Failure to burst the bubble fast enough will cause Depression.

[jueco2005]

The housing bubble inflated by the Fed loose monetary policy, fiscal deficit and exotic financial Assets (better called financial weapons of mass destruction) caused the economic hardships we now find ourselves in.

But this bubble is not bursting fast enough, again, aided by the Fed and Government policies. Soon they might run out of fictitious bookkeeping entries in the financial economy whose only action is to deliver inflation which threatens to drown us in an ocean of debt.

That being said, all actions taken since the 2007 are deferring and making judgment day worse than it needs to be. There are already talks about 2013 being a year where many events will test the strength of the world’s economic order.

Three things need to be wiped out if we are to see a way out. Its called bursting the bubble.

- Massive write off of Derivatives, CDOs and other inflated toxic liabilities.
- Debt write off of governments, companies and individuals.
- National Housing Saving Act. Put people back into their houses at affordable mortgage payments. The 700 billion they used for Wall Street would have been more than enough to accomplish this.

 

[bone]

You are partially correct, but are leaving out some very critical details.

1. You lay no accountability at the doorstep of individual citizens who made unfettered and unilateral decisions to buy extravagant housing beyond their means, took out multiple lines of credit and wildly over-leveraged themselves just because they could. And now they piss and moan because the bills are past due. Individual accountability is a must in free societies. Being ignorant, stupid, naive, or even crooked or nefarious in one's dealings is not a legal or acceptable excuse for personal accountability. Nobody held a gun to their head and told them to take out that 5-year ARM with a balloon payment on a house listing for ten times their annual income. And then furnish it and buy a new Lexus and take twelve vacations on a line of credit from the same house. Even if you are a union public employee.

2. It is true that Fannie and Freddie are holding a massive portfolio of defaulted properties, that they keep going to the government on what appears to be a routine and ongoing basis for the additional funds to carry that portfolio. The properties that they are releasing onto the markets are the dribble before the torrential downfall. But other than making your short position in SPY pay off much sooner, do you really believe that would help the US and indeed the world economy to depress and destroy a very fragile real estate market that everyone realizes has more downside to it ?

 

[denner]

Quote from bone:

You are partially correct, but are leaving out some very critical details.

1. You lay no accountability at the doorstep of individual citizens who made unfettered and unilateral decisions to buy extravagant housing beyond their means, took out multiple lines of credit and wildly over-leveraged themselves just because they could. And now they piss and moan because the bills are past due. Individual accountability is a must in free societies. Being ignorant, stupid, naive, or even crooked or nefarious in one's dealings is not a legal or acceptable excuse for personal accountability. Nobody held a gun to their head and told them to take out that 5-year ARM with a balloon payment on a house listing for ten times their annual income. And then furnish it and buy a new Lexus and take twelve vacations on a line of credit from the same house. Even if you are a union public employee.

2. It is true that Fannie and Freddie are holding a massive portfolio of defaulted properties, that they keep going to the government on what appears to be a routine and ongoing basis for the additional funds to carry that portfolio. The properties that they are releasing onto the markets are the dribble before the torrential downfall. But other than making your short position in SPY pay off much sooner, do you really believe that would help the US and indeed the world economy to depress and destroy a very fragile real estate market that everyone realizes has more downside to it ?

Those are good points, no doubt, but it always brings me back to my initial opinion on this whole matter. Namely, it's symptomatic of a society that transformed itself from productivity and using actual savings and earnings to acquire "things" into one that merely leverages assets in a recurring cycle of asset bubbles and crashes. The fact that people were so leveraged to buy a house OR that developers were spec'ing on building seven figure houses is prime evidence of the complete breakdown of the economic model. It's absolutely no coincidence that all of this took place in the years following the repeal of Glass Steagall.

 

[Fireplace]

Well said.

Quote from denner:

Those are good points, no doubt, but it always brings me back to my initial opinion on this whole matter. Namely, it's symptomatic of a society that transformed itself from productivity and using actual savings and earnings to acquire "things" into one that merely leverages assets in a recurring cycle of asset bubbles and crashes. The fact that people were so leveraged to buy a house OR that developers were spec'ing on building seven figure houses is prime evidence of the complete breakdown of the economic model. It's absolutely no coincidence that all of this took place in the years following the repeal of Glass Steagall.

 

[Larson]

Quote from bone:

You are partially correct, but are leaving out some very critical details.

1. You lay no accountability at the doorstep of individual citizens who made unfettered and unilateral decisions to buy extravagant housing beyond their means, took out multiple lines of credit and wildly over-leveraged themselves just because they could. And now they piss and moan because the bills are past due. Individual accountability is a must in free societies. Being ignorant, stupid, naive, or even crooked or nefarious in one's dealings is not a legal or acceptable excuse for personal accountability. Nobody held a gun to their head and told them to take out that 5-year ARM with a balloon payment on a house listing for ten times their annual income. And then furnish it and buy a new Lexus and take twelve vacations on a line of credit from the same house. Even if you are a union public employee.

2. It is true that Fannie and Freddie are holding a massive portfolio of defaulted properties, that they keep going to the government on what appears to be a routine and ongoing basis for the additional funds to carry that portfolio. The properties that they are releasing onto the markets are the dribble before the torrential downfall. But other than making your short position in SPY pay off much sooner, do you really believe that would help the US and indeed the world economy to depress and destroy a very fragile real estate market that everyone realizes has more downside to it ?

Fed encouraged massive credit card debt by flooding the system beginning in late 1990's. Greenspan even advocated the use of ARMs over fixed rate (I remember thinking what an idiot he had become at the time to even say such a thing). Reckless Fed became the role model for Roman Empire bread and circus American dumbasses. Fish rots from the head down.

 

[Random.Capital]

Quote from denner:

It's absolutely no coincidence that all of this took place in the years following the repeal of Glass Steagall.

It started long before that - we're coming up on 80 years of gross intervention in housing markets.

 

[jueco2005]

Quote from Random.Capital:

It started long before that - we're coming up on 80 years of gross intervention in housing markets.

I would go as far as 1913 with the creation of the FED. Instead of creating the FED what needed to be abolished was fractional reserve lending. Remember "Lender of last resort"?? How about now?? "Bail out of last resort & Debt monetized"

I would go as recently as 1971 when gold/dollar ratio was broken by president Nixon. And how can I forget Reagan's era in the 80s of financial deregulation. His famous quote "lets turn the bull lose". Not bad for a great president.

 

[jueco2005]

Quote from Larson:

Fed encouraged massive credit card debt by flooding the system beginning in late 1990's. Greenspan even advocated the use of ARMs over fixed rate (I remember thinking what an idiot he had become at the time to even say such a thing). Reckless Fed became the role model for Roman Empire bread and circus American dumbasses. Fish rots from the head down.

They created the stock market bubble. Not wanting to allow it to burst they creating a new one and now we are testing the mighty power of the printing press; trademark Bernanke.