Sunday, September 02, 2007

Stop the bailout!

Bush picked a Friday before a long weekend to make the first announcement of what is really a bailout. Though this is thankfully too little, too late, it should still be opposed by all decent people. Please vote against the bailout here.

It is estimated that somewhere around 2 million houses will go into foreclosure over the next year or two. Unfortunate as that may be, and harsh as it may sound, those homes deserve to go into foreclosure. They should never have been built or bought in the first place.

Why didn't anybody complain when home prices were going up 20% a year ? Why didn't anybody cry for fed intervention to prevent those gains ? That would have been the right thing to do. People who bought houses they could not afford, did it due to a combination of stupidity, willful ignorance and greed. They played the lottery, and now that they missed the right numbers, they want help ? Oh please! Let them start over again.

Among public figures asking for a bailout - Angelo Mozilo (CEO of Countrywide Financial), Alan Mullaly (CEO of Ford), Bill Gross (PIMCO chief), Jim Cramer etc. I have a few choice words for them - Shut the $%^# up!

Mozilo should have ensured that loans made by Countrywide were more appropriate (see latest NY Times piece). Mozilo could also have showed some confidence in his company by not selling such a big portion of his shares (see insider selling details at Yahoo Finance). Shouldn't Ford CEO be taking less pay (the savings can be used for helping some of the homeowners!), and talking about building cars that people would like to buy ? Is PIMCO chief really asking for a indirect bailout for his underperforming funds, as some have speculated ?

After the tech bust, countless servers and routers were being sold at firesale prices. The same is bound to happen this time, with boats, Hummers and Escalades. Fewer arrogant Hummer/Escalade drivers on the road is good!

The appeals for interest rate cuts are absurd. At 5.25% we are still at unusually low levels. If anything, we should at least get back to a more reasonable level, say 7.5%, before thinking about lowering rates. Asking for rate cuts now is a sure sign of withdrawal symptoms from people used to free money. Taking the rate to 7.5% right now would be crazy, but there is no reason to cut them either.

Then there are observers talking about a severe recession in the absence of a bailout. So what ?. What is wrong with a recession ? It is part of the normal boom bust cycle. And it is about time for a deep recession - just let it happen. It will fix a few of the excesses, though in reality we need a depression to completely get rid of the hangover from the binge.

Personally I am surprised at the number of people who even after living through (and fooled by) one bubble (tech), were fooled by another so soon after the first one. Incredible! I have been predicting a 65% drop to anybody willing to listen, and the responses were very interesting. Hah - they don't make any more land!, do they ?! Evolution doesn't seem to have helped us much in dealing with bubbles!

Popular magazines served no purpose during the boom, and are not doing much now either, still reporting median price increases and fooling so many in the process. They are still doing more harm than good by insisting that we are close to the bottom and in the worst case there will be a 10% fall and a recovery within a year. What a shame! A full recovery from such a large boom will not start without a 65% fall (inflation-adjusted) from the top. Such a fall and recovery will take 12-15 years. A few folks, like Shiller, have finally started talking about 40-50% fall in prices, but they are being ridiculed by ignorant and downright stupid reporters.

Amidst all the rubbish, I found just one piece in the mainstream magazines worth reading - see Dude, where is my bailout ?.

As for those who ask what to do with their stocks, I can point to another interesting commentary, by Ben Stein.

I have kept comments on real-estate to a minimum on this blog, with past entries made when I felt that real-estate had peaked and when I thought it was time to panic. There will not be another housing related post anytime soon barring a major event.

For your daily dose of housing/real-estate bubble related updates, I recommend these blogs:


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