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Yep, I said it. The government bailout. The builders are now looking to get into the tax refund business in lieu of the house selling business. This actually exacerbates their problem in the medium term to gain a short term advantage. They need capital, so they are taking a big negative mark to market to do so. This accelerates the devaluation of home prices which accelerates the problems associated with it, devaluation of mortgages, foreclosures, etc. This does quicken the arrival of affordable homes (the lack of which is one of the key drivers to the diminished demand), but it also hastens the demise of the companies that just can't hang in there by making supply even more abundant at even lower prices: be it builders or financial concerns such as banks.

The interesting thing is that the federal government is subsidizing this directly through tax refunds. If you add it up, a couple of dollars from your stimulus package refund check went directly to the builder tax refund/bailout (that is assuming all of the builders wish to take advantage of this financial engineering, and I believe all of the big ones are aggressively looking into it as I type this post) - and the bailout may not even work for some builders. Lennar raised over a billion dollars in cash between tax refunds and asset sales, and they are still squarely in bankruptcy territory according to their z score.

Due to the abrupt nature of the home building lobby's cutting off of campaign financing, I assume the 5 yr tax loss extension may not be going as well as anticipated.

"The association's president, Brian Catalde, said in a statement that the group's political action committee, BUILD-PAC, had halted all disbursements to federal congressional candidates "until further notice." The statement added, "More needs to be done to jump-start housing and ensure the economy does not fall into a recession.""

"experts said the lobby's move illustrated how closely interest groups tie their donations to the decisions they hope lawmakers will take on their behalf -- a connection that usually goes unspoken.

"This demonstrates in a starker fashion than we're used to seeing how groups use political contributions to promote their positions in Congress," said Kenneth A. Gross, a campaign finance lawyer at Skadden, Arps, Slate, Meagher & Flom."

Hey builders, we are all going though hard times, Federal Government included. Remember, there is the recession, bear market, a stimulus package to pay for, large budget deficit, and Mr. Bush needs to pay for that highly unnecessary war bill sooner or later...

""Lobbies like to pretend that congressional action and their donations aren't tied, " said Melanie Sloan of Citizens for Responsibility and Ethics in Washington. "But the home builders just confirmed that they are."

Ethics lawyers routinely warn interest groups to avoid saying or implying that the money they provide to candidates compensates them for taking a position on a particular piece of legislation. Such quid pro quos could be considered illegal gratuities or bribes."

Hmmm... 

"The home builders' announcement also explodes the oft-repeated assertion by politicians that lobbyists deal with them only at arm's length. "How many members of Congress have you heard say, 'People donate to me, but it has no effect at all'?" Sloan said. "What the home builders have done is expose the underbelly of the connection between money and politics."

  The drama continues...

The association's decision was the subject of ridicule among some veteran lobbyists and trade-group executives yesterday. One long-time association head said via e-mail that the home builders' statement showed the "political instincts of spoiled children." The e-mail continued: "One would think that a savvy staff would have kept them from something that will make them the laughing stock of Washington."

 Others cheered the association's choice. "This is what more industries should do," said Cleta Mitchell, an ethics lawyer at Foley & Lardner. "Stop supporting officeholders who don't support their views."

 BUILD-PAC is the nation's 17th-largest political action committee as well as the seventh-largest corporate PAC, according to the nonpartisan Center for Responsive Politics. In the current election cycle, BUILD-PAC has collected more than $2 million and dispensed $1.5 million to candidates, 55 percent to Republicans and 45 percent to Democrats. It still has $826,669 available to spend.

And you really wonder why Obama's message of change has reverbrated through the annals of the Beltway and Main Street like the deep harmomious vibrations of a church organ???!!!

 

 

I know I may be rufflling a few feathers getting into politics, but just wait until I do the Obama/McCain/Clinton financial analysis... Ooooh, what fun!