Before we get there…let us notice that, predictably, homeowners are eager to push some of the cost of negative carry on to someone else. In England, one of the largest mortgage lenders has been nationalized. In America, private mortgage lenders are laying low…government backed mortgage lenders are taking their place. Government sponsored companies originated 81% of mortgage loans in the last quarter of ‘07 - more than double what they had done at the height of the housing boom. And Federal Home Loan Banks own nearly $1 trillion of mortgage loans.

The socialization of the mortgage business may be a vote-getting idea in any housing downturn; in an election year it is unstoppable. In effect, while China raises it banking reserve requirements to fight inflation…and stocks its central bank coffers with dollars, pounds and euros…America lards its own reserves with mortgages, and encourages its member banks to lend more freely.

And so, in the Land of the Free, people look to the government not only for drugs and retirement benefits, but also for food (a record number of Americans are now getting food stamps) and for housing. Without the government behind the mortgage industry - without the Fed, Fannie, Freddie, the FHA and the FHLB, and the mortgage tax credit - they would have to pay full price for the roofs over their heads…

No one wants to do that…and no candidate proposes that they should have to…

Keep reading…

*** First a report from Kevin Kerr…on “aquaculture” in Iowa, and why corn is so high. Unnecessary background - the Associated Press reports that Iowa has 2 million acres of soybeans and 1.3 million acres of corn under water…16 % of the state’s tillable land:

“There is little chance of farmers switching now to soybeans as seed and fertilizer are not ‘readily available’ and they would cost a fortune even if it could be obtained,” Kevin tells us.

“Even more of a problem is that June 10th is really the cutoff for soybeans to get in the ground. Why?

“Well soybeans thrive off daylight, (they are diurnal). It is simple math really, the soybean plants need so many days of sunlight to mature and ‘pod’ by a certain date. The pod stage is critical, and if it fails…so does the crop.

“I think many farmers will simply opt for ‘Plan B’ and call it a year. That means taking the government insurance money; if they try and plant something else they won’t get that money, and the crop may fail anyway.

“At the end of the day I think 2009 will see surging dairy, cattle, hog and produce prices. Key grains will also be in high demand, but I am leery of corn at these levels and also feel a major shift form corn based ethanol to sugar based ethanol is coming. The next administration will need a scapegoat…and corn and ‘wealthy farmers’ will be it.”

*** It seems like everyone we know now has a house for sale - in Florida, in Virginia, in New York and in Latin America - with no buyers in sight.

In a bull market in housing, a roof is an asset. People buy roofs not only for shelter, but for profit. Typically, if buying a roof is a good investment, they will buy more than one…or more roof than they need.

But when the bull market comes to an end, a roof is a liability. It has to be kept up - or the whole house will be damaged. Worse, when the sun shines on the housing market, a roof is as liquid as a bond or a stock.