The Roof Caves In

Back on July 19, 2005, in an article titled 'Assessing the Demand for Residential Real Estate' I had written "The expectation with the housing market now is quite different. Despite the new bankruptcy law that makes filing Chapter 7 more difficult, house buyers are purchasing financial products with greater risk on the downside. Investors are pouring more money into the homebuilders and the lenders. Part of the bet is that with the scale of liabilities of the mortgage industry, especially the GSEs, the Fed and the government will bail out the financial sector from any disasters, shifting the burden to the public. As alluded to by others, ‘character’ is being tested- that of buyers, lenders, builders, investors, and the public at large."

The recent 'bailout' of Bear Stearns and other Wall Street banks by the Federal Reserve and the Government is precisely what I expected. While the Fed and the Government are grossly shifting the burden to the public, there is no public outcry at the gross injustice. In a subsequent post I will examine how much loot the executives of the big banks and the investors stashed away while betting safely that the government was going to bail 'em out.