Greenspan Whopper

[plasticsundance]

http://www.lewrockwell.com/bonner/bonner75.html

"The growth of home mortgage debt has been the major contributor to the decline in the personal saving rate in the United States from almost 6 percent in 1993 to its current level of 1 percent," he admitted. Thus, he did bring up the subject. Then, he began a confession: The rapid growth in home mortgage debt over the past five years has been "driven largely by equity extraction," said the man most responsible for it. By this time, listeners were beginning to put Mr. Greenspan at the scene of the crime. And pretty soon, even the dullest economist in the room was adding 2 and 2. Mr. Greenspan lowered lending rates far below where a free market in credit would have put them. With little to be gained by putting money in savings accounts…and a lot to be gained by borrowing…households did what you would expect; they ceased saving and began borrowing. What did they borrow against? The rising value of their homes – "extracting equity," to use Mr. Greenspan’s own jargon. The Fed chairman had misled them into believing that house prices increases were the same as new, disposable wealth.

<snip>

"Lacking in job creation and real wage growth," explains Roach, "private sector real wage and salary disbursements have increased a mere 4% over the first 37 months of this recovery – fully ten percentage points short of the average gains of more than 14% that occurred over the five preceding cyclical upturns. Yet consumers didn’t flinch in the face of what in the past would have been a major impediment to spending. Spurred on by home equity extraction and Bush Administration tax cuts, income-short households pushed the consumption share of US GDP up to a record 71.1% in early 2003 (and still 70.7% in 4Q04) – an unprecedented breakout from the 67% norm that had prevailed over the 1975 to 2000 period…. At long last, Chairman Greenspan owns up to the central role he and his colleagues at the Federal Reserve have played in fostering these developments."

<snip>

He turned a financial bubble into an economic bubble. Not only were the prices of financial assets ballooned to excess…so were the prices of houses…and so were the debts of the average household.

[UL_Approved]

1. Enron's big brother

This is where we will crash into a depression. This is where our economy will tank and take the rest of the world with it. We borrowed on money that doesn't exist. It was market manipulation, and it will ruin most homeowners. I feel sorry for all of the people who have to pay out real capital over phony land values.

More redistribution at work.

[displacedtexan]

2. Did you read that sad story about Habitat homes & rising taxes today?

Someone posted it earlier.

In VA, Habitat families' taxes & insurance are now way higher than their mortgage payments; yet, they can't borrow against or even sell habitat homes at fair market value until the mortgage is paid off. All they can do is sell back to habitat (at $80K-$120K or whatever ridiculously low price the house was worth 2 or 3 years ago).

Nice way to dent jimmy Carter's legacy, isn't it? Habitat families go bust trying to keep their homes!

There are so many over-valued homes for sale or rent in Baltimore now that owners are slowly lowering their asking prices week after week.

They took out huge renovation loans (balloons), and now the rent or sale price can't possibly keep up with the owners' monthly mortgage, tax, & insurance costs.

Lots of folks are going to lose BIG TIME, and BushCo's New & Improved bankruptcy restrictions will really hurt!

Shades of Hoover, anyone?

[On the Road]

4. Where in Baltimore are You Looking?

I have three small houses in a working class neighborhood (Brooklyn), and prices keep rising. Of course, they were ridiculously low to begin with. I haven't seen the softening yet, but I looking at a different segment of the market.

[displacedtexan]

10. I have to buy commercial property.

I'm selling and apartment building in Illinois (my retirement income-- Thank you very much, eminent domain!), so I'll have to find a commercial building here in Baltimore to replace it.

I've been looking in Gardenville, but the drive to Penn Station is a killer (I hate this wall-to-wall Baltimore commuter traffic).

If you hear of any commercial, income-producing buildings with apartments above-- at a reasonable price-- let me know.

[On the Road]

3. I've Been Holding Off on Home Buying for Several Years

for this very reason. I don't believe the current market is sustainable. It might have happened anyway, but the 11 decreases in the prime rate acted like rocket fuel.

One of the dangers of even a slight decline in housing prices is that it can trigger a wave of baruptcies as people can't sell their houses for what they paid. This can have a cascading effect.

I bought my first house in 1986 for $107,500 in Unversity Park, MD. Shortly afterwards, prices skyrocketed and similar homes were selling for $180,000. Then it plummeted back to the $120s before stabilizing.

The decline may not be that extreme this time, but you never know. There are a lot more small investors this time around, and a lot of those people pyramid and live on debt.

[hector459]

5. Clinton should have fired him when he had the chance.

Greenie caused the economic catastrophie in 1999 when he began to raise interest rates to quell non-existant inflation. He lied then, he lies now!

[KharmaTrain]

6. Check Your Tax Bill Lately???

We just got our re-adjusted mortgage statement. First, we had to ante up for a "shortfall" in our escrow for the first time in 5 years, despite the fact this is a fixed rate loan and we've never borrowed against it. Then when our bill arrived, even with the added escrow, our monthly payments increased $500.

A lot of this is traced to increased local and state taxes to make up for shortfalls created by this regime's tax giveaway to the rich and inflated property values that were used in the last evaluations. I can only imagine how these hikes hit and hurt others who aren't in as good financial condition as I am.

Personal debt is such a ticking time bomb...and this includes home mortgages (especially those tied to second mortgages)...as defaults could cascade quickly and blow the equity and life savings of millions of homeowners.

Greenspan knows he's hired to make the regime look good first, Wall Street to make money second and the public to be buffaloed every step of the way. The message I got from his latest "message from on high" is if you're gonna invest, buy T-Bills and anything tied to the interest rates...they're gonna go up and keep going up.

[plasticsundance]

7. I like reading Fleckenstein's sobering views.

http://moneycentral.msn.com/content/P107746.asp

I'd like to share a quote from a recent report by Charlie Peabody, who is a brilliant financial-stock analyst, because he described "the housing ATM" rather succinctly:

"Liquidity seeks an inflating asset (not a deflating asset). When the Fed pumped liquidity into the system to salvage the TMT (technology, media and telecom) sector, that liquidity was redirected toward the residential-mortgage market, thereby extending the housing-market bubble beyond its normal cycle. This price appreciation allowed the consumer to prolong a debt-induced consumption binge (i.e., the consumer drew down the appreciated equity to finance his/her newfound higher standard of living). However, we have now entered a period where liquidity will increasingly be withdrawn from the residential-mortgage market, and thus, we are at the onset of experiencing price deflation in this asset class."

Combine a price decline in real-estate assets with maniacal lending -- where anyone can buy a house for zero-percent down and, with a little effort, get their loan up to 120% of value. Now you can see why we have a recipe for a financial calamity. That's especially true when we have such a tough time creating jobs (since the speculative-financing mechanism doesn't create real economic growth, only more speculation).

Incidentally, I live in a great housing market, but I've resisted buying a home because of the implications. I'll wait this one out. The writings on the wall.

[newportdadde]

8. Housing bubble

This overinflated housing bubble has put the cards on the table to break the American consumer in way we haven't seen since the great depression. The ridiculous 'No money down' BS that everyone does, borrow 80%, home equity line for ther other 20% will destory people. I'm sorry to say though that part of me thinks they deserve it.

[TWiley]

9. It will get worse in some areas

as baby boomer's start dying off. There will likely be a housing glut in many places across the nation due this natural decline in buyers along with this natural increase in sellers.

The Vietnam generation will get screwed in the end as harshly as they have in all previous years except for during Clinton's presidency.

[Career Prole]

11. DAMN!

Lost another home to Ditech!


Welcome to Amurika, where between talking heads saying the economy's better than ever you're offered insurance to bury your ass in case you can't afford a decent burial.

[ananda]

12. I came so close..

I almost bought a house last year.. but I didn't, and I'm so glad.

Renting really works for me.

Sue

[Career Prole]

13. You dodged a bullet

from the looks of it! :toast:

[PROGRESSIVE1]

18. It's sad, but it's also funny!

"lost another home to Ditech"

[applegrove]

14. Just so long as those Rich do not have to face inflation but make $ on Oil

:grr: That is all that matters.

[annabanana]

15. houses will be boarded up and families will be in the streets

When this ugly boil bursts......

[CoffeeCat]

16. What gets me is the upper-mid class houses/low monthly payments...

I am always astounded at the marketing tactics used to lure buyers into houses in the $250,000-400,000 range.

There are signs out front of these houses, "You can have this house for $1,200 a month!" There are so many people buying houses like this and I imagine many of them are capitalizing on these financing schemes.

I'm certainly not an expert, but it appears that banks get middle-class people into extravagant houses by providing ARMs that start out low interest with the buyer paying interest only in the beginning. Then the interest rates slowly creep upward and the amount of principal paid does as well. Their mortgage payment steadily rises--often doubling.

The scary thing about this type of financing is that you hardly pay off any of the principal or build up any equity--even in a decade.

It's totally frightening, if many homeowners have done this.

[PROGRESSIVE1]

17. kick