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EScroogejr says:

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March 11, 2008 – Comments (8)

 Why Housing Bears are Wrong, Part 1:

"But even aside from these considerations, you must realize that the government has absolutely no freedom to let prices drop. To expect that from the government is about as realistic as expecting them to abolish the income tax. Theoretically possible, but will never happen. Because the entire financial system that was built on the foundation of constantly appreciating real estate will go belly up as soon as prices retreat merely 10%. Remember how they droped 1.5% this year, and then mortgage companies collapsed, the stock market almost crashed, and Ben had to call in his helicopter? Make no mistake, folks: the government will fight the bearish scenario more vigorously than it fought Saddam, and this alone is sufficient to assign this scenario a probability of zero. What steps it will take when and if necessary - impose a moratorium on sales, ban all construction, bring in 100-year mortgages, drop rates to -2%, impose death penalty for not buying a house - I cannot tell. But I can tell you for sure that it's not going to sit and watch that 20-trillion dollar "funny money" equity fall off a cliff".

From the blog of EScroogejr, Sept 18th.

Good call,

Devoish

 

8 Comments – Post Your Own

#1) On March 11, 2008 at 12:14 PM, mickeyc21 (29.85) wrote:

That's funny devoish - how long have you been saving that one up?!

Anybody that doesn't get it is being punished by the market. People in the US have a very unreasonable idea of the power of the government. Government can only guide what businessman do. The idea that the government actually controls the economy is ludicrous.

Escrooge is partially right in his arguement that the gov will do whatever it takes to keep the house of cards stable. What he overlooked is that it isn't possible.

This is history in the making. Children being born now will be lecured to about this time when they take college econ classes.

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#2) On March 11, 2008 at 2:19 PM, EScroogeJr (< 20) wrote:

Yes, mickeysc21, it is possible. The government is the only reason why houses don't cost 100K in the first place. If you pay 150K for a house, you're paying for the government interference that you hope will prop up your investment. If you pay 200K, you're paying for the government interference. If you pay 250K, you're paying for the government interference. The last time we had a free market in housing was before the Homestead Act was repealed.

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#3) On March 11, 2008 at 3:11 PM, devoish (95.76) wrote:

Actually when I first saw this news, my first thought was 'housing bailout', and I remembered Escrooges posts. But that is not what this is. Homeowners/builders can, are, and will go to h#ll in a handbasket. This is a banking bailout. The Fed is taking the risk that the banks should not have. And if this is not enough, the fed will risk taking the losses on more.

Sorry, Escoogejr,

You and me and the rest of the homeowners do not have enough votes to count as much as the bankers.

Delayed the day,

Devoish

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#4) On March 11, 2008 at 3:26 PM, EScroogeJr (< 20) wrote:

devoish, it is a housing bailout of sorts. Banks can now buy up all these subprime loans because they now have the money and the confidence in the Fed's readiness to socialize losses. But this is not the last bailout, there's more to come.

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#5) On March 11, 2008 at 5:25 PM, mickeyc21 (29.85) wrote:

History will give us the answer Escrooge. I agree for the most part with your reply. The market is rigged.

The bottom line is the bottom line though. The government can only manipulate what is there to manipulate. 

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#6) On March 11, 2008 at 7:31 PM, devoish (95.76) wrote:

EScrooge,

Banks are not going to buy up loans they know are going to default. They get the Fed to take the losses so they can write new loans for $250,000 on the same houses that defaulted on $500,000 loans. And you are right, its not enough, the Fed is not done.

Unfortunately the only solution is to restore the homebuyer. Or take the losses.

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#7) On March 11, 2008 at 8:39 PM, EScroogeJr (< 20) wrote:

of course, when one says "the market is rigged", it is important to avoid generalizations. It does not mean that the Fed is going to defend, say, timber industry or stocks of shipping companies under all situations. So you still have to ask yourself which sectors are too important to fail. It it were health care, for instance, I wouldn't be 100% sure, despite its importance to the national economy. Housing really stands alone in this respect.

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#8) On March 12, 2008 at 4:13 PM, FleaBagger (28.19) wrote:

I bought TMA at $3.20 today. I figure that if I never get economic freedom, I'll at least make some money instead.

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