Unfortunately the housing market will remain in government control for years to come and another real estate crisis will inevitably occur.

Michael Pento at Capitalism Magazine

EXCERPTS:

In the report, the Obama Administration makes the important admission that government interference in housing had dangerously distorted the market. And, while the goal of reducing the government’s footprint in the housing market is certainly laudable, the reform plan is not only too little too late, but fails miserably to address the nucleus of the problem.

When interest rates are set by a few people behind closed doors, as they are by the Federal Reserve, massive distortions can occur in the supply demand metric. For example, the S&L crisis of the late 80’s and early 90’s was brought about by the loose monetary policy of the 70’s. Rising interest rates, which were a direct response to rising inflation, soon found S&L’s paying out more on their short-term borrowed funds than they were collecting on their long term assets. The consequences for those imbalances caused by our central bank rendered nearly one thousand banks insolvent.

The GSEs now provide financing for 9 out of 10 mortgages. Therefore, the real estate market today is virtually 100% distorted and manipulated by government forces.

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