Wednesday, Aug 25, 2010
The USA: even more insanely Home-Owner-Ist than the UK...
IFA Online: Gross warns mortgage privatisation could 'cripple' US recovery
Pimco’s Bill Gross says there will be no housing-led recovery in the US without Government support... "Ninety-five percent of existing mortgage creation over the past 12 months were government-guaranteed. The private market was nowhere to be found because they charged too much," he says. "Having grown accustomed to a housing market aided and abetted by Uncle Sam, the habit cannot be broken by going cold turkey into the camp of private lending. The cost would be enormous in terms of yields - 300-400bp higher than currently offered, crippling any hopes of a housing-led revival to the economy." Instead, Gross proposes the Government remains involved in mortgage provisions, by combing all housing agencies into one body. "Taxpayers would be protected through tight regulation [etc]"
15 Comments
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1. estrader said...
Stupid Idea from a VI
http://www.youtube.com/watch?v=w0_6hpTzE3Y
2. crash bandicoot said...
Unbeliveable, surely rising house prices are an effect of a booming economy not a cause. And therefore falling housprices are also an effect of a shrinking economy, not the cause. When did the idea that housprices ARE the economy come from?
3. braindeed said...
2. crash bandicoot said...
When did the idea that housprices ARE the economy come from?
This is the glorious 'Service Economy, better than the grubby business than making things, and having horrible factories - think about all those novative 'products' like CD0's CDS's ....make you weep, wouldn't it..
I'd lay it at the feet of Baron Joseph, and the theories of the CPS....but I would, wouldn't I? Sadly no 'U' turn now.....only scorched earth back there.
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5. mark wadsworth said...
CB: "When did the idea that housprices ARE the economy come from?"
It's one of the core beliefs underpinning Home-Owner-Ism, isn't it? We read this all the time in UK newspapers as well - if there's a trade off between propping up house prices or building a new factory/power station/houses/railway line, politicians will tend to favour "propping up house prices" and s*d the real economy.
6. quiet guy said...
Thanks for video estrader.
I remember back in January, when Pimco issued their 'bed of nitroglycerine' comment, Flashman warned that 'Bill Gross is trying to talk up the yield.' I thought that was too cynical at the time. Not any more.
7. timmy t said...
CB@2 - surely rising house prices are an effect of a booming economy not a cause
You should be right but I'm not so sure you are... Whilst I think this was the case when it started, when prices really started rocketing, so much equity was withdrawn that people had tons more cash to spend on posh coffee and flat screen tellies. So our economy (largely retail) grew as a result. The media frenzy and all the doing up your house programmes on telly just exacerbated the situation, so people jumped on the ladder 'before it was too late', those already on the ladder bought BTL's and second homes to make more money, and the whole thing just got out of control. Now the wheels have come off, and people are spending less because their additional income (from MEW'ing) has gone. The tail is truly wagging the dog!!
8. mountain goat said...
Estrader you are right that Bill Gross is a VI who uses his media statements to talk his book. His advice guarantees a depression, which suits his Treasury holdings.
Without government backing mortgage lending in the US would choke and there would be a huge housing crash. Back to the same old choice. Take your pain now and get back to growth earlier or prop up bad debt and get a long slow recession.
MW@4 attitudes may be changing Now They Tell Us: Experts Say Housing Is A Lousy Investment And Always Will Be
9. mark wadsworth said...
Timmy T, CB is right.
Rising prices can only stimulate the economy (in the manner you describe) if borrowings go up and up (whether MEW up purchase mortgage) or if proper savings go down (people save less because they think their house is doing the saving for them). So that's all completely faux growth and sooner or later the price/credit bubble has to *pop* and the unpleasantness on the way down more than wipes out the [illusion of] pleasantness on the way up.
10. timmy t said...
MW - the only thing we appear to be disagreeing on is the definition of economic growth. I completely agree that the growth we've had has been an illusion, but until HP's fall and nequity becomes reality, it has been growth. There are an awful lot of people with an awful lot of goodies who've had a great time for the last 10 years. Only when HP's drop will their net position be where it should - in the gutter.
11. crash bandicoot said...
MW, TT FWIW my view is that the market is now split in two. There is a group (I deliberately didn't say half) who are priced out or who are abstaining from buying on common sense grounds. The other group are just speculators, investing in what they perceive to be an asset.
This is why "we" from group one should not be all that concerned with some of the nonsense in the press, as the current housing market does not apply to us. It's part of the funny economy noted above. Instead of getting angry about headlines like "It's now easier for FTB's to get into the market" we should read them as "It's now easier for rabid speculators with no anlytical skills to borrow money from banks and their family so that they can buy a commodity that the smart money got out of five years ago". Doesn't that sound better?
12. mander said...
"Ninety-five percent of existing mortgage creation over the past 12 months were government-guaranteed." Sorry uncle Sam but this is communism: "Everyone should paid for everyone regardless whether some are living in a bigger house or some do not feel like working"
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