In the circle jerk that is Washington D.C., there are a number of "monkeys on your back" - Oil, the Trade Deficit, the Budget Deficit, Social Security, etc...
They all pale in comparison to THE 800 pound gorilla - Housing Prices.
All of the huffing and puffing, sucking and blowing, and running to and fro - complete with the public histrionics of Tweedle Dee and Tweedle Dumb - means nothing.
Future home prices in nominal dollars mean EVERYTHING. There is NO OTHER ISSUE.
If home prices were to rise, the banks would not be in trouble. If home prices fall, most banks with mortgage exposure as their primary "asset" will not survive.
NOW, Therefore, ending short sales by decree, nationalizing Fannie and Freddie, publicly hanging speculators, even lowering the Fed Funds interest rate, will do as much good as sending every man, woman, and child in the U.S.A. a check for $1 million (or $10mm, or $100mm), ... though I suspect the latter will be infinately more popular (and just as silly).
THERE IS NOTHING ELSE. It is all about home prices. Americans have cashed out the equity in their homes, took a vacation, installed some granite counter tops in kitchens they are too busy to cook in, and bought a $10,000 (before prices dropped) HD flat screen T.V.'s to watch reruns of Giligans Island on. The banks have no money to lend, consumers have no cash for down payments, food and fuel price increase will make accumulating said down payment a time consuming endeavor, foreclosures are putting HUGE supply onto the market, and inventories of unsold homes would take over 5 YEARS to clear and return to traditional levels of inventory.
Now I ask you, given all of the above, which way DO YOU think home prices are headed?
Mentatt (at) yahoo (d0t) com
Subscribe to:
Post Comments (Atom)
2 comments:
The value of a mortgage is not really dependent on the value of the underlying house or real estate. Strictly speaking, the value of a mortgage is equal to the value of the discounted cash flow generated by the monthly mortgage payments. The government could resolve the threat to the banks by simply issuing a guarantee that the monthly payment will be made if not by the property owner then by the US treasury. Of course, this creates the risk that people may artificially stop making the monthly payments. In this case, an IRS audit should help to clarify the situation. If there is a genuine disability to pay the mortgage, the US treasure should take over the monthly payment and, at the same time, put the property into foreclosure. The overwhelming majority of people would continue to make their payments. The few million people who can not, should move into public housing and their "property" put on the market. This simple strategy would secure the credit rating of the banks and avoid a major recession.
Robert S.
Robert, Robert, Robert...
The value of ANY debt obligation, in addition to it DCF, is the probability that it will be repaid.
Ever hear of spread to Treasury? There is a good reason Junk bonds have a 400, 500, 600, 1000 BPS spread of Treasury.
BTW bro, the LAST thing we need from this point forward is MORE government intervention.
Post a Comment