Soros: "Gigantic Real Estate Bubble"

Submitted by Rich Toscano on June 24, 2006 - 6:30pm

I just came across this blurb from George Soros' latest book:

I believe we are currently in the midst of a gigantic real estate bubble. It was caused by the determination of the Federal Reserve Bank not to allow a stock market decline in 2001 to turn into a self-reinforcing rout. The federal funds rate was lowered to 1 percent. Mortgage institutions encouraged mortgage holders to refinance their mortgages and withdraw the excess equity. They lowered their lending standards and introduced new products such as adjustable rate mortgages (ARMs), “interest only” mortgages, and promotional “teaser rates.” All this encouraged speculation in residential housing units. House prices started to rise at double-digit rates. This served to reinforce speculation, and the rise in house prices made the owners feel rich; the result was a consumption boom that has sustained the economy in recent years. Again, the bubble can be attributed to a short-circuit between the value of assets and the act of valuation. This short-circuit is called the wealth effect.

Nothing qualitatively new nor surprising to readers of this site; it's just always nice to have one of the world's most successful financial market players land on our side of the debate.

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Submitted by powayseller on June 28, 2006 - 5:13pm.

Should we repeal RESPA, FDA, Consumer Product Safety Commission, the SEC? Which types of laws are necessary?

Submitted by barnaby33 on June 28, 2006 - 5:16pm.

The types of laws that allow individuals to damage the collective in some measure that is agreeable to the majority of the people.

Josh

Submitted by kewp on June 28, 2006 - 8:10pm.

"If things work out as many here propose, there will be plenty of pain to go around which will work it's way through our economy like a little yeast works it's way through a batch of dough. Behavior will be modified, and of a much more lasting sort than a law could ever achieve."

I will propose that there is also the possibility that said pain will result in much howling, finger pointing and jerking of knees by the folks in charge. Looking at the fallout from the great depression (New Deal etal.), I wonder if we will see another socialist revolution stateside.

Submitted by kashyapa2 on July 13, 2006 - 12:31am.

What's the title of Soros' new book you're referencing?

Harleigh in Ventura

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