Unemployment is going up. Foreclosures are rising. The government is in denial thinking that the banks will be ok and will start the big lending engine all over again. But psychology is important, and Americans have been burned by their government and their banks before. Even China is putting the breaks on a potential real estate bubble, requiring a stiff downpayment. But from that criminal Greenspan on, we can't even identify bubbles. That is because you are bought and paid for Mr Greenspan!! 

Anyway, I digress. The point is that our government doesn't care about the people, but they only care about Goldman Sachs, JP Morgan, Citibank or its carcass, Bank of America and Wells Fargo. Our government could care less about the consumer which is why unlike China, they didn't bother to help the consumer. It isn't that I love Chinese politics, but since when does the US government forget about her people? Apparently ever since Clinton, Bush 2 and Obama hit the scene the government has been in the pockets of the international banker class

So, while I hope you bookmark this site I have another little polite rant  here about Goldman Sachs. 

Update: Apparently the government is going to establish a cramdown policy where they artificially "set" the value of a house and then they renegotiate the loan. If this will be put upon the taxpayer it will be potentially inflationary, although we are still deflating, and if it is to be funded by the banks it will be filled with unintended consequences regarding credit default swaps and the like. We will follow these developments.

Warning:. If these cramdowns are recourse loans, rather than non recourse loans as we have now, people will become slaves to the economic system on a scale never seen before. Do not accept a cramdown that is a recourse loan (meaning that they can go after you for the money if you walk away from your loan later on). I would walk away instead of participating if it were me because in a deflation,housing prices could drop below the artificial level that the government assigns to it!

Clearly, the government of the United States is in denial and is seeking advice from individuals from the Ivy League schools who are giving bad advice. The bad advice is that government should stabilize house prices in the United States. This advice is extremely flawed, because house prices are too expensive. Any efforts to stabilize house prices runs the risk of freezing up the market even further. If a house is only worth pre 2001 prices, say 200 thousand dollars for Los Angeles, and the government wishes to freeze the price at today's level, which is around 350 thousand dollars, buyers will not accept this. We have seen the average price in California fall from over 500 thousand dollars down to 350k.

We are only half way through the correction. I repeat, we are only half way through the correction. Yet the government wants to stop this correction. If a buyer is an investor the buyer will no longer want to get ripped off by possible futher declines. And the down payment requirements for a 350k house is far greater than for a 200k house. It is in the interest of the real estate industry that house prices fall to their real, and sustainable levels. It does not matter what the interest rate is if the house price is too expensive and if the down payment requirement is too steep.

This is my advice to potential home owners: Do not buy, do not buy. I am all for the government helping the business sector, but I am not for an artificial propping up of housing prices, which became the reason why the house of cards crashed down in the first place. While banks may continue to suffer the United States cannot spend money propping up housing prices when it would be better just to give money to banks and individuals to offset the losses. How the government chooses to do this is certainly open to debate. My final warning, unless prices are pre bubble my opinion is that you don't buy. And if you think that mortgages will be hard to come by for years, don't buy either. Finding a buyer when you want to sell may become very challenging in the near term, maybe for years and years.

I knew about the housing bubble that existed in Nevada in 2005. Inventories were rising, sales were slowing. Then in early 2006, Wachovia bought Golden West Savings and Loan, a company that had primarily no money down loans. I thought it was odd. As it turned out Wachovia has had to relenquish her independence because of capital problems. It is my opinion that a lot of solid banks were told by the federal reserve to gobble up the toxic banks, and they didn't care about what happened to the shareholders, who have suffered greatly. Of course the housing crash has hurt many people who are reading this, and these people had far less cash to weather the storm than any government guru could imagine. Indeed, people were being given houses with toxic loans when they some could not even pay the first and last on rent!

 It is my view that this house bubble and the crash that resulted were planned by the central bank in an effort to finance the Bush presidency and the Iraq War. How am I so sure of this? Well, we need to go back to before the Iraq invasion, where Alan Greenspan admonished Bush to secure the oil. Then in 2004 that very same Greenspan pushed publically the adjustable loan as a way to maximize wealth. Of course this was a lie, but the ponzi scheme that resulted financed the Bush presidency. So, we know who the culprits were.

The fed looked the other way when underwriting rules were violated, and looked the other way when false AAA ratings were placed upon the bonds made up of these toxic mortgages. We know that with the direct intervention of the investment banks on turf that used to belong to Fannie and Freddit, these loans were peddled to the world (which now is waging an investor strike against all United States assets except treasury bonds).  Economic weakness was the motivation for this very bad behavior and now we are facing perhaps years of decline. After all, other countries make things and we sell each other real estate and insurance. That is not the basis of a sound economy! We have lost trillions of dollars in the stock and housing markets, and there is no guarantee that we are at the bottom at all.

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