The storm that would rock the world began brewing in the US when President George W Bush pushed the idea of home ownership for all, propping up those who couldn’t make the down payments. The Market even coined a term, NINA loans: “No Income, No Assets, No Problem!” Enter Fannie Mae and Freddie Mac, government-sponsored, privately owned enterprises. “Want that vacation? Wanna buy some new clothes? Use your house as a piggy bank!” mocks trend analyst Gerald Celente. Why earn money to pay for your home when you can make money just living in it? With the government covering all losses, you’d have been a fool not to borrow.
The years of growth had been a continuous party. But when the punchbowl ran dry, instead of letting investors go home to nurse their hangovers as usual, the Federal Reserve just filled it up again with phoney money. For analyst Peter Schiff, the consequence of the spending binge was crystal clear: “We’re in so much trouble now because we got drunk on all that Fed alcohol”. Yet along with other worried experts, he was mocked and derided during the boom.
If you took out a mortgage or bought stocks in the years leading up to the housing market crash, you may have lost out when the bubble burst. Governments promised decisive action, the biggest financial stimulus packages in history, gargantuan bailouts: but what crazed logic is this, propping up debt with more debt?
On a personal note, in the context of Overdose’s thesis, I was struck by three leading headlines on the front page of the business section of the September 2, 2010 Windsor Star: “Chrysler, Ford sales surge, Great news for Windsor”; “McGuinty urges BoC not to hike rates”; and “Canadian banks taking bigger risks”. Have we learned nothing? Is Overdose right – are we re-inflating a new bubble — the Mother of All Bubbles? I am alarmed that many of the individuals who, for reasons of apparent political expediency, got us into this mess remain in positions of power and influence.