Price Fixing- Going to be attempted for Housing prices?
Treasury Secretary Henry Paulson's speech at the Georgetown University's law school was disturbing on many levels. You can read some excerpts here:
I want to highlight some key points Paulson harps on, because I think both the language and the tone of his comments are a preface of sorts for action that is already being prepared:
- "Let me be clear, despite strong economic fundamentals, the housing decline is still unfolding and I view it as the most significant current risk to our economy."
- "We must help as many able homeowners as possible stay in their homes"
- The most telling is "The longer housing prices remain stagnant or fall, the greater the penalty to our future economic growth."
And just so you do not think the guys at the FED have a monopoly on totally contradictory statements, Paulson throws out this nugget "When investors are relieved of the cost of bad decisions, they are more likely to repeat their mistakes. I have no interest in bailing out lenders or property speculators."
I am of the opinion that a move will be made in the next 6 months to at least float proposal to fix home prices at some level. I am not sure what level that would be. If you can agree that the government likes their "Wars On" (War on drugs, war on poverty, war on terror, etc) a "War on Foreclosures" is not a stretch. I know this may seem crazy, but already we see that through the Superfund set-up by Citi and pals, the SIV market is being rigged right now to delay and hide losses on assets that are at values the banks simply do not and cannot have realized. That is price fixing. That is going on with not only the approval of the Treasury, but active participation. What better way to both stop the mortgage market bleeding, and endear yourself to MILLIONS of REGISTERED VOTERS than to put a floor under home prices? I hope I am as wrong as can be here. I hope someone leaves a well written comment that explains why this is impossible. To quote every Star Wars film and book ever made however, "I have a bad feeling about this!"
Revenge of the Communists
It is generally accepted that the USA won the Cold War with the Soviet Union, not through live combat, but through an ever escalating arms (Not those ARMS!) race that eventually bankrupted the old Soviet system. I do not want to debate the particulars of that story. I want to focus instead on what could be happening in a macro geopolitical sense.
Suppose you were a communist country, and saw what happened to the old Soviet Union. Perhaps you would learn that isolation from foreign trade really hurt them, and a weak economy meant ultimately they were doomed. Say you instead become a massive creditor to the United States. Your country, with terrible environmental rules, no worker rights, a police state that cracks down on dissent, and dirt cheap labor can manufacture every widget needed by the USA. Your economy is booming, and what's even better, you hold a silly (upwards of 2 Trillion?) dollars of US debt. Even sweeter, the US is totally dependant on your country continuing to buy their debt. So far so good.
Now the dollar is tanking badly. The US consumer has spent himself silly buying homes that moved in price like the old dot com stocks. The party is now ending, and massive financial losses are sure to come. The US is in a bad spot with huge budget deficits, massive entitlement programs, and facing a probable bank bailout on a historic scale.
By now you know the country is China. Faced with this tantalizing junction in history, what would be your next course of action?
- Option1: Nuclear Option
China stops buying US debt causing a run on the dollar, and a major meltdown in US markets. A new smarter communism has crushed the US economy and exacts revenge for the loss in the 1980's.
- Option2: Trading Time
Faced with the above mentioned nuclear option, the US signs a treaty of non aggression with China, and Taiwan is left to its own devices under a Chinese invasion. The US will sell out Taiwan in the face of such a catastrophe.
I do not want to have a debate on the merits of Taiwanese Independence, that's not the point of this thought process. I want to point out that because of the major Economic Disconnect that has gone on too long, neither of the two ideas floated here are beyond consideration. By all means, let me know what you think. Again, I hope I am very, very wrong.
Kind of a downer post. have a good night nonetheless.