NoFate

Nowhere Near a Real Estate Bottom

jcrash - I don't know about anyone else on this board, but I have an Econ degree from UCSD (summa cum laude) and an MBA from UW. I never post this info due to modesty, but I've never been compared to a bank teller either.

I also find I get better information from blogs than from the mass media. These days I trust The Economist and that's about it.

Finally, I will short this bear to the bottom and will probably make a ton of money doing so. That doesn't mean I find it amusing. In fact I find it rather disgusting that we are currently being run like a banana republic. Monoline ratings are a joke, banks are technically insolvent and the Fed is unwilling to make the hard choices required to fix it. Think about it ...if you had a teenager who constantly maxed out her credit cards and didn't make payments would your solution be to double her limits? Nuff said...

Nowhere Near a Real Estate Bottom

The banks who decided to hand out free money over the past 5 years to anyone who could fog a mirror ...have created $4-6 trillion in inflated housing value that will evaporate very soon.

Someone now has to eat that debt! Let me repeat that ...someone now has to eat that debt! The money is spent and/or the LTV >100% (and people are walking).

Someone will also have to eat the bad debt in auto loans, credit cards and CRE ...also all ready to go off like a bomb shortly as well.

We are looking at bad debt equal to at least half our GDP (which is $13 trillion). The big question is who will eat the debt?? I think there are only 3 choices:
- Investors in mortgage backed investments. They will eat it if nothing is done.
- Banks. They created the mess, so Bernanke's recommendation has some poetic justice.
- Taxpayers. This could take the form of buying mortgages, insuring mortgages, giving people money, etc.

The banks are the only reasonable answer. If it's the investors the financial system comes unraveled and the banks never come clean creating a Japan style deflation. If it's the taxpayers it creates moral hazard and a host of other problems.

Two huge problems remain though:
1) Bottom line is the banks need to come clean and go public with their true issues or the credit crunch continues due to lack of trust.
2) Nobody knows how low housing prices will go yet ...so nobody knows how many foreclosures ...so nobody can really estimate true losses yet. And prices are sticky ...they take alot of time to drop compared to other investments.

The worst part though is the Fed auctions and interest rate cuts don't address either of these two core issues. Bottom line ...the US is sceeerewed for at least 1-2 years ...much longer if this doesn't get fixed.