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Guest Post: Why The Government Is Desperately Trying To Inflate A New Housing Bubble

Tyler Durden's picture


Submitted by Charles Hugh-Smith of OfTwoMinds blog,

The Federal government and Federal Reserve are trying to inflate another housing bubble to save the "too big to fail" banks from a richly deserved day of reckoning.

If we want to understand why the U.S. government is doing its best to inflate another housing bubble, we must start with the Devil's Pact partnership of the government and the "too big to fail" banks. Simply put, the TBTF banks would not exist without the Federal Reserve and Federal government bailouts, subsidies and protection from transparent marked-to-market pricing of the banks' collateral and risk.
The basis if this partnership is simple: the banks' enormous profits and financial power have enabled them to capture the regulatory machinery of the government (the Central State) and the political machinery controlled by its elected officials.
To understand the true meaning of the housing bubble, we need to understand how banks reap outsized profits. In classic capitalism, banks earn profits by maximizing the allocation of capital. In practical terms, this means lending money to low-risk, high-growth, high profit-margin enterprises, and avoiding lending to high-risk, low-margin enterprises.
In the industrial era, banks reaped profits by funding large, centralized industrial corporations. In the post-industrial economy, banks began skimming huge profits from credit cards and other consumer loans. Mortgages remained a low-risk, low-yield business that operated more like a utility than an investment bank.
When domestic opportunities for profit shriveled in the stagflationary 1970s, U.S. banks went international, loaning billions of dollars to South American nations at high rates of interest. The money-center banks assumed that sovereign debt (i.e. loans to governments) were low-risk. These loans generated enormous profits for the banks, until the unthinkable happened: the debtor-nations defaulted on their sovereign debt.
The Federal government and the Federal Reserve had to step in and save the banks from the consequences of their faulty risk assessment and rapacious pursuit of high-risk, high-yield profits.
By the 1990s, the new knowledge economy corporations had little need for bank credit.
Technology companies generated so much cash, they either didn't need bank loans or if they chose to borrow money, they did so via the corporate bond market. Having already tapped almost every qualified borrower with a mortgage, auto loan or credit card, the big U.S. banks had once again run out of highly profitable markets to exploit.
The government and Fed-created housing bubble handed the big banks a new market to exploit: high-yield mortgages to marginally qualified buyers guaranteed by Federal agencies (Fannie Mae, Freddie Mac, FHA, VA, etc.), i.e. subprime mortgages.
Federal agencies loosened lending standards so those who by prudent risk-management would not qualify for mortgages were now able to borrow vast sums with little or no money down, and the Fed pushed interest and mortgage rates down to lows not seen in generations in the wake of the dot-com bust of 2000.
For PR purposes, this vast expansion of bank lending was sold as a high-minded extension of the "ownership society" (i.e. homeownership) to those households who had previously been denied the opportunity to become debt-serfs due to unfairly tight lending standards. In reality, the entire "ownership society" campaign masked the true intent, which was to open new and unexploited territory for the big U.S. banks to plunder.
Even better (from the bankers' point of view), loosened regulations and oversight enabled banks to carve up mortgages into tranches that were then bundled into mortgage-backed securities (MBS) that could be peddled worldwide as "safe" investments for pension funds, townships, insurance companies, etc.
The housing bubble enabled big banks to skim tens of billions of dollars in profits from originating mortgages to marginal buyers and securitizing mortgages into MBS. This is the heart of what I call the Neocolonial Model of Financialization: rather than make risky sovereign-debt loans to international borrowers, the big U.S. banks came home and exploited the low-risk domestic housing/mortgage market.
When the bubble burst, as all speculative bubbles eventually do, the banks were rendered insolvent: their collateral (the mortgaged housing) had lost much of its value, and mortgages that had been sold as essentially risk-free were revealed as defaults waiting to happen.
The Fed and Federal government immediately stepped in to save their treasured partner, the parasitic banking sector, from righteously earned destruction. The bailouts, guarantees and backstops totaled about $23 trillion, roughly 150% of the entire American Gross Domestic Product (GDP), and roughly twice the 2008 value of all U.S. residential mortgages (almost $12 trillion).
The housing index has yet to decline to an inflation-adjusted pre-bubble level: valuations are still higher than they were before the bubble.
To enable the TBTF banks to once again skim billions in profits, the Federal government and Federal Reserve immediately began trying to reflate the housing bubble. Tax credits were lavished to new home buyers, mortgaged rates were driven even lower, and the Fed began buying $1+ trillion of private mortgages.
The first tax-credit frenzy faded once the credits expired, but the Fed's zero-interest-rate policy (ZIRP) gave investors no choice but to put their money in risky assets: stocks, high-risk corporate bonds or residential housing. As we can see in this year-over-year percentage chart of the Case-Shiller Index, these policies have sparked another spike up in housing prices (restricting inventory played a key role in this, of course).
As a result, the housing bubble is alive and well in markets such as Los Angeles:
If you have any doubts that the banking sector dearly loved the housing bubble, take a look at this chart and note that mortgage debt more than tripled during the bubble. For context on the enormity of that $8.2 trillion expansion of mortgage debt:that $8.2 trillion is three times the 2005 GDP of Europe's largest economy, Germany. (The GDP of Germany in 2005 was $2.7 trillion.)
Thanks to writeoffs and writedowns, mortgage debt has declined in recent years, but we need to remember that if pre-bubble growth trends in population and housing valuations had remained in place, total mortgage debt in the U.S. would be around $5 trillion, not $10 trillion. The $1 trillion writedown in mortgage debt is just the start; we only need to write down another $5 trillion to get back to a non-bubble level of debt.
Meanwhile, total consumer debt has barely budged. In other words, that $1 trillion reduction in mortgage debt has been offset with rising student loans, auto loans and other consumer debt. 
The total debt load on U.S. households remains at bubble levels, more than twice the debt owed in 2000. Population growth since 2000 accounts for 9.7% of this additional debt, meaning that if debt had risen at pre-bubble rates, total debt would be around $6.5 trillion rather than $13 trillion.
Recall that adjusted income for most households has declined sharply since 2000.So the Fed's zero-interest rate policy is simply a holding action that enables over-indebted households to keep making their debt payments to the banks.
Many people claim the Federal government and Federal Reserve are trying to inflate a new housing bubble to trigger a new "wealth effect," i.e. people seeing their home equity rising once again will feel encouraged to borrow and blow money like they did in 2001-2008.
But if we look at current income (down) and debt levels (still high), there is little hope for a renewed wealth effect from housing. That leaves us with this conclusion:
The Federal government and Federal Reserve are trying to inflate another housing bubble to save the "too big to fail" banks from a richly deserved day of reckoning.
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Mon, 03/25/2013 - 14:34 | 3373497 Racer
Racer's picture

And the same goes for the UK with the latest announcement about housing help

(apart from the poor with added bedroom taxes of course)

Mon, 03/25/2013 - 14:48 | 3373595 DJ Happy Ending
DJ Happy Ending's picture

Japan's bond market is the future of the USA.

Mon, 03/25/2013 - 15:53 | 3373879 CheapBastard
CheapBastard's picture

I am guessing another 40-50% drop given the trend to lower paying jobs, higher unemployment, continued supply of very cheapo labor ( from across the border at $5/hr) and the massive oversupply still being added to the markets.

For example, there are alreayd many many empty houses -- some with for sale signs, others just plain empty-- and yet I read last week builders were voraciously adding 8,000 more boxes to this area alone, not including the other sections of the city.

I have never seen anything like in before, not to mention the revival of those zero-down mortgages all over the place. It's no wonder the suburbs are turning into slums. When you sell a house to someone who cannot afford it and most likely does not understand the responsibilites involved, slum creation -- broken fences, unmowed lawns, section 8's all over, rentals all over -- slum creation is almost inevitable.

Mon, 03/25/2013 - 23:59 | 3375347 TruthInSunshine
TruthInSunshine's picture

The incredible fact about reflation of the housing bubble, to the extent and in the geographic areas that it is allegedly proving to be successful (to whatever degree, large or small), is that the much heralded "wealth affect" that is theoretically the goal of this monetary policy is very destructive in reality, as it - if assumed to work as advertised - encourages mainly debt-financed consumption based on the nominal, accretive gains in housing values that are unrealized ones.

In other words, if one believes that there's a causal relationship between housing value reflation and consumer spending, the spending is not prompted by actual realized gains in income or productivity, but unrealized ones that potentially could (and that some would argue will given the structural defects in the current economy) evaporate.

If (or when) this occurs, those buying residential dwellings during the reflationary period will have done double damage by overpaying for their residential unit(s), and then by being induced to engage in taking on even more debt in the form of financed consumer purchases, which means that they will be severely damaged when the unrealized gains of their house(s) evaporate(s), while they are saddled with the very much realized debt of the purchases they made while believing those unrealized gains would endure.

On a related note, the reflation that is taking place, to the extent that it is and in the geographic areas where it is occurring, has been and continues to be fueled in large part by extreme distortion in price discovery due to artificially constained inventories of housing stock listed for sale as a result of:

a)  Banks and other entities carrying MBS getting ongoing subsidies from the fed encouraging and literally allowing them to remain d jure solvent while not foreclosing upon deliquent mortgages or, worse yet, not listing already foreclosed upon residential units for sale,

b) Allowing banks and other financial entities having large portfolios of assets in the form of residential units under mortgage to dramatically mis-mark or otherwise misrepresent the value of such assets (again, allowing many of these entities to continue as ongoing de jure solvent entities even though implementing FMV would render them insolvent),

c)  The GSEs such as Fannie & Freddie being able to capitalize on the fact that they also are receiving massive taxpayer subsidies, allowing them to also not be forced to mark their residential dwelling units under mortgage to FMV and list same for sale (they are actually renting many of these properties in lieu of selling them, in many cases).

As always, the bigger the intervention, and it is massive in the case of the "housing reflation" meme, the proportionately larger the inevitable crash.

Mon, 03/25/2013 - 17:20 | 3374193 sgt_doom
sgt_doom's picture

Trust me, I'm a banker.

In your opinion, how many billions of dollars do you have to launder for drug lords, before somebody says, we're shutting you down?”  (Sen. Elizabeth Warren)


Mon, 03/25/2013 - 21:49 | 3375188 cynicalskeptic
cynicalskeptic's picture

depends on whether they're 'good'' drug lords that cooperate with tyhe CIA et al or 'bad' drug lords that don't....

Mon, 03/25/2013 - 14:35 | 3373505 Dr. Engali
Dr. Engali's picture

I thought we were talking about Cyprus.

Mon, 03/25/2013 - 14:49 | 3373597 madcows
madcows's picture

I'd say that we are.  Cyprus and the EU and the FED are all interconnected, or one-and-the-same.  The FED is buoying the EU, who is supporting Cyprus, who is connected at the hip with Germany and Spain and Italy, et al...  TPTB are really the world wide banking cartel, and they are doing the best to not let a good thing go to waste.  The pukes made billions on issuing bad debt, now they're trying like hell to keep it together.

Mon, 03/25/2013 - 14:36 | 3373508 TideFighter
TideFighter's picture

Why don't they inflate jobs?

Mon, 03/25/2013 - 15:26 | 3373748 jbvtme
jbvtme's picture

inflation is caused by government spending. obama has created fewer public jobs than any of his recent predecessors (republican and democrat).  job growth would cause inflation which would kill the housing market which underpins the derivatives which prop up the bonds which are owned by the endowment and pension funds.  bonds would also tank as interest rates rose to combat inflation.  printing money won't cause inflation until it is spent.  i think i'm right but stand corrected.

Mon, 03/25/2013 - 15:26 | 3373751 epwpixieq-1
epwpixieq-1's picture

Actually they do. Just in sectors where there is no competition from outside the country.

Look at the jobs NOT slashed in the banking/financial sector (due to inflated financial assets prices), the sickcare, the "education"/dummification system, the service sector, the (inefficient) drilling for energy, the housing and the government.

All these are inflated jobs, that will be crashed ones the $ finally looses its reserve currency status. It will be brutal and harsh for many to realize that they do useless jobs and have useless skills and the only, power that allows them to receive an income in such economically inefficient way is the current dollar base hegemony ( over the oil ).

Mon, 03/25/2013 - 15:53 | 3373884 El Oregonian
El Oregonian's picture

Sounds like one of those jobs where their trying to light 800LBs of Dynamite that only has a 1/2" fuse...

Another occupation where you never tell the powderman to "Blow Me".

Mon, 03/25/2013 - 14:36 | 3373509 AcidRastaHead
AcidRastaHead's picture

Meh, now that 'market forces' are more of a thought experiment/textbook reference, I've learned that 11th hour backroom deals can save the world.

Mon, 03/25/2013 - 14:38 | 3373520 dick cheneys ghost
dick cheneys ghost's picture

An economy based on rising house values is NOT an economy

Mon, 03/25/2013 - 14:50 | 3373609 IamtheREALmario
IamtheREALmario's picture

An economy based on rising housing prices is NOT an economy

There fixed it. Value is based on utility or an inflation adjusted return on investment. Price is just price.

Mon, 03/25/2013 - 17:16 | 3374170 sgt_doom
sgt_doom's picture

I don't disagree with Hugh-Smith's commentary, but his major thesis is lacking, I believe.

Securitization of mortgages is but a drop in the gallon-sized bucket of ALL securitizations; it was the selling, re-selling, re-re-re-selling . . . ., etc., and those securitizations, re-securitizations, re-re-re-securitizations. . ., etc., or layer upon layer of debt sold again and again and again, of all securitized categories.

Commercial real estate, commercial loans, auto loans, credit card receivables, student loans, ad infinitum, taken together with the largest insurance swindle in human history.

For example:  AIG's selling $460 billion worth of credit default swaps, with the potential payout of from $20 trillion to over $40 trillion (and we know that $22 trillion was pumped out by the Fed, or fundamentally stolen) to pay off John Paulson, who got together with Goldman Sachs, for various rigged CDOs, such as Abacus CDO, which they stuffed with sure-to-fail crappy loans --- bought bunches of CDSes at $1.4 million a pop, with a payout of $100 million per pop per each CDS, giving super-thief Paulson a $3.4 billion payday.

Mon, 03/25/2013 - 18:42 | 3374497 OneTinSoldier66
OneTinSoldier66's picture

The cost(not value) of homes are going up. Yea, we should celebrate!


The cost of gas and food are going up. We should celebrate!


The cost of toys and diapers are going up. We should celebrate!


The cost of Government is going up(higher taxes). Yes! We should celebrate!




I got the idea for putting it that sarcastic way from the guy in my avatar, Peter Schiff.

Mon, 03/25/2013 - 14:38 | 3373525 Fuh Querada
Fuh Querada's picture

Jim Ricktards and Becky QuickAsShit on the Texas Gold depository.


Mon, 03/25/2013 - 15:11 | 3373701 piceridu
piceridu's picture

Those talking head shills, along with the Krugster, try as they might, can't stop the physical gold juggernaut from breaking the down the castle walls.  Rickards is a very smart cat, and in a real debate situation, it wouldn't be a fair fight.

Mon, 03/25/2013 - 14:40 | 3373542 Groundhog Day
Groundhog Day's picture

It's always a great time to buy a house


Mon, 03/25/2013 - 15:42 | 3373828 GrinandBearit
GrinandBearit's picture

It's always a great time for a haircut.

- My barber.

Mon, 03/25/2013 - 15:59 | 3373916 krispkritter
krispkritter's picture


It's always a great time for a haircut.

- My Banker.

Mon, 03/25/2013 - 14:41 | 3373546 toys for tits
toys for tits's picture

If the Fed doesn't stop blowing Bubbles, then Bubbles is going to jizz in the Fed's mouth.

Mon, 03/25/2013 - 14:44 | 3373563 The Invisible Foot
The Invisible Foot's picture


Mon, 03/25/2013 - 14:44 | 3373565 SheepDog-One
SheepDog-One's picture

'Reflate the housing bubble'...well they can dream on about that actually happening, it won't.


Mon, 03/25/2013 - 14:47 | 3373591 kaiserhoff
kaiserhoff's picture


Demographics, incomes, household formation, carrying costs..., all wrong.

Mon, 03/25/2013 - 14:45 | 3373570 yabs
yabs's picture

the Uk is insane its juyst announced a feddie mac typer deal thus creating a new sub prime

if they wanted to help people afford a house then let the free market work and let house prices fall naturally

but oh no cannot have that can we

Mon, 03/25/2013 - 15:05 | 3373677 Fuh Querada
Fuh Querada's picture

The average price of a house in the UK is 5.5 times the average annual  income. In expensive areas, 10.8 times.

Tue, 03/26/2013 - 07:14 | 3375979 Nu Yawks hottes...
Nu Yawks hottest club is's picture

Also, please take into account the fact that that many billionaires (no taxes on worldwide income here) and 'City' incomes are dragging the averages skywards.

A barber / hairdresser can expect to earn around max. £14k a year in the UK, for example.

Average house price ? Around £165k

Mon, 03/25/2013 - 14:46 | 3373573 ebworthen
ebworthen's picture

Hey, it worked for them last time.

Create housing bubble, make billions hand over fist selling and then securitizing mortgages - bubble pops, banks/insurers/corporations bailed out on the backs of the taxpayers, banker pay, bonuses, and consolidation continue unabated.

"If it ain't broke, don't fix it."

It's broke for every citizen, but for the elites and their politician lackeys it is a well-oiled machine.

This time around they get to steal depositor savings too.

Mon, 03/25/2013 - 14:45 | 3373575 madcows
madcows's picture

A very long article that could have been reduced simply to:

"This is all about keeping the banks solvent b/c they fund the politicians"

The charts and graphs are nice.  They back up what ZHers have been saying for a while.  The TBTF includes the bankers and the polititicians, and they are going to do everything in their power to retain their power and status.  If we had a moral nation; a just nation; we would have let the banks fail.  that's all you need to know.

Mon, 03/25/2013 - 14:45 | 3373578 orangegeek
orangegeek's picture

Philly Housing Index has retraced about 62% from its 2009 lows.

The next leg down should take us below 2009 lows.

Mon, 03/25/2013 - 14:47 | 3373592 IamtheREALmario
IamtheREALmario's picture

The new housing bubble is designed around creating "investment funds" for the specific pupose of buying housing, propping up prices and renteing to people who would otherwise have purchased if housing prices had fallen to their free market value. Yes, it props up the banks, but it also gives the banks the opportunity to lend money, at interest, to these funds who use the properties as collateral ... and leverage themselves to the hilt.

To compliment and augment this banker strategy, there has been a propaganda campaign designed to brainwash people into believing it is better to rent than buy. (Oh really? one asks. How do the investors make money if they do not charge more than it cost them to buy?!? ... so how is renting better? Maybe it is simply better for the banks and their pet asset pumping crony funds. That is how.)

Mon, 03/25/2013 - 14:48 | 3373594 ziggy59
ziggy59's picture

I think they will need a bigger washing machine

Mon, 03/25/2013 - 15:39 | 3373817 GrinandBearit
GrinandBearit's picture

And a few more wash and rinse cycles.

Eventually TPTB will own it all... either by taxing people into oblivion, or by outright confiscation.

Mon, 03/25/2013 - 14:50 | 3373604 DutchR
DutchR's picture

Fucking around on one little blue marble







Mon, 03/25/2013 - 14:50 | 3373606 econature
econature's picture

The Fed couldn't keep home prices up forever, but they'll keep interest rates low forever, right? I mean, if the Fed is the only buyer or bonds, then China will still export goods to us right? And Venezuela will still accept dollars for oil, right? Everything is fine!

Mon, 03/25/2013 - 14:57 | 3373632 yogibear
yogibear's picture

Housing bubble #2 inflates. The big pop is coming.

Plenty of financial  companies now involved, Localities will just raise taxes and fees.

Upkeep and rental upkeep should drain these corporate entities.

Perhaps Blackstone will get burned by it's  speculation in housing bubble #2.

Mon, 03/25/2013 - 15:26 | 3373755 22winmag
22winmag's picture

I sure hope Blackstone get burned... neofedual scum lords that they are.

Tue, 03/26/2013 - 00:14 | 3375627 TruthInSunshine
TruthInSunshine's picture

They're an absolute too-big-to-fail, best friend forever of Timmay & Jack Lew, and dominatrix of Bernanke & Crew.

Taxpayers, present and future, will inevitably pay for whatever losses they rack up speculating/gambling with free fiat.

Mon, 03/25/2013 - 14:55 | 3373640 digalert
digalert's picture

Excellent pictures, it's why I read ZH.

Mon, 03/25/2013 - 14:56 | 3373646 bnbdnb
bnbdnb's picture

Housing is only rising because the rich are buying all of it.

Mon, 03/25/2013 - 15:02 | 3373663 yogibear
yogibear's picture

Municipalities are looking for a bigger sugar daddy.  These corporations have deep pockets so local taxing entiies can suck them dry.


Mon, 03/25/2013 - 15:14 | 3373713 Miffed Microbio...
Miffed Microbiologist's picture

Rich Chinese in my neck of the woods. Paying cash for $700,000+ homes. I guess their own housing bubble isn't good enough and felt like participating in ours as well.


Mon, 03/25/2013 - 15:05 | 3373676 hooligan2009
hooligan2009's picture

some great charts in here plus an interesting commentary from Dudley (do right?)

Mon, 03/25/2013 - 15:07 | 3373683 Pactyas
Pactyas's picture

Sure, the TBTF banks always want to make money.  So do the Too Little to Save banks.  Big deal.

Yes, the Fed seems to be bailing out the banks, using "stimulate the economy" as a cover.  But the issue is cui bono?  Why is the plea--"bail us out!"-- effective when made to a populist-inclined political class?  It is because the banking system as such is captive to the political class--not its boss.

Just as bodyguards owe allegiance to dictators, so do bank executives (who could be jailed virtually at whim by the regulators) have to please the pols.  They do this by being their very loyal financial lifeline.  (And sure, they do get paid for it.)

The first duty of the banks and their primary function (especially in the last few years) is to keep the government afloat--not to keep the government from suppressing their profits.  Yes, it's mutual backscratching, of course, but the power center is on the side of the law-making, prison-running group.

Mon, 03/25/2013 - 15:33 | 3373784 clawsthatscratch
clawsthatscratch's picture

bass-ackwards imho


Tue, 03/26/2013 - 07:21 | 3375990 Nu Yawks hottes...
Nu Yawks hottest club is's picture


Gordon Brown (UK Prime Minister in 2008) saved some of the world's biggest banks and now can't show his face in public without being booed, hissed and generally disparaged.


Mon, 03/25/2013 - 15:11 | 3373687 Lordflin
Lordflin's picture

I couldn't agree more... everyone with a brain understands the jig is up... now all that is left is the plunder. Sad isn't it... folks buy their dream... simple dreams really... then find the value gutted in a deflating market. Worse yet, the revaluation is in depreciating currency... guess the joke is on them. That is the people are pressed to the point they have nothing left to lose... then there will be hell to pay...

Thank goodness HLS is buying ammunition, automatic rifles and light armored vehicles...

Mon, 03/25/2013 - 15:23 | 3373742 22winmag
22winmag's picture

True that, the jig is up... just make no mistake about the Dept. of Fatherland Security. It's hoplessly outgunned and outmatched.

Mon, 03/25/2013 - 15:07 | 3373690 GovernmentMule
GovernmentMule's picture

Nothing to see here citizens, just keeping moving along..

Mon, 03/25/2013 - 15:13 | 3373707 q99x2
q99x2's picture

Yep but why stall? To make preparations for the inevitable. 

Mon, 03/25/2013 - 15:42 | 3373824 madcows
madcows's picture

So they can A$$ rape you on the way there and make even more money before it all collapses, at which point they will have all converted their "money" to real a$$et$ and left us with worthless paper and a need to feed the family, so they can step in and offer you a nickle for your real asset.  shot them first

Mon, 03/25/2013 - 15:18 | 3373729 WTF_247
WTF_247's picture

If they want instant re-flation of the economy it would be fairly simple.  Eliminate the current tax code, move to 15% flat tax for all income over $20,000 - no writeoffs, no exceptions.

Remove corp tax rates on income which encourages game playing and shifting money to overseas.  Tax corporations on sales, not income.  Tax them a percent of sales based on the industry they are in.  If the sale happens in the US, they are taxed on it.  If a sale happens outside the US they are not taxed on it.

The amount of money wasted each year on tax code compliance and evasion is staggering.  This would free up hundreds of billions of dollars each year for more productive purposes.  This money would flow into the economy in much better ways.  Sure HR Block and other tax prep would be gone.  But there is no point in leaving something so ineffient in place that sucks money out of more productive uses.

Imagine how good the US economy would do if we had the equivalent $$ of TARP each and every year forever, but without government ineffectvely spending it.


Reform the medical industry and remove protections which would dramatically lower costs and you likely have another $500bil each year that people can spend as well.

Mon, 03/25/2013 - 15:21 | 3373739 rlouis
rlouis's picture

They may be desperate to reflate the bubble, but from my perspective, they're failing - as usual. 

Local SFR prices 65% - 70% of bubble highs

Small multi-unit residential not doing all that great either.




Mon, 03/25/2013 - 15:24 | 3373744 Seasmoke
Seasmoke's picture

They need a do-over......Everyone Go back to 1996 prices and start again

Mon, 03/25/2013 - 15:27 | 3373759 tahoebumsmith
tahoebumsmith's picture

Just look how much more debt has been created over the past 4 years to cover up a debt crisis. We are talking close to 20 TRILLION. Globally it's close to 35 TRILLION. The pile of shit has gotton so big it's starting to ooze out of the sides of their big diaper.

Mon, 03/25/2013 - 16:01 | 3373923 Bicycle Repairman
Bicycle Repairman's picture

I was looking for a much anticipated housing bubble burst in the 2005-2006 period.  After many years of saving, waiting, learning, I was going to use exquisite timing and pick up a few properties for investment.  But the FED stepped in and housing never got near the level dictated by a free market.  Years later the FED is still at it.  Not that I care the slightest anymore.

FUCK YOU, BERNANKE!!!!!!!!!!!!!!!!!!!

Mon, 03/25/2013 - 16:15 | 3373990 Shizzmoney
Shizzmoney's picture

Inflating bubbles is part of the Fed's mandate.

You just can't confirm it because that portion gets redacted in their Fed minutes.

Mon, 03/25/2013 - 16:15 | 3373992 Stuck on Zero
Stuck on Zero's picture

Rising home prices mean: higher taxes, more misplaced money, more instability, and more homeless.


Mon, 03/25/2013 - 16:19 | 3374001 Sigep0612
Sigep0612's picture

TBTF Rule #1.   Defy gravity and keep the balls in the air for as long as possible

TBTF Rule #2.   Lie, Cheat, Steal for as long as possible

TBTF Rule #3.   Line the pockets of politicians for as long as posible

TBTF Rule #4.   When questioned about particular circumstances (i.e. Corzine, gold/sliver manipulation) deny, deny, deny for as long as possible. 

TBTF Rule #5.   When all else fails.  a) Repeat Rule #1, #2, #3, #4   or b) Create actions to distract attention from the TBTF (i.e Immigration reform. gay rights, Iran, Syria, etc. etc)     

Mon, 03/25/2013 - 16:34 | 3374041 Dan Conway
Dan Conway's picture

And don't forget that local governments need real estate taxes to fund their socialist promises.  Any further decline in real estate values and taxes will cause very immediate problems for moron government employees closest to those hurt by such cuts.  The cities will be burning but the idiots in dc will be sipping starbucks and eating fancy dinners while whining about access to free birth control and income inequality. 

Mon, 03/25/2013 - 16:50 | 3374082 Winston Smith 2009
Winston Smith 2009's picture

Watch this excellent, short documentary on this very topic:

Overdose - The Next Financial Crisis

The bubble burst and was immediately followed by 9/11.  This resulted in a desperate attempt to blow another bubble to avoid the consequences. The only one big enough was in housing.  That burst, so another one is being blown, bigger than any bubble ever blown.

Meanwhile, inflation at 5% (the realistic figure) combined with interest rates 5% lower than what savers would normally get result in a 10% PER YEAR THEFT from every US saver to prop up organizations that deserve to have been bankrupted in 2008/9.  At the same time because the fedgov has been borrowing 40% of every dollar it has spent during the past four years, the taxpayer-liable national debt has skyrocketed.

Mon, 03/25/2013 - 16:57 | 3374102 El Hosel
El Hosel's picture

.....Extend and pretend, "must restore confidence" in a broken financial system and government because the alternative ( reality ) is unacceptable.

Mon, 03/25/2013 - 17:59 | 3374356 Kirk2NCC1701
Kirk2NCC1701's picture

Inflate or everything deflates!  Including bankers' fiat bonuses, egos, penises and orgies.  That would 'suck'. /sarc

Mon, 03/25/2013 - 18:32 | 3374454 evernewecon
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Besides the credit as to empty creditors/Henry Hu,

of course, credit goes to Ravi Batra as to everything

concerning concentration of wealth. 


The Easter Islanders ate their trees, but

"we" incentivized it.

I say "we" (in quotes) cause it's really been

the maintainers of monopoly, risk filtering

and gatekeeping who first ran out of non-rich

people to lend to in the 20's but kept doing so

to juice the returns they depended on, and thereby

created the crash back then.


Selling risk into securities meant "empty creditors"

(from Henry Hu originally,

 (I'm trusting if it's av. it's free access--otherwise

keep searching Hu empty creditors) and actually the

GSE's have meant not education, empowerment and enabling

but mortgage risk filtering too.


The TBTF banks could also insure the securities and

short them (no allegation as to any party by me



So the Easter Island analogy's really only half

complete absent this:  we've incentivized eating

our trees (really allowing our billionaires and

market controlling cos. to do that) and we've

even incentivized their wanting that to occur

so as to profit from our demise.


ZH: I see no substitute for this one about

economically efficient/fair use treatment of

risk (as to chance, many other places in my own

website, but I'd never abuse my welcome here

and won't link those:)            


So TBTF, when entrenched by the Fed, is

monopoly of the currency, and the fact of

Treasury, the FED, and Congress having undertaken/currently

undertaking buying toxic assets not at market value

and forcing all Americans including those who SOLD the

bubble to underwrite loss sharing weekly rolled out

under different names, is risk filtering (you/I take

the risk.)  Real negative rates for you in favor of

massive free reserves for TBTF is also benchmarking

investment to failure even as the artificial bubble aimed

at still bailing the banks is being created and will have

to be paid off for a couple more generations yet.

It benchmarks to failure cause people know comparable

returns are earned by less principal when rates rise.


Gatekeeping is the not-older woman getting better

from physical therapy under Medicare Disability

(real case--and Disability applies at her age)

but being told to go back onto drugs, with which

she'll languish, though be kept alive, until her

physical therapy allowance resets the with the

next calendar year, the change back to drugs wiping

out most her progress from physical therapy.

as though,

in the movie "Jaws," the

leader of the Amity Town Chamber

of Commerce succeeded in perpetually,

continuously keeping the Amity beaches

open even as people kept right on

having their limbs chewed off by a

great white shark.   

It's expensive for all

of them, but he and his businesses

make out.


The reason it's worse than

analogous to Jaws,

is although the late - arriving

patient in the defective,

dangerous system gets deathly

shafted in the manner of the swimmer

getting eaten by the big shark,

whereas the other swimmers

get away with a satisfying swim

and day at the beach, the patient

who does have coverage does

not have a happy experience.

That covered patient will likely

sooner or later face a choice of

"go naked" or "premium death

spiral" as soon as he / she is

in a policy cluster that's no

longer desirable for the carrier,

and, in any event, it's a

monopoly situation once the

patient presents (a) risk

factor(s,) and entirely a game

of name your price for the


ObamaCare Ostensibly Makes

Health Care Universally

Affordable (It Doesn't Cause

Of The Understating Of The

Increases In CPI, And Because

Affordability Is Keyed To

Coverage To The Self-Only

Worker, Even If He/She Has

A Family.)   Though Still Outside

The High Risk Exchanges Higher

Risk Is Typically Keyed To The

Likes Of 20% Statutory

Operational Profit, Vs. 40% For

Low Risk (Healthy, Young)

Customers, That Actually

Constitutes The Institutionalization

Of Monopoly, Which Is Also

Fully Blanket-Universal.

Hence, The Must-Pay

Language Really Does Work

Like A Tax, But A Tax

Running From A Cartel.














Mon, 03/25/2013 - 19:53 | 3374779 jonjon831983
jonjon831983's picture

Because all the other bubbles starting to pop? "US student loan write-offs hit $3 bln in 1st two months of year"

"U.S. banks wrote off $3 billion of student loan debt in the first two months of 2013, up more than 36 percent from the year-ago period, as many graduates remain jobless, underemployed or cash-strapped in a slow U.S. economic recovery, an Equifax study showed."

Mon, 03/25/2013 - 20:24 | 3374891 malek
malek's picture

Oops, I always thought Case-Shiller was already inflation-adjusted.

Thanks, Charles!

Mon, 03/25/2013 - 22:10 | 3375290 Lucius Corneliu...
Lucius Cornelius Sulla's picture

I zillowed a town I was interested in.  64 listings for sale plus 21 in foreclosure and 87 in pre-foreclosure.  Prices are holding up thanks to the pre-foreclosures slowly bleeding into the market (but not fast enough for the number to keep growing).  Managed inventory?  Buyers beware!

Tue, 03/26/2013 - 00:09 | 3375620 kareninca
kareninca's picture

Well, the areas I follow  -  Connecticut, mostly the eastern part, and SW Rhode Island, mostly the Westerly area, are seeing no bubble.  The same houses that have been for sale there for several years, are still for sale.  In CT, the asking prices have slowly, slowly, slowly been creeping down.  In Westerly, the stubborn elderly Italians refuse to drop their asking prices, so the places sit, and sit, and sit.  "I'm not giving it away!"   In both areas, there are no jobs, and certainly no jobs that pay well, and there are fewer and fewer young people.  There is no-one to buy these houses.  Zombie houses.

There are, however, quite a few "new construction" houses in CT.  That'll help matters.  /sarc

But what I don't get is this:  I look at various real estate sites re those areas, and I hardly see any foreclosures.  Admittedly I don't pay to view  -  but I thought that the free parts of those sites still gave you a sense of quantity, even if you didn't get the street address.  But my dad picks up local real estate flyers and brochures, and he says that there are pages and pages and pages of foreclosures.  Is it possible that they exist, and the banks are trying to sell them locally, but they aren't making the websites??  I thought that wasn't possible.

Here in Silicon valley, a Chinese person will buy a $1.4 million house with cash stolen from his homeland.  He will then take out a mortgage on his paid-off house, and lend the money to another Chinese person, who can then also buy with cash.  And who will then, after purchasing, take out a mortgage, and lend the money, and so on.  Some might complain that this is unfair to the dumb local buyers  -  it does make their bids comparatively useless.  However, I think that the Chinese buyers are going to end up being screwed; they have no sense of long term U.S. real estate trends.  They genuinely think that a desireable area, will stay desireable.  Well, sometimes it does for a while.  But a crapshack in Cupertino, won't.

Tue, 03/26/2013 - 02:04 | 3375735 serema
serema's picture

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