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Watch Out for Bankers' Wrath As Families Live Under One Roof

businessinsider.comApr 16, 2012

By Gary Anderson

The bankers are up in arms. Household formation is what makes bankers lust for profit. It is ready made debt strapped to the bodies of the populace, with the profits going to Wall Street.

Multigenerational families, those multiple families living under one roof, destroy the rate of household formation. It scares the IMF, it scares the big banks, it scares Zillow and it scares Jim Cramer. Cramer could not believe that a housing crash would occur because of his confidence in traditional numbers of household formation. But those numbers crashed with the credit crisis and many have cut back on main stream perks like housing and auto ownership. Cramer even thought this multigenerational thing would go away way back in 2009. Boy was he wrong! Perhaps we should listen to Cosmo Kramer more than Jim Cramer when it comes to housing!

It is amazing that the bankers could not figure out that their bad behavior would pin the middle class and lower classes up against the wall. Well, they are up against the wall, and household formation is still low, years after the crash. One could say the new household formation numbers are part of the new normal. It frightens the bankers who are desperate for another housing bubble.

Charles Hugh Smith recently wrote of his concern about the housing market being in decline for an entire generation. That would be about 33 years if I remember how generations are formulated. Or is it 18 years, which is the baby boom generation, from 1946 to 1964? Well, no matter. Eighteen years and thirty three years are both a long time in housing terms.

And Smith says correctly that labor's share of national income has plunged to historic lows. This is to be expected in a global economy, and has to cause housing sales and prices to plunge. He also says that the oversupply of dwellings based upon lower rates of household formation will simply put downward force on house prices.

George Soros wrote an article in which he said that housing booms, ie bubbles, weaken a country. Seems that this is true, as the PIIGS appear to be weaker than Germany even though they have twice the home ownership. And America is weaker as leaders wanted home ownership to skyrocket by any means.

Yet, it appears that when the economy is in free fall, bankers issue the easy money even if it hurts main street. I expect that to happen in the future, especially if the Volcker Rule is repealed or watered down, as the hedge funds, the IMF, some Democrats, and most Republicans want.

In that case, housing could appreciate. The issue then is whether the people will remember what happened in the last housing bubble or if they believe that the new bubble is "different". Clearly, bankers are angry with families who live multigenerationally. If they can't make money they can take down the stock market with the approval of the central bank. At that point, MainStreet will be offered easy money as a "rescue".

That is what happened last time, you know.

If this is done soon, it may be too soon for the public to forget past bubbles in tech and housing. Certainly the public is not embracing the stock market. Bankers must be terrified that their easy money housing loans could be rejected next time.They have an itchy finger on the trigger but pulling it too soon could fire blanks as smart families reject the easy money. Gives the bankers night sweats.

Certainly bankers are caught between a rock and a hard place, maybe in a prison of their own creation. I cry not.

They want entitlements attacked, in order to have more government resources for themselves. But the problem with that is that less income to main street increases the likelihood of multigenerational living and the bankers hate that. They want their greedy cake and want to greedily eat it at the same time! Sorry bankers. There are finite resources in the real world, unlike in your world.

Hurdles for the housing industry are immense. There is no effective securitization market which allowed for the flow of crap mortgages to investors. There are put back clauses and Fannie, Freddie and insurance companies are stuffing crap mortgages back to the banks where they belong.

So, for easy money lending to take the place of a free falling economy in the future, the regulators will no doubt fiddle with the risk measurements in some way in order to make more people "qualify" for mortgages. Most borrowers don't understand the scam of risk management in the mortgage business, but they have seen the effect of that scam. Question remains, will they bite again or will they just live with mom and dad? That is a question that has bankers trembling.

Perhaps the bankers will overestimate the ability or desire of borrowers to seek credit. Perhaps they are "banking" on the concept that weakened borrowers will seek more debt, always. If that is the case, America will be weakened again by the next housing boom. Would that cause spending to decline in ways not seen even up til now? Can the bankers afford that risk? Should they pull the trigger of easy money at all?

How it turns out will be interesting to watch. I am rooting for main street to reject the easy money making bankers tremble.

As it is, big countries can make the bankers tremble, but individual home borrowers cannot, unless they decide not to borrow and change their lifestyle. And there is nothing that a banker can do about it but watch helplessly. Justice will come in ways not seen by the elite.


Back to April 2012 Archive

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