Monday, November 26, 2007

With a straight face ... 
Former Clinton secretary of the Treasury and former Harvard University President Lawrence Summers argues that the cure for the damage that stupid lending has done to our economy is ...

... more stupid lending.

I shit thee not.

" The time for worrying about imprudent lending is past. The priority now has to be maintaining the flow of credit."

What a frigging retard.

In the same breath, within the same column, Summers further simultaneously argues that we must keep demand high. And of course the way to stimulate demand is to keep prices high.

Granted, that's true for fish. Nobody wants to buy fish from the discount shelf. So there are some arguments to be had that, way, waaaaay out on the margins, a high price creates its own demand.

That's a good way to reward the most irresponsible among us at the expense of hard working and prudent young families just starting out who have been squeezed out of the real estate market by rank speculators, corrupt mortgage brokers, and a bunch of colluding real estate brokers and appraisers who were all in on the con.

The entirety of Summers' thesis is bad. He's concentrating on price fixing, but doing nothing to address the underlying fundamental value of the asset class. In essence, he's arguing for a massive bailout of the wealthy on the backs of the renters, when it was the landowning class who were abusing the financial system in the first place, by leveraging their homes to the breaking point to finance their Lexus purchases, then foolishly leveraging them some more by misstating their income, failing to insure properly, and lying...or turning a blind eye while paying others to lie... about the market value of their homes.

The true value of real estate is that which provides a reasonable expected rate of return of capital to property owners and allows for positive cash flow on newly acquired properties at about a 75% debt to equity ratio.

Growth is gravy.

You can quibble about the percentage, and you can make adjustments to account for high-growth vs. low growth and quality of life issues. But any government action that tries to substitute some new and alien metric to try and distract us from the cold, hard analysis of cash flows is counterproductive. It's a shell game. And it will eventually discourage the development of new housing

Splash, out



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