By Martin Bosworth
The Federal Reserve announced another $20 billion in funds auctioned off to commercial banks today in order to help prop them up in the wake of the global mortgage meltdown. Especially telling is why the auction is working so well when previous attempts to
throw cash out of helicopters inject liquidity into the market haven’t worked so well:
Federal Reserve Chairman Ben Bernanke and his colleagues decided to try the new process because their efforts to inject funds into the banking system through the Fed’s discount window, which makes direct loans to banks, had proven less successful than Fed officials had hoped. Many banks had avoided using the Fed’s discount window out of concern that investors would see the move as an indication of underlying problems at their financial institutions. The auction process was developed as a second way to get money into the banking system with the hopes that it would not carry the stigma of the discount window. (Emphasis added.)
In other words, “This isn’t a bailout. Nothing to see here. Move along. Don’t mind the dead bull in the middle of the street.”
Merrill Lynch, meanwhile, is predicting that we won’t see the end of the bubble until at least 2012:
But with the sales backdrop still softening, they may have to slice their construction plans by another 30% before we hit bottom on a cyclical basis. And, that bottom could be as long as a year away. Beyond that, weak demographic fundamentals point to years of sluggish real estate activity, particularly in terms of the â€œpriceâ€. The looming dominance of the â€œmove downâ€ buyer suggests that home values will continue to soften long after the building industry mops up the current excess supply. In fact, real estate pricing in general can be expected to be in the doldrums through 2012.
The report (which I found thanks to Kevin Drum) notes in the next paragraph that this may induce more after-tax saving and investing from consumers as a way of replacing the idea of the home as the primary retirement vehicle. I’m a big fan of that idea, but if consumer spending continues to spike, the chances of greater saving will drop drastically. Given how much of our economy is based on spending, every dollar spent on building better financial futures for oneself and one’s family is a dollar not spent on shiny toys and consumer goods, after all.
Meanwhile, the heat generated by Bush and Paulson’s false mortgage rescue plan continues to burn the wrong people, as spittle-flecked invective from the likes of Michelle Malkin and her commenters indicates:
This is so unfair. My partner and I have been wanting to buy a home (or apartment) in NYC for the last few years instead of paying massive rental, but have held off for the reason that we wanted to save more in order to allow for any additional unforeseen expenses and interest rate increases. For using what we thought was wise judgment, we are being punished two-fold – once for the loss of equity we could have gained in the interim by paying off a heavy mortgage rather than rent, and secondly having to pay for those who were too greedy and self-involved to stop and realize they were over-extending themselves and take responsibility for their lack of foresight. I am soooooo tempted to run out and buy a house waaaay beyond our means now, being secure in the knowledge that others can pay for my error. Maybe Iâ€™ll add $100k onto it and take a world trip while Iâ€™m at it – no problem, someone else will pay for it later, right?
Comments like this are typical of the reaction to any of the housing bubble bailout plans floating about the Hill these days, which is the preferred reaction, actually. By focusing the ire of angry homeowners, renters, and savers at those “irresponsible people” who “lived way beyond their means,” it deflects attention from the fact that plans such as the Federal Reserve’s new guidance for lenders are pretty much worthless–like Barney Frank says, if you believe the Fed is looking out for you, you believe in Santa Claus.
But this is the aim, you see–direct the ire of angry consumers at other individual consumers, using coded language that camouflages barely veiled racist sentiments that the bubble was predicated by black and Hispanic borrowing, rather than flippers and specuvestors looking to make a quick buck. Above all else, make sure the “individual responsibility” rhetoric isn’t targeted at the larger failures of a system that flooded the market with cheap dollars, used deceptive lending tactics to fool people into expensive loans, and funnels billions to banks that took big risks while foreclosures continue to soar.
Like I said in the title, there is a housing bailout going on, but the bailing out isn’t being done for consumers–it’s being done by them, at their expense.
Categories: Business/Finance, Crime/Corruption, Race/Gender, Scholarship/Theory
But didn’t you know that it’s all the MEDIA’s fault??? That’s what Toll Bros is saying anyway.
There is enough fault and fraud to go around. From Easy Al Flatulanece and the ratings firms, who aided and abetted creative investment vehicles for a fee and a AAA stamp.
The media is still beating the ‘sub-prime’ drum when the debacle had already passed that point in July. Two things to keep in mind: the housing bubble peaked in August 2006; and second is: only 6.3% of all mortgages were sub-prime. Who recalls any pundit in the MSM saying, Whoa! we could have a problem,’ ?
Did any of the experts ever raise a question about the bizarre accounting practices of the Arthur Andersen firm on behalf of Enron? Nope. Even the SEC said, OK, fine.
Meanwhile, as the catastrophe unfolds, we see Freddie and Fannie had their hands in the toxic cookie jar when they had restrictions (a.k.a. regulations!) And money market funds were limited to low-risk investments but oops! they joined the raptors at the trough.
The current bailout plan the Obama administration has somehow contribute in lessening the effects of economic global crisis to everyone. Maybe in due time, the economy will bounce back to where it should be.