About The Tim

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market.

43 comments:

  1. 1
    BillE says:

    I was only half paying attention to the radio today and heard something about a possible 20% down requirement for FHA. They said house hunters are terrified because it would take DECADES to save that. Ugh. It’ll never happen anyway.

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  2. 2
    passingby says:

    is it just me or the links on global econ threads are broken?
    http://seattlebubble.com/blog/2011/05/01/global-economic-may-thread/#comments

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  3. 3
    Cheap South says:

    Homes from 1,6664 sq ft. by Pacific Ridge.

    http://pacifichomesd.localplacement.net/find/communities/larimer-crossing

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  4. 4
    Pegasus says:

    By BillE @ 1:

    I was only half paying attention to the radio today and heard something about a possible 20% down requirement for FHA. They said house hunters are terrified because it would take DECADES to save that. Ugh. It’ll never happen anyway.

    I think that should be the real estate industry that is terrified not the house hunters. They are lobbying heavily against it. Since FHA owns the mortgage market right now that would basically shutdown financing. The 20 percent down only protects the issuer or owner of the mortgage, not the buyer. Simply verifying income goes a long way toward eliminating the risks of the buyer defaulting due to legitimate economic reasons. Strategic defaulters…not so much. I think you are right about it never happening though you might see a bump to 5 percent as the minimum down with FHA.

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  5. 5
    Blurtman says:

    FHA insured loans now cross a giant tipping point exceeding $1 trillion in book value at risk. The low down payment option with rising defaults that will require taxpayer bailouts of billions of dollars.

    Cash strapped home buyers have quietly shifted to financing their home purchases with FHA insured loans since the crisis accelerated in 2007 after pocket lint was discounted as sufficient collateral to secure a mortgage. The reason for the alteration in loan volume is both disturbing and simply reflects the reality that American households are still broke and addicted to debt. The FHA total book value of loans has soared to over $1 trillion. These are loans made with 3.5 percent down payments and carry laxer lending standards. So it should be no surprise that defaults for FHA insured loans are hitting record levels.

    http://www.doctorhousingbubble.com/fha-insured-loans-now-cross-a-giant-tipping-point-exceeding-1-trillion-in-book-value-at-risk-fha-loans/

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  6. 6
    Pegasus says:

    RE: Blurtman @ 5 – I think you will find that the percent down payment size has little to do with the rate of default. The VA which will finance at 0 percent down has default rates similar to prime mortgages with 20 percent down. The down payment does not prevent default nor does it assist a buyer to get through rough patches in the income stream where if the down payment was available to supplement the income to make payments. The key is the income/debt and ability to make the payment, not the down payment. Remember this all started when the subprime lenders decided that no one needed a real or valid income to make payments in the future. They just sold the mortgages as fast as they initiated them to the awaiting suckers running our pension plans.

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  7. 7
    Blurtman says:

    RE: Pegasus @ 6 – It would be interesting to take a deep dive in the default rate data you cite. For one thing, would the recipients of VA loans be the same population as those 20% prime mortgagees? If the latter were higher income and purchased higher priced homes, if the unemployment rate in both populations were the same, than relatively, each might be at the breaking point due to job loss. What about strategic defaulters? Would the strategic default rate be inversely correlated to the amount of the down? And ditto timing. If your income stream decreases and you still have that 20%, would you default later than sooner if things do not change? I sense many PhD theses out of this fiasco.

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  8. 8
    Pegasus says:

    By Blurtman @ 7:

    RE: Pegasus @ 6 – It would be interesting to take a deep dive in the default rate data you cite. For one thing, would the recipients of VA loans be the same population as those 20% prime mortgagees? If the latter were higher income and purchased higher priced homes, if the unemployment rate in both populations were the same, than relatively, each might be at the breaking point due to job loss. What about strategic defaulters? Would the strategic default rate be inversely correlated to the amount of the down? And ditto timing. If your income stream decreases and you still have that 20%, would you default later than sooner if things do not change? I sense many PhD theses out of this fiasco.

    Lots of different factors. The VA also has had an average substantially lower FICO score to qualify for a no money down loan at very attractive rates. FICO says there is not much of a correlation in FICO scores as to whether the buyer defaults or not…..what is the point in credit scores if they can’t predict outcomes and risk besides an excuse to charge higher rates? Since the economy has not damaged the higher income employees as much as the lower income employees one would think that higher priced homes would not be in default but that appears to be changing.

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  9. 9

    By Pegasus @ 8:

    FICO says there is not much of a correlation in FICO scores as to whether the buyer defaults or not…..what is the point in credit scores if they can’t predict outcomes and risk besides an excuse to charge higher rates?

    There actually is a relatively new FICO score for mortgage lending, but as far as I know, no one is using it.

    I’ve commented many times on why credit scores are not useful for mortgage lending. They’re a product designed to let a credit card (or arguably car loan) lender know whether it’s likely to be profitable to offer a credit card to a consumer. Thus, irrelevant factors to mortgage lending, such as the average length of time accounts have been open, are considered with FICO scores. Similarly, someone with $20,000 of credit card debt can have a good credit score if they evenly distribute that amount across credit cards with $40,000 of credit. Same with $30,000 debt and $60,000 of credit. But in considering offering a mortgage to someone, having either of those amounts of credit card debt should disqualify you from getting a mortgage, absent a very high income level or some other good explanation.

    I think the problem is proper underwriting of loans is relatively expensive, so the banks rely on short cuts that don’t work–credit scores.

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  10. 10

    RE: Kary L. Krismer @ 9 – Here’s a link to the new FICO product.

    http://www.fico.com/en/Company/News/Pages/10-26-2010.aspx

    To connect up to another thread, proponents of walking away have claimed it doesn’t affect your credit score that much. If the use of this score becomes more widespread, than the effect could be even greater than what some of the other sites now claim, and if you combine it with Freddie and Fannie’s requirement, it might be that you’ve gone long enough but that your score isn’t high enough.

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  11. 11
    Blurtman says:

    RE: Kary L. Krismer @ 10 – Is there an opt out option for FICO data collection? It seems a violation of one’s rights to have an organization collect data about you without your permission, especially when it is up to the individual to prove that the data is incorrect. Are ther FICO scores for companies?

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  12. 12
    Scotsman says:

    Coming soon- riots in the streets?

    “Could these emotions escalate into revolt? Corporate earnings have soared to an all-time high. Wall Street is gaudy and confident again. But the heyday hasn’t come for millions of Americans. Unemployment hovers near 9 percent, and the only jobs that truly abound, according to Labor Department data, come with name tags, hairnets, and funny hats (rather than high wages, great benefits, and long-term security). The American Dream is about having the means to build a better life for the next generation. But as President Obama acknowledged at a town-hall meeting in May, “a lot of folks aren’t feeling that [possibility] anymore.”

    At worst, the result could be the Days of Rage already seen overseas. In Spain last week protesters clashed with police, a violent demonstration against economic woes and austerity measures—much like those under review in Washington. Earlier this year riots swept the Arab world, exploding out of a volatile mix of high unemployment and large numbers of educated, ambitious people who feel their dreams have been denied—something with which an alarming number of Americans can identify. Nearly one in five men between 25 and 54 is without a job right now—a bulge of disaffected wall-leaners that New York Times columnist David Brooks worries could have a “corrosive cultural influence.”

    http://www.newsweek.com/2011/05/29/mad-as-hell.html

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  13. 13

    RE: Blurtman @ 11 – I suspect the privacy policy of every company excludes reporting to collection agencies. There is a process for you to request a copy of your credit report (or get one if you’re turned down for credit) and then contest any erroneous items.

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  14. 14
    Blurtman says:

    RE: Kary L. Krismer @ 13 – Well, debt repayment, vendor payment data, etc. is public information, so is there a FICO score for companies? My personal privacy policy excludes a lot of things, but Fair Isaacs could care less. So certainly they must also collect data on companies, no?

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  15. 15
    Pegasus says:

    By Blurtman @ 11:

    RE: Kary L. Krismer @ 10 – Is there an opt out option for FICO data collection? It seems a violation of one’s rights to have an organization collect data about you without your permission, especially when it is up to the individual to prove that the data is incorrect. Are ther FICO scores for companies?

    Are you asking if credit bureau reports are violating your rights? Haha! Normally when you apply for a loan you give the lender the right to pull your credit. That lender will report any loans made and payment history. You don’t have a choice unless you never borrow any money or do something that gets into a public record somewhere like a bankruptcy or judgement.

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  16. 16

    RE: Blurtman @ 14 – I doubt there are Fico scores for companies, but I think you can get credit reports perhaps through someone like Dunn and Bradstreet. Most smaller companies though they will also require the personal guarantee of an owner and pull their credit.

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  17. 17
    David Losh says:

    RE: Blurtman @ 5RE: Pegasus @ 4RE: BillE @ 1

    It actually has to do with the price of the asset that secures the loan. Lenders want 20% down because they know the asset is over priced.

    The problem with the Real Estate market is the price. The compounded interest on the Note is a game to compensate for the prices paid. We have low interest now based on high prices. As prices go down the rate will go up.

    A bigger problem with defaults is the number of people who own worthless property, that are making payments of compounded interest, on an asset that is going down in price at the same time. They can stop making those payments, save the money, and buy further down the road at the reduced price.

    Another problem is the increasing rents. Higher priced commercial properties are demanding higher rates of return. Renters have to pay because there is a shortage of properties. When you take thousands of housing units out of inventory due to foreclosure it has an impact.

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  18. 18

    By David Losh @ 17:

    RE: Blurtman @ 5RE: Pegasus @ 4RE: BillE @ 1

    It actually has to do with the price of the asset that secures the loan. Lenders want 20% down because they know the asset is over priced.

    The problem with the Real Estate market is the price. The compounded interest on the Note is a game to compensate for the prices paid.

    What in the world are you talking about? Lenders have always wanted 20% down. If you didn’t have that the alternative has been PMI or FHA, both of which are forms of insurance for the lender, or getting a second loan with a higher interest rate. That’s been true in up markets, down markets, the 70s, 80s, 90s and this century.

    Also, mortgage debt does not have compound interest.

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  19. 19

    RE: Scotsman @ 12

    Oh, Stop Being So Negative Scotsman

    The Washington State minimum wage is one of the highest in the nation….I’m sure we’ll all have plenty of money for sharing rent with a room mate and even some left over for bus passes. The opportunities in the country abound, why there’s a plethora of choices: McDs, Jacks, Wendys, Arbys, etc, etc….not to worry….besides they generally only work you 25 hour weeks or so, giving you plenty of time to sit at your apartment and spend your vast wealth on COMCAST.

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  20. 20
    David Losh says:

    RE: Kary L. Krismer @ 18

    What are you talking about? FHA has always had a low down payment option. The comment was about FHA.

    Then there is the part about compounded interest. You pay the interest payments in addition to principle. Whether you pay interest on top of the interest isn’t the point. The point is the appreciation, or depreciation of the the asset price. Is your interest payment off set by appreciation, or is it an added cost of the property by depreciation.

    Sure, I could have worded the comment better, but the point is the same.

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  21. 21
    Blurtman says:

    How is this not a depression? That is approximately 1/3 of American families on food stamps!

    http://www.zerohedge.com/article/time-celebrate-recovery-food-stamp-usage-hits-fresh-record

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  22. 22
    The Tim says:

    RE: Blurtman @ 21 – Not that the number isn’t high (distressingly high in fact) but that chart shows ~14% of the population on food stamps, not 33%.

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  23. 23

    RE: Blurtman @ 21 – I’m not seeing where you get your 1/3rd number from that link. It indicates about 44 million people. That would be far less than 1/3 of the families.

    But thread lightly. You don’t want to make the same mistake as Newt! ;-)

    http://www.bet.com/news/politics/2011/05/16/newt-gingrich-calls-president-obama-a-food-stamps-president-.html

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  24. 24
    Blurtman says:

    RE: Kary L. Krismer @ 23 – Well, there are 300 milion people in the USA approximately. There are 115 million households (occupied housing units) in the USA. So 44 million is about 1/3 of 115 million. We can quibble over the definition of “family” but the census bureau defines “household” as an occupied housing unit. So, on average, about 1/3 of occupied households are receiving food stamps. That sounds like a depression to me.

    And how dare you, sir, slander the great name of the Newtster! An outrage!

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  25. 25

    RE: Kary L. Krismer @ 23

    Take Our Decreasing 153,000,000 Total Civilian Workforce

    As the denominator and the 44,000,000 on food stamps as the numerator….then the 33% is closer than than 15%, especially with 16 and older in the workforce….oh that’s right we don’t count unemployed youth as unemployed, they can live off mom and dad, even after they graduate from college….LOL

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  26. 26
    The Tim says:

    RE: Blurtman @ 24 – 44 million people are on food stamps, not 44 million households. Quite likely many of those people are members of 4+person households where every person in the household is on food stamps.

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  27. 27

    RE: Blurtman @ 24 – But it seems you’re mixing people and households, unless perhaps “people” also means “applicant” such that one applicant gets food stamps for an entire household.

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  28. 28
    David Losh says:

    RE: Blurtman @ 21

    Food Stamps are a part of the farm subsidies program due again for a vote in 2012. The government is handing out Food Stamps pretty regularly from what I hear, but probably won’t research.

    Food Stamps reduce supply which props up pricing across the board, not just for the five “essential” farm subsidy commodity crops.

    In that way Food Stamps don’t really indicate anything other than depleting the funds so more can be asked for next time.

    I would be interested to see how many jobs are created in managing the Food Stamp program, and the nutritional health programs that are supposed to be attached to Food Stamps.

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  29. 29
    Blurtman says:

    RE: The Tim @ 26 – Yes, I have no data beyond that. I reported the average. If there is better data available, I would welcome further analysis.

    Households would include single occupant households, DINKs, etc.

    The SNAP food stamp program is open to single member households, BTW. Also DINK households. Or perhaps NINK’s.

    Here is an interesting census report covering households: http://www.census.gov/prod/1/pop/p25-1129.pdf

    The SNAP program: http://www.fns.usda.gov/snap/applicant_recipients/eligibility.htm

    As you can see, you have to be pretty golly poor. So 44 million Americans, or possibly 1/3 of US households (until proven different), are pretty golly poor. And the rate is increasing.

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  30. 30
    David Losh says:

    RE: The Tim @ 26

    Like I said, without researching the requirements, it would seem to me that a head of house hold would get to make a blanket application for Food Stamps.

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  31. 31
    Pegasus says:

    By Blurtman @ 29:

    RE: The Tim @ 26 – Yes, I have no data beyond that. I reported the average. If there is better data available, I would welcome further analysis.

    Households would include single occupant households, DINKs, etc.

    The SNAP food stamp program is open to single member households, BTW. Also DINK households. Or perhaps NINK’s.

    Here is an interesting census report covering households: http://www.census.gov/prod/1/pop/p25-1129.pdf

    The SNAP program: http://www.fns.usda.gov/snap/applicant_recipients/eligibility.htm

    As you can see, you have to be pretty “golly” poor. So 44 million Americans, or possibly 1/3 of US households (until proven different), are pretty “golly” poor. And the rate is increasing.

    Guess who those recipients will vote for come presidential election time? Hint: Won’t be a Republican….

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  32. 32

    RE: Blurtman @ 21
    Actually Blurtman, I Wish It Was Just a Historical Great Depression

    Prices for food and essentials plummetted as unemployment [with ghost unemployment we don’t count in our present 17% U6 count today] hit 25%….now we have “stagflation” IMO….FAR worse. Horrifying inflation on food, transportation, health care, college tuition, etc, etc….with high unemployment per capita wage degradation.

    Household incomes may be flat [albeit that’s a wild stretch with elite rich households TOTALLY skewing this data group IMO too]….but CLEARLY much more per capita incomes living in each unit [add in 2nd jobs too, IMO].

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  33. 33
    Blurtman says:

    OK, approacing it from a different perspective, the average US household size is about 2.59 (300 mil/115 households).

    So 44 million/2.59 = 17% of US households.

    So between 17-33% of US households are receiving food stamps, i.e., are desparately poor, and the number is increasing.

    How is this not a depression?

    Would 50% not be a depression if GDP were increasing?

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  34. 34
    Scotsman says:

    Who said this?

    “Asked Tuesday whether ———- supports the federal subsidy of ethanol, an always critical issue in the presidential nominating cycle, ——— went one step further and called for the elimination of all energy subsidies.”

    What?! No ethanol subsidies, no green subsidies, no oil subsidies, just a market that puts its money where the real returns are and operates efficiently? That won’t fly.

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  35. 35

    By Scotsman @ 34:

    Who said this?

    “Asked Tuesday whether ———- supports the federal subsidy of ethanol, an always critical issue in the presidential nominating cycle, ——— went one step further and called for the elimination of all energy subsidies.”

    What?! No ethanol subsidies, no green subsidies, no oil subsidies, just a market that puts its money where the real returns are and operates efficiently? That won’t fly.

    Why, that was your girlfriend Sarah Palin, and she’s not wrong on this issue. Too bad she’s wrong on almost everything else.
    I am looking forward to the Sarah Palin-Michele Bachmann looney bin tour. I really want them both to run for President. If it’s just Obama versus somebody like Mitt Romney or Pawlenty, it’ll be a real snoozefest.

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  36. 36
    The Tim says:

    RE: Blurtman @ 33 – No need to speculate, since the source data linked on ZeroHedge provides the Households count right in the table.

    Month | Persons | Households
    Mar 2011 | 44,587,328 | 21,045,962

    120,255,000 total households
    ————————————————————
    21,045,962 households on food stamps

    = 17.5% of households. Not 17-33%, just 17.5%.

    Again, I’m not discounting that it’s way too large of a number, I’m just saying why play fast and loose with the facts when they are printed plainly in the source you linked to yourself?

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  37. 37
    Blurtman says:

    RE: The Tim @ 36 – Well, OK, then. 17.5% according to the March 2011 SNAP data summary in the Zero Hedge link. BTW, SNAP reporting fiscal year ends in September.

    Barring any math errors,
    In 2008, that number was 11.3%.
    In 2009, that number was 13.4%
    In 2010, that number was 16.2%
    using the FY end SNAP data, and the US census Series 1 projected household data for that year.

    Want to guess where it will be in FY 2011? 6 months to go from March data you cite.

    My prediction – between 17-33%

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  38. 38
    Scotsman says:

    RE: Ira Sacharoff @ 35

    Ok, I’ll mark you down as agreed on 1, 14 significant others to go. By the time this is over you’ll be voting for her, maybe in secret, but she’ll get your vote. Media and republican bashing aside, she’s really more of a centrist than any other candidate in the race Lots of time left to get the real message out directly to the people. ;-)

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  39. 39
    Blurtman says:

    RE: Blurtman @ 37 – Actually, at a growth rate that is increasing to 20% per year, 20% of households will be receiving food stamps in 2011.

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  40. 40
    Pegasus says:

    Congress Mulls Cuts to Food Stamps Program Amid Record Number of Recipients

    Congress is under pressure to cut the rapidly rising costs of the federal government’s food stamps program at a time when a record number of Americans are relying on it.

    The House Appropriations Committee today will review the fiscal year 2012 appropriations bill for the Department of Agriculture that includes $71 billion for the agency’s “Supplemental Nutrition Assistance Program.” That’s $2 billion less than what President Obama requested but a 9 percent increase from 2011, which, critics say, is too large given the sizeable budget deficit.

    “It is absolutely necessary to take a long hard look at government spending to avoid wasting any taxpayers’ dollars, but time and time again, Republicans wrongfully make their cuts on the backs of poor and working class Americans,” Rep. George Miller, D-Calif., a senior member of the House Education and the Workforce Committee, said in a statement this afternoon.

    http://blogs.abcnews.com/thenote/2011/05/congress-mulls-cuts-to-food-stamps-program-amid-record-number-of-recipients.html

    I am beginning to wonder if former Acorn employees ended up administering this program?

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  41. 41

    RE: Blurtman @ 39

    That’s Why I Voted Nader

    Only blue dog Democrats or near-sighted Republicans would flake off 45M on food stamps as not a depression or stagflation….

    Even by household, to my knowlege, you can still get multiple per capita worker food stamps per household based on low burger flippin’ wages….ask the time share buddies in the studio apt…

    Article:

    “…The amount of the benefit an applicant receives is determined by: 1) family size [see Family Size, Household Size, & Household Composition], 2) income [see Per Capita Income], and 3) housing costs [see Home Ownership/Affordable Housing]….”

    http://www.larimer.org/compass/foodstamps_ec_ind.htm

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  42. 42
    Blurtman says:

    RE: softwarengineer @ 41 – The food stamp program is sort of a canary in the coal mine. In additon to the staggering numbers. the direction is extremely toubling. The number of households on food stamps increased 18.6% from 2008-2009, and 20.3% from 2009-2010. At the current rate, it will increase to 22% from 2010-2011.

    As Pffft might say, starvation is a lagging indicator, I guess….

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  43. 43
    David Losh says:

    RE: Blurtman @ 42

    All Americans should look at the farm subsidy bill. Here is an article that talks a little bit about cutting Food Stamps: http://www.nationalreview.com/corner/243143/cutting-food-stamps-instead-farm-subsidies-stephen-spruiell

    Democrats want to cut Food Stamps rather than attack the Farm Bill in general. Democrats had asked for an increase in the Food Stamps program,as a part of the spending bill. It is now set to expire in 2014, down from 2015 which was originally proposed.

    So, yes, they are signing people up for Food Stamps, and spending money appropriated by Congress.

    The Farm Bill is actually a Republican darling, as well as Democrats. It’s a bloated waste of tax dollars commonly referred to as Pork, as opposed to Pork Barrel, but kind of inter changeable.

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