View Full Version : Is $10 trillion bubble ready to burst?

10-07-06, 03:43 PM
Is $10 trillion bubble ready to burst? (http://www.axisoflogic.com/artman/publish/article_23195.shtml)
October 7, 2006 (Milt Neidenberg – Workers World)

Lenders run wild

In a revealing Sept. 1 Wall Street Journal article headlined, “Housing Chill Begins to Pinch Nation’s Banks,” Robin Sidel wrote that “anks have begun to warn investors that the housing slowdown is starting to hurt their business.”

The article explains that financial institutions are already grappling with “a difficult interest-rate environment, competition for traditional banking customers, a saturated credit-card market, and expectations that strong consumer-credit quality will soon show signs of weakening. ... As a result real estate, including mortgages, home-equity loans, and commercial loans, represented a record 33.5 percent of the U.S. banking industry’s $9,298 trillion in assets in July, according to the Federal Reserve. The numbers represent the highest level in the Fed’s database going back to 1973.”

Since then, this dependence on real estate assets has continued to rise.

Sandra Thompson of the Federal Deposit Insurance Corporation, speaking on Sept. 20 at the opening session of the Senate Banking Committee on Banking, warned of the dangers of nontraditional mortgage loans: “According to the publication Inside Mortgage Finance, an estimated $432 billion interest-only loans and payments-option ARMs were originated during the first half of 2006,” she said. ARMs are adjustable rate mortgages.

[B]AntiSpin: It will come as no surprise to iTulip readers that our political perspective is generally what might be called Left Libertarian. At the other end of the spectrum of Libertarianism–at some distance from the position that government is inherently evil, free markets alone will allocate economic and social resources fairly across society on their own over time, and that the Air Force should be privately owned–is a notion that capitalism is good and socialism in its attempt to produce equality of result for all citizens is a proven disaster, but that capitalism on its own does a poor job of producing equality of economic opportunity, and in fact over time produces ever greater inequality of risk. Capitalism on its own also fails to provide society with uneconomical public goods, such as health care and education, and will wreck the environment in its spare time.

So it is not surprising that we find ourselves agreeing with most of the predicted outcome of the housing bubble offered below by Workers World. The peculiar thing about our time is that Workers World these days reads more and more like Pat Buchanan, minus the "raging sea of class struggle" part. But the idea that Joe Sixpack is going get stuck with the bill for cleaning up the Risk Pollution (http://www.itulip.com/riskpollution.htm) is a point that's hard to argue with.
As the institutions of high finance face bankruptcy—victims of their own greed and hyper-speculation—the government will bail them out at the expense of the worker/taxpayers, leading to a conflict between the people and the government.

On the other hand, real estate institutions and investors like Fannie Mae and Freddie Mac—government-sponsored enterprises that package billions of dollars of mortgage-backed securities—will have the backing of the government when they fail.

Ultimately, as recession and further social convulsions ignited by “preemptive” wars engulf the imperialist government, the predatory interests of the billionaire class will be pitted against the entire multinational working class. Organized and unorganized, immigrant and native, poor and middle class, they will be swept into the raging sea of class struggle, with great consequences for the whole world.


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Jim Nickerson
10-07-06, 10:05 PM
Greenspan sounds optimistic note on housing: report
http://www.marketwatch.com/News/Story/Story.aspx?guid=%7B97892278%2D91EA%2D405B%2DBB45%2 D167819F5DD8F%7D&siteid=myyahoo&dist=myyahoo (http://<a href=)

Former Federal Reserve Chairman Alan Greenspan said that last week's rise in weekly mortgage applications could signal that the "worst may well be over'' for the U.S. housing industry, according to a report of a speech Greenspan gave in Canada on Friday.

"Greenspan was referring to an Oc.t 4 report from the Mortgage Bankers Association which showed that mortgage applications rose a seasonally-adjusted 11.9% for the week ending Sept. 29, the largest increase in more than a year.
Refinancing applications were up 17.5% from the week before and accounted for almost 47% of all U.S. mortgage applications, their highest share since February 2005. See full story. (http://www.marketwatch.com/News/Story/Story.aspx?guid={C79BCFB6-9D76-4BDC-9E98-8F202EA31C07}&siteId=myyahoo)http://i.mktw.net/mw3/Misc/ClipNews.gif (http://www.marketwatch.com/News/Story/Story.aspx?guid=%7B97892278%2D91EA%2D405B%2DBB45%2 D167819F5DD8F%7D&siteid=myyahoo&dist=myyahoo#)
Greenspan, speaking at a conference in Calgary, saw this "flattening out" of mortgage activity compared to the steep declines seen in recent months as a good sign, according to a story published Friday by Bloomberg News.
This past week saw one other positive data point for the housing market, when the National Association of Realtors said Monday that pending home sales rose 4.3% in August. Still, pending home sales are down 14.1% in the past year, the group said. See full story. (http://www.marketwatch.com/News/Story/Story.aspx?guid={29ED2F13-7BA6-4FE7-9833-C6F483B8867C}&siteId=myyahoo)"

Perhaps Greenspan is correct. Perhaps the American spender is not yet tapped out.

10-08-06, 11:26 AM
Makes sense for refi's to be up... unbearable ARM adjustments are just starting to kick in, and folks are financing into new ARMs to buy another year or two of low neg am payments. I think this is more a sign of how long it will take to get to the bottom, then a sign of the bottom.

I think pending home sales are up because of the SIGNIFICANT push by many to get out while they still can. I think further research would show that most of these buyers are unsophisticated, using 100% financing, and are being slammed into deals by desperate Realtors and lenders. Again, I read this as a sign of more weakness to come, not a bottom.

Finally, I agree that the American spender is not yet tapped out, but I believe that this means the worst is still a ways off.

10-09-06, 01:09 AM
Ok now I have to weigh in with my own little political/economic polarity statement =)

I'm not a left-libertarian or right-libertarian; i'm an "extreme center libertarian". To use existing terminology, this would be some combination of "anarcho-capitalist" and "anarcho-voluntarist"; perhaps just better called "anarchist". I believe markets are about as efficient and fair as human activity gets, but that there is still a large space for voluntary arrangements and organizations (in fact I happen to run a nonprofit).

In direct response to the antispin above, I think Dean Baker put it well when he noted in his book on corporate welfare that what we have now is not a world of unbridled capitalism and free markets, but one of as much control and intervention as ever--but done in surreptitious ways. As Baker points out, the terminology of laissez faire has been adopted, but cronyism and concentration of power reign as they ever have.

By so many metrics I think we are doing worse here and now than humanity has in eras and places of genuine "unbridled capitalism".