Apportioning blame for the housing bubble has become a polarized political issue. The Left wants to portray the evil banks as taking advantage of hapless borrowers thus entitling these borrowers mortgage relief or absolution for strategic default. The Right points out the responsibility borrowers have for their own behavior and wants to bail out the banks for completely self-serving reasons. As with most political issues, the polarized and generally self-serving positions of each side fail to capture the truth of the matter.
Nobody wants to admit or take responsibility. Politicians are masters of deflecting responsibility, and now borrowers are deflecting responsibility in unprecedented numbers. Behaving like children who get to play but refuse to do their homework, borrowers are throwing payment tantrums. When children misbehave, how much responsibility for the child’s behavior belongs with the parent? How do you apportion blame between parent and child? You should apportion blame between lender and borrower the same way because the relationship between lender and borrower is very similar to the relationship between parent and child.
Many of my posts are critical of the behavior of borrowers because their behavior has been atrocious, but like children who are spoiled by entitlement, borrowers are enabled by their lender parents. Today, I am going to explore the similarities between the parent-child relationship and the lender-borrower relationship and affix blame where blame is due.
Who is to Blame?
In 2007 I posted, Who is responsible for this mess? Much of that text is in the Great Housing Bubble:
“Who is responsible for the Great Housing Bubble? It is one thing to identify who or what caused the bubble, but it is another to assign responsibility and blame. Borrowers, lenders, investors, and the FED are all responsible; it is only a matter of degree. Irresponsible borrowers are like children, if you offer them something they want, no matter the terms, they will take it. The federal government realized this basic fact years ago when they passed predatory lending laws. This does not make the borrower any less responsible, but by definition, subprime borrowers are irresponsible. If they took responsibility for their debts, they would not be subprime. [ii] So if a large amount of money is lent to the most irresponsible among us, it is reasonable to expect them to spend it irresponsibly and not worry about paying it back. In this case, past performance is an indicator of future performance. It should come as no surprise that the subprime experiment ended badly.
Despite the low expectation of subprime performance, people need to be held accountable for their actions….
The borrowers are certainly at fault; if for no other reason than they signed the papers and took the money. The lenders are also at fault because they should have known better than to give borrowers loans they could not afford, provide loans with no income documentation, and ignore proven guidelines for loan-to-value and debt-to-income.”
Barry Ritholtz in Bailout Nation listed those he blames for the housing bubble, and lenders are higher up the list than borrowers. Mr. Ritholtz goes on,
“Regardless of how low rates got, the fact remains that many borrowers took out mortgages regardless of their own ability to repay the monthly principal and interest. This was simply reckless behavior, and should be recognized as such. Innumeracy is no excuse.
Ultimately, banks have a fiduciary responsibility to their shareholders and depositors to lend money only to qualified borrowers. Hence, they have a greater liability in the lending crisis. This is especially true of the “lend to securitize” originators who knew they would be causing future foreclosures.
However, the lenders’ irresponsible behavior does not exonerate those people who failed to do basic math. It is incumbent upon borrowers to know what they can afford each month–and to not get themselves into financial trouble. Perhaps it is time to teach basic financial theory in public schools.”
Although these issues are complex, Barry and I agree that both parties bear responsibility, but the scales of justice tilt toward blaming lenders more than borrowers. If you listen to community activists trying to prevent foreclosures, you would think lenders are 100% responsible and borrowers are blameless. People who are really upset by HELOC abuse want to make the borrower 100% responsible because the conduct is so reprehensible. The truth is somewhere in between.
A discipline in psychology called Transactional Analysis provides a useful tool for assigning blame.
Transactional Analysis
Transactional analysis involves looking at the roles people assume when they communicate. The balance of power in a conversation or relationship changes depending on the roles of the parties. The parent-child interactions are useful to understand because the relationship of lender to borrower closely matches the relationship between parent and child.
In the parent-child relationship, the parent has greater power and with it a greater responsibility. Children want things, and parents must decide yes or no. The parent must exercise judgment to make sure the object of the child’s desire is good for them or appropriate, and it is the parent who makes the decision and bears much of the responsibility for the outcome. How is lending any different?
Borrowers want money, and lenders must decide yes or no. The lender must exercise judgment to make sure the borrower will pay them back, and it is the lender who bears much of the responsibility for the outcome of the loan. The parent-child relationship is the lender borrower relationship.
Confucius Say…
If the borrower-lender relationship is like the parent-child relationship, there is much we can learn about how lenders and borrowers should relate to one another. From Wikipedia,
“Life is subdivided into Five Relationships:
- Father to Son – There should be kindness in the father, and filial piety in the son.
- Elder Brother to Younger Brother – There should be gentility (politeness) in the elder brother, and humility in the younger.
- Husband to Wife – There should be righteous behavior in the husband and obedience in the wife.
- Elder to Junior – There should be consideration among the elders and deference among the juniors.
- Ruler to Subject – There should be benevolence among the rulers and loyalty among the subjects.
All of these practices are the physical, or outward, expression of Confucian ideals. These are the observable behaviors of the members of society. Confucius; however, believed that in order for society to truly follow li, one must also adhere to and internalize these practices. The mentality involved in performing these rituals in society must not exist only there, it must be a part of the private life of the person. This is known as rén.
Rén is not a concept that is learned; it is innate, that is to say, everyone is born with the sense of rén. Confucius believed that the key to long-lasting integrity was to constantly think, since the world is continually changing at a rapid pace.”
In each of these imbalanced power relationships, there is a series of reciprocal duties. Confucius didn’t start with the idea that all are created equal, he explored the reality of our daily lives and came up with a series of rules and precepts for accepting and living within the power imbalances in our lives.
Candy Store Analogy
To illustrate the power imbalance, imagine yourself taking children to a candy store, and you are the only person there with money. What would happen? The children would quickly scoop up candy and present it to you for purchase; you would be responsible for saying yes and no by providing the money. This classic parent-child interaction when shared in a group is what lenders face all day — a steady stream of borrowers wanting money for whatever, and lenders having to determine who gets what. Most borrowers, like most children, will take whatever is give to them whether it is good for them or not.
Similar Relationship Imbalances
There are other relationships between parties that closely resemble the lender-borrower dynamic; (1) dealer-addict and (2) landlord-tenant.
How is the dealer-addict relationship similar? Addicts want drugs like borrowers want money. Dealers strike a bargain with addicts that look like normal transactions except that addicts will do nearly anything to get their drugs so the balance of power is certainly not 50/50. Dealers get to decide who gets what drugs based on whatever criteria they choose (usually money, but not always). I don’t know if there is a point to this other than you know the regard I hold lenders who created a society of HELOC addicts.
The landlord-tenant relationship is the closest to the lender borrower relationship. Landlords control whether or not a tenant gets to live in a house, and lenders control whether or not a borrower gets to live in a house. If a tenant quits paying rent, the landlord evicts the tenant. If the borrower quits paying the rent on money, the lender (money landlord) forecloses on the borrower. Both landlords and lenders evaluate customers based on their ability to pay, and both want the property occupants to care for the property.
In fact, the only real difference between the lender-borrower relationship and the landlord-tenant relationship is who has to deal with the ups and downs of real estate values and how certain expenses are allocated. Tenants miss the volatility in real estate prices whereas owners do not.
In Orange County between 2002and 2010, when you consider the cost of housing and what was obtained for that cost, it has been better to be a tenant, particularly since appreciation in that period was near zero.
Only in delusional mid- to high-end areas has the appreciation gained since 2002 compensated for the additional cost of ownership paid at 2002′s moderately inflated prices. Late buyers paid more rent for money from a lender than tenants paid rent for houses from a landlord. With equity positions unchanged, it is hard to argue owners had a better deal financially, emotionally perhaps, but not financially. Timing the housing market is important.
She needed $200,000 dollars for something
The former owner of today’s featured property extracted $206,720 from her property during a seven-year stretch. Can anyone convincingly argue that she was duped into spending $250,000 and she has no responsibility for her actions? Can anyone argue that the lenders fulfilled their fiduciary responsibility to their investors when they underwrote these obvious Ponzi loans?
- This property was purchased on 10/19/2000 for $233,500. The former owner used a $186,640 first mortgage, a $46,660 second mortgage, and a $200 down payment.
- On 3/1/2002 she refinanced with a $254,000 first mortgage.
- On 2/27/2003 she refinanced with a $255,000 first mortgage.
- On 2/13/2004 she refinanced with a $391,000 first mortgage.
- On 4/12/2007 she refinanced with a $390,000 first mortgage.
- On 11/13/2007 she opened a $50,000 HELOC.
- Assuming she maxed out the HELOC, the total mortgage equity withdrawal was $206,720.
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Proprietary OC Housing News home purchase analysis
2973 PLAYER Ln Tustin, CA 92782
$389,000 …….. Asking Price
$233,500 ………. Purchase Price
10/19/2000 ………. Purchase Date
$155,500 ………. Gross Gain (Loss)
($31,120) ………… Commissions and Costs at 8%
============================================
$124,380 ………. Net Gain (Loss)
============================================
66.6% ………. Gross Percent Change
53.3% ………. Net Percent Change
4.2% ………… Annual Appreciation
Cost of Home Ownership
——————————————————————————
$389,000 …….. Asking Price
$13,615 ………… 3.5% Down FHA Financing
3.51% …………. Mortgage Interest Rate
30 ……………… Number of Years
$375,385 …….. Mortgage
$107,657 ………. Income Requirement
$1,688 ………… Monthly Mortgage Payment
$337 ………… Property Tax at 1.04%
$0 ………… Mello Roos & Special Taxes
$97 ………… Homeowners Insurance at 0.3%
$391 ………… Private Mortgage Insurance
$268 ………… Homeowners Association Fees
============================================
$2,781 ………. Monthly Cash Outlays
($320) ………. Tax Savings
($590) ………. Equity Hidden in Payment
$15 ………….. Lost Income to Down Payment
$69 ………….. Maintenance and Replacement Reserves
============================================
$1,956 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————
$5,390 ………… Furnishing and Move In at 1% + $1,500
$5,390 ………… Closing Costs at 1% + $1,500
$3,754 ………… Interest Points
$13,615 ………… Down Payment
============================================
$28,149 ………. Total Cash Costs
$29,900 ………. Emergency Cash Reserves
============================================
$58,049 ………. Total Savings Needed
The property above is available for sale on the MLS.
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Administration Highlights Federal Housing Program Failures
According to the latest monthly housing scorecard from the Obama administration, the housing market has officially bottomed out, although “recovery remains fragile.”
With prices rising for 12 consecutive months as of October and sales on the rise as well, HUD’s senior advisor on housing finance, Michael Berman said, “[O]ur housing market is continuing to show important signs of recovery.”
Assistant Treasury Secretary Tim Massad praised federal programs aimed at preventing foreclosure for “help[ing] our country recover faster from an unprecedented housing crisis.”
The government’s Making Home Affordable Program has achieved more than 1.5 million loss mitigations and early delinquency interventions, according to the December report.
At the same time, private market HOPE Now lenders have achieved more than 3 million mortgage modifications as of October.
The Home Affordable Refinance Program continues to refinance loans at a strong pace with more than 81,000 refinances completed in October. From January through October 2012, the program completed about 790,600 refinances.
The Home Affordable Modification Program (HAMP) has achieved more than 1.1 million permanent modifications as of November.
Over the past two and one-half years, the program has had an 87 percent success rate in obtaining permanent modifications for those who enter the program.
While government-backed mortgages are not eligible for principal reductions, the scorecard reveals 77 percent of all non-government-backed mortgages receiving HAMP modifications in November received principal reductions.
Fitch warns home prices overvalued
Despite national home prices increasing by more than 2%, the largest gain since before the market peak, Fitch Ratings believes national prices are 10% overvalued.
However, during correction, home prices will likely drop by no more than 2% from today due to inflation.
Fitch reports technical factors behind the appreciation will eventually mute growth in the future, much to the opposition of current market predictions. The latest report from the Standard & Poor’s/Case-Shiller Home Price Indices, for example, revealed that home prices continued to rise in October with prices up 4.3% annually.
While Fitch agrees that it’s hard to not be upbeat with home prices on the rise, indicating a healthy housing rebound, the ratings company is remaining cautious in its outlook based on the past few quarters.
“Many models place a high value on price momentum, which can skew long-term projections. Another factor differentiating our model from many in the market is that our projections are in real terms as opposed to nominal dollars,” said Stefan Hilts, director of Fitch Ratings.
According to Fitch’s 2Q12 price projection, low mortgage rates, a limited supply of homes for sale and a lack of new home construction are feeding demand and pushing home prices up. However, Fitch suggests that these factors are blanketing weak fundamentals that would otherwise hinder home price growth, such as high unemployment rates and a lack of wage growth — both show no indication of near-term improvement.
“While pent-up demand is helping to boost support for home prices in some markets, a truly robust long-term market requires strong employment trends,” noted Hilts.
In addition to the price projections, Fitch released its Sustainable Home Price model to identify the current degree of overvaluation in the market. Regionally, Fitch projects that many of the hardest hit markets will continue to post impressive recoveries, supported by fundamentals.
Redfin: Sales, Listings, Prices all Drop in December
The housing market felt December’s chill as home sales, listings, and prices all slipped, according to Redfin’s Real-Time Price Tracker.
Redfin’s Price Tracker, a monthly report on prices, sales, and inventory across 19 U.S. markets, is based on local multiple listing services used directly by real estate agents to list properties and record sales.
According to the data for December, all three of the indicators tracked took a plunge during the holidays.
While it’s not unusual to see the market cool off in the holiday season, December’s decline in listings was considerable compared to the years prior. According to Redfin, listings were down 11.5 percent from November, 33 percent from December 2011, and 44 percent from December 2010. Redfin reports fewer than 160,000 total listings across its 19 measured markets as of the end of the year.
As of December, inventory has dropped on a year-over-year basis for 22 months in a row, according to Redfin’s data.
“Despite consistent home price gains since February, homeowners are still reluctant to list their homes for sale,” Redfin analyst Tim Ellis commented on the company’s blog. “Meanwhile, builders are moving to fill the gap, as data released last week show that private residential construction spending increased again in November.”
The lack of selection proved to have a hindering effect on sales, which declined 4.1 percent from November to reach the lowest level in 10 months, Redfin reports. However, despite the decline, sales were still up 3.4 percent year-over-year, and 15 of the 19 markets tracked by the company saw sales increase in that time.
Sales were up 9 percent across all of 2012 compared to 2011.
News on the listings front wasn’t all bad, however. From December 1 through the 24, 27.5 percent of new listings were under contract within two weeks, virtually unchanged from November and October. For the year as a whole, 26 percent of listings were under contract within 14 days, up from 17 percent in 2011.
While the quick purchase of homes may be bad news for buyers hoping for a slightly more leisurely home search, it’s no doubt welcome news for sellers.
Nationally, home prices hit a minor pothole in December, sliding back 0.4 percent on a monthly basis. However, prices were up 11.3 percent year-over-year, and Redfin reports that this year’s slight drop between November and December was less than that of last year. December was the ninth month in a row to see prices rise nationally on an annual basis and the second straight month in which prices rose in all 19 of the cities tracked.
In the end, though December posted expectedly mild numbers, Redfin expects the current trends should set sellers up nicely in the new year.
“With some notable exceptions (mostly in California), the current housing market in most areas could hardly be described as ‘hot,’ but it is definitely still a frustrating one for potential buyers, with sparse selection, persistent multiple offer situations, and increasing prices in every market we track,” Ellis wrote. “For homeowners whose equity affords them the ability to sell, 2013 is shaping up to be a good year to list.”
Ass-kissing seller letters make a comeback
Rob and Julia Israch won a fierce bidding war for a three-bedroom townhouse in Mountain View, Calif., late last year even though their $750,000 offer—while $92,000 above the asking price—was topped by 11 rivals and was several thousand dollars below the highest bid.
A key reason: The seller, software engineer Lev Stesin, was moved by a letter in which the Israchs said they worked in the technology industry and explained how the home’s spacious layout would be perfect given the imminent arrival of their first child. Among other things, the townhouse has three bathrooms, a wood-burning fireplace and a roomy backyard.
“I felt very comfortable with these people,” said Mr. Stesin, himself the father of a toddler. “I really wanted this place to go to somebody in a similar situation.”
In an echo of the last housing boom, ardent pitch letters from eager home buyers are popping up again in hot U.S. real-estate markets like Silicon Valley, Seattle, San Diego, suburban Chicago and Washington, D.C., housing economists and real-estate brokers say.
The heartfelt missives, often accompanied by personal photos, aim to create an emotional bond that can give their writers an edge—especially in situations where multiple bidders are vying for the same house. And the reappearance of buyer pitches, also known as love letters, offers further evidence that the housing market is rebounding after a five-year slump.
The “crazy” has returned!
No supply and rising prices will do that. Amazing.
Totally believe it. Silicon Valley is in the middle of another tech bubble and the Housing Kool-Aid is flowing big time up here. “Silicon Valley is different!”.
I heard a twenty-something twit in the hallway this morning saying how “freakin cool” it was to hear that she “was approved”.
Rents are going up as well. The whole place is just one little pop from collapsing in on itself. Hopefully they can keep the music going a few more years before I make my escape from this State
She will put as much of her income as possible toward “owning” a shoebox and be thrilled with dreams of rapid appreciation and HELOC riches.
The State of CA just saw you post and increased the budget by $3 billion dollars.
IR, with today’s posted articles you are hurting the housing bear’s feelings.
“Regardless of how low rates got, the fact remains that many borrowers took out mortgages regardless of their own ability to repay the monthly principal and interest.”
Who would have known in 2007 that mortgage rates would be this low in 2013. AND we are starting our 5 year of inventory suppression.
Since the construct of the business model is parasitic in-nature, lenders are 99% culpable.
I can’t let the borrowers off that easy.
If borrowers don’t have any responsibility, what borrower will ever be the slightest bit prudent in the future?
Yeah, I hear ya.
fixed
Since the construct of the business model is parasitic in-nature, lenders are 98% culpable.
“…Who would have known in 2007 that mortgage rates would be this low in 2013…”
We didn’t know IF mortgage rates would be this low, but we did know that our government would do everything possible to stop housing’s freefall. The bears just discounted any possibility that rates could go lower.
I thought the feds would lower rates, but I never thought it would create money to push rates even lower.
If this was real demand the Federal Reserve should increase mortgage rates to keep housing from over heating. But it’s not, since this still part of the easy credit bubble.
Inflate the dollar, until wages catch up with home prices.
I didn’t count on rates cutting in half from 2006 to 2012. Mortgage rates at 6.5% were already well below their historic norms. I remember writing a post in 2007 where I quipped that it didn’t seem likely that rates would drop 30% like they did in the mid 90s to prop up that bubble. I was certainly wrong about the determination of the federal reserve to prop up prices for the sake of its member banks.
Oh, poo I’m meant to say Housing Bulls. It sort of kills my previous post. I had only two choices and I still got it wrong. I always want call Bulls, the Bears. And Bears the Bulls.
I’m a housing bear, but I believe Feds succeed in keeping home values from hitting bottom. Just get ready to pay more for everything.
Built-for-Rent now Five Percent of New Home Construction
One of the hottest specialty markets in home construction is benefitting from the boom in single family rentals that began as a way for entrepreneurs to provide from the flood of foreclosures that has reached 4 million properties since 2007.
However, instead of buying foreclosures and renovating, some home builders are designed and building homes from scratch to be rented out rather than sold, with the builder operating as property manager and well as retaining ownership.
Despite some recent ups and downs, the share of single-family homes built for rent has doubled. According to data from the Census Bureau’s Quarterly Starts and Completions by Purpose and Design, the market share of single-family homes built for rent, as measured on a one-year moving average, stands at 5.1 percent for the third quarter of 2012. This is only slightly lower than the recent peak of 5.35 percent set at the beginning of 2011, and is considerably higher than the 20-year average of 2.7 percent.
With housing starts currently at 861,000 a year, the number of new built-for-rental properties is about 43,911 annually at the current market share. Only 27,000 homes started over the past year, according to the National Association of Home Builders
The built-for-rent share of single-family homes is considerably smaller than the single-family home portion of the rental housing stock, which is 27 percent according to the 2010 American Community Survey. As single-family homes age, they are more likely to transition from the owner-occupied to the rental housing stock.
A new entrant in the built-for-rent market is Jacksonville Wealth Builders,which had been buying foreclosed homes to sell to investors. So many investors are pursuing bank-owned homes to operate as rentals that it’s pushed prices as high as it would cost to build them.
With demand for single-family rentals on the rise, Jacksonville Wealth Builders has turned its attention to buying foreclosed residential lots, building rental homes to sell to investors, renting the homes and providing property management services.
“We’re starting to see prices go much higher [on foreclosed homes],” said Greg Cohen, Jacksonville Wealth Builders managing partner told the Jacksonville Business Journal. “We’ve basically bought 95 percent of our properties through [the Multiple Listing Service] and the connections we have, but those opportunities aren’t there as much.”
One option that turns renters into owners are rent-to-own programs that reduce carrying costs on unsold inventory and helps convert more homes to sales.
Some builders have a separate division to handle the rental side of their business, while others prefer to work with customers on a case-by-case basis. T&M Building Co. of Torrington, Conn., and Classic Communities Corp. of Harrisburg, Pa., are two examples.
Renters sign a use-and-occupancy agreement that allows them to live in the home until they can refinance it and take T&M out of the equation. In most cases, customers are able to purchase their home after renting for one year. Occasionally it takes two years. Ugalde says there have been no defaults or evictions. Customers can also elect to sign a conventional lease, but they always have the option to buy, he says.
The problem with comparing the lender-borrower relationship to a parent-child relationship is that the borrowers were ADULTS. They may not have been acting like adults, but nonetheless, they need to be held to the standard of adults. I understand it’s hard to exercise self-control when hundreds of thousands of dollars are being shoveled at you, but people need to think about what the consequences of accepting that money are. I think the dealer-addict relationship sums up the 2003-2007 period if lending better than any of the others.
You make a good point about the borrowers being adults. It’s a point those who would absolve borrowers of all responsibility want to ignore.
It fits perfectly the Left’s narrative that if you’re not rich, you are being victimized every day by the rich and large corporations – from your fat waistline to your excessive consumer debt to your pending foreclosure. They’re all the result of others preying on completely innocent victims.
Painting themselves as victims makes them feel better about victimizing someone else.
Reminds me of the old saying: If I owe you a small amount of money I have a problem. If I owe you a large amount of money, you have a problem!
IR,
Thank you for reminding us that the lenders have more blame than borrowers in the housing debacle. The words “fiduciary responsibility” seem to be missing in much of the housing market commentary I read. While I don’t hold the loanowners blameless, I really fault the bankers & brokers who loaned money to anyone who could fog a mirror, the greed of those bankers & brokers was an awful thing and now it’s the responsible people who are paying for the mess those greedy b*st*rds left behind. (Case in point – I would never have guess 6 years ago that the rate for a 5-year CD would be a whopping 1.3%. Ouch) Would you mind making a rough estimate of how much was extracted in points & fees from today’s failed
homeloanowner’s 5 refinances? IMHO it would be interesting to get an idea of how much was extracted from the $206,720 she extracted from her mortgage equity.I am surprised we haven’t seen some shareholder or bondholder lawsuits against some of the banks alleging an abdication of their fiduciary responsibility when they abandoned lending standards.
I too never imagined interest rates going so low (see comment above).
If you assume the mortgage broker took at least 3% on each of those loans, the borrower paid out at least $36,000 for the four refinances.
IR,
Wow, 17.4%!! My guess was going to be around 10%. So perhaps this puts a little bit different perspective on the ‘mortgage equity extractors’. Now as to the squatters, that’s a bit more infuriating as living rent/payment-free really is ‘free money’ that nobody else gets a cut from. OTOH, there apparently is a community net gain if keeping squatters in place keeps the houses from getting trashed and/or looted. There was a recent Reuters article, http://www.reuters.com/article/2013/01/10/us-usa-foreclosures-zombies-idUSBRE9090G920130110 about what happened to some people who chose to leave their properties during foreclosure instead of squatting. ‘No good deed goes unpunished’, eh?
Durn, the article name is “Special Report: The latest foreclosure horror: the zombie title”
More money creation talk.
Open-ended bond buys not “infinite”: Fed’s Lockhart
By Pedro Nicolaci da Costa
(Reuters) – The Federal Reserve’s unconventional monetary stimulus has its limits, and could pose threats to market functioning and financial stability if pushed too far, Atlanta Fed Bank President Dennis Lockhart said on Monday.
In another sign of growing reticence about the Fed’s bond-buying quantitative easing program within the central bank, Lockhart, seen as a policy centrist who tends to fall in line with Chairman Ben Bernanke, said the open-ended approach to bond buys does not mean there are no constraints on the policy.
“‘Open ended’ does not mean ‘without bound.’ The program is not ‘QE Infinity,’” he said in a speech to the Rotary Club of Atlanta.
Lockhart emphasized a weak U.S. job market is still a major concern for Fed policymakers, and urged fiscal authorities to come to some kind of resolution on budget matters, which might help lift some of the uncertainty hurting business investment.
“Unemployment, underemployment, and abandonment of efforts to find a job, taken together, present a sobering picture for policymakers,” Lockhart said.
The unemployment rate was 7.8 percent in December and was expected to come down all too gradually in 2013. At the same time, inflation looks set to remain below the Fed’s 2 percent target for the foreseeable future.
Despite that outlook, minutes from the Federal Open Market Committee’s December meeting showed several policymakers thought the central bank might have to halt or curtail the current $85 billion monthly securities purchases. Lockhart’s speech suggested the sentiment is relatively widespread.
“The accumulating purchases of bonds could complicate the FOMC’s efforts to withdraw monetary stimulus when the appropriate time comes. We have tested tools for exit, but it will be uncharted territory,” Lockhart said.
Still, Lockhart said he saw no imminent risks to the stability of the global financial system.
“I don’t see any really immediate threats to financial stability,” Lockhart told reporters after a speech.
He forecast the U.S. economy would expand between 2 percent and 2.5 percent this year.
“The Fed has done a great deal to date to promote recovery, but the ongoing effectiveness of Fed efforts does depend critically on the removal of fiscal policy uncertainty,” he said.
Among reasons for optimism, Lockhart cited recent signs of strength in housing, a recent boom in auto sales and a rise in U.S. energy exploration and production.
In response to the financial crisis and deep recession of 2007-2009, the Fed cut official interest rates to effectively zero and bought over $2 trillion in securities to keep long-term rates down.
Some economists worry the bloated $2.9 trillion balance sheet could lay the groundwork for future inflation. Others, however, note the rate of U.S. economic expansion remains too far beneath its potential for persistent price pressures to take hold.
My favorite analyst, Nadeem Walliyat, has finally come out with his US housing forcast. Based on the % change it hits the buy signals of 1997 and even 2009 and we are there again. I cant buy now but I can add on my house and remodel units and stuff like that. Here’s the link in case you’re interested http://www.marketoracle.co.uk/Article38458.html
That’s a good article. A bit long, but full of good information.
I have been preparing my monthly update on local home prices, and I am astonished by the readings my own mechanical system is giving. Despite the rising prices, the ratings keep going higher due to low interest rates. Even with the 10% rise in prices last year, the drop in rates made housing even more affordable.
That was a great article. Thank you for sharing.
My favorite passage was: “GDP Growth of 2.5% 2013 say hello to real inflation of about 3.5% which illustrates why the US and every other nation is emerged in what is an exponential inflation mega-trend which the below graph clearly illustrates that even on the official CPI inflation measure (which tends to under report real inflation), that the US is no different to any other country which contrary to the delusional deflation propaganda is instead immersed in what has always been an exponential inflation mega-trend which vested interests and what can be only termed as deflation fools have been blindly regurgitating the threats ever since the Great Recession of the 2008-2009, which the graph clearly illustrates amounted to nothing more than a mere blip or as I warned at the time as being a mere deflationary ripple on the surface of an ocean of Inflation.”
The term deflation fools immediately conjured images of el ORACLE, Lee in Irvine, and rants…. along with predictions of 1998 prices “in the bag”. LOL!
Um really……… “deflation fools” ???
http://pricedingold.com/charts/CSXR-1987.png
Ribsplitterultimate!!!
REMINDER: There are no more markets. There are manipulations! Hence, technical analysis = an excercise in futility.
And hence, your priced-in-gold chart is meaningless.
LMAO!
dude, the gold v CS chart I posted pertains to an actual price comp not TA.
Cheers!