The Great Federal Bubble Making Machine __ Insanity On Display

Who didn’t play at making soap bubbles as children? It was great fun to watch your dog try to catch them and they were pretty as the sunlight reflected from their surfaces. But, the  made in Washington are anything but pretty.

We are still suffering from the effects of the housing bubble and the sub-prime mortgage bubble produced  by Fanny Mae and Freddy Mac and FHA at the insistence of our boys and girls in Congress. Now five years later the Obama administration, through that paragon of virtue, the nation’s top cop, Eric “Gunrunner” Holder, is taking action to bring the criminals who caused this tragedy to justice. No, not Congress. The DOJ has filed a law suit on the Standard & Poor’s Rating Service.

The lawsuit alleges that investors, many of them federally insured financial institutions, lost billions of dollars on CDOs for which S&P issued inflated ratings that misrepresented the securities’ true credit risks.

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“Put simply, this alleged conduct is egregious – and it goes to the very heart of the recent financial crisis,” said Attorney General Holder.   “Today’s action is an important step forward in our ongoing efforts to investigate – and – punish the conduct that is believed to have contributed to the worst economic crisis in recent history.   It is just the latest example of the critical work that the President’s Financial Fraud Enforcement Task Force is making possible.”

The crime that S & P is being charged is that they rated the Mortgaged Backed Securities and the related Credit Default Options as having low risk. Ed Morrissey of Hot Air had this to say:

This lawsuit is breathtaking in its hypocrisy.  After all, S&P didn’t issue mortgage-backed securities and insist that the housing bubble could go on forever.  The MBS blizzard came from the two GSEs, Fannie Mae and Freddie Mac. Congress authorized them to securitize the paper they bought from lenders in order to encourage riskier loans to buyers who otherwise wouldn’t have qualified for home loans. And that was motivated not by normal regulatory concerns or “good faith,” but bypolitical considerations and a desire by both Democrats and Republicans to conduct social engineering rather than regulate rational markets.

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This lawsuit is just an attempt to shift blame away from the real culprits: Congresses from 1998-2008.  Why? Because if Washington DC can blame the ratings agencies instead of the bond issuers and their enablers inside the Beltway, then they can circle back around again and start distorting the lending markets for their social engineering.  Plus, it’s not a bad revenge for that credit downgrade in August 2011, either.

In the end the government did bailout Fanny and Freddy and the banks. So, it does seem that S & P was right about the low risk.

As much as we liked making bubbles as kids, our government likes making bubbles, too.  In an article titled All is Well, the Washington Blog tells us of some more government backed bubbles. We’ll look at a few.

Sub-prime Auto Loans

Inquiring minds might wonder how auto sales could be booming when there are 4 million less employed Americans and real wages are falling. Of course, mainstream media faux journalists aren’t paid to inquire, think critically, or even think at all. They are paid to regurgitate propaganda designed to keep the masses sedated and ignorant. The “fabulous” rebound in auto sales has been buoyed by the return of easy money lending, even to deadbeat borrowers with lousy credit histories. There is a reason the Federal government hasn’t attempted to spin off their 80% control of Ally Financial (aka GMAC, Ditech, Rescap). The Feds are attempting to manufacture a recovery by doling out subprime auto loans to anyone who can scratch an X on a loan document and offering 0% loans over 7 years to good credits. How exactly does a finance company generate a profit by making 0% loans for seven years and approving loans to people with no means of paying them back? Experian recently noted that 44% ofALL auto loans have been to subprime borrowers over the last year. When a financing company doesn’t have to worry about profits or loan losses, everyone gets a Cadillac Escalade. The losses on these subprime loans will be in the billions when the next leg down in this Crisis hits. The taxpayer will unknowingly pick up the tab, just as they have been doing for the last five years. The trend in this chart is nothing but a Federal government induced fraud.

So, the Obama administration is using free credit to make their “investment”  in Government Motors look like a good one. I wonder who they’ll blame when this bubble breaks?

$1 Trillion in Student Loans

There are 37 million college loans outstanding for a total approaching $1 trillion. Look at this graph of delinquent loans.

Student%20Loan%20Delinquencies 0 ALL IS WELL!!!

And, it is not just young people:

 ALL IS WELL!!!

A trillion-dollar bubble guaranteed with your future taxes. Maybe the Federal Reserve will just print another trillion and there will be no harm and no foul. It is an asylum, isn’t it?

More Housing Bubbles?

The article at Washington Blog  talks about another grand government scheme:

The Wall Street part of this grand scheme has been to delay the foreclosure process on millions of homes, thereby restricting the amount of inventory on the market. By artificially creating an inventory “shortage”, they have been able to drive prices higher, with the purpose of trying to get the 25% of underwater homeowners back to breakeven. The Treasury Department, through their captured entities (Fannie, Freddie, FHA) are guaranteeing 95% of all mortgages, with the FHA requiring only 3.5% down payments, with the hundreds of billions in present and future losses being incurred by the American taxpayer. You’ve heard of the cycle of life. This is the government cycle of fraud.

The last part of the plan has been to lure investors into the market. Fannie Mae and Freddie Mac have sold huge blocks of foreclosed homes to connected friends of Wall Street at below market rates so they could convert them to rental properties. This has further artificially reduced inventory available for sale, and jacked up prices by as much as 20% in the former bubble markets of Phoenix, Las Vegas and California. Investors and flippers account for 30% of all home sales, with another 24% of home sales listed as distressed sales. Sure sounds like a healthy market to me. With this full court press by the powers that be to produce a housing recovery, the chart below reveals the utter ineptitude of their effort. Real home prices, even using the fake government manipulated CPI, have barely budged from their lows and sit at 1990 levels. Real home prices are still down 40% from their 2006 highs.

Gee. What could possibly go wrong?

So, there you have it, folks. Your insane government at work, caring for your best interest. Couple these bubbles with the bond bubble and the debt bubble and the dollar bubble and we just might have a perfect storm heading our way and it will undoubtedly be blamed on the Republicans or the evil rich.

Well, now you know what I’m thinking. What are your thoughts?

15 thoughts on “The Great Federal Bubble Making Machine __ Insanity On Display

  1. It’s simple, really. The mess we are in has a lot to do with our government thinking they have to get involved in every faucet of our lives. Everywhere they put their hands, we see trouble, and they refuse to take the hint to butt out.

  2. Meanwhile insiders are shorting the market like hell, the largest since the crash. Put on your seatbelts. 100,000 put option trade went throuh this week. Unheard of it has been reported.

  3. Interesting that people with no skin in the game (politicians and bureaucrats) can stick their noses into the market and completely screw it up. Gosh… Who would’ve anticipated that result? (Besides anyone with two working neurons to rub together.)

    My son turned 16 yesterday, so paying college tuition is a very real thing staring me in the face right now. What the government has done to inflate the “education bubble” is astonishing. Even more astonishing is the number of students and parents who vote Democrat while Democrat policies impoverish them. Do they not realize that the “easy money” from student loans is what leads colleges and universities to raise tuition and feather the nests of the professors and staff at the institutions. They take away meaningful limits on what people can actually afford to pay for their education. Then you have people with a mountain of debt graduating from college into an economy that is increasingly made up of part-time workers. It’s insane.

    I am seriously considering suggesting to my son that he do his first two years at a community college (less expensive with an education equal to what most universities provide their Freshmen and Sophomores, if not better), and then we pay for his Bachelors by paying for his Junior and Senior year at a university. He gets the same degree and we’ve only incurred two years worth of debt (or siphoned off that much of my income).

    Maybe, between what I’m teaching him and what he learns from two years of education at a community college, he will know enough about economics to lead a revolt against actors with no skin in the game driving up prices that “skin” the students, parents, and eventually the tax payers.

    1. Most of them graduate from college with a mounatain of debt and a degree in something absolutely worthless. If you and your son can figure out what skill sets are going to be in demand in the next twenty to forty years, he will do fine.

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