Mortgage Meltdown: A New Bubble: Fraud Redux

Hold everything!!: Second Bubble on the Way!!!????

Interest rates dropping, Fed lowering its rates, and incoming capital from China like it was water. We now see the strategy to prevent the world from marking the Bush administration down as the most foolish, stupidest in history. 

The plan is to create a second bubble. They will say that the pundits were wrong, that economy is strong after all and that this proves Bush and his fellow republicans were right on with their strategy . Sure there might have been “isolated instances of fraud” but basically these were free market forces at play. And it will look just like that until we wake up from the mania revisited and into the nightmare worsened.

What all this means is that there is going to be an interesting dynamic going on. We know we have a burst of the asset bubble and that prices have come tumbling down. Federal officials have been minimizing the damage assessment while scrambling for a plan that will cover up the worst case of economic fraud in human history. 

The Fed and the Bush administration are determined to minimize its appearance. So money is likely to get ridiculously cheap by mid year. Thus despite downward price pressure from the bubble burst, there will be upward price pressure for the same reason as we had the bust in the first place — free money. In short, it looks like instead of correcting the problem they intend to compound it — as long as possible — hoping that something else will happen that will soften the blow or at least make it look like it wasn’t GW’s fault. 

It would therefore seem that a few things are true. By dropping interest rates, a freeze at teaser rates becomes less costly and less offensive— which will diminish the rate of foreclosures — which will diminish the number of houses dumped on the market. We could be looking at the creation of a second bubble to cover up the first. 

The devaluation of the dollar combined with apparently rising prices and diminishing inventories of empty homes, is likely to lure foreign investors into buying US real estate. US Sellers will be getting more for their houses than is currently predicted. This will make the sellers more flexible buyers on the domestic scene. 

Thus around summer time or perhaps a little later, one might get a higher price for a house than anyone is currently predicting. And one might be able to make a deal for those feint-hearted sellers that are not willing to wait for the higher price AND the interest rate on a fixed rate mortgage might just be very low. 

So anyone considering a move in the next 3 years, or who is negotiating with their lenders for better terms to avoid foreclosures, might just want to stretch things out time wise. In fact, in a couple of months, I would suggest that anyone holding a mortgage from 2003-2006 contact their lender and ask for relief whether they need it or not. 

Of course the risk here is that the Fed and Wall Street smoke and mirrors trick won’t work. That would leave things in the same bleak state. But from what we are seeing, the Chinese are going to play a very large part in helping the next bubble along while they buy still more time to overwhelm American economic, political and military superiority. 

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