Posted on 01/15/2008 7:41:33 AM PST by shrinkermd
Wall Street, the losers in the collapse of the housing market are legion. The biggest winner looks to be John Paulson, a little-known hedge fund manager who smelled trouble two years ago.
Now, in another twist in financial history, Mr. Paulson is retaining as an adviser a man some blame for helping feed the housing-market bubble by keeping interest rates so low: former Federal Reserve Chairman Alan Greenspan.
Like many legendary market killings, from Warren Buffett's takeovers of small companies in the '70s to Wilbur Ross's steelmaker consolidation earlier this decade, Mr. Paulson's sprang from defying conventional wisdom. In early 2006, the wisdom was that while loose lending standards might be of some concern, deep trouble in the housing and mortgage markets was unlikely. A lot of big Wall Street players were in this camp, as seen by the giant mortgage-market losses they're disclosing.
"Most people told us house prices never go down on a national level, and that there had never been a default of an investment-grade-rated mortgage bond," Mr. Paulson says. "Mortgage experts were too caught up" in the housing boom.
... He also had to think up a technical way to bet against the housing and mortgage markets, given that, as he notes, "you can't short houses."
Also key: Mr. Paulson didn't turn bearish too early. Some close students of the housing market did just that, investing for a downturn years ago -- only to suffer such painful losses waiting
(Excerpt) Read more at online.wsj.com ...
“who smelled trouble two years ago”
Only a complete fool would not have smelled trouble two years ago. The question is what did they do about it?
Will Greenspan suddely rediscover that gold is money and money is gold? And fiat money is, well, not even paper today, for electronic money does not even have the value of a sheet of paper. Will he resume writing along the lines of his essay, Gold and Economic Freedom, in which he ends two paragraphs that say why fiat money is the enemy of liberty:
>>
In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.
This is the shabby secret of the welfare statists’ tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists’ antagonism toward the gold standard.
<<
from:
Gold and Economic Freedom
by Alan Greenspan
www.usagold.com/gildedopinion/greenspan.html
Sheesh, all we had to do was look around our neighborhoods.
“Upbeat mortgage specialists kept repeating that home prices never fall on a national basis or that the Fed could save the market by slashing interest rates.”
I don’t see how anyone could have missed the stories about the Northern California area that priced itself almost completely out of the market. Of course, now I can’t think of the name of the place...
Well, the complete fools came to Free Republic and claimed any talk of trouble was coming from Democrats trying to "talk down" the economy. I don't know what the others did. Bought gold, I expect. ;)
“Banks happily loaned whatever amount borrowers wanted as long as the banks could then sell the loan, pushing the risk onto Fannie Mae (ultimately taxpayers) or onto buyers of mortgage backed securities. Now that it has become clear that a trillion dollars in mortgage loans will not be repaid, Fannie Mae is under pressure not to buy risky loans and investors do not want mortgage backed securities. This means that the money available for mortgages is falling, and house prices will keep falling, probably for 5 years or more. This is not just a subprime problem. All mortgages will be harder to get.”
This is from patrick.net/housing/crash. I don’t think I would want to play ‘screw your neighbor’ with Mr. Paulson. But he’d be wise to remember that what goes around comes around.
That’s funny. I’m glad I never took the time to write down my thoughts about raising kids before I had children. I’d hate to have to square those with my kids!
Ping to an interesting thread...
Wow, that last paragraph really hits the nail on the head!
Interesting stuff...but WAY out of proportion. There’s not proof that “a trillion dollars in mortgage loans will not be repaid.” If the average mortgage is $200,000, then that is 5 million houses that will be foreclosed or around 3-5% of the entire US housing stock.
If our economy were still dependent on a fixed amount of gold holdings, wouldn’t we be a zero-sum economy with little room for growth? Wouldn’t bank loans and mortgages be VERY hard to get since there’d be so little money available in the first place?
Bump. And the shell game continues.
As the housing market collapses and people fault on their loans, someone will be collecting up the pieces to sell again...
“The Bretton Woods system ended on August 15, 1971, when President Richard Nixon ended trading of gold at the fixed price of $35/ounce. At that point for the first time in history, formal links between the major world currencies and real commodities were severed”. The gold standard has not been used in any major economy since that time.”
Wasn’t it working fairly well until we entered that huge inflation?
Well at that point, Gold wasn’t required to represent every dollar we had in circulation IIRC. Didn’t Bretton Woods itself have some issues?
Perhaps I am misinterpreting what Greenspan was saying. I thought he meant that a commodities-backed system was superior to a fiat system.
And how soon will they re-discover that money (in the form of gold) is another word for labor already performed? Well, I think we are making some headway folks. At least the word 'gold' is now back in their vocabulary.
And maybe some day they will re-disvoer and admit that it wasn't the gold that was confiscated. It was the theft of the people's labor. Gold is the measure of that stored up wealth.
But that must never be mentioned, for as long as it was only an impersonal commodidity like gold that was taken, people don't get too stirred up with those kind of losses. They can be replaced. On the other hand, labor already performed is a measure of how much freedom you have, and how much sweat you used to purchase it. That is a personal substance that cannot be replaced, for it was yours and yours alone. It has your DNA stamped on it. It was your passport to freedom and allowed you to structure your life in your own peculiar way.
The point is that we've allowed tyrants to structure our lives all these years . . . and continue to do so as long as we allow them to steal our labors and make it impossible to store up wealth.
I’ll admit I don’t understand the intricacies of a commodity-backed system that well, that’s why I am asking questions.
So the guy hired the man some hold responsible for the policies that made him billions. How convenient.
Me too. I’ve never taken a course in Economics.
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