The
Real Estate Bubble That Ate The Stock Market Money
Created 'Out of Thin Air' Bubble
Blower EDITOR'S
COMMENTS We find all three articles to be extremely well-written, being both intra-related and inter-related, such that Jane and Joe Six-Pack on Main Street America might get it -- that is "if they wanted to know" how to follow the money and what's really going on about money, credit, and why their home has been inflating at 5-10%+- per year. The problem is Jane and Joe like their home inflating in value because they can get some smuck realty appraiser to appraise the home much higher next year so they can do another "cash out." However, Jane and Joe don't want to know about the other stuff. Mention money created out of "thin air" or the Mandrake Mechanism as commonly used for this process, and Jane and Joe Six-Pack will probably tell you this is how ducks make ducklings. Mr. Pollock relates the clear and present danger signals in the mortgage lending business complete with "sub-prime and exotic products." He takes an opposite view from most of the shills on Wall Street, and openly says the PE ratios in the mortgage business are already in the stratosphere. He alludes that the next big accounting scandal will be in the footnotes of the 10Q's of some of the Big Boys in the mortgage business. Knowing how the Big Boys have rigged and controlled the realty valuation gig from the git-go since FIRREA 1989 to make this stuff work, with the mortgage fraud and appraisal fraud that we see, Enron and Long Term Capital Management will look like a small birthday party. Mr. Benson's essay is a simplification of Mr. Bernanke's Jet Helicopter with the printing press on board, as well as how money is borrowed into existence, then spent. New money has to be created to service the old money debt. I like the phrase "inflation tomorrow is better than a collapse of the financial system today." He also discusses the relationship of inflation, interest rates, and asset prices, including real estate. This is priceless: "Rising interest rates are the declared enemy of housing prices." How so very true -- shut out the entry level home buyers at the low end of the realty asset food chain, and those $300,000+ houses don't sell very well for big money with short marketing times! Mr. Mayer discusses real estate in terms of money and credit and the GSEs, namely Fannie Mae and Freddie Mac. Borrow short term to lend long term, and hedge your bets with a derivative or two, and spread the risk around to another counter-party. Some party! In the essay, Mr. Mayer makes reference to the excellent work of Doug Noland at PrudentBear "to get people to appreciate the contemporary financial system's extraordinary ability to create credit unrestrained by the traditional reserve requirements that bind banks." This process is "money market fund intermediation" in the game of two-tiered structured finance. It is our position that if and when the GSEs flunk their so-called "stress test," the realty valuation community will be blamed for the mess by the whole banking cartel, resulting in expansions to several Federal Pig-Pens, including Leavenworth. This may benefit increased employment in several states as a result. Jane and Joe Six-Pack may even benefit from a higher paying job if they like construction work or guard duty? As a ShakesBearean Aside, Jane and Joe Six-Pack have no idea just how low realty asset prices can fall in the right environment, nor just how long it can take for those low realty asset prices to come back up to cover the mortgage with all their "cash outs." Neither does Countrywide, Washington Mutual, and a few more of the Big Boys -- including Fannie Mae and Freddie Mac. Ole Bear Grin. © 2004 Realty Reality |
|
|
|
GLOBAL
REAL ESTATE MARKETS FORUM