Wednesday, Feb 07, 2007
Greenspans "cheap Money" you watching Mr B
The Market Oracle: Greenspans Cheap Money role in the US Housing Crash of 2007
The American people appear to be oblivious to the economic hurricane which is expected to touchdown in late 2007. That's when $1 trillion in ARMs (Adjustable Rate Mortgages) will “reset” triggering a massive increase in foreclosures and plunging the country into a deep recession. If energy costs continue to rise at the same time or if the dollar loses more ground, we may be rooting around in the backyard garden-plot looking for passed-over spuds and radishes.
Posted by vwphil @ 10:25 AM (147 views) Add Comment
17 Comments
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1. sovietuk said...
What will happen to people here coming out of 3.5 - 4.5 % fixed rate mortgages into 8%+ ARMs (soon)? When the whistle blows lads, up over the trench and charge at the enemy machine guns.
2. Blindleadtheblind said...
A superb article. Reads like the finest fiction but is sadly all too true. Thks for the posting vwphil.
3. Andy said...
China saves and America spends.
Reminds me of a great film -
Wasn't it Al Pacino's Scarface who said on his arrival to the US from Cuba :
"In this country you get the money first, then when you get the money - you get the power, then when you get the power.........."
It ends with him anhilated in a fountain of blood of water in his abundant lavish maximum security home .
Sorry If i ruined it for you but its worth watching again!!
4. Sam said...
Nice one Andy, but doesn't the quote end '...you get the women'
Always worth watching, lots of references to Estate agents in that film. ''j'ou maddaf'ing cock-a-roach"
Although I think the subtext of the futile pursuit of money and power over to the point where you are unable to live by even your own standards (lots of subtle hints building the scene in the car with the ‘explosives expert’) the desire to pursue those things that truly make you happy is to often overlooked.
5. denzil said...
What truly staggers me is that nobody saw this coming. The same ignorant bliss is evident in this country where so-called financial journos have just bought the "miracle economy" mantra hook line and sinker because they either will not or cannot understand that an economy propped up by the consumer (through HPI = MEW) and also massively high immigration is in fact not a "miracle" at all but a farce.
On a note of caution though, I believe Greenspan did not give flying **ck what he left behind for Bernanke and held rates down significantly longer than required. This led to virtually 2 years of monthly interest rate rises. We in the UK have not had increases in rates with quite the same frequency therefore we are not comparing Cox's Orange Pippins with Cox's Orange Pippins but a Cox's Orange Pippin with a Pink Lady or perhaps a Braeburn.
6. Sam said...
there was a funny sketch in the economist when he retired. -- basically him handing over the batton to the new guy saying 'good luck on managing the largest property bubble in history....'
although I disagree with them on most things, they've been calling the property market over valued for over two years.
7. inbreda said...
Very good article - thanks VWPhil
In my mind it suggests that inflation is going to rocket. Much pain and negative equity for (recent purchase) homeowners, but for the rest that can hang on to their home, I think they will look back in 30 years time and think. "A flat! For £200,000! I wish I'd bought 2 or 3 - they're worth £5mill now"
8. Layers said...
Great article, and certainly worth watching how the US Housing market plays out as it could well be fore-runner to the UK: "if America sneezes, then Europe catches a cold...", which I grew up hearing!
My question though, is, do we in the UK have any of these ridiculous mortgage products like ARMs, as these seem to be the riskiest and most ridiculous financial instruments ever devised. I know we certainly have a lot of sub-prime lending going on, but are these always dependent on BoE's IR decisions? And I wonder what other parallels can be drawn between the US and UK housing industries, and does anyone know if the BoE is a 'private' cartel as the Fed is?
9. Retired Banker said...
Surely (Sir) Alan Greenspan is above any criticism. After all he is a great friend of our Gordon ( who was instrumental in the granting of the
honorary knighthood ), and is now an adviser on the British economy.
We are in safe hands!.
10. Lovingit! said...
Mmmmmm Braeburn.
11. Caesium said...
LOL
12. Caesium said...
The UK will be largely exempt from any fall out from this.
13. enuii said...
Spot on Denzil, the strange thing about miracles is that a bit of blind faith is required in order to believe in them.
14. bidin'matime said...
Welcome back Caesium! Glad to see you've got fed up trolling about elsewhere and have returned to entertain us. I hope that you will stick around and give us the benefit of your insights as the year unfolds.
15. Rimmer said...
Quote ........ Caesium said...
The UK will be largely exempt from any fall out from this.
WHY?
16. Davros said...
No-one's exempt from this. The housing market boom has been a global phenomenon. What happens there will be repeated here.
17. dohousescrashinthewoods said...
The sheer human tragedy of 10 million people, on a conservative estimate, made homeless for the sake of a few peoples' greed upsets me. I think it is criminal. And the idea of lifelong debt slavery being foisted on millions so the few can ride on their backs and suck blood out of them is worse. It's not free market, it's personal abuse.
I can only hope this is a sensationalised misrepresentation otherwise we live in a very dark world indeed. (Hanlon's razor: Never attribute to malice that which can be adequately explained by stupidity)
The argument that the housing bubble is just a child of the liquidity bubble is disturbingly enlightening. Suggests HPC will be triggered by credit contraction. The mythical magical immigrant-led demand / shortage of housing may have nothing at all to do with it. Take away mass[ive] mortgage approvals and you have no buyers, no demand, qed HPC.