What may be more amazing than one Olympian swimming for 8 gold medals is the continued revisionist delusion of our former Federal Reserve chairman Alan Greenspan. Greenspan in typical revisionist fashion, is now stating publicly that the government should have allowed Fannie Mae and Freddie Mac shareholders to be wiped out while breaking up the […]
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What may be more amazing than one Olympian swimming for 8 gold medals is the continued revisionist delusion of our former Federal Reserve chairman Alan Greenspan. Greenspan in typical revisionist fashion, is now stating publicly that the government should have allowed Fannie Mae and Freddie Mac shareholders to be wiped out while breaking up the GSEs into 5 or 10 different units. Thanks for raising your voice now after the fact! He is a master of covering his tracks and you need to remember that he was a champion in pushing and cheerleading adjustable rate mortgages which have now become the step child and shame of the housing market.
Amazingly Greenspan is saying the right things in certain respects yet this is only to cover his silence during the actual bailing out of Bear Stearns and also, Fannie Mae and Freddie Mac through the Housing and Economic Recovery Act of 2008 otherwise known as the Crony Capitalism Bill. Here is what he had to say this week:
“(Reuters) They should have wiped out the shareholders, nationalized the institutions with legislation that they are to be reconstituted… as five or 10 individual privately held units,” which the government would eventually auction off to private investors, Greenspan said in an interview with the Journal.”
Maybe he should have said something during the public hearings. This is what he had to say about Bear Stearns:
“There’s no credible argument for bailing out Bear Stearns and not the GSEs,” Greenspan told the Journal in an interview, which was reported on Thursday.”
Baloney. This guy is on a legacy tour trying to revise history. He is saying the right things but his action speak otherwise. Here is his prediction on the housing market:
“Home prices in the U.S. are likely to start to stabilize or touch bottom sometime in the first half of 2009,” he said.
But Greenspan cautioned that even at a bottom “prices could continue to drift lower through 2009 and beyond.”
To a certain extent I am starting to understand the interworking of the Fed. Obviously as a lay person like most of you, much of what goes on behind closed doors is a mystery to most. In fact, that is part of the mystique of the Federal Reserve that when they speak, a fleet of economist are sent out trying to decode the hidden meaning in the talks. These economist and analyst then try to bring the conversation to the public with a more down to Earth language. It is ultimately a sham. The Federal Reserve as we now all know is rather impotent in this credit crisis. The one thing Alan Greenspan did have was the ability to speak in a way that moved markets drastically. As you may have noticed, Federal Reserve meetings don’t carry that power anymore. The history of the Fed is unknown to most of the public not because the information isn’t there, but most simply do not care.
It is becoming rather apparent that many saw this market imploding yet did nothing. The logic is rather simple and not necessarily conspiratorial. The boom of the housing market brought untold riches to many people. The solution was simple. Stop the massive and rampant fraud and speculation. Hike rates up. Yet these acts would assuredly pop the bubble and blame would be placed on whatever agency or person that took these actions. The politics got in the way of good policy. Even during the Great Depression, the Fed was voicing concern in 1928 and 1929 wanting to raise rates and attempt a reigning in of speculation but Wall Street vilified the Fed and they backed off. No one wants the punchbowl to be taken away and the public got drunk off easy credit.
Sadly this bubble at least on a human nature level is no different from Dutchmen buying tulips, or people investing in Florida real estate in the 1920s, or those trying to get rich quick on any company with a dotcom during the 1990s. People in speculative manias want to get rich as quickly as possible with the least amount of work. This idea is appealing to the dark green matter in our psyche that fuels those that buy lottery tickets. There is an easy meal ticket and all it takes is a little bit of faith and a small payment.
Just like those that saw the oncoming collapse during the late 1920s, many saw it this time around too but realized they did not want to be the one to take the flak for bursting the bubble. So what happens? The bubble infects the psyche of the populace and runs to a point where it is simply unsupportable and implodes on itself. Many are too blame. Some more than others. Yet at this point no single organization takes the entire blame. The games then begin and the mess is much larger than say someone stepping in during 2004, causing a pullback and correcting the ship before it hit a massive iceberg. At this point, the ship has careened into shore and now it is only a matter of who is to blame for this? Certainly Greenspan is politically savvy and realizes he needs to get out in front of this ball. He is a reed in the wind. During the height of the bubble he fed into the public speculative fervor and championed adjustable rate mortgages and made credit much cheaper through lowering the Fed funds rate. Now, it is time to spank Bear Stearns on their Fannie Mae.
Look at the current rally today in stocks. This is a perfect example of delusion. Today the nationwide foreclosure filings were released and guess what? They are the highest ever! Take a look at this chart:
This was the largest number of foreclosure filings ever recorded yet if you look at some of the financial and housing stocks, they rallied because sales increased a bit. Again, you should read this article to give you an idea of how these numbers are being massaged and you’ll quickly realize that things are not improving. And you’ll also notice how Greenspan talks about national housing prices bottoming in 2009. Which is a nice way of covering yourself since 5 states make up 57% of all foreclosure filings. Places like California won’t be hitting a bottom until May of 2011 and the data points to this.
Here is a breakdown of foreclosure filings from the top 5 states:
Clearly states like California with $300 billion in pay option ARMs set to hit their anniversary dates is in a much more precarious situation than say states that have homes priced within the $100,000 to $200,000 price range. Even with the massive 38% drop, California home prices are still $368,250 while the median household income is $53,770. This ratio is simply unsupportable even at current levels.
I’ve noticed a few mainstream articles cover the so-called shadow inventory issue. We talked about this in the previous article but I’ve raised this issue for months on end. Call it what you want but this is shady manipulation of the market and toying with nuisances of the MLS. Want some proof? Take a look at the July 2008 foreclosure filings for California:
July 2008 Data
REO: 23,406
NTS: 12,506
NOD: 36,373
Approximate California Inventory: 310,000
Total Southern California Foreclosure inventory today: 8,548
June 2008 sales California: 35,202
June 2008 SoCal sales: 17,424
Think about that for a second. Southern California made up 49.4% of all California sales in the month of June. We had 23,406 homes go back to lenders in July and 12,506 trustee sales yet the MLS foreclosure sales are only at 8,548 for Southern California? Let us assume that out of 35,912 homes that were foreclosed in July half are in SoCal. That would push up the inventory numbers by 17,956 just in one month! Keep in mind that we are using multiple sources to look at information from Realtytrac, DataQuick, ZipRealty, and yet from most places that do track foreclosures, the numbers are steadily rising yet somehow, the MLS data doesn’t reflect this. In fact according to their data months of inventory is actually getting healthier.
It is absurd. REOs are being understated to the point of being criminal. Yet in manias people want to believe fudged data just like they saw nothing wrong with subprime lending. When you look at various sources, isn’t apparent what is going on? Greenspan should win a medal for revising history. Clearly people are now trying to underplay the actual market data and want to believe that housing is at a bottom. Anyone with an ounce of logic can see the numbers above and see something is clearly wrong.
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Post from: Dr. Housing Bubble Blog
Olympic Gold Medal: Greenspan Tells us Housing will Bottom in 2009. Meantime Foreclosure Filings hit Historical Record.
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Related Posts:
■Housing Perception Foreclosing on Reality: The Fundamental Housing Attribution Error.
■Parallel Universe: Housing Still Hurting on Main Street while Wall Street Celebrates.
■The Abyss is Deep: The Housing Abyss is Deep: 4 Major Reasons Why Housing in Southern California is Nowhere Near a Bottom.
■Foreclosure Nation: More Like Foreclosure States. 4 States Made up 50 Percent of all Foreclosures and Distressed Property Action.
■Foreclosures jump statewide by 40% in California in just one quarter! Welcome to California’s Gold!
Via [DrHousingBubble]
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Now that we know Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) are likely to cost taxpayers as much as $800 billion in a government bailout, I thought I’d provide some background on how we ended up in this mess. Here goes:
While many sectors were mixed and while there was plenty of bad news, today was actually a win for the bulls. Unemployment flew past estimates to 6.1% to reach its highest levels since 2003 as the economy has seen roughly 600,000 jobs lost so far in 2008. While the markets traded lower initially, they came back over the course of the day as the financial stocks used bad news to buy weakness. 
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