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40-Year Mortgages

by Eric Englund, John Tyler, Ole Bear, Rob Kirby, & Sol Palha, Realty Reality - Global Real Estate Markets Forum. March 2005

Eric Englund, John Tyler, Ole Bear, Rob Kirby, & Sol Palha


What are your views on a 40-year mortgage for American Real Estate Properties? Why are the GSEs the leader of the Pack? Does this impact the ability to re-invent the real estate bubble for new highs? Is extended real estate credit for first time home buyers to buy more house than they can afford a good thing for the move up real estate price food chain? You may take either a pro or con position, but by all means defend your essay.

See Fannie Introduces 40-year loans in test by Alan J. Heavens, Knight Ridder
See Special Topic 5 Theme Song by Rob Kirby and Gale Bullock

Fannie Mae Resurrects the Forty-Year Mortgage in an Attempt to Remain Solvent

by Eric Englund
Surety Bond Underwriter

In America, the forty-year mortgage was born in the high-interest-rate days of the early 1980s. By stretching out a 30-year mortgage to 40 years, it made the monthly payment more affordable for consumers, after all, interest rates hit 18%+ back then hence making affordability an issue. Housing affordability has become an issue once again. Thus, Fannie Mae (a government sponsored enterprise/GSE) is resurrecting the 40-year mortgage in order to increase homeownership opportunities for Americans. This time, ironically, the affordability issue has emerged due to the housing bubble brought about by the Federal Reserve's artificially low interest rates. Of course, this GSE's reckless lending practices have much to do with the creation of America's housing bubble as well. Naturally, Fannie Mae's executives assert that offering a 40-year mortgage will further their firm's altruistic goal of allowing more and more Americans to own homes. In my opinion, Fannie Mae is desperately seeking ways to keep expanding its own balance sheet (by lending immense sums of money) in order to maintain its own solvency. In the end, the boom-bust cycle (as brought on by central banking) cannot be repealed. When the bust hits, Fannie Mae's extremely leveraged balance sheet will collapse like a house of cards; forty-year mortgages be damned.

Briefly, let's take a look at Fannie Mae's balance sheet as of fiscal year-end 2003. This behemoth has total assets of $1.01 trillion of which $902 billion consists of its retained mortgage portfolio. On the liabilities and equity side of the balance sheet, Fannie Mae has total liabilities of $987 billion of which $963 billion is long-term debt. When subtracting total liabilities from total assets, this entity's equity position is approximately $23 billion. In relationship to total liabilities, Fannie Mae's equity position is miniscule, which means the balance sheet is highly leveraged.

So let's look a little closer at this GSE's leverage situation. The most common way to measure leverage is to divide total liabilities by total equity, this is generally deemed a company's debt to equity ratio. This ratio is used to assess the long-term solvency of a firm. The higher the ratio, the more questionable the firm's long-term solvency becomes. Using the applicable figures, Fannie Mae's debt to equity ratio is 43 to 1. Considering that a debt to equity ratio of 12 to 1 is considered acceptable for a bank, Fannie Mae's leverage is disturbingly high. Consequently, I would judge this firm's financial condition to be fragile at best.

In addition to retaining a mortgage portfolio of $902 billion, Fannie Mae had a sizable off-balance sheet exposure to mortgage backed securities (MBS). At 12/31/03, the unpaid principal balance of mortgage backed securities guaranteed by Fannie Mae, and held by investors other than Fannie Mae, amounted to $1.3 trillion. It is no trivial matter that this GSE guarantees the payment of interest and principal on over $1 trillion of mortgage backed securities. If just a small fraction of the mortgages (retained or bundled into mortgage backed securities) goes into default, Fannie Mae's equity position would evaporate thus rendering this lending institution insolvent.

Eventually, a highly leveraged company recognizes its own financial fragility (especially one with a poorly managed derivatives portfolio). Undoubtedly, this frailty is why Fannie Mae's CEO and its CFO, Franklin Raines and Timothy Howard respectively, were forced to resign (by the board of directors) in December of 2004. In order to strengthen a weak balance sheet, the typical strategy is to grow the company out of its problems (i.e. generating even more revenues and hopefully even more earnings). After all, retaining earnings is a key to deleveraging. Considering that mortgage demand, including refinancings, has plunged 24% in a year*, Fannie Mae is going to have difficulty accelerating its revenue and earnings growth. To me, this explains why Fannie Mae is looking for new ways to loan money including rolling out a 40-year mortgage. Heck, I wouldn't be surprised if they roll out a 50-year mortgage some day. It certainly seems that Fannie Mae is in a situation where it must "grow or die."

Knowing the Austrian Theory of the Trade Cycle, my prediction is that Fannie Mae will "die" - or at least require a hugely expensive taxpayer bailout. My reasoning is that interest rates will eventually rise dramatically therefore bringing about a bust in the housing market.

For more details about the Austrian Theory of the Trade Cycle, here are some excerpts from Dr. Roger Garrison, a leading scholar in Austrian economics. Here he differentiates between savings-induced economic growth versus "growth" brought about by a central bank's credit expansion (keep in mind that central bank credit expansion produces artificially low interest rates):

The Austrian theory of the business cycle emerges straightforwardly from a simple comparison of savings-induced growth, which is sustainable, with a credit-induced boom, which is not. An increase in saving by individuals and a credit expansion orchestrated by the central bank set into motion market processes whose initial allocational effects on the economy's capital structure are similar. But the ultimate consequences of the two processes stand in stark contrast: Saving gets us genuine growth; credit expansion gets us boom and bust.

Indeed, when the Federal Reserve lowered short-term interest rates to 1%, it did so by expanding money and credit; which found its way into the housing market. Consequently, the housing boom was brought about directly by the Federal Reserve's irresponsible policies. However, since the housing boom was stimulated by credit creation instead of real savings, the housing boom will definitely turn into a bust�as interest rates will rise again. Here, we rejoin Dr. Garrison:

...the credit-induced decrease in the rate of interest engenders a dis–conformity between intertemporal resource usage and intertemporal consumption preferences. Market mechanisms that allocate resources within the capital structure are imperfect enough to permit substantial intertemporal disequilibria, but the market process that shifts output from the near to the more remote future when savings preferences have not changed is bound to be ill-fated. The spending pattern of income earners clashes with the production decisions that generated their income. The intertemporal mismatch between earning and spending patterns eventually turns boom into bust. More specifically, the artificially low rate of interest that triggered the boom eventually gives way to a high real rate of interest as overcommitted investors bid against one another for increasingly scarce resources. The bust, which is simply the market's recognition of the unsustainability of the boom, is followed by liquidation and capital restructuring through which production activities are brought back into conformity with consumption preferences. (emphasis added)

The "liquidation and capital restructuring" aspects of the bust also translate into higher unemployment. Hence, unemployed and debt-laden citizens tend to default on mortgages. This bodes ill for Fannie Mae. Moreover, it could be argued that Fannie Mae is much too large (and most likely, too unsophisticated) to adequately hedge against rising interest rates. Let's not lose sight of the fact that Franklin Raines resigned in light of a derivatives (i.e. interest rate hedging) scandal in which Fannie Mae underreported derivatives losses to the tune of $9 billion. This could mean that Fannie Mae's equity position has been overstated by nearly 40%. The day will come when Fannie Mae faces an economic bust and there is no question that "she" is too financially fragile to survive.

It is appropriate to close with a quote from the late preeminent Austrian economist Ludwig von Mises. His words should be taken to heart by all those who believe that buying a consumer-durable product, such as a house or a condo, paves the road to prosperity. To wit:

Credit expansion cannot increase the supply of real goods. It merely brings about a rearrangement. It diverts capital investment away from the course prescribed by the state of economic wealth and market conditions. It causes production to pursue paths which it would not follow unless the economy were to acquire an increase in material goods. As a result, the upswing lacks a solid base. It is not real prosperity. It is illusory prosperity. It did not develop from an increase in economic wealth. Rather, it arose because the credit expansion created the illusion of such an increase. Sooner or later it must become apparent that this economic situation is built on sand. (emphasis in the original)

In the end, Fannie Mae's foray into the 40-year mortgage will not serve to revitalize "her" financial condition. I have little doubt that this GSE will crumble like a sandcastle. Alas, Fannie's 40-year mortgage will simply suck more people into the quicksand of America's housing boom.

* Source: February 2005 Safe Money Report

© 2005 Eric Englund
Surety Bond Underwriter
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Brilliant Investment Returns With the Luck of the Irish

by John Tyler, CEO

Now even the Irish are seen as brilliant and wealthy investors. As a long-term watcher of the Irish, I have some concern. However Ireland is now leading the world in rising property values.

Surely this must indicate that the bubble is near bursting?

An old Scottish proverb says "First the Home" when taking of the road to riches. It seems that the Irish have caught on to this now as even the Leprechauns are exchanging their pots of gold for some plasterboard and carpet on a Bogside tenement.

America's house-price boom looks modest compared to Ireland's. However, the average price gain over the past few years has been the fastest in history.

National figures hide local bubbles. Parts of California and New York have seen house-price increases of more than 80% in the past five years.

The Irish seem overjoyed that they are world leaders in the rush to property as evidenced by these figures sourced from The Irish property review.

What luck! To find that the hovel you bought for $120,000, is now worth more than $250,00.

The Blarney goes on, like the froth on a pint of Guinness:

We know that higher house prices means that paper wealth surges, and this in turn boosts consumer spending.

Every bubble is accompanied by the blind belief that "it's different this time".

It is certainly different this time!

1. The property bubble is global with the exception of Japan that is still trying to recover from its local bubble in the 1990s.

What happened to Japan will occur on a global scale in the not too distant future.

2. This bubble is unprecedented in financial terms

The economist reports that in the past three years, the total value of residential property has been estimated to increase by $20 trillion. This is double the expansion of history's largest stock market bubble.

3. The property bubble is synchronised with a global equity market bubble.

The "investment clock" appears to have stopped. It is indeed unusual to see stock market and property bubbles together. From Russia to Australia, stock markets are topping out.

4. Demographic factors are of great concern. The population trend in most western nations is down. The population is aging and less able to generate real economic growth. There are more single person occupancies, but the social implications of this, together with the aging population, make this a welfare time bomb.

Aged singles would rather have a friend than a property portfolio.

We used to laugh at the thought of the mad building castles in the sky and the psychiatrists collecting the rent. Now it's the apparently sane, building castles on the ground, with the rent being government taxes, rates and levies with soaring insurance costs that still leave investors exposed.

Is officialdom concerned?

Alan Greenspan, chairman of the Federal Reserve, has dismissed the idea of a bubble in the United States, however he believes that the house-price boom will slow this year. He knows the danger of, and has the power, to cause a stampede.

A "soft landing" is talked about, but it looks like the parachute has failed to open.

The IMF and OECD have both warned about markets in the UK and Australia, but this has been neatly swept under the carpet by respective governments.

Chairman Greenspan acknowledges that there are property hot-spots, but rejects the notion of a national housing bubble, arguing that high transaction costs discourage the buying and selling frenzy seen in financial-market bubbles. Hey, see the admission that Government has its snout deep in the trough? This has never prevented housing bubbles elsewhere.

The big lie is that a soft landing can be engineered by economic policy.

The economic policy of easy money and low rates can start a bubble, but once a boom starts, it is fuelled by the hopes and aspirations of the populace. It becomes political suicide to raise rates, as they fail to work to slow a bubble. They have to be raised until such time as the bubble bursts, for bursting a bubble is the only way for a bubble to go.

Is property a good investment?

Before you rush out and buy, do as my wife and I did on a bleak and rainy afternoon. Look at the "quality" end of the market, do the figures, and get a sense of what's happening.

And now for the figures, converted to dollars:

Asking price $800,000 for a 2 bedroom apartment- one would add a $40,000 state property tax.

The owner could expect to receive $450 a week rental according to the agent, but have to pay land tax, insurances and body corporate fees of $11,000 per annum.

Lets assume the agent is correct, even though $400 a week would be more realistic. We'll also assume that the owner has no loan obligations. The whole thing has been funded by a lifetime of labour, and "now is the time to invest in the king of all investments as property never goes down".

Annual net return $22,400, or 2.7% on capital.

Unfortunately this doesn't account for any possible fall in the value of the property. It is likely that even for this wealthy investor, there will be a negative return when this is taken into account.

For investors who have taken loans, the losses may be huge. The interest rate cycle has turned. Further rate rises are inevitable.

It's still not too late to escape from the consequences of this current bubble that will take a generation to unwind.

May the luck of the Irish be with you!

© 2005 John Tyler, CEO
Email l Editorial Archive | Website

PS I have Irish blood myself. The Irish have been the victims of history. Fellow countrymen, let's not repeat it!


40-Year Mortgages, Closing in Hours, Conundrums at the Federal Reserve, the Black Death on Wall Street... or Brother, can you spare a dime?

by Gale Bullock
Editor, Realty Reality

Forewarda, Backwards

The Chairman is traitor to the cause of sound money.
"The Supply of Oxen at the Federal Reserve" Dr. Antal E. Fekete

The Chairman is a traitor to the cause of sound real estate values.
- Gale Bullock

In the Knickerbocker Trust, you have what may be a metaphor for Fannie Mae, a large, but troubled financial institution, whose failure could also spark a wider financial panic. Like the Knickerbocker Trust, Fannie Mae is no favorite of the banks, which claim that Fannie's special privileges give it an unfair advantage in the mortgage business. Those who have been bullied by Fannie in the past would shed no tears should it get stuck in a financial pickle. -- Out of Aces - Chris Mayer

Beware as foreign central banks diversify out of USTBonds. Let's not forget that garbage paper known as "Agency Debt" which Fanny Mae so successfully panders across the globe. It is as though Asian central banks purchase our mortgage bonds in order to keep the US consumer going like the Energizer Bunny. You gotta love the word "diversify" which is euphemism for "get the hell out of US$-denominated debt." The latest is South Korea, who announced that $67 billion in US$-based reserves is enough, maybe too much. They join China, Russia, India, Indonesia, and others who have begun to see the writing on the walls. Their foreign exchange reserves are in jeopardy.

How much longer can the Bank of Japan do the US Fed's bidding in secret overnight transactions in the largest carry trade operation the world has ever known ? Is the BoJ the Far East outpost for the Fed ? Is intervention their M.O. ? Anyone who claims there is no inflation cannot define the term, nor notice the monstrous inflation at work in Tokyo. "Fat Fanny Falls Out of Bed" Jim Willie CB

Congress has directed the housing GSEs, Fannie Mae and Freddie Mac, to lead the market in helping low-income and minority households buy homes. Recognizing that affordable housing loans tend to be less profitable, Congress provides the GSEs an annual subsidy of $10.6 billion according to an estimate by the Congressional Budget Office in 2000. This subsidy is supposed to be used to put more people into their own homes. But according to data submitted to the Department of Housing and Urban Development (HUD) by Fannie Mae and Freddie Mac they continue to do a poor job of funding mortgages for first-time homebuyers, all the while using more than a third of their $10.6 billion subsidy to increase profits and boost their stockholder returns. - FM Policy Focus []

Wall Street analysts can't afford to admit they're wrong about Fannie's prospects. They have urged too many people and institutions to buy the stock for them to cut off that limb now. Wall Street firms make too much money dealing in mortgage securities issued by Fannie Mae to do anything that would hurt Fannie or endanger their business relationship. And Wall Street has too much of its own money invested in Fannie to put out a "sell" recommendation on Fannie Mae. If the big firms sold their holdings before telling clients to do so, the Securities and Exchange Commission would be all over them. If they told clients to sell before selling their own holdings, they'd hurt themselves.

"Wall Street is Stuck with Fannie Mae" Jerry Knight []

Gold's Future as Money - Q&A - Nelson Hultberg []

Building the American Dream... or Nightmare? - The Economist Global Agenda

Catch Phrases and Catch 22

Mr. Greenspan appears to be in a Congressional Hotseat "conundrum" not knowing why mortgage interest rates have lowered in spite of several FOMC rate hikes, with the promise to pour more pedal to the metal [gasoline, fuel oil, or kerosene all work well]. I suppose Mr. Greenspan missed Dr. Antal Fekete's The Supply of Oxen at the FED? Dr. Fekete does a pretty neat job of describing the FED's Bank of Japan blackmail in the Yen/Dollar carry trade holding up real estate. No, this type of financial blackmail isn't legal under the Rule of Law, but it is the Baron Rothschild modus operandi, and what's good for the goose, is good for the gander. Crude Oil closed today over $51 a barrel today on the CNBC! Weren't we all led to believe that the American Pre-Emptive Colonization of the Fertile Crescent would stand ready to lend democracy [mobocracy] should the price rise? [1] Some Lucrative Patriotism, huh? Mr. Greenspan probably has a conundrum with the Federal Reserve creating the agricultural depression beginning in 1920 while the FED stoked the coffers of Wall Street and the bankers in the madness of the stock market craze in the later 1920s. The country went into a major depression with the Wall Street Crash of 1929, but the agricultural sector was hit nine years earlier, and was hit even harder when paper money contracted. [2] Brother, can you spare a dime?

An Insider Reveals a Big Mess

Ole Bear, my Bride does temp work as an escrow officer (when she feels like working). She's very experienced and the best paid temp in the area. She only does special situations for a few clients. Anyway, she's telling me that for the first time in her career of 30 years, the majority of her transactions include 100 percent financings. And last week, she told me of a deal where the purchase price was 20 percent higher than it was for the same property 30-days earlier (with only minor cosmetic upgrades since). The seller never even had it long enough to make a mortgage payment. No problem with the appraisal, but the lender is desperately trying to dump the disapproving review appraisal to close the deal.

My sense is, and it's not limited to Arizona, appraisals don't matter. [Is that news?] That's because there seems to be a massive and intentionally careless effort to pump more and more money into the housing market. The evidence is in a lending industry gone wild, and an underwriting process that has gone AWOL. If I am correct, the why of it doesn't matter so much as will the consequences. It's scary out there.

Additionally, I'm hearing from other sources who seem confident in their information, that there is the beginnings of a movement to up the di-minimus level to $500,000. Moreover, there is news today out of Freddie Mac about new loan programs to continue cheap and cheaper money for mortgages, and to automate almost all underwriting for CLOSINGS IN HOURS. If there is anything of value left in what used to be the profession of residential appraisal, it is now on it's way to the morgue (as may be the whole of the Appraisal Institute before long).

These revelations are insanely frightening. The current di-minimus standard is just a little over $300,000 at the GSEs. What this means is that the GSEs can get away with no appraisal making a loan under that amount. Raising it to half a million provides more leverage to inflate real estate prices, the currency, and sucking a lot more folks into the game that real estate always goes up. Closing a real estate mortgage loan in hours is a real hoot. Talk about big torpedoes at Fannie Mae and Freddie Mac in their loan portfolios! 100% financings why not? Brother, can you spare a dime?

Wheelbarrows and Fast Loan Closings

The mechanisms in place to close real estate loans in hours, prostituting the realty appraisal and loan documentation, which really cannot be attained in hours makes me think of the Weimar Republic in Germany after WWI in their massive hyperinflation, where money was printed on one side, it was spent to buy bread and goods before it depreciated, folks were paid in paper money several times a day, and these poor folks hauled their money around in wheelbarrows. What I see is that we are witness to the final days of monetary destruction of the Federal Reserve Note, Folks. When loans cannot be paid, the banking cartel forecloses. It worked well in the 1930s at the hands of the banking cartel. We view the conundrum of Fanron [Fannie Mae] to be nothing more than the extension of a money and credit system gone AWOL, operating as second tier central banks under the process of money market mutual fund intermediation - the ability to siphon your money off Wall Street without your direct knowledge. We envision the GSE mortgage monopoly to be nothing but an extension of the Fatal Parasite on the American Body Politic. Brother, can you spare a dime?

Good Guys, Bad Guys - Good Cops, Bad Cops

A centralized government for general welfare, national defense, and a Constitutional Foreign Policy are needed if 50 states decide to remain united in the americas. If I can defraud you of your money, and lie to you about real estate, then I have your vote, and as your elected representative, I can do dang well what I please with a Federal Reserve in place. Once you elect me, you can't get rid of me, because folks listen to my political rhetoric, don't understand political systems, economics, sound money, or real estate. Write to me on an issue I am for in the New World Order, and you are not, I will send you a reply of smoke and mirrors - for you see, I have never read the Constitution, and don't understand it. Why should I, since I get paid well to make laws to control you. No, contacting your elected representatives won't work. You have to learn how to vote with your money! In so doing, Americans can pull the plug on the economic tapeworm. Brother, can you spare a dime?

Bentonville, Arkansas Property Flipping, Depends by the Truckload, and Shooting Ponies and Messengers

More money to spend at China Mart home based in Bentonville, Arkansas? Property flipping and a negative review appraisal report? Ah, shucks, just shoot the review appraiser! -- after you threaten him or her with reporting his or her shoddy work product [market true?] to the Appraisal Institute in Chicago, after you Delphi Scam and Cognitive Dissonance him or her so badly that he or she needs to wear Depends [a registered trademark product for incontinence] to go home from the office, and don't forget to tell 'em you are not going to pay for the shoddy review appraisal that dudn't make your deal! Hey, they shoot messengers and horses, don't they? The comments about the Appraisal Institute [] possibly being on its way to the morgue before too long regarding residential valuation are priceless. However, we suspect otherwise. When you are dead and no longer breathing [financial serfdom or slavery] you really don't give a flip if you are enroute on a gurney or packed in chiller - do you? We don't have to worry about passé economic depressions this time around. We have real estate as a smoke and mirror to hold up Wall Street, and financial markets. Brother, can you spare a dime?

Counter-Measures at Fanron or Fannie Mae Introduces 40-year Loans in Test
- Alan J. Heavens, Knight Rider Newspapers

This is a rather nice essay by author Heavens from Knight Rider. Let's read between the lines:

Fannie Mae, the nation's largest source of home financing, is test-marketing a 40-year mortgage, using 21 federally insured credit unions around the country as guinea pigs.

By limiting the test market to credit unions, Fannie Mae aims for an audience of low- and moderate-income buyers. Spokeswoman Sandy Cutts said Fannie Mae looked at programs in light of its "American Dream" strategy, designed to create homeownership opportunities for such buyers. Credit unions usually serve professionals such as teachers, police officers and firefighters, people who often cannot afford to live in the areas where they work.

This reeks of Fannie Mae's reverse financial discrimination targeting lower paid professionals on the totem pole? Credit unions cater to poor folks professionals? Give me a break! Credit unions operate just like banks and savings and loans, and don't just cater to lower income folks. The myth of the credit union being just for poor folks, is absurd. The credit unions are being used as a Delphi Scam and with tools of Cognitive Dissonance, their elite memberships are being targeted for these bloated, spurious loans which Fanron [Fannie Mae] hopes will prop up their stock price now that it is tanking big time [somewhat like being in the doghouse?]. Breaking FNM below $50 a share, in a trillion dollar real estate American Dream mortgage market is somewhat of a conundrum, hey, Alan? Shades of Enron and the Oklahoma Dust Bowl of the 1930s, hey, Alan? Wall Street is Stuck with Fannie Mae! But you don't have to be if you know how to vote with your money! Brother, can you spare a dime?

To keep the Ponzi Shell Game going of increasing their [Fanron's] shareholder value, CEO bene's and perks, Fanron [Fannie Mae] is desperate to lull a lot of smart professional folks into their shell game. This shell game carrot is offering a mortgage loan at 40 years so you are in debt to the banking cartel longer, and can buy a bigger house. This is using real estate as the American Dream carrot by offering loans that will perpetuate increasing homes and realty values in a defaulting money system wrecked with central banking inflation and monetary destruction of the currency by the printing press. This is criminal in our view, but Fannie Mae isn't run like the Lollipop Guild, now is it? At the epicenter of this financial mess is Mr. Greenspan and his Federal Reserve System of creating money out of thin air using the Mandrake Mechanism. [They do it by] Selling Treasury debt and bonds for money, and blackmailing foreign central banks to buy Treasury debt to keep mortgage interest rates low to further the spiraling of real estate prices to the Stratosphere. And, what do you expect a Machiavellian Central Bank Charlatan to say, but "The Dog Ate My Homework!"? Our readers should read this 1960s adjunct, an essay called Gold and Economic Freedom. What reason lies in past prose put asunder, now lies in the conundrum of charlatan monetary madness in present tense!

The desperation to keep the Wall Street Financial System [fraudulent money system] alive just doesn't stop with the GSEs. Now Social Security is to be privatized for your well being, to be pumped to Wall Street to further the smoke and mirrors that Americans are Wealthy and Rich! Who is accountable to whom? Brother, can you spare a dime?

Conundrum's Conundrum - Fannie Mae [Fanron] Economists and Credit Scoring Torpedoing Portfolios?

This following should wake folks up from a deep sleep [from Fannie Mae Introduces 40-year Loans in Test]:

"As with any mortgage, the 40-year isn't for everyone," said Cutts, the Fannie Mae spokeswoman. "Our risk assessment and credit standards haven't changed. Mortgages will continue to be granted on a person's ability to afford them." [Editor's Note: Yes, based on credit scoring and not the value of the collateral of the real estate based on a sound appraisal of the real estate. Thank you professional realty valuation organizations and foundations for not fighting Fannie Mae and the Federal Reserve since FIRREA 1989.]

"Our studies have shown that people don't remain in their houses for the life of their mortgage," she said. "After five to seven years, they either refinance or move." [Editor's Note: --or get evicted and foreclosed on by Fannie Mae and their minions, and the property resold, sometimes at a loss which Fannie Mae covers up by faulty review appraisals to settle the dust for their investors. With escalating prices Fannie Mae and the Federal Reserve are causing by the destruction of our money through the printing press, only dumb folks are going to take on more debt on a property that they won't be able to sell in an economic collapse. How can folks move if they have lost their job in a service based economy? Your economic models don't include the word economic depression, which keeps folks in their homes hanging on with every dime to maintain families.]

A homebuyer's perceptions play the biggest role in the kind of mortgage they go with, Buxbaum said." [Editor's Note: Yeah, and that's why Fannie Mae is target marketing to credit unions which have all socio-economic strata of folks, so they can learn how to hard/soft sell a 40-year mortgage to the banking and S&L crowd of patrons, refining their marketing shtick!]

"You have to remember that people don't look at the long haul, but at the size of the monthly payment," he said. "If the 40-year lowers that payment to make the house they want more affordable, then that's what they'll do. The fact that they'll never pay the mortgage off doesn't matter." [Editor's Note: Didn�t you mean to say that the Federal Reserve and its GSE second tier central banks want to keep folks dumbed down about money, what it is, what it is not, that central bankers stand ready to lease/lend gold should the price rise, that gold is not money, but real estate is because it is debt just like our money system, and that gold and silver pay no interest as real money once bullion is in your pocket as monetary insurance, and that central bankers, real estate developers, builders, and the GSEs cannot create specie out of thin air? Did you mean to say that debt enslavement for 40 years was economically prudent as a pretext for sound Austrian Economics?]

It is the simple things that folks say in the press, that sometimes defies reality and sound economics, but folks tend to believe anything that is published as the written gospel. If most folks understood real estate as a commodity, and the fact that it can decline in price below the real estate loan and the owner's equity, given the right circumstances, folks would have a hard time sleeping at night.

The Black Death in the Wall Street Morgue

Royal Bank of Scotland purchased Charter One Financial Corporation in the Fall of 2004. RBS used a dummy Rhode Island Bank Holding Company setup to make the acquisition of the 25th largest bank holding company in the USA.

Charter One Financial of Ohio owns Real Estate Appraisal Services, Inc. or REAS. REAS is the direct appraisal management company affiliated with the Appraisal Institute, [], a professional realty valuation organization in the USA. With the RBS/Charter Merger, it is about one of the tenth largest banking holding operations in the USA. No, the Appraisal Institute is not in the morgue at all, as currently operated. It is the banking cartel's Black Death of the Real Estate Collapse - providing services that cater to Wall Street and 40-year mortgage products [AVMs, drive by appraisals, et cetera] to booster Fannie Mae's stock price and shareholder value. So, where is the collateral in a fraudulent definition of market value for real estate when the U. S. Dollar does not currently exist? Not only is Wall Street stuck with and married to Fannie Mae [and the rest of the GSE step-children], its control over the real estate valuation profession is one of the biggest conflicts of interest in modern economic history. This is why real estate professionals who understand global economics, know that they are being held hostage by the realty valuation professional organizations linked to Wall Street. Brother, can you spare a dime?

Brother, can you spare a dime? - to vote with your money in the marketplace?

Big Government and its Big Banking System linked to Wall Street want the use of your money and your financial debt serfdom [slavery] to build shareholder value, increase their profits, and to keep the deficit spend legal tender fiat paper money Federal negative return black budget economy afloat. Folks have the power to take their money away from these Charlatans by pulling money out of Big Boy Banks like Bank of America, JPChase, Goldman Sachs, and putting their money in locally owned regional and small town banks. Folks have the ability to refinance their homes with locally owned mortgage companies who either warehouse the loans or sell them on a micro market level to other small local banks and solid lending institutions who are solvent. Folks have the ability to dump the big black budget economy defense contractor stocks and invest in real companies that are good for America on the micro realty market level. This is called voting with your money. Folks have the ability to invest in gold and silver bullion at still give away prices, as well as establish electronic gold accounts. Folks have the ability to invest in real bullion funds, and take their money out of regular money market mutual funds, which the GSEs can tap with money market fund intermediation, placing their money in treasury only mutual funds. There are a lot of opportunities for folks to vote with their money. Mapping the Real Deal: The Solari Solution is suggested reading to learn how to vote with your money.

The 40-Year Mortgage ploy by Fannie Mae [Bill Fleckenstein is now calling Fannie Mae "Fanron" - an obvious reference to Enron], is but another attempt to keep Americans in financial serfdom using real estate as the vehicle. There are also many pitfalls to closing in hours, 100% financings, and over the top 125-150% home-equity loan financings on real property. With the potential for mortgage and realty appraisal fraud lurking around every street corner and in every dark alley in America, it is relatively simple to be become buried alive in your own homes over-financed with debt. Obviously, this is criminal. And most ceremoniously, paying off your real estate debt or maintaining a low loan to value ratio are both one's best insurance policy in the final history in this demise of this fraudulent paper money system unbacked by specie. What the FED did not understand in the 1920s about real estate and Wall Street, it now most assuredly does - since the Bank of Japan has been blackmailed in the Yen/Dollar Carry Trade snarfing up Treasury Dept, providing those cheap mortgage rates. Blessed be the kindness of strangers, until they shoot the blackmailer [economically or with a Colt .45]. Brother, can you spare a dime?

See: Enron: The Anatomy of a Cover Up - Catherine Austin Fitts
See: The Hijackers of Harvard: A Name and Address - Catherine Austin Fitts


In this essay I made many subtleties to Milton Meltzer's Brother, Can You Spare a Dime? This is a great read depicting what happened to all classes of Americans from the 1920 Federal Reserve induced Agricultural Depression to the FED induced Great Depression after the Crash of 1929, before FDR took the reigns of political power in Washington. It is a short, but powerful read, recommended for all. Lawrence W. Reed's Great Myths of the Great Depression is another short, but powerful expos� on what the Federal Reserve wrought for the American People in the 1920s and 1930s. We also provided some excellent links at how to follow the money trail, if our readers want to learn how to vote with their money in the marketplace.

With the ballyhoo surrounding the GSEs and Fannie Mae [Fanron], it is no surprise to us that in secret, the Federal Reserve would like to be the regulatory agency of the GSE monopolies on the mortgage industry secondary market, having them directly under its supervision or that of the US Treasury. Once Congress gives the FED this authority, the ability to control the financial lives of Americans will become unprecedented in our economic history. The bigger the conundrum, the bigger the lie. [3]

Aha! That is the rub perchance Chairman Greenspan fears be revealed outside his conundrum, obfuscating the motive, this moment of our discontent. Certainly, being debt free outside the central banking cartel, voting with your money in the marketplace, and removing it from Wall Street and the Big Boys, gives new meaning to the right to bear arms, and deciding the economic future of your own house, ultimately giving new meaning to the words economic freedom - does it not? When the American People vote with their money, they vote under the Rule of Law. Hey, the American People are the good guys! - are we not?

In 1930 a simple silver dime was a lot of money. Brother, can you spare a dime?

Ole Bear

© 2005 Gale Bullock
AKA Bear
Editor for Realty Reality
Columbia, Missouri
Editorial Archive


[a] Fore, meaning as a noun--situated at or toward the front in relation to something else, or as an adjective, in a prominent or conspicuous position, or still living and active.

-ward as a suffix used to create adjectives from nouns indicating going, developing, facing, or directed toward; or as a suffix used to modify an adjective to produce an adverb meaning in or toward a specific area, place, point or direction.

Foreward, in this sense is a malapropism, or an absurd use of words. Using a simile, this is like Mr. Greenspan's "conundrum" not knowing that the FED has blackmailed the Bank of Japan to buy US Treasuries to keep US Mortgage interest rates at 45 year lows, while the FOMC has pumped the discount rate about six times now. Using another simile, this is also like the left hand not knowing what the right hand is doing -- somewhat incongruous for the most powerful central bank on the planet, n'est pas? However, behind the curtain, we suspect the wheels are in motion for the FED to control the American Dream directly, creating the greatest money pump in all of economic history -- talk about coin clipping!

[1] This is a pun and a play on words. Mr. Greenspan said that central banks stand ready to lend/lease gold should the price rise. That was about 2-3 years ago when gold was well under $300 an ounce. It is now well over $400. Where's your gold, Alan? In Fort Knox?

[2] It is "fortunate" that the Federal Reserve System was in place just in time for World War I. The System was successful in creating instantly all the additional credit needed to finance that great conflict. Federal bonds were sold to the System in exchange for credit extended to the government for the bonds. Further, these bonds became the basis upon which Federal Reserve Notes were issued. As the war progressed, the paper currency and credit supply greatly expanded and this directly caused inflation.

With the successful conclusion of the War, the monetary powers in control of the Federal Reserve System schemed a deliberate, premeditated, intentional contraction of the currency supply. The new Federal Reserve System had demonstrated its currency expansion abilities and it was now time to test its contraction capabilities. On May 18, 1920, a secret meeting of the Federal Reserve Board devised a criminal plan to severely damage the commerce of our nation, particularly the agriculture industry. During this meeting, plans were made which were shortly thereafter implemented to raise severely the discount rate and reserve requirement ratio. The results were predictable and agriculture and its support industries received a severe financial blow, all for the purpose of reducing prices. Much financial ruin was caused and those who were damaged were without fault. Nonetheless, the System proved efficient at currency contraction, thus laying the groundwork for the Great Depression. [11]

Memorandum of Law: The Money Issue, Period II: A Different Day � From the Civil War to 1933, Larry Becraft, Attorney. Footnote [11] references: The story of this criminal meeting of May 18, 1920, is spread upon the pages of the Congressional Record of February 23, 1923, pages 4362 through 4369.

[3] In 1907, a money panic occurred which many have concluded was caused by deliberate international gold shipments which affected bank reserves. As a result of the damage caused by this panic, the people of our nation and various politicians agitated for monetary reform. Paul Warburg, a German who immigrated to our country in 1902 and who was an officer of the banking firm of Kuhn Loeb and Company, thereafter proposed a great central bank in the European tradition. Congress established a monetary commission to study this proposal, and the multitude of reports so made can now be found in the Senate and House Documents and Reports of that period. In 1909, the 16th Amendment to the U.S. Constitution, the income tax amendment, was proposed and it was eventually, allegedly, ratified in February, 1913. The income tax is a condition precedent for any fiat currency system. Between 1909 and 1913, the proposed central bank plan began to take shape; finally, the Federal Reserve Act was refined enough to secure its passage and enactment on December 23, 1913. [8]

The Federal Reserve Act as promoted to the American public by its proponents gave the outward appearance that the "Money Trust" was being destroyed and was being replaced by a governmental agency which would operate for the benefit of the public. It was necessary that the American people be defrauded and deceived because the Act did not dethrone the "Money Trust" but in fact granted to that Trust thereto fore vast and unknown powers. As noted at the beginning of this brief, private groups have always desired to have the power to provide currency to a nation and this act in fact gave the Juilliard powers of Congress to a private, powerful, financial group.

The Act [9] established 12 privately owned Federal Reserve Banks, the stock in which was to be, and is now, owned by member banks which are likewise privately owned. These 12 private, regional central banks comprised the whole system known as the Federal Reserve System. The only public attribute of this system arose from the fact that the System was to be controlled by a 12 man Board of Governors, 7 of whom were to be appointed by the President. Without question, the System as constructed in this legislation, and now, is totally private, having only some titular "public" heads. The financial powers that sought and obtained this legislation desired a complete privately owned system with enough public facade to render a deceptive appearance. Not only does the legislation disclose the private nature of this System, the federal courts of our nation have now recognized this fact; see Lewis v. United States, 680 F.2d 1239 (9th Cir. 1982). [10]

The original act establishing the Federal Reserve System authorized the issuance of Federal Reserve Notes which were to be redeemed in "lawful money of the United States;" see 12 U.S.C. � 411. Prior to its repeal in 1994, 12 U.S.C. - 152 defined "lawful money" to be gold and silver coin, and therefore the act called for specie redemption of such notes. The fact that such notes were also deemed "obligations" of the United States conclusively shows that the Juilliard powers of Congress were conveyed to the System, since such powers were ostensibly derived from the Congressional power to "borrow money."

Since the Federal Reserve Act conveyed to a private banking cartel a very substantial Congressional power, the question naturally arises as to whether this legislation is constitutional on this basis. It is unnecessary to consider the infinite, numerous transactions of the System such as its open market operations, discount operations and flagrant, abusive, tortious manipulations of the reserve requirement ratio. Since the only crucial link to the Juilliard powers of Congress consists of the fact that Federal Reserve Notes are U.S. obligations, analysis can be limited to this one aspect. Here, Congress in the Act established no discernible policy or purpose insofar as the issuance of such obligations is concerned; there is no standard by which action taken pursuant to such nonexistent policy can be controlled; there are no rules, regulations or procedures to be followed concerning the issuance of these obligations; there are no requirement for finding of facts in reference to issuance of these obligations; and certainly there are no administrative procedures such as public hearings and opportunity to be heard. It appears that the conveyance of Congressional Juilliard powers to these banks was an outright gift to a very powerful, self interested financial group, subject to no control or restraint by Congress. The Federal Reserve System was given unbridled power to expand or contract the number and amount of outstanding federal "bills of credit." This legislation is unconstitutional for this reason.

It is "fortunate" that the Federal Reserve System was in place just in time for World War I. The System was successful in creating instantly all the additional credit needed to finance that great conflict. Federal bonds were sold to the System in exchange for credit extended to the government for the bonds. Further, these bonds became the basis upon which Federal Reserve Notes were issued. As the war progressed, the paper currency and credit supply greatly expanded and this directly caused inflation.

Memorandum of Law: The Money Issue, Period II: A Different Day � From the Civil War to 1933, Larry Becraft, Attorney.


Fannie's Farcical 40 Year Mortgages: A Commedy of Errors
~ A Shakeskirbean Farce ~

by Rob Kirby

It had been a long time, but I picked up a copy of Hamlet the other day, it was my daughter's book - for her English class in high school. It made me reflect back on my high school days - when a case of beer [a two-four ehhh?] could be had for six bucks in Canada. That wasn't all that long ago, as in the late 70's. The same case of beer today will set you back a cool 34 bucks. The only difference, as I see it, is the case of beer today is no longer sold "warm." Yup, they sell the stuff cold these days or, as you like it! I guess that's in case you get the urge to have a cool one in the parking lot before you hop in your car and drive home - but remember, don't drink and drive. No doubt, from Alan Greenspan's and the other zealots over at the Bureau of Labor Statistics perspective, the fact that beer is now sold "cold" would represent some kind of productivity or quality enhancement more than offsetting the price increase and therefore deduct that indeed, prices have actually fallen - all things being equal. Whatever. Funny thing though, don't ya think, when I reflect on school - beer seems to come to mind. I guess I'm a lucky dad that my daughter isn't a chip off the old block, eh?

Anyway, the matter at hand - Bill Shakespeare's Hamlet. As I survey the front cover, with quality adjustments in mind, I notice that this Washington Square Press edition of the book is edited by Barbara Mowat and Paul Werstine. I hath thought about this for a moment longer - erstwhile pondering exactly whoith on our fair planet is qualified to "edit" Shakespeare? I mean, Hamlet was doneth as a play and he [Bill] was pretty good, wasn't he? Some might even suggest he was indeed, in a literary sense, the gold standard. Now I will admit, that any of you who know anything about me and my writing, were probably wondering how I was going to pervert, twist, contort or other wise cajole this mid summer's night dream of an essay/story into a discussion about gold. But I'm not going to do that today. What I really want to talk about is Fannie Mae's completely insane, demented, moronic, idiotic notion that 40-year residential mortgages have any merit whatsoever - I'm just trying to figure out how I'm going to get there, so shakesbear with me, ehhh?

"I have bought Golden opinions from all sorts of people."
Macbeth, (I,vii)[i]

When I began this essay, at first it seemed that it was going to be much ado about nothing, but then it became a farce. That's when I figured [pun] we should talk numbers [Sonnets, ehh?]. So, here's what I found:

If you borrow $400,000 @ 8.0% [remember median prices in places like California are $500,000+, so this is not unreasonable] on a 30-year amortization, your monthly payments are roughly $2,935/month. The same loan on a 40-year amortization, gives you a monthly carry of $2,781. But this all so much fun, only a piker would stop at forty years? So, just for fun [farce ehh], I figured that if you took a $400,000 loan at 8.0% and paid it off over, say, 75 years - your monthly payments drop to $2,673. That's another hundred bucks and change in your pocket for new big screen T.V. [leased of course]. And for the "it can't never happen to me crowd" - if you take the same loan, interest rate but choose to pay it off over 350 years instead [cause only the good die young], your monthly payments would be reduced all the way down to $2,666. Mind you, the pick up of seven bucks a month will probably buy you no more than a pack of smokes - that is, only while they remain cheap. The problem I see with this 350-year term, dear reader, is that it appears to be a whole lot of love's labor's lost [like fifteen consecutive life terms] for one house. But then again, as King Lear might have said, and then wished he hadn't, a man's house is his castle and he may doeth - measure for measure - as he please.

We still have judgment here; that we but teach
Bloody instructions, which, being taught, return
To plague the inventor. This even-handed justice
Commends the ingredients of our poisoned chalice
To our own lips.

Macbeth, (I,vii)[ii]

Me doth think, that we shouldeth make no bets that all's well that ends well, especially in the case of Fannie and their forties - an American tragedy, come catharsis, in the making - Macbeth perhaps?

[i] See famous quotes from Macbeth here.
[ii] Ibid, Macbeth quotes.

© 2005 Rob Kirby
Toronto, Ontario, Canada
Email | Editorial Archive


A Prayer, Hope, A Dream and Real Estate

by Sol Palha
Tactical Investor

Pray look better, Sir... those things yonder are no giants, but windmills.
Miguel De Cervantes 1547-1616, Spanish Novelist, Dramatist, Poet

There are several responses to the introduction of the 40-year mortgage:

  1. The term noose around the neck takes on a new meaning now. A 30-year mortgage was a loose noose around the neck, a 40-year mortgage is one where the noose has been tightened and now all that is left is for the hangman to pull the lever.
  2. It gives one the illusion that the price one is paying for these over inflated properties is not so insane because of the lower monthly payments. Most individuals look at the monthly payment rather then the final price. That's why so many of them go out and buy these 30-40K cars when they don't really need a new one; the monthly payments appear to be reasonable. Tell them to pay for that in cash and watch 90% of them balk.
  3. It has been introduced in order to keep the housing bubble alive. The Feds are aware that unless they create some other speculative phase that the housing bubble must be kept alive at all costs.

Let's examine reason number 3 in more detail, as we believe that's the main reason this form of mortgage came into existence. The real estate market is in a normal bubble phase (well that begs the question as to what is really a normal bubble, but that subject will have to be dealt with on a separate article) and is now entering an extended bubble phase without the introduction of the 40-year mortgage. This new mortgage is going to take it into the hyper extended phase.

This story below is an example of this market entering the extended bubble phase. Individuals who are in the higher income earning brackets are snapping up 2nd and third homes for investment purposes. They are doing so when the prices have risen in excess of 100% in some areas. A good investor never ever puts money into an over-inflated asset, no matter how strong the market might appear to be. The principle of being a good investor is to buy in areas where the masses are not paying any attention and avoid those where there appears to be a feeding frenzy.

With Market Hot, More People Now Have Third Home

The Wall Street Journal Online
By Raymund Flandez

Jay Lieberman, a dentist who lives outside Washington D.C., also owns a home perched on the slopes of Park City, Utah, which he uses as a ski getaway for his family. Late last year, Mr. Lieberman decided to snap up a third home as well. "I bought it purely as an investment," says the 58 year old. He plans to use the 2,200-square-foot house, also in Park City, as a rental property. Mr. Lieberman rented it out for two weeks over Christmas, and it is booked for the Sundance Film Festival this month. Second-home ownership has jumped significantly in the past decade, thanks in large part to record-low interest rates on mortgages and the rapid appreciation of real-estate prices. Now, motivated by those same factors, as well as some others -- from a desire to retire in multiple locations to an interest in being nearer to relatives -- more people are picking up third homes, too.

While academics and economists say no one systematically tracks the third-home market nationally, brokers from California to Florida say more of their clients are buying a third piece of property. Alice Sardell, owner of the real-estate firm Sardell & Co. in Aventura, Fla., north of Miami, says she sold third homes to at least 40 people last year, double what she sold the year before last. The homes ranged in price from $265,000 to $2.4 million. [See]

The story below is yet another example of the extended phase the real estate bubble is entering. It is amazing to see the discrepancy in two areas where the median income is about the same. The difference in house prices a few months later in Santa Barbara county was more then the cost of buying a new home in Lima; the thoughts insane and mentally certifiable comes to mind.

Real Estate

Nine of the 10 most-affordable markets in the organization's Housing Opportunity Index are in Ohio, Michigan or Illinois. All of the 10 least-affordable housing markets are in California. The median household income in Santa Barbara County in 2004 was $64,700. The NAHB says the median price of a home in metro Santa Barbara was $447,000 in the third quarter of 2004. To get a sense of the pace of price appreciation there, consider that the California Association of Realtors says the median price of a home in the county was $668,750 in November, just a couple months later.

Affordable Lima (pronounced like the bean, not the city in Peru) could scarcely be more different from Santa Barbara. Its skies are grey most of the winter, and it is surrounded by abundant, flat farmland that is pretty, but unspectacular. HUD says Lima's median family income in 2004 was $52,500. The median sale price of all homes sold in the third quarter of 2004 was $82,000, according to the NAHB. In other words, a typical home in Santa Barbara costs more than 10 times a typical family's income, while a home in Lima costs about 1.6 times a family's income. Full Story

So far we have dealt with the extended phase of the bubble, the introduction of the 40-year mortgage is going to take us into the hyper-extended phase. This is the stage basically where individuals who should not have been buying their first house now consider that buying a second house might be a good investment. So how will they be able to buy this second home if they can barley afford their first home. First of all we need to understand the full thought process behind this action. This hyper extended phase is nothing but a prime example of mass psychology in action. The motivation here is greed. Everyone is making money and it's so easy. Why are we not taking the risk? So they will borrow from their credit cards, take a loan, and do whatever it takes to come up with that down payment. The monthly payments for the mortgage will come from the rent the house generates. The potential for serious trouble along the line is huge. The individuals renting might not be good tenants and not pay the rent on time or they might just stop paying the rent. Hiring a lawyer to evict them will cost money and their mortgage payments will go into default before the matter is resolved. The tenants could lose their jobs and leave and then it could take several months to find a new good tenant; again this might enough time for them to default on their mortgage. So far we are dealing with normal situations. The end game begins when real estate prices start to fall precipitously; the outcome millions will be joining the ranks of the poor and homeless.

A quick search on Yahoo! and Google revealed several companies are already busy pumping out the 40-year mortgage. They are pumping it as solution to the problem of high priced houses that were out of reach because of their high monthly payments. With a 10-year extension, those payments can be reduced to an affordable level. The thought from the frying pan to the fire comes to mind.

The real estate bubble goes Global

In 2000 you could have a bought an apartment in a city called Zhitomir (60 miles from the capital Kiev) in Ukraine for under 2,500 dollars. Yes that's right for less than 2,500 dollars. Today the same apartment is selling in excess of 12K. In Kiev, apartments that were going for 10-15k in 2000-2001 are now selling in excess of 30K.

One of our subscribers, who is currently in India, had the following comments to make.

Greetings from India. Many Indians are now going into debt to buy homes (usually cash was paid and help from family was involved). Foreign banks will now be allowed to operate here more liberally. Starr

Several associates of mine who spend a lot of time in various countries in Eastern Europe have stated that property prices have gone up in excess of 100%. The same story can be found if one examines the real estate bubble in Australia. Alan Lunt, who resides in New Zealand, has told me on several occasions that the real estate market has gone completely insane. The primary driver of prices in 90% of the cases has been access to easy credit brought about by rates that have been kept artificially low by the Central Bankers. The bottom line is that we have a global real estate bubble on our hands. For those who are unprepared, there will be nowhere left to hide when this bubble explodes.


The masses as a rule never ever learn. They are doomed to repeat their mistakes over and over again. Hence the saying "history repeats itself." They seem to love pain and misery and it's something that will stay with the majority forever. The bursting of the Nasdaq bubble less than 5 years ago, where trillions of dollars in market value were wiped out, taught them nothing. They seem to think this is their second chance to make the killing of a lifetime. The sad part is just like the Nasdaq bubble; the masses are jumping in towards the end rather than at the beginning of the move.

It is the talk of the town now that real estate is the way to go now and the way to make a fortune. Everyone who knows nothing about investing has suddenly become a top-notch expert in this field and is busy dishing out advice. This is eerily similar to the last stages of the Nasdaq bubble. When markets enter the extended bubble phase, it is really hard to predict when the end will come. Now that they are entering the hyperextended phase, it virtually becomes impossible. All technical and fundamental tools cease to function. Sanity is replaced with insanity and greed. What is certain is when this bubble bursts, it going to be extremely painful and millions of individuals will find themselves among the ranks of the poor and destitute. The only way to prepare for this is to not jump on the mass bandwagon of greed. Pay down your debt, start saving money and keep only the house you are living in. In addition, make sure you lock in a fixed low rate (rates are still at 40-year lows) and just completely stop paying attention to the housing sector. The wise never try to time the exact top or try to extract maximum gains once a market has entered into a bubble phase. Those that do usually find themselves in a meat grinder.

A hallucination is a fact, not an error; what is erroneous is a judgment based upon it.
Bertrand Russell 1872-1970, British Philosopher, Mathematician, Essayist

© 2005 Sol Palha
Tactical Investor
| Editorial Archive


Home 40-Year Loan
To the tune of Home on the Range:
Lyrics by Rob Kirby and Gale Bullock

Home 40-year Loan

Oh, give me a home,
with a 40-year loan,
and the roof ain't leakin' for years....
I'm sixty one years young
I'll finally own it when I'm 101,
Too bad I'll be pushing up daisies for fun.

Home, Home Prices Up
in debt to my eyeballs but what the heck,
I'll refi if I can
Get permission from Greenspan
To swap my monthly payments
for an obligatory IOU.


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