We’re nowhere near the bottom.

(9 am. – promoted by ek hornbeck)

The defining feature of our time will be the awful reckoning following years of denial.

Steve Pearlstein describes the false optimism bubbling up from the economy:

In recent weeks, a wave of relief and optimism has washed over the economy. The corporate sector is closing out another quarter of solid profitability. Business and consumer confidence is on the rise. The Dow Jones industrial average is flirting with 11,000. The Treasury secretary and the chairman of the Federal Reserve have declared that the economy is on a path of sustained recovery. State tax revenue is finally picking up. And on Friday, the Labor Department may even report that the number of jobs actually increased in March, ending two years of nearly uninterrupted declines.

Basically, we have moved Wall Street’s fraudulent assets onto the public spreadsheet, and Wall Street approves, thus perpetuating the fraud at public expense.  Hip-hip, Hooray!    

“We’ve shifted from a position of having too much private debt to a position of having too much government debt,” says Ken Rogoff, the Harvard economist who last year co-wrote the definitive book on financial crises, “This Time Is Different.” “We still are facing the prospect of having to make huge adjustments in a way that we haven’t done in generations, and the country doesn’t appear to be even remotely ready to confront this.”

Sure, bail-outs are unconscionable, says Bernanke.  Yes, deeply unfair, says Geithner.   A crazy way to run a financial system, in fact.  

When was the last time government debt was so out of whack?  Actually, never.  

Remember that our solvency remains cantilevered on the fraudulent value of homes.

Looking at the long history of home values (adjusted for inflation), home values, the fulcrum of the Ponzi pyramid upon which all bad derivative bets depend, things got pretty far out of control.  

Let’s take 1996 as the last time home values were at or around their historical baseline, or “fair” value, adjusted for inflation and zoom in on more recent events (slightly different numbers below due to the 10- and 20-city composite samples used compared to the national averages used above, but the trends are close enough for horseshoes and hand grenades).

Greg Fielding asks, Should homes be worth twice what they were in 1996?

Consider what’s been done to halt the collapse of home prices. Our demand for homes has been artificially boosted with low mortgage rates and tax credits, and our supply of homes for sale has been cut drastically by all of the foreclosure prevention efforts…

…Looking at long-term trends, we each must fall into one of two camps. Either you believe that, eventually, home prices will revert back to their relative historical norm because people can only pay so much of their monthly income for housing.  OR, you believe that this time really is different; that people going forward will be willing to pay relatively more each month for shelter than for the last 120 years.

I don’t see how this time is different. I don’t know why, socioeconomically, people will pay more of their monthly paychecks for housing over the next 120 years than they did for the last 120. Sure, you can make a case that a particular neighborhood or town has become more desirable, but that is irrelevant on a national scale.

In short, if you believe that the economic growth since 1996 was robust enough to justify the doubling of home prices during that time, then perhaps home prices are now at the “correct” levels.  But if you believe that most of the economic growth since 1996 was built on bubbles and debt, then it’s hard to find a reason why homes should be twice as expensive.

Thus, despite massively unconscionable, deeply unfair, and flat-out crazy attempts to re-inflate fraudulent bank assets at the expense of the taxpayer, housing prices have fallen only half-way to where they need to go.

Keep in mind that we have a 20-month over-supply of existing homes, the Fed has ended its program to buy mortgage-backed securities, one-in-five are still out of work or under-employed, and that won’t be changing any time soon, for years, current serious delinquencies are sky-rocketing, mortgage adjustment plans don’t work (half simply fail), and in fact, work to the detriment of the homeowner and to the benefit of the banks, as non-recourse loans become locked-in debt, commercial mortgage delinquencies are also sky-rocketing (half underwater by the end of the year? According the Elizabeth Warren), and we’re facing yet another tsunami of residential mortgage resets.

April is the cruelest month!  

The entire housing bubble was based on financial fraud.  All the bets made on top of housing were fraudulent.  We pay off the banks for their fraud, and yes, there back at recklessly speculating again!  And we are nowhere near the bottom.  Hold on to your hats, because your wallets no longer belong to you!

The folks at The Automatic Earth have been all over these dismal, sickening, unconscionable, and deeply unfair facts for quite some time:

Well, you may be aware of what we here at The Automatic Earth have been saying all along: US home prices will fall 80% or more from the peak (they’ll do the same in most other countries we know, eventually). Really, what more do you need than [Fielding’s] graph? US housing prices are down about a third, according to the S&P/Case-Shiller index, and they have 50% more to fall, according to this graph, which incidentally also comes from S&P. After that additional 50%, the oscillation factor sets in: the more you break the trend to the top, the more you’ll break it towards the bottom. That’s not some freak notion, that’s straight out of systems technology, or even physics in general.

And that all makes clear once again why the US government’s continued insistence on propping up the market through Fannie and Freddie and the FHLB and Ginnie Mae and the FHA can end in one way only: trillions of dollars in losses, on loans, securities and other derivatives, transferred from the lenders, issuers and brokers, to the taxpayers. There simply isn’t any other possible outcome, unless Moses comes down from the mountain with Jesus by his side. And last time I looked, neither was really into the US real estate market, or finance in general for that matter.

Today, the Fed apparently is going to stop buying mortgage backed securities. Moreover, Ben Bernanke has announced the intention to get $1 trillion off the Fed balance sheet. Who’ll buy? The Treasury? Not much help, is it? Or private investors? Oh, they will if you offer them enough dough… Yes, that’s you, the taxpayer, who’s offering that dough, though you probably have no idea that you do. How’s that work? The big boys get credit at 0%, and buy MBS that gives them 5-6-7% and comes with a 100% ironclad government guarantee. They’ll try to keep on playing the game till they can’t. It’s easy when you play with other people’s money.

But that doesn’t change the inevitable outcome, other than it makes the end result much worse. There is NO US housing market left, not outside of the government (and a handful of folks who pay in cash). is using your future taxes to try and keep home prices at a level Wall Street banks can survive at. That works for a while, evidently, but only at enormous expense to you. You now guarantee the majority of mortgages on all US homes, which, look at the graph again, are bound to come down another 50% or more from their present levels.

It’s all a useless exercise to begin with, because the banks can’t be saved, their problem is solvency, not liquidity, and it’s increasingly difficult to believe that if it’s all so obvious from one little graph, no-one in the White House has any idea what’s going on, or that these things are never discussed at 1600 Pennsylvania Avenue.

And since the housing market and the job market (pick your order) are the cornerstone of the economy, and both are hanging in timeless suspension over a Wile. E. cliff, at best, you need to wonder whether this administration is really doing the best it can for its voters, and the American people in general, or whether the interests of the administration or more aligned with those that paid for their campaigns than with those that voted them in. That goes for the US White House, Congress, and Senate as much as it does for parliaments and government cabinets in any other western country, let alone the governments beyond that sphere.

We are ruining ourselves, and our economies and societies, simply because we refuse to believe that tomorrow might hold less stuff to buy than today does. And before we can accept that notion as a fact of life, we’ll do a lot of harm to ourselves and each other. If you own a home with a mortgage, tell me to what extent you are willing to concede that the value of that home must come down 50% from its present value, and 80% from its peak. By the time we’re done, the vast majority of Americans won’t be able to afford the homes they live in. Yes, that hurts, but also, no, there’s nothing you can do to prevent it from happening. What comes up must come down. And will. And then we’ll have a nation of Tom Joads. Just angrier. Much angrier.