* The Last Byte *

[jstoddard]

A _Great_ Online Image editor Sumo Paint

There are several free-or-cheap open source image editors that rival Photoshop Elements, PaintShop Pro, etc. In the past I've recommened Gimp, Paint.Net, etc. , but Sumo Paint is different in that it's truly an online application (not download and install) - but with the look and feel of a "real" piece of software - so much so you'll probably forget you're in a web-only environment.

Check it out at: http://www.sumopaint.com/web/

Register with one-click at the top-right of the page (this alone is a huge improvement over the usual regististration headache some sites put you through... or just click the "Open Sumo Paint and Start Fooling Around" header and log in as "Guest".

Is Sumo Paint another nail in the coffin of desktop software? I doubt it - until we get gigabit speed on the Internet there will always be certain categories of software that require a local installation... complex estimators, CAD and other graphics programs, etc... the horsepower just isn't there yet to run those kinds of apps completely over the web.

And really... who cares? Even today's sub-$500 "Netbooks" have huge hard drives and plenty of RAM compared to mainstream laptops just a few years ago... a well-configured netbook running XP can install and run SoftPlan, CADestimator, etc. with no problems. The application can live on the desktop and the data can still live in the cloud. Web 2.0 impacts software regardless where it's installed. SketchUp and the Google 3D Warehouse is a perfect marriage of desktop computing and the power of the Internet. Google could certainly port SketchUp to run online, but they haven't found a compelling reason to do so.

Today - having the actual application delivered as an online service is more about how the software publisher wants to distribute and support their product. I think you'll see more and more applications delivered as a service online simply because it's so much easier for a software developer to maintain ONE build of their product than it is to deal with thousands of newbies with all of their lack of computer skills. Trust me - it solves a ton of problems from the developer's standpoint.

So for whatever reason - the Sumo developers decided to deliver their entire application online - and it's an example of how far we've come in just a few years. On a 'normal' broadband connection Sumo Paint looks and feels like any desktop program (with a few missing items... keyboard commands for Undo/Redo give it away... ) . Definitely check it out - even if you're not in the market for a new image editor - you'll be amazed at how desktop-like an online application can be.

JLS

[jstoddard]

Housing Meltdown Cause and Effect

Sorry for this being off-topic of computer technology - but it is tech-related b/c without our electronic banking system it couldn't have happened. I'm tired of the countless analysts commenting on the housing crisis - missing the fundamental cause and blaming builders, or even worse, trying to pawn off a global collapse on some folks who were trying to move up in life by buying a new house any way they could. Sure - there were abuses, there always are lots of them... but by and large builders and their buyers are NOT to blame for the meltdown - we're actually at the bottom of this food chain.

No, the nightmare scenario we are now facing was not caused by builders, by salespeople, by local mortgage brokers, or by the public. It wasn't even caused by a "lack of regulation and oversight" by the Bush administration, or any administration.

YES we were all willing participants, raking in the sales and banging up the houses as fast as they were sold... but as long as everyone went in to the deal with eyes open there's no problem.

All of that demand drove up prices to ridiculous levels (3-4-5X what the intrinsic value of the house should have been in some cases). I call that the "Beanie Baby Syndrome" and it's a good topic for another discussion -but that's not the root of the housing crisis either.

The root of the housing crisis can be found in the secondary market for "Mortgage-Backed Securities" . Investors of all stripes - largely in foreign countries and often municipal buyers... suddenly started sucking up more of those securities than we in the USA could concoct.

But why on earth would the Mortgage-Backed Security become so popular (say...instead of Municipal or Industrial bonds)??

There's the root of the problem.

Those various Mortgage-Backed Securities (dozens of different variations on a theme) became wildly popular with investors because they:

1) Were returning crazy gains ... and
2) (Drum roll please) THEY WERE AAA RATED by the rating firms on Wall Street. (Moody's et al)

Wall Street had created something that was too good to be true - an instrument that was as safe as a municipal bond (AAA rated)... but returning double-digits annually like a risky growth stock.

I hope you're wondering.. ".. how could home mortgages drawn against wildly over-priced property.... and taken out by completely unqualified buyers.... be AAA when they're really riskier than a riverboat Casino ?

BINGO - there's the criminal fraud.

There are ratings companies on Wall Street who do nothing but rate securities (Moody's is a well-known player). AAA is the best rating. BBB is risky...and so on. Through creative mathematics, these ratings specialists figured out how to make very high-risk mortgage-backed securities look as sure a bet as a Federal Highway Project.

It's going to come out that a couple dozen people working at half a dozen companies on Wall Street colluded to give AAA ratings to what should have been junk securities. I believe this group of people knew exactly what they were doing.

But as a result, investment brokers now had a AAA-rated security to sell that was knocking down double-digit gains. The return of a risky growth stock with the safety of a municipal bond. Too good to be true... and it was. And they couldn't package enough of them.

As a result...
- Mortgage Brokers everywhere were pressured to write more and more loans that could be sold up the ladder and bundled into more of those AAA securities. The no-income verification loans and all the rest of the sub-prime market was born of that demand.

- Consumers were pressured to buy buy buy and flip flip flip. The Feds pushed "home ownership for all" The mortgage industry and the builders painted a "lifestyle" picture no-one could resist. And because prices were rising fo fast, if buyers kept it for a year they could refinance and pull cash out. Rinse and repeat - Over and over. Four year old properties with four re-fi's on them became the norm.

- Builders were pressured to build build build. The industry was transformed from Job Shop manufacturing (you order it - then we'll build it) to plain old 'manufacturing' (you build it and someone will buy it) . We over-built for several years in a row - Some % were owner-occupied, the rest were sold to small investors who were also buying them with their own no-verification loans.

- In the bubble markets - Builders were actually rewarded for inefficiency. If it took a couple months longer to get to closing - that meant you could raise prices a couple more times to CYA. Many builders we were working with in 2004-6 actually depended on that for their profit. If they had been forced to complete and close the house when originally scheduled, they would have lost money every time. The extra float gained them 2-3% in price increase - enough to keep going..

- Then with all those homes came all the stuff everyone needed inside and out. Furnishings, Landscaping, Home electronics. That is why all of a sudden we had an explosion of Big Box retailers on every corner. Not just one home furnishings supplier... two or 3. We needed Circuit City AND CompUSA AND Best Buy . Linens and Things AND Bed,Bath+Beyond. Lowes AND Home Depot. From Burlington VT. to Los Angeles and everywhere in-between the same set of big-box stores show up. That's not mention all the web retailers selling stuff to fuel the new home market.

All that stuff was being purchased on credit - either credit cards, or money pulled out of re-financed houses. There was no 'there' there... no real sustainable economy... it was all paid for with borrowed funds.

China and other offshore manufacturing strongholds pounded up the factories up and went crazy producing all the stuff that all those big boxes needed to keep in stock.

A brief longshoreman's strike in Oakland harbor backed supply ships out to sea for months. It was an insane amount of stuff moving back and forth across the ocean - fueled by the retail boom - fueled by the housing boom.

Even in Chemung County NY (one of the worst housing markets in the USA in good times and bad) wound up over-building more than one MILLION SF of retail space.

So then as fast as it started.... somebody realized that all the AAA-rated securities were backed with junk mortgages... and suddenly the security brokers couldn't give them away. Everyone who bought them around the world started dumping them... and the value of those securities fell through the floor .

And then .... nobody would fund the mortgage brokers. Suddenly - There was no more money to make loans to consumers with. Banks won't even lend to each other because they got duped by the mortgage-backed securities too.

And then... nobody could get a loan. First the sub-prime market disappeared , literally overnight... now even conventional money is tough to find unless you have 20% down and a FICO of 800.

And then .... nobody could sell a house. The mid-size builders are hurt the most. Small-volume guys don't have land holdings, and public builders just write down their land losses. The mid-market builder is in the most trouble by far because they were caught with both land and standing inventory, often competing with foreclosures and fall-outs in the same neighborhoods where they were still building new houses.

And then... nobody needed all that stuff coming over from China to put in the houses. From the retailers to the truckers to the ship yards to the boats to the recyclers sending the packaging back to China... all out of work.

And now... all that retail space is starting to go begging. Many of the chains are bankrupt and liquidated, and it's just the beginning. We're going to see big box ghost towns from one end of the country to the other.... and those loans are all going to default as a result. (Commercial real estate will be the next credit crisis... followed by credit card companies, or visa-versa... both are in deep trouble).

So where are we now?

In 2006 almost the entire GDP was driven by consumer spending. In fact, government, trade, and investment were negative factors against consumer spending. No federal "bail out" program, no matter how gigantic, can replace that consumer demand. It might be able to keep the patient alive on a respirator for a few months or years but it's not the same.

The bottom line in all this - the entire demand and run up of the housing industry and the related retail sales of consumer goods was all driven by the demand for an investment security that was FRAUDULENTLY RATED. It would have never happened had there not been massive demand for the financial instrument the packaged mortgages created. Every investor - a lot of them foriegn governments - who purchased those securities was duped. Builders, Salespeople, Consumers, and everyone else were simply taking advantage of that demand, as any good capitalist would do... "making hay when the sun shines".

PS - You don't have to agree with me- I'm keeping this thread "closed" - but feel free to add comments in the forum below. Start a new thread.

-JLS