Doomsday: The Final Months of the "Housing Bubble"

DISSIDENT VOICE
Doomsday: The Final Months of the "Housing Bubble"
by Mike Whitney
www.dissidentvoice.org
July 27, 2005

"The worldwide rise in house prices is the biggest bubble in history.
Prepare for the economic pain when it pops."
-- The Economist

I sold my home three weeks ago anticipating what I believe will be "Economic
Armageddon" in the United States. It wasn't an easy thing to do. My wife and
I have lived in the same home for 25 years, raised both of our children
there, and owned the property outright without any loans or mortgage. The
house was paid for in "sweat-equity", that is, by wielding a shovel day in
and day out in my one-man landscape business. I don't say that for sympathy,
but to illustrate that we played by the rules, worked hard, paid our taxes,
and took advantage of the American dream of home ownership.

All that has changed.

I sold my home for one reason: George W. Bush. He and his protégé at the
Federal Reserve have submerged the country into a morass of "unsustainable"
debt, disrupted the nation's economic equilibrium and thrust us towards
fiscal disaster. They've also generated a humongous housing bubble through
their irresponsible and self-serving manipulation of interest rates.

The facts are astonishing.

The current housing bubble is "larger than the global stock market bubble in
the late 1990s (an increase over five years of 80% of GDP) or America's
stock market bubble in the late 1920s (55% of GDP). In other words, it looks
like the biggest bubble in history." (The Economist, June 16, 2005)

The banks have lowered the standards for home loans to such an extent that
the traditional loan of 20% down and a fixed interest rate is virtually a
thing of the past. Instead, those conservative practices have been replaced
with "creative financing" schemes that put the entire housing market at
risk.

Consider this: In 2004 "one-fourth of all home-buyers -- including 42% of
first-time buyers -- made no down payment." (New York Times, July 7, 2005)

No down payment?!

Sorry, but if a buyer can't come up with at least $5,000 dollars for a down
payment, he shouldn't qualify for a home loan.

Equally troubling is the fact that "nearly one third of all new mortgages
this year call for interest-only payments (in California, it's almost half)"
(NY Times) This tells us that a large number of new buyers can barely make
their payments, but are gambling that their property value will go up enough
to justify their investment. This is "equity roulette." a shell game that
anticipates that salaries will go up while interest rates stay low.

Is that a reasonable judgment?

No, Greenspan has said that he will continue to ratchet up interest rates to
head off inflation. This means that an economic slowdown is a near
certainty. Remember, "class-warrior" Alan Greenspan lowered the prime rate
to a ridiculously low 1% in 2002 to keep the economy humming along while
$300 billion was sluiced into Bush's "preemptive" war in Iraq and while the
tax cuts were siphoning the last borrowed farthing out of the public
coffers. The Bush tax cuts transferred an average of $400 billion dollars
per year into the pockets of America's plutocrats. Now, the country is flat
broke and Greenspan will have to "incrementally" raise rates to stabilize
the sagging dollar. This means a sluggish economy for most of us and
doomsday for over-extended homeowners.

Greenspan assumed he could carry out his plan without too much unnecessary
carnage. Unfortunately, gluttonous mortgage lenders have lowered long-term
loans while the prime rate continues to go up. The banks, it seems, are
addicted to the "cash cow" of shaky lending and are providing even riskier
loans to new applicants. This has upset the Fed master's strategy for a
"soft landing", and Greenspan has begun feverishly issuing warnings about an
inevitable "adjustment" when the market bogs down. The bottom line is that
the housing bubble is getting bigger by the day and increasing the potential
for catastrophe.

The current problem is compounded by the dramatic surge of speculation in
the housing market. As The Economist says, "A study by the National
Association of Realtors (NAR) found that 23% of all American houses bought
in 2004 were for investment, not owner-occupation. Another 13% were bought
as second homes. Investors are prepared to buy houses they will rent out at
a loss; just because they think prices will keep rising -- the very
definition of a financial bubble."

What will happen to these "speculative" buyers when the market "flattens
out" or the economy takes a sudden dip?

And, what will happen to the US economy when the jobs that depend on new
home sales vanish overnight?

"Over the past four years, consumer spending and residential construction
have together accounted for 90% of the total growth in GDP. And over
two-fifths of all private sector jobs created since 2001 have been in
housing-related sectors, such as construction, real estate and mortgage
broking." (The Economist)

"Two out of every five" private sector jobs are now entirely dependent on an
industry that is built on pure quicksand.

So, why would banks foolishly loan money to people who can't even scrap
together a few thousand dollars for a down payment or who can scarcely meet
their "interest-only" obligations?

The reason is simple: because they are not the ones taking the risk.
Mortgage loans are acquired by investment banks and chopped up into various
securities where they are sold in mutual funds, hedge funds and pension
funds etc. To some extent, this takes the lenders off the hook, but it also
means that the shock to the system will be much more widespread when the day
of reckoning finally arrives. If we encounter a major glitch in the economy
the shock waves will be felt throughout the world. "Investors now hold $4.6
trillion in mortgage backed securities. That's more than the outstanding
value of the US Treasuries." (NY Times) Think about it.

Shaky lending, interest-only loans, no down payments, a US government that
is $8 trillion in debt due to Washington's profligate spending, and a
"ticking-time bomb" of adjustable-rate mortgages that will reset within
three years -- the table is set for a disaster of Biblical proportions. If
we hit a bump in the economic road ahead (rising gas prices? recession?) the
"Land of the free" will be knee deep in bankruptcies and foreclosures. We'll
all be fighting for a soft spot under the freeway onramp.

The fatuous Greenspan believes that all this can be avoided by regulating
the money supply.

He's dead wrong, and I bet my house on it.

Note, the current dilemma could have been avoided if Greenspan had
incrementally raised rates as the bubble began to appear. Instead he lowered
rates to facilitate Bush's war in Iraq. It was purely a political decision
that "postponed" the economic pain of the conflict and allowed the Bush
administration to shift the cost of the war onto future generations.

Consider, also, how Greenspan paved the way for the budget-busting tax cuts
(which he enthusiastically approved) and how they have increased America's
debt by $3 trillion. This is real money that American workers will
eventually have to pay back in the form of taxes and a higher cost of
living. This "class loyalty" is strikingly at odds with his philosophy as a
young man when he said, "Deficit spending is simply a scheme for the
confiscation of wealth."

So it is. And the $3 trillion dollars that evaporated on Greenspan's watch
was in fact stolen from the American people while the Fed chief concealed
the crime behind the smokescreen of low-interest rates. In the final
analysis, Greenspan will be seen as a greater traitor than Bush.

Mike Whitney lives in Washington state, and can be reached at:

Re: Doomsday: The Final Months of the "Housing Bubble"

>
>I sold my home for one reason: George W. Bush. He and his protégé at the
>Federal Reserve have submerged the country into a morass of "unsustainable"
>debt, disrupted the nation's economic equilibrium and thrust us towards
>fiscal disaster.

That statement is absurd. Hate to break it to you, but the entire economy was gone in early 2000, 10
months before the election or anyone thinking Bush would win. I should know. I was working at one of
the largest internet consulting firms in the world (in NYC) and during the early months, we would
watch live stock updates and see our stocks go from $60\share to $1, and then 99 cents (being
delisted from the NYSE at that point) and watched our company, along with thousands of others closed
down and disappear. I made it to the last cut in all of our layoffs. I was gone on May 25, 2001.
Yes, you can do the math to figure out Clinton was still in office. I am not here to defend Bush
but I am also not going to let you get away and say Bush disrupted the nation's economic equilibrium
when that already happened when Clinton was in office.

Thats it.



>The banks have lowered the standards for home loans to such an extent that
>the traditional loan of 20% down and a fixed interest rate is virtually a
>thing of the past.

It has to be. In my area, you cant touch a home that is decent in a decent neighborhood for less
than $500,000. I dont know about you but most people do not have $100,000 to put down on a new home,
not including closing costs.

>
>Consider this: In 2004 "one-fourth of all home-buyers -- including 42% of
>first-time buyers -- made no down payment." (New York Times, July 7, 2005)
>
>No down payment?!
>
>Sorry, but if a buyer can't come up with at least $5,000 dollars for a down
>payment, he shouldn't qualify for a home loan.

Well, when closing costs are $20,000 - $30,000, it's hard enough to come up with an actual down
payment.

>
>Equally troubling is the fact that "nearly one third of all new mortgages
>this year call for interest-only payments (in California, it's almost half)"
>(NY Times) This tells us that a large number of new buyers can barely make
>their payments, but are gambling that their property value will go up enough
>to justify their investment. This is "equity roulette." a shell game that
>anticipates that salaries will go up while interest rates stay low.
>
>Is that a reasonable judgment?
>
>No, Greenspan has said that he will continue to ratchet up interest rates to
>head off inflation. This means that an economic slowdown is a near
>certainty. Remember, "class-warrior" Alan Greenspan lowered the prime rate
>to a ridiculously low 1% in 2002 to keep the economy humming along while
>$300 billion was sluiced into Bush's "preemptive" war in Iraq and while the
>tax cuts were siphoning the last borrowed farthing out of the public
>coffers. The Bush tax cuts transferred an average of $400 billion dollars
>per year into the pockets of America's plutocrats. Now, the country is flat
>broke and Greenspan will have to "incrementally" raise rates to stabilize
>the sagging dollar. This means a sluggish economy for most of us and
>doomsday for over-extended homeowners.

Again, living here on Long Island, there is no shortage of money. People are loaded. I see it all
the time. It is as if there is a black hole here where all of these rules do not apply.
>

>
>The current problem is compounded by the dramatic surge of speculation in
>the housing market. As The Economist says, "A study by the National
>Association of Realtors (NAR) found that 23% of all American houses bought
>in 2004 were for investment, not owner-occupation. Another 13% were bought
>as second homes. Investors are prepared to buy houses they will rent out at
>a loss; just because they think prices will keep rising -- the very
>definition of a financial bubble."

I agree. It will happen but there does not seem to be a slowdown anytime soon. In 2003, I held off
buying a home because I wasnt going to pay $309,000 for a cape. Well, a year later, the same cape
was for sale for $450 and it sold. And all other houses that were similar was $425,000 ir so. So, my
paranioa cost me an extra $50,000 when I finally bought a house 30 miles further away from where I
wanted to be a year later. I was so sure the houses would crash but it is 2 years later and still
going stronger than ever. However, it will happen.
>

>What will happen to these "speculative" buyers when the market "flattens
> out" or the economy takes a sudden dip?

This is what I do not understand. I bought my house for $350,000 10 months back. If the housing
market crashes, how would that even affect anyone? They would continue to pay their mortgage. Why
would I care what the value of the house is if I am living in it with no plans to sell?


Jim

Re: Doomsday: The Final Months of the "Housing Bubble"

On 28-Jul-2005, Jim <> wrote:

> >I sold my home for one reason: George W. Bush. He and his protégé at the
> >Federal Reserve have submerged the country into a morass of
> >"unsustainable"
> >debt, disrupted the nation's economic equilibrium and thrust us towards
> >fiscal disaster.
>
> That statement is absurd. Hate to break it to you, but the entire economy
> was gone in early 2000, 10
> months before the election or anyone thinking Bush would win. I should
> know. I was working at one of
> the largest internet consulting firms in the world (in NYC) and during the
> early months, we would
> watch live stock updates and see our stocks go from $60\share to $1, and
> then 99 cents (being
> delisted from the NYSE at that point) and watched our company, along with
> thousands of others closed
> down and disappear. I made it to the last cut in all of our layoffs. I was
> gone on May 25, 2001.
> Yes, you can do the math to figure out Clinton was still in office. I am
> not here to defend Bush
> but I am also not going to let you get away and say Bush disrupted the
> nation's economic equilibrium
> when that already happened when Clinton was in office.
>
> Thats it.

Anyone who believes Bush, Clinton or any American runs the US is a naive CNN
consumer. Follow the money...

--
Warmest regards,

Steve Horrillo, Realtor / C.Ht. =^..^=

Re: Doomsday: The Final Months of the "Housing Bubble"

Every paper in North Ammerica is quoting the Ecomonist. There will be
no housing bubble as there are so many immigrants fromm Asia. Billions
of them wanting a home.

Re: Doomsday: The Final Months of the "Housing Bubble"

The CIA run's it with the drugs clean up your act USA.

Re: Doomsday: The Final Months of the "Housing Bubble"

flinrius wrote:
>
> I sold my home three weeks ago anticipating what I believe will be "Economic
> Armageddon" in the United States. It wasn't an easy thing to do. My wife and
> I have lived in the same home for 25 years, raised both of our children
> there, and owned the property outright without any loans or mortgage.
Ummm... I can't understand the reasoning here at all, why sell a paid
off house?
1. If he wants to sell at the peak and buy another after the crash,
then he is engaging in the same profiteering he's complaining about.
2. If it's to protest the current leadership and start the crash that
much earlier, how much effect can one home sale have?
3. If he's becoming a survivalist and start living in a bunker, why
try to connect to other people through a magazine article?
Survivalists don't usually write that well anyway :)
4. Does he think the black helicopters will come at night and drag off
him and the wife?

A lot of the points are valid and I wouldn't buy an investment property
now, but if your not paying your own mortgage, you're paying the
landlord's.

Re: Doomsday: The Final Months of the "Housing Bubble"

"Anonymous" <> wrote:
> Every paper in North Ammerica is quoting the Ecomonist. There will be
> no housing bubble as there are so many immigrants fromm Asia. Billions
> of them wanting a home.

Say what? Did they forget how to build homes in Asia!? Do tell us more!

(Last I checked, homes in many parts of Asia were a fraction of the cost of
comparable U.S. homes.)

Re: Doomsday: The Final Months of the "Housing Bubble"

A Chinese friend of mine is looking to buy in a growing area in CHINA...he
figures he'll get great appreciation plus when the Yuan adjusts even more
against the dollar so the Chinese can buy our companies cheaper, that will
help his appreciation more when he sells in Yuans and brings it back as US
Dollars.

"Anonymous" <> wrote in message
news:
> Every paper in North Ammerica is quoting the Ecomonist. There will be
> no housing bubble as there are so many immigrants fromm Asia. Billions
> of them wanting a home.
>

Re: Doomsday: The Final Months of the "Housing Bubble"

On 28-Jul-2005, "Anonymous" <> wrote:

> The CIA run's it with the drugs clean up your act USA.

Learn to quote you socialist idiot.

All the best,

Keter Pardes
(reply to me here I don't read my email)

Re: Doomsday: The Final Months of the "Housing Bubble"

On 28-Jul-2005, "flinrius" <> wrote:

> A Chinese friend of mine is looking to buy in a growing area in CHINA...he
>
> figures he'll get great appreciation plus when the Yuan adjusts even more
> against the dollar so the Chinese can buy our companies cheaper, that will
>
> help his appreciation more when he sells in Yuans and brings it back as US
>
> Dollars.
>
> "Anonymous" <> wrote in message
> news:
> > Every paper in North Ammerica is quoting the Ecomonist. There will be
> > no housing bubble as there are so many immigrants fromm Asia. Billions
> > of them wanting a home.
> >

China has been extending credit to US businesses BIG TIME. They think they
are smart by securing it to US property. If they try to "call" the loans all
at once they will be nuked faster than you can say maydinchina.

--
Warmest regards,

Steve Horrillo, Realtor / C.Ht. =^..^=

Re: Doomsday: The Final Months of the "Housing Bubble"

<<<< $300 billion was sluiced into Bush's "preemptive" war in Iraq and
while the tax cuts were siphoning the last borrowed farthing out of the
public
coffers. The Bush tax cuts transferred an average of $400 billion
dollars
per year into the pockets of America's plutocrats.>>>

Did you forget to take your medication?

Re: Doomsday: The Final Months of the "Housing Bubble"

"Steve Horrillo" <> wrote in message
news:KcaGe.10779$
>
> Anyone who believes Bush, Clinton or any American runs the US is a naive
CNN
> consumer. Follow the money...
>
That's a good idea. HOW do you follow the money, though? (So many money
flows in so many directions from so many sources, even just counting the
large ones. I mean, it seems to me that *some* Americans run *some* part of
the total US economy and *no* single foreign entity runs the totality of it,
but if you have evidence to back up your statement why don't you state it
explicitly rather than using insinuation and inuendo? How about being more
explicit? I'm willing to be persuaded. You are implying that some
non-American entity runs the show...who would that be, and how can one
follow the money to verify it?

Re: Doomsday: The Final Months of the "Housing Bubble"

few things are ever certain. I see the market playing like this-
employment rates are KEY to this whole thing. It's OK for California
to be leveraged so much. Are people defaulting? NO- they have jobs to
pay the bills.

so provided businesses can employ people, people will pay their
mortgages.

rates are still low (relatively) and new house construction in
Cincinnati is quite brisk...

Re: Doomsday: The Final Months of the "Housing Bubble"

property ownership is better than stock ownership. a stock can go
belly up, only way a property one owns goes belly up is if owner stops
paying taxes and other liens on the property...

Re: Doomsday: The Final Months of the "Housing Bubble"

On 29-Jul-2005, "Blind Broccoli" <> wrote:

> "Steve Horrillo" <> wrote in message
> news:KcaGe.10779$
> >
> > Anyone who believes Bush, Clinton or any American runs the US is a naive
> CNN
> > consumer. Follow the money...
> >
> That's a good idea. HOW do you follow the money, though? (So many money
> flows in so many directions from so many sources, even just counting the
> large ones. I mean, it seems to me that *some* Americans run *some* part
> of
> the total US economy and *no* single foreign entity runs the totality of
> it,
> but if you have evidence to back up your statement why don't you state it
> explicitly rather than using insinuation and inuendo? How about being more
> explicit? I'm willing to be persuaded. You are implying that some
> non-American entity runs the show...who would that be, and how can one
> follow the money to verify it?

You're asking someone to do your homework for you. Not that I blame you.
There are rewards to being a slave. Ignorance is bliss. In this world the
are shepherds and there are sheep. Which one do you choose to be? I found a
good song by Greenday. Never heard it on the radio here however. Gee, I
wonder why?

--
Warmest regards,

Steve Horrillo, Realtor / C.Ht. =^..^=

Re: Doomsday: The Final Months of the "Housing Bubble"

On 29-Jul-2005, "jIM" <> wrote:

> few things are ever certain. I see the market playing like this-
> employment rates are KEY to this whole thing. It's OK for California
> to be leveraged so much. Are people defaulting? NO- they have jobs to
> pay the bills.
>
> so provided businesses can employ people, people will pay their
> mortgages.
>
> rates are still low (relatively) and new house construction in
> Cincinnati is quite brisk...

Employment? Jobs? You must be high. I guess you forget about the percentage
of "no documentation" loans out there. Robbing Peter to pay Paul. Yea sure.
You just keep looking at that employment rate. That's the ticket... LOL

--
Warmest regards,

Steve Horrillo, Realtor / C.Ht. =^..^=

Re: Doomsday: The Final Months of the "Housing Bubble"

I believe you are right.
Steve, has a point about "follow the money," Is it that money can
corrupt so many?
Do we have details on this subject?
Thanks,
Heinz

Re: Doomsday: The Final Months of the "Housing Bubble"

"If the housing
market crashes, how would that even affect anyone?"

A whole lot of us work in the real estate and finance industries. If
the housing market *truly* crashes, our livelihoods crash with it. If
real estate, banking and finance all go down together in an
interconnected mess, you can expect lots of seemingly unrelated areas
to suffer as well.

Re: Doomsday: The Final Months of the "Housing Bubble"

Blind,

Steve never cites actual sources. He makes vague innuendo and then
chides you for asking.

Take care,

.... Christopher

Re: Doomsday: The Final Months of the "Housing Bubble"

On 5 Aug 2005 23:34:01 -0700, "James Of Tucson"
<> wrote:

>"If the housing
>market crashes, how would that even affect anyone?"
>
>A whole lot of us work in the real estate and finance industries. If
>the housing market *truly* crashes, our livelihoods crash with it. If
>real estate, banking and finance all go down together in an
>interconnected mess, you can expect lots of seemingly unrelated areas
>to suffer as well.
Yup! bye bye U.S.A. as the supposed Superpower!