May 12, 2013

Mr. Bernanke, How Much Should I Borrow For A House?

I asked this question as a weekend topic. “Mr. Ben Bernanke,

“Since you and the President have taken it upon yourselves to drive house prices higher, I thought I’d cut to the chase and ask you how much I should pay? You may know that house prices here in Flagstaff are really high compared to local wages. But the President has an answer to that; the new subprime ObamaLoan!”

“So with funding on its way, and market forces wiped away with trillions of printed money (thanks to you) and artificially low interest rates (also thanks to you), I just need a hint on how much to borrow. See, I don’t want to be left behind. I want to get in. And I understand your position is that this is going to save the economy. Boy, I want some of that glory!”

“So how much? $500,000 should create a few jobs in Flagstaff, right? And if millions of us borrow that much, happy days will be here again, right? I promise you and the President that if you give me an ObamaLoan, I will submit multiple offers, over asking, even if no one else is bidding for the house. And if you’ll let me, I’ll borrow and buy multiple houses, and not even rent them out so as to keep inventory low.”

“Anyway, just shoot me an email and let me know if $500,000 is too low. I’m really glad you know just how much houses should cost, all over the country, at the same time. - Ben Jones”

One said, “I’m sure it’s an innocent oversight, but you forgot to promise Mr Bernanke that you will pay back that loan.”

I replied, “That’s easy, because when I buy these houses with my ObamaLoans, my wages will go up. Bernanke said so.”

Added another, “Not only that, but after a few years the houses you bought will be worth 3x what you paid for them. You’ll then be able to refinance them, pay off the loans and buy even more real estate.”

One asked, “Are we going to blow through the 2006 peak RE prices and what should the Federal Reserve do different this time? Last time I remember irrational exuberance statments and not much else. it kinda crashed on its own when the loans started going bad. All the leverage off the bad loans came crashing down very quickly. Will the same thing happen again?”

And one said, “P.S. I don’t hate Ben Bernanke. But with bubbles blowing right and left in every corner of the global economy, U.S. household home ownership and labor market participation plummeting, and the greatest U.S. wealth gap since 1929 in the wake of the great Wall Street bankster heist of 2008, I can’t say I much care for his policies, though.”

“P.P.S. You totally missed the last bubble when it inflated right under your nose and imploded, and now you are totally missing the echo bubble, even as your very own QE3 MBS purchase policy blows it up a little bigger every day of the year.”

The Washington Post, October 27, 2005. “Ben S. Bernanke does not think the national housing boom is a bubble that is about to burst, he indicated to Congress last week, just a few days before President Bush nominated him to become the next chairman of the Federal Reserve.”

“U.S. house prices have risen by nearly 25 percent over the past two years, noted Bernanke, currently chairman of the president’s Council of Economic Advisers, in testimony to Congress’s Joint Economic Committee. But these increases, he said, ‘largely reflect strong economic fundamentals,’ such as strong growth in jobs, incomes and the number of new households.”

“Many economists argue that house prices have risen too far too fast in many markets, forming a bubble that could rapidly collapse and trigger an economic downturn, as overinflated stock prices did at the turn of the century. Bernanke’s testimony suggests that he does not share such concerns, and that he believes the economy could weather a housing slowdown.”

“‘House prices are unlikely to continue rising at current rates,’ said Bernanke, who served on the Fed board from 2002 until June. However, he added, ‘a moderate cooling in the housing market, should one occur, would not be inconsistent with the economy continuing to grow at or near its potential next year.’”

“Fed Chairman Alan Greenspan and Bernanke have both said it is unrealistic to expect the Fed to identify a bubble in stock or real estate prices as it is inflating, or to be able to pop it without hurting the economy. Instead, the Fed should stand ready to mop up the economic aftermath of a bubble.”

“In late 2000, looking ahead to the possibility of a sharp fall in then-lofty stock prices, Bernanke concluded, ‘history proves . . . that a smart central bank can protect the economy and the financial sector from the nastier side effects of a stock market collapse.’”

“And in words that might come to mind if housing tanks, he said the economic effects of falling asset prices ‘depend less on the severity of the crash itself than on the response of economic policymakers, particularly central bankers.’”

Bits Bucket for May 12, 2013

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