24 January 2014

Treading Water

The quant/bankster types took something of a hit during/following The Great Recession (it is over, right?) for being the enablers of The Giant Pool of Money to bubble up through the housing markets. Yes, plural; Spain and Ireland to name just two others. I've gushed untold keystrokes in these endeavors on the notion that The Giant Pool has not gone away. If anything, with corporate profits in the ionosphere and the Fed gifting cash to large holders, the Pool has gotten deeper. Anecdotally, no question.

I use NBC News as my home page since Yahoo!/Mayer screwed that pooch. Well, today brings this "news".
Insatiable demand from hedge funds, private equity investors and foreign buyers, all armed with ready cash, are elbowing first-time buyers out of the housing market.

First-time buyers tend to purchase lower-priced homes, but all-cash investors have cornered the market on those, leaving little behind. All-cash purchases accounted for 42.1 percent of all U.S. residential sales in December, up from 38.1 percent in November, and up from 18.0 percent in December 2012, according to a new report from RealtyTrac.

Well, it isn't all that new. Way back in August, this, more extensive, data were reported. The comments to this piece are refreshingly Darwinist.
The low rates promoted by the Fed were cast under the umbrella of helping out regular families but in reality, they have turned into the next hot money play for banks, hedge funds, and Wall Street. The fact that 60 percent of all purchases in 2013 are being driven by the cash crowd is crazy (a 200 percent increase from the 20 percent pre-crash levels).

At this point, it's difficult to follow a breadcrumb trail from quants to crash. This appears to be a case of what you get when you try to push a string. Greenspan did it first, beginning in late 2001, and gave us The Great Recession as his going away present. The gift that keeps on giving. But it is further evidence of the few exploiting the many. Contrary to some comments to the August piece, Joe Sixpack didn't go into Countrywide and dictate the structure of a liar loan, rather, Joe was told that such a loan was not only feasible but in his best interest. It was found that mortgage companies and banks, some more than others, steered Joe into higher profit exotics even when Joe could have gotten a conventional, but less profitable, mortgage. Incentive, incentive, incentive.

Remember: you can't push a string, and that incentives matter more than data when the two disagree.

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