Thread: Obama About to Create a New Housing Bubble

Obama About to Create a New Housing Bubble

Posted on April 4, 2013 by Gary DeMar

The housing bubble of 2008 is still fresh in our memories. Drive around some of America’s large cities and you’ll see cut-in subdivisions with no houses. The roads are there, the underground utilizes have been laid, and the lots are covered with weeds.

Millions of Americans have homes that are worth less than what they owe. Millions of homeowners walked away from homes they could not afford.
The housing bubble and later collapse was caused by government interference in the marketplace. Bad loans were made to people who had no business getting loans. With millions of people able to get loans for houses that under normal circumstances they could not afford, a housing bubble was created. Home prices became artificially high.

One would think that the politicians who developed this insanity would not do it again.
The definition of insanity is straightforward and simple to understand. You have to be insane not to understand it: “Insanity is doing the same thing over and over again and expecting different results” (Albert Einstein).

A person who continues to loan money to someone who cannot pay it back is insane. An insane person is someone who would continue to take his automobile to the same mechanic even after the mechanic never fixes his car.

It’s hard to spot an insane politician because he can cover his bad economic decisions by stealing other people’s money to pay for his policy mistakes.
Well, the insanity is about to return. Obama and Company are pushing “to make more home loans available to people with weaker credit.” The recovery (if there is one) is said to be weak. By loaning money to people who don’t have money to spend on a new home it “will help power the economic recovery.” Saner voices note that the new policy “could open the door to the risky lending that caused the housing crash in the first place.”

Does Obama care? Of course not.

“President Obama’s economic advisers and outside experts say the nation’s much-celebrated housing rebound is leaving too many people behind, including young people looking to buy their first homes and individuals with credit records weakened by the recession.

“In response, administration officials say they are working to get banks to lend to a wider range of borrowers by taking advantage of taxpayer-backed programs — including those offered by the Federal Housing Administration — that insure home loans against default.

Did you notice that the loans are “taxpayer-backed loans”? I have not agreed to loan my money to people who don’t have the financial ability or collateral to justify such a loan. I’m not insane.

The credit crisis and housing bubble were not the fault of capitalism but with anti-capitalism brought on by government intervention. Congress created an economic fiction by subsidizing loans that no bank or mortgage company would have made if there had not been government (taxpayer)-backed financial institutions behind them insuring the bad loans they were making.

The mortgage debacle in America came about because of promised government loan guarantees insured by the VA, FHA, Federal Home Loan Mortgage Corporation (Freddie Mac), and the Federal National Mortgage Association (Fannie Mae)
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It was the promise of the guarantee that made lending to high risk borrowers attractive to banks and other lenders. There was no perceived risk. The transactions seemingly only had an upside for the lending institutions. If people defaulted, no problem, stolen taxpayer dollars would insure the loans.

Lending institutions were also forced by Congress to make loans to minorities because they were minorities even if they could not afford the houses they wanted to purchase. In the end, millions of minority families lost their homes and any equity they had built up because they were offered loans that under normal financial circumstances they could not afford. But because the taxpayer-backed loans were available, the banks loaned them the money. If they didn’t, Jesse Jackson, Al Sharpton, and other race hustlers would have accused them of discrimination.

It remains to be seen if the people who elected these insane people will reveal themselves to be just as insane by applying for the taxpayer-backed loans.

Read more: http://godfatherpolitics.com/10212/o...#ixzz2PtHYNyWb

We Know How This Ends: Central Bank Stimulates Subprime Again!

Posted on April 4, 2013 by Mark Horne

Reuters just released an excellent report under the headline, “How the Fed fueled an explosion in subprime auto loans.” Skipping the anecdotal stuff, the story also includes accurate analysis:

“The Fed’s program, while aimed at bolstering the U.S. housing and labor markets, has also steered billions of dollars into riskier, more speculative corners of the economy. That’s because, with low interest rates pinching yields on their traditional investments, insurance companies, hedge funds and other institutional investors hunger for riskier, higher-yielding securities – bonds backed by subprime auto loans, for instance. Lenders like Exeter have rushed to meet that demand. Backed by Wall Street banks and big private-equity firms, they have been selling ever-greater amounts of subprime auto loans in the form of relatively high-yield securities and using the proceeds to fund even more lending to more subprime borrowers… To make up for the risk of taking on increasing numbers of high-risk borrowers, subprime auto lenders charge annual interest rates that can top 20 percent.”

Notice that this is normally irrational behavior. Why? In a natural, non-politicized, economy poor people don’t have much money. As a result, the only way to make money off poor people is to sell them things that don’t cost much. Loaning money to people who can’t pay it back makes no sense because you will lose the money you loan out.

But in our economy, unsecured debt is made to look safe in a variety of way, while depressed interest rates make people hungry for some way of getting a return on their money. The sup-prime car industry grew by more than a third from 2011 to 2012 and the expansion continues.

With the bubble comes the same fraud we saw in the housing market that led up to the crash in 2007/2008. The company that makes the loans does not assume the risk but converts them into (inaccurately labeled!) “Securities”:

“Like subprime mortgage securities issued in the past decade, each Exeter security was divided into tranches, or layers, based on the risk and return of each. Investors couldn’t get enough of them, bidding up prices and thus lowering yields. In February, the yield on the top-rated tranche was 2.029 percent. By September, demand had increased so much that the yield was just 1.312 percent. Ratings agency DBRS gave the least-risky tranche its top rating – triple-A – in part because Exeter used a cushion to protect investors against losses and because it had a management team experienced in subprime, the agency said in its ratings reports. Exeter’s proprietary model ‘declines approximately 50 percent of submitted applications,’ the agency said.”

We know how this story ends. Politicians, desperate to claim that we are in recovery, will need this bubble in sub-prime car loans to keep expanding. Stopping it would mean an economic “hit” that they fear. So as Exeter (or a competitor) runs out of poor people to loan to, it will find ways to stop turning down half the applicants—just like the real estate market started issuing “liar’s loans” before the fall.

How much of our current alleged “recovery” is built on such froth? We can’t really be sure until the bubbles pop.

Read more: http://godfatherpolitics.com/10200/w...#ixzz2PtJKmG1K