Low Mortgage Interest Rates Precipitated the Housing Bubble

Two Titans of monetary policy are clashing over the role low interest rates played in the housing bubble. One is right, and one is wrong.

103 RINALDI Irvine, CA 92620 kitchen

Irvine Home Address … 103 RINALDI Irvine, CA 92620
Resale Home Price …… $539,000

{book1}

I was born with the wrong sign
In the wrong house
With the wrong ascendancy
I took the wrong road
That led to the wrong tendencies
I was in the wrong place at the wrong time
For the wrong reason and the wrong rhyme
On the wrong day of the wrong week
I used the wrong method with the wrong technique

Wrong — Depeche Mode

Someone is wrong. Last week a controversy erupted between Ben Bernanke, Chairman of the Federal Reserve, who claims Low rates didn’t cause the housing bubble. This was countered by John Taylor, creator of the widely accepted Taylor Rule for guiding monetary policy, who claimed The Federal Reserve did inflate the housing bubble with Low Rates. Which one is right?

First, lets review what they actually said. Ben Bernanke’s speech sets the stage:

“As with regulatory policy, we must discern the lessons of the crisis
for monetary policy. However, the nature of those lessons is
controversial. Some observers have assigned monetary policy a central
role in the crisis. Specifically, they claim that excessively easy
monetary policy by the Federal Reserve in the first half of the decade
helped cause a bubble in house prices in the United States
, a bubble
whose inevitable collapse proved a major source of the financial and
economic stresses of the past two years. Proponents of this view
typically argue for a substantially greater role for monetary policy in
preventing and controlling bubbles in the prices of housing and other
assets. In contrast, others have taken the position that policy was
appropriate for the macroeconomic conditions that prevailed, and that
it was neither a principal cause of the housing bubble nor the right
tool for controlling the increase in house prices.
Obviously, in light
of the economic damage inflicted by the collapses of two asset price
bubbles over the past decade, a great deal more than historical
accuracy rides on the resolution of this debate.

If policy makers draw the wrong conclusion from history, it is likely they will implement the wrong policies and take the wrong corrective measures. This debate is important. Back to the speech,

“… U.S. house prices began to rise more rapidly in the late 1990s. Prices
grew at a 7 to 8 percent annual rate in 1998 and 1999, and in the 9 to
11 percent range from 2000 to 2003. Thus, the beginning of the run-up
in housing prices predates the period of highly accommodative monetary
policy. Shiller (2007) dates the beginning of the boom in 1998. On the
other hand, the most rapid price gains were in 2004 and 2005, when the
annual rate of house price appreciation was between 15 and 17 percent.
Thus, the timing of the housing bubble does not rule out some
contribution from monetary policy.”

This is accurate. It is difficult to blame low interest rates for the problem when prices began to rise unsustainably before interest rates went up, and it doesn’t explain why prices are not still at peak levels now that the Federal Reserve has lowered mortgage interest rates to unprecedented levels.

In his rebuttal to Ben Bernanke, John Taylor made the following statements:

“The evidence is overwhelming that those low interest
rates were not only unusually low but they logically were a
factor in the housing boom and therefore ultimately the bust, … It had an effect on the housing boom and increased a lot
of risk taking,” said Taylor, 63, who was attending the
American Economic Association’s annual meeting.”

If you read what Taylor said carefully, you see that he said the rates were “a
factor in the housing boom and therefore ultimately the bust.” Well, duh, I knew that. It is one thing to be a “factor” and quite another to be the “cause.” Bullets are a factor in shooting deaths, but people pulling the trigger is the cause.

Bernanke goes on:

“With respect to the magnitude of house-price increases: Economists who
have investigated the issue have generally found that, based on
historical relationships, only a small portion of the increase in house
prices earlier this decade can be attributed to the stance of U.S.
monetary policy. This
conclusion has been reached using both econometric models and purely
statistical analyses that make no use of economic theory.”

It is the same conclusion I reached in The Great Housing Bubble:

“The catalyst or precipitating
factor for the price rally was the Federal Reserve’s lowering of
interest rates in 2001-2004.

Many mistakenly believe the lower interest rates themselves were
responsible by directly lowering mortgage interest rates. This is not
accurate. Mortgage interest rates declined during this period, and this
did allow borrowers to finance somewhat larger sums with the same
monthly loan payment, but this was not sufficient to inflate the
housing bubble. The lower Federal Funds rate caused an expansion of the
money supply, and it lowered bank savings rates to such low levels that
investors sought other investments with higher yields. It was this
increased liquidity and quest for yield that drove huge sums of money
into mortgage loans.

The expansion of credit took four forms: lower interest rates,
lowering or eliminating qualification requirements, different
amortization methods, and higher allowable debt-to-income ratios. Lower
interest rates expand credit by allowing larger sums to be borrowed
with the same payment amount. In 2000, the interest rate on a 30-year
mortgage was 8.05%, and in 2003, it was 5.83%. This reduction in
interest rates accounts for 20% to 50% of the increase in house prices
experienced during the bubble
. “

Mark Thoma at Economist’s View in a post Did Low Interest Rates or Regulatory Failures Cause the Bubble? put it this way:

“In response to the question of whether the Fed’s low interest rate policy is responsible for
the bubble, most respondents point instead to regulatory failures of one type or another. Ben Bernake has also made this argument.
However, I don’t think it was one or the other, I think it was both.
That is, first you need something to fuel the fire, and low interest
rates provided fuel by injecting liquidity into the system. And second,
you need a failure of those responsible for preventing fires from
starting along with a failure to have systems in place to limit the
damage if they do start.”

The real debate Bernanke and Taylor are having has little to do with housing and everything to do with how the Federal Reserve is setting interest rate policy. Taylor disagrees with Bernanke’s actions as he has failed to adhere to the Taylor rule, so Taylor is pointing to every ill in our society as a result of Bernanke’s failure to do what he wants. It makes for interesting headlines, but with respect to housing, it is a tempest in a teacup.

103 RINALDI Irvine, CA 92620 kitchen

Irvine Home Address … 103 RINALDI Irvine, CA 92620

Resale Home Price … $539,000

Income Requirement ……. $115,061
Downpayment Needed … $107,800
20% Down Conventional

Home Purchase Price … $731,500
Home Purchase Date …. 12/5/2006

Net Gain (Loss) ………. $(224,840)
Percent Change ………. -26.3%
Annual Appreciation … -9.3%

Mortgage Interest Rate ………. 5.27%
Monthly Mortgage Payment … $2,386
Monthly Cash Outlays ………… $3,480
Monthly Cost of Ownership … $2,870

Property Details for 103 RINALDI Irvine, CA 92620

Beds 3
Baths 2 full 1 part baths
Size 1,878 sq ft
($287 / sq ft)
Lot Size n/a
Year Built 2006
Days on Market 7
Listing Updated 1/4/2010
MLS Number P715845
Property Type Condominium, Residential
Community Woodbury
Tract Wdgp

According to the listing agent, this listing may be a pre-foreclosure or short sale.

***APPROVED SHORT SALE!!!!*** Highly Upgraded Kitchen With Granite Cunter Top, Laminated Hardwood Flooring Trough Out, Charming Fieplace In Living Room. Walk to Woodbury Community Park, Pool, Spa & Playground. Close to shopping & Freeway and More!

What does it mean to be an approved short sale? The lender has pre-approved full asking price? Big deal. And why all the asterisks and exclamation points?

Cunter? I am not going to touch that one….

Trough Out. I probably would have made that one compound, but perhaps that is just me.

Fieplace?

With our low interest rates, someone will jump on this one quickly. There are not many resales in Woodbury under $300/SF… yet.

A year into Obama’s reign, Ron Paul’s loopy ideas now making sense

65 thoughts on “Low Mortgage Interest Rates Precipitated the Housing Bubble

  1. AZDavidPhx

    Record 3 million households hit with foreclosure in 2009

    By Les Christie, staff writer
    January 14, 2010: 6:07 AM ET

    NEW YORK (CNNMoney.com) — Almost 3 million playowners received at least one foreclosure filing during 2009, setting a new record for the number of people falling behind on their mortgage payments.

    RealtyTrac, the online marketer of foreclosed homes, reported that one in 45 households — or 2,824,674 properties nationwide — were in default last year. That’s 21% more than in 2008, and more than double 2007’s total.

    The dramatic, sustained increase occurred despite efforts, such as President Obama’s Home Affordable Modification Program, to reduce foreclosure filings.

    There was at least one bright spot in the report: In spite of a 21% increase in filings, the number of homes actually repossessed was 871,086 — up just 1.1% above 2008’s total.

    Filings peaked in July with more than 361,000 homes receiving notices. After that, filings dropped four straight months.

    Much of that is attributable to the government-led efforts to modify loans to make them affordable, though it is still uncertain whether the efforts have forestalled — or just delayed — foreclosure.

    By early December more than 680,000 borrowers had gotten temporary workouts but only a few thousand had been permanently modified.

    That leaves Saccacio a bit pessimistic about the future. “In the long term, a massive supply of delinquent loans continues to loom over the housing market,” said Saccacio. “And many of those delinquencies will end up in the foreclosure process in 2010.”

    Pain central
    The four states with the most foreclosure filings — California, Florida, Arizona and Illinois — accounted for a full 50% of the nation’s properties receiving notices.

    Best recovery bets for 2010
    Nevada recorded the highest rate of foreclosures, at 10%, followed by Arizona, at 6.1%; Florida, 5.9%; and California, 4.75%.

    California, by far the most heavily populated in the union, posted the most filings with 632,573, up 20.8% from 2008. Golden State cities have also recorded some of the steepest declines in home prices, with values falling 50% or more in some Central Valley cities

    1. AZDavidPhx

      Golden State cities have also recorded some of the steepest declines in home prices, with values falling 50% or more in some Central Valley cities

      Irvine will be different though. They can keep their bubble values while everyone else goes back to normal.

      Arithmetic doesn’t hold in Irvine!

      1. Geotpf

        It seems like prime areas in general (such as Irvine) have a lot lower (percentage-wise) drops from peak than non-prime areas (such as the Central Valley). This makes logical sense if you think about it-when real estate prices were high, some people could only afford to buy in fringe areas, even though they would have perfered to buy in prime areas, but when prices are lower, those people buy in prime areas instead, so demand in prime areas drops less than in fringe areas.

        1. IrvineRenter

          I like that you come here and make a bullish case.

          If I lived in Riverside, I would be bullish too — on Riverside County. Prices won’t go up until the foreclosure inventory clears, but you got in at rock-bottom prices and at super-low interest rates. You must be giddy. You will have hit one of the home-runs of the housing bubble, assuming you always keep that property as a rental when you move on.

          Prices simply are not that low here in OC, and it isn’t due to our premium. The OC premium is stretched beyond all reason right now. It is only air and withholding of inventory the keeps prices artificially high here. I will be more bullish after I see OC endure its quota of market pain.

          1. Chuck Ponzi

            IR – You’re right on.

            Our income here in OC is not worth more just because we have sunshine. We still have to pay for food, insurance, taxes, and everything else after we pay for housing.

            Unless people are willing to live a substantially more spartan lifestyle in OC compared to the IE, there’s no way our housing prices can remain as high as they are. Most people got it backwards… OC and LA did not cost more becuase they had more money… they had more money because it cost more. If you look at the equity withdrawals on houses, it’s mind boggling. Loose lending and the flash-in-the pan FIRE economy allowed it to be so. the IE was just a knock-on effect of the coastal areas… crumbs falling from the table of the pricier areas.

            Chuck Ponzi

          2. norcal

            I don’t think Geotpf is bullish – he’s just stating a fact. Same thing happened in the Bay Area; people who worked there but couldn’t pay $800K+ for a house bought one 50 miles out in Tracy or Stockton (for $600K). That house is now worth $250K, but the San Francisco or Palo Alto home hasn’t been hit with declines on that order – yet.

            That’s all he’s saying. Whether OC’s and SFB’s premiums will survive the next five years, and to what extent, is the question.

      2. Walter

        I hope values do fall 50% in Irvine, I am waiting to buy. There is the issue of lack of land in Orange County that does seem to provide some support to prices. We have an Ocean on one side and mountains on the other so you can not just kick away tumble weeds and build and build. This limits overbuilding somewhat.

        The next 2 – 3 years with be interesting…

        1. mikeD

          That is precisly why prices will never drop that far in OC….so many people like you desire to jump in as soon as a drop of x% hits…..

          The only way OC will see a 50% drop is when people like you say they will NEVER buy a house in OC at any price. That is the day I’d swoop in and buy multiple houses.

  2. IrvineRenter

    This tempest in a teacup is getting air time right now:

    Economists: Interest Rates Fueled Boom

    “Of all the economic factors that possibly fueled the inflation of the housing bubble last decade, Federal Reserve Chairman Ben Bernanke has said low interest rates weren’t one of them. The Wall Street Journal Wednesday published the results of a survey showing that the nation’s economists haven’t exactly fallen in line behind the chairman on that.

    Two surveys the newspaper launched this week presented a healthy amount of reasonable doubt that interest rates set by the government contributed to 2008’s crash of the housing market which affected the financial system. In one survey of economists on Wall Street and elsewhere, 42 of 54 said low interest rates partially contributed to the market’s bubble. Another survey showed that 13 of 27 academic economists who study monetary policy agreed that the low rates helped the housing boom.

    Bernanke is facing confirmation hearings in the Senate after President Obama nominated him to serve another six-year term as chairman. The Federal Reserve sets several interest rates, including one for what banks lend each other.

    The newspaper’s report comes as the Financial Crisis Inquiry Commission is scheduled to begin its hearings into what caused the near-collapse of the nation’s financial system in 2008.”

    This article is wrong; Bernanke never said interest rates were not a factor. This is lazy journalism.

    1. norcal

      Oh yeah, back to the subject of your post!

      Paul Krugman observes that nothing the Fed does is influential enough to cause a bubble on this scale. It’s the crazy market overreaction, amplified by deregulated banking/investment, that inflated this bubble.

      1. matt138

        Does a deregulated bank, making imprudent loans, have an ice cube’s chance in hell of staying in business (absent gov/t subsidy)?

        No. So any bank making imprudent loans will cease to exist. And you and I would do a bit of research for fear of losing our money with a bank making risky loans.

        In essence, the free market regulates quite efficiently. It forces conservative leverage.

        It’s never perfect, but the result is smarter banks and smarter borrowers.

        Gov/t guarantees remove fear from the greed/fear equation.

    2. QualityPicks

      Interest rate policy is only to blame for 40% of the appreciation we have had since 2000. The other 60% of the appreciation can be attributed to what Bernanke said, loose credit standards, fraud, greediness, and exotic mortgage products.

      1. matt138

        You believe Bernanke? His track record is 100% wrong.

        When prices rise, which lowering interest rates helps to do, lending standards may loosen as a lender perceives less risk. They can take a property back and lose less compared to in a down market. Investors seek return. Money is funneled from savings to things like Mortgage Backed Securities.

        Fraudulent companies will cease to exist (absent gov/t subsidy) as reputation alone will crush them.

        Why is the gov/t guaranteeing basically all the mortgages? They fear free market consequence. I don’t put my money there. Why? The risks far outweigh the reward. The gov/t is the sole investor because no private investor would touch this with a ten foot pole.

        This is undeniable proof that the gov/t is completely inept at spending your money.

        1. QualityPicks

          I despise Bernanke and Greenspan more than you do ๐Ÿ™‚ They are the biggest thieves this nation has ever had. They were the biggest enabler of the irresponsible and then the biggest savior of them (bailing them out).

          I’m only saying interest rates were not the only reason why prices went up so much, I think the other reasons I mention had as much impact if not more). But the Fed enabled all of the causes of the bubble.

  3. winstongator

    Excessively low interest rates may have been a necessary condition, but they alone were not nearly sufficient to produce the housing boom/bust. Sonsider that fed policy impacts the nation equally, while the housing boom/bust is, for the most part, very limited geographically. Take FL, CA, AZ and NV out of the picture, and what is the situation with home prices and foreclosures? Not nearly as bad.

    If you look at the three C’s of underwriting, credit score, capacity (debt-to-income), and collateral, the real source of problem was ignoring capacity and collateral. The fed had no impact on that through rates…however, in its supervisory role…quite lax.

    1. norcal

      Absolutely right: the housing bubble is largely a regional affair. People who live/own in those areas are a bit preoccupied with local matters, and don’t see that crushing mortgage debt and HELOC abuse just aren’t that important to about 75% of Americans.

  4. cara

    http://www.orlandosentinel.com/business/os-short-sale-guidelines-20100112,0,2146738.story?source=patrick.net

    Did you all catch this patrick link? Short sales, 10 day response, coming in April. If confirmed and followed through on this could change things a lot.
    1) shorts would no longer transact at a discount from normal market prices
    2) buyers would have more “real” inventory to choose from
    3) underwater owners might more readily chose to get the albatross off, if short sales were not heinously more difficult than normal sales.

    How this all plays out in terms of supply and demand is hard to say, seems like a supply side increase to me, but it all depends on the level of pent-up, frustrated demand in comparison, doesn’t it? In any case, more selection for buyers has got to be welcome news right?

      1. cara

        And what do you think will happen to the other bank’s whose shorts can’t compete? If the other guy’s shorts can get full market value, then I’d certainly step up my time frame to at worst a guarunteed 30-day response time.

        Delaying losses is great, avoiding losses is better.

        1. thrifty

          “And what do you think will happen to the other bankโ€™s whose shorts canโ€™t compete?”
          I thnk they will continue to pretend and extend.
          And the ones who have the 10 day restriction will simply say “No” sooner than they would have without the restriction.

          1. cara

            But currently the answer isn’t just “no” unless the seller doesn’t qualify for a short, it’s a counter offer.

            I know, with only 10 days, they could change that policy.

    1. Geotpf

      The article mentions a major problem: If there’s more than one loan, short sales almost always fail, because the primary lien holder knows they get 100% of the profit if the house is foreclosed, so they give the second (and third, and fourth…) almost nothing, and the secondary loan owners are pissed to lose almost their entire stake amount. Of course, the secondary lien owners should realize this and be happy for the grand or two they get (better than nothing), but in the real world, it doesn’t always work out that way.

      1. Walter

        Correct. I think part of the problem is why spend the money to have the staff to approve short sales if you are only going to get a grand or two as a 2nd holder? The amount of profit might not be worth the hassle.

      2. cara

        Ummmm, given the even higher loss rates in foreclosures, I don’t see why the secondary loan holders think they’re going to get a dime more by holding out. Sure, they play chicken with the firsts to try to get a larger cut than they “deserve” (by virtue of being the subordinated lien), but there’s no substance to their threats.

        1. awgee

          The debt owed the 2nd holder does not dissappear through foreclosure. The money is still owed them and they can pursue or they can sell the loan.

          1. cara

            Not a very high standard to cross though, is it?
            The amount given them only needs to exceed the expected amount they could get through selling the debt to a collection agencies, (which is likely to pay what, pennies on the dollar, ten cents at best?) or the amount they think they could net after going after the borrower if it’s a recourse loan.

            doesn’t seem like a high hurdle.

    2. AZDavidPhx

      Nobody defines ‘response’.

      To me the following ‘response’ is just a response as any:

      Dear Ms. Buyer –

      Thank you for your interest in this short sale. Rest assured that we at ScrewedBank are rapidly reviewing your most generous offer and we sincerely hope to recognize the eventual loss on our books that your most generous offer represents to us. We will respond with our final decision with 10 business years – in the meantime please visit our website and check out our very competitive CD rates at 1.50% that will maximize yield return and ensure that your money is worthless at maturity.

      Sincerely,

      Some guy whose dad got him a job

  5. thrifty

    Interest rates alone were simply an enabler of the bubble.
    The crux of the bubble lay in abandonment of responsible underwriting standards and the acceptance of those irresponsible standards by each participant in the subsequent resale and repackaging of the loan.

    1. Soylent Green Is People

      Agreed.

      Rates were freebase, abandonment of underwriting standards, was the defacto dealer, and what is typical addict behaviour became the result: Binge high, depressive low, theft for capital (HELOC’s/Serial Refinancing), a “rebuy” or “all in move” (use of funds for other purposes), which circles back to the binge high. Only collapse may follow.

      My .02c

      Soylent Green Is People

  6. Brian

    The URL above SHOULD read:

    A year into Obama’s reign, Ron Paul’s “loopy” ideas now making sense.

    With BIG, FAT quotes around loopy. They were never loopy, just regarded that way because so much of the U.S. lives in the now…witness the housing debacle as an example. “OH, I have to buy now or I’ll never be able to afford to.” Genuises…

    1. AZDavidPhx

      Brian –

      I too took exception with the author’s biased editorial in characterizing the ideas as ‘loopy’.

      The average people want to be lied to. They want to listen to the folks who make them feel good like Obama. Ron Paul is too much of a straight shooter and the average tool of a voter cannot handle all of the grown up language he uses. The natural reaction is to gravitate to the candidate who talks to you like a wittle baby and says everything will be OK while treating all of the symptoms with Voodoo and ignoring the underlying disease.

      Of course Paul’s ideas are loopy to the common douchbag – he’s no fun; a total spazz. We Americans just want to party so what do we do? Ditch the grownups who are going to just kill the buzz.

      Just keep spooning with your government issued Obama cutout and tell yourself ‘Yes you can’ over and over again.

        1. AZDavidPhx

          I interpreted it that way; it seemed to have a snarky tone to it like the author had voted for Obama but is now saying “Sheesh maybe I should have voted to Ron Paul even though I think his ideas are loopy” as a knock against the Democrats and not necessarily endorsing Paul’s platform.

    2. awgee

      Most have now heard the pop definition of insanity: Repeating the same behavior and expecting a different outcome.

      Stop voting Republican or Democrat.

      Get rid of the Federal Reserve.

      Get rid of the IRS.

      1. AZDavidPhx

        It’s never going to happen. The average person thinks that constitution decrees a two party Democrat/Republican system. It’s just accepted by everybody that every 4 years, they have to decide which party to go with.

        Even those that do know think that voting otherwise is just ‘wasting their vote as though their one vote is SO SIGNIFICANT that it cannot simply be cast to just anyone!

        You voted for who? Why? Didn’t want your vote to count? This is the collective attitude regarding independent voting.

          1. AZDavidPhx

            By all means, don’t give up. Just don’t let the fool’s errand that is making public grow up – drive you mad.

    3. matt138

      Sanity is the new loopy.

      I like how bernanke says “we’re not completely in the dark”. That’s reassuring.

  7. IrvineRenter

    Perhaps, as a writer I focus too much attention to language, but this phrase caught my eye, “The plan has always been.” Everything you stated after that phrase is true, but that phrase is not, and putting an inaccurate statement in front of truth does not make the statement any more accurate.

    It has turned out as you stated, but that was NEVER “the plan.” It was a cobbled-together solution after-the-fact that nobody anticipated. To suggest it was “always the plan” is to imply that someone, somewhere (you I presume) foresaw all this and chose to be only moderately bearish because of it. That is nonsense.

    That one little phrase is a nice way to revise history and of course put yourself on the correct side of it. If only the facts didn’t get in the way….

    1. Walter

      Exactly IR.

      Always is a big word. So am I to understand that the government cooked up this whole scheme back in the 1980’s so the mid-career wall street guys could get some huge $$ in the last days of there tenure’s?

      Always can go back forever. (another big word)

  8. MBS Analyst

    Securitization was the cause of the housing bubble. Banks and mortgage brokers did not care who they were giving a loan to because they were not planning on holding it in their portfolios. In addition, Investors did not do their due diligence. The first loss pieces in MBS securities were put into CDOs and then the “equity” piece in the CDOs was put in another CDO and this continued over and over. The private Label MBS market has not been active since the fall of Bear Stearns. T he only MBS market currently active is the government backed MBS market. If the originators of the mortgages were made to hold a portion of the loan they underwrote the Bubble would have never happened because they would be exposed to losses if they underwrote bad loans. Since they were able to pass the risk to Wall Street and Wall Street was able to pass the risk to investors (pension/retirement funds) they underwrote anything.

    1. norcal

      Securitization PLUS unrestrained generation of Liar Loans, Subprime Loans, Option ARMS, Neg Am loans, and other products geared to reward short-term bubble generation.

      Plus repeal of Glass-Steagal, which made the above a lot easier for TBTF (too big to fail) banks to rise, no matter how badly they behaved.

  9. Lee in Irvine

    I watched Obama speak this morning about new taxes/fees levied on the big banks. Here’s my open letter to the President. (I know it’s just a pipe dream, but if feels good to say it.)

    Mr. Obama,

    The only way you can save your presidency and not be thrown out of office in 3 years, is to become much more aggressive with Wall Street and the banks. You see, the tables have quickly been turned, and now you and your party will be held responsible if you do not in-act real change! Here’s a few suggestions~

    1) Push for congress to reinstate Glass Steagall immediately!
    2) Push for congress to breakup Bank of America, Wells Fargo and JP Morgan immediately!
    3) Fire Tim Geithner immediately!
    4) Fire Larry Summers immediately!
    5) Remove Bernanke’s name from nomination to a 2nd term of running the Fed.
    6) Nominate Paul Volcker to run the Fed.
    7) Ask the AG and/or the SEC to charge and prosecute Angelo Mozilo.
    8) Push for laws (claw backs) to go after all the past bonuses paid to these thieves on Wall Street since this Ponzi scheme begun 6-7 years ago. This money was not earned, and should be given back to the US Treasury/Tax Payer.

    It’s that simple Mr. President. Either stop talking and start doing, or you, and your party are gonna get hammered … starting this November. This is all but assured.

    1. AZDavidPhx

      I think Obama’s second term is pretty much 100%

      His approval ratings are slipping but all he needs to do is hit the street again and play the ‘It was my predecessor’ card to remind people that the Republicans are just as useless as he is.

      Follow up with some nice subtle racist television ads to stoke the fire of black resentment and white guilt by having Oprah come out and tell everyone what Obama’s presidency means to her.

      Chant ‘Yes we can’ for two minutes in each city; kiss 20 babies.

      Promise the rest that all of their wildest dreams can come true in America and smile BIG.

      Follow the playbook and he has another easy win especially if the Republicans cannot pull themselves out of their collective ass and get with the times. At this point, the honest Republicans have gone Libertarian; the only ones left are the religious kooks, greedy wealthy, hope to one day be greedy wealthy, white racists, nostalgic return to the good ol 1950’s when it was all about commies not terrorists.

      And the majority of so-called ‘independents’ are just fence sitters waiting to see who romances them the best and whispers the best pillow talk. So far I would say that Obama wins the charisma contest against anyone the Republicans can drag out.

      I think that pretty much covers it.

  10. AZDavidPhx

    I get a kick out of these DBH types who act like the government is organized enough to draft these big complex schemes.

    Anyone who has any experience understands that ithe government is just one big game of musical chairs game of neverending change. They do nothing but react to one fire after another while making sure that their buddies get pulled from the burning buildings first and then hose down the fire with the cheapest hoses and any nearest source of water.

    To act like the current snapshot is the result of some centrally planned creation and not the result of firefighting is wildly hilarious. The politicians need people like this to believe their lies and sell them to friends and family.

    1. nefron

      This is priceless, Dave – I laughed my a** off when I read it. A better description of government I never read. But, it sounds like you are a little too familiar with how government works…are you a government employee?

  11. IrvineRenter

    Rather than displaying your private brokerage statements, which may have increased for other reasons, why don’t you point me to some links where anyone from PIMCO or Goldman Sachs was quoted as predicting any of the following:

    (1) Takeover the GSEs.
    (2) Federal Reserve directly purchasing GSE paper to lower mortgage interest rates.
    (3) Federal Reserve lowing the Federal Funds rate to zero.
    (4) Banks will be allowed to delay the foreclosure process indefinitely through endless moratoria and mark-to-fantasy accounting.

    I have been watching this issue and writing daily for almost 3 years now. I have not seen any of these predicted in advance.

    There is also one more thing I still do not see from either of those parties:

    5) The current mess is over and real estate prices will go up.

    I don’t think GS or PIMCO is calling a bottom on house prices.

    1. matt138

      A friend sent me a GS 2010 economic outlook and the brief real estate commentary is laughable.

      They don’t call a bottom but it is fairly suggestive.

  12. lowrydr310

    D’OH! My attempt at sarcasm would have been better had I gotten it right: I meant to say “permaBEARS”

  13. Major Schadenfreude

    Seems like the world is slowly collapsing around us.

    Yet the stock market goes up and up and up…

  14. Anonymous

    The low rates were the problem – but not because of what the homebuyers were thinkin. The real question is what effect did the low rates have on investors relying on interst income? Think about it – if grandma, of a pension fund , or a small town or some other naieve investor can only get a say one percent interest but need more income to meet their obligations, what are they going to do? They are going look beyound money market and treasuries to other bonds. Bonds are supposed to be safe and boring right? And especially mortgage bonds since who would pay their mortgage? Certainly the grandma investing did, so why wouldn’t other people she thinks. Then the Machievellian banks realize this, and great the great housing bubble ponzi scheme to offer all kinds of exotic mortgage derived products to sell to all these naieve desperate for yield investors who believe since they are just getting two or three percent more than Tresuries, it must be safe right? Then the whole thing blows up, the investors and taxpayers take the losses while the bankers still keep their previously paid out cash bonuses.
    If the Fed had just raised the rates, the Ponzi bait would never have been needed or worked.

  15. oxymoron

    Geotpf makes a plausible argument. However, if those people bought in non-prime areas because Irvine was too expensive, why would one think the same people can afford Irvine when it’s still at near bubble prices? If they could not afford Irvine (or similar areas) before, how could they afford it now? One thing I would say in defense of Irvine, in general, is that prices in Irvine did not bubble as much as say, Corona, and thus it would make sense that Corona would drop more percent-wise. Regardless, Irvine prices are still bubbly but sometimes a bubble has a momentum of its own, and may not drop to the levels that make sense, maybe not for a long time. This is because the longer prices stay high, the stronger owners’ belief that their homes are worth the high prices… Make sense?

  16. Guaranteed home sale

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