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Mike Whitney - Housing Flameout: California falls into the sea
See also Central California Housing Crash
Is it really fair to blame one man for destroying the US economy?
Probably not. But Alan Greenspan is still tops on our list. After all, Greenspan “presided over the greatest expansion of speculative finance in history, including a trillion-dollar hedge fund industry, bloated Wall Street-firm balance sheets approaching $2 trillion, and a global derivatives market with notional values surpassing an unfathomable $220 trillion.” (Henry Liu, “Why the Subprime Bust will Spread” Asia Times) Greenspan’s also responsible for slashing the real Fed Funds Rate so that it was negative for 31 months from 2002 to 2005. That decision flooded the housing market with trillions of dollars in low interest credit creating the largest equity bubble in history. Now that that bubble is crashing; Greenspan has hit the road. He now spends his time leap-frogging from city to city hawking his revisionist memoirs of how he steered the ship of state through troubled waters while fending off protectionist liberals. Look for it in the Fiction section of your local bookstore.
Still, can we really blame “Maestro” for what appears to have been a spontaneous flurry of “free market” speculation in real estate?
To a large extent, yes. Apart from Greenspan’s tacit endorsement of all the dubious loans (subprime, ARMs etc) which flourished during his reign; and despite his brusque rejection of the Fed’s role as regulator; the Federal Reserve’s own documents (“House Prices and Monetary Policy: A Cross-Country Study”) indicate that housing was “specifically targeted” acknowledging that it would serve as “a key channel of monetary policy transmission”. This is not even particularly controversial any more. In fact, we can see that this same scam has been used in England, Spain and Ireland---all now suffering the effects of massive real estate inflation. Low interest rates continue to be the most efficient way of stealthily shifting wealth from one class to another while decimating the foundations of a healthy economy.
CALIFORNIA HOUSING FALLS OFF A CLIFF
We are now beginning to see the first signs that the listless housing bubble has sprung a leak and is careening towards earth. This week’s news from Southern California confirms that home sales have plummeted a whopping 48.5% from the previous year. This represents the biggest decline in home sales since the industry began keeping records more than 20 years ago. Sales are at a standstill and builders and homeowners have begun slashing prices in desperation.
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.
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An article in the Financial Times shows how this process has slowed to a trickle:
“Only $9.9 billion of home equity loan securitizations have come to market since July 1---A 95% DECLINE FROM THE $200.9 BILLION IN THE FIRST HALF OF THIS YEAR AND A ROUGHLY 92% DECREASE FROM THE SAME PERIOD LAST YEAR.”
Also---and perhaps most importantly---many potential buyers are now finding that they no longer meet the stricter standards the banks are using to determine credit worthiness.
Probably not. But Alan Greenspan is still tops on our list. After all, Greenspan “presided over the greatest expansion of speculative finance in history, including a trillion-dollar hedge fund industry, bloated Wall Street-firm balance sheets approaching $2 trillion, and a global derivatives market with notional values surpassing an unfathomable $220 trillion.” (Henry Liu, “Why the Subprime Bust will Spread” Asia Times) Greenspan’s also responsible for slashing the real Fed Funds Rate so that it was negative for 31 months from 2002 to 2005. That decision flooded the housing market with trillions of dollars in low interest credit creating the largest equity bubble in history. Now that that bubble is crashing; Greenspan has hit the road. He now spends his time leap-frogging from city to city hawking his revisionist memoirs of how he steered the ship of state through troubled waters while fending off protectionist liberals. Look for it in the Fiction section of your local bookstore.
Still, can we really blame “Maestro” for what appears to have been a spontaneous flurry of “free market” speculation in real estate?
To a large extent, yes. Apart from Greenspan’s tacit endorsement of all the dubious loans (subprime, ARMs etc) which flourished during his reign; and despite his brusque rejection of the Fed’s role as regulator; the Federal Reserve’s own documents (“House Prices and Monetary Policy: A Cross-Country Study”) indicate that housing was “specifically targeted” acknowledging that it would serve as “a key channel of monetary policy transmission”. This is not even particularly controversial any more. In fact, we can see that this same scam has been used in England, Spain and Ireland---all now suffering the effects of massive real estate inflation. Low interest rates continue to be the most efficient way of stealthily shifting wealth from one class to another while decimating the foundations of a healthy economy.
CALIFORNIA HOUSING FALLS OFF A CLIFF
We are now beginning to see the first signs that the listless housing bubble has sprung a leak and is careening towards earth. This week’s news from Southern California confirms that home sales have plummeted a whopping 48.5% from the previous year. This represents the biggest decline in home sales since the industry began keeping records more than 20 years ago. Sales are at a standstill and builders and homeowners have begun slashing prices in desperation.
.
.
.
An article in the Financial Times shows how this process has slowed to a trickle:
“Only $9.9 billion of home equity loan securitizations have come to market since July 1---A 95% DECLINE FROM THE $200.9 BILLION IN THE FIRST HALF OF THIS YEAR AND A ROUGHLY 92% DECREASE FROM THE SAME PERIOD LAST YEAR.”
Also---and perhaps most importantly---many potential buyers are now finding that they no longer meet the stricter standards the banks are using to determine credit worthiness.
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