thanks (for) a good read every day! Bert Libke had this to say about our Mount Olive, NJ Poll Charles, "Failing with credit" sounds like an F+. It seems ridiculous that you can earn credit without achieving and acceptable proficiency (i.e. C- or better). I'm a little surprised that the self-esteem inflating government indoctrination centers (i.e. public schools) even handed out "D's" anymore. May God graciously bless you this day! Sincerely, Bert Libke Tim Tougas had this to say about our Mount Olive, NJ Poll "C" is average. Is everything below average "failure"? Grading on the (bell shaped) curve is a norm, so you need as many "D"s as "B"s On the other hand, some schools and professional certification exams do grade as "Pass/Fail", the final exam documents that one either met the minimum objective knowledge threshold or didn't. This system does not recognize excellence but has an objective fail threshold, which should be the line between "D" and Fail. Students excel at different things, but are required to take required subjects. A "D" can mean that they attended class, were not disruptive, did their best to understand the lectures, did their homework to the best of their ability, but for this subject they "just didn't get it". A "D" can mean the difference between graduation and dropping out. I agree that a "D" should never be given to pass on someone who didn't even try. However, a "D" can be an honorable grade if it stands for "Did his/her best" Thanks, Tim Dean S Russell of CA writes The mortgage interest deduction is probably the largest deduction most tax payers are eligible for. The interest deduction is certainly one of the major factors considered in the home buying process. This might also account for the highest tax increase that home owners will face which will be on top of other proposed tax increases and expiration of other tax cuts that we have been benefiting from. The result will be huge drop in the real estate market and another increase in home mortgage failures. Is the government going to force lending institutions to forgive more debt because they are taking away the borrower’s ability to repay? Carla Kleinjan of CA writes Most definitely C is the only sane answer. Peter H. Arkison wrote: The mortgage deduction should remain. Although there are arguments which conclude that it does not make good economic sense, the home, which can often only be paid for by the tax deduction, is the one thing which the average American can own. It provides a very important social function. It gives the property owners a sense of pride which they would not have if they were forced to rent. Art Fox of Chicago IL writes OK, I'm very unclear about why removing a tax incentive that gets people to take out mortgages is bad for the mortgage industry or how that would make the industry "give back". Who would be giving back what? Of the 3 options you list, I vote for leaving deductions as they are, but if I had a choice, I would vote for a 4th option - to increase the mortgage deduction, perhaps only for the first 5 years of home ownership, then let it roll back to its current level. If owning a home is central to our economy, then make it easier, not harder to own one. Which is not to say we should reinstate low-doc or sub-prime loans. Just make it easier for qualified borrowers to own by reducing their taxes. Anonymous writes As a former Moody's structure finance analyst, Moody's should focus as RISK assessment, as opposed to suggesting where the government should be trying to take more money from us! This may speak to why Moody's dropped the ball - lack of reasonable focus. Did Zandi even consider having the government spend LESS? Alice Martin from Huron, OH writes Those that bought over their head, intended to flip, had no equity when the bottom fell out of the market or lost their jobs are now gone from of the housing market...who's left? Those who play by the rules, bought within their means, saved for this very rainy day, tightened their belts and made their mortgage payments...who will be penalized? Jim Philipp from Hawaii writes Love your commentary. I'm opposed to any changes to the tax code done piecemeal, as proposed. I am strongly in favor of a simplification of taxes to something like a flat tax. I want to eliminate all the social engineering, political favors, and complications of the current tax code. Our current tax system encourages opaque, nearly impossible to understand tax rues that require me to pay someone to figure it out. This is just plain wrong. To summarize, I don't like any tax deductions or credits because they just convolute the basic intent of simply taxing based on a simple to understand, collect and enforce law. Eliminate income tax and replace it with a national sales tax. Frank S. DePalo writes The deduction should stay as it is, but NOT because it is the right thing to do. We really have the following three choices: 1. Reduce the ridiculous tax methodology we deploy now to a simple consumption tax, restrict federal spending to fund only constitutionally approved responsibilities and end ALL the tax breaks 2. Suffer through the mind-numbing stupidity that is our tax code and fight for every break you can get as we slide into serfdom 3. Confiscate all "excess" pay to the federal bureaucracy so that they can spend at will on their cronies Unfortunately, we are heading to option 3. I would prefer option #1, but we will never get there without a real culture war. So we end up, for the time being with option #2. You cannot piecemeal your way, especially if you start with the benefit side (tax breaks). Listen, I think you are top flight. Keep up your commentary and your advice. David Pauley from Sarasota, Fl writes Mr. Payne, C) AT THE LEAST keep it the way it is. If anything, give us dollar for dollar deductions instead of 1/3 of a dollar per dollar. I have a question for Mark Zandi: Time to give back to whom for what exactly? Does he think that somehow government made us rich? Somebody needs to smack him up the side of his head and wake him up. We prosper when government gets out of the way, the more intrusion by government the more we suffer. A couple of perdictions if mortgage deductions are taken away: Home sales will drop. Defaults will rise. (Especially here in Florida where homeowners insurance alone is 15 to 20 times higher than the national average. I pay $3,000.00 annually for $225,000.00 of insurance coverage.) The politicians that vote for this will be voted out. Rose Marie DeStefano of SC writes Let me see if I can explain this. Rep. Grayson is blasting Republicans and implying that they are cold and callous because they want to pay for any future unemployment benefits before they are provided. Further, he suggests that Republicans couldn't possibly understand job loss or hard times because they are all rich. On the other hand, (presumably) Democrats must understand job loss and be more understanding because they are all poor. If this premise is accurate, then why wouldn't everyone want to support and agree with the Republicans' business and economic policies? They obviously know better. They made more money! Bill Jenkins writes Charles, this subject apparently takes someone with more patience than I could possibly muster? All that is needed to know is that Hitler, Mao, Stalin, the cat that ran the Khmer Rouge, oh yes Pol Pot, all thought gun control was good!!! Guns are tools, people are the killers. I would need to be more articulate too go on, people need only to study human nature, to understand the need for protection. Really very silly or naive to think people do civilized without training!! Willy Keith Nilson of ND writes Should General McChrystal be fired for his remarks about the Administration and how they're handling the war? Yes, he absolutely should be fired for his statements. Stanley McChrystal's statements reflect a correct view of the blundering administration, but military discipline has NO room for insubordination, let alone public insubordination. My guess is that he will be fired, and my further guess is that the public will see that as a failure on the part of BO, not a failure on the part of the general. How about Stanley McChrystal and Jan Brewer as the Republican presidential ticket in 2012? They might not win, but it sure would be interesting. Keith Nilson writes Charles, Given the nature of your audience, I will be surprised if the responses you get are less than 90% "A". I vote "A" (enough is enough). This question does, however, point out a conundrum in the present conversation on politics and economics. Rush Limbaugh and his band of merry men (Sean, Mark, Glenn and the rest) consistently talk about the difference between liberals and conservatives being the view of big government vs small government. And while that difference does exist, it is really a symptom of the disagreement and not the fundamental difference. Most of the population is not overly concerned about government nor its size. People are concerned about income and wealth (primarily their own income and wealth). And the fundamental disagreement between liberals and conservatives lies along the “income and wealth” axis rather than the "size of government" axis. Conservatives (true conservatives – the ones who work for a living as opposed to the ones we send to Washington) are primarily concerned with the creation of wealth. Liberals (including most of the politicians in Washington regardless of party) are primarily concerned with the distribution of wealth. Either of these positions, when taken to the exclusion of the other, are detrimental to the population as a whole, to the stability of a nation, and to the overall economy. The correct viewpoint is that wealth needs both to be created and widely distributed for our society to work. (Reagan’s "trickle down" theory sort of addressed this, but the press have made those into dirty words). Your original question in this new poll asks who has it right on the distribution of wealth side, and it is a fair question. You should ask at the same time, "who has it right on the creation of wealth side"? The Europeans who want to work fewer hours and fewer years, or Obama who wants to shut down oil drilling, banking, insurance and manufacturing? I love your polls, even though I only participate in a few of them. Keep it up. Keith Nilson Leonardo Marquez of Venezuela writes Well, we have on September congress elections (here is call "asamblea" like in Cuba!)and the feelings are that the government party is going to be beaten, not totally but the opposition is going to have presence again on the government decisions. The big problem here is that the government is known for their tactics to persuade the voters, from intimidating the people that work for the government that they are going to lose their job if they don't vote for them to manipulating some of the voting machines. This last thing was never proven but in 2002 we had an election were we had to decide if we wanted Chavez to continue as president and the feeling was he was going to lose, but the results came out complete opposite, it was very strange because it was discover that more than 500 voting machines had the same results, 435 votes for Chavez!! This is impossible! Since then many people don't trust the CNE that is the government department in charge of any elections. That's why we have more than 40% of absence in vote. If we are able of surpass this obstacles I don't think Chavez will have a chance on any election. The other thing that we hope that is a very remote possibility, is that all our neighbors countries accept that Chavez is a dictator that support terrorism and drugs traffic but they are too happy with the "gifts" of Chavez. This will put Chavez in a very difficult spot internationally and will help us a lot internally. Brazil has huge contracts for building huge bridges and highways. We also import from Brazil a huge variety of food that 10 years ago we produce here in Venezuela. So Lula is happy! Argentina has one of many agreement with Venezuela that they will provide agriculture machinery for oil exchange, they have giving us 50 million dollar worth in machinery, Venezuela has giving more than 550 million dollars in oil!! Pretty good business? The Kitchners are happy (even do Cristina is the president, apparently her husband still runs a majority of the Venezuelan business). Bolivia, Ecuador, Nicaragua and a bunch of Caribean Islands, I think they have become states of Venezuela because all the money they have receive. Venezuelan still have hope but one of are last chances to start changing the government is this September election, let's wait and see. Mary House from CA writes Charles Payne, YOU ROCK!!! I've never owned a stock that went up 16-17% in one day. Thank you! Sam Dilworth writes I don’t want the government to put undue regulations on ANY industry. But I do believe that financial products offered by the banking industry should have a legitimate underlying social purpose which benefits our economy. Otherwise there is nothing separating the banking industry from the casino industry. And percentage wise, a lot more casinos have gone belly up over the years than banks. There are still plenty of "investments" which are highly speculative, such as commodity futures and many others, I’m sure, which are intended to serve a legitimate purpose within our free enterprise economy. And I believe that’s the real reason they should exist. John Everhart of NV writes Yes. Perhaps you are aware that during history, there have been times when: 1-only white, male, landowners could vote, 2-only white males could vote, 3-only males could vote, 4-only members of a state sanctioned party (e.g. Nazi, Communist) could vote. So to be on the safe side, a Democratic Republic should always operate under the rule: ONE PERSON, ONE VOTE. Perhaps your question should have been phrased: Should citizens pay their fair share for the cost of government? How 'bout a flat 10% tax on gross income without deductions, including corporations - now that the Supreme Court has ruled they are "persons" entitled to vote with their money. Lane Godshall of Lafayette, LA writes No, it's not fair, but it means votes for the democrats, so why would they care. It is funny that a class of people are ignorant of the fact they are intentionally oppressed. The spread between a job and the government bone provides no incentive. Steven Galli of OH writes Tax Burden Poll response, the only answer is B) NO! I recall nursery tale: mother chicken worked all summer caring for her garden when fall came she asked the other animals to help with the “harvest” being lazy they failed to help...later the bounty of the harvest was only enjoyed by her and her brood...just rewards for her hard work...just results for the starving lazy. Nations of lazy populations fail. Frank McEntee of PA writes B) Absolutely not. OBAMA was promising to give all those people $1000.00 when he was running for election. Why isn't he in jail for bibery Michael A Doyle of Rochester, MN writes The answer to you poll question is NO. Not only is it not fair, it creates an entitlement society. This is an example of how the jockey gets heavier than the horse and the whole system collapses. That is the path the Obama administration has us on and it must stop very soon. Richard Schmidt of Ohio writes Allowing nearly half of the population to be free of income tax creates a group of people who will be compelled to maintain this status by voting with the government all of the time. This can not be sustained. Todd Nuccio of California writes From someone who’s income has dropped precipitously in the last 2 years ($40K net for a family of 5), I shouldn’t be able to vote on monetary issues (but I still vote against big spenders). We actually got a $2,100 tax return after paying about $300 in taxes. If we’re not aberrational, I can’t see how this can sustain our economy. David Pauley of Sarasota, FL writes NO! I have a brother-in-law out in California, wife and 3 kids. He is smart and could have gone somewhere in life, but instead he has spent the past 25 years sitting around drinking, smoking dope, waiting for someone to make him a CEO. My wife and I have gone back to school at our own cost, worked our tail ends off over the past 25 years. My drunk and dopey brother-in-law calls up 3 or 4 times a year needing to borrow money because he is about to get evicted from his apartment. 99% of the time my wife and I have elected to let him get the money from someone else or get evicted. We earned our money and the brother-in-law DOES NOT get to chose where we spend it. The brother-in-law does not pay any taxes most years. My son who just turned 21, graduated from a good technical school here in Florida as a certified welder. He has been unable to find a good paying job, he took what he could get, pushing buggies at the local Wal-Mart. Last year he made just under 11 grand and paid $700.00 in taxes, he has no deductions. He was made that the government squeezed him for the 700 bucks. I told him he could always do what his uncle did, get some girl knocked up, go on welfare, and drink beer. He decided he would rather pay the 700 to the government than become like that. He wants to make his own way with no help from me and especially not from the government. My son earned his money and again the brother-in-law does not get to decide where my son spends it. The brother-in-law takes food stamps, gets housing assistance, utilities are paid, the whole governmental ball of wax. Personally, you can agree or disagree, I don’t know that he should even be allowed to vote since he is a ward of the state. You, my wife, my son, and I myself should not have to pay the brother-in-laws way through life. But since we are FORCED to by the government then we should do everything we can to make sure he doesn't have a voice in how our money is spent. Bill Porter of Nevada writes Who wins in an all-out trade war between China and America? No one. The relationship is symbiotic. A trade war is mutually destructive for both countries. Without at least the above option, the poll will not produce a normal distribution and not representative of the polling sample. The instrument will produce biased results. I read your commentaries, so I feel justified and appreciative that you would read mine. After reading your article about American consumers being dependant on cheap Chinese imports, it raises the question, why not play nice with China, politically (so they "save face"... a prior of WSS article). Meanwhile, we should increase imports from other cheap manufacturing countries. I'd like to see Wal-mart slowly diversify their supply chains to Indonesia, Malaysia, India, etc as it would make sense in the face of China's monetary/political pressures. The premise that China is the only source of cheap goods, is one that hear more often than not. Primary source, sure... Only source, no. (i.e. poll question 2 and 3 off the table for me) As far as American companies wanting to benefit from the strengthening Chinese consumer, I think we are learning that the game will always be hedged against the U.S. in favor of China's own domestic interests and sense of sovereignty. I.e. If you want to play soccer in a foreign country with their country's refs and rules, then you better learn to accept constantly overlooked cheap shots and low blows by the opposition, and in recent cases... blows by the refs themselves. Or don't play. Crying foul gets us nowhere with the Chinese, but decreasing foreign corporate interests in China will. Corporations, not Washington, need to make the decision to find cheap goods outside of China. Which I understand that doing this may be antithetical to cost competition and profit modeling if China produces the cheapest good. For this, my only argument is that the sacrifice of doing business freely, is sometimes negative to the bottom line. I'm sure Google and GoDaddy understand this in their recent choices. I'm sure they also understand that growth opportunities exist elsewhere. It's obvious that our country has made many good choices that sacrifice economic prosperity for freedom in the past. It's one of the tenants of this country that makes it great, that we shouldn't sacrifice for the sake of doing business, lest we wake up one day and behold, the enemy is us. As for me, I try to encourage the corporate "will" by making certain consumption choices; I buy non-Chinese goods whenever I'm given other options at relative ceteris paribus. Even if it costs a bit more. It's my choice not to fuel the fire that consumes our national interests into a country enslaved to communist debt holders. We need to quit fanning the flame while fighting the fire. This includes debt reduction both on the national and personal levels. While I encourage others to do the same, my activism stops short for people barely making it. If you have no choice but to buy the cheapest necessary items, get it where and when you can. But then don't turn around and tell me you just got a 60" wide screen 3D TV. Worse yet, on credit. Thanks for reading... your commentary stirred up a chord in me. Fran Touchette from Key Largo, FL writes Charles, Love your advice and your appearences on Fox. I want to ask if when you are talking about public schools and teachers, you might start out with, "I know there are outstanding public school teachers, but we need to fix.... etc." I am a public school teacher. I stay after school and tutor kids. I work every minute of every class trying to help my students master Algebra I in 9th grade in a D school trying to be a C school. Many of my students have had excellent gains on the Florida Comprehensive Test (FCAT). You commented once that you worked with a charter school, and the new teachers are all excited and staying late to help kids. You don't have to be young or new to feel that way. This is my 24th year as a teacher. I imagine that if I were in a charter school (making 1/2 of what I do make I might add.) I would stay more afternoons, but that is because more of the kids would want to and more of the parents would tell them to. In public schools, most kids just don't show up for the offered help. It's a complex problem. Education is a three legged stool - the legs are parents, teachers, and students. Many public school teachers put in extra hours and go the extra miles. Please don't lump us all together. Thanks. Lunch time over back to work. Tammy S. writes Dear Charles, The question is not JUST how many people can you hire for $150,000. The question is....if you are not doing any business, you wouldn't hire anyone for $20,000. I am a small business owner and have been for 40 years. I will be 73 in May and there is no point in continuing. I lost a fortune like everyone else in the meltdown, and I don't have that many years to try to recoup. And we have this entire administration that has not one iota of understanding of economics or business. None of them has ever had to sign a paycheck for employees and at times not cash your own check in order to pay everyone else. Harvey Canaan writes Charles, What is wrong with the White House having the power to control insurance companies' premiums? No one else has been able to do it. At one time insurance companies, hospitals, and other medical businesses were all non-profit, once they had the green light to be profitable institutions was when the CEOs of these companies started to make obscene amounts of money and the average consumer started to feel it in their wallets. Only now that the insurance companies have had so much power has the cost of Healthcare become this preponderous monster. Keith Jurow writes As a former writer for the Westport, Connecticut-based Holt Investment Advisory, I want to bring to your attention one of the most important aspects of the housing bubble and crash which the media has almost completely overlooked. What has been disregarded is the key role that investors played in creating the housing bubble and exacerbating the collapse. An important 2005 survey taken by the National Association of Realtors (NAR) found that in 2004, 23% of the 7.7 million existing residences sold throughout the country were purchased as investments rather than to be owner-occupied. This was up from 22% the previous year. Later surveys revealed that in the three peak years of the house price bubble, investors bought 28% of all existing homes sold in 2005, 22% of all those sold in 2006, and 22% of those sold in 2007. This means that during the four bubble years of 2004-2007, roughly 7 million speculators bought existing residences for investment, not to be owner-occupied. This speculative investing was heavily concentrated in 20 major metropolitan areas such as Chicago , Los Angeles , New York , Phoenix , Miami , Las Vegas , and Orlando . How frenzied this speculative home-buying became in these cities is best shown by Chicago . According to monthly sales figures revealed on trulia.com, an incredible 600,000 Chicago residences changed hands during the peak bubble years of 2005-2007. Because the average price per square foot for homes sold in Chicago is down 36% from the 2007 peak according to trulia.com, nearly all of these buyers are underwater now -- the outstanding mortgage debt exceeds the value of the property. Soaring home prices were essential in enabling so many speculators to buy investment properties. The 2005 NAR survey had found that, in 2004, 30% of investors pulled equity out of their residences through refinancing or a home equity loan to purchase an investment property. Refinancing soared in the three bubble years of 2005-2007. Freddie Mac figures show that homeowners pulled a total of $820 billion in cash out of their primary residences through refinancing in these three years. It seems safe to extrapolate from those NAR surveys that a sizeable percentage of these homeowners used some of this money to purchase one or more investment properties in 2005-2007. Although the rapid increase in foreclosures since 2007 has been well-reported by you and your colleagues at Fox Business, it is important to understand that a key factor in the foreclosure calamity is the role of underwater investors who are defaulting on their mortgages in droves. As early as August 2007, the Mortgage Bankers Association had reported that investors accounted for 25% of all mortgage defaults in Florida , 21% in California and 13% nationwide. Real estate research firm Applied Analysis found that roughly 60% of all foreclosures in Las Vegas in 2007 were on residences owned by investors. Research by The Real Deal published in their May 2008 issue revealed that 60% of the 15,000 foreclosure filings in New York City in 2007 were on two-to-four family houses owned by investors and multi-family buildings. An important, well-researched article in the November 6, 2009 issue of the St. Petersburg Times found that 44% of the 11,967 foreclosed properties in Hillsborough County , Florida were owned by investors who did not occupy these homes. There is clear evidence that the likelihood of an investor defaulting on his/her mortgage depends upon how far underwater the investment property is. First American Core Logic found that relatively few investors stopped paying on the mortgage if the property was only slightly underwater. But the default rate rose steadily as the home sank in value. Once the property was worth 30% less than the mortgage owed, the default rate soared to 14%. This rising default rate curve strongly suggests that if home prices keep eroding, a growing number of the millions of investors who bought properties during the bubble years of 2005-2007 will default. The big question, then, is whether or not home prices will continue to fall. Since we know that sales of foreclosed homes in 2008-2009 were a major factor behind the slide in prices, will foreclosures begin to moderate any time soon? Without a doubt, the most important factor in how likely a homeowner is to default is whether the home was purchased or the mortgage refinanced during the bubble years of 2005-2007. This is shown by the fact that according to the California Foreclosure Report, 91% of California foreclosed homes sold by banks in September 2009 had mortgages originated between January 2005 and December 2007. Because home prices have declined sharply from their peak in every one of the 20 major metropolitan areas which experienced the most speculation, the vast majority of the roughly 5.2 million existing homes purchased by speculators in 2005-2007 are badly underwater now. Worse still, practically all of the investment properties purchased in 2008 are underwater as well. Compounding the problem is that several million of those residences refinanced during the three peak bubble years of 2005-2007 where the owner pulled equity out of the house are now underwater. The reason is that Freddie Mac figures show that the median age of the loans which were refinanced by these homeowners was only 3.3 years and the median equity only 25% at the time of refinancing. In 2006, the peak year of equity “cash-outs”, borrowers took out 29% of total refinance originations in cash. Finally, we know from those NAR surveys that 39% of the 19.2 million existing homes sold during the peak years 2005-2007 were purchased by first-time buyers with a median down payment of only 3%. Consequently, nearly all of the roughly 7.5 million first-time buyers who bought an existing home in 2005-2007 are also severely underwater. Taken together, these three groups comprise roughly 15 million residences whose owners are seriously at risk of going into default on their mortgage. It is this enormous group of homeowners with mortgages originated in the years 2005-2007 which is the driving force that has pushed the mortgage delinquency rate to a record 10%. Foreclosure filings are now extremely concentrated in the 20 major metropolitan areas which had witnessed the most speculation in 2004-2007. Roughly 53% of the 938,000 foreclosure filings announced by RealtyTrac for the third quarter of 2009 were recorded in these large metropolitan areas. The number of foreclosed residences on the market now would be much higher had the banks not been so reluctant to put their repossessed homes on MLS listings. RealtyTrac estimates that there are 600,000 foreclosed homes which the banks have not yet put on the market. Furthermore, many of the nearly 1.5 million homes that, according to RealtyTrac, banks put into default in 2009 have still not been foreclosed and repossessed by these banks. This potential avalanche of foreclosed properties awaiting the housing market will put tremendous downward pressure on home prices. Until this foreclosure tsunami begins to subside, the housing market in those 20 major metropolitan areas which created the bubble will continue to erode. Kent Hollinger writes I'm afraid it may be #2, but my year long pessimism has been compromised a few times by unforeseen circumstances. It really hurts me to acknowledge that anything can go right with this administration. James Fivetweleve writes It does not matter where we meet, Either on the phone or in the street, Never fails, up pops the topic of the nation woes, If I can see you I look to your pants then to your toes, If concerned so much why no worn spots on your shoes or knees, It is very simple just walk the talk, Please! He made it very easy and as written, If you will bow your head and lift your hand, I will in turn heal you and your land. Bruce Galbreath of NH writes I vote (and hope) for option 3. If it begins to look like Congress will become more balanced between the 2 parties and that government action will become more restrained, I would hope that the market would soar. If businesses and investors began to think the government would leave them relatively alone and get out of the way, it could trigger a massive bull market. Laurel Di Tomaso from Coarsegold, CA writes Your comments on Cavuto on Business this a.m. were so right on! Whild the politicians quibble & bicker in Washington about a health care monstrocity, people are still losing their jobs, the ability to pay even their rent & buy even basic necessities. Worse than that, I think the suffering has only just begun. The long term effect of the money printing will be to discount the purchasing power of future social security checks, savings accounts, welfare checks, and any other "fixed" payments. Medicare reimbursement levels to doctors and hospitals are already low & will be worth even less going forward. How is that going to help the quality & availabliltiy of health care for those truely unable to provide for themselves? Those of us with income & assets are slurping up the cheap real estate & other hard assets, but those without savings &/or jobs are going to get crushed The worst part, is that it is disproporionatley the Obama voter that will be hurt the most. Those already dependent on government assistance will lose much purchasing power. Those with less education, skills & motivation may not be able to find jobs. And, the more governement trys to "fix" it through more tax & spend programs, the more businesses are going to pull back & hunker down until the Government stops trying to play God. And what happens next? What happens when those people finally realized that it was all a giant LIE to begin with. Those of us who have protested in the TEA Parties and have been labeled "radicals" & "racists" are tame compared to what happens when the other half of the country wake up to the fact that Obama is really just another politician who will say anything to get elected. That they have been USED. Predictably, the politicians will try to pit us against each other rather than accept the blame that they deserve. It will be the same old class war rhetoric. Last winter, we invested in gun stocks as we saw conservatives "arming up" and made about a 50% return in just a few mos. I just bought some more because I think that those that invested in "Hope & Change" last year are going to be waking up to the fact that they are really ON THEIR OWN. Keep up the great work Charles. It gives many of us real hope to hear and read your solid common sense perspective both on Fox & on Strategies. Merry Christmas! Marie-Joele Ingalls from FL writes If a CEO thinks a bum derives more enjoyment from American freedoms than he does, all he has to do is find a bench in a public park and stay there. Opposite is not true! Mark Swenson writes I agree both the bum and the rich equally enjoy the benefits of America’s freedoms. Sadly, both are often out of touch with the fact that to enjoy freedom you have to earn it by participating in the fight to protect those freedoms. Paying taxes is only part of the fight. Protecting America’s values through voting, providing for the family, providing good education, and having high expectations to do better than the prior generation is equally shared by the rich or the average American. Unfortunately, working Americans including the rich are expected to provide for the bum on the so he will not feel badly about his predicament. The bum should not confuse that with freedom as he sits on the bench enjoying freedoms he has not earned. This also goes for politicians whose main goal is to redistribute wealth instead of encouraging it creation. Linda Titcomb from Escondido, CA writes You are absolutely right, Charles! The unique freedoms we enjoy in America are available to all. Those who think the rich are benefited more are discounting the hard work and responsible choices characteristic of those industrious individuals. If anything, the "bum" is more benefited when he succeeds in compelling the so-called "rich" to hand over a portion of their income, thus the rich takes care of them both (the two-fer). My husband has a brother who would rather go the beach with his dog than work. But because he's family, he feels entitled to raid the refrigerator and my husband's closet, while blaming us for his lack of success when we've run out of ways to help him help himself. The current administration seems to encourage the dependence of the "beach bum" brother rather than reward the efforts of the responsible one; it vilifies success while requiring (through taxation) that success fund the support of all those going to the beach. Now we believe in helping the truly unfortunate... and we've done so over the years. But the "jungle is neutral" for most, and one survives and ultimately succeeds according to their talents and efforts, but more from just pure persistence and effort. (The beach bum brother has a lot of untapped, undeveloped talents.) Perhaps Ben is right in some regard: the "rich" who have gained those riches through self-control, self-discipline, and responsible choices are truly much more "free" than the "bums" who are enslaved by their dependencies, addictions, and apathetic victim mind-set. The true gift of freedom in America is the opportunity to exercise your personal power to become whatever you might ultimately become, though one's efforts in overcoming any number of "jungle" obstacles. If the bums aren't free, it's because they've given away their personal power and allowed themselves to become enslaved by all manner of personal and political controls. And it would seem, they're trying to regain power by picking the pockets of their "rich" counterparts. Well, not only is that dishonest...it simply doesn't work that way: Once the pockets of the rich are empty, the bums must still confront their own lack of industry. Which, of course, they are "free" to do at any time. PS. You always make so much sense. How I wish you were President. This Country needs some sensible leadership. Sean Kenworthy writes I saw the Cavuto on Business over the weekend and I think Ben is equating all the things money does for a person with freedom and liberty. I didn’t think that was your point but instead it was more about the freedoms America gives everyone makes people’s lives much better no matter what their socioeconomic situation may be. Take any a bum from his bench here in America and put him in most any other country and he loses many opportunities to rise up from that bench and become more. Therefore they both enjoy the same freedoms but the difference is how each person makes use of those freedoms. So my vote is they both enjoy freedoms the same. Matt McWilliams of Irvine, CA writes I agree with you 100%. All Americans benefit from our freedoms equally. The difference is that all do not take advantage of them equally. To you other point about envy, I couldn't agree more. I didn't grow up poor, but we certainly weren't rich either. I've taken the freedoms this country affords me and used them to make something out of myself. Still not rich, but getting there. Personally, I'm sick and tired of hardworking people being treated as if they fell out of a tree and landed in a pile of money. Hal Wood writes There's no better incentive for spending your money wisely than the profit motive. Taxing profits unreasonably brings the rich closer to the level of the bum. Yes, the rich do lose more freedoms while the bums lose incentive. Tommy Zaleski from AZ writes The CBO has ZERO credibility anymore. There is no damn way that NATIONALIZED health will cost only one trillion US over ten years. Federal government estimates are notoriously low. Medicare is now over $500 billion per year and cost projections were under 100 million per year. The sad news is that the CBO is supposed to be neutral. The CBO staff have had huge pressure placed upon them by the President, Reid, Pelosi, SEIU, etc. I just wish ONE of them had the balls to record ONE conversation. That would have ENDED the debate. Socialized medicine is an end game for our Republic. Congress will effectively control Health Care, manufacturing and banking. What is next? Where we are permitted to live? All the best Charles!

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