2006 Dem Talking Point: GOP Mismanagement-The Great Housing Crash of 2007

[Dems Will Win]

We need to get this talking point for '06 out there. The incompetent GOP and their toadie Greenspan have totally screwed up the US economic future! There's going to be a horrific housing crash and the lowering of qualifications of borrowers has created a $10 Trillion dolar bubble that just popped. Vote Democratic so you can get welfare next year!

How many people on DU over-borrowed? Are you worried about your own house?

Pop Goes the Bubble!
The Great Housing Crash of '07
By MIKE WHITNEY

When the stock market nose-dived in 2000 the Fed lowered rates 17 times to an unbelievable 1% to keep the economy sputtering-along while the Bush administration dragged the country to war, gave away $450 billion a year in tax cuts, and awarded zillions in no bid contracts to their friends in big business. All tolled, the Bush-handouts amounted to roughly $3 trillion dollars, the largest heist in history, and it was carried out under the nose of the snoozing American public.

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Rather than face the recession which should have followed stock market crash, the Fed chose to increase the money supply (which doubled in the last 7 years) and lower the qualifications for getting mortgages. (I read recently that 90% of first time home buyers not only lie on their mortgage applications, but that 50% of them say that they earn TWICE as much as they really do. The applications are not cross-checked with IRS statements) Now, tens of thousands of Americans live in $400,000 and $500,000 homes without a penny of equity in them and with loans that are timed to increase dramatically in 2007. (Many of the monthly payments will double)

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First of all, the Fed knew exactly where the money was going. Greenspan endorsed the shabby new lending-regime which put hundreds of billions of dollars in the hands of people who never should have qualified for mortgages. They were set up to fail just like the victims in the stock market scam who kept dumping their life savings in the NASDAQ when PE's were shooting through the stratosphere.

Secondly, the Fed knew that wages had actually regressed (2.3%) since Bush took office, so they knew that the soaring value of real estate was entirely predicated on debt not real wealth. In other words, home values increased because of the availability of cheap money which inevitably creates a buying-frenzy. It had nothing to do with real demand or growth in wages.

And, thirdly, according to the Fed's own figures, "the total amount of residential housing wealth in the US just about doubled between 1999 and 2006"up from $10.4 trillion to $20.4 trillion". Times Online.

UP $10 TRILLION IN 7 YEARS! That is the very definition of a humongous, economy-killing equity monster. In other words, the Fed knew the ACTUAL SIZE OF THE BUBBLE and chose to steer it towards the nearest iceberg without warning the public.

This is what Greenspan called "a little froth".

There is no real growth in the American economy. Figure it out. Last year Americans saved less than 0% of their net earnings while they borrowed a whopping $600 billion from their home equity to piss-away on a consumer spending-spree. Once home prices begin to retreat, that $600 billion will evaporate, real GDP will shrivel, and the economy will begin flat-lining. (Consumer spending is 70% of GDP)

Mike Whitney lives in Washington state. He can be reached at: [e-mail]

http://www.counterpunch.org/whitney08302006.html

Remember to recommend to get this talking point out there.

[unblock]

1. the problem is that a LOT of people think greenspan was a genius

and a lot of people made a lot of money on the real estate bubble, and will not like to think of themselves as suckers, even if prices crash.

if the crash is long and severe enough, there will be many more people hurt, but for the moment, a lot of people are on the "plus" side of the housing bubble, and that won't change as quickly as you might think.

[Dems Will Win]

2. You are right for some, but most people can do the math

Especially the math of their own family budgets. We need to get the word out that many house payments will DOUBLE next year because of GOP mismanagement.

Perhaps that is the way to state it.