Lordrobot (89.90)

"Goodbye old sausage!" Fed Gov coup d’état has nationalized mortgages and residential property!

September 07, 2008 – Comments (2) | RELATED TICKERS: GS , C

The SEC, Treasury and the Fed have just picked American’s pockets to the tune of 5 trillion dollars. They did in months what Al Gore tried to do with global warming following two years, a movie, and Nobel prize. Need I mention that was not the prize in Physics.

The SEC started it with reinstalling naked short selling. Hedge funds, composed of some of the richest persons in America showed their gratitude for living in the Land of the Free and home of the brave by planning a 30 cents on the dollar buyout of mortgaged real property, Harry Potter style. At first it looked like the SEC, Fed, and Treasury were going to go along with the plan. But instead they enlisted the efforts of the worst congress in history and talked them into absorbing virtually all residential real property owned by individuals in the United States to be taken over by the Federal Government. This was approved by the silly sitting president as well as both economic imbeciles and presidential wannabes, Obama and McCain. 

The SEC turned a blind eye to the naked short sellers who were selling not only the financials but brokers and also their publically disclosed common stock portfolios. This was government sponsored tort of economic duress. The Fed then came in with their regulators and refused to allow the banks to borrow more funds. This was widely publicized and the new sent the public into a Potterville styled run on the banks. Understand now that there was adequate private equity from the marketplace. They were willing to absorb the risk. The is free enterprise and markets fixing market problems. But the Fed had made up its mind. Rather than left FDR’s beloved new deal banks, Fannie and Freddie be dismantled and absorbed into the private sector, they saw a chance to created the greatest laundering scam in history.

What did the Fed do that was so bad? They took your property without notice and without compensation. They created circumstances where banks would fail. They did this thorough administrative regulation void of lawful supervision, and void of judicial appeal, void of independent oversight. They violated the 5th Amendment takings clause. They violated due process of both the 5th and 14th Amendments. They violated equal protection by regulation and actions that discriminated against some banks and allowed some in the marketplace advantages over others. They were charged with the duty to protect the marketplace, not to tilt it with favor for those players that would conspire to prevent private equity from settling the problems in the marketplace.

The hedge fund controlled financial press kept hitting the financials trying to terrify the public into running on the banks all while selling naked shorts. The SEC watched and did nothing.

Had the marketplace handle this mess, private equity spread out by individual and institutional investors would have bought mortgages assets at a discount. Real property would have continued to deflate until the 1995 bubble was flattened to the eighty year real estate appreciation curve. House flippers would have suffered. Mortgagor’s who bought overpriced homes in the bubble would walk from those mortgages. The housing markets would reset.

What is going to happen now is the big fires that fueled the bubble are going to be stoked again. Housing will rise but the value of the dollars will fall. The chump who bought a
$400K home in 2005 and now thinks his home is worth $200K when the replacement value is actually $80K at cost, will soon see his house soar to $400K. The only difference is that the government will have printed the additional $200K or $320K. You see it really doesn’t matter now because the value of a dollar can no longer be measured in this floating crap game. Housing will have no marketplace value because value is based on risk reward. The government can just keep printing and making the dumbest of housing speculators and flippers feel good about themselves.

The beauty of this is that the Government knows that our dollars are not worth anything. They are not backed as the Constitution required by solid tender. The currency floats and has no connection with anything real. But now, the government owns it all. They own the debt and the property that collateralizes the debt and they give dollars the value they want unlike the marketplace which sets the value of the dollar and notifies the world that currencies are losing their value.

I have told this story before and I will tell it again. In 1955 my dad had an annual income of $16K. He bought a brand new three bedroom two bath home for $15K and a top of the line buick for $2800. He financed both. In 2005, that fifty year old house was bought for $310K and a top of the line Buick that year was $35K. That is a total of $345K. Thus my dad’s buying power in 1955 would have required him to make an annual salary of $345K in 2005 to equal his 1955 buying power. This is what your government has done to you. Today with the bailout of Freddie and Fannie, they have taken virtually all of the residential real estate under mortgage and given you nothing.

Cramer is jumping for joy over this. But he is wrong and short sighed. The financial spreads will be huge overnight and they will soar like nothing you have ever seen. Short sellers will be destroyed. Naked Shorts may go to jail. And life will look great until sometime next year when the realization dawns that the dollar has inflated to half its value and this time, the government will need the bailout.

The reason this bailout is so foolish is because we need deflation. There are 4 billion Asian and Indian hands ready and willing to do labor for a fraction of labor in America. Why? Because Americans have wage price inflation just trying to pay for their mortgages and inflated commodities. Many pay 80% of their income to provide housing. This leaves nothing for savings. It diverts capital from business expansion and best use. This is bad for business. Couple that with layers of regulation and you create an environment where it is actually cheaper to go to China or India and build a company and the taxes are less.

The bailout of Freddie and Fannie today and the nationalization of the mortgage and residential real estate business will signal the fall of the American economy and virtually guarantee a colossal depression within the next seven years. But it won’t be a global depression because Asia and India will be the biggest economies. It will be a global feeding frenzy when private equity gets the sale of the century from the American government. It will all be up on the auction block and investors with dollars need not apply. Remember this day. It was the wreck of the Constitutional right to private property.