Housing
Housing Starts Versus AIG: Aiming At The Wrong Target
Published:
Last Updated:
Leaving aside the fact that the federal government has a nearly endless supply of money, especially if the Chinese continue to buy its bonds, the capital being pushed into the market is going to the wrong places.
Saving large financial firms like AIG (AIG) is a "from the top down" approach. It attacks problems once they have festered at huge institutions. The bailout solves the surface problem of liquidity, but does almost nothing to address the root issue. As a matter of fact, it may erode the recovery of the most critical portion of the crisis, the housing market.
Until falling home sales begin a reversal, the systematic trouble of leverage at banks, insurance companies, and brokerage firms will grow. If the value of the asset creating the fulcrum is dissolving, nothing which rests on it can rise.
The Commerce Department reported that starts of new homes fell 6.2% to a seasonally adjusted annual rate of 895,000, the lowest in 17 years. Building permits for single- and multiple-family dwellings fell 8.9% to a 26-year low of 854,000 annualized units.
The combined total of the capital put into AIG, Fannie Mae (FNM), and Freddie Mac (FRE) could easily top $200 billion. The market caps of the ten largest financial companies in the US have dropped more than $700 billion in the last year. There is no accurate figure of how much the Fed has loaned banks at low rates through its "window", but what is certain is that the paper the agency has taken is not worth $1 on $1.
The extreme pressure ripping at the US economy will have to be addressed from the bottom up. Having the Fed give money to banks may help them rebuild their balance sheets, but these banks are not pushing that capital into the larger financial system and it is certainly not going to mortgages.
The problem with the financial infrastructure is granular, and for that reason it cannot be negated by saving the largest institutions. If the homeowner is not "saved" the balance of the system cannot be healed.
Douglas A. McIntyre
The Average American Has No Idea How Much Money You Can Make Today (Sponsor)
The last few years made people forget how much banks and CD’s can pay. Meanwhile, interest rates have spiked and many can afford to pay you much more, but most are keeping yields low and hoping you won’t notice.
But there is good news. To win qualified customers, some accounts are paying almost 10x the national average! That’s an incredible way to keep your money safe and earn more at the same time. Our top pick for high yield savings accounts includes other benefits as well. You can earn up to 3.80% with a Checking & Savings Account today Sign up and get up to $300 with direct deposit. No account fees. FDIC Insured.
Click here to see how much more you could be earning on your savings today. It takes just a few minutes to open an account to make your money work for you.
Our top pick for high yield savings accounts includes other benefits as well. You can earn up to 4.00% with a Checking & Savings Account from Sofi. Sign up and get up to $300 with direct deposit. No account fees. FDIC Insured.
Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.
Latest from 24/7
Our expert who first called NVIDIA in 2009 is predicting 2025 will see a historic AI breakthrough.
You can follow him investing $500,000 of his own money on our top AI stocks for free.