Saturday, October 16, 2021

A New Rant

 A new rant just posted at Pacemaker:

Real estate crashes are built into the plan and are not a bug but a feature.  And with every crash, assets are further concentrated at the top of the wealth scale.  Let's look at the last crash.  The end of the boom was signaled Thanksgiving 2006 when Chase and Wells simultaneously (But certainly without collusion.  It's a miracle!)  converted the lines of credit that were an essential part of their mortgage programs into 60-month amortized loans, closing off access to credit for thousands of small businesses.  Why?  Well after spending the boom dead to the world, SEC and DOJ had been politically forced into semi-comatose states and had given Chase and Wells taps on the shoulders.  They hurriedly solidified their LOC positions into conventional loans before throwing a few of their lackeys under the bus the following Spring to placate the regulators.  By then the cat was out of the bag.  But the crash didn't happen.  Because the players still had too much Quatsch on their books, and their shovels were only so big.  They had to find marks to unload it to.  Failing that, they had to find marks to hedge it.  And they had to position for post-crash opportunities.  It took a year.  There was turbulence along the way.  New Century and American Home Mortgage went Chapter 11, a bunch of funds either closed or froze withdrawals, and B of A snapped up Countrywide, ostensibly as a bailout of Countrywide, but really to shore up B of A's balance sheet.  Then the players pulled the plug, and the spring unwound.  IndyMac, Bear, and Lehman folded up; Chase pushed WaMu off a cliff so it could grab its assets and shore up its balance sheet; a bunch of players, but especially Chase and Goldman, broke AIG and the Greatest Balance Sheet on Earth by loading it with rigged CDSs and other hedge positions; the houses that had put enough lipstick on their positions to keep from folding got absorbed, so B of A got Merrill Lynch, and MUFG got Morgan Stanley; and Wells got a seat at the big-boy table by winning the Wachovia sweepstakes.  Then it spread to other industries, and to the rest of the world, and everyone got a nice Mike Tyson square in the face.

And since then?  Let's just say China is not the only bubble out there.  For example, right here in Salt Lake City we've been frantically tearing down commercial property and slapping up 5-8 story apartment and condo blocks.  And the financing makes no sense, even with tax weirdness thrown in.  Rates of return that should only acceptable on government securities, but here they are on real estate.  But with interest rates effectively at zero, I guess anything is preferable.  And with that we can see the game is once again afoot.  Build it, then flip it out in the current inflated market to marks who are desperate for any return above 0%, then sit on your cash and wait for the next crash so you can buy it all back on the cheap.  And are the regulators looking into any of this?  Don't be silly.  They'd rather be looking at every mortgage and rent payment in the country than at which financial institutions have all their money tied up in cash, waiting to throw the switch on the next collapse.  And the grift goes on.


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