Posts in "housing bubble"

By John McKenna at 1:00PM

Aug 9, 2011

Fannie Mae Needs More of Your Money

Fannie Mae, one of the federal government's big mortgage lending outfits, stated today that it needs more taxpayer-funded bailouts to stay afloat. The mortgage giant, still recovering from its tailspin three years ago due to the real estate crash and subsequent seizure by the federal government, has reported three straight quarters of multi-billion dollar losses, and now needs $5.1 billion in stimulus to meet its loan obligations.

Since 2008, Fannie Mae has needed $104 billion in government stimulus to keep itself going, and has only been able to pay back a meager $14.7 billion of it. This is the same partially government-owned company that during the housing boom artificially held interest rates down, and made huge, low-interest loans to customers who had no business getting them. They also participated in the same credit-default swaps that triggered one of the worst economic downturns in a century, and became completely nationalized because of it, leaving taxpayers to foot the bill for its bad business practices.

As the old saying goes, if it moves, tax it; if it's dead, nationalize it. Fannie is clearly dead, yet we still have to give it money to continue going about its business of making housing loans in a market that is getting worse by the day.

Originally posted at www.silverunderground.com.

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By Benjamin Levine at 9:02AM

Aug 8, 2011

The Decision: Is college worth it?

During the summer I work as a camp counselor, specifically with K-1st graders. As I was meeting the family of one my young campers, the dad asked me where I attended college. I told him Drake University and he then looked at his children and said, "See, we're always thinking about college. It's so important." I'm sure he will reiterate that sentiment throughout their youth. But I wanted to lean over and tell them, "Eh...not really."

Is it worth the debt?

Understandably so, this father was trying to improve his daughters' lives. It was undoubtedly a genuine effort on his part and I don't blame him whatsoever. For many parents, college is key. When they were young a degree actually meant something because not everyone could go to college. But college is not what it used to be. Today, almost anybody can attend because of the massive amount of student loans that are nearly guaranteed (Sound familiar? Housing bubble, anyone?). Many would say this is a positive thing. However, those loans need to be paid back eventually and the problem is that there is a high percentage of them that won't be. In addition, we now treat college as synonymous with learning. That isn't the case, either. Simply because you have a degree doesn't mean you are suddenly more intelligent.

So, financially college should be looking rather unattractive for many students. Recently, Moody's released an analysis of student borrowing and said this of the situation in American education:

Unless students limit their debt burdens, choose fields of study that are in demand, and successfully complete their degrees on time, they will find themselves in worse financial positions and unable to earn the projected income that justified taking out their loans in the first place. [emphasis added]

Basically, students should make a cost-benefit analysis on college. Does it make sense to take a loan out that will leave an unsurmountable debt once you are done? If that isn't the case -- if you can survive college without a massive amount of debt, that is -- then it probably is worth it (but, still, not always). However, with societal pressures to attend college mixed with countless options for loans -- including "help" from the government -- people are going to college that won't be able to pay off their debt. We're seeing a bubble form in higher education and it is a serious problem. But it also means parents might not want to beat the idea of attending college into their childrens' heads. It simply is not what it used to be.

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By Kevin McKenzie at 10:56AM

Jul 21, 2011

A reason to raise the debt ceiling? Not a chance.

This article from Politico is good only for a laugh. According to the author of the article:

Mortgage firms Fannie Mae and Freddie Mac could lose the top-notch ratings made possible through their government conservatorship.
Tucked into Moody’s recent report is a footnote estimating that, without explicit government support, Fannie Mae and Freddie Mac would have the equivalent of a B2 junk bond grade.

The author sees this as a doomsday scenario for the housing market, and it never occurs to him that this is exactly what should happen. Fannie and Freddie made horrible decisions, and not only should their ratings be in the toilet, but they should no longer even exist. That they have a top-notch rating at all just goes to show what a fraud these ratings agencies are running.

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By Matthew Malkus at 5:03PM

Aug 2, 2010

Pick an Agency, Any Agency: FHFA

As fiscal conservatives continue to seek avenues through which to derail the federal gravy train, it helps from time to time to take a look at the mind-numbingly long list of federal departments and agencies that are on board. Of course, this list is hardly exhaustive – just one that is publicly available – but it can certainly give us some concrete ideas on how and where to cut the spending.

Today: Federal Housing Finance Agency (FHFA)

About: “[The FHFA seeks to] provide effective supervision, regulation and housing mission oversight of Fannie Mae, Freddie Mac and the Federal Home Loan Banks to promote their safety and soundness, support housing finance and affordable housing, and support a stable and liquid mortgage market. The Federal Housing Finance Agency (FHFA) was created on July 30, 2008, when the President signed into law the Housing and Economic Recovery Act of 2008.”
FY 2010 Budget: $139.3 million (Source)

In response to the housing crisis in 2008, media pundits and politicians were quite convinced that there simply wasn't any regulation in the housing market.

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By Bonnie Kristian at 8:07AM

Jun 11, 2010

Is the college tuition bubble going to burst?

Are college tuition rates the heir to inflated housing prices -- a bubble about to burst? Here are eight arguments why they are (and here's the source and explanations for the arguments):

Tuition is, and has been, increasing at double triple the rate of inflation
Students are borrowing more than ever to pay for college
For profit colleges are paying homeless people to take out federal loans to enroll
Colleges are on a non-teaching staff hiring spree that far outpaces enrollment
For profit reliance on federal loans has reached an all time high
Schools are spending on luxurious amenities to lure in more students
College president salaries are sky high, even in a historical economic downturn
The student loan problem cuts across all schools, for profit and nonprofit

So what do you think: Is the (government caused) tuition bubble going to burst?

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By Brian Beyer at 9:36AM

Apr 2, 2010

Central Planning...

...does not work. Despite numerous efforts by the Obama administration to keep the housing market at its bubble level, they have failed. The money has run out. The spigot is dry.

The S&P/Case Shiller home price indices for January have been on the fall since December. Prices haven't dropped sharply, yet. The only reason for this is the artifical propping up of the housing market that appears to have finally met its match. Scarily enough, however, is how long it will take for prices to correct to the market level:

Also, looking at the 1990s-era comparison charts below its obvious that even after the main downward thrust has been reached, the housing markets have a long tough slog ahead with the ultimate bottom likely many years out…. Or if we are currently experiencing the Japanese model… decades out.

Residential real estate aren't the only worries. Commerical real estate enjoyed the same sugar high that the residential real estate market experienced. Now it must suffer through the same hangover. No matter how much greasy food the Obama administration gives commercial real estate, if at all, it will surely be no cure. It looks like the day of reckoning is fast upon us. Commercial real estate bankruptcies rose 52% in 2009. There are no signs that things will get better either.

As always, who have been calling this up and coming bust? The Austrians of course.

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By Brian Beyer at 8:04PM

Jan 6, 2010

Pop Goes the Weasel

In a piece by David Leonardt at the New York Times, he tries to defend the Fed and its recent grab at more regulatory powers. However, the evidence he provides is more damning than anything.

The article starts with, "If only we’d had more power, we could have kept the financial crisis from getting so bad." Well, the Fed does control the money supply and is the "lender of last resort." I'll let that speak for itself.

Another quote damns central planning:

When Mr. Bernanke is challenged about the Fed’s performance, he often points out that recognizing a bubble is hard. “It is extraordinarily difficult,” he said during his Senate confirmation hearing last month, “to know in real time if an asset price is appropriate or not.”

This is one of the most concise arguments against the Fed I have ever seen and it was uttered out of the mouth of the Chief Thief himself. A group of elite, pipe smoking, tweed wearing economists, no matter "how good they are," cannot determine if a price is right or not. It takes the market to determine that. Only after millions of individuals make billions of transactions free of regulation and law will a price be made "right." This is the problem with price setting and a centrally planned economy: a group of twenty cannot determine the economic fate of 300 million.

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By Brian Beyer at 5:13PM

Dec 7, 2009

Our Current Crisis: Austrian Style

For a great Austrian economic primer to the crisis, read this study from the Foundation for Economic Freedom:

Get it here.

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By Dustin Reid at 6:22AM

Oct 15, 2009

The Conspiracy Of The Rich: Why the Dollar is Toast

Initially I was going to write about a recent article published by Robert Kiyosaki, where he gives evidence of the global shift away from the U.S. Dollar's standing as the reserve currency of the world. However after a quick search of Kiyosaki's name in the YAL database came up with nothing, I realized I needed to let you all in on a potentially unknown ally for sound money.

Best selling author Robert Kiyosaki, better known as the author of Rich Dad Poor Dad, recently released a new book entitled Conspiracy of the Rich: The 8 New Rules of Money. The fact that he wrote a new book is not significant in itself if you follow the Rich Dad Company, as they have book after book on how to increase your financial IQ, so on and so forth. This one, however, gets political and to the heart of our financial system; including the Federal Reserve.

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By Nick Leavens at 5:05PM

Jul 29, 2009

Media continues trend of reporting data it doesn't understand

Data on June 2009 new residential sales were released by the Commerece Department Monday, and government officials were quick to promote the news with a positive spin.

“The evidence is clear that home buyers are taking advantage of Recovery Act tax incentives, declines in home prices and relatively low mortgage rates,” U.S. Under Secretary for Economic Affairs Rebecca Blank said. “Both new and existing homes have become more affordable. While the economic environment remains difficult, as more Recovery Act dollars hit the streets, we anticipate that it will further bolster the economy in the coming months.”

On the heels of the release from the Commerce Dept., the media trumpeted the data. The Associated Press reported, "...the housing market is finally bouncing back from the worst downturn in decades."

CNBC's Power Lunch Host Bill Griffeth and reporter Diana Olick discussed the numbers, saying, "It was the economic piece of data of the day," and, "No question it was a huge number today beating the streets expectations by alot."

Sure, it's great that new home sales were up 11% in June, but what the media fails to point out is that when you look at the numbers in a proper perspective instead of focusing only on a monthly gain, you'll find that the June new home sales were the worst June new home sales since 1963! Floyd Norris points this fact out on his blog: "There are twice as many households in America as there were then (1963), so relative to population this was the worst June ever, by far."

Maket analyst and commentator Barry Ritholtz publishes a blog called, "The Big Picture". Barry does a nice job of showing exactly how the 11% increase number doesn't really look all that spectacular when analyzed and compared to other important figures. Barry concludes, "Real Estate is now getting worse more slowly." Nothing like being able to put a positive spin on something that's actually still negative!

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