Thursday, September 20, 2012

Mitt Romney, AP Writers and the 47 Percent

   The Associated Press news service is supposed to send real news stories to local newspapers, but on September 18, AP reporters Ken Thomas and Jim Kuhnhenn took it upon themselves to actually change Mitt Romney's words so that it appears that he is not concerned with poorer people, or the 47 percent that do not pay income tax in the United States. This was an actual lie.

   The  AP article says: "...he doesn't worry about the 47 percent of the country that pays no income taxes," implying that Romney is not concerned about their ability  to make enough money that requires them to pay income tax or meet their financial needs. Other news reporters on TV, internet and print picked up their story and probably didn't even read the transcript, but it is right there in the transcript what he was really talking about.

   Mitt Romney was speaking about votes, not people's finances. Here is the complete portion where Romney talks about the 47 percent:

   "Forty-seven percent of Americans pay no income tax. So our message of low taxes doesn't connect. And he'll be out there talking about tax cuts for the rich. I mean that's what they sell every four years. And so my job is not to worry about those people - I'll never convince them that they should take personal responsibility and care for their lives."

   Romney was talking to donors in May who were interested in his plan for getting votes, not what his policy was toward poor people.

   Mitt Romney himself, from his own income, has given more money to the poor than most people actually earn in their entire lives.

   He donated his entire salary as Governor of Michigan, and his salary from the Olympics to charities. He pays a ten percent tithe to his church, which alone for one year is over two hundred thousand dollars.

   At this point any reporter who would actually believe that Romney doesn't care about the poor, just hasn't been listening, so they must be just intentionally lying.

   AP news stories are supposed to be unbiased.

Monday, August 6, 2012

Mitt Romney, Tax Returns, and Deceit

Stan Stark--
Deceit is an interesting phenomenon.

- It can appear that one person is deceitful, when actually the person exclaiming the deceit is  the deceiver.

In the 1980's I was a school district superintendent. It became necessary that a certain teacher be dismissed because he committed worker's compensation fraud. I put the teacher on administrative leave without pay and took the information to the governing board. Eventually the governing board decided to pay the teacher, but refused to allow him to return to work in the district.

During the period between the action of dismissing the teacher from working and his receiving his pay,  he wrote letters to all of the newspapers in the area claiming I had committed a crime. He then went to the local sheriff's office and filed a complaint.

A reporter from one of the newspapers called and asked for an interview. I agreed, but said that we would meet in my attorney's office. We met, made small talk, and waited for the reporter to ask about the alleged crime. She didn't ever ask about the accusation. I suppose because I was well known in the area, and she was waiting for some kind of permission to talk about the crime. We did not make any acknowledgements, and no article was ever printed accusing me of anything. The papers didn't even publish any of his letters.

A few weeks later I was in a neighboring town about 60 miles away. I saw the now former teacher from a distance, walking toward me, and he saw me. He turned and went into a store. I continued down the street.

I few minutes later I felt an urgent impression to go to the local police department, about five blocks away, and ask if that former teacher had filed any complaints about me.

I walked into the office, and asked the clerk. She said, "What's your name again?" I told her and she said wait here a minute. A few minutes later a policeman came in to talk to me. He looked grave.

"You are Mr. Stark?" he asked.

"Yes," I answered. He asked for my I.D.

"I have a man on the phone who says you are about six blocks away from here committing a serious crime at this very instant. He's still on the line."

"I'm right here. He has done this before." I said.

The policeman and the clerk looked at each other. The officer said, "We'll take care of this. You can go."

A few months  later the school district secretary brought me a newspaper clipping from one of the local papers about this same former teacher being arrested in a distant city over a thousand miles away. He had been arrested for the exact same crime he had accused me of.

So we see that  an accuser is often the offender. He knows and understands the offense and can make a good case for his accusation.

In the case of Mitt Romney and his tax returns, it is probably the same kind of situation. By now, after four years of Barack Obama in charge, if Romney had not filed his tax returns correctly the Internal Revenue Service would have charged him with tax evasion.

With the administration and the Department of Justice being so aggressive in their  pursuits, they have most certainly  had attorneys, accountants, and tax experts pour over Romney's tax returns, looking for some reason to force the Internal Revenue Service into calling for an audit. In fact, Romney has said that he has already been audited. The IRS has not called for any further investigation.

Spiro Agnew, Vice President of Richard Nixon, was convicted of tax evasion while in office. If there were any evidence of tax evasion it would easily be found.

So we have the same classic example of the real deceiver making accusations with no documentation and no witnesses.

That's why the sixth amendment to the constitution says that "the accused ... has the right to be ...confronted with the witnesses against him..."

The Democrats were in complete control of the entire U.S. Government, both houses of congress and the presidency. They could have changed the tax laws if they thought wealthy people should have paid more taxes. 

Keep your tax returns, Mitt..... Don't release any more. Releasing them will only confuse everyone because most people don't even understand their own tax returns which are only a few pages long. So how could any lay person, especially reporters, understand hundreds of pages? It just gives more fodder for deception, and the twisting and corruption of truth.

Friday, July 20, 2012

Old Cars, Mitt Romney and Bain

I have a son who likes to buy old cars and fix them up.

He usually  can make an old wreck into a vehicle that people admire and desire.

Democrats just don't understand that. Their complaints about Mitt Romney's leading of Bain Capital to great profits is like the little old lady who always complains about the eyesore in the lot across the street. It's an old rusting car. She wants it gone, but then she will complain about the "junk man" who picked it up.

This is a 1953-1960 Triumph Standard and it is sitting in my yard.
A mechanic like my son drives by and sees the car. He checks it out and it runs a little, so he finds the owner and gives him $200 and drives it home. When he gets it home he begins working on it, buying parts, painting, repairing and sprucing it up.

Then he drives it around town and takes it to car shows. Finally he sells it for $6000.

But sometimes he finds something so wrong with the car that he realizes he will not be able to   get  it repaired, so he takes it apart piece by piece and lists the parts on Craig's list or Ebay. When he gets all the parts sold that anyone will buy, he sells the rest for scrap metal, and ends up making $1000, still an okay profit.

Usually the mechanic uses his credit cards to buy parts. That's called leveraging. He'd have to buy the car and let it set until he had spare money, but with the credit card he can work on it immediately and then pay the bills when he sells it.
One of these days my son may fix it up.

Mitt Romney did the same thing with companies.

He'd find a company that was barely getting by, losing money. The owners wanted out because they were being drained and were just tired of fighting with the unions, regulations and tax collectors. They were about to tell all the employees they would close the company, lay off the workers, and sell the real estate and machinery.

Mitt's company, Bain Capital, would leverage the buyout by obtaining loans to buy the company. Just like the mechanic, they would go in, look around and see if it could be repaired.

If it could be repaired, the unproductive workers would either be taught new techniques or fired, just like the mechanic would do: bad parts would be replaced. New workers will be hired, new buildings built in new branches and production will be increased. Everyone makes more money except those workers that wouldn't change. They'll be gone.

It may look like this and be worth $6000 or more.
If the company could not be reconditioned, the company, like the car, would be parted out, and workers laid off. They got a few more months work than if the original owners kept the company. Sometimes failing companies don't even pay their workers their last checks because there just is no money left.

The company was failing, maybe it was because of the workers or their union, maybe it was changing times, and competition, but it was already failing, so no jobs were lost because of Bain Capital or Mitt Romney.

What the Democrats want is for the Old Lady to call the government to remove the car and take it to the dump where nobody makes anything from the failure. Sometimes you even have to pay to have a car towed away.

I think that's what happened to some of the companies Barack Obama tried to help, so it's pretty clear to me how Mitt Romney became a millionaire, but what I can't figure out is how Barack Obama became a millionaire.

Wednesday, March 14, 2012

The Real Estate Crash, Part 4

This is the car I drove to the ghost town, my first.
I always thought real estate was not like other investments. I thought it always went up, but there were some quirks in my thoughts. There was a little town near where I grew up that was a ghost town.

I drove out there a few times just after I got my driver's license. It was four or five miles past the covered bridge turn off to Dorothy's parents home in Elk River. When I first got my car I used to explore areas that I had never been.  I wanted to see where Elk River Road  went, so I decided to drive to the end of it.

As I drove, the pavement got narrower and narrower, and blackberry bushes came out from the sides over the pavement, so that it seemed to be a narrow one way road. Finally the paved road was blocked by  an old wooden gate, and it didn't look like any one had driven down that road for a long, long time. I turned my car around, climbed over the gate and started walking.

The paved road was still there, under my feet, but berry bushes almost completely over grew it. In some places it was so narrow that bushes from one side reached all the way across, and I had to duck or crawl through.

This is the brown house on the hill. From Gates: Falk's Claim
Then, down the road, I could see houses. A lot of them. It was a town, and it looked neat and trim.  There were sheep that kept the grass trimmed, so it looked like it was mowed. Everything was still and empty, no people. The sun was shining and it was warm and quiet. A town out of a fairy tale.

I came up to a rather large brown house on a hill. I walked up to the porch. A bee was buzzing in the white Himalaya blackberry flowers. It was warm and spring. The door was open a little. I pushed it open and walked in.

There was a table with dishes and a few magazines with 1950's and 1940's dates. It looked like the people just walked out and left things. I went in all the rooms then back out on the porch. This house was up a hill, so I could see from the porch the other houses below, and some large buildings, a warehouse or something. I decided to go see what they were.

The largest  building was a lumber mill. The giant saws, used to cut huge redwood logs were still there, and all the machinery, rusting now, but looking to me like it could be started up by just flipping an electrical switch. All abandoned.
My wife Dorothy (middle) at Elk River School. 1947
This was the town of Falk. Once a booming lumber town. It even had a railroad, store, post office and gas station. When my wife, Dorothy, was a girl, the train loaded with redwood logs, would come by as she walked home from school, down in Elk River, but now even the rails had been removed. 

Jon Humboldt Gates, a friend of my sister Jacque, eight years younger than me, published a little book about Falk in 1983, Falk's Claim. In it he says  that in 1944, "Access to the townsite was blocked and the whole area was declared off limits to sight-seers and souvenir hunters. The general store was boarded up. But many homes, as well as the post office, the dance hall, the hotel cookhouse, the gas station, the mill, the logging camps, were all just left opened and abandoned."

Gates says that "two or three of the old timers continued their hand to mouth existence" at the town with the last one leaving in 1961. I was there in spring of 1957, and it was probably one of these old timers who I finally heard coming toward me,  where I was exploring. I hurried out of the building and ran back to my car and left, but Falk has always been in my mind. I wondered, "Why did people just walk out of those nice old homes?"

On a massive scale, the real estate crash of today is just the same as those old logging and mining ghost towns of earlier California and the west. The economics made it impossible for the people to remain. Falk was a company town, and the trees were all cut, the company moved on, so the people left.

Today, March 2012, on a road only one half mile from my house that is only one mile long,  there are ten homes, three of them are abandoned, because of the real estate crash, waiting for a buyer.  I have read that there are entire neighborhoods in parts of Nevada that are empty, essentially modern ghost towns.

So real estate is not any different than any other commodity. The price goes up, and it comes down, sometimes so rapidly that owners cannot get out without loosing large sums of money. I was just beginning to realize that in 2005 and 2006 when I was trying to sell my little house on Laurel Street.

Our little house with an inflated price.
My real estate agent was encouraging me to let the lender pay closing fees above the selling price of the home. She was still trying to further inflate the cost, raising her commission.

We got another offer (you might want to review Part 2  of these blogs) a few days after the first one fell through because the buyer could not get a loan. The country was at the peak of the real estate boom at this time in January, 2006.

Had lending not began to tighten up, we would have sold our little house for close to $170,000, but that sale fell through, and my real estate agent tried to get me to return her $1000 deposit. I said, "No!"

The second offer was for $146,500. We signed the papers immediately and it went into escrow. The new loan charges of $4000 were paid from our side of the ledger. That means that the buyer put no money down and we paid his bank fees. That's the way the real estate agents and banks kept raising the prices on real estate. The buyer would make an offer, and the banks would allow all banking fees for new loans be added to the price to raise the apparent value of the home. That new price became the sale value that taxes were levied on, and the value as listed on the sales reports of real estate firms.

In the old days, and again now, the buyer must put those fees up as a down payment plus at least 20% of the purchase price. In this case the buyer should have put up at least $29,000 down payment.

He didn't, and the property was listed in the newspaper within the next couple of  years as in default. The buyer could not really afford the home, yet everyone was pushing for that price, that buyer, and that loan. If he would have had to put up the $29,000 down he couldn't have and wouldn't have purchased the home.

This is the price, $59,300 that the property has fallen to today, March, 2012
We actually had the same kind of situation all over the United States that existed in boom lumbering and mining towns. The ore, or timber ran out. Only this time the "ore, or timber," were the regulations that allowed and even encouraged lending intitutions to make dumb loans. It became apparent that buyers everywhere were in over their heads. No one would lend at the same price again. Prices began dropping until they will eventually reach a level that old fashioned bankers will approve.

I do not think they have reached that level yet. Zestiment thinks this property is now worth $59,500, but keeping a tenant at $800 per month in this home in this area is almost impossible, so the rents have to drop until they reach a level where people can afford to pay the rent.

The town of Falk when it was a productive lumber town.
Instead of having a complete ghost town, we have pockets of towns where the houses cannot be sold, but it is essentially the same. We have completely livable homes that no one will live in, just like in the lumbering ghost town of Falk.

Here is a note that Edna Shoemaker Augustine, my wife's sister sent me about Falk:

Edna, when she visited Falk.
Stan, that is so fascinating!!  I can't remember for sure what year it was (1955, '56, or '57), but I also visited the ghost town of Falk.  I didn't drive then, but a fellow student named Don Short came out to our house and it seems like Dorothy was with us too, and we went down to explore the place.  I remember seeing in one house a piano and, in what must have been the General Store, we saw rows of shoes and boots on shelves, glassware, etc., and a typewriter.  Many times over the years, I've wished I had been able to take a camera along--but, of course, we didn't have a camera back then, though I think Daddy had a movie camera--however, us kids would never have asked to use it.  I have to admit, I have also thought/wished that we would have "absconded" with some of those treasures for keepsakes.  However, we touched nothing and took nothing.  Years later, Augie and I drove down there to see what we could see but it was gated off with many "No Trespassing" signs everywhere.  Good memories!  Love to you, A&E

Wednesday, February 22, 2012

THE REAL ESTATE CRASH PART 3: History of the Bubble

Before I tell you what happened to that little house on Laurel Street that we bought in 2004 and frantically tried to sell at the end of  2005, I'm going to tell you a little about the history of the real estate bubble from my prospective.
Our Apartment house today, we don't own it now.  A mansion in 1890.

As I began this series of blogs, I said that in the 1890's  many Victorian Mansions were built. Most people could not live in a house of that size. Most people could not even live in a 2000 sq foot house. They couldn't pay for it. If you look in the older neighborhoods where houses were built clear up in to the early 1960's, you will see houses of about 1000 square feet to 1500 square feet.

But from about 1990 until the real estate crash all kinds of people were building and buying houses like those Victorian Mansions.

So how did we get so that so many people could afford a 2000 to 3000 square foot house?

Rob Painting the Apartment House - 1960's.
A doctor's home in the 1960's was a one story 2000 square foot home. That was after he had an established practice and had been working for 15 to 20 years. I know that because I used to tutor two doctor's children.

In the 1950's a family had to save for a down payment, usually for many years. Banks required from 20 to 30% down.

Real Estate prices are caused by supply and demand. If there are a lot of buyers, prices go up.

These are 2 bedroom 1 bath tract homes in 1949. Sold to GI's on the GI Bill. 

The most important item that kept houses small, and kept prices relatively low was that only the father and husband could get a loan. Also in the 1950's  banks red-lined (bankers drew red lines on maps in certain neighborhoods) certain areas that they would not loan in, usually minority neighborhoods. The banks thought that people in those areas were not good risks. Banks seldom loaned to minorities.

The GI bill was the first  step in the 60 year real estate boom. Returning World War II Veterans could buy one of these two bedroom homes above for $7000. and only about $200 down. They still had to save that down payment.  Minimum wage began in 1938 at 25 cents per hour. It was raised in 1950 to 75 cents per hour.

Slowly in the 1960's it became improper and  illegal for banks to discriminate against minorities or to red-line neighborhoods. That created a large influx of qualified buyers, greater demand, and prices began to rise. But not too quickly because a large number of homes also entered the market  from those red-lined neighborhoods, so the supply kept up with the demand.

Prices were still kept lower because not all the income of the household was counted.

Tom, Fixing a Floor in the 1960's.
Still, only the male head of the house was the qualifier. His wife didn't count and usually didn't even fill out an application.

Bankers began to see in the late 1970's that they could make more money if both husband and wife were added together to make a higher qualifying income. The loan could be bigger and the couple could afford a larger house. By the 1980's real estate prices really took off. They doubled, and tripled in only a few years, and the wife was locked into the market. She now had to work to keep making the payments on the home. That increased demand even more. As her income grew the families thought they could afford  larger and larger homes.

Then came the relaxation and liberalization of marriage, so that even an unmarried couple could have their incomes added to qualify.

1990's Tract homes sold with 5% down. Mansions in the 1890's. Mansions again.
Through most of this time the supply of houses and the demand did not match. More houses were wanted than could be built, so in the 1990's a great building boom began with the larger houses being built in neighborhood after neighborhood, and government regulation even required banks to lend to less and less qualified buyers.

By the middle of the 1990's it became the common thought that home prices just kept rising and would forever, like it was magic or something. Investors would buy a home only to try to sell it in a few months or years at a higher price. Flipping.

Flipping became popular, even having TV infomercials sell the idea over and over.

There was no worry. For fifty years home prices kept rising, rising and rising.  Why would they ever stop rising? It became a world wide custom, part of our culture. It was popular belief and almost everyone believed it. A home became an investment, not a place to live because the price would always go up.

After only a few years of ownership, without even an appraisal, a homeowner could get a second mortgage for as much as he paid for the house. People ran out and bought all kinds of stuff. Some bought more, and more homes, pressuring the market to rise more and more.

Real estate agents pushed houses on investors who couldn't even hammer a nail, women who had never changed a toilet, and younger and younger families, who had never had to repair even a broken window.

Working on a Fence in the 70's
Loans were so liberal that a couple who had little investment in each other, no marriage, only a few months together and even minimum wage jobs could buy the same small house that their grandparents had to save, and save, and save for the down payment. They could get 105% of the selling price loaned to them with  only a $1000 down payment, and that only a deposit that real estate agents convinced sellers should be returned if the buyer didn't go through with the deal.

Absolutely no buyer responsibility.

So much demand. We know people who had to create a resume, like for employment, that they would present with their down payment and offer, so they could be considered for a home because there were so many buyers. That was 2004, 2005 and 2006.

Then some of the short term loans began to come due. Banks had sold mortgages in bundles all over the world, and investors bought them up with the same zeal that home buyers were buying, except that an investor didn't just buy one mortgage, he bought parts of many. Real estate would never stop going up they thought, so the belief was that there was no risk.

It was like real estate was on cocaine. The economy had an addiction  for rising real estate prices.

Supply and demand were finally balanced, but the loans demanded that prices keep rising. Some loans had to be refinanced, but because the property hadn't risen in value, the equity was not there. The owner could not refinance, and he could not pay the balloon payment at the end of the mortgage, so the foreclosures began.

The balancing point  actually hit  about the end of 2005, just when I was trying to sell my little house. I saw it and finally realized what was happening.

A crash was coming. It did and prices dropped, they are still dropping. Government officials, financial writers and real estate agents still believe that real estate is only in a slump. Don't believe it.

I just read today, February 22, 2012, that home sales were the highest in 1 1/2 years. Don't believe that indicates home prices are rising again.

It only means  the number of home sales has risen. since one and one half years ago. That's because the prices are still dropping and investors, and home buyers think they will rise again, or they want a home to live in. There cannot be an increase in demand because so many buyers are permanently out of the market. They never could afford to own a home in the first place, and the market finally realized it.

At the end of the article Lucia Mutikani says, "Distressed properties, foreclosures and short sales, which typically occur at deep discounts, accounted for 35 percent of overall sales last month, up from 32 percent in December."

Our Little Rental 2012 - Now
So today, almost six years after we began trying to sell our little house, sales are still motivated by what financial writers call deep discounts. I don't think so, not discounts. A discount is a price lower than the regular price. Then after the discount the price goes back up.

I think real estate prices are still reaching their real bottom  prices, not "discount" prices. Or in other words one third of the sales were because of extremely low prices compared with the peak of the boom. 

Few people have realized that the peak of the boom was actually an addiction high. An addiction to continually rising real estate prices by the entire real estate market.

I'll tell you more about that in the next edition and how we  finally came out on that little house  sale.

Monday, February 20, 2012

50 Years Ago Today: John Glenn, First American to Orbit the Earth

Fifty years ago today, on February 20, 1962,  I was in Orick, California picking up dry cleaning on a dry cleaning route. Three days per week,  I went from Eureka to Orick, picked up the dry cleaning from homes and businesses and returned it the next trip.

I drove up to a restaurant in my blue Volkswagen bus where I usually picked up some cleaning. There were all kinds of cars and pickups around the place, and some men inside yelling.

"What's going on," I thought, then remembered. John Glenn was scheduled to circle the earth  on this day, but it was too crowded for me to go in. I didn't know his name then. I paused and sat in the car for a few minutes, then left and continued on the route.

The United States was behind in the space race. A Russian had already circled the earth.
Dorothy, me, Theresa & Robby around 1962

I watched as these things happened, but was too busy trying to make enough to live on to get too involved. I had dropped out of College a few months before. It took me all winter driving around picking up dry cleaning to realize that it was a dead end job.

There was a recession going on in Humboldt County, but in the spring of 1962 I began  training to be a banker at Bank of America. When I decided that I needed a better job, I started stopping every Tuesday and Thursday at the bank in Arcata. I went in to see the manager. The first time he said there were no jobs, "There's a recession now. Come back later."

Grandma Shoemaker, Tommy, Robby, Theresa and Grandpa Shoemaker
I went back at least once every week. I realize now that the manager meant in five or six months, but I kept going in and seeing him. After a few weeks he said, "We do have a training program," so I worked for awhile for $300 per month at the first level of training which was a bank teller.

It wasn't long before I realized that banking wasn't for me. A guy came in and cashed his check. He had worked a double shift and was very tired. At the end of the day I was balancing my cash and discovered I was $500 short. After about two hours of checking and rechecking I discovered it was that guy who had worked a double shift. He lived in Blue Lake. I had given him $500 too much in change. His check was for something like $3000. which was a lot of money in those days, probably $30,000  in today's money. I called him, and he came right in and brought me back the $500.

 "Whew, that was really close," I thought. There was probably no way the bank could have gotten their money back, and in those days the teller had to make up everything over 50 cents.

I decided to look for another job.

We lived at Freshwater in our second purchased home. Dorothy was 19 and I would be 21 in a few days. We had three children.

Tuesday, February 14, 2012


We had listed our little two bedroom house, had one offer and it fell through. But our real estate agent said we'll get another offer. We had bought it only two years before for $65,000 and our last offer was $154,000. I was certain that the property was not worth that much because I could only rent it for $500 per month.

I took these pictures today, Feb. 14, 2012
Now my tenants had moved out, leaving us with a $600 loss per month, plus the taxes and the insurance and any maintenance.

There was going to be more maintenance. I was sure of that.

This was January of 2006. Real estate prices were way too high. I was sure of this because every where I looked, rental prices were still less than my estimates of what the payments were. A lot less.

Real estate value and real estate prices are two different things. Real estate is a commodity that fluctuates with supply and demand. The price can go way higher than the value. The value is what it is actually worth to an individual. Most people cannot tell the difference.

I always calculate the value of a piece of property as the amount about 100 times the actual monthly rent that I can get from the property. That is not the way real estate appraisers value a property. They hardly take into account the amount of rent that is paid. In fact they often discount it completely.

Appraisers only count the supply and demand. As far as appraisers are concerned the amount of rent has little to do with the appraised value. They are only looking at what it will sell for in the market at that specific time.  So an appraiser can be way off of the  real value.

That is  reason number one for the crash.

So if you live in a home that, let's say you pay $1300 per month payments including the taxes and the insurance, my value for that property could be no more than $130,000, but if you could only rent it for $900 per month then the value to me could not be more than $90,000.

But I would never pay you $90,000 for your property unless you gave it to me with no down payment and  only a $600 per month payment. I would rather pay you $60,000.

That's because I already made the mistake of buying a $50,000 property for $64,000 which I now had to get rid of quickly because I felt the market was beginning to drop.

I had these rules up to about 2004 when I decided to buy that little piece of property.  I was actually anxious to buy it, nervous that I would miss getting a piece of property when prices were rising so quickly. That's a dangerous sign. It means I was being influenced by the speculation of the times.

It was  the only property I ever had put a relatively large down payment on. Almost all, if not all, of other purchases were for almost nothing down, but this time I did it. I put $16,000 down.

This is the back view.
That means that our $500 payment that we were making was on about $49,000 which did meet my rules, except that I had put that $16,000 down, but my value was about 100 times what I owed. I thought of it as a lost down payment and felt okay, especially since prices still seemed to be rising in 2004. At least I could almost make the payment from the rent.

The first rule of investing is to never count on appreciation for profit or protection against loss.

That is reason number 2 for the crash.

People were depending on appreciation to actually make their payments on their homes. They were thinking of their homes as an investment, and they would buy a large home with little or no down payment and a monthly payment that would only remain the same  for about five to seven years, if...... if the interest rates remained the same.

"It's all right," they thought. "We can always sell it for higher, or refinance it."

We have all been lucky about the interest rates. Interest rates have remained stable or have even dropped. But that has been forced by the government printing money, trying to stave off a real disaster.

After the five to seven years their loans had a clause that they needed to either pay a large lump sum or refinance it. Every one thought they could refinance their homes.

Study this current, February 14, 2012 description of the little piece of property that I've been telling you about (below) from an online company, and in my next post I'll tell you the rest of the story.

But if you'll notice, I think their estimate of the rent is still way too high.  I think it would only rent for $500 still today.

Sunday, February 12, 2012

The Real Estate Crash

The real estate crash was a giant bubble that began many years ago. It wasn't a business cycle.

Real Estate can't "recover."

I could never understand why in the late 1800's clear up until the 1970's, working people usually bought no more than one three bedroom home that was around 1000 to 1200 square feet, then all of a sudden they started buying what would be the same as an 1890's Victorian mansion.

The Apartment House today from Google Street View.
Dorothy and I  grew up in Eureka, California, an area with most of the houses as small or smaller than those I mentioned. Downtown there were many Victorian mansions, but most of them had been built in the 1890's and converted to apartment houses. We actually owned one of them. We called it, with originality: "The Apartment House," which is what I will call it throughout this blog.

It is no bigger than some of  the single family homes built  now in large tracts throughout California, built from 1990 to 2006, yet few people in Eureka could afford to live in a home the size of the Apartment House in earlier times.

How did all those relatively modest income folks from 1990 to 2006 get to live in mansions and get on the road to owning them?

Tom, on the same porch above in the 1960's.
Dorothy and I have been buying, renting, and sometimes selling real estate since 1959, when we bought our first home. Over the years we have owned a total of forty-two rental and owner occupied units. In Eureka, California we owned ten, in Sacramento, 12, in Clarksburg, 10 and in the area we live in now ten. We have sold all but those ten we have right now, but I have been studying the real estate market from the inside, and it is clear that making money in real estate traditionally is not about buying and selling it, and it never was.

The whole world believed that you could buy a piece of real estate, work  on it a little  and then "flip" it for a good profit. This was dreaming while awake, and it worked for awhile because so many people began to believe it. So many people world-wide confused speculation with real investment.

Speculation builds bubbles. And bubbles always pop.

In 2004 we bought a little two bedroom house for $64,000. I thought that the price was too high, but it was still  close to the price that could make money by renting it, if one had the patience to only make one's money on the equity and slowly wait for inflation to bring the rent higher, but the entire real estate market was expanding itself rapidly inside that bubble, not caring if rents would make money.

The Apartment House about 1973. We were painting it.
A bubble is speculation gone wild. It is not real. It could not continue because even that little two bedroom house was too expensive for most of the people who live in its neighborhood. I had to rent the house for a little less than the payment. By the time the taxes were paid and the maintenance done it cost us about $100 per month to be the landlords.

That means that every month $100 goes into a hole and is hard to get back out. If I raised the rent to try to get that $100 back, no one would rent it. And this was happening when real estate was almost at it's peak, in 2005 and 2006.

"How?" I thought, "How can these people be buying these houses when they don't make enough to pay the rent?" They don't even think about the maintenance, or the taxes, or the insurance, so how can they imagine they can pay for these houses?

I drove through near-by neighborhoods where rows and rows  of giant 18th century mansions were being built (they looked the same to me), and those mansions were apparently being sold.

It just didn't make any sense to me.

News pundits, even now,  keep talking about when real estate is going to recover. How can it recover when it never got really sick? It isn't sick. It was high. It was the same as a junkie who spent twenty years on cocaine and finally realizes that he has to get off of it. He goes into a depression. Those highs weren't real. Real estate never should have gotten as high as it was. So it's not going to recover. People are just going to finally realize that you can't make money in real estate in two years, and your home is a place to live in, not a way to make a lot of easy money. Real estate is a long term commitment.

Me. Fixing a ceiling in the 1970's.
I decided I had to sell that little house. And I had to do it quickly, because it was becoming scary for me to keep it. The price of everything was going up, but rents were not, especially for 100  year old little tiny houses. My tenants were struggling to pay their $500 rent each month.

So I listed the house with what looked like a prosperous real estate broker. She was pretty, with high heels, glamorous make-up, big eyelashes, low cut blouse,  and a large friendly smile.

"I think somewhere around $100,000 would be a reasonable  listing price," I said. "It's only been two years since I bought it and that would make something around a $35,000 profit." I thought this was a high price.

"What!," she retorted. "We'll list it for $170,000. We can add all of the costs, repairs and everything to the cost, and it will be covered in the loan."

"We can what?" I said, "How can we add anything to the price?" I said.

"The bank will cover $105% of the selling price," she said.

"That seems illegal," I thought, but I signed the listing papers, unconsciously counting my profit.. It was November 28, 2005.

About two days later, she called.

"We've got an offer for $154,000, and I have a deposit." I still thought it was only worth about $100,000, if that. Really it wasn't worth more than I paid for it because I could only rent it for $500 per month.

I scrambled down to the real estate office and signed the offer, and the property was put into escrow. By December 27, 2005, all the documents were filed and it looked like it was sold.
We waited for the buyer's loan to clear. It was January, 2006. Then the buyer wanted her deposit back, because she couldn't get the loan. The real estate agent said we should give her back her deposit.

I said, "No! Why have a deposit if you just give it back?"

"That's the custom," she said.

"I don't like the customs now." I said, and I thought,  "Something is all out of whack."

I insisted, so we kept the deposit, but my tenants moved out because I had told them the property was sold. Now instead of just loosing $100 per month, we were losing $600, and we couldn't re-rent the property, because no one wanted to move in and then just be told to move back out.

Saturday, January 21, 2012

Mitt Romney and Me

I don't know Mitt Romney.

I do know something about his life. I am a Mormon, so I can make a better guess about how he actually lives his life than a person who knows nothing about the Church.

We know Mitt pays tithes and offerings, so we also know he is dedicated to the Church. I would expect he lives his life pretty much the same as I do.

Mitt was a Bishop and a Stake President. He also must have been a Home Teacher, and probably an Elder's Quorum President. I'll bet he taught Sunday School.

Since he has sons he has probably gone on Scout hikes, campouts, and other over night outings with young men.

Mitt and his wife held Family Home Evening, that's a gospel lesson with your family every week where the kids sit down and the parents supervise a discussion about values and laws and rules.

He says he prays daily and reads Scripture regularly.

And Mitt went on a mission to France. There's an article about that and also about most of the rest of these things, but I'll tell you what all of this means to me, Stan Stark, who has lived this kind of life since 1959 when my wife and I joined the Church of Jesus Christ of Latter-day Saints.

First, every person who is a Mormon or who has joined the Church has been rejected over and over again by "Christians" just because they belong to a different kind of church. Mitt was rejected in France, probably more than I can imagine, but I have four sons who served missions.

In Arkansas, one of my sons was grabbed and a knife held at his throat because the Missionary was teaching the man's wife. Another son was arrested and held at an airport in Spain. A third and his companion were told by their leaders to stay in their apartment in Guatamala because rebels were shooting up the town with machine guns. And the fourth, in West Virginia, was followed and dogged day and night by a West Virginia minister who was pressuring them to stop teaching the people in his town.

Presidents of our United States need this kind of preparation. It gives them strength in the face of the many problems they have and the many people who don't like what they do no matter what it is.

Every active man in the Church is a Home Teacher. This means that he has about five families some where in his neighborhood that he visits and teaches every month. A Home Teacher is there to council the family's children when they need it, offer assistance in the form of neighborly work. I have mowed the grass, helped clean the house, taken children to games, scouts or meetings, and I have loaned them money. A Home Teacher is taught to "watch over" and help the families he is assigned to as well as teach a short lesson each month. Mitt still does this I'm sure, even while campaigning.

An Elder's Quorum President, which I was for seven years, supervises the Home Teachers. The Quorum president also councils with the Elders. Every active man becomes an Elder. If an Elder has a problem in his life he goes to his Quorum President for advice.

Once, while Elder's Quorum President, I received a call while I was home recuperating from surgery.  An old gentleman from Tonga who moved in with his daughter and her husband (not a member) called me late at night. The old Tongan was worried. His son and daughter were arguing, and he thought it might get violent, but he wasn't ready to call the police.

I got up, dressed, and drove over there, often carefully trying to straighten up for the pain. The conversation on the phone made me worry as I was driving over there, that I might get pushed and tear out my stitches. The family calmed down after I got there, the old man was comforted, and the situation improved. There's no question in my mind that Mitt must have done things like that.

Mitt was a Bishop. That means he supervised   the Home Teaching activities of the Elder's Quorum President, and the very difficult domestic cases he took care of himself.

I've sat in meetings with the Bishop. I was his Executive Secretary for years. I made appointments for the Bishop, night after night, with families with problems, with young people who needed a father figure in their lives, and with people who needed help with every aspect of their lives. Mitt has done this and the reporters would have found out by now if he hadn't done a good job.

Mitt was a Stake President. That means he supervised the Bishops. A Stake is a geographic area that is sometimes very large. I'm not sure how big Mitt's Stake was, but the first one I was in was 150 miles from one end to the other. The Stake President has to meet with the Bishops from one end to the other. That meant a lot of driving in all kinds of weather. Mormon's don't cancel their meetings very often, so Mitt was driving back and forth for his Stake President Duties, probably in the  snow.

Now, I'm not sure of the actual time references, but he also worked, either at Bain or as Governor while he held these offices. Every LDS leader works while he does his church work, Bishops, Home Teachers, Elder's Quorum Presidents, and Stake Presidents. They do everything that any minister in any church does, and they don't get paid. Not one cent. So they have to organize all of the other people to do the jobs and the visiting and the helping that needs to be done. United States Presidents need to be able to organize people, and Mormon leaders start at twelve and keep it up all their lives.

I could go on and on and on and fill 40 pages about the things Mitt has done, and all of it is helping others to grow and improve their lives.