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Strategies & Market Trends : Booms, Busts, and Recoveries -- Ignore unavailable to you. Want to Upgrade?

To: LLCF who wrote (14263)	1/31/2002 5:37:17 AM
From: smolejv@gmx.net	Read Replies (1) \| Respond to of 74559

prudentbear.com These hobbits just dont know any shame. Just procreating, day and night, 24/07 ... ------------------------------ But according to Fannie Mae’s Franklin Raines, “as good as housing was in the last decade, the best is yet to come… This could well be the ‘Decade of the American Dream’.” I will have to say that Mr. Raines took his propaganda to a new level this week as he presented a speech “The Economic Power of Housing – The American Dream Decade:” “And look what happened in 2001. The economy just had its worst year in a decade. Housing had its best year in history. This is a new phenomenon. Typically when the economy sneezes, housing comes down with double pneumonia. These days, housing is not only healthy; it’s providing a remedy. And this is not a fluke but a trend. The point I want to make today is this: During the last decade, while the market was transfixed by technology, housing was transformed into a real economic powerhouse. And where the tech bubble was built on hopes and dreams, the housing boom is built on real consumer demand for a highly desired product, and a real tangible, appreciating asset…” An inflating asset, no doubt. Unfortunately, the housing boom has been unmistakably “built” on extreme and conspicuous Credit excess. And I will be the first to admit that as long as Fannie and Freddie are expanding their balance sheets at a 25% rate the housing sector will appear healthy, Credit losses will remain minimal, the bulls can go on raving about how well the markets react to news such as the Enron debacle, and the financial markets generally will enjoy sufficient liquidity. But is such blatant excess sustainable? The GSE Bubble poses great and increasing risk to the U.S. and global financial system. These institutions are putting American citizens in financial harms way on several levels, as much as their propaganda would like to try to convince us otherwise. Furthermore, this is an issue that should be debated based on the merits of sound finance and economics. I am very troubled that Mr. Raines appears determined to make this a “class” and racial issue. It is neither. Mr. Raines’ speech invoked “the Escamilla family of Houston, Texas” that, “with little cash on hand” bought an $80,000 home “thanks to some creative financing.” Then there is Leilani Hodnet “with little income and savings…purchased a new, two-story, four-bedroom home.” “Many police and firefighters don’t have the salary or the savings to afford a home in the communities they serve. But under a new initiative…public servants can now qualify for a mortgage with as little as $500 down…” Is it not fair to place the responsibility for inflated home values that have priced so many out of the market directly on GSE lending excess? So is the solution to be found by providing low down payment mortgages so individuals with minimal savings can take on large mortgages? And how do these examples reconcile with GSE mortgage lending limits that have inflated to over $300,000? The issue of rampant and destabilizing Credit excess can and should be separated from helping those in need. ... We have referred to the GSE Bubble as “The Great Experiment.” Institutions with the implied backing of the U.S. government (thus far) taking full advantage of a contemporary financial apparatus providing unlimited capacity to expand money and Credit, while financing asset markets where lending excess only begets more excess. One could not develop a more potent mix for runaway Bubble excess. The GSEs, and Wall Street structured finance broadly, have become the leading forces in a wildcat domestic Credit system that continues to run out of control and completely outside of market discipline. Due to peculiar circumstances domestic and international, economic and financial, disregarded U.S. inflationary manifestations emanate in inflated asset prices, massive over consumption, consequent unprecedented trade deficits, and severe structural distortions. Concurrently, escalating U.S. current account deficits have been easily financed as global dollar liquidity is directly “recycled” back through aggressive GSE international borrowings. There is, furthermore, the powerful dollar liquidity “recycling” mechanism through enormous (if unquantifiable) borrowings by the leveraged speculating community that, in many cases, surely are used to finance holdings of agency and related securities. Historically, such gross financial imbalances would have long ago been squelched (and structural economic distortions nipped in the bud) as foreign institutions moved to convert inflating dollar liabilities into gold or other more secure reserve assets. Nowadays, dollar liabilities just keep ballooning and then balloon some more.