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Former Reagan Budget Director David Stockman on the impact the Fed is having on the housing market.
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In 2012 to a five year high rates and a thirty year fixed mortgage have been attractive.
And the Fed has even argued that a robust housing market will bleed and all other sectors of the -- so why not join the crowd.
Well our next guest says if you do you're going to be joining a crowd of lemmings going off a cliff.
Former Reagan budget director -- -- and author of the forthcoming book.
But great deep formation the corruption.
Of capitalism in America.
Joining us now with his less than -- house kick -- OP I talk about raining on the parade David everybody is -- -- -- That finally the housing market is recovering to which you say well the good news it's early in the bubble but nevertheless it's a bubble because our economy is run by a bubble machine.
The serial bubble machine the Fed.
And on schedule it is now turned loose the fast money from Wall Street to hedge funds the LBO funds.
-- the short term traders -- flooding into these former sub prime markets that are not totally busted with billions of dollars a month.
Buying up distressed.
Or foreclosed properties.
Trying to induce a bubble so that they can.
Attracted Dennis the doctors the Chinese to come in and buy.
For a quick -- -- are essentially saying that what they're doing is very similar lesson they're going -- looking for these.
-- -- the prime tracks.
Buying up hundreds of or thousands of properties at a time.
With a big giant vacuum cleaners -- and these guys -- right they're not writing into Scottsdale Arizona on the back of -- John Deere lawnmower.
Fixing to become landlords for the next seven years I say they're writing and -- out Hoover vacuum cleaner sucking up the inventory in selected precincts selected zip codes.
In order to induce a bubble and attract buyers because remembered this fast money is not.
Natural owners dispersed.
Single family properties in suburban tracks all around -- not buy and hold by that they're not they're not natural buy and hold because there's no economies of scale I mean you're talking about gardens and lawns.
In crab grass -- -- you know insect infected trees there would if if there if there was a basis for this.
They would have been in these markets for our ears so let me just say -- is this is just the fast money coming in because the Fed is now.
Created so much speculation.
In the high yield markets which are on fire and the so called collateralized loan markets which are on fire.
That these fast money players can comment without a lot of borrowed money.
Make huge purpose purchases move the markets but this is is it worse or is it is it like a -- that mid two -- when in fact people were were buying up these -- and turning them -- it CEOs and MBS is and then it collateralized and are using them for even bigger laws are we going that route yeah I think we're going exactly that -- but the problem is there is -- take out.
For all of this speculation in other words have a healthy long turns long term sustained market.
You need first time buyers we don't have first time buyers in America.
Because the young people today are you know give -- debt I'm with student loan debt ridden with a trillion dollars -- student loans weak job prospects.
And no capability to generate down payments to become buyers secondly.
Healthy markets require trade up buyers.
But we know how are entering the great baby boom retirement -- up or we're gonna have massive trade down sellers.
As baby boomers who didn't save and don't have anything of the -- generational thing this is a whole generation that they -- I don't think I say that -- is going to be don't we have three headwinds -- first time buyers.
Trade down sellers not trade up buyers in third.
We're starting with the lowest interest rates in history and they have no way to go except up.
Which is different than the last housing well you push back so far been very tall and I could drag -- gonna push back -- -- -- We have seen a eighty downgrading.
Or the menu did it did menu nation excuse me.
But downsizing of of construction companies which is just phenomenal historic -- we went from about a million construction companies down to about half of that to about 600000.
Construction companies.
It takes a long time we have that has cleared out a lot of the inventory buildup that we had we had this huge shadow inventory that we have worked through to a large extent -- think back.
Has created demand for -- it.
No I don't because demand for housing organically requires income.
And requires jobs and we don't have either of those developing to any considerable degree.
So what is being the demand that you see today -- some of these markets up by 2030%.
In just a few months -- -- happened in Phoenix Southern California.
-- -- other places that is basically speculative money it is not.
Owner occupied buyers.
Moving in for the long haul and so this is the problem with the fat.
Our system doesn't work none of our markets -- not -- local you know -- housing markets.
Not the financial markets -- the stock market the bond market is totally medicated.
This is what you get when you have the Fed buying 85 billion.
Bonds and agency.
He had -- on interest rates -- -- -- -- but -- just starting all the price signals it's distorted by the way you saw that commercials -- god made a farmer -- probable.
MarketWatch came out with so god made a banker he says so.
To borrow at 0%.
You'll lend out at 3% if you get into any trouble you'll have the Fed there to print money so much money that you get out of trouble and that's what the Fed is trying to do and it's a great mistake to create a risk free market.
Constantly bailing out propping up many Katie and stimulating Wall Street is exactly the wrong thing to do.
-- so there's no hope.
There there is hope that if we suddenly get the people of America to wake up.
And relax and different people to the government.
Who clean house that the Fed Islamist we have Bernanke there who by the way of -- -- -- job by Republicans.
You and the rest of the Fed we have no hope they are ruining the free market.
In this country Liz if that doesn't depress you I don't know what well over -- could -- that stuff have been very active.
