The McMansions Which Ate Your Job

The McMansions Which Ate Your Job
PRESS RELEASE Citizens for Corporate Accountability

-No “economic mystery”; US has no need to create jobs--when easy credit is much quicker to grow GDP
-GOP departures, fines, and Greenspan comments spell deep trouble for mortgages
-Major mortgage financer hasn't reported finances--but still loans billions
-Ever-rising house mortgages really have no backing, per FDIC report

(UPDATE 2)

(SEATTLE) 03/05/04 - Twenty-one thousand jobs. Once again, net job growth in the US economy is negative, even while a record number of workers are already unemployed (1). Once again, the administration quotes record GDP growth--which occurred without job growth. All this confusion leads to a number of economists scratching their heads, some stating the economy is in “uncharted territory.”

Indeed.

But there is absolutely no mystery as to what is going on, if economists would simply study economic statistics, and economies which led to recent jobless GDP growth. Namely, aside from a short-term boost in high tech purchases, most of the cited GDP growth is tied directly or indirectly to a cycle related to home prices, and an unprecedented, quick and easy credit supply related to homes (analysis, BEA GDP statistics).

Yet the current ultra-low interest environment is more or less an “experiment”--which in practice, is leading to a bizarre cornucopia of credit. Low interest rates have never existed in conditions housing prices jumped so quickly, according to a recent Federal Reserve report on the matter.

Such an endless credit cycle would seem impossible--after all, who would underwrite a bottomless pit of credit, where houses go up nearly 20 percent annualized, and people borrow against them, even while jobs to pay for the same don’t develop?

The answer is, for all “sound” intents and purposes, that “no one” would do this. No one, that is, who is actually running a sound balance sheet with adequate and diverse reserves. However, in this particular case, the “no one” goes by the name of mortgage giants Fannie Mae and Freddie Mac, who are systematically picking up and packaging mortgages, and increasingly, holding onto them, or peddling them off to US banks, regardless of home price or the risk that they aren't truly backed. (2) (3)

Maybe economists are politically oblivious. But they certainly must have noticed a succession of scandals and departures surrounding Fannie and Freddie--the departure of a Bush cabinet member who had oversight, and now a major lobbyist? And what of the number of fines recently related to improper GOP donations?

In this “new, new” economy, it’s much quicker, and more “productive” to borrow for (and against) ever-larger homes, than to support an economy which requires actual workers and wages. Fannie Mae, the homebuilders, and GOP supporters make sure 25K chunks are available with a few points and clicks.

It's all so quick and neat--electronic transfers of credit, turning homes into giant stock shares and credit cards all at the same time. No one really knows why the home prices keep going up--it could very well be due to Fannie and Freddies buying, rather than that of actual home purchase. But how would we even know? After all, Freddie hasn't reported earnings in years. Yes, that's right--they loan billions for homes, but have invisible finances (4).

Apparently, it was not without reason that a normally upbeat and very Republican Greenspan warned recently about debt growth at Fannie Mae and Freddie Mac. There is no mystery at hand. Next time you hear the GOP touting GDP growth without jobs, remember that such is a symptom of something gone horribly awry--a mortgage system turned into a dark beast, which serves as a GOP profit center and quick surrogate for jobs, and according to Greenspan, is surely headed for trouble.

### Footnotes ###

(1) Job growth of 140-150K is needed just to cover new workers, hence, any number below that level adds new unemployed to the already record base. (2) This arrangement benefits Fannie and Freddie shareholders, and even more so, various homebuilders, who find they can raise prices eternally, with no risk to them. (3) According to a March 2004 report, a number of FDIC banks have been accumulating Fannie/Freddie mortgage securities in large volume, relative to “first tier” holdings--even though there is no real backing for these "clearly ... not guaranteed" (FDIC March 1 2004) (4) "Greenspan Tells Congress To Curb Debt At Fannie And Freddie To Avoid A Crisis'' Greenspan Warns. (5) " hopes to report 2003 earnings by July" No earnings report.

[FloridaPat]

1. Not good. Plus all that military spending is in the GDP too.

So in other words, the US economy is supported by nothing. How warm and fuzzy does that make me feel?

Thanks for a great insight into what is going on.

[StClone]

2. Ah the next scandal is here

I kept asking why are the rates so low? Now I know it's like the S&L scandal. I fear this time the crooks will crash Fannie Mae and Freddie Mac. Privatized and ready to make a killing on the transaction an leave the stinking hulk. An ill wind is a brewing.