From their 3/23 Banking Issues / Recession Risks report. One thing you'll note in all historic bubbles is the use of leverage. With this Worldwide Housing Ponzi Scheme, humanity figured out a way to take leverage to a whole new level, and by a massive percentage of society, not just a small group of speculators, but the majority of the population.
Does anyone realize that maybe 10,000 people in the world probably read this report? I assume this is basic stuff to a lot of people, but in the end, consider yourself among the uber-informed. Now what will you do with the knowledge?
The risk of a housing slowdown is another area of concern going forward. The recent housing boom has been unprecedented in modern U.S. history.
It has been suggested by many analysts that the housing boom has been a significant contributor to gains in consumer spending in recent years. Indeed, a number of the FDIC roundtable panelists pointed to the apparent connection between rising real estate wealth during the past four years and the sustained strength in consumer spending during that period.
Because consumer spending accounts for over two-thirds of U.S. economic activity, any shock to consumer spending, such as that which might be caused by a housing slowdown, is a concern to overall economic growth.
It is estimated that anywhere from $444 billion to $600 billion was liquidated from housing wealth during 2005. Whichever estimate one uses, the total almost surely eclipses the $375 billion gain in after-tax income for the year.
In addition, the degree of effective leverage in home-purchase loans has risen in recent years with the advent of so-called “piggy-back” mortgage structures that substitute a second-lien mortgage for some or all of the traditional down payment.
March 25, 2006
Posted by blogger at 3/25/2006