Friday Rant on the Federal Reserve mainstream media housing bubble by gimleteye

Ben Bernanke, Federal Reserve Chief, makes us hopping mad: his blandishments how great the economy is, recently delivered to the US Senate Banking Committee, come from the same talking points manual that delivered unabsorbed costs of growth in Miami—marred by traffic, inadequate schools, and infrastructure deficits totaling billions of dollars, putting taxpayers permanently in the hole while quality of life and the environment deteriorate.

Over the past six years, since the burst of the internet bubble, the Federal Reserve has manipulated interest rates to hyperventilate building and construction—creating bubbles like the one in Miami, now popping right and left--and taking no credit for the aftermath. It's all good, right?

Wrong. It is all bullshit and it makes us crazy. A front page report from the Wall Street Journal begins, “For One Condo Developer, Boom ends with arrest”. It is a story from Kissimmee, Florida about 300 investors, who invested up to $400,000 apiece—some, their life savings—that’s gone up in smoke.

We know there’s a sucker born every minute, but for how long do we have to listen to the higher-up, blue chip crowd tell us how great the world is turning out, so long as you don’t look at the smoke and mirrors everywhere: the trillion dollar mistakes we’ve made along the way (Iraq) or the mistakes we could repeat (Iran), just sit back and enjoy the ride (in your car made in Japan while manufacturing in the US evaporates) and see how globalization has wrecked great swaths of America while creating the greatest income inequality between top wage earners and the bottom and the middle class in US history.

“The economy may be stronger than we think,” Bernanke tells the world. What if it is weaker than we think?

Mr. Bernanke and government bean counters report core inflation is low. We think the nation’s chief economist is smoking pot.

Yesterday’s New York Times reports Supreme Court Associate Justice Anthony Kennedy complaining at a senate judiciary hearing about “losing” federal judges because of non-competitive pay scales.

What does that mean, Mr. Bernanke about wage inflation? Take it from the judge, dude.

To us, it means that core inflation numbers are grossly miscalibrated: if judges making $150K a year can’t make do, if (as we have been told) first year attorneys for major law firms in NYC are pulling down several hundred thousand a year, what does that tell us about stress on the middle class—many of whom have leveraged their families to the hilt in order to live in over-priced homes?

Either you are crazy, or, we are.

The stock market may be bumping up against new highs from the crack pipe, but net foreign acquisition of long-term US securities was $2.5 billion in December, down 95 percent from $52.2 billion in November and the lowest monthly amount since July 2000, according to a US Treasury Department report released Thursday. Combine that with a steady slew of reports that China--our largest creditor nation--will be "diversifying" its trillion dollar account surplus away from US dollar denominated investments: where might that lead us?

The mainstream media should be casting its skeptical eye on statements like Bernanke’s that go unchallenged as a matter of routine. But there is too much news that is not fit to print.

In Miami, 80 miles south, tens of thousands of condo units are being readied for occupancy in the third and fourth quarter of 2007. We haven’t even begun to hear the tales of woe that are going to unfold when the mortgage payments come due.

There shouldn’t be guess-work in predicting the degree or extent of financial disruption when those certificates of occupancy have been stamped by the City of Miami.

The data on mortgagees and banks could be sifted through by investigative media: why isn’t it?

What we hear from the mainstream press is that the principle damage in the housing sector is to the marketplace for subprime mortgages. Fuggedaboudit.

Not a single real estate or financial expert has explained to us how this damage will not spread once an exhausted marketplace of homeowners begins giving deep discounts to unload inventory, or, what happens when the damage spreads into the market for credit derivatives, which we (on this blog) have been jumping up and down about for months.

Mr. Bernanke says, in effect, 'take our word for it', and Congress nods dumbly.

“Prices for single-family homes fell in more than half of the nation’s 149 biggest metropolitan areas in the last three months of 2006, according to data released yesterday by a trade group for real estate agents” reports the New York Times.

In Florida, state-wide, sales of single-family homes decreased 28 percent compared to the same quarter, year earlier. Also down 28 percent: sales of Miami condos in the last quarter of 2006 from fourth quarter 2005. Inventories of unsold homes are swelling.

Yet Bernanke says, “the bulk of the problem is behind us”, in respect to cratering housing markets.

More news not fit to print by the Herald on the weekend thousands of wealthy visitors are in Miami for the Boat Show, or on the weekend when Lennar owns the Herald real estate section, “Savannah Ranch Estates: Lennar pleased with grand opening of this luxury estate home community… priced at more than $1 million.”

Who is going to buy a house on five acres, outside the Urban Development Boundary, within spitting distance of Everglades National Park, and a traffic nightmare from urban Miami? Another feature missed by the mainstream media.

The mainstream media is buying the spin on real estate and on inflation the same way it did on Iraq in the run-up to the war, reporting paint-by-the-numbers from well-placed sources: that the housing markets have found a bottom, that spring 2007 looks promising, that it’s a buyer’s market.

You want a buyer’s market? Just wait a while.