The Big Short.  I've been meaning to watch this film for a while, which dramatizes the guys who saw the big housing bubble and made a killing Shorting CMBS and CDOs prior to the crash in 2007 which took down Bear Stearns and Lehman.  It got me thinking about all the current problems ongoing in the housing market and with the ballooning federal deficit, which I now believe is all a direct outcome of what was done then to prevent a complete collapse of all the TBTF Banks and the monetary system as we know it.

OK, what do we know?  Prior to the crash, many subprime mortgages were issued to people to buy homes they couldn't afford.  When the interest rates were reset in 2007, these people defaulted, then the banks got bailed out on the bad mortgages.  The people got tossed out of their homes, but the homes didn't disappear.  They had to be resold, eventually.

The prices on homes dropped for a while, but over time with inflation all those houses eventually did get resold, or rented out.  Meanwhile, over the same period of time, there is substantial immigration and a new generation of potential home buyers has grown up.  College grads in 2008 are now in their mid 30s and theoretically should be starting families and buying homes.

Except that not enough new homes have been built over the last 15 years as the overstock was sold off,  now resulting in a shortage, which drives the prices up higher.  Add in rising interest rates now, and this means almost nothing is selling or buying.

Where does the deficit fit in here?  Well, the big bailouts were made public, but somehow despite the fact this whole bullshit system crashed, for the last 15 years people have still been buying and selling houses which are going up in price, but incomes not so much.  So, I think in some way to keep the housing market going, the federal government has some mechanism to keep funneling money into that market.  Where else could it all be coming from?  Why the sudden spike right now with the hockey stick of goobermint borrowing?

To put this in terms of The Big Short, a few guys saw it coming and shorted the banks by taking out insurance contracts on them failing.  What should be happening now is shorting the FSoA Goobermint, but so far nobody has the balls to do that.  Because nobody believes Da Goobermint will default.  They would print the money to pay the debt, so it is believed.  Except unsecured debt would be worthless, and so would the currency.  You could short the dollar for that evwntuality.

Just like the housing bubble, the bubble we have now is Government Debt, and it also must pop.  When though?  And who has the money and balls to do The Biggest Short?

RE