Dean,

If the former and current Fed chairmen, Treasury secretaries, Haravard, etc..failed to see the bubble, you still insisting that some news reporters able to recognize that?

Get real.

James, even news reporters should be able to recognize that housing prices are still 20% or more over trend and therefore likely to fall. Whether they should have seen it earlier is a different question.

Your blog is a breath of fresh air. Please, please keep up the great work.

Well, maybe you do not have to be a washington post reporter, but even dimwits see that allowing developers to build ( ie giving permits) is hari kari.

It is tautologically true that more houses drive down the price of existing houses.

More inventory on the market drives down the price of existing inventory.

( we need real jobs with real incomes so people can buy existing houses)

The last thing we need is the illusion of government--we need real representative govenrment.

You're a pleasure to read.

Isn't it possible that they have indeed noticed the bubble and decided on this plan anyway?

Commenters on Naked Capitalism point out that under this plan the banks can bail each other out by buying each others' bad assets at face value, using 97% government money.

Commenters on Naked Capitalism point out that under this plan the banks can bail each other out by buying each others' bad assets at face value, using 97% government money.

That's just beautiful. Great. Great. Really, really, really great. Oh, and, um, you know, all that stuff about how we still want the free market run most efficiently by private interests, etc., etc.

How are today's plans any better than Hank Paulson's original $700 billion 3 page ransom note?

How are today's plans any better than Hank Paulson's original $700 billion 3 page ransom note?

At least this Geithner plan dresses up the Banking Bailout Reach Around (BBRA), with a few bells and whistles. Paulson couldn't even be bothered with a head fake.
Geithner is nicer. See? Different (Invisible!) hand.

Commenters on Naked Capitalism point out that under this plan the banks can bail each other out by buying each others' bad assets at face value, using 97% government money.

What is the purpose of these 'investors' if they won't risk their own money and apparently lack the abiltiy to raise money in the capital markets? What is there that the government can't do itself?

And the buying-at-inflated-prices scheme is a feature, not a bug. That's the whole point- the stealth bailout- Geithner knows he has a snowball's chance in hell of getting more TARP money from Congress now.

I don't understand why Obama goes out and talks about the end of bubble economies every day if he chooses to get advice from people who don't understand the concept of a bubble.

http://bigpicture.typepad.com/comments/2005/06/shiller_on_the_.html

Isn't a bubble a false perception of value based on oversupply and speculation? I don't understand brilliant people who don't understand the concept of Occam's Razor.

Why construct a triple bank shot plan to save the banks when you can just ram home the balls hanging by the pocket. Even if you scratch, you open up the table. Geithner and Summers (and Obama) aren't dumb but they are way too smart for their own good. The best and the brightest was an epithet, not a compliment and I fear an overreliance on "genius" in the face of common sense is Obama's big flaw.

POST AIG'S BOOKS ONLINE, call Pelosi @1-202-225-0100. WE can plan AIG's financial future, together.

ronin wrote, What is the purpose of these 'investors' if they won't risk their own money and apparently lack the abiltiy to raise money in the capital markets?

Purpose is to transfer yet more wealth to the rich parasitic "investor" class.

Bernanke and Geithner know full well what they are doing. It's a heist. Goldman Sachs proteges of Robert Rubin have been in charge for over 10 years. The government is run by the oligarchs. For a very good analysis read Matt Taibbi's "The Big Takeover: The global economic crisis isn't about money - it's about power. How Wall Street insiders are using the bailout to stage a revolution"
http://www.rollingstone.com/politics/story/26793903/the_big_takeover/1
Only thing I'd disagree with him is that the coup d'etat and feudalism redux revolution has already occurred.

I am not in favor of this plan. At the same time i believe it is highly likely that over time, with some inflation the value of houses will go up some. Just look at the internet bubble-some of the companies that survived have regained about 50% of their value. The housing bubble was only two to three times the value-internet bubble was at a much higher magnitude. So holding the assets over time may help.(Putting the same money in a more productive enterprise will help a lot more)

Agreed that this is a disaster - and perhaps the most clear statement that Obama is no better than Clinton.

However, I think Dean Baker may be wrong to rely on the trend line. I have no data, but we should consider a hypothesis that with the concentration of wealth in the top 5%, and the lower returns that all asset classes are likely to experience over the next 20 years, that the baseline for real estate valuation has risen. So it might be reasonable to assume that the price drop will not swing down past the trend line, and may even redefine the trend line slightly upward.

to Bailey

Thank you very much.

Evergreen

Dollared: Exactly, President Obama is a product of DLC efforts so he follows DLC Party line, hires Party People. Even the bi-partisenship IS party line.

Although it would be nice if the real estate market was only an exchange between the rich, it isn't. The true metric for the price of the house is the ratio between income and the face value of the house in the market. I can't see that raio getting better as we approach 10 percent unemployment. Houses that were sold in the Los Angeles and Las Vegas areas for, at the peak, an average of 10 to 1 - that's right the house would cost ten times the owner's annual salary - are never going to be sell at thhat price again.

Unfortunately, there is more here than just deadletter real estate As I understand the structure of many of the securities, it isn't a simple matter of some percentage of the mortages going wrong devaluing the security by exactly the same percent. Instead, I believe there are triggers, that allow counterparties to force a sale at some set price if the percentage goes past a threshold. This would amplify any loss.

Thanks for such informative post, i am totally impressed!

Raivo Pommer
raimo1@hot.ee

EU HILF

EU-Nothilfe für Osteuropa - Köhler tief besorgt

Die Europäische Union hat weitere 100 Milliarden Euro im Kampf gegen die Wirtschafts- und Finanzkrise zugesagt. Die Staats- und Regierungschefs einigten sich am Freitag in Brüssel auf zusätzliche 75 Milliarden Euro für den Interna tionalen Währungsfonds (IWF) sowie weitere 25 Milliarden Euro für Notkredite in Osteuropa. Beim Weltfinanzgipfel in zwei Wochen will sich die EU für eine stärkere Regulierung der Märkte einsetzen. Bundespräsident Horst Köhler ist nach einem Bericht der Online-Ausgabe der "Bild"-Zeitung tief besorgt über den Zustand mehrerer Staaten in Mittel- und Osteuropa. Er hat Bundeskanzlerin Angela Merkel (CDU) vor den Folgen gewarnt.

A rough summary translation of the previous post in German is that the EU Government leaders have endorsed a plan donating an additional 75 billion Euros to the IMF and another 25 billion to a Eastern Europe stability fund. Der Spiegel on-line English version though reports that the EU is basically following Germany's lead in that there will be no further stimulus from the EU (100 years after 1914 and Germany won). Germans, like the Chinese and Japanese, are depending on U.S. stimulus to boost their exports and lift their economy, while at the same time enjoying being on their high horse about those spendthrift Americans and their terrible deficits.

http://german.about.com/od/newsnachrichten/a/englSpiegel.htm

On Dean's bigger point, I was dismayed at the way Geithner Summers were push forward as the persons to run the Treasury, as they both failed to recognize the Bubble and had been advocates of Financial deregulation. Summers is famous for his dismissal of Professor Rajan's warning that a disaster was pending at the Jackson Hole conference in 2005. http://online.wsj.com/article/SB123086154114948151.html

The amazing thing about Larry Summers is that he somehow acts as if everything he wrote, said, and did before 2008 does not exist.

Hey,you will do better.your posts have inspired me! - I love the way you directly get to the point, and then work outwards. I’ve been trying to do figure out what I want to say about ,that would allow me to do exactly the same thing.