Monday, July 11, 2005

Is the Greenspan Fed Bringing a Pin to the Party?

Bloomberg is reporting that Wall Street is very nervous about the housing bubble and what the Fed might do about it. “It’s gotten to the point where there’s no paradigm to explain why a house costs what it does,'’ said John Cerra, lead manager on a team that oversees $10.5 billion of fixed-income investments at TIAA-CREF Investment Management LLC in New York. The Fed’s ‘view is that they have to do something about it’ by continuing to raise short-term rates, he said." “The Fed is trying to slow the housing bubble and there’s a good chance that they’ll overshoot'’ by boosting rates too much, said Cheah, who manages $2 billion in bonds for AIG.”

And this from MSNBC: "There are growing signs that federal regulators would like to rein in some of the worst excesses of the current boom, including the increasing dependence on interest-only loans and other non-traditional lending products that can leave borrowers overextended."

Well, we can only hope they kill this thing off. But when has the Fed ever reacted in time and as appropriate to a crisis? Especially the Greenspan Fed which goes through very long periods of denial, followed by vacillation, and then finally is forced to acknowledge its errors only to intervene too little too late. They will no doubt bungle it and make the housing crash worse.

The sooner the housing market crashes and burns, the better. What we really need is a deep recession to clean out all the excess. The longer people try to hold it back via artificial means, the worse it will be.

I can only hope that some good will come of this. A good start would be to make "flipping" illegal.

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