• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar

Chris Leithner

  • About Chris
  • Archive
  • Links
  • Books – Australia
  • Books – Canada
  • Books – USA
  • Show Search
Hide Search

Leithner Letter Nos. 108-110

Chris · December 26, 2008 ·

26 December 2008 – 26 February 2009

The government’s policy [is creating] a short-term boom in housing. Like all artificially-created bubbles, the boom in housing prices cannot last forever. When housing prices fall, homeowners will experience difficulty as their equity is wiped out. Furthermore, the holders of the mortgage debt will also have a loss. These losses will be greater than they would have otherwise been had government policy not actively encouraged over-investment in housing. Perhaps the Federal Reserve can stave off the day of reckoning by purchasing GSE debt and pumping liquidity into the housing market, but this cannot hold off the inevitable drop in the housing market forever. In fact, postponing the necessary but painful market corrections will only deepen the inevitable fall.

Former Congressman Ron Paul
Government Mortgage Schemes Distort the Housing Market
(16 July 2002)

House prices have risen by nearly 25 percent over the past two years. Although speculative activity has increased in some areas, at a national level these price increases largely reflect strong economic fundamentals, including robust growth in jobs and incomes, low mortgage rates, steady rates of household formation, and factors that limit the expansion of housing supply in some areas. House prices are unlikely to continue rising at current rates. However, as reflected in many private-sector forecasts such as the Blue Chip forecast mentioned earlier, a moderate cooling in the housing market, should one occur, would not be inconsistent with the economy continuing to grow at or near its potential next year.

Ben S. Bernanke
Chairman, President’s Council of Economic Advisers
Testimony before the Joint Economic Committee
(20 October 2005)

For the first time in more than 70 years, a psychological “contagion” is threatening to drive financial concerns out of business, but this time American International Group Inc., Washington Mutual Inc. and others are facing a shareholder run. Some economic historians say a sporadic wave of bank failures in 1930 triggered contagion, as depositors pre-empted similar failures of their own banks and perpetuated the crisis by demanding their money. In a series of bank runs, lenders fell like dominoes throughout the early 1930s, and the resulting tightening of credit contributed to a lasting recession.

Richard Bernstein, chief investment strategist at Merrill Lynch, said …“What people still are missing is that every growth story of the last five to ten years has been based on credit. China, commodities, real estate, hedge funds, everything was a capital-intense endeavour. Global growth was the symptom of the credit bubble,” he said.

“Shareholders Run, Much Like Depositors Once Did”
The Wall Street Journal (16 September 2008)

At first I thought we could deal with this – deal with the problem one issue at a time. We made the decision on Fannie and Freddie because there was systemic risk to our mortgage markets. And then obviously AIG came along, and Lehman came along and it was – it declared bankruptcy; then AIG came along and it – the house of cards was much bigger, beyond – started to stretch beyond just Wall Street, in the sense of the effects of failure. And so when one card started to go, we were worried about the whole deck going down, and so therefore moved, and moved hard.

And I believe this is going to work. We had the considered judgment of a lot of capable people. It’s not only just here in Washington, but our people were listening to a lot of other voices. And we took our time to come up with a strategy and a plan that would address the problem. And you bet it’s big, because it needed to be big.

President Bush’s Remarks on the Economy
(21 September 2008)

Once Again, Marxism Fails Miserably: Long Live Marxism?

Are financial markets falling, or is the sky? At the moment the answer is debatable. During September and the first half of October, comparisons between current conditions and the early phases of the Great Depression filled the newspapers and airwaves. In the 12 months to 10 October, financial markets in Australasia, North America and Western Europe suffered mark-to-market adjustments averaging 39%. In Australia, the loss of 42% greatly exceeds those incurred during the Crash of 1987 and the recessions of the early 1990s and 1980s, as well as many of the losses incurred during the Depression. The worst-ever annualised result since the birth of the All Ordinaries Index in January 1875 is the -43.5% in the twelve months to 30 September 1930 (which pipped the -41.6% of August 1974 and the -40.6% of September 1974). In the U.S., the DJIA and S&P 500 have plunged more in the past year than at any time since the “Depression-Within-the-Depression” of 1937-38.

To read the complete Newsletter, click here (PDF).

Filed Under: Uncategorized

Primary Sidebar

Subscribe to the Leithner Letter

* indicates required

About this website

About this website

This site hosts newsletters, books, etc., written initially for shareholders of Leithner & Company Pty Ltd and subsequently for anybody who wants to read them. … [Read More] about About this website

Recent Posts

  • The Risk of Higher Rates the RBA’s Overlooking March 20, 2023
  • Why Australia won’t become a “renewable energy export superpower” March 6, 2023
  • Farewell low “inflation” and interest rates? February 20, 2023
  • “Global Energy Transition” – Fact or Fiction? February 6, 2023
  • Will 2023 be beautiful or ugly? January 23, 2023

Archives

  • March 2023
  • February 2023
  • January 2023
  • December 2022
  • November 2022
  • October 2022
  • September 2022
  • August 2022
  • July 2022
  • June 2022
  • May 2022
  • April 2022
  • March 2022
  • February 2022
  • January 2022
  • December 2021
  • November 2021
  • October 2021
  • September 2021
  • July 2021
  • June 2021
  • May 2021
  • April 2021
  • March 2021
  • February 2021
  • January 2021
  • December 2020
  • November 2020
  • October 2020
  • September 2020
  • June 2020
  • March 2020
  • November 2019
  • July 2019
  • March 2019
  • November 2018
  • August 2018
  • April 2018
  • September 2017
  • July 2017
  • March 2017
  • November 2016
  • July 2016
  • March 2016
  • November 2015
  • July 2015
  • March 2015
  • October 2014
  • June 2014
  • February 2014
  • October 2013
  • July 2013
  • February 2013
  • November 2012
  • July 2012
  • April 2012
  • December 2011
  • August 2011
  • April 2011
  • November 2010
  • July 2010
  • April 2010
  • December 2009
  • September 2009
  • June 2009
  • March 2009
  • December 2008

Copyright © 2023 · Chris Leithner