bostonbubble.com

[Booba]

I just read that article (the link is on the Web site).
This guy supposed to be much better informed then we are, and he also suppose to know economy better!
I have just one question: is he an idiot, or he just receives "gifts" from National Assosiation of Realtors and he works their money put??????

If he is an idiot, then we are all in trouble! If people like that clown rule our finances than America will get more troubles ahead!
If he just want to please his "sponsors" and lie publically this is disgasting!

[john p]

This guy is with the Boston Federal Reserve. They have nothing to do with the National or Massachusetts Association of Realtors.

The Federal Reserve was put into place to make sure that banks didn't lend out too much money and that they needed to have reserve funds in cash at all times. When the Federal Reserve lowered the amounts, it increased the amount that could be lent out (flooding the market with unearned money) See the M3 money supply growth.

The criticism the FED (Federal Reserve) is getting is that they lowered rates to unprecedented levels to slow the stock market bubble. In doing this, they increased the amount of credit and people started living on their credit cards and taking out equity in their homes and using the value (equity) in their homes like an ATM. This caused an inflation of money in the market and any price corrections that would have normally taken place were prolonged.

I think the Boston FED believed that the biggest problem was that house prices were falling so that if someone couldn't keep up with their payments, if they could sell their home for a nominal gain, they wouldn't have to forclose. He wanted the FED to drop interest rates which would make mortgages more affordable and create more buying activity which would support house prices. He thought that lowering the rate in the short term would do this, but banks were more afraid of having their dollars worth less and less as more money flooded into the system. This is inflation and the fear of inflation causes interest rates to go up because lenders are afraid that when they get their money back it won't be worth anything. So the move to lower FED rates did not translate into mortgage rates because of fears of inflation.

I think the people most at risk are those in adjustable rate mortgages (ARMS). Dear friends of mine lost their house because they got caught in an ARM that went up too much for them to be able to pay for. I am bummed that they never mentioned it to me. The politicians are totally late and full of crap. If they were leaders, they would have been out in front of this. I am so pissed that they are always a day late and a dollar short.

The MAR and NAR are almost a pseudoprofession organization, and people don't really take them seriously. Their Chief Economist always misfires; it is almost embarassing for him at this point.

The big thing to watch for on the FED is where their loyalty lies, to the American people or to the banking industry which is now international.

[Booba]

Thanks for the lecture, John!
My point was if this guys really belives that dropping interest rate will "fix" the housing market and make people buy rediculosly overprised houses again (how? with "exotic" mortgages again?), he is just plain stupid!
If he was just a "guy" I wouldn't care. But this guy is one of the most influental financial persons in the country! And tghis is really scary shit of me!

[john p]

Oh, God, I apologize for any lecture tone. Nothing is directed towards you. Your comment about him receiving "gifts" from the NAR was what I was skeptical of. My point is that the NAR are like a used car salesmen convention and I wanted to focus you on other connections or loyalties that were incongruent with their charge such as international corporations and investment companies. As the markets have grown global, the Federal Reserve as an authorized body of the US Government needs to be monitored. If the interests of the United States are shared interests for a global market because we are all tied together, it is difficult for the Federal Reserve to make policy in an international banking system. Do you think the Federal Reserve should be focused on the United State's best interest, or do you think that it should focus on being a fair and honest broker in a global market; or do you think that the two are not different? If countries like China manipulate their currency, is it fair that we absorb it?

The money supply in a lot of countries has grown out of control, it is a global problem. The money supply created the liquidity that the "exotic" mortgages were allowed to enter. What was "exotic" was the amount of money in the markets and the ability to draw capital from "equity".

The best thing that Ben Bernake said when asked what the US politicans could do, he answered that our independence of products in a global demand such as oil would create a financial independence and greater stablity free from lateral forces from demands in oil from emerging markets. He said to the effect that it would take some time to get things like electric cars a while to get on line, and until they did get on line we would suffer some pain. He is asking that we innovate our way out of this situation. I agree with him on that point.

I think many see the FED as stupid because of their perspective. The FED seems to do top down analysis and do diagnostics from a variety of sources that don't seem to align with the reality that many see. What is needed is a study of "bottom up" situations, meaning take profiles of average citizens in a variety of locations in variety of demographics and run typical monthly budgets. If they had kept current with this, they would have realized that the younger generation was financially bonded due to rising tuition costs and student loans and their abilty to save for a down payment and pay for a high monthly nut was too much, let alone the corporate america's disposition about treating employees like disposable dixie cups and hiring and firing them like commodities. To many these gaps in work are what created the need to draw out equity in their homes to pay for tough times. To others it was rising health care costs to pay for a loved one, or to others it was a way to pay for junior's college. The rich manufactured wealth for themselves by breaking the backs of the middle class. They allowed colleges to require families to draw equity from their homes to pay for college, so they created a larger resevoir to pump money from. It is like everybody became a predator. The unions became the corporate fat-cats, and their salaries shot way past many others, the academic segments started to wildly cost more and more. The medical segments got out of control, etc. When the money supply exploded because people were drawing the value out of fixed assets (real estate), many of these segments got big appetites and became fat cats and lost their loyalty to other citizens. I think when the unions started to support casinos, I started to lose my support for them. When they wanted a job at the expense of pain and suffering of fellow citizens, it was a tell sign that they had forgotten where they came from and the values of brotherhood and loyalty. When you see unions start to want for themselves at the expense of other citizens, when you play it out, what you'll see is a drying up of the value and you'll have to eventually be an insider within the union and then part of the dominant coalition of the union, and then only the top leadership of the unions will keep for themselves.

Again, I'm sorry about the lecture tone if it came off that way. As I had mentioned, a dear couple of friends had lost their home due to a foreclosure, and had they mentioned something to me, I could have helped, so I'm trying to backfill as much as I know to help....

[john p]

http://money.cnn.com/2008/04/09/news/economy/incomegap/index.htm

[Boston ITer]

I'd say he's one of those *group think* types who'd believe Greenspan when he said that the way he'd handled the NASDAQ 5K / Telco-IT tech crash by keeping rates at 1-1.75%, endlessly, was the way to go. In other words, believing one's own b.s.

Really, anyone who wasn't a Wall Street shill (like the Mish and patrick.net fellows) knew that excess liquidity would immediately flood the derivatives markets and into another bubble. Well, this time, the goose is cooked and there's no way of stopping the pricing deflation w/o either a major dollar correction, now unlikely due to the withering of counterbalancing currencies outside of east Asia, or price fixing which is what I believe Gov Patrick is trying to do with his hair brained scheme.

In addition, I believe the deterioration of Mass's economy, since '02, was emblematic of the problem. Here we had the nation's most successful R&D/production city-region per capita which was eliminating jobs and industries for years at a time, hand in hand with a housing bubble. How is that possible? You see, the answer was in front of us all along, a credit bubble with no underlying fundamentals is a disaster in the making.

[Booba]

"deterioration of Mass's economy, since '02"
What are you talking about? Look at my post regarding Boston Globe article that argues that median household income in MA grew from 74K in 2003 to ...94K in 2007!
Everything is going just perfect in joyful state of Massachussets!