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PeakTrader said...

The U.S. has the capacity to build hundreds of thousands of more houses each year. Instead, we have massive idle resources (including labor and capital). It's a huge waste.

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Krugman was correct that homebuilding would lift the country out of the 2001 recession and Bush was correct to begin a slowing of homebuilding in 2004.

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What Caused the Financial Crisis
November 16, 2010

"Starting in the late 1990s, the government, as a social policy to boost homeownership, required Fannie Mae and Freddie Mac to acquire increasing numbers of "affordable" housing loans. (An "affordable loan" is made to people who normally would not qualify.)

By 2007, 55 percent of all loans made by Fannie and Freddie had to be "affordable." By June 2008, there were 27 million subprime housing loans outstanding (19.2 million of them directly owed by government or government-sponsored agencies), with an unpaid principal amount of $4.6 trillion."

"What we know is that almost 50 percent of all mortgages outstanding in the United States in 2008 were subprime or otherwise deficient and high-risk loans.

The fact that two-thirds of these mortgages were on the balance sheets of government agencies, or firms required to buy them by government regulations, is irrefutable evidence that the government's housing policies were responsible for most of the weak mortgages that became delinquent and defaulted in unprecedented numbers when the housing bubble collapsed.

The tragedy is that the financial crisis continues because Congress misdiagnosed the problem and came up with a 2,000-page "solution" that will only make matters worse."

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Bush Administration Tried to Reform Freddie and Fannie Five Years Ago
CBS News
February 19, 2009

"Karl Rove, “We were briefed as far back as 2001 about the problems with Fannie and Freddie; in fact, we moved aggressively in 2004 to regulate Fannie and Freddie, actually got a bill through the Senate Banking and Finance Committee only to have it filibustered by [Sen.] Chris Dodd.”

Rove said Fannie Mae and Freddie Mac “accelerated their imprudent behavior after we attempted to regulate them. They bought almost as much mortgage debt from 2005 through 2008” as they bought in their first 30 years of their existence.

“In fact, in 2003, when we sent our first members of the Cabinet up to talk about this on Capitol Hill, Barney Frank had a hearing in which they basically beat up everybody we sent up there in pretty vociferous language."

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A Gary Shilling (who has one of the best track records) predicts home prices will fall another 20% within a few years and the S&P 500 will fall to 800 later this year.

A. Gary Shilling received his bachelor’s degree in physics, magna cum laude, from Amherst College; earned his Master’s degree and Doctorate in Economics at Stanford University.

My comment: More wealth will disappear, and be destroyed, by falling home and stock prices, along with below trend economic growth.

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Zachriel, Congress "engineered the scam," because it created a massive social program that it believed others would pay for.

Wall Street "recycled" dollars (at a time of contractionary fiscal policy and restrictive monetary policy) and diversified the risk globally.

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I recall seeing Bush at the White House giving a speech to reporters about the housing crisis, while Obama and Biden were off to the side.

Both were watching Bush with the same disgusting and angry looks on their faces, like this guy created enormous damage and we'll have to clean up his huge mess.

Yet, Obama and Biden, unlike Bush, supported the programs in Congress that created the huge mess.

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VangelV says: "Bush was a coward. He could have supported and passed legislation that took away the implicit guarantee from the GSEs."

That's a ridiculous statement. Also, I don't recall the GOP had the House with 60 Senate votes. Moreover, Bush wanted to win reelection. Anyway, Bush wasn't a tyrant.

10 reasons why George W. Bush was a smarter world leader than Barack Obama

1. Bush never apologised for his country.
2. Bush identified and confronted evil.
3. Bush made the advance of freedom a key component of his agenda.
4. Bush defended national sovereignty.
5. Bush believed in the Special Relationship.
6. Bush cultivated key allies.
7. Bush understood the importance of missile defence.
8. Bush believed in fighting a global war.
9. Bush did not compromise US security.
10. Bush did not send mixed messages in the face of the enemy.

Nonetheless, I'm sure, you still want to throw shoes at Bush.

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Bruce, thanks. I also wrote the following on the Bush economic record:

The "Misunderestimated" President:

Bush inherited the worst stock market crash since the Great Depression and a recession. However, the Bush Administration turned the recession into one of the mildest in U.S. history (which wasn't a recession based on annual per capita real GDP growth), after the record economic expansion and structural bull market from 1982-00.

Over a five-year period in the mid-2000s, U.S. corporations had a record 20 consecutive quarters of double-digit earnings growth, two million houses a year were built, 16 million autos per year were sold, U.S. real GDP expanded 3% annually, in spite of 6% annual current account deficits (which subtract from GDP).

The U.S. economy was most efficient, while Americans stocked-up on real assets and goods, and capital was built-up. It was one of the greatest periods of U.S. prosperity, the fourth longest economic expansion in U.S. history, and in a structural bear market that began in 2000.

The Bush Administration was adept at minimizing the recession in 2008, including providing a tax cut in early '08 for the Fed to catch-up easing the money supply, until Lehman failed in Sep '08, which caused the economy to fall off a cliff. However, appropriate policy adjustments were implemented quickly.

And if Bush could be reelected and had his way, the U.S. would've completed a V-shaped recovery in 2010, and we'd be in a strong disinflationary expansion instead of this on-going depression and "train wreck."

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Steve, Shilling's stock market prediction of the sell-off was when the S&P 500 was above 1,200 and within a year was below 1,100. He was also correct the economy would slow in 2011. Moreover, he predicted the 10-year bond yield would fall to 2%, which almost no one believed (including Bill Gross of Pimco) and further predicted it would fall to 1.5%.

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Ron, here's what #3 says in the article:

"The spread of freedom and liberty was always a centerpiece of the Bush agenda. His critics derided this approach as unrealistic, or as a grandiose dream. But few would argue today that the people of Iraq were better off living under a monstrous tyrant like Saddam Hussein. In marked contrast, Barack Obama rarely mentions the word freedom, and the issue of human rights is far down his list of priorities. He has remained largely silent in the face of extreme brutality by the Iranian regime, has extended the hand of friendship to genocidal killers in Sudan and has turned a blind eye to repression in places like Burma. There is a name for this kind of strategy – appeasement – and it only serves to weaken America’s standing in the world and strengthen the brutal fist of its enemies."

And #8:

"One of the gravest mistakes of Obama’s first year in office has been his reluctance to describe the conflict against al-Qaeda and its backers as a global war. He dropped the idea of a War on Terror within days of entering office, which was subsequently renamed as an “Overseas Contingency Operation”. President Bush was right to rally his country behind a large-scale long war, one which may last for several decades, against an enemy that seeks the destruction of the West."

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Fortunately, Presidents, with the exception of Obama, aren't as cynical as VangelV and Ron.

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PeakTrader said...

It may be a slow and uneven recovery:

Think Housing Is Safe Again? This Will Change Your Mind
August 10, 2012

"11 million mortgages in the housing market (24% of total home mortgages outstanding) are underwater.

"...equity of 20% or less in their homes, we capture another 25% of all mortgages outstanding. These homeowners don’t qualify for the 20% or more equity required as a down payment to trade up homes.

In addition, those homeowners who are at least 30 days late on their mortgage payments have increased to 6.5 million, according to RealtyTrac.

Furthermore, there are millions of homes that have still not been foreclosed on that will add to the supply of homes over the next few years.

Basically, close to half of all mortgages in the U.S. housing market are held by homeowners who are basically stuck."

As soon as home prices rebound and as soon as there is actual demand in the housing market, what do you think these homeowners will do?

They will sell, which will continue to put pressure on home prices and the housing market in general.

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