Shiller: Is Housing Recovery Real?

World renowned economist Robert Shiller, in a candid interview with Drew Sandholm of CNBC, gives a realistic perspective on the housing market. Calling the housing bubble a “once in a lifetime thing,” Shiller says that the outlook is uncertain. The “recovery” even if housing increases by 3% per annum, would in reality be flat, especially after the superstorm that hit the Northeast.

The chilling comment from the economist who showed us graphically how the housing bubble of the mortgage meltdown was so out of whack with history, is that the true recovery could take as long as 50 years. This unthinkable consequence is not so far off if you look at the factors that led up to the bubble and the enormous surge in home prices while “value” of housing was flat or even decreasing. The surge during a 4-5 year period blasted through any charts on the subject, most notably the Case-Shiller Index which removes inflation from the computation.

The long and short of it is that we have years, perhaps decades to recover from the shock the economy received from the Wall Street players who flooded the housing market with money causing a blow out in prices as underwriting standards were completely ignored in favor of “getting the deal done.”

We are left with treating each tragic case of foreclosure on a case by case basis which most of the people cannot afford to do. Having drained their savings and retirement in the hopes of keeping their homes they are without funds to challenge the banks who have all the money the investors gave them and now have all the money from proceeds of sales of foreclosure homes.

At some point someone with authority must demand from the banks an accounting for what happened. How is it possible for the banks to collect federal bailouts, insurance and proceeds from credit default swaps when they were using investor money?

If the loss falls to the investor because of foreclosure and market conditions, why didn’t they get the money from bailouts, insurance and CDS? And why  should we not treat the money the banks got as money received by agents of the investors reducing the obligation of homeowners?

Why are we quibbling about “principal reduction” when the principal has already been reduced by payment? Why did the banks divert the paperwork away from the investors and put “nominees” or strawmen on the notes, mortgages and deeds of trust?

The ugly truth is that Wall Street was playing with deposits from investors and calling it proprietary trades. Heads we win, tails you lose. If we allow that we have condoned theft.

And THAT is why I think the banks can be beaten in court. If you trace the money first and demand to see the money trail from beginning to end from the Master Servicer, Trustee and foreclosing agent the true nature of these transactions will emerge. And when all is said and one, if we don’t challenge this despicable scheme, the banks, having cornered the market on “money” (with over 10 times the amount of government authorized money) they now are seeking to corner the real estate market and become the world’s largest landowner.

Banks are allowed to exist to facilitate commerce, not capture it. They should be regulated like utilities so that when they go off the reservation with obtuse machinations of financial products, they are quickly reined in. That regulation can only come from winning in court since the regulatory agencies, while recognizing the problem are too timid to seek the appropriate relief.

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