From The “S&A Digest” from the desk of Porter Stansberry and his regular Friday newsletter that I subscribe to:
Dec. 22, 2011
The Next Housing Bubble starts Now
Hey, I’ve got a great idea. Let’s fix the enormous damage done by the last housing bubble… by creating a new housing bubble!
Mortgage rates have hit new all-time lows. U.S. 30-year mortgage rates averaged 3.91% last week, according to Bloomberg. Housing starts were up the last two months, along with existing home sales. The National Association of Realtors (NAR) says the inventory of unsold properties sank to its lowest level in six years (2005 was the peak of the last bubble). The NAR also reported November sales of previously owned homes at a 10-month high.
If this keeps up, interest rates will sink to less than 3% and housing sales will soar over the next couple years. Everybody who didn’t buy a house he couldn’t afford the first time can get one this time.
If you want to get a good, solid feel for how bankers think, read the American Banker, a daily newspaper for the banking industry. Today’s edition contains an article called “Five Ways to Improve the Banking System in 2012.” None of them say, “Get the government out of the banking business,” or “Abolish the Fed,” or “Stop running the deposit insurance scam.” Bankers know where their bread is buttered, and it’s not by customers.
At the top of American Banker’s list is a call for more regulations. It says the first thing to do is “define ‘shadow banking’ and start regulating it.” Good start. Get the competition out of the way. That’s what bankers do. They push more regulation to keep new competition to a minimum. There’s a reason they won’t let Wal-Mart into banking… It ain’t to protect you.
Also on the list is “Confirm President Obama’s nominees for key regulatory posts.” Bankers don’t merely want to stay in bed with the government. They want to have its children.
Another item on the list is to “focus on the impact of a protracted period of low interest rates.” Low rates make it harder to earn a big spread. That’s what banks do. They borrow short, lend long, and pocket the difference. When rates are low, they pay less, but they earn a lot less, too. Gee, it’s almost like the Fed isn’t taking care of its progeny. What gives?
Banking is such a fun topic. I feel like a kid whose mom allowed him to play in the mud after a rainstorm. What a great big, fun, wonderful mess!
For example, there’s Royal Bank of Scotland and Blackstone Group. They’re cooking up a neat little scam, which appears to be perfectly legal. RBS is selling Blackstone 25% of a portfolio of loans, described by RBS as “sub-performing.” Blackstone is paying a 30% discount to face value. But RBS won’t have to write down the remaining loan values by 30% because Blackstone is only buying 25% of them. So RBS is retaining majority ownership. Since ownership didn’t change hands, the transaction isn’t required to result in a writedown of the loans’ value. How convenient. It’s as though someone sat down with the rulebook and said, “How can we use this to hide the truth?”
Lloyd’s pulled a similar trick by selling loans for discounts of up to 40%… but without having to write down any loan values, due to previous write-downs.
In other words, the rules are allowing these two banks to get away with lying about the value of their assets.
An even bigger scam is the European Central Bank’s (ECB) offer of nearly half a trillion euros’ worth of three-year loans to more than 500 stressed European banks. The banks will use the money to buy sovereign debt issues, in an effort to prop up the market. Financial Times reports one Spanish bank official described this use of the funds as “normal and natural.”
In an era of one financial scam after another, central bank money-printing to buy sovereign debt is perhaps the ultimate scam. They’re printing money to support the value of government paper. It’s perverse.
A tongue-in-cheek, but penetrating look at the “Housing Bubble” from Porter Stansberry in the S&A Digest.
