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Pastimes : Clown-Free Zone... sorry, no clowns allowed
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To: pater tenebrarum who wrote (107761)6/9/2001 1:30:42 AM
From: Mark Adams  Read Replies (3) of 436258
 
well, have you recently looked at the balance sheets of the GSEs? they have expanded about 5 to 6 times faster than the economy for the past 6 years,among other things due to frequent refi booms (in which more and more home equity is taken out, in spite of rocketing house prices in recent years).

The expansion of GSE balance sheets would not be inconsistent with an older generation liquidating their holdings. They sell the old spread they bought for 50k 30 years ago for 250k, tax free. 50k goes to buy a nice retirement home in a gated community. 200k goes into CDs. M1/M2/MZM expands. Some young couple buys the house, with a 90% mortgage. %HomeEquity declines, as now both the older couple and the younger couple have lower equity, higher leverage. GSE balance sheet expands, to accomodate this increased leverage.

I agree that debt expansion seems to be buying less in the way of GDP growth- clearly indicative of the low hanging fruit being harvested, and possibly a lack of imagination in how to deploy capital to create value.

I think a big part of that increase in debt is financing stock buybacks at inflated prices, with insiders hoping to cash in their options. Increased leverage can increase returns, as long as the company has the financial strength to withstand the bad times. Same goes for consumers applying financial leverage to their real estate holdings.

I can't buy the argument that consumers in general are up to their eyeballs in debt, one week away from bankruptcy, in the event of a layoff. I know of ancedotal cases of this, I just don't have enough data or detail to presume this is as common as is proposed in some of the doom and gloom publications.
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