The McMansions Which Ate Your Job

The McMansions Which Ate Your Job
PRESS RELEASE Citizens for Corporate Accountability

-No “economic mystery”--no need to create jobs, when easy credit is much quicker
-GOP departures, fines, and Greenspan comments spell deep trouble for mortgages
-Risk extends to FDIC banks, according to March report

(SEATTLE) 03/05/04 - Once again, net job growth in the US economy is negative, even while a record number of workers are already unemployed (1). Once again, the administration quotes record GDP growth--which occurred without job growth. All this confusion leads to a number of economists scratching their heads, some stating the economy is in “uncharted territory.”

Indeed.

But there is absolutely no mystery as to what is going on, if economists would simply study economic statistics, and the micro-economies which led to recent jobless GDP growth. Namely, aside from a short-term boost in high tech purchases, most of the cited GDP growth is tied directly or indirectly to a cycle related to home prices, and an unprecedented, quick and easy credit supply related to homes.

Let’s not forget, that the current ultra-low interest environment is more or less an “experiment”--which in practice, is leading to a bizarre cornucopia of credit.

Such an endless credit cycle would seem impossible--after all, who would underwrite a bottomless pit of credit, where houses go up nearly 20 percent annualized, and people borrow against them, even while jobs to pay for the same don’t develop?

The answer is, for all “sound” intents and purposes, that “no one” would do this. No one, that is, who is actually running a sound balance sheet with adequate and diverse reserves. However, in this particular case, the “no one” goes by the name of mortgage giants Fannie Mae and Freddie Mac, who are systematically picking up and packaging mortgages, and increasingly, holding onto them, regardless of home price or risk. (2) (3)

Maybe economists are politically oblivious. But they certainly must have noticed a succession of scandals and departures surrounding Fannie and Freddie--the departure of a Bush cabinet member who had oversight, and now a major lobbyist? And what of the number of fines recently related to improper GOP donations?

In this “new, new” economy, it’s much quicker, and more “productive” to borrow against ever-larger homes, than to support an economy which requires actual workers and wages. Fannie Mae, the homebuilders, and GOP supporters make sure 25K chunks are available with a few points and clicks--or at least, the ones who haven’t departed, and are still cashing in.

You see, it was not without reason that a normally upbeat and very Republican Greenspan warned recently about debt growth at Fannie Mae and Freddie Mac. There is no mystery at hand. Next time you hear the GOP touting GDP growth without jobs, remember that such is a symptom of something gone horribly awry--a mortgage system turned into a dark beast, which serves as a quick surrogate for jobs, and according to Greenspan, is surely headed for trouble.

### Footnotes ###

(1) Job growth of 140-150K is needed just to cover new workers, hence, any number below that level adds new unemployed to the already record base. (2) This arrangement benefits Fannie and Freddie shareholders, and even more so, various homebuilders, who find they can raise prices eternally, with no risk to them. (3) According to a March 2004 report, a number of FDIC banks have been accumulating Fannie/Freddie mortgage securities as “first tier” holdings--even though there is no real backing.

[bobbieinok]

1. really wild info - question for economically literate: is this correct??

...

5. I have a lot

Of background on my site.

Check it out for yourself!

Dan

[salin]

2. Interesting... but more appropriate for editorials forum

[joanski01]

3. I was watching the

Democratic Policy Committee hearing this morning on Outsourcing of Jobs. Senator Lautenberg said what the Republicans mean is - Read My Lips - No New Jobs.

They know exactly what they are doing - the bushies*, that is.

[mistertrickster]

4. You know this reminds me of the spike in farm land in the late 70's.

Regular Iowa dirt farmers suddenly became paper millionaires and the banks were throwing money at them now that they had all this new-found collateral. Then the next thing you know, the land prices crash, the loans are called in, and the farmers have to cash in on pennies on the dollar.

According to the county, my house is worth 100 percent more than it was ten years ago. It's crap. But I could go out and borrow against that fake "appreciation," and then when I can't pay it back because the housing bubble bursts, I'm screwed.

Not only that, but the bank is screwed too because they can't get their equity out of foreclosing.

Multiply the scenario by several hundred thousand families who have done that, and you start to see how this may shape up to a major economic disaster.

7. It already is a disaster

They are planning to pick up the pieces later, and trying to stretch it out until after Bush gets re-elected.

Dems need to blow the whistle before then, or Kerry will get stuck with it

You know there is a problem when the FDIC does a special report (march 1)

Meanwhile, the heavy borrowing goes on, and the homebuilders keep raising the prices, and Fannie just keeps buying. But there is so much to buy Fannie is now building up inventory of its own debt instruments.

And no jobs needed.

[orwell]

6. The Pied Piper

This is another iceberg in the path of the Titanic.

The funny thing is, jobs are being created...overseas. This low cost labor, high output scenario is perfect to pad multinational profits. The important element is to keep the consumer charging as his income stays flat. Voila: As if by magic, the bottomless pit of credit from Uncle Allan.

I feel rich, so I'll spend rich. Meanwhile, the currency markets, smelling a big fat rat continue to pummel the dollar, recent rally notwithstanding.

Stay tuned lemmings, details at 11.

O

8. Jobs overseas but big loans in the US

equals big problems here

9. UPDATED with links

see website!

10. kick