I'd call it a perfect bubble storm:
"The cutting-edge secrets to buying real estate at 30% to 50% above market value:"
Appoint a Federal Reserve which flooded the nation with virtually unlimited money supply even as it lowered interest rates to historic lows
Lower lending standards to basically zero so even those with poor credit and no cash can buy a house with no money down and no documented history of financial discipline
Enable investors to buy new condos and houses with maximum leverage so that 40% of all new homes are purchased as investments
Lower lending reserves requirements to the lowest levels ever, so lenders need not be encumbered with onerous standards like having cash on hand to cover bad debts
Enter into an unspoken agreement with our Asian trading partners in which our homeowners can borrow 105% the value of their homes to buy Asian-made consumer goods, and our trading partners will buy all our depreciating long bonds at low rates of return so mortgage rates stay low
Keep wage increases down to basically zero so consumers count on re-financing their homes to pay for vacations, college, new cars and boats, etc.
Enable a 10-fold expansion of mortgage-backed derivatives and various exotic financial instruments so that trillions of dollars in mortgages can be tranched, sliced and hedged, giving the financial markets the false impression that the risks have been lowered, even as they've actually increased to unprecedented levels
Enlist an army of Wall Street and media cheerleaders to promote the notion that "this time it's different" and "housing never drops in value," lulling the unsuspecting into believing that the business cycle and the laws of supply and demand have been officially revoked
Encourage builders to build up to 10 times the number of units which sell annually, insuring massive overbuilding (over-supply).
Rig the inflation measurements (CPI, etc.) to
May 30, 2006
Posted by blogger at 5/30/2006