March 6, 2008

Ha Ha, Suckers!

I won't pretend that I understand what all those terms like FHA, Fannie Mae, and Freddie Mac mean, but I think the gist of the following Business Week story is that we Californians aren't going down alone. We're taking the other 49 states down with us. See you in taxpayer bailout hell!
The government on Wednesday raised the mortgage limits for loans guaranteed by the Federal Housing Administration in 14 high-cost California counties.The Department of Housing and Urban Development released the new loan limits for California -- a hotbed during the housing boom that now is suffering the worst home-price declines in the nation. The limits, with the maximum at $729,750, are derived from median home prices in each county.

HUD is expected to raise the limits in other counties nationwide in the coming days.

The economic stimulus package includes a temporary increase in the limit on FHA-backed loans, from $362,790 to as high as $729,750 in expensive areas, to let more homeowners with high-rate subprime mortgages refinance into federally insured loans.

The package also includes a temporary increase in the cap on mortgages that the government-sponsored mortgage companies Fannie Mae and Freddie Mac can buy or guarantee from $417,000 to $729,750.

My published articles are archived at -- Steve Sailer


Anonymous said...

The government says they are trying to help homeowners, but really they are doing it to bail out the banks. And Bernanke is determined to save the big banks no matter how much inflation he causes. You can bet he'll be rewarded. Just watch, as soon as he retires from the Fed he will be rewarded with a very high-paying job at some financial institution.

Anonymous said...

anonymous, are you serious?
He already has a high paying job in the most powerful private financial institution in the world:

Anonymous said...

Due to higher incomes, Californians pay much more in federal taxes than they take from federal spending.

So we are the suckers, and a bailout would at best even the score.

See a map here:

Anonymous said...

Steve, there are other websites that cover and actually understand the economics of the current housing crash such as Calculated Risk. I suggest you leave that beat to them.

P.S. The new conforming loan limits are meaningless at this point because no one is loaning easy money.

P.P.S. The bubble happened in other states too.

Anonymous said...

As a voter, I want to know what folks think about each candidate's proposed mortgage bailout strategies. Hillary has been trumpeting a major bailout. No idea on Obama or McCain.

My first thought is that gamblers deserve to take their losses, unless their losses really hurt the national economy. So my decision depends on the definition of "really hurt the national economy."

Anonymous said...

This is insane. Just keep giving compulsive gamblers more house credit so they can win back their losses.

House shopping in the CA during the annual 20-30% price run up, I met a lot of speculators who were just driving prices off the cliff. Led by the Fed and Fannie Mae/Freddie Mac, banks, brokers, agents, appraisers and all the other players were feeding the frenzy and pocketing big dollars while the going was good.

The formula was pretty simple: get the lowest point teaser loan possible with nothing down and use borrowed money ($500k-$1M+) to ride the annual 20-30% appreciation. Flip within the minimum required "occupancy" period (2-3yrs) to realize up to ($500k+) of tax free RE appreciation.

With CA's no fault home loans, anyone with a brain just planned to walk away from everything when the music eventually stopped. This was one of those rare get rich quick with no money down and minimal risk (only monthly carrying costs) thanks to the re-election financial manipulations of Bush, the weak-kneed vanity of Greenspan, the corruption of functionaries like Raines and of course the greed of Wall Street in profitably securitizing oodles of bad loans.

I'm not sure anyone outside Wall Street knew they could push the scam even farther into the future and get taxpayers to cover their gambling losses.

Outside Wall Street which should be responsible for their actions, reckless speculators who arrive late to the party and greedy homebuyers who were really just glorified renters are largely being hurt. I say "Glorified Renters" instead of homeowners because they didn't buy much equity in the home in the first place which is why they are walking away now.

Like most government interventions, this will probably be another foobar. It will just benefit Wall Street and the wealthy (i.e. speculators who got in early or other financially secure homeowners like baby boomers) who are positioned to benefit instead of their largely imaginary but propagandized victims.


Eric Falkenstein said...

fix one problem by sowing the seeds for a bigger one. the federal agencies makes gobs of cash because they borrow at the risk free rate, unlike their competitors, because they have the guarantee of the federal government. Allowing them to purchase mortgages up to $700k seems like a 'free' way to prop up demand, because all congress did was change a regulation. Just wait until the guarantee gets called, and it's the S&L crisis all over again.

Anonymous said...

"The government says they are trying to help homeowners, but really they are doing it to bail out the banks. And Bernanke is determined to save the big banks no matter how much inflation he causes."


It is a particularly insidious scheme because the major banks and investment houses have control of the financial press. So when some cash-rich brokers at these places start losing their parasitic jobs, all of a sudden it's a "liquidity crisis."

Unknown said...


The problem with bailing out the banks is that it would immediately spike interest rates into double digits and raise the government's cost of borrowing. I'm not saying they aren't stupid enough to try this, but Bendover Ben and Hanky Panky Paulson know this.

Steve, they've raised the limits in CA, but it's not going to do much good. Practically no one will qualify. They've already said that they aren't issuing mortages unless the LTV (loan to value) is 80% or less. With the steep house value declines in CA, already in the 20%-30% range, most borrowers are upside down without the ability come up with the cash to get within the LTV ratios. It's a non-starter.

Anonymous said...

I don't think Bernanke is helping the banks. The people on Wall Street want the U.S. to have a strong dollar, because this helps them in a number of ways too numerous to list here. Also, the importers in places like California also want a strong dollar.

In the Midwest, a region of the country that actually makes useful stuff, government and business leaders have been calling for many decades for a moderation in the value of the dollar, so that American companies actually have a fighting chance against an onslaught of cheap imports helped by foreign central banks. It looks like Bernanke has listened and cut interest rates, which lowers the value of the dollar.

Sure Michigan is losing jobs, but the economic conditions would be even worse if the dollar was stronger. A weaker dollar has helped many of the export based industries here in Ohio to rebound. I think Bernanke is doing a pretty good job overall.

Anonymous said...

"The market for complex debt securities has seen its worst start to the year in more than 10 years, with issuance of collateralised debt obligations grinding to a near halt worldwide. Just three CDOs worth a total of $1.3bn were sold in January - one in the US and two in Asia - compared with 37 deals worth $22bn in January 2007."

Financial Times, February 11, 2008

"The extra yield that investors demand to own agency mortgage-backed securities over 10-year U.S. Treasuries reached the highest since 1986… The difference in yields on the Bloomberg index for Fannie Mae's current-coupon, 30-year fixed-rate mortgage bonds and 10- year government notes widened about 12 basis points, to 215 basis points, or 79 basis points higher than Jan. 15."

Bloomberg, March 5, 2008

The winds are dropping out of our sails. It could be because of global warming, it could be because it's that time of year, it could be because a butterfly landed on a flower somewhere in Japan.
Depressions are born because enough floating variables in the economy converge to the point that there's not a thing anyone can do. The Fed is just adjusting some major variables for the good of everyone.
Greenspan was absurdly irresponsible with our economy: ridiculous rate swings and cheerleading for the derivatives that are scaring the hell out of everyone now.
He didn't seek to regulate them, so our financial sociopaths took advantage of it.
They are the dark ghost ship following our economy: We're not sure what's on the boat, and we don't want to know. We just know it's not good. We can hear the soulless screaming from it's deck, and we want to get away.
To me, Bernanke is just paddling hard right now for us. We may not get away, but he's making moves now that make sense. Our situation goes beyond specific, self-centered financial interests.
The stakes are our collective economic ass.

Anonymous said...

He didn't seek to regulate them, so our financial sociopaths took advantage of it.

What? Are you suggesting that unregulated free free free markets don't always work?

Anonymous said...

What do you iSteveniks think of this comment re the so-called American "Greatest Generation"?

Is this fellow on to something, or does he just have issues with his quite elderly or departed parents?

RE: I'm beginning to realize these are some young peop... mannfm11
NEW 3/6/2008 6:15:10 PM

It wasn't the boomers that set up this Breton Woods agreement that set the US up to be looted by the internationals, it was the parents of what they called the greatest generation. What they called the greatest generation was nothing more than a group that ended up in a war against to mineral starved nations with sitting duck army's. They gave us the divorce rate that divided the country then sent the boomers to some no win war in Viet Nam. By 1970, the US was looted to the point there wasn't an economy except service and entertainment. The past 10 years hasn't been unlike the Roaring 20's and has absolutely nothing to do with generations. ...

Jim O said...

This is what ya get with a liberal(Democrat) Congress and a liberal (Bush) President. And there's no relief in sight.

Anonymous said...

david davenport said...
What do you iSteveniks think of this comment...

david, after reading it, I think that if you don't have anything to say of your own, it's better to communicate that to the board by not posting.

Anonymous said...

"What? Are you suggesting that unregulated free free free markets don't always work?"

The mortgage industry in America has had a gigantic level of government involvement: from the implicit subsidies of the mortgage interest tax deduction, to the de facto elimination of capital gains taxes on primary home sales, to the implicit subsidy of loose monetary policy, to the secondary market in mortgages created by the Government-Sponsored Entities (e.g., Fannie Mae, Freddie Mac). If it didn't, mortgage rates would probably have probably averaged 9% over the last several years instead of 6%, 40% or 50% of Americans would be homeowners instead of 66%, home prices would be more in line with average incomes, and there'd be no "crisis" of people at risk of losing homes they were never able to afford in the first place.

- Fred

Anonymous said...

Fred: "mortgage rates would probably have probably averaged 9% over the last several years instead of 6%, 40% or 50% of Americans would be homeowners instead of 66%"

Correct. That also means that Steve´s AFF theory would fall apart under that scenario because the underlying economic reality would have been different and would have led to different political results.

Anonymous said...

Bernanke has buddies in the big banks and WS. These guys have been feeding each other the data and the money for ages. I won't start defining this "group" any closer.

Anonymous said...

Fred is probably onto something. The ideal of a single unit house for every family has been an ideal for some time.

People have to consider how unnatural the 1950's US economy was. Europe was literally devastated. Even the Soviet Union had lost 1/3 of its (brand spanking new) infrastructure in the war. Japan had been nuked and China was being ravaged by Civil War.

That level of widespread prosperity was the consequence of a temporary national monopoly in some sectors. That doesn't exist anymore. In the meantime, we have allowed ourselves to become too lazy and greedy. Does everybody really need an iPod, latest designer clothes, three TV sets, their own car, going to the movies every week, eating out all the time, etc? We have developed our own sense of wasteful entitlement.

The other problem is that the white blue collar class has been subject to decades of brain drain. Too many of those who were able have moved into white collar work.

I am wondering whether all these Latino peasants are literally a godsend. Maybe we can get some domestic manufacturing going in the next few decades to rival Asia. That would be good if the dollar is weak.

What is the use of Chicken Little-ism? If you get a lemon, make lemonade.

Anonymous said...

Yeah, I especially like the kind of free market where you're free to do what you want to maximize profits, and the taxpayers are compelled to step in and handle the losses for you. A pure free market has plenty of problems (externalities, inequality, willingness to sell just about anything regardless of morality), but I'm not sure the housing market/mortgage market's problems qualify.

Anonymous said...

What they called the greatest generation was nothing more than a group that ended up in a war against to mineral starved nations with sitting duck army's.

Maybe the Geist of the Zeit is saying it is time for more war.

... Wars of conquest to obtain scarce natural resources and life-space ... very much in harmony with Darwinian natural law.

Anonymous said...

D. Davenport said:

"... Wars of conquest to obtain scarce natural resources and life-space ... very much in harmony with Darwinian natural law."

This statement is exactly why Darwin was not a "darwinist."

We've been a secondary element in the major wars of the last century, and we waited out quite a few european deaths before we decided to partake.

War, the kind where you're drafted, tends to kill off the best and brightest, and those with courage and those with an intuitive grasp of sacrifice for the "greater good," while the old, sick, infirm, as well as the clever weasels hold onto life to promote their world view upon society.

Not to mention the economic devastation ultimately suffered by the major parties.
Germany could have been the epicenter of creativity in just about all venues, particularly in science, and industry.
For a country essentially the size of Iowa, their creative output was prodigious, unmatched probably by any other country in history.

Since the war, it's essentially transformed into a good-natured alzheimer's patient.

"Survival of the Fittest" is not primarily a story of physical domination. It's a story about flexibility.

It's the story about how the cockroach beat out the Tyrannosaurus Rex.

Anonymous said...

This statement is exactly why Darwin was not a "darwinist."

Corect, getting a lot of your good men killed is ungood Darwinian logic.

But if your side can conquer while keeping its casualties relatively low, then give war a chance.