EXCLUSIVE INTERVIEWS—

Governor J. Baldacci     The Governor talks candidly about the Trade Mission to Asia and how important trade missions are for business in the global economy.

Victoria Rowell        author/actress/activist talks about growing up on a Maine farm, her best selling book and how she wishes it to be ‘made in Maine.’

Congressman Michaud  The U.S. Representative talks in detail about how his Northern Commission will infuse the region with funds for economic growth

Speaker Cummings Maine’s House Speaker talks about the importance of consolidation, education and the challenges of the 123’rd legislative session

MAINE VOICES—

The State of the State Highlights of Governor Baldacci’s 2008 address

Working together           to help the state grow by Ramona du Houx

Economic fallout           because of Bush policies by Eric Mehnert

Mainers preserve ME They take our cultural heritage to heart by Ramona du Houx

MAINE INITIATIVES—

Quality Place Council Recommendations for action to preserve historic downtowns and natural places of beauty

Budget kept in balance Gov. takes action to protect state from possible recession with curtailment & suplemental budget proposal

Economic Council Bringing together business leaders for economic growth

MAINE AS 'ONE COMMUNITY' NEWS—

Alfond’s $500 gift         For every baby born in Maine to go to college

Protecting Mainers      From high oil and gas prices —UPDATE:    8.8 million emergency LIHEAP funds released for ME – Jan 16

LURC                        Maine’s Land Use and Regulatory Commission

BUSINESS NEWS—

Pine Tree Zones           Working for Maine’s workforce

Wind power                 Stetson MT. wind project approved with special TIF benifits

Alternative Manufacturing              High-tech global economy business in Winthrop

Kennebec Lumber Quality wood products co. sells products around the world

Trade Mission to Asia

BOOKS —

Above the Gravel Bar- Native Canoe Routes of Maine The author writes an essay about the wonders of the canoe

Please comment on any article, refer to which article in your email, and it will be posted on that article's page.    email: duhoux2@tds.net

Statistical information in this publication is obtained from state agencies and government offices.

All photographs, articles, and layout are by Ramona du Houx unless otherwise indicated.

Not authorized by any candidate, candidate’s committee, or the Maine Democratic Party

By Eric Mehnert

In 1929 Americans enjoyed a time of unrivaled prosperity. It was a time of living large. There was a dance called the Charleston and the style was short, flapper dresses. Middleclass America was enjoying the American dream of upward mobility. Many of them were investing their life savings in the stock market. In order to maximize their investments, they bought stock on margin. That is, they bought stock on credit, believing the price of the stock would continue to climb and that when the time came for them to pay for the stock, it would have increased in value enough that they could sell it, pay off the purchase price, and still make a profit.

The problem was, and is, that stock has no intrinsic value. Its value is whatever we choose to believe it is. Sure, there are formulas that brokers use to give an illusion of value. They talk about price/earnings ratios. They talk about capital assets. But in the end, stock only has the value we believe it has.

When we no longer believe stock has value, we will not pay the asking price. That works all right so long as we are paying for value in cash. It can have catastrophic implications when stock is being purchased on margin. Because, when the seller of stock is counting on an increase in value to be able to pay for the stock and the stock does not increase in value, then the seller must come up with the purchase price out of their own cash reserves. When they do not have the cash reserves to pay the purchase price, then the stocks value continues to slide as investors decrease the amount which they are willing to pay for stock. As stocks continue to devalue, lenders become worried about the ability to be repaid and credit tightens. As credit tightens, middleclass consumers loose the ability to get credit and their willingness and ability to expend capital to purchase consumer goods is diminished. The diminishment of consumer spending leads to a reduction in manufacturing, and the economy begins a downward spiral.

In 1929, the downward spiral lead to the Great Depression. We only were able to climb out of that depression with Franklin Delano Roosevelt’s New Deal. A series of government programs were designed to build the infrastructure of America while providing work to those unemployed by the economic dislocation caused by the stock crash. To ensure that we would never experience the travails of the Great Depression again, the federal government stepped in and created the Securities and Exchange Commission to regulate the Stock Market.

Unfortunately, no one foresaw that the Bourbon right and the Wall Street elite would give us a reprise of the stock crash with the bursting of the housing bubble.

Tragically, there is an eerie similarity between our housing boom and the stock boom of the 1920s. Just as with the stock boom, we have seen people buying their homes on margin. They have entered into interest-only mortgages, with the idea that in two or three years the increase in value in their homes will allow them to refinance and get into a more conventional loan package. We have seen middleclass investors in Washington, DC purchase homes with adjustable rate mortgages, believing that when the interest rate increases they will sell the house and make a profit on the appreciation in value. Television shows have been created telling middleclass Americans that the way to wealth is by "flipping" this house. Many middleclass Americans have stretched their budgets to purchase the best home they could afford, believing it was an investment and that in a few years the appreciation in value would allow them to refinance and reduce their monthly payments.

Just as with the stock boom, the housing boom was driven by the belief that housing values would continue to increase.

The problem is that our houses, like our stocks, only have the value which we believe they have. Sure, you can have an appraiser come in and tell you "the value of your home." That appraiser makes his or her evaluation based on what other similar homes in your town are selling for. Like stocks, an appraiser can create an illusion of value by showing an average cost per square foot or additional value for an updated kitchen. But, in the end, a house, like stock, only has the value which we believe it has.

Unfortunately, like 1929, we are facing a time when our homes are no longer increasing in value. The margin call has come, and many Americans find that their single greatest investment has not only failed to appreciate in value but has instead lost value. The equity that many middleclass Americans believed would be available to make the mortgage payments has disappeared.

The administration in Washington has sought to limit the discussion of the housing crisis to the subprime mortgage market. In doing so, they seek to have their spinmeisters and pundits declaim that the only people affected by the subprime fallout will be those who could not have afforded a home without a subprime loan. The reality is much different.

Remember that appraiser we spoke of earlier, the one who values your home based on what other homes in the town are selling for? Well, as the subprime market crisis exploded in the third quarter of 2007, RealtyTrac reported that the number of homeowners one month or more behind in their mortgage rose by 33 percent, and we could expect to see a rise in foreclosures. The rise in foreclosures directly correlates to a loss in our home values, because as that appraiser goes looking for other homes to compare with yours in their valuation, he or she is looking at homes that have been sold in foreclosure. It is extraordinarily rare that anyone ever buys a home in foreclosure at its Fair Market Value. In fact, it is rare that someone is even willing to pay the mortgage amount held by the lender. Typically people offer 50 percent or less of the total mortgage on the home. So when that appraiser looks for comparables for your home, they are looking at something that may have a value of 50 percent less than what you paid for yours, and they will reduce their valuation of your home by that 50 percent.

The subprime mortgage crisis has only declared a hundred billion dollars in losses, and already we see states like Massachusetts imposing a moratorium on foreclosures in order to stop the hemorrhage of equity in our homes. It is reported by CNN that we can expect another four hundred to six hundred billion dollars ($400,000,000,000 to $600,000,000,000) in losses from the subprime fallout.

Yet Washington has done nothing to stop the bleeding. The Federal Reserve cut the prime rate by one-half a percent since August with the idea that it would increase cash available to lenders. By increasing the cash available, the federal government believed that the lenders would be more willing to extend credit to homebuyers and that would stimulate the housing market. It is trickledown economics and it has failed miserably.

The banks are only too happy to take reduced-rate loans (financed by our tax dollars) from the federal government to shore up their position, but they are refusing to lend to middleclass America. In essence, middleclass America has guaranteed the Bourbon right’s and the Wall Street elite’s gamble in the subprime market. Unlike when you or I take a loan from a bank and have to sign on that we personally guarantee that we are responsible for the debt, neither the Bourbon Right nor the Wall Street Elite, are personally guaranteeing that they will pay the government back if their subprime gamble fails and the banks go bankrupt.

Given that there are another four hundred to six hundred billion in losses coming, I, for one, am unwilling to loan my tax dollars to the banks. I am pretty certain that if you or I went to the banks and told them that we had made a lot of money in a high-risk venture, but now it didn’t look like it was going to work out, could the bank loan us some more money, so that we can continue to maintain a high lifestyle, we would be laughed out of the bank.

But the current housing crisis is no laughing matter for middleclass Americans. We watch as the subprime crisis destroys the values of homes in our hometowns, knowing that the secondary effect is the loss of equity in our own homes. For many of us, that equity is our life’s savings. It is what we will tap into to fund our children’s education. It is our safety net for unforeseen medical needs. It is our retirement.

The dramatic loss of equity in our homes has the potential to recreate the economic disaster of 1929. Housing values, like 1929 stocks, are poised on the edge of a freefall. If they go over that edge, the result will be the same.

Our government must honor its obligation, indeed its very purpose, under the social contract. It must act to provide the necessary levees and shore up our positions in the face of the gathering storm.

Instead of encouraging the Federal Reserve to loan money to the banks with the hope that credit liquidity will trickle down to middle America (with the middlemen on Wall Street taking their cut), the government needs to make credit directly available to middleclass America. It isn’t a new or radical idea. My dad got his graduate degree with the GI Bill; his first home was financed by the Veterans Administration. I was able to go to college because of federal student education loans. My first home in New Gloucester was financed through an FHA loan. If our government is going to use our tax dollars to increase credit liquidity with the hope that it will prime the economic pump, it should make that credit directly available to the middleclass Americans who drive the pump, not to Wall Street financiers.

Our government also needs to recognize its responsibility under the social contract to ensure that we remain a moral society based on equality and justice. In doing so, it must recognize that capitalism is amoral; it has no moral compass. It is up to government to provide that direction. Corporations are creatures of the State and have no independent existence beyond what our government authorizes. That means that our government has not only the authority but the responsibility to ensure that corporations act in a just manner. Perhaps Adlai Stevenson said it best, "I believe in free markets, free capital, and a free people, but none of them can exist without social, economic, racial, and political justice." It is our government’s responsibility to see that there is social, economic, racial, and political justice in our marketplace.