The Phaserl


“Wealth Effect” Mucks Up Housing, Costs Homeowners Dearly

by Wolf Richter, Testosterone

Home prices have jumped around the country, in many cities over 10%, and in some over 20% on an annual basis. “Recovery of the housing market,” is what this phenomenon has been called. Everyone from President Obama on down has taken credit for it, particularly the Fed, whose handiwork this is.

The nearly $3 trillion that the Fed has printed since the financial crisis had to find a place to go, and some of it went to private equity firms and hedge funds and REITs, and they’ve been gobbling up vacant single-family homes from foreclosure sales as fast as they could. And this has driven up prices. It’s part of the concept of the “wealth effect” that the Fed has been citing as one of the reasons for the waves of QE. It has worked wonderfully – assets values ballooned across the board. And it fixed the housing market.

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1 comment to “Wealth Effect” Mucks Up Housing, Costs Homeowners Dearly

  • rich

    I Know What You Did Last, Summers: The Shady Deals That Will Hand Larry The Fed

    As today’s press conference made clear, President Obama is just about the only person left in this country — or at least the country outside of DC and lower Manhattan — who thinks it’s not completely batshit insane to nominate Larry Summers as the new Fed chief.

    I’d been putting off writing about Summers’ impending nomination because I’d assumed it was just some silly rumor floating around. Surely even someone as grotesquely compromised as Obama wouldn’t consider something this stupid. No human being on this planet could possibly be a worse candidate for the job of Federal Reserve chief than Larry Summers — Bernie Madoff would make a better candidate, at least he’s not as slippery as Summers and the damage Madoff caused is a drop in the bucket compared to Summers’ financial holocausts.

    The flaw here, I suppose, is in assuming that failure somehow disqualifies you from the gig. In this America, failure on the job is the key to success, and few people understand that like Larry Summers, serial failure, understands.
    And so, as Obama made clear, Summers is a front-runner for the Fed chair nomination. Actually that’s an understatement, hopeniks: Larry Summers is THE front-runner. As Ron Suskind put it: “first among equals to replace Bernanke.”

    That’s in reference to a deal Larry cut with Obama just before he took office in January 2009 . As crude and cronyist as this may sound — Obama basing his choice for Federal Reserve chief based on a backroom political “deal” he cut years ago — it’s worked for Summers in the past. It’s how he got the job as Treasury Secretary under President Clinton — at least, that’s according to Summers’ mentor and the man he replaced as Treasury Secretary, Robert Rubin.

    In his memoir, “In An Uncertain World,” Rubin recounted how he cut a secret deal with Summers in the beginning of Clinton’s second term: If Larry agreed to stay on as Treasury undersecretary, then Rubin promised to step down in the middle of Clinton’s second term and hand the top Treasury job to Summers. Rubin writes:

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