A Housing Market Built on Government Lies

Gary North reports:

We live in the FIRE economy: finance, insurance, and real estate.

The crucial insurance today is Federal insurance – explicit, implicit, and widely assumed even when legally absent. Big institutions are considered too big to fail, meaning too big for the government to allow to fail. Think Bear Stearns. So, promises made by the government serve as the ultimate back-up for the promises made by the largest carry traders.

The extent of the participation of the Federal government in the residential real estate markets can be seen in the law governing liar loans.

You need to read the following law. I realize that no one except lawyers reads a document like this one. It has two sentences. One of them is 291 words long. Only lawyers write sentences that are 291 words long. Nevertheless, I am asking you to read it.

Here is what you should understand after you have read it. There is hardly a nook or cranny left in the residential real estate market that is not covered by this law. The extent of government control, which derives from government insurance of real estate lending, is enormous. How enormous? Read for yourself.

Whoever knowingly makes any false statement or report, or willfully overvalues any land, property or security, for the purpose of influencing in any way the action of the Farm Credit Administration, Federal Crop Insurance Corporation or a company the Corporation reinsures, the Secretary of Agriculture acting through the Farmers Home Administration or successor agency, the Rural Development Administration or successor agency, any Farm Credit Bank, production credit association, agricultural credit association, bank for cooperatives, or any division, officer, or employee thereof, or of any regional agricultural credit corporation established pursuant to law, or a Federal land bank, a Federal land bank association, a Federal Reserve bank, a small business investment company, as defined in section 103 of the Small Business Investment Act of 1958 (15 U.S.C. 662), or the Small Business Administration in connection with any provision of that Act, a Federal credit union, an insured State-chartered credit union, any institution the accounts of which are insured by the Federal Deposit Insurance Corporation, the Office of Thrift Supervision, any Federal home loan bank, the Federal Housing Finance Board, the Federal Deposit Insurance Corporation, the Resolution Trust Corporation, the Farm Credit System Insurance Corporation, or the National Credit Union Administration Board, a branch or agency of a foreign bank (as such terms are defined in paragraphs (1) and (3) of section 1(b) of the International Banking Act of 1978), or an organization operating under section 25 or section 25(a) [1] of the Federal Reserve Act, upon any application, advance, discount, purchase, purchase agreement, repurchase agreement, commitment, or loan, or any change or extension of any of the same, by renewal, deferment of action or otherwise, or the acceptance, release, or substitution of security therefor, shall be fined not more than $1,000,000 or imprisoned not more than 30 years, or both. The term State-chartered credit union includes a credit union chartered under the laws of a State of the United States, the District of Columbia, or any commonwealth, territory, or possession of the United States.

Did you read it? If so, I hope you noticed this passage: ". . . shall be fined not more than $1,000,000 or imprisoned not more than 30 years, or both."

Here is the inescapable reality: the Federal government let the subprime disaster build up for many years. This law was never enforced. No one in the entire government-insured scam worried about it. The bureaucrats were in on the deal from day one.

All of the posturing by politicians about the exploited borrowers who lost their homes – liars – and the need for new laws to be passed by Congress to prevent unscrupulous mortgage brokers – liars – from ever exploiting the poor again, and also preventing them from endangering the solvency of the nation's financial institutions – liars – is nothing but election-year politicking by the biggest liars of all: politicians.

Do we need more laws? Hardly. A law that imposes a million-dollar fine and 30 years in jail is more than sufficient. This law's stiff penalties were supposed to make people take it seriously. But it was not taken seriously. No one ever intended to enforce the law. No one ever did. It was all posturing by the politicians.

The biggest housing bubble in American history, 1995–2005, took place under the watchful eyes of the entire Federal real estate bureaucracy, the bureaucracy listed by name in the law. No one in government issued a warning. No one in government saw the bubble coming. No one in government identified it as a bubble.

The appraisals were made, the loans were made, the mortgages were bought and re-packaged and sold again. The carry trade did its work. And now there is a line in front of the banks.

No, scratch that. There are no lines. There are instead collapsing prices in the scientifically packaged mortgage sector because investors now see that those mortgages, rated AAA by independent firms (it says here), are in fact packages of promises to pay made by liars.

Everyone knew. This is the famous bottom line. Everyone knew. Nobody cared.

You'll want to read the whole article.